European Oil Services DB 221008

Company
Global Markets Research
Europe United Kingdom

Oil & Gas
FITT Research
22 October 2008
Fundamental,
Industry,
Thematic,
Thought Leading
Deutsche Bank Company Researchs
Research Committee has deemed this
work F.I.T.T for investors seeking
differentiated ideas. Here our European
oilfield service team undertakes an indepth analysis on unique data sourced
from Wood Mackenzie that seeks to
identify which oil service themes and
names should remain resilient in the face
of deteriorating macro conditions &
commodity prices.
European Oil
Services
Reality check
Fundamental: dealing with the reality of

a potentially lower oil price world
Industry: backlog should fuel impressive
EPS growth and cashflow visibility
Thematic: a unique analysis of license
terms and drilling contracts
Thought leading: ultra-deepwater and rig
construction most attractive
Playing the trends: Lamprell, Seadrill top
picks; Amec, Saipem well placed
Christyan Malek
Lucas Herrmann, ACA
Jonathan Copus
Research Analyst
(44) 20 754 58249
christyan.malek@db.com
Research Analyst
(44) 20 754 73636
lucas.herrmann@db.com
Research Analyst
(44) 20 754 51202
jonathan.copus@db.com
Deutsche Bank AG/London

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at http://gm.db.com or by calling 1-877208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.
Europe United Kingdom

Oil & Gas
22 October 2008
European Oil Services

Reality check
FITT Research
Top picks
Seadrill Limited (SDRL.OL),NOK77.00
Lamprell (LAM.L),GBP129.50
Saipem (SPMI.MI),EUR13.02
AMEC Plc (AMEC.L),GBP468.25
Buy
Buy
Buy
Buy
Key changes
2020
% expirin g
2021 - 2037
2017
2016
2015
2014
2013
2012
2011
2000
1800
1600
1400
1200
1000
800
600
400
200
0
700
500
400
300
200
100
Day rate ('000$k/d)
600
2010E
2009E
2008E
2007E
2006
2005
2000
drilling days
day rate
Source: Wood Mackenzie, Deutsche Bank
Current expectations for E&C growth

rates and potential for margin gain
GTL
40%
Average capex growth 2008-10E
Playing the trends: Lamprell, Seadrill top picks; Amec, Saipem well placed
Our preferred names are Seadrill and Lamprell given their exposure to ultradeepwater and rig construction, respectively, and the structural dynamics
supporting them. Within E&C, we seek diversified plays exposed to our highest
conviction themes (detailed overleaf), as well as NOCs. We believe those best
placed are Saipem and Amec. In contrast, Wood Group (downgraded to Sell) is
exposed to themes/regions that appear most susceptible to negative oil price risk.
We have raised our company WACCs, which in part drives our PT revisions (see
page 45). Nonetheless, we still see significant upside potential to our top picks.
Key downside risks include oil prices sinking lower than $60/bbl for a sustained
period, macro conditions deteriorating significantly and poor execution.
% expiring
Deepwater rig rate outlook >

2290m/7500ft
hought leading: ultra-deepwater and rig construction most attractive

With spare newbuild capacity (i.e. yet to be contracted) lowest in ultra-deepwater,
drilling activity continuing to surge and a sharp rise in license expiries expected
medium term, we believe the day rates at this end of the drilling spectrum will
continue to climb. Elsewhere in the exploration complex we favour rig
construction services.
2010
Exploration
2004
hematic: a unique analysis of license terms and drilling contracts

Proprietary analysis, done in conjunction with WM, reveals that between 2009 and
2012, 62% of the worlds deepwater exploration licenses are due to expire. A
sharp rise in ultra-deepwater (i.e. >2800m) license expiries in 2009 and 2012
should place additional strain on the demand for deepwater rigs capable of drilling
in these depths. Our bottom up contract analysis also shows that oil companies
are signing up these rigs for longer periods of time (100% this year signed on 4+
years vs. 15% in 2005). For those drillers exposed this extends their cashflow
visibility well into the next decade.
2009
We perform a 360 on the oil service industry and marry our renewed outlook for
capex growth across the oil chain with each companys respective exposure. Our
forecasts equally take into account the rate of margin expansion within each subsector, National Oil Company (NOC) positioning and companys ability to execute.
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
-2%
2003
Industry: backlog should fuel impressive EPS growth and cashflow visibility
To
NOK 90
NOK 85
760p
400p
500p
EUR 22
NOK 170
NOK 100
EUR 55
EUR 47
Sell
215p
500
450
400
350
300
250
200
150
100
50
0
2002
Our mid-term outlook for global capex, done in conjunction with Wood Mackenzie
(WM), suggests that growth will be robust; the long-run oil price implicit in WMs
bottom up capex forecast is $60/bbl. With the market arguably focused on the
longer-term impact of potentially lower commodity prices, our top picks centre on
themes that offer impressive structural characteristics supported by unique data
sourced from WM.
From
NOK 125
NOK 140
960p
650p
680p
EUR 30
NOK 210
NOK 125
EUR 70
EUR 53
Hold
430p
Expiry profile of deepwater exploration

licenses awarded
2008
Fundamental: dealing with the reality of a potentially lower oil price world
2007
Fundamental, Industry, Thematic, Thought Leading

Deutsche Bank Company Researchs Research Committee has deemed this work
F.I.T.T for investors seeking differentiated ideas. Here our European oilfield service
team undertakes an in-depth analysis on unique data sourced from Wood
Mackenzie that seeks to identify which oil service themes and names should
remain resilient in the face of deteriorating macro conditions & commodity prices.
2001
Research Analyst
(44) 20 754 51202
jonathan.copus@db.com
Licenses expiring
Jonathan Copus
Research Analyst
(44) 20 754 73636
lucas.herrmann@db.com
2006
Lucas Herrmann, ACA
Research Analyst
(44) 20 754 58249
christyan.malek@db.com
WM drilling days
Christyan Malek
Rating/TP changes
Acergy - TP
Aker Solutions - TP
Amec - TP
Lamprell - TP
Petrofac - TP
Saipem - TP
Seadrill - TP
Subsea 7 - TP
Technip - TP
Tecnicas Reunidas - TP
Wood Group - Rating
Wood Group - TP
Increase in
capex
momentum
vs. 2007 study
35%
30%
25%
20%
Deepwater
Facilities
Oil Sands
Refining &
Petrochemical
Middle East
15%
10%
Shallow water
Deepwater
subsea
Onshore
Upstream
5%
LNG
0%
Frontier
Developments
-5%
Regas
-10%
Broadly similar margin outlook

vs. 2007 study
-15%
-
25
50
75
100
125
150
175
200
225
Absolute margin upside 2008-10E(bps)
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at http://gm.db.com or by calling 1-877208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.
22 October 2008
Oil & Gas European Oil Services
Table of Contents
Executive summary ........................................................................... 3

Global exploration capex outlook .................................................... 7
Exploration drilling trends .............................................................. 10
Exploration industry dynamics and relative profitability ............ 22
Global engineering and construction outlook .............................. 31
E&C industry dynamics and relative profitability......................... 36
Company positioning by theme, region and NOC........................ 38
Sector valuation and company overview ...................................... 42
Top picks and key recommendation changes............................... 45
Appendix A: Valuation matrices..................................................... 48
Appendix B: Global oil service spectrum ...................................... 51
Appendix C: Explanation of historical capex revisions ................ 59
Appendix D: Strategic analysis of the E&C themes...................... 60
Appendix E: Porters 5 forces on key service segments............... 62
Appendix F: Detailed specifications of yards in Eastern
Hemisphere ...................................................................................... 68
Appendix G: License expiry in shallow water and onshore......... 72
Appendix H: GOM deepwater licenses expiry by depth .............. 73
Appendix I: Drilling activity the complete picture ..................... 74
Appendix J: Regional spread of contracted newbuild rigs.......... 75
Appendix K: Snapshot of each companys financing ................... 76
Appendix L: Glossary of terms and simplifications...................... 81
Page 2
22 October 2008
Executive summary
Global outlook
The oil price implicit in our
(bottom
up)
forecast
for
global capex is $60/bbl
We
spend
expect
exploration
to
by
grow
an
average 15%/yr to the end

of the decade; our outlook
for E&C spend points to a
plateau medium term
Longer
term,
Mackenzies
Wood
(top
down)
view is that global capex

should
remain
flat.
DBs
forecast of a rise in oil price

from
2010
places
upside
pressure to this expectation
Our proprietary analysis of

license
expiry
terms
suggests that even if oil

prices
were
to
fall
significantly below current

levels, the access to reserves
will remain a priority over its
near-term
commerciality
and development
the risk to this assumption

is that if macro conditions
deteriorate
severely,
we
Exploration-related activities (i.e. exploration, appraisal and development) represent c. 40% of

global capex in 2009E (we forecast $660bn for 2009, up 10% from last year) with the balance
comprising engineering and construction (E&C) spend (commercialisation of oil and gas). The
long run oil price implicit in our bottom up forecast is $60/bbl. This is consistent with
Deutsche Banks commodities team (average $60/bbl for 2009/10E) but below their long-run
assumption of $80/bbl from 2011. Despite modest negative revisions to our 2008/09
forecasts (vs. last years expectations), we expect exploration spend to grow by an average
15%/yr to the end of the decade. Wood Mackenzies outlook points to double-digit growth
across all sub-segments that we have analysed. Capex employed in drilling-related activities
should boast the highest momentum across the exploration complex.
Our outlook for E&C spend points to a plateau in the medium term, albeit one exposed to
upside pressure on our capex projections for 2010 and beyond if projects get delayed. We
slice up the capex pie and reveal deepwater FPSOs/facilities, SURF and
refining/petrochemicals to boast the most impressive momentum across the service
spectrum. Furthermore, we expect the accelerated shift into ultra-deepwater drilling to spur a
proportionate increase in deepwater E&C capex (particularly on ultra-deepwater subsea and,
in turn, on facilities/FPSOs) in the mid term. The Middle East still remains the highest growth
region whilst Africa and Canada appear to have moved significantly up the ranks since our
last study in June 2007. Conversely, North America and Russia now demonstrate a negative
growth profile. We believe there is downside risk to our E&C forecast if the oil price falls
significantly below $60/bbl for a sustained period of time (see Risks section below).
Proprietary analysis, done in conjunction with Wood Mackenzie, reveals that between 2009
and 2012, 62% of the worlds deepwater (i.e. >400m) exploration licenses outside of the Gulf
of Mexico (GoM) are due to expire. Beyond 2012 our analysis shows that expiries will
continue well into the second half of the decade driven predominantly by the GoM and that
the incremental global demand to drill should gravitate towards there. Longer-term
fundamentals should also be supported by rigs continuing to be employed on (successful
exploration) wells that form the basis of appraisal and development activity. Nearer term, a
sharp rise in ultra-deepwater (i.e. >2800m) license expiries in 2009 and 2012 should place
additional strain on the demand for these types of rigs (5th/6th generation semi-submersibles
and drillships). Our positive outlook for deepwater drilling activity is equally based on
additional analysis that leverages drilling days. We forecast that deepwater will represent
over a third of the global drilling demand (onshore and offshore) by 2010 and of that the ultradeepwater contribution will double to 12%.
In contrast, shallow water licenses appear to be generally more periodic in their expiry
(around every 3-4 years). Having collectively reached a peak this year, the pressure to drill to
the end of the decade is reducing. Against a lacklustre drilling outlook, we remain cautious on
demand to drill at this end of the depth spectrum (related to jack-up rigs).
could see a reduced appetite

from NOCs/governments to
explore; in turn, this could
see
them
easing
the
pressure on oil companies to
We note that whilst the downside pressure on rig demand linked to macro and credit
conditions deteriorating further cannot be ignored, we believe that near to medium-term
drilling programmes, particularly those in South America and West Africa (where a large bulk
of the worlds license expiries exist), should be least impacted.
drill
Page 3
22 October 2008
Nearer term, a sharp rise in

ultra-license expiries in 2009
and
2012
additional
should
strain
place
on
the
demand for deepwater rigs.
with this in mind and
Latest ODS Petrodata figures suggest a 34% increase in global offshore rig capacity by 2012
(40% of which will be deepwater). The common market perception is that this should be
more than sufficient to quench any future surge in drilling demand. With spare newbuild
capacity (i.e. yet to be contracted) lowest in ultra-deepwater, i.e. depths >2800m (c. 26%
across 2008-12), drilling activity continuing to surge and a sharp rise in license expiries
expected near term, we believe the day rates at this end of the drilling spectrum will continue
to climb (we estimate up to $700k/day by 2010 from current leading edge of $650/day). Note
that using the same model last year, we forecasted day rates would reach $650k/day (vs. a
consensus expectation from leading industry consultants of $550k/day).
spare newbuild capacity (i.e.

yet to be contracted) lowest
in
ultra-deepwater,
we
believe that day rates here

will continue to climb.
The cashflow visibility for

deepwater
drillers
now
extends well into the next

decade.
Elsewhere in the exploration

complex
rig
construction
services
emerges
as
distinct winner
Within
exploration
we
favour plays that have high

absolute exposure to ultradeepwater
or
rig
construction. Our top picks

are Lamprell and Seadrill
Within
E&C
we
seek
diversified plays that are

well exposed to our highest
conviction
themes;
Amec
and Saipem are best placed
Page 4
Beyond 2010, whilst impossible to quantify (our model only extends to the end of the
decade), we expect ultra-deepwater day rates to stabilise. We believe that there will be
modest downward pressure (i.e. no more than -10%/year) on deepwater rig rates in depths
lower than 2800m. This is the case because even though drilling activity at these depths
appears to be tailing off, this should be partly offset by the renewed pressure to drill (driven
by continued license expiries beyond 2010 not to mention the need to appraise and develop
successful exploration wells). In contrast, shallower water day rates are expected to decline
more rapidly mid term. Our bottom up contract analysis also shows that oil companies are
signing up deepwater rigs well ahead of their release and for longer periods of time (100% of
rigs this year signed on 4+ years vs. 15% in 2005). As a result the cashflow visibility for deep
water drillers now extends well into the next decade.
With the above in mind we believe that the construction for deepwater newbuild rigs will
remain strong in the medium term, albeit continuing at a lower pace than 2006-08. We
believe jack-up newbuild demand, whilst slowing will be supported by 1) increased demand
for premium jack-up rigs capable of working in harsh environments and 2) direct investment
by National Oil Companies who appear to be taking a more explicit role in exploration drilling
than ever before. Our analysis also suggests that upgrade and refurbishment spend will
continue to remain strong well beyond our forecast horizon.
Varying degrees of exposure to our preferred segments should power impressive earnings
growth medium term (we expect sector EPS of 24% CAGR 2008-10E). Within exploration,
we favour plays that have high absolute leverage to ultra-deepwater or rig construction. Most
exposed are Seadrill and Lamprell respectively. As these themes possess structural
characteristics that remain intact below $60/bbl, it makes them our top picks across our
entire coverage universe. Within the E&C complex we seek diversified plays that are well
exposed to our highest conviction themes as well as NOCs (with particular emphasis on
South America, the Middle East and West Africa). Against a backcloth of a falling oil price and
lack of certainty around timings on project awards, we believe this combination reduces the
downside risk on company backlog growth relative to a niche player (i.e. in a specific theme
or region). We believe those best placed are Saipem and Amec.
Key recommendations (in order of priority)

Seadrill: Buy, PT NOK 170 (previously NOK 210): Sector leading exposure to ultradeepwater and managements choice to maintain a degree of rig liquidity in their portfolio
(two rigs remain un-contracted) leaves them with sufficient exposure to further capture the
expected up-tick in day rates. A current backlog of $12.5bn fuels sector leading earnings
growth (49% 2008-10E CAGR) and provides it with excellent visibility given the current length
of contract terms (on average 4-6 yrs).
Lamprell: Buy, 400p (previously 650p): Sector leading exposure to rig construction services
provides it with the best earnings potential across the sector. Coupled with its Middle East
positioning and robust execution capabilities, a greater profile post its main market listing this
November should see it outperform.
22 October 2008
Saipem: Buy, PT E22 (previously E30): Sector-leading NOC exposure, in addition to

presence in several of our preferred themes (exploration and E&C), provides continued
earnings visibility and momentum across the mid term. An excellent execution track record
should reduce the probability of negative earnings surprises vs. its peers.
Amec: Buy, PT 760p (previously 960p): Strong execution capabilities and diversification
beyond oil and gas activities (power and process represents c. 40% of current topline)
differentiates Amec amongst its E&C peers. The company uniquely boasts c. 700mn of its
own cash available for return back to shareholders. Whilst Amecs profile does not
necessarily play into the trends listed above, these credentials make it one of our key
recommendations.
We
have
raised
our
company WACCs for the

European oil services from
an average of 8.5% to 13%
across the group
together
relative
with
adjusted
valuation
targets
this drives downward PT

revisions
across
our
coverage
universe
(see
pages 45 and 51 for full

details).
We
changed
have
not
our
earnings
absolute
valuations
outlook
Our
remain conservative in that

we model an earnings peak
in 2010 (whilst impossible to
quantify this assumes oil
price reverts to sub $60/bbl).
Nonetheless
this
still
presents significant upside

potential for our top picks
In a scenario where the oil price could sit significantly below $60/bbl for a sustained period of
time, we believe the earnings of E&C companies will be negatively impacted beyond 2010 as
oil company capex gets pulled back. The reason why our earnings outlook should remain
unchanged before then is that existing company backlog provides sufficient revenue cover
and that the margins associated with the majority of these projects have already been
contracted (subject to execution performance, of course). Even so, share price sentiment will
be negative (in anticipation of a slowdown in earnings post 2010 not to mention the sectors
strong correlation with oil price). Against this backdrop we believe Saipem and Amec would
outperform on a relative basis (vs. their E&C peers); Wood Group and Aker Solutions should
underperform (we have downgraded Wood Group to a Sell from Hold). On an absolute basis
we prefer Lamprell and Seadrill from our entire coverage universe.
Valuation more cautious view on sector target multiple linked

to the added risk of macro conditions deteriorating severely
Our 2009E EV/DACF for the sector is currently 4.0x (market cap-weighted) which represents
c. 63% discount to the sectors historical average (2000-07E) of 10.9x. At the industry level,
we believe the risk (execution)/reward (primarily revenue) trade off has shifted more into
equilibrium. However, together with the heightened lack of visibility surrounding credit
markets, particularly in emerging nations, and the risk of macro conditions deteriorating
further, on balance we argue that our sector target multiple should trade at a 15% discount
(vs. previously in line) to the historical average. Strong cashflow visibility to the end of the
decade fuelled by current sector backlog (average revenue cover sits at 18 months) coupled
with healthy balance sheets (refinancing risk on debt maturities appears limited see
Appendix K) justifies why we believe this sector should not trade at a deeper discount to
historical multiples.
Our implied price targets are supported by our DCF valuation in which we assume peak
company earnings in 2010 with subsequent linear fade to our mid-cycle scenario in 2013. We
have raised our company discount rates to reflect the increased market risk premium, as well
as the higher cost of debt driven by the lack of credit liquidity across Europe and US. We
detail changes in company WACC in Appendix A. This in part drives our price target changes
on our universe of stocks (summarised in Figure 61, page 45). We assume a long-term
growth rate of 3%, which is the average mid-cycle rate since 1990 for the European Oil
Services.
Page 5
22 October 2008
Risks
Key
risks
backlog
execution
are
oil
cancellation
price,
and
Oil price: whilst impossible to quantify, Wood Mackenzie estimates that 2009/10 E&C capex
would be c. 20% lower if oil prices sink to $40/bbl. Russia, North America, Europe and
Canada in particular could see an even more exaggerated decline. The Middle East will be the
least impacted but nonetheless we would expect to see a slow down. Companies most at
risk in this context are Wood Group and Aker Solutions (regional and thematic exposures
detailed on pages 40 and 41). In contrast, we believe this downside risk for companies
exposed to rig construction and ultra-deepwater drilling will be mitigated by the structural
need for operators to drill (near- and medium-term) and longer contract lives that drive
earnings growth well into the next decade.
Backlog cancellation (e.g. due to lack of client/contractor funding): Our discussions with
Wood Mackenzie and Pegasus Global (leading risk consultants) suggest there is very little
probability contracted projects will be cancelled given the healthy state of IOC and NOC
balance sheets. In the unlikely event that they do, contractors have the right to file for
liquidated damages and take control of all cash pre-payments. Equally we show that the
refinancing risk on debt maturities of the companies we cover is low (detailed in Appendix K)
and as a result we do not expect them to have cashflow issues in executing their contracts.
Execution: Poor execution is another key industry risk. We believe the potential impact this
risk can have on company earnings remains impossible to quantify ahead of any material
announcement.
Page 6
22 October 2008
Global exploration capex

outlook
Exploration-related activities (i.e. exploration, appraisal and development) represent c.
40% of global capex in 2009E with the balance comprising engineering and
construction (E&C) spend. The long run oil price implicit in our bottom up forecast is
$60/bbl. This is consistent with Deutsche Banks commodities team (av. $60/bbl
2009/10E) but below their long run assumption of $80/bbl from 2011. Despite modest
negative revisions to our forecast for 2008/09 (vs. last years expectations), we expect
exploration spend to grow by an average 15%/yr to the end of the decade. Wood
Mackenzies outlook points to double-digit growth across all sub-segments we have
analysed. Capex employed in drilling related activities should boast the highest
momentum across the exploration complex.
Where are we in the global exploration capex cycle?

Exploration-related
incorporates
capex
exploration,
appraisal and development

activities
The exploration end of the global capex spectrum that incorporates everything from seismic
and drilling to wellhead operations until only a few years ago was dwarfed by a
predominantly engineering and construction (E&C) driven capex cycle. National oil companies
aside, the decision by the majors to invest a higher proportion of their spend in lower-risk
opportunities in order to monetise an established resource base (e.g. stranded gas, tar sands)
played a significant role in reducing the incremental dollar invested in exploration. This
structural downward shift witnessed across 2000-03 was, however, only temporary. Visible
strains on majors long-term production profiles, within the context of an industry decline in
reserve replacement, renewed the need for a sustained up-tick in exploration spend, as
Figure 1 highlights.
Figure 1: Reversing trends: relative exploration spend re-emerges from the trough of
2002 to become a key driver of global oil and gas capex into the end of the decade
800,000
44%
700,000
42%
Capex ($bn)
600,000
40%
500,000
38%
400,000
36%
300,000
34%
200,000
Visible strains on majors

reserve
replacement
reignited
capex
the
cycle,
has
exploration
spurred
by
sustained higher oil prices

(>$50/bbl)
relative
to
32%
100,000
1999
2000
2001
2002
2003
Exploration, appraisal & development
2004
2005
E& C
2006
2007
30%
2008E 2009E 2010E
% total spend that is exploration
Source: Deutsche Bank, Company data, Wood Mackenzie
historical levels
Page 7
22 October 2008
Greater exploration activity

combined with a structural
increase in finding costs
(associated, in part with
more difficult basins) is
Analysis of the outlook for global exploration by research partner Wood Mackenzie shows
accelerated growth in absolute terms. Relative to the E&C capex up-tick (expanded on in later
sections of this report) we note a temporary decline across 2007/08. We believe this is a
direct function of:
final investment decisions (FIDs) undertaken on projects that saw an acceleration in E&C
investment relative to exploration and,
a capacity bottleneck around exploration activity particularly in the availability of drilling

rigs which led to a forced decline in investment (albeit a brief one in our opinion given
the additional capacity coming online in the mid term).
expected to sustain the upcycle in exploration capex at

least till the end of the
decade
Momentum is key which themes will drive the up-cycle?

Against this updraft in exploration capex, we believe the key differentiator of performance
across the oil services (aside from structural differences between the industries in which they
are present) will be their ability to position themselves across the themes and regions that
offer the greatest topline growth.
The exploration end of the

global capex spectrum will
not only comprise
exploratory activities but
In partnership with Wood Mackenzie we have incorporated National Oil company exploration
spend, along with the groups regional and industry expertise in exploration to build a bottomup assessment of the various components (shown in Figure 2) that drive this part of the
spectrum. We also leverage Wood Mackenzie data available to DB in the form of drilling days
and licenses awarded both by region and differing depths (offshore and onshore) to update
our forecast of rig rates and margins (detailed in the next section).
also well appraisal and/or
Figure 2: Global exploration spend outlook (NOC + IOC) by theme (av. yearly growth
development
rates 2008E-10E shown alongside)

350000
300000
250000
Seismic 10%
$mn
200000
Drilling rigs 20%
150000
Subsurface equipment & Subsurface
products 13%
servicing 14 %
100000
Surface equipment 17 %
50000
Surface servicing 14%

0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008E
2009E
2010E
Source: Deutsche Bank, Wood Mackenzie, Spears and associates, company data
Whilst the above sub-categories of exploration capex appear to demonstrate accelerated

growth into the end of the decade, we note in particular that:
Page 8
absolute exploration spend is shifting toward the drilling segment (employment of rigs
offshore and onshore); as more rig capacity comes on-stream and current bottlenecks
around their availability loosen, we expect a greater portion of IOC and NOC spend to be
allocated here
this in turn should continue to depress seismic capex growth (a trend we have long
argued) as the incremental dollar of spend becomes redirected into exploration
techniques (i.e. drilling and wellhead operations) that serve to recognise and indeed
prove up (crucially in the eyes of the regulators) the estimated reserves originated
through initial 2D/3D/4D seismic analysis.
22 October 2008
Figure 3: Absolute spend across the exploration complex and expected year-on-year growth rates
$m
2007/2006 2008E/2007 2009E/2008E 2010E/2009E
Av. 2008E10E
2005
2006
2007
2008E
2009E
2010E
2006/2005
Servicing
22994
30357
34384
36937
43469
51155
32%
13%
7%
18%
18%
14%
Equipment
11730
16893
21483
24609
29178
34596
44%
27%
15%
19%
19%
17%
Servicing
15239
19460
23750
26248
30550
35556
28%
22%
11%
16%
16%
14%
Equipment & Products
35893
45303
49085
52481
60740
70300
26%
8%
7%
16%
16%
13%
Total
85,856 112,013 128,702 140,276 163,937 191,606
30%
15%
9%
17%
17%
14%
Drilling (employment
of rigs)
31752
45273
51897
53413 73,365 87,230
43%
15%
3%
37%
19%
20%
7793
10908
12870
14801
17095
40%
18%
15%
10%
5%
10%
Total
125,400 168,194 193,469 208,489 253,583 295,931
34%
15%
8%
22%
17%
15%
2007E Total
123,460 160,532 192,560 227,012 264,489
30%
20%
18%
17%
na
na
Wellhead operations
Surface
Subsurface
Seismic
% change
16281
na
1.6%
4.8%
0.5%
-8.2%
-4.1%
na
Global exp drilling
25.3%
26.9%
26.8%
25.6%
28.9%
29.5%
Global exp wellhead

operations
68.5%
66.6%
66.5%
67.3%
64.6%
64.7%
6.2%
6.5%
6.7%
7.1%
6.4%
5.8%
% breakdown by subsector
Global seismic
Source: Deutsche Bank, Wood Mackenzie, Spears and associates, company data;
Page 9
22 October 2008
Exploration drilling trends

Proprietary analysis, done in conjunction with Wood Mackenzie reveals that between
2009 and 2012, 62% of the worlds deepwater (i.e. >400m) exploration licenses outside
of the Gulf of Mexico are due to expire. Beyond 2012 our analysis shows that expiries
will continue well into the second half of the decade driven predominantly by the GoM
and that incremental global demand to drill should gravitate towards there. Longerterm fundamentals should also be supported by rigs continuing to be employed on
(successful exploration) wells that form the basis of appraisal and development
activity. Nearer term, a sharp rise in ultra-deepwater (i.e. >2800m) license expiries in
2009 and 2012 should place additional strain on the demand for these types of rigs
(5th/6th generation semi-submersibles and drillships). Our positive outlook for
deepwater drilling activity is equally based on additional analysis that leverages
drilling days. In contrast shallow water licenses appear to be generally more periodic
in their expiry (around every 3-4 years) and having collectively reached a peak this
year, the pressure to drill into the end of the decade is reducing. Against a lacklustre
drilling outlook, we remain cautious on demand to drill at this end of the depth
spectrum (related to jack-up rigs). We note that whilst the downside pressure on rig
demand linked to macro and credit conditions deteriorating further cannot be ignored,
we believe that near- to medium-term drilling programs particularly those in South
America and West Africa should be least impacted.
With the above in mind, we believe the construction for deepwater newbuild rigs will
remain strong in the medium term albeit continuing at a lower pace than across 200608. This is in contrast to the jack-up newbuild rig market. We believe the latters
slowdown should be partially offset by 1) increased demand for premium jack-up rigs
capable of working in harsh environments and 2) direct investment by NOCs, who
appear to be taking a more explicit role in exploration drilling than ever before. Our
analysis also suggests that upgrade and refurbishment spend will continue to remain
strong well beyond our forecast horizon.
The repercussions of not

sticking
to
drilling
schedule may be severe and

could see the oil company in
question
being
prevented
from drilling again in the

country
for
an
indefinite
period
Analysis of license terms reveals all

We have utilised Wood Mackenzies global exploration database to analyse expiry schedules
of every license awarded around the world to an oil company (Integrateds and Independents)
since 2000. Each license tendered by the host government will have a drilling commitment
(number of wells that are required to be drilled every year and before a certain date/expiry) in
which the operators must keep to. The repercussions of not sticking to this schedule may be
severe and could see the oil company in question being prevented from drilling again in the
country for an indefinite period. No doubt this is linked to the governments own appetite to
drill in the face of deteriorating macro and credit conditions and we expand on this below.
Figures 4 and 5 show the total number of deepwater licenses awarded since 2000 and their
average-term length split by exploration (looking for first oil) and development.
no doubt this is linked to

the
governments
own
appetite to drill in the face

of deteriorating macro and
credit conditions
Page 10
22 October 2008
Figure 4: Deepwater licenses (i.e. >400m) awarded since

2000 has increased almost threefold
Figure 5: Deepwater license average-term length since

2000 has remains broadly constant
700
30
25
500
20
400
Years
Licenses awarded
600
300
15
200
10
100
2000
2000 2001 2002 2003 2004 2005 2006 2007
2001
2002
2003
2004
2005
Exploration
2006
2007
Development
The gradual increase in deepwater licenses since the beginning of the decade is fuelled by
the up-tick in exploration investment depicted in the previous section and highlights the
increasing emphasis on deepwater acreage as technology to drill in these depths improves.
Figure 5 shows the contrast in license term lengths between exploration and development.
Not surprisingly exploration licenses will have a much shorter life as the IOC will be keen to
prove up reserves before making an investment decision related to the fields
commercialisation (which can take up to 20 years in some cases). We noted a similar trend in
the number of shallow water and onshore licenses awarded since 2000 and the lack of
change in exploration and development term lengths (this is depicted in full in Appendix G).
Deepwater license expiries should force accelerated demand to drill across 2009-12
In conjunction with Wood Mackenzie we have tracked all exploration licenses awarded since
2000 with a focus on when they are due to expire.
Figure 6: Expiry profile of deepwater exploration licenses awarded*
2020
2017
2016
2014
2013
2015
% expiring
2021 - 2037
Exploration
2012
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
-2%
2011
500
450
400
350
300
250
200
150
100
50
0
2006
Licenses expiring
well into the next decade
2010
license expiries will continue
% expiring
that
2009
shows
2008
analysis
2007
Our
Source: Deutsche Bank; * note that even though the above depicts licenses awarded from 2000, the scale begins as of when they are due to expire i.e. 2006 onwards
An important note to raise is

that exploration drilling is
typically
followed
by
development and appraisal

drilling. These licenses (on
successful well discoveries)
will revert into development
licenses
with
far
longer
expiry terms
These licenses (shown in Figure 6) tendered by host governments will have been awarded at
a time when the appetite to explore was relatively weaker and against a backdrop of excess
rig capacity. This is in contrast to the current tight deepwater rig environment which we
expand further on in the next section. An important note here is that exploration drilling is
typically followed by development and appraisal drilling. These licenses (on successful well
discoveries) will revert into development licenses with far longer expiry terms (as shown
above). Whilst difficult to quantify the point to make is simply that the demand to drill should
continue well beyond the expiry of an exploration license as oil companies employ these rigs
(deepwater rigs are equally capable of appraisal and development drilling) to prove up their
reserves.
Page 11
22 October 2008
What is more telling, in our opinion, is which regions and depths are seeing their licenses
enter into expiry near term as this would arguably place concentrated demand on rigs in the
local vicinity and by rig type respectively.
Figure 7: Given that the majority of the worlds
deepwater rigs* operate outside of GoM
5%
Figure 8: we take a closer look at the expiry profile of

deepwater exploration licenses awarded exc. GoM
3%
90
25.0%
80
39%
16%
20.0%
70
60
15.0%
50
40
10.0%
30
20
% expiring
Licenses expiring
8%
5.0%
10
2020
2017
2016
2015
2014
%
2021 - 2037
Exploration
Source: Deutsche Bank, ODS Petrodata; * refers to contracted newbuild deepwater rigs (represents 25% of
all rigs (existing + new)
2013
2012
Russia
2011
Africa
2010
Europe
2009
E Hemisphere
2008
GOM
2006
S America
0.0%
2007
29%
Source: Deutsche Bank, Wood Mackenzie
Between 2009 and 2012, 62% of the worlds deepwater exploration licenses (excluding
GoM) are due to expire with sharp rises expected to occur in 2009 and 2012.
Figure 9: Breakdown of deepwater licenses expiring by depth excluding GoM*
90
80
70
Licenses expiring
60
50
40
30
20
10
0
2006
2007
2008
2009
400-799 (Peak 2009)

1600-1999 (Peak 2010)
>2800 (Peak 2009)
The
sharp
rise
in
ultra-
deepwater (i.e. >2800m) license

expiries should place additional
strain on the demand for these
types
of
rigs
(5th/6th
generation) of which there are
2010
2011
2012
2013
2014
800-1199 (Peak 2009)

2000-2399 (Peak 2012)
2015
2016
2017
2020
2021 2037
1200-1599 (Peak 2009)

2400-2799 (Peak 2013)
Source: Deutsche Bank, Wood Mackenzie, *Given the scale of GoM licenses awards (on average 300/year vs. 40/year for everywhere else in the world) and the fact
that 90% of them are below 2800m, we have excluded this region from the chart in order to show clearly the trends occurring in ultra-deep i.e. >2800m
Figure 9 shows that licenses in the majority of depth ranges are due for expiry over the next
three years. The sharp rise in ultra-deepwater (i.e. >2800m) license relinquishments should
place additional strain on the demand for these types of rigs (fifth/sixth generation) of which
there are far fewer of to the end of the decade relative to shallow and mid-water rigs (we
discuss the supply/demand implications of this on day rates in the next section titled
exploration dynamics).
far fewer of to the end of the

decade relative to shallow and
mid-water rigs
Page 12
22 October 2008
Figure 10: Breakdown of deepwater licenses expiring by region

90
450
80
400
350
70
Licenses expiring
250
50
200
40
150
30
100
20
50
10
0
2006
GoM licenses expiring
300
60
2007
2008
2009
2010
2011
2012
2013
2014
E Hemisphere (Peak 2012)

Europe (Peak 2009)
N America (Peak 2013)
2015
2016
2017
2020
S America (Peak 2012)

Africa (Peak 2009)
GOM (Peak 2016)
-50
2021 2037
Source: Deutsche Bank , Wood Mackenzie
We draw the following observations from the above:

Brazil
will
emerge
as
South America licenses will relinquish between 2010 and 2012. This should see a hike in
exploratory drilling activity that in turn should fuel greater demand for rigs near term.
Note that the increase in exploration activity triggered by the Tupi find late last year destabilised the global market for rigs as the existing ones gravitated towards South
America and un-contracted global construction capacity reduced even further (mainly
driven by new orders placed by Petrobras). Our analysis of all rigs operating globally
shows that 30% has been contracted to work in the region over the next five years
(detailed in Appendix J).
The majority of the licenses awards in Africa earlier this decade will expire next year
which should see operators continue to bid on un-contracted rigs to ensure that their
drilling commitments are fulfilled.
Europe (largely represented by the North Sea and Norwegian shelf) should see a similar
surge in drilling near term as expiries approach.
We show the Gulf of Mexico separately given its much larger scale of licenses awarded
vs. the rest of the world (albeit that each license is far smaller in block size). This is
perhaps not surprising given average license term lengths are typically longer relative to
elsewhere in the world. We note that the pressure to drill in this region is less given the
first peak in expiry does not occur until 2012. In addition, oil companies have arguably
more flexibility in being able to extend drilling programs here relative to other parts of the
world.
swing player in the global

demand for deepwater rigs
Even if oil prices were to fall

significantly
below
current
levels, the access to reserves

should remain a priority over
its
near-term
commerciality
and development
It is worth noting that the desire to drill as many exploration wells before the license expires
will also stem from the need to land grab as much as possible before it relinquishes.
Subsequent to which the oil company will (and likely at a less pressured pace) decide
whether to go ahead with FID on the field. This process can take up to five years and is
equally critical in the eyes of the regulators and investors in ensuring the companys reserve
replacement figures appear solid.
But to what extent will these drilling schedules be adhered to in light of worsening
credit and macro conditions?
What is implicit in the above is that every operator be it oil company or independent will have
no choice but to drill in order to fulfil their commitments to the host government. High
commodity prices will no doubt influence their appetite to drill more actively. However, even
if oil prices were to fall significantly below current levels the access to reserves (particularly
Page 13
22 October 2008
the risk to this assumption
those that offer high net margin barrels) should remain a priority over its near-term
commerciality and development. The risk to this assumption is that the industry environment
deteriorates severely near term. Given the current financial turmoil, we caution that if credit
availability and macro conditions were to worsen, governments themselves (committed to
social programs and other fiscal pressures) could in turn pull funding and therefore become
more accommodating to drilling programs. This would see license expiries extended easing
the pressure for oil companies to drill.
is that if credit availability

and
macro
deteriorate
conditions
severely,
then
we could see a reduced

willingness
from
governments
to
explore
easing the pressure on oil
This decision process would typically be initiated by the host government or National Oil
Company. International oil companies that have left their licenses early or exited countries
pre-maturely have in the past found it extremely difficult to return. Note it is not uncommon
to see them negotiate with their partners including the host government on the grounds that
the block acreage yielded very little in the way of discoveries and should not continue to be
drilled upon. This is clearly a sensitive discussion but nonetheless one that again removes
some of the pressure to remain overly committed to drilling schedules and in particular those
that have not been successful.
companies to drill
Overall, whilst the downside

pressure
on
rig
demand
Overall, whilst the downside pressure to drill linked to a potentially worsening credit and
macro environment is real, we believe that near to medium-term drilling programs particularly
those in South America and West Africa should be least impacted. This is based on 1) Wood
Mackenzies view that these host governments in particular have greater strategic ambition
to increase their countrys oil production and 2) IOCs longer-term production targets are
weighted heavily to these regions leaving them with relatively less flexibility to relinquish their
licenses.
linked to the above scenario

is real, we believe that near
to
medium-term
drilling
programs particularly those

in South America and West
Africa
should
be
least
impacted
Following a hike in 2008, shallow water and onshore license near-term relinquishments
appear to be reducing mid term
Figure 12: Breakdown of shallow water and onshore
licenses expiring by region
140
600
14.0%
120
500
140
12.0%
100
400
80
300
60
200
40
100
20
10.0%
100
8.0%
80
6.0%
60
Exploration licenses expiring
2021-2037
2016-2020
2015
2014
2013
2012
2011
2010
0.0%
2009
0
2008
2.0%
2007
4.0%
20
2006
40
% expiring
120
2005
Source: Deutsche Bank, Wood Mackenzie, *note that even though the above shows licenses awarded from
2000, the scale begins as of when they are due to expire i.e. 2006
-100
2006
2007
2008
2009
E Hemisphere (Peak 2009)

S America (Peak 2008)
Russia (Peak 2009)
N America (Peak 2015)
% of total licenses expiring
GoM & N.America licenses

expiring
16.0%
160
Licenses expiring
180
2005
Count of licenses expiring
Figure 11: Expiry profile of shallow water and onshore

licenses awarded from 2000*
2010
2011
2012
2013
2014
2015
2016-2020
Europe (Peak 2012)

Africa (Peak 2012)
GOM (Peak 2009)
Shallow water licenses appear to be generally more periodic in their expiry (around every 3-4
years) and having collectively reached a peak this year, the pressure to drill into the end of
the decade is reducing. Looking at the regional splits, the GoM not surprisingly represents
one of the largest constituents of shallow water drilling and is to a large degree driving the
downtick in license relinquishments to the end of the decade. In theory this should have a
negative impact on shallow water global rig demand.
Drilling activity outlook

Wood Mackenzies global exploration database comprises signature bonuses, number of
licenses awarded and drilling days. The latter represents the time between spudding and
completion of the well and captures exploration and appraisal drilling but not development. It
will however encompass operations related to the wellhead (surface or subsurface
exploration activities). All data is categorised by depth, region, onshore and offshore. We
Page 14
22 October 2008
compare trends across these various datasets below starting with Figure 13, which shows
the lag between global capex and levels of drilling activity globally.
Figure 13: Medium term, Wood Mackenzie expects a secular rise in drilling days
by the ramp up in licenses

awarded; the key downside
risk
to
exploration
and
appraisal activity will likely

be:
1) insufficient rigs to meet
implied demand,
2) reduced appetite of oil
cos to drill in the face of
rising rig rates, and
3)
deteriorating
IOC
and
275000
Insufficient historic investm ent in

capacity, w ith utilisations approaching
100%, placed a bottleneck on Oil Co's
ability to drill
100,000
90,000
225000
80,000
175000
70,000
125000
60,000
75000
50,000
25000
40,000
2000
NOC cash flow linked to

worsening credit and macro
conditions
Rise in global capex since 2002

has fuelled drilling activity
globally
days
drilling days to be spurred
Exploration, appraisal and development capex

($bn)
WM expects the increase in
2001
2002
2003
w ellhead operations
2004
drilling
2005
seism ic
2006
2007
2008E
2009E
2010E
aggregate drilling days
Source: Deutsche Bank , Wood Mackenzie
Figure 14: Signature bonuses accelerated in 2008 YTD with an increasing emphasis on
deepwater
14000
12000
$mn
10000
8000
6000
4000
2000
0
2000
2001
Onshore
2002
2003
2004
Offshore <400m
2005
2006
2007
2008
YTD
Deepw ater >400m
Page 15
22 October 2008
Figure 15: Shift in licensees awarded has historically been followed with a similar
(directional) change in drilling days (exploration and appraisal shown)
3,000,000
95,000
drilling days
75,000
2,000,000
65,000
1,500,000
55,000
45,000
1,000,000
35,000
licenses (acreage in km2)
2,500,000
85,000
500,000
25,000
15,000
0
2000 2001 2002 2003 2004
2005 2006 2007 2008E 2009E 2010E
Onshore
Shallow w ater (0-400m)
Deepw ater (>400m)
licenses aw arded (RHS)
Source: Deutsche Bank , Wood Mackenzie; *measured by drilling days; this is defined as the time drilled between spudding & completion of well. Beyond actual drilling
it will also include time spent on wellhead related operations (surface and subsurface).
Figures 16 and 17 show how these indicators of IOC and NOC exploration spend reveal
differing trends in activity depending on the drilling depth, offshore and onshore. The appetite
to drill is not homogeneous across the spectrum of depths or indeed onshore and offshore.
Later we use the conclusions derived from these trends along with our earlier observations
on license expiries to update our outlook on rig day rates offering an alternative to the
methodologies adopted by ODS Petrodata and consultancies alike.
Shallow water drilling outlook shows mixed signals
Figure 17: Drilling activity in depths 200-399m
drilling days
Source: Wood Mackenzie and Deutsche Bank estimates
Page 16
licenses aw arded
20,000
licenses (acreage in km 2)
40,000
drilling days
2010E
2009E
2007
2008E
0
2006
2010E
2009E
2008E
2007
2006
2005
2004
2003
2002
2001
60,000
2005
50,000
80,000
2004
100,000
120,000
100,000
2003
150,000
Recovery in licenses aw arded

expected to support grow th in
drilling activity
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2000
200,000
days
250,000
licenses (acreage in km 2)
300,000
2002
29,000
27,000
25,000
23,000
21,000
19,000
17,000
15,000
13,000
11,000
9,000
2000
days
Lacklustre change in
licensing expected to
pressure drilling activity
2001
licenses aw arded
22 October 2008
Drilling outlook appears polarised activity looks set to rise

sharply with depth across the medium term
Figure 18: Drilling activity in depths 800-1199m*
Figure 19: Drilling activity >3200m*
2000
drilling days
200
0
2000
2010E
2009E
2007
2008E
2006
2005
2004
2003
2002
2001
0
2000
400
licenses aw arded
drilling days
Source: Deutsche Bank & Wood Mackenzie; *for completion we have included similar graphs of drilling days
vs. licenses awarded at various intervals between 400m and 800m; 1199m and 3200m in Appendix I
2010E
4000
1000
100000
80000
60000
40000
20000
0
600
2009E
2000
800
2007
3000
1000
2008E
8000
6000
2006
4000
1200
2005
10000
2004
12000
200000
180000
160000
140000
120000
1400
2003
5000
1600
2002
14000
2001
16000
6000
days
7000
Licenses (acreage in km2)
2007 data show s an unprecented w ave of

licensing in ultra-deepw ater, This should follow
equally w ith a hike in drilling activity
days
Ramp up in licenses aw arded in 2007 should see

an equivalent increase in drilling days to 2010; key
regional drivers are Asia and Brazil
licenses aw arded
Source Deutsche Bank & Wood Mackenzie; *for completion we have included similar graphs of drilling days
vs. licenses awarded at various intervals between 400m and 800m; 1199m and 3200m in Appendix I
Figure 20: Deepwater drilling activity will continue to intensify in depths >3000m
18000
Shift towards ultra deep water depths

>3000m
16000
outlook
demand
for
points
exponential
rise
drilling
to
in
an
ultra-
deepwater drilling (>2400m).

By 2010 we expect this end
of the depth spectrum to
represent 12% of deepwater
drilling days (vs. 6% 2007)
Deepwater drilling days
14000
Our
12000
10000
8000
6000
4000
2000
0
2000
400-799m
2001
800-1199m
2002
2003
1200-1599m
2004
2005
1600-1999m
2006
2007
2800-3199m
2008E
2400-2799m
2009E
2800-3199m
2010E
>3200m
Onshore drilling outlook appears supported by renewed appetite from NOCs

particularly in the Middle East and South East Asia
2,500,000
54,000
49,000
d ays
44,000
Uptick in licenses awarded

should support drilling activity
to 2010 albeit from a lower base
39,000
34,000
2,000,000
1,500,000
1,000,000
29,000
500,000
24,000
drilling days
2010E
2009E
2008E
2007
2006
2005
2004
2003
2002
2001
2000
19,000
lic ens es (ac greage in k m2)
Figure 21: Onshore activity
licenses aw arded
Page 17
22 October 2008
NOC investment should continue to support drilling activity

across all depths
Governments
greater
are
placing
emphasis
on
exploration drilling with the

aim of ensuring that future
years domestic demand on
their resources is met
however, as highlighted
earlier, we caution that in
the
face
of
Drilling spend sourced from national oil companies will form a larger portion of oil service
backlog as they become more involved around the drill bit than ever before. Greater
ownership and participation of NOCs in oil and gas developments will naturally work its way
up the oil chain as their host governments place greater emphasis on energy security and
ensure that future years domestic demand on their resources are met. This is in contrast to
IOCs and in particular the independents whose appraisal and development programs will be
more commercially oriented, aimed at maintaining their commitments to shareholders and
monetising reserves across the commodity up-cycle.
We caution that in the face of deteriorating credit and macro conditions, Norway and Russia
NOCs would be most at risk to investment cut backs given the relatively higher cost to
explore vs. elsewhere in the world; South America and West Africa exploration appetites will
be least impacted. In theory this should provide service companies exposed to NOCs in
these regions with a relatively safer harbour to fluctuating oil & gas prices.
deteriorating
credit and macro conditions,
Figure 22: NOCs to play a greater role in drilling (both exploratory and appraisal)
investment cut backs are

100,000
inevitable.
90,000
We believe South America

will
be
40%
80,000
and West Africa exploration

budgets
NOCs withdrew from exploration driven, in

42%
part by lack of appetite to explore and
NOCs are now gradually appearing to take a more direct
monetise reserves in a weak macro
role in exploration drilling, as they successfully build their
environment
engineering and financial capital
70,000
least
38%
60,000
$mn
impacted
50,000
36%
40,000
34%
30,000
20,000
32%
10,000
0
2000
2001
2002
2003
Drilling capex (IOC + NOC)
2004
2005
2006
2007E
2008E
2009E
30%
2010E
% NOC
Moving further down the supply chain: rig construction services

Our outlook of rig construction spend (newbuild, upgrade and refurbishment) is based on
what has already been flagged by the contractors (drillers and E&C companies) and the
degree of additional investment (often termed speculative) that could materialise. We
determine the latter by analysing the incremental demand to drill measured in the form of
drilling days and licenses awarded detailed in the last section. Placing these indicators of
exploration demand against the existing newbuild outlook allows us to take a view on the
potential rate of incremental spend by rig class.
Robust drilling outlook will continue to support the rig construction market
Analysis and prediction of the rate of rig spend can never be a complete science given the
number of continually changing variables that effect the operators and oil services
perception of how the market will move. Forecasts for rig construction capex are typically
based on what has already been commissioned (with yard slots booked against it already)
and an assumption on the degree of speculative investment that will come to fruition. Figure
Page 18
22 October 2008
23 shows the former which excludes upgrades, refurbishments and re-activations (due to
lack of available data).
Figure 23: Capex* invested by drillers appears to lag worldwide rig utilisations
18000
100%
16000
95%
90%
14000
85%
12000
$ mn
80%
10000
75%
8000
70%
6000
65%
4000
60%
Capex($ m n)
2010E
2009E
2007
2008E
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
50%
1992
0
1991
55%
1990
2000
Utilisations
Source: Deutsche Bank, ODS Petrodata *represents the annualised spend across the life of each rig built (typically between 1-3 years)
Across
2006/07
activity
declined,
drilling
albeit
temporarily due to lack of

rig availability
The large up-tick in spend (based on actual rigs commissioned; i.e., ignores speculative
builds) shown above should come as no surprise given the unexpected turnaround in
exploration activity. Over time this has led to record-high rig utilisations which in turn forced a
decline in drilling activity (due to lack of rig availability) across 2006-07, albeit a temporary one
(as shown in Figure 23 above). Of note is the length of time it has taken drillers to regain the
confidence to invest in new builds despite an upward shift in utilisation since 2003.
We qualify the degree of speculative investment that could materialise by analysing the
incremental demand to drill (measured as drilling days). Whilst in theory this should continue
to support the rig construction market, as illustrated in the last section, the appetite to drill
will vary across the spectrum of depths and indeed onshore relative to offshore.
Placing this demand analysis against the current newbuild outlook to date (shown in detail in
the next section) allows us to take a view, admittedly a qualitative one on the potential rate of
incremental spend by rig class (with each depth range above broadly represented by the
various rig types).
Despite the number of deepwater floater new builds coming on-stream, the relative lack of
liquidity here (only c. 26% are accessible vs. 70% for jack-ups) against accelerated drilling
activity suggests that the demand for newbuilds will continue to remain strong albeit at a
lower pace than across 2006-08. This is in contrast to the jack-up rig market (offshore and
onshore) that appears readily accessible and in turn should witness a more exaggerated
decline in newbuild investment vs. 2006-08.
Page 19
22 October 2008
Notable exceptions here that place upside pressure particularly on the rate of incremental
jack-up spend include:
The demand for premium jack-up rigs capable of working in harsh environments as the
global incremental supply of oil continues to be sourced from more technically
challenging prospects (e.g. in the FSU).
National oil company investment in rig newbuilds. Figures 24 and 25 show actual capex
committed to new builds between 2008 and 2012 sourced by region and origin of the
operator; i.e., NOC vs. IOC.
Figure 24: Rig new build spend (2008-12E) by region
Figure 25: Rig new build spend (2008-12E) by NOC/IOC
Asia
16%
US
29%
Europe
15%
Africa
1%
NOC
47%
Middle East
1%
IOC (i.e private or

publicly listed
drillers)
53%
South America
10%
Norw ay
28%
Total 2008-12E capex = $60.6 bn

Source: Deutsche Bank, ODS Petrodata
Total 2008-12E capex = $60.6 bn

On comparing the above to the split of new build spend that occurred between 2003 and
2006, we note that there has been a gradual shift from the traditional investors of rig new
builds, such as the US and Europe towards South America and Asia. This move has been
underpinned by greater participation of NOCs in rig construction and in turn
refurbishment/upgrades. Confirming this is our analysis done in conjunction with Wood
Mackenzie which shows direct investment by the NOCs in drilling since 2000 (Figure 22).
Rig upgrade and refurbishment will carry on where newbuilds

left off
This sub sector of rig construction services focuses on extending the life of a rig whether it
be through maintenance and/or or extra kitting of equipment to improve its technical
capabilities. Forward demand will be directly correlated to:
Page 20
Rig attrition. Figures 26 and 27 show that 38% of global rig capacity is above 25-yearsold (typical rig run life is 30 years) suggesting that over the next 10 years, these rigs will
require some degree of maintenance. This could vary from refurbishment e.g.
replacement of corroded parts (basically returning the rig to its original efficiency and
capability thus extending its life) through to enhancement of the rig in order to extract
more value from it. Unsurprisingly the latter will materialise into a larger (monetary)
contract size given it requires the oil service company to utilise what is often termed as
its value engineers in parallel with any necessary refurbishment. It is worth noting that
we expect a more pro-active maintenance approach in contrast to earlier parts of the
cycle where underinvestment i.e., the bare minimum was accepted (drillers, keen to
exploit the strong commodity environment, kept maintenance time as low as possible).
22 October 2008
Figure 26: Majority of world rig fleet is above 20 years

old
Figure 27: Average age of world fleet is remarkably high
40.0%
120
35.0%
100
<5
6-10
11-15
16-20
21-25
2009
2006
2003
2000
1997
1994
1991
1988
1985
1982
0.0%
1979
0
1958
5.0%
20
1976
10.0%
40
1973
15.0%
60
1970
20.0%
1967
25.0%
Av. age of global fleet = 24 yrs
80
1964
30.0%
1961
Ri g s d e li v e re d p e r y e a r
% of rigs within age range
45.0%
>25
Age (yrs)
Source: Deutsche Bank , ODS Petrodata
Longer lead times on newbuilds (yards are now quoting four years) has led to many
operators and drillers, particularly in the US, to opt for rig upgrades often in the form of
conversion or re-activation. Interestingly, of the total number of re-activated rigs coming
on-stream across 2007-11E, 65% are sourced from the US. It appears that the US drillers
have been relatively less inclined to commit to new builds, preferring to upgrade the
existing fleet, perhaps to avoid the risk of overcapacity suffered by many of them in
previous down-cycles. It also means that they are able to exploit the current commodity
environment far more quickly and leverage arbitrage opportunities; e.g., in cases when
there is a short-term lack of rigs in a particular region.
Number of new rigs coming onto the market which will require periodic maintenance
(regulators deem five years as the maximum). With a 34% increase in rigs expected
across 2008-12 (on 2007 base), we believe this will see a proportionate increase in rig
maintenance, which coupled with the requirements of the existing asset base as
highlighted above should see demand for refurbishment remain strong well beyond our
forecast horizon.
Page 21
22 October 2008
Exploration industry dynamics

and relative profitability
Latest ODS Petrodata figures suggest a 34% increase in global rig capacity by the end
of the decade. The common market perception is that this should be more than
sufficient to quench any future surge in drilling demand. With spare newbuild capacity
(i.e. yet to be contracted) lowest in ultra-deepwater, i.e. depths >7500ft (c. 26% across
2008-12), drilling activity continuing to surge and finally a sharp rise in license expiries
expected near term, we believe the day rates at this end of the drilling spectrum will
continue to climb (we estimate up to $700k/day by 2010 from current leading edge of
$650/day).
Beyond 2010, whilst impossible to quantify (our model only extends to the end of the
decade), we expect ultra-deepwater day rates to stabilise. We believe there will be
modest downward pressure (i.e. no more than -10%/year) on deepwater rig rates in
depths lower than 2400m. The reason being is that even with drilling activity here
appearing to tail off this should be partly offset by renewed pressure to drill (driven by
continued license expiries beyond 2010 not to mention the need to appraise and
develop successful exploration wells). In contrast, shallower water day rates are
expected to decline more rapidly mid term. Our bottom up contract analysis also
shows that NOCs, IOCs and independents alike are signing up deepwater rigs well
ahead of their release and for longer periods of time (100% of rigs this year signed on
4+ years vs. 15% in 2005). This extends the cashflow visibility for deep water drillers
well into the next decade. Elsewhere in the exploration complex rig construction
services emerges as a distinct winner (offering best relative capex and margin upside).
Drilling services: global rig rate outlook

Analysis and prediction of rig rates can never be a complete science given the number of
continually changing variables that affect the operators and drillers perception of how the
market will move. Structural factors that influence spot (or leading edge) and long-term (or
contracted) rig rates include:
the rate of rig replacement defined as the degree with which incremental rig capacity
(confirmed new builds and upgrades) will be offset by ageing fleet due to be taken offstream
the liquidity of the rig market - operators willingness to sign up rigs at a premium or
discount to the current leading edge will, in part be based on the accessibility of
incremental supply, i.e. the proportion of rigs that are not yet locked up into long-term
contracts
IOC drilling schedule expiries as per their host government obligations, not to mention
commitment to shareholders, many of whom will have invested in these companies
based on their degree of exploration upside (e.g. the independents) or ability to grow
production (e.g. the integrated companies)
We base our short- to medium-term rig rate forecasts on our understanding of the above
supply/demand dynamics. Macro and geopolitical factors influencing rig rates include:
Page 22
oil and gas prices (higher prices will drive appetite to drill and monetise reserves quickly)
the condition of the global economy and level of GDP growth anticipated worldwide and
at the regional level
22 October 2008
We believe our near- to mid-term day rate outlook remains intact at sub $60/bbl oil on a
sustained basis and against deteriorating macro conditions. This is given the bottom up
nature of our demand forecast (linked to the structural dynamics detailed above).
DB day rate model
Our
day
rate
demand
model
driven
is
and
dependent on license expiry

terms; analysing the degree
of supply coming on-stream
and
more
importantly
operators ability to access

spare capacity, provides a
more complete picture with
which to forecast future day
rates
We have modelled short- to medium-term day rates (by depth) within the offshore segment
around our outlook for drilling activity and the our analysis on license expiries highlighted in
the previous section.
But first....
Whilst we have not quantified the impact of supply on day rates we address below,
albeit qualitatively, the extent to which capacity creep could effect our forecast, if at all.
Figures 28-31 show the timing, complexity and degree of incremental rig capacity
(already commissioned) expected to come on-stream in the medium term. It is worth
noting that rigs capable of drilling in deep and ultra deep waters are also operable in
shallower waters. Therefore in periods of low utilisation, owners of fifth/sixth generation
rigs (semi-submersibles or drillships) may choose to charter them out in reduced depths.
Figure 28: Latest ODS figures suggest a 34% increase in
Figure 29: Drillships; 116% increase in supply expected
global capacity by the end of the decade
(depths greater than 7500ft)

45
190 rigs are currently planned to

come on-stream across 08-12E
70
40
Number of rigs
Number of rigs
44 Drillships are planned to come

onstream across 08-12E
35
60
50
40
30
20
30
25
20
15
10
10
5
0
0
2008
2009
2010
2011
0-2999
2012
3000-4999
5000-7499
7500-9999
>=10000
depth (ft)
Drillship
Jackup
Semisubmersible
Tenders
2008
2009
2010
2011
2012
Source: Deutsche Bank and ODS Petrodata
Figure 30: Semi-submersibles; 36% increase in supply

expected (bulk occurring at depths >7500ft)
Figure 31: Jackups; 25% increase in supply expected

(bulk occurring at depths b/w 300-400ft)
30
80
54 Semisubmersible rigs are
planned to come onstream
across 08-12E
20
70
Number of rigs
Number of rigs
25
15
10
5
0
91 Jackups rigs are planned to

come on stream across 0812E
60
50
40
30
20
10
0-2999
3000-4999
5000-7499
7500-9999
>=10000
0
0-199
depth (ft)
2008
2009
2010
2011
2012
2008
200-300
2009
300-400
2010
2011
>=400
2012
Whilst the rig market appears well supplied into the end of the decade, we highlight two
counter dynamics that should remove (in some cases completely) the downside risk on rig
utilisations.
Page 23
22 October 2008
Rig attrition. Of the expected 34% increase in global capacity, ODS Petrodata
estimates that up to a third of that could potentially be soaked up in replacing older rigs
forced off stream over the next 5-10 years.
Rig liquidity. Figures 32 and 33 show the proportion of new builds that have yet to be
contracted.
Figure 32: Jackup new build spare capacity 2008-12E
Figure 33: Semi-submersible and drillship new build

spare capacity 2008-12E
Number of
contracted
Jackups
30%
Total number of
uncontracted
semis and
drillships
26%
Number of
uncontracted
Jackups
70%
Source: Deutsche Bank ,ODS Petrodata
Total number of
contracted semis
and drillships
74%
Despite the number of deepwater floater new builds coming on-stream, the relative lack
of liquidity here (only c. 26% are still accessible) suggests that the market will continue
to remain tight in the medium term all else being equal. Conversely, the jack-up rig
market (offshore and onshore) appears readily accessible. As the new builds come on
stream, we believe this will inevitably place downward pressure on utilisation, assuming
that jack-up demand does not vary significantly from current levels.
With regards to the existing rigs already under contract (that could threaten to increase
spare capacity dramatically) analysis of the worlds contracted deepwater rigs (detailed
further in the next section) shows that the average term length on rigs signed across
2007/08 (>90% of the worlds rigs were re-negotiated during this period) is four years
(jackups around 2.5 years). The point to make is that spare capacity of existing rigs, at
least those drilling in deepwater will not free up before 2011/2012. We believe this
should be more than offset by a significant expected up-tick in drilling demand across
the same period keeping supply/demand fundamentals robust into the first half of the
next decade.
With the above in mind, we have utilised the Wood Mackenzie outlook on drilling activity and
license expiries, highlighted in the previous section, to forecast rig rates at various depth
intervals in both shallow and deepwater. Note that our forecasts have been made on a yearly
basis. So, for example, a driller currently looking to re-negotiate a contract due to expire
during 2009 would, for the purpose of our rig model, lock into the rate we estimate in 2009
(at the relevant depth) for the renewed length of the contract term.
The ultra deepwater market
(depths
>
demonstrate
7500ft)
will
the
best
performance going forward

as
supply/demand
fundamentals
further.
Page 24
tighten
As Figures 34-38 show, excess offshore rig capacity (that drove utilisation <80%) between
2003 and 2005 appears to have pressured day rates across all depths despite intermittent
increases in drilling activity during broadly the same time frame. We expect deepwater day
rates to stabilise with downward pressure on depths lower than 7500ft as drilling activity
begins to tail off offset somewhat by license expiries beyond 2010. In our opinion, the ultra
deepwater market (depths >7500ft) will demonstrate the best performance as
supply/demand fundamentals tighten further. Shallower water day rates should at best
remain at current levels.
Figure 35: Shallow water rig rate outlook b/w 200m to

399m/656-1300ft
drilling days
120.0
100.0
80.0
60.0
40.0
Day rate ('000$k/d)
140.0
20.0
drilling days
day rate
2010E
2009E
2008E
2007
2006
2005
0.0
2000
2010E
2009E
2007
2008E
2006
2005
2004
2003
2002
2001
0.0
160.0
2004
50.0
180.0
2003
100.0
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2002
150.0
WM drilling days
200.0
Day rate ('000$k/d)
250.0
29,000
27,000
25,000
23,000
21,000
19,000
17,000
15,000
13,000
11,000
9,000
2000
WM drilling days
Figure 34: Shallow water rig rate outlook b/w 0m to

199m/656ft
2001
22 October 2008
day rate
Robust drilling outlook and an easing of pressure to drill into

the end of the decade (as expiries roll out to 2012 should at
worst help maintain leading edge jack-up rates against a
backdrop of capacity creep and high rig liquidity.
Source: Deutsche Bank and Wood Mackenzie estimates
Figure 36: Deepwater rig rate outlook b/w between

400m to 914m/1300-3000ft
Figure 37: Deepwater rig rate outlook b/w 914m to

2290m/3000-7500ft
350
100
4500
2010E
2009E
2008E
0
2007E
3500
drilling days
Ramp up of new ultra deepwater rigs that will initially be

utilised in depths <5000ft coupled with a decline in drilling
activity should pressure day rates. Some support expected
from lack of rig liquidity and a hike in expiries due in 2009.
Day rate ('000$k/d)
200
5500
2006
2010E
2009E
2007E
2008E
day rate
300
6500
2005
drilling days
2006
2005
2004
2003
2002
2001
7500
2004
50
2003
100
400
8500
2002
150
500
9500
2001
200
10500
2000
250
600
11500
WM drilling days
300
Day rate ('000$k/d)
3300
3100
2900
2700
2500
2300
2100
1900
1700
1500
2000
WM drilling days
A mild recovery in drilling activity and an easing of pressure

to drill into the end of the decade (as expiries roll out to 2012)
against a readily accessible jack-up market should see day
rates fall.
day rate
Robust drilling outlook should help support day rates despite

ramp up of new ultra deepwater rigs that will initially be
utilised in depths <7500ft. Additional support expected from
lack of rig liquidity and to a lesser degree license nearing
expiry across 2009-12.
Page 25
22 October 2008
2000
1800
1600
1400
1200
1000
800
600
400
200
0
700
500
400
300
200
100
Day rate ('000$k/d)
600
drilling days
2010E
2009E
2008E
2007E
2006
2005
2004
2003
2002
2001
0
2000
WM drilling days
Figure 38: Deepwater rig rate outlook >2290m/7500ft
day rate
Increase in new ultra deepwater rigs (capable of drilling >7500ft) will likely not be enough to
quench the ramp up in drilling activity expected at these depths. We expect rig rates to rise
further as licenses expiries approach (expected to peak by 2012 ) and rig liquidity reduces.
Ultra-deepwater day rates will stay stronger for longer as

contract term lengths increase
We have undertaken an extensive contract analysis of all deepwater rigs signed under longterm fixtures since 2004 in order to track the term length of contracts over time.
Figure 39: Term length of semi-submersible and drillship contracts since 2004
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2004
2005
Up to 2 years
2006
2-4 years
2007
2008 YTD
4+ years
Source: Deutsche Bank, Rigzone, ODS Petrodata
Figure 39 shows term lengths on the rise as clients prefer to lock into longer fixtures on fixed
day rates (as opposed to accessing the spot market on shorter term leases typically <1 year).
This should come as no surprise given the lack of rig liquidity in the deepwater market which
coupled with accelerated global drilling activity (not to mention stricter drilling schedule
requirements by host governments) has forced IOCs and independents to sign up rigs well
ahead of their release (or delivery if they are newbuild) and for longer periods of time. In
parallel we have seen several NOCs (e.g. Petrobras) do the same as they take strategic
decisions to invest over 5-10 year periods that justify locking into contracts on rigs for 5+
years. The impact this dynamic has on our company model is that it gives us greater visibility
beyond our original earnings horizon to 2012.
Page 26
22 October 2008
Rig construction: strategic outlook
Our
discussions
with
industry suggest that China

offers the lowest pricing on
rig
construction
followed
by
services,
UAE
Singapore and Korea
then
A recurring theme we have experienced amongst investors and industry alike regarding the
mid- to longer-term outlook of the rig construction industry is that even against strong
demand, excess capacity (particularly from China) could see the industrys margins decline
from their current levels (c. 20% EBITDA) as pricing power diminishes. We have analysed
current and future capacity across the Middle East, Asia and Australia basically the Eastern
Hemisphere. With currently 59 yards in the region operating, two of which are undergoing
brownfield expansion and six more being built, we believe that the risk of eventual
oversupply is real (notwithstanding yards being built in China that are not public knowledge).
However, against our demand outlook and various counter-dynamics discussed below (based
on our analysis of capacity by region and industry), the risk of margins deteriorating in the
medium term appears low in our opinion.
In Figure 40 we show the current regional yard capacity for construction. Oil and gas
activities include newbuild and refurbishment of semi-submersible rigs, jack-up rigs,
drillships, tension leg platforms, FPSO, FPO, heavy lift carriers, pipelay vessels, crude oil
tankers, container vessels, gas carriers (LNG,LPG) etc. Non-oil and gas activities
comprise yards that do ship (civil and naval) building, repair and conversion, service
crafts, cargo ships, yachts, work boats, etc. We have attached a comprehensive list of
every yard and its specifications in Appendix F.
Figure 40: Regional construction capacity Total of 65 yards (including greenfield)
Source: Deutsche Bank, Company data
Whilst the risk of over supply in the region poses a continuing threat to the industrys mid- to
longer-term pricing power (the fear being that the structure of the rig construction industry
will weaken as more capacity comes online), we include below some of the counterdynamics that should offset the downside risk on the companys margins across the mid
term:
Page 27
22 October 2008
The relative lack of pure

refurbishment capacity
suggests this sub-sector will
remain tight
The type of construction activity on offer from these yards does not coincide completely
with that of rig related construction. Figure 41 shows the proportion of yards that
provide oil and gas related construction. Investor perception of construction capacity in
these regions suggests that there is plenty of it; the reality is that it is being used for a
variety of products of which non oil and gas represents approximately one-third. Of the
oil and gas portion, the economies of scale on the yards offering newbuild services
makes it difficult to switch to the (smaller sized) refurbishment projects alone. Figure 42
shows the proportion of oil and gas based capacity that caters for refurbishment. The
relative lack of pure refurbishment capacity suggests this sub-sector will continue to
remain tight and perhaps even more so in the Middle East (only 14% of rig construction
is refurbishment based) across the mid term. Longer term however, we would argue
that as incremental demand for newbuilds slows this could force contractors to change
their product offering and result in a significant up-tick in refurbishment capacity.
Figure 41: Split of capacity by oil and gas related

construction and others
Figure 42: Split of capacity by refurbishment and

newbuild services
Number of yards: 45
Number of yards: 65
31%
36%
51%
69%
13%
Non oil and gas
Oil and gas
and even more so in the
capacity is shifting towards

non-oil and gas based
activities
Page 28
Refurbishment
New build + Refurbishment
Companies operating specifically in the Middle East sit within three critical barriers to
entry:
Companies looking to enter the region and more specifically UAE which represents the
bulk of construction activity in the region will lack the long standing relationships that
existing contractors have established with the local government not to mention client
base, critical prerequisites in being able to open up shop and succeed.
It makes no sense for drillers and oil companies operating here to upgrade or refurbish
their rigs anywhere else; transport costs and likely risk of delay and inferior quality far
outweighs the potential benefit of cheaper options in e.g. China.
Lack of natural harbours across the Middle East, particularly within the most
construction-heavy country, UAE. Indeed, the government recently voiced their inability
to expand industrial activity further across their coastline.
Greenfield expansions in the region as shown in Figure 43 suggest that the industry has
certainly reacted to the demand surge witnessed in rig construction but perhaps not as
aggressive as one would have expected (only four oil and gas based yards are under
construction against a current 59 in operation). Equally we show that the profile of this
incremental capacity is changing. Figure 44 shows total capex committed by all the
companies listed above (Figure 40) since 2004 and a gradual re-weighting towards nonoil and gas based activities.
Middle East
The profile of incremental
New build
22 October 2008
Figure 43: Greenfield extensions* (oil and gas related)
5,000
85 hectares
Land area
8,000 m
Quay side
90
4,500
80
4,000
7,000
70
3,500
6,000
60
3,000
42 hectares
Land area
5,000
33 hecatres
Land area
4,000
50
40
2,400 m
Quay side
3,000
1,250 m
Quay side
2,000
30
20
1,000
10
Capex ($ mn)
8,000
Land area (hectares)
Quay side (m)
9,000
Figure 44: Investment in yard capacity
57.0%
55.5%
2,500
2,000
53.1%
51.8%
50.0%
1,500
1,000
500
-
Changxing (China)
Pipavav (India)
Hamriyah New (UAE)
Keppel, Nakilat JV (Qatar)
Source: Deutsche Bank, Company data* all of which will be completed by 2015; note that of the six greenfield
yards under construction two are non oil and gas related
2004
2005
Oil and gas
2006
Non - Oil and gas
2007
2008E
% of Oil and gas
Source: Deutsche Bank , Company data;
Finally, despite what appears above to be a large number of yards in China (and
potentially more that have not been disclosed), the oil and gas industry is split in its view
of the quality of product that is on offer there. With drillers having to pay hefty fines on
rig delays not to mention a forfeit of day rate, the appetite to change their traditional
supplier of choice to new players particularly within Asia is unsurprisingly low. We would
caution however that as the product quality of these yards improve (industry consultants
Pegasus Global suggest this could be the case within five years), we expect market
share to be re-distributed and pricing power to be under pressure particularly on
newbuild work given the relatively higher available capacity.
Well head services strategic outlook

Having
degree
expected
established
of
the
capex
growth
across
these
markets, we identify their

level of margin achievement
Given the array of functions that exists within associated well operations (see Appendix B for
further definitions), it is no surprise that each theme will have its own characteristic
competing forces. Advanced technology and specialised hardware, relevant project
management experience, local presence via assets or resource, strong financial capabilities
as well as degree a capacity creep are to list but a few of the internal dynamics that will
underpin each segments relative and absolute margins near term.
both in absolute and relative

terms
Whilst difficult to quantify, intuitively we know that a theme, for example, with high barriers
to entry, limited competition and suffering little capacity creep and cost inflation, will realise
top-quartile margins against a backdrop of strong demand for its services. With this in mind
we have analysed the competitive forces impacting some of the sub-segments within
wellhead operations, not to mention rig construction. This strategy has helped us to
determine which themes we believe are best placed to deliver relative performance over the
forecast period.
Having interacted with the companies under coverage, as well as Wood Mackenzie and
various other industry professionals, we show below the degree of margin achievement
(both relative and absolute) each theme could realise across our forecast horizon. Implicit in
our forecasts is the reversal of the negative effects that cost inflation and FX had on margins
across 2004/05. In our company sections these broad expectations are then married with
bottom-up analysis of the components that drive each companys margins to arrive at the
base case around which we model each of the companies (applicable only to Wood Group,
Seadrill and Aker Solutions across our coverage universe).
Page 29
22 October 2008
Figure 45: Absolute and relative margin achievement across well head operations sub-segments
Theme
Surface
servicing
Surface
equipment
Subsurface
servicing
Subsurface
equipment and
products
Typical EBITDA
2008-10E
Summary of strategic analysis
margins
expectation*
25-30%
20-25%
15-20%**
10-15%**
Our analysis focuses on pressure pumping and compression services (which collectively represent the bulk
of spend in this segment). The former is a structurally strong industry with top quartile margins (relative to
other well head operations). Despite medium barriers to entry, one of them being infrastructure, market
remains dominated by few players. These include Schlumberger, Halliburton, BJS and Baker Hughes. In
contrast, compression services is structurally a weak industry with only one significant player (EXH)
Near term, however, we expect mild expansion in margins as clients become more resistant to price hikes
High barriers to entry that include technology (long lead patents), brand recognition (strong client
relationships) and capital intensity. Structurally robust industry with medium quartile margins. Market
dominated by few players. These include FMC, Cooper Cameron and National Oilwell Varco.
Near term expect impressive margin expansion as service companies less leveraged to supply chain
pressures (products manufactured in-house).
High barriers to entry that include technology (e.g. seeing an increase in the use of deviate drilling i.e.
multilateral and horizontal) and brand recognition (strong client relationships). Structurally robust industry with
medium quartile margins. Market dominated by few players. These include Baker Hughes, Schlumberger,
Halliburton and Weatherford.
Near term expect impressive margin expansion as service companies less leveraged to supply chain
pressures (equipment made to order in-house).
Medium barriers to entry and levels of substitution suggest that structurally this industry is robust with
medium quartile margins. Market dominated by few players. These include Baker Hughes, Schlumberger,
Wood Group and Weatherford.
Near term expect mild margin expansion. Even though service companies are less leveraged to supply chain
pressures (products manufactured in-house) we expect pricing power to diminish.
XXX
XX
X/X
* x/xxxx = lowest/highest margin upside; **notable exceptions respectively include: directional drilling that generates margins between 25-30% and completion/work-over: 30-35%
Source: Company data, Deutsche Bank & Wood Mackenzie estimates
Page 30
22 October 2008
Global engineering and

construction outlook
Engineering and construction (E&C) related activities represent c. 60% of global capex.
Our outlook for E&C spend points to a plateau in the medium term, albeit exposed to
upside pressure on our capex projections for 2010 and beyond if projects become
delayed. The long run oil price implicit in our bottom up forecast is $60/bbl. We slice
up the capex pie and reveal deepwater FPSOs/facilities, SURF and
refining/petrochemicals to boast the most impressive momentum across the service
spectrum. Furthermore we expect the accelerated shift into ultra-deepwater drilling (as
noted in the previous section) to spur a proportionate increase in deepwater E&C
capex (ultra-deepwater subsea and in turn facilities/FPSOs) mid term. Middle East still
remains the highest growth region whilst Africa and Canada appear to have moved
significantly up the ranks since our last study in June 2007. Conversely, North America
and Russia now demonstrate a negative growth profile.
We believe there is downside risk on our forecast if oil price falls below $60/bbl for a
sustained period of time (Wood Mackenzie expect E&C capex could be cut by up to
20% medium term) and that it will be far more exaggerated for Europe, Canada, North
America and Russia.
Are we approaching a peak in the cycle?

In partnership with Wood Mackenzie we have conducted our yearly global review of E&C
capex. Note we define this as spend allocated above the mud line, i.e. commercialisation
(engineering, construction and installation) of the worlds 2P reserve base.
Figure 46: Global capex split 2009E
Exploratory,
appraisal and
developm ent
spend* ;
38%
Note we define E&C capex

as spend allocated above
the mud line, i.e.
commercialisation
(engineering, construction,
procurement and
Engineering and
construction
spend; 62%
installation) of the worlds

2P reserve base
Global 2009E capex = $662 bn
Source: Deutsche Bank and Wood Mackenzie;* excludes rig construction service capex
Page 31
22 October 2008
The service industry like any other commodity-related business will always prove cyclical as
oil company (NOC and IOC) development spending patterns (which tend to lag the oil cycle)
remain the underlying driver of oil service revenue. Analysis of the outlook for E&C suggests
that this cycle will undergo a smoothing out into the early part of the next decade rather
than suffer a sharp decline, shown in Figure 47.
Figure 47: E&C cycle peak remains obscure forward trajectory should remain broadly
flat medium term
440,000
36%
420,000
35%
Global E& C capex $m n
400,000
34%
380,000
33%
360,000
340,000
32%
320,000
31%
300,000
30%
280,000
29%
260,000
28%
240,000
27%
220,000
200,000
26%
2005
2006
2007
IOC + NOC
2008E
2009E
2010E
NOC % of total spend
Source: Deutsche Bank and Wood Mackenzie
Current pressures on IOCs

and
NOCs
reserves
to
replace
and
meet
production targets into the

second half of the decade
should ensure that these
projects
remain
on
the
medium-term radar
This capex study has brought to surface some of the qualitative trends that had been recently
highlighted in our oil service monthly (Eyes wide open), one of which was the increasing
frequency of project delays cited both in the upstream and downstream segments. Wood
Mackenzie has had to revise estimated timings of final investment decision (FID) on
numerous project developments that have fallen victim to elongated client/contractor
negotiations in the face of escalating EPC costs. Consequently, several of these have now
extended beyond our 2007-09E forecast horizon. Notably however, current pressures on
IOCs and NOCs to replace reserves and meet production targets into the second half of the
decade should ensure that these projects remain on the medium-term radar. If anything it
places upside pressure on our capex trajectory that appears to have approached a plateau.
We discuss the dynamics surrounding absolute levels of profitability within the service sector
in the next section (E&C industry dynamics).
Whats hot and whats not.?
Knowing
and
which
regions
themes
boast
the
greatest growth in spend

near term will form the
basis of differentiating the
drivers
behind
relative
earnings performance for

the services with respect
By region
The key differentiator of performance within our European oil service universe (aside from
margin delivery and management capabilities) will be the ability to position a firm across the
themes and regions that offer the best growth within the updraft of global capex.
In partnership with Wood Mackenzie we have adopted a rigorous approach to global E&C
spend that draws from the consultancys vast database of individual field models. We have
incorporated all upstream/downstream projects likely to be sanctioned from 2008 based on
our partners assessment of potential commercialisation of the worlds current 2P reserve
base. These capex forecasts are sense-checked with what is implicit within our own global
supply models and should not vary significantly in an oil price world of $60/bbl+ (Wood
Mackenzie long-term assumption) given the bottom-up nature of our analysis.
to their existing exposure
Page 32
22 October 2008
Figure 48: Global E&C outlook (NOC + IOC) by region (av. yearly growth rates 200810E shown alongside)
450
The key regions offering
420
top quartile growth near-
390
term will be Africa, the
SE Asia 10%
Middle East and, to a lesser

degree, Canada heavy oil
Russia and North America
now demonstrate a
negative growth profile
Global E& C capex (US $ bn)
360
330
S. Am erica 1%
300
Russia -4%
270
Canada Heavy Oil 23%
240
210
N. Am erica -1%
180
150
M iddle East 18%
120
90
Europe 2%
60
Caspian shifted the most
Caspian 9%
30
since last years negative

growth outlook
Africa 21%
2005
2006
2007
2008E
2009E
2010E
Downside
risk
on
our
forecast if oil price falls

below $60 (for a sustained
period of time) will be far
more
exaggerated
Europe,
Canada,
America
latter
and
two
already
for
North
Russia
(the
countries
are
demonstrating
negative capex)
The outlook depicted in Figure 48 implies an average growth rate in spend of 6% p.a. to
2010, slightly above the circa 5% p.a. witnessed across the first half of the decade and last
years forecast of 2% (2007-09E). Key regions offering top quartile growth in spend within
our forecast horizon are expected to be Africa, the Middle East and to a lesser degree
Canada (heavy oil) followed by South East Asia and the Caspian. The hike in oil price
witnessed across the last 12 months has seen renewed interest by the majors and
independents in mature provinces such as Europe (predominantly the North Sea). Note that
capex growth in Europe as well as Canada could equally prove elastic on the downside given
the recent drop in oil price to nearer $70/bbl. We therefore caution that there is downside risk
(we estimate up to 20% less if oil prices sink to $40/bbl) to our bottom up forecast in these
regions if oil prices fall below $60/bbl for a sustained period of time. Russia and North
America are already witnessing negative growth in capex which at sub $60/bbl could see a
more exaggerated decline.
By theme
We have utilised Wood Mackenzies regional and industry expertise on both upstream and
downstream developments to build a project-by-project database of global spend by energy
segment.
Figure 49: Global E&C outlook (NOC + IOC) by theme (av. yearly growth rates 200810E shown alongside)
455
quartile growth:
420
Upstream:
385
Refining & petrochem icals 13 %
350
Oilsands 23%
facilities and to a lesser

degree SURF
Midstream/downstream:
Refining/petrochemicals
(predominantly Middle East
and South East Asia) and to
a lesser degree oil sands
Deepw ater contribution to global

spend
14.0%
LNG plant 5%
13.0%
12.0%
GTL and Regas 1 %
315
280
Onshore upstream 4%
245
11.0%
210
10.0%
175
140
9.0%
105
Shallow w ater 3%
70
8.0%
35
Deepw ater facilities & FPSOs 23%
0
2005
Deepw ater w eighting
Deepwater FPSOs and
Global E& C capex (US $ bn)
The key markets offering top
7.0%
2006
2007
2008E
2009E
2010E
Deepw ater subsea 5%
Source: Company data, Deutsche Bank & Wood Mackenzie estimates.
Page 33
22 October 2008
This years review incorporates improved Wood Mackenzie coverage of Russia, Canada and
South East Asia (including China) (IOC and NOC spend) not to mention further development
of our LNG and downstream products. All these factors have helped improve the granularity
and accuracy of our capex forecasts. The variance vs. last years capex horizon (2007-09E) is,
on average 35%. One-third of this rise is due to expanded WM coverage with the remainder
attributed to projects being pushed back (and subsequent upward cost revisions) and greater
than expected cost inflation (raw materials, staff hikes, vessel rates). We break this down
further in Appendix C.
Figure 50: Absolute spend across the global energy complex and expected year-on-year growth rates
Year/year growth rates
$mn
2006
2007
2008E
2009E
2010E
2007/06
2008E/07
Deepwater Sub-sea
9,459
13,050
14,080
13,278
15,176
38%
8%
-6%
14%
5%
Deepwater Facilities & FPSOs
18,093
20,323
23,610
28,860
38,090
12%
16%
22%
32%
23%
Shallow water upstream (surface

facilities & infrastructure)
64,958
80,965
88,596
89,940
88,356
25%
9%
2%
-2%
3%
146,612
167,543
185,318
189,725 189,829
14%
11%
2%
0%
4%
Onshore upstream (facilities &

infrastructure)
Gas to liquids (GTL)
LNG plant
2009/08E 2010/09E Av. 2008-10E
1,150
2,050
4,900
5,125
3,572
78%
139%
5%
-30%
38%
10,484
12,910
17,910
16,997
13,591
23%
39%
-5%
-20%
5%
Re-gasification terminals
6,489
6,839
7,487
7,515
5,551
5%
9%
0%
-26%
-5%
Oil Sands
11,086
14,295
16,674
21,067
26,694
29%
17%
26%
27%
23%
Refining & Petrochemicals
16,375
19,735
27,417
27,417
27,417
21%
39%
0%
0%
13%
8,099
9,078
8,767
8,104
8,387
12%
-3%
-8%
3%
-2%
Total E&C capex
292,805
346,789
394,758
408,028 416,663
18%
14%
3%
2%
6%
Total E&C capex 2007E
262,158
287,933
283,948
281,982
na
10%
-1%
-1%
na
3%**
12%
20%
39%
45%
na
Other*
Variance
Source: Company data, Deutsche Bank & Wood Mackenzie estimates;*other includes operations and maintenance capex as well as spend that cannot be categorised by one specific theme; **2007-09E
Mid term, the key drivers of global E&C spend:
Mid-stream are refining/petrochemicals and to a lesser degree oil sands. Wood

Mackenzie expects a strong up-tick in oil sands capex towards the end of the decade.
Refining and petrochemicals capex is expected to be fuelled predominantly by renewed
Middle East and South East Asia activity. Note that Wood Mackenzie have cautioned that
its forecast from 2010 for oil sands capex faces downside risk if oil prices fall below
$70/bbl for an extended period of time. Indeed we have recently seen anecdotal
evidence (commentary from Shell and Total management) that the next phase of
development (from 2010) may be pushed back. We are comfortable with our forecast for
2008/09 (even with oil prices moving towards $60/bbl) given it captures existing
developments that have already been flagged by oil companies for completion.
We expect the accelerated

shift
into
ultra-deepwater
drilling (as noted in the

previous section) to spur a
proportionate
increase
in
E&C capex (ultra-deepwater

subsea
and
facilities/FPSOs)
Page 34
in
turn
Upstream are deepwater facilities and FPSOs (and to a lesser extent deepwater
subsea). Both of these have gradually risen in the ranks (of highest growth themes)
across the past two years of our E&C capex review. The pick up in deepwater FPSOs
and facilities capex comes as no surprise as multiple upstream developments initiated
several years ago enter into their production development phase (post subsea
infrastructure investment). Figure 51 suggests there is a 2-3 year lag (although in some
cases this can be up to seven years if governments delay sanctioning) between drilling
activity (with respect to those wells spudded successfully) and the start of a project
development life cycle. We expect the accelerated shift into ultra-deepwater drilling (as
noted in the previous section) to spur a proportionate increase in E&C capex (ultradeepwater subsea and in turn facilities/FPSOs).
22 October 2008
14000
12000
12000
11000
10000
10000
8000
9000
6000
8000
4000
Aggregate drilling days
Deepwater E&C capex
13000
2012E
16000
2011E
18000
14000
2010E
15000
2009E
20000
2008E
16000
2007
22000
2006
24000
17000
2005
18000
2004
Drilling days (deepwater >400m)
Figure 51: Deep- and ultra-deepwater drilling should spur accelerated investment
across the deepwater E&C complex
Deepw ater subsea capex
Source: Company data, Deutsche Bank & Wood Mackenzie estimates.
Page 35
22 October 2008
E&C industry dynamics and

relative profitability
Against the backdrop of the capex projections highlighted in the previous section, we
have analysed the competing dynamics within these various markets to arrive at our
preferred themes (best capex and margin upside) across the E&C service spectrum.
Our analysis suggests that these are refining and petrochemicals (Middle East and
South East Asia predominantly), deepwater facilities/FPSOs and subsea,
In our opinion, the oil services will witness an expansion in momentum across the
topline into the end of the decade. Margin growth should remain stable (our outlook
has not changed since last year). The latter should be supported by existing backlog
signed on favourable terms and at better prices (relative to 2005/06) which will
materialise across our forecast horizon assuming contractors execute well (average
contract life is currently 1.5-2 years).
Against the backcloth of capex projections highlighted in the previous section we are now
able to paint a picture in terms of optimising exposure where best to be positioned across
the service spectrum by theme. Our strategic analysis of the industry segments (margin
derivation detailed in Appendices D and E) coupled with our Wood Mackenzie forecasts is
shown below in Figure 52. We also highlight how these themes have evolved across the two
dimensions since our study a year ago.
Figure 52: Current expectations for growth rates and potential for margin gain
GTL
Average capex grow th 2008-10E
40%
Increase in
capex
momentum
vs. 2007 study
35%
30%
25%
20%
Deepw ater
Facilities
Oil Sands
Refining &
Petrochem ical
M iddle East
15%
10%
Shallow water
Deepwater
subsea
Onshore
Upstream
5%
LNG
0%
Frontier
Developm ents
-5%
Regas
-10%
Broadly similar margin outlook

vs. 2007 study
-15%
-
25
50
75
100
125
150
175
200
225
Absolute m argin upside 2008-10E(bps)

Page 36
22 October 2008
Figure 53: Last years growth rates and potential for margin gain (bubble size is relative proportion of total spend)
35%
GTL(Capex grow th 63%)
Average capex grow th 2007-09E
30%
25%
LNG
Oil Sands
20%
M iddle East
15%
Deepw ater
Facilities
10%
5%
Onshore
Upstream
0%
-5%
Deepw ater
subsea
Refining &
Petrochem icals
Regas
-10%
Frontier Developm ents

Shallow w ater
-15%
-
25
50
75
100
125
150
175
200
225
Absolute m argin upside 2007-09E(bps)

Key movers and shakers

With the exception of a few themes, we believe the global service outlook will witness an
expansion in momentum in topline growth against a robust margin outlook (broadly
unchanged from last year). Reasons for this renewed up-tick (vs. 2007 where capex
momentum appeared to be slowing) include:
Wood Mackenzie assuming project FIDs (of which many were delayed across 2007-08)
will reach completion before the end of the decade;
Higher commodity prices (i.e.>$60bbl for a sustained period) has fuelled marginal
investments in maturing fields with the result being that shallow water and onshore
upstream themes are now in positive growth territory.
The themes which appear to have demonstrated the most notable shifts are:
Frontier developments (positive): Whilst FID in the FSU has historically been
bottlenecked around local and international politics we expect a renewed appetite in
investment across the medium term (albeit that majority of this will be FEED work).
LNG (negative): this theme was expected to outperform across 2007/08; however, a
delay in project sanctioning (notably from Nigeria, which represents a large portion of the
capex) has resulted in it dropping significantly in terms of superior growth themes.
Deepwater facilities/FPSOs (positive): As highlighted in the previous section, the uptick in deepwater FPSOs and facilities capex comes as no surprise as multiple upstream
developments initiated several years ago enter into their production development phase
(post subsea infrastructure investment).
Page 37
22 October 2008
Company positioning by
theme, region and NOC
Varying degrees of exposure to our preferred segments should power impressive
earnings growth medium term across the oil services (we expect sector EPS of 24%
CAGR 2008-10). Within the E&C complex we seek diversified plays that are well
exposed to our highest conviction themes as well as NOCs. In our opinion, these are
Saipem and Amec. In a falling oil price and lack of certainty around timings on project
awards, we believe that being NOC exposed and in several themes/regions (as well as
non oil and gas activities) reduces the downside risk on company backlog growth
relative to a niche player (i.e. in a specific theme or region).
Within exploration we favour specialised plays that have high absolute exposure to
ultra-deepwater or rig construction given that we believe these themes possess
structural characteristics that remain intact below $60/bbl. In our opinion, these are
Seadrill (also has sector leading NOC exposure) and Lamprell.
In a scenario where the oil price sits below $60/bbl for a sustained period, we believe
the earnings of E&C companies will be negatively impacted beyond 2010 as oil
company capex gets pulled back (existing company backlog across the sector provides
revenue cover across our forecast horizon). Against this backdrop, we believe Saipem
and Amec will outperform on a relative basis (vs. their E&C peers); Wood Group and
Aker Solutions should under-perform. On an absolute basis we prefer Lamprell and
Seadrill from our entire coverage universe.
Company positioning across service spectrum

Having highlighted the segments which offer the best relative growth in capex and margin,
we have compared each companys contract blueprint against this macro backdrop in order
to model its business. Of course, the degree of margin progression and topline growth
(driven in turn by incremental contracts won) will not only depend on the companys market
share within the respective theme/region but also specific operational issues such as
resource availability (e.g. personnel, vessels/rigs, construction yards, etc.) and management
capabilities.
In Figure 54 we demonstrate this, albeit somewhat superficially by showing their topline
spread across the various themes/regions. Our estimate of their absolute exposure is given
as a percentage of 2008E group revenues.
Page 38
Acergy
Amec**
Lamprell
Petrofac***
Saipem ****
Onshore drilling
6%
Shallow water drilling
1%
Seadrill****
Subsea 7
Technip
Tecnicas
Wood
Group*****
Estimated segment
capex 2008E ($ bn)
DB preferred
segments 2008E
32%
53.4
Deepwater drilling
5%
48%
Ultra deepwater drilling

5%
Surface servicing
Exploration: associated
well head services******
10%
10%
10%
4%
26.2
6%
52.5
20%
Surface equipment
24.6
Subsurface servicing
Subsurface equipment and products
Exploration:
rig construction services
Newbuiilds
20%
13.1
Upgrades
30%
1.3
Others
5%
Onshore/offshore operations and

maintenance
15%
10%
Deepwater SURF
65%
15%
18%
5%
4%
5%
4%
Frontier Developments
5%
5%
LNG
5%
Deepwater Facilities
Shallow water SURF/facilities
Engineering &
Construction services
36.9
20%
5%
30%
40%
15%
5%
10%
20%
85%
2.2
10%
8.8
25%
10%
14.1
5%
10%
5%
23.6
5%
5%
5%
88.6
10%
18.5
14%
25%
15%
17.9
Re-gas terminals
5%
5%
0%
5%
2%
7.5
Refining & petrochemicals
5%
10%
15%
70%
8%
27.4
Onshore facilities & infastructure
5%
14%
10%
10%
15%
166.8
5%
50%
5%
Gas to liquids
4.9
10%
Heavy Oil sands: extraction
5%
16.7
5%
Heavy Oil sands: refining

Non oil and gas
Power & Process and others

Total
(100%)
20%
55%
(100%)
(100%)
5%
(100%)
(100%)
20%
(100%)
(100%)
(100%)
(100%)
(100%)
(100%)
$ 605 bn*
Group revenues 2008E ($bn)

3.0
9.4
4.5
0.6
3.0
13.9
2.1
2.5
10.6
3.5
5.1
Source: Deutsche Bank; Company data, *excludes seismic; * *includes E&E and power and processes under Non oil and gas; * * *excludes resources division; * * * * w.r.t. drilling segment, % detailed above reflect average of 2007-10 revenue share (so as to capture backend loaded
newbuild program). In the case of Seadrill, the Well services division has since been IPOd (with 80% equity held); * * * * *includes GTS division under Non oil and gas; * * * * * * encompasses exploratory, appraisal and development activities
Exploration:
drilling services******
Aker
Solutions
22 October 2008
Figure 54: Company positioning by theme*
Page 39
Saipem
Seadrill**
Subsea 7
Technip
Tecnicas
Reunidas
Wood Group
34%
50%
na
23%
16%
1%
4%
5%
38%
31%
na
12%
36%
7%
3%
3%
23%
7%
na
1%
15%
2%
5%
6%
na
40%
20%
45%
27%
na
7%
15%
5%
na
25%
10%
1%
na
5%
21%
5%
5%
2%
Aker
Kvaerner
Amec
42%
2%
3%
Middle East
5%
5%
Russia/FSU/Caspian
2%
Africa
Lamprell
Europe
34%
31%
30%
27%
North America
0%
10%
17%
60%
South America
18%
10%
SE Asia
6%
40%
26%
5%
16%
Canada (Heavy Oil)
na
DB preferred
regions*** 2008E
43%
3%
10%
(Total)
(100%)
(100%)
(100%)
(100%)
(100%)
(100%)
na
(100%)
(100%)
(100%)
(100%)
Group revenues 2008E

($bn)
3.0
9.4
4.5
0.6
3.0
13.9
2.1
2.5
10.6
3.5
5.1
Source: Deutsche Bank; *excludes resources division; * * rigs deployed all over the world and are not allocated to a specific region; * * *refers only to global E&C capex i.e. does not capture exploration related services
Technip and Saipem appear to be the most diversified plays within the European E&C service space. Both boast dominant absolute exposure to the highest number
of preferred themes globally. Lamprell and Seadrill possess high absolute exposure to rig construction and ultra-deepwater drilling, respectively.
Petrofac*
Acergy
22 October 2008
Page 40
Figure 55: Company positioning by region
22 October 2008
NOC capex offers relatively safe haven, but for whom?
We are in an era where we

believe
governments
overseeing NOCs will have

no choice but to prioritise
national energy security and
political ambition over lower
returns
within
on
the
developments
context
of
falling oil price
In theory, capital spend originating from NOCs should be less sensitive to movements in oil
price, as their respective governments place increasing emphasis on securing energy
supplies into the next decade. Countries such as Angola, Nigeria, Brazil and Qatar, that are
deploying a significant portion of their resources and people into oil and gas related activities,
will not operate under IOCs commercial consideration. While the rate of spend will inevitably
slow down if the oil price drops significantly, the pace of decline may be tempered by the
need to maintain employment, etc. in the country itself.
There is of course a counter-argument that a falling oil price and deteriorating credit
conditions could discourage further investment by governments into oil- and gas-related
projects, as their priorities sit with alternative industries that require necessary funding.
Without analysing countries fiscal budgets and their oil price planning assumptions, it is
difficult to work out which countries would be most susceptible here. However, as discussed
earlier, we believe South America, West Africa and the Middle East will be least impacted as
their respective governments prioritise strategic expansion of their countrys oil production
Figure 56: Contracts signed with NOCs* by company: Seadrill, Saipem and Tecnicas stand out
Seadrill
Saipem
Tecnicas
Wood
Group
Petrofac
Technip
AMEC
Lamprell
Acergy
Subsea 7
Aker
Solutions
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
NOC
Pure IOC
2008YTD
2007
2008YTD
2007
2008YTD
2007
2008YTD
2007
2008YTD
2007
2008YTD
2007
2008YTD
2007
2008YTD
2007
2008YTD
2007
2008YTD
2007
2008YTD
2007
0%
Average NOC exposure
Source: Deutsche Bank and company data

*NOCs include: Norway State DFI; Petrobras; Sonangol; Sonatrach; Sinochem; CNOOC; CLJOC, PetroChina; SABIC; ONGC; Qatar Petroleum; Pars Oil and Gas Co., Iran; CNPC, Petronas Carigali; Sevmorneftegas; Kazmunaigaz;
Gazprom; Rosneft; Codelco, Chile; SOCAR; Petroci; Saudi International Petrochemical Co. (SIPCHEM); Royal Australian Navy; Sinopec; Nanjing Chemical Industry; SNPC; Petro-Vietnam; GE Petrol; NNPC; National Gas Co. of
Trinidad and Tobago; Saudi Aramco; Petroleum Authority of Thailand; Taiwanese National Oil Co; Pemex; Spanish Administration; Mubadala Development Co; Iranian Oil Co; Dubai Petroleum Establishment; Irkutsk Govt;
Petroleum Development Oman; ETAP; Oman Govt.; Kuwait Oil; Petrotin; DONG; Yemen Gas Co.; KNOC; PDVSA; NAFTEC ; ENAP ; Sasol ; National Petrochemical Co., Iran; Sigdo Koppers SA ; Petrox S ; Egyptian Natural Gas
Holding Co; Abu Dhabi National Oil Co; Eco Petrol; Turkmenneftegas, ShenHua Group, Turkiye Petrolleri, Korea National Oil Corporation, Sonangas
In a falling oil price scenario, Seadrill and Saipem backlog (and subsequent top line realisation)
should in theory be least impacted. We believe that, whilst it is difficult to measure the
impact of oil price movement on service company earnings, these companies arguably offer
the safest harbour and should demonstrate the greatest share price disconnect to volatility in
commodity prices across the medium term.
Page 41
22 October 2008
Sector valuation and

company overview
Earnings momentum slowing but growth remains intact
Although the current lack of visibility on where the oil price could settle (and its impact on
mid-term capex) makes it very difficult to gauge exactly when the cycle will turn, our
confidence in earnings growth to the end of the decade is underpinned by an expectation
that the services will continue to benefit from an upward trajectory in global spend within our
forecast horizon (2008-10E). This in turn should drive positive growth for revenue out to 2010
as we assume contract terms of 18 months on average. Equally our company forecasts
broadly reflect their respective exposures across the oil chain. In saying this however, Figures
57 and 58 show the sectors rate of backlog and margin expansion slowing significantly
across 2008-10E vs. 2005-07. Future compounded EPS growth across a three-year horizon
has dropped across the past two years from a peak of 40% in Q306 (i.e. 2006-09E) to
currently 22% (2008-10E), suggesting that while the momentum is still there it is less
accelerated.
Figure 57: Rate of sector revenue growth y/y*
Figure 58: Rate of sector EBIT margin expansion y/y*
35%
15% av. 2007-10E
13% av. 2007-10E
% growth
30%
25%
20%
15%
10%
Source: Deutsche Bank and company data; * we have omitted Seadrill given its transforming asset base
makes like for like meaningless
2010 E
2009 E
1Q
2008 E
4Q
2007
3Q
2Q
1Q
4Q
2006
3Q
2Q
1Q
4Q
2005
3Q
2Q
1Q
0%
2004
2010 E
2009 E
1Q
2008 E
4Q
2007
3Q
2Q
1Q
4Q
2006
3Q
2Q
1Q
4Q
2005
3Q
2Q
1Q
5%
2004
% growth
40%
55%
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Source: Deutsche Bank and company data; * we have omitted Seadrill given its transforming asset base
makes like for like meaningless
The above equally shows that future EPS growth should be more dependent on the degree
of volume (or backlog) expansion than margin improvement. Against a backdrop of greater
potential pricing resistance from the contractors clients, this supports our top-down view
that the European Oil Services will find it increasingly difficult to extract the same increment
in margin as before. The point to make here is that the upside risk to earnings will no longer
rest on contingencies being released (and therefore margin) but rather on the rate and size of
contracts awarded. Downside risk remains execution with its potential to erode EBIT more
accentuated given the contractors reduced room for error on their projects.
Valuation more cautious view on sector target multiple linked

to the added risk of macro conditions deteriorating severely
Our 2009E EV/DACF for the sector is currently 4.0x (market cap-weighted) which represents
c. 63% discount to the sectors historical average (2000-07E) of 10.9x. Given the continued
positive momentum in both exploration and E&C capex we expect over the near to medium
term against what appears to be a slowing in earnings momentum, we believe on balance
that our target sector multiple (2009) should trade near about historical multiples.
Page 42
22 October 2008
On balance we argue that

our sector target multiple
should
trade
at
15%
discount (vs. previously in

line)
to
the
historical
average
At the industry level, we believe the risk (execution)/reward (primarily revenue) trade off has
shifted more into equilibrium. However, together with the heightened lack of visibility
surrounding credit markets particularly in the emerging nations and the risk of macro
conditions deteriorating further, on balance we argue that our sector target multiple should
trade at a 15% discount (vs. previously in line) to the historical average. Strong cashflow
visibility to the end of the decade fuelled by current sector backlog (average revenue cover
sits at 18 months) coupled with healthy balance sheets (refinancing risk on debt maturities
appears limited see Appendix K) justifies why we believe this sector should not trade at a
deeper discount to historical multiples.
Figure 59: Sector EV/DACF*
Figure 60: Company 2009E EV/DACF (sector target:

9.3x)*
Target sector multiple (2009x)
European historical average (2000-07)
14.0
12.0
12.0
10.0
2009 EV/DACF
EV/DACF
10.0
8.0
6.0
8.0
6.0
4.0
4.0
European oil services uses a

combination of earnings and
cash flow techniques, aided
DCF
valuation
as
important sanity check
Wood
Group
Tecnicas
Reunidas
Technip
Subsea 7
Seadrill
Saipem
Petrofac
2010E
Note our valuation of the
by
2009E
Lamprell
2008E
Aker
2007
Solutions
2006
Acergy
0.0
0.0
AMEC
2.0
2.0
an
Our implied price targets are supported by our DCF valuation in which we assume peak
company earnings in 2010 with subsequent linear fade to our mid-cycle scenario in 2013. We
have raised our company discount rates to reflect the increased market risk premium as well
as the higher cost of debt driven by the lack of credit liquidity across Europe and US. We
detail changes in company WACC in Appendix A. This in part drives our price target changes
on our universe of stocks (summarised overleaf). We assume a long-term growth rate of 3%
which is the average mid-cycle rate since 1990 for the oil services.
*Comparing these companies on any one valuation metric will never yield a perfect result
given their differing asset bases/capital structures/regional tax exposures (in turn related to
where along the service chain they operate). We consider EV/DACF to be the lesser of the
evils given the broadly similar capital intensities and gearing levels across the majority of the
companies we follow. Exceptions here would be, for example, Saipem and Wood Groups
current net debt position (vs. remainder of the sector, which is net cash), Amec and
Petrofacs asset-light business relative to peers.
Company-specific overview: winners need to have it all

In picking our highest conviction stocks, we look for the following investment credentials:
High exposure to one of our preferred themes; with regards the E&C oil services they
should also be well diversified (across the oil chain and/or in other sectors such as
power, process and infrastructure)
High NOC exposure: particular emphasis on South America, West Africa, Middle East
Excellent execution track record such that downside risk to earnings forecast is low on a
relative basis
Strong earnings upside potential
Compelling valuation we would also argue for a premium relative to the sector if the
above all co-exist (equally the reverse if they do not)
Page 43
22 October 2008
Figure 61: Company specific overview and price target derivation

Compan
y (local
fx)
NOC %
2008 YTD
EPS
Current Target +/Target Implie
CAGR
2009E
to sector
2009E
d PT DCF DB rec.
(08EV/DACF
(9.3x)
EV/DACF (local)
10E)***
Old New
PT PT**
Comment
+ High exposure to deepwater SURF
Acergy
(NOK)
9%
12%
(18%)
1.8
-20%
7.4
115
61
- Niche industry exposure leaves it at greater risk to reduced
Hold potential capex growth; upside earnings potential limited
125
90
140
85
execution risk relatively higher than peers

Net: argue for 20% discount to sector target (previously -10%)
Aker
Solutions
(NOK)
6%
16%
(18%)
+ Well diversified across both exploration and E&C; robust

execution track record
2.5
-35%
6.0
105
65
Hold - Exposed to Russia and Europe (regions most at risk in sub$60/bbl); limited exposure to our preferred themes
AMEC ()
17%
23%
(21%)
3.9
10%
10.2
784 732
Buy
+ Superior earnings potential; downside risk on margin and

revenue growth low given execution capability and product
diversification respectively, sector leading cash yield
- Risk on oil sands capex growth (if oil prices fall further) removes
important growth driver (albeit c.10% of 08 revenues)
960 760
Net: argue for 10% premium to sector target
Lamprell
()
10%
23%
(17%)
1.7
10%
10.2
462 314
Buy
+ Excellent exposure to rig construction services; upside earnings

potential high; high Middle East exposure; robust execution track
record; compelling valuation
- Risk of slowdown on newbuild backlog growth due to lack of
financing available to drillers
650 400
Net: argue for 10% premium to sector target
Petrofac
()
39%
36%
(47%)
+ High exposure to Middle East; absolute value underpinned by

energy developments division; good relationships with suppliers
reduces execution risk, high NOC exposure
3.9
-10%
8.3
764 460
Hold - Energy developments sensitive to oil price risk, niche regional
680
500*
****
30
22
exposure leaves it at risk of reduced backlog growth if projects

get delayed
Net: argue for 10% discount to sector target (previously 0%)
Saipem
(E)
56%
28%
(22%)
6.2
15%
10.7
28
17
+ High NOC exposure; excellent exposure across several

preferred themes inc deepwater drilling; excellent execution track
record; valuation compelling and underpinned by robust drilling
Buy backlog
- Risk of delay of new rigs coming onstream, USD devaluation
translation risk on topline
Net: argue for 15% premium to sector target (previously 10%)
Seadrill
(NOK)
83%
49%
(55%)
5.4
0%
9.3
160 181
6%
15%
(13%)
1.8
-20%
7.4
140
+ Excellent exposure to ultra-deepwater drilling; valuation

compelling and underpinned by robust backlog; sector leading
Buy earnings growth, high NOC exposure
- Risk of delay of new rigs coming onstream,
Net: argue for in-line sector target multiple
210 170
+ High deepwater SURF exposure,
Subsea 7
(NOK)
65
Hold - Niche industry exposure leaves it at greater risk to reduced

potential capex growth
125 100
Technip
(E)
28%
17%
(13%)
1.1
-20%
7.4
68
42
Buy
+ Excellent exposure across several preferred themes; relative

valuation compelling market appears to discount poor execution
track record, relatively high NOC exposure
- Risk of write-downs on Qatar LNG projects, USD devaluation
translation risk on topline
70
55
53
47
Net: argue for -20% discount to sector target
Tecnicas
Reunidas
+ High exposure to Middle East and refining/petrochemicals
56%
(E)
28%
(23%)
1.7
0%
9.3
48
46
Buy - Niche regional exposure leaves it at risk of reduced backlog

growth if projects get delayed
Net: argue for in-line sector target multiple

+ Diversified beyond oil and gas activities, good execution
Wood
Group
40%
23%
(16%)
5.1
22%*
4.0
-30%
6.5
Sell - Exposed to Russia and Europe (regions most at risk in sub296 133 (fromH $60/bbl); does not take LSTK projects which represents the bulk
old) of the offshore subsea and facilities market it operates in
430 215
Average
Source: Deutsche Bank and company data; * Excluding Seadrill given back-end loaded rig schedule that skews earnings growth; including Seadrill average would be 24%; **taken as avg. of price target implied by relative
valuation target multiple and fair value; ***consensus shown in brackets; **** taken as an average of various scenarios (detailed below), ***** combines relative and absolute valuation techniques: DCF, sum-of-parts and
sector benchmarks
Page 44
22 October 2008
Top picks and key

recommendation changes
Saipem, PT E22 (previously E30); diversified (E&C and
exploration drilling), high NOC exposure and robust execution
Sector
leading
exposure
in
NOC
addition
to
presence in several of our

preferred
themes
(exploration
and
E&C)
provides continued earnings

visibility
and
momentum
across 2008-10
We believe Saipem benefits from sufficient investment credentials to differentiate the

company as the top pick across the E&C complex. Excellent execution track record should
reduce the probability of negative earnings surprises vs. peers. Sector-leading NOC exposure
in addition to presence in several of our preferred themes (exploration and E&C) provides
continued earnings visibility and momentum across 2008-10. Saipem is able to rely on
continued cash support from ENI (owns 43% of the equity of the group), which limits the
liquidity risk significantly. In our opinion, this collectively argues for a 15% premium to our
sector EV/DACF target multiple for 2009.
Supporting this view is an extensive review of the companys drilling business. We have
applied our Wood Mackenzie/DB day rate forecasts to the companys various classifications
of rigs by using water depth as the common factor.
Figure 62: EBITDA spread across exploration (drilling)
Figure 63: Drilling segment EBITDA by rig class
and E&C
1000
2000
EBIT D A (Euro m )
EBITDA (Euro m)
800
1500
1000
500
600
400
200
0
2007
2008E
Offshore construction
Onshore construction
2009E
Onshore Drilling
Source: Deutsche Bank, Wood Mackenzie and company data
Offshore Drilling
2010E
0
2008E
2009E
Onshore
JU 150
2010E
JU 300
4th gen semi
2011E
2012E
5th/6th gen semi/drillship
Source: Deutsche Bank, Wood Mackenzie and company data
As Figures 62 and 63 show, Saipems excellent leverage to ultra-deepwater via its array of
fifth/sixth generation rigs (Figure 54 highlights this unique exposure amongst the E&C peers)
represents a key growth driver for group earnings from 2009 when they are due to come onstream. As these rigs have already received, on average three-year-plus contracts, it also
improves the visibility of the companys earnings vs. its European E&C peers. The key risk in
our opinion is a delay in the delivery of these rigs.
Page 45
22 October 2008
Amec, PT 760p (previously 960p), diversified (oil and gas/power

and process), sector leading cash yield and robust execution
proven management
We believe Amec should trade at a 10% premium to our 2009E EV/DACF target sector
multiple based on:
capabilities to deliver should
Managements track record and recent success in restructuring the business. Strong
execution capabilities at a time when customers are seeking to widen the playing field
for quality contractors should see Amec gain market share and place upside pressure to
our topline forecast.
The structural characteristics of the industries Amec operates in are critical in helping it
push through higher prices not least in achieving leading edge margins. In our view this
potential will be unlocked at a faster pace than we consider the market is expecting
placing upside pressure on our EPS forecast.
A cash yield (excluding pre-payments it is 707mn) that represents 45% of its market
capitalisation. This not only provides the company with sector leading cash return
potential (within E&C) but reduces its relative valuation: if we were to strip out the cash
from its market cap (and interest income from earnings) its 2009E P/E would equate to
5.6x (currently 8.9x) making it broadly comparable with the current sector average of
5.7x.
Well diversified beyond oil and gas: on average 38% of 2008-10E revenue is sourced
from power and process primarily gas turbines and nuclear). Our DB capital goods team
expect investment in this sector to grow by an average 15% 2008-10E).
see relative market share

increasing
operational transformation:
margin gap between similar
E&C peers should unwind
...half the companys market
cap is company owned cash
(i.e. exc. pre-payments)
implies high cash return
potential
Key downside risk is a slow down in oil sands spend (albeit it represents on average 10% of
2008-10E revenue), which we believe is one of the most susceptible themes to oil price
falling below $60/bbl.
Lamprell, PT 400p (previously 650p), leader in rig construction,

robust execution, highest potential upside to earnings
unique exposure to rig

construction services and
dominant foothold in the
Middle East
Lamprell is the only company in Europe with high absolute and relative exposure to rig
construction services. Based in the UAE (management all from the UK), the company has
cemented excellent local content and relationships with key drillers as well as the
government. We believe Lamprell should trade at a 10% premium to our 2009E EV/DACF
target sector multiple based on:
Excellent topline visibility underpinned by one of our top growth regions, the Middle
East. Demand to build and upgrade rigs is highly visible and we expect that it will grow
at an average of 100% across the next three years. Middle East has a 25% market share
and is growing. Lamprell has a 90% share of the regions refurbishment business and a
10% share of the local new build sector. The latter is where we believe they are gaining
significant ground as they continue to perform and execute.
Upside pressure to earnings forecast. Despite our forecasts being at the top end of
consensus, we believe next year offers significant upside risk to our forecast. What is
critical here is that this would not be possible unless Lamprell successfully expands its
capacity across 2009 (given current utilisations sit at 90%). With the addition of the new
Hamriyah yard early next year, we believe this could add significant upside pressure to
our topline forecast. We detail this in our note titled rig construction a hidden oasis
published 5 June 2008.
Execution and track record management are very confident in their ability to deliver.
We believe this is supported by their excellent track record to date. In our opinion this
adds upside pressure to our margin forecast assuming untapped contingencies are
released.
proven management
capabilities to deliver and
diversify
greater investor
awareness of Lamprells
story following main market
listing in November could
itself serve as a catalyst to
the shares
Page 46
22 October 2008
Equally compelling, in our view, is the companys absolute upside to the current share price.
Key risk in our opinion is the ability to recruit sufficient personnel to cater for the potential
pipeline of contracts implied by the new capacity coming on line.
Seadrill, PT NOK 170 (previously 210), sector leading ultradeepwater exposure, significant cash return potential
sufficient exposure to the
We value Seadrill using a combination of relative and absolute valuation techniques given the
various scenarios of day rates that we have analysed as well as differing sector benchmarks
with which to compare it to (US and European sector multiples). Our base-case DCF of
NOK 180 is modelled around our forecasts for day rates. Alternative scenarios assume a) fiveyear payback and b) leading edge day rates. Seadrill currently trades at a significant discount
(at 3.2x) to the average 2009E P/E multiple for the US Oil Services (5.2x). We believe it should
trade in line with the US peer group and our target sector 2009E EV/DACF multiple based on
its:
up-tick
high relative and absolute exposure to our preferred theme within exploration drilling
services, ultra-deepwater. Managements choice to maintain a degree of rig liquidity in
their portfolio, evident in 2 (or 25%) of its new deepwater units remain un-contracted (vs.
global average of 26%) leaves them with sufficient exposure to further capture this uptick.
$12.5bn backlog fuels sector leading earnings growth (49% 2008-10E CAGR vs. sector
average of 24%): Seadrill possesses excellent visibility in earnings (out to 2016) given the
current length of contract terms some of which run at up to six years. This together with
additional upside to earnings related to higher day rates being signed should overshadow
the risk surrounding delays in rig new-build delivery. In any case even if every rig were
delayed by a quarter, we calculate it would have an immaterial impact on mid-term
earnings growth.
Sector leading cash return potential to shareholders (albeit this assumes credit markets
improve enabling counter parties such as Ship Finance to deal once again): we calculate
Seadrill could return up to half of the companys market cap by 2012 (for more detail
please refer to our note titled Playing the next leg of the ultra-deepwater wave
published 22 May 2008). Management reviews the companys dividend every quarter
and so far this year this has resulted in a yield of 7% from zero prior to that.
number two market share

globally in ultra-deepwater
drilling, our preferred theme
across
the
exploration
services
in
rig
rates
expect >7500ft as 2
deepwater
we
ultra-
newbuilds
remain un-contracted
Sector-leading cash return
potential to shareholder
Our NOK 170 price target is taken as the average of our two DCF scenarios and the share
price(s) implied by our target multiples. As highlighted above the key risk in our opinion is a
significant delay in delivery of the companys newbuilds.
Page 47
22 October 2008
Appendix A: Valuation
matrices
Figure 64: European oil services valuation table
21/10/2008 15:57
Acergy
Aker Solutions
AMEC
Lamprell
Petrofac
Saipem
Seadrill
Subsea 7
Technip
RIC
ACY.OL
AKSO.OL
AMEC.L
LAM.L
PFC.L
SPMI.MI
SDRL.OL
SUB.OL
TECF.PA
Listed
Currency
NOK
NOK
NOK
NOK
Share
price
37.2
53.5
468.0
142.0
428.3
13.0
59.5
42.9
24.1
Rec
Hold
Hold
Buy
Buy
Hold
Buy
Buy
Hold
Buy
Target
share price
90.0
85.0
760.0
400.0
500.0
22.0
170.0
100.0
55.0
(Expensive)
/Cheap %
142%
59%
62%
182%
17%
69%
186%
133%
128%
Market cap
(local bn)
7.6
14.4
1.6
0.3
1.5
5.7
25.5
7.1
2.5
Market cap
($bn)
1.2
2.2
2.7
0.5
2.5
7.6
3.9
1.1
3.4
E.V.
($bn)
1.0
1.7
1.3
0.3
2.0
11.2
9.4
1.1
1.4
Tecnicas Reunidas
Wood Group
TRE.MC
WG.L
19.6
226.3
Buy
Sell
47.0
215.0
140%
-5%
1.1
1.19
1.5
2.0
0.8
2.33
Weighted average/total
91%
European multiples only

Acergy
Aker Solutions
AMEC
Lamprell
Petrofac
Saipem
Seadrill
Subsea 7
Technip
Tecnicas Reunidas
Wood Group
RIC
2006
2007
ACY.OL
AKSO.OL
AMEC.L
LAM.L
PFC.L
SPMI.MI
SDRL.OL
SUB.OL
TECF.PA
TRE.MC
WG.L
11.8
-39.4
-20.2
13.0
9.4
13.7
20.1
11.1
9.4
11.6
12.6
18.0
15.3
16.3
14.1
9.2
15.0
13.0
10.5
13.8
18.9
12.0
6.1
14.1
RIC
2006
2007
ACY.OL
AKSO.OL
AMEC.L
LAM.L
PFC.L
SPMI.MI
SDRL.OL
SUB.OL
TECF.PA
TRE.MC
WG.L
14.0
20.3
22.8
13.1
16.5
24.1
31.8
17.2
26.9
18.0
19.0
18.9
17.8
22.6
15.9
16.1
17.5
24.7
17.1
18.5
22.9
19.3
22.9
NA
14.3
13.8
12.2
12.0
13.1
19.4
10.6
15.2
10.4
9.3
6.6
9.0
Weighted average
Euro/US comparitive
Europe
Acergy
Aker Solutions
AMEC
Lamprell
Petrofac
Saipem
Seadrill
Subsea 7
Technip
Tecnicas Reunidas
Wood Group
Euro services average

European integrated average
Broader European market
US Large Cap Diversified Average
US Mid/Small Cap Service & Equipment Suppliers
US Equipment Contractors/Drillers average
Global services average
EV/DACF (x)
2008E
2.5
3.3
5.0
2.9
6.9
6.4
8.0
2.7
1.8
4.0
5.8
5.2
-0.5
0.17
NA
24%
NA
19%
28.5
Free cash yield (x)
2008E
2009E
2009E
2010E
2006
2007
1.8
2.5
3.9
1.7
3.9
6.2
5.4
1.8
1.1
1.7
5.1
0.9
1.8
2.7
0.9
1.9
4.4
4.3
0.9
0.7
0.8
4.6
-2.8%
-0.2%
56.1%
-0.8%
13.4%
-0.5%
-97.7%
-8.4%
15.8%
12.6%
2.1%
0.3%
2.7%
18.2%
11.5%
6.1%
-1.6%
-14.4%
-2.6%
4.0%
5.7%
0.9%
10.5%
17.0%
9.8%
13.9%
5.4%
-11.3%
-51.4%
20.7%
11.1%
11.4%
1.6%
1%
-4%
4.0
2.9
-5%
2009E
2010E
2006
3.9
5.1
11.3
5.1
10.1
8.6
6.1
3.7
6.1
7.4
8.5
3.7
4.3
8.9
4.0
7.0
6.9
3.2
3.2
4.9
5.1
6.8
3.1
3.8
7.5
3.4
5.4
5.3
2.8
2.8
4.5
4.5
5.6
8.0
9.5
7.4
11.8
8.3
11.3
15.3
9.4
7.2
14.8
9.5
9.6
10.0
8.3
13.5
8.9
11.0
14.4
9.7
6.4
17.9
9.9
7.6
6.7
9.7
9.0
8.2
5.4
7.7
5.7
9.9
9.6
8.3
7.7
5.2
7.2
4.7
NA
8.9
NA
NA
NA
NA
10.4
NA
7.4
8.3
7.3
12.1
9.6
10.6
6.7
8.1
6.6
5.5
6.8
6.6
P/E ratio (x)

2008E
Net debt (2008)

(local bn) / Equity (%)
/ D+E (%)
-0.9
NA
NA
-2.8
NA
NA
-0.8
NA
NA
-0.1
NA
NA
-0.3
NA
NA
2.7
94%
48%
36.8
124%
55%
0.0
NA
NA
-1.5
NA
NA
26.9%
20.5%
11.9%
24.0%
13.0%
-3.9%
6.4%
27.8%
20.7%
26.6%
1.1%
2010E
2006
2007
ROE* (%)
2008E
2009E
2010E
33.9%
23.3%
14.0%
29.8%
26.5%
20.3%
22.7%
31.7%
23.2%
24.7%
0.5%
38.0%
24.9%
13.2%
68.8%
46.3%
20.4%
8.0%
33.3%
9.0%
48.4%
16.2%
31.7%
30.4%
13.3%
69.4%
48.3%
32.2%
9.6%
31.3%
14.0%
55.8%
20.3%
35.3%
35.1%
14.9%
51.3%
43.4%
25.9%
15.6%
29.6%
18.5%
54.2%
21.9%
28.9%
33.7%
17.5%
48.3%
44.6%
26.3%
23.7%
26.2%
21.0%
54.8%
22.3%
27.1%
31.3%
19.1%
44.3%
41.8%
28.8%
21.9%
23.0%
20.8%
45.9%
22.1%
31.4%
10%
21%
29.7%
32.4%
31.6%
29.6%
2009E
2010E
2006
2007
PCF ratio (x)

2008E
2009E
2010E
PEG
2008
1.8
2.5
3.4
2.8
5.6
5.9
9.6
2.0
1.3
3.6
4.7
1.3
1.8
2.3
1.7
2.7
5.0
4.9
1.3
0.8
1.6
4.1
0.6
1.3
1.6
0.9
1.3
3.5
3.9
0.7
0.5
0.8
4.2
99.4
-29.3
20.0
44.8
6.4
13.1
16.1
24.7
5.5
7.4
13.6
17.7
15.3
20.8
7.7
9.0
10.2
11.6
12.5
11.9
17.0
14.9
2.8
4.2
11.9
4.5
7.6
4.6
3.5
2.9
3.7
8.3
9.1
2.6
3.7
9.5
3.5
5.0
4.2
2.5
2.5
3.1
3.7
9.2
2.2
3.3
7.8
2.9
3.7
3.3
2.1
2.3
2.9
3.9
9.4
0.7
0.3
0.4
0.2
0.2
0.4
0.1
0.2
0.2
0.2
0.3
4.8
4.1
5.7
5.8
4.7
4.2
5.1
3.2
5.5
5.6
5.4
4.3
3.9
4.8
2.3
NA
5.1
NA
NA
NA
NA
13.6
NA
8.8
9.9
9.5
7.5
9.1
12.9
NA
9.6
7.6
7.2
4.9
6.7
5.6
NA
5.9
6.5
6.1
4.2
5.7
4.5
NA
5.5
6.0
5.6
3.8
5.3
3.9
NA
5.2
NA
NA
NA
NA
0.3
EV/EBITDA (x)
2007
2008E
Page 48
22 October 2008
Figure 65: European oil services financial matrix

Acergy
Aker Solutions
AMEC
Lamprell
Petrofac
Saipem
Seadrill
Subsea 7
Technip
RIC
ACY.OL
AKSO.OL
AMEC.L
LAM.L
PFC.L
SPMI.MI
SDRL.OL
SUB.OL
TECF.PA
Reporting
Currency
$
NOK
$
$
$
$
Share
price
37
54
468
142
428p
13
60
43
24
2006
219
1,523
54
57
120
327
143
137
195
20
226
74
121
Net income (reporting currency

2007
2008E
226
300
2,289
2,804
92
138
86
96
196
251
625
668
306
634
212
286
321
420
Tecnicas Reunidas
Wood Group
TRE.MC
WG.L
RIC
ACY.OL
AKSO.OL
AMEC.L
LAM.L
PFC.L
SPMI.MI
SDRL.OL
SUB.OL
TECF.PA
TRE.MC
WG.L
Reporting
Currency
$
NOK
$
$
$
$
Share
price
37
54
468
142
428p
13
60
43
24
20
226
2006
2124
50592
2125
330
1864
7517
1160
1670
6927
1247
3469
Revenues (reported currency m)

2007
2008E
2009E
2663
2977
3312
57957
59748
62434
2356
2587
2877
467
594
731
2440
3142
3488
9530
10234
11332
1676
2075
3473
2187
2528
2931
7887
7787
8637
2008
2572
3356
4433
5160
5573
RIC
ACY.OL
AKSO.OL
AMEC.L
LAM.L
PFC.L
SPMI.MI
SDRL.OL
SUB.OL
TECF.PA
TRE.MC
WG.L
Local
Currency
NOK
NOK
NOK
NOK
Share
price
37
54 468
142
428p
13
60
43
24
20
226
2006
1.0
3.8
18.2
4.5
48.7p
1.4
5.3
4.1
8.8
3.2
17.7p
Cash flow per share (local)

2007
2008E
2009E
7.6
13.1
14.3
9.8
12.7
14.6
29.8
39.2
49.3
44.1
31.9
40.5
50.2p
56.4p
86.2p
2.4
2.8
3.1
9.6
16.9
24.1
10.2
14.9
16.9
4.7
6.6
7.8
2.6
2.4
5.3
22.4p
24.8p
24.6p
15%
CAGR
2010E (08-10)
16.6
13%
16.3
13%
59.9
24%
48.4
23%
116.9p
44%
4.0
19%
28.0
29%
18.9
12%
8.4
13%
5.0
45%
24.p
-2%
RIC
ACY.OL
AKSO.OL
AMEC.L
LAM.L
PFC.L
SPMI.MI
SDRL.OL
SUB.OL
TECF.PA
TRE.MC
WG.L
Local
Currency
NOK
NOK
NOK
NOK
Share
price
37
54
468
142
428p
13
60
43
24
20
226
2006
1.3
8.0
0.1
0.0
4.8p
0.3
1.1
1.5
2.7p
Dividend per share (local)

2007
2008E
1.2
1.7
3.0
4.2
0.1
0.2
0.1
0.1
8.2p
10.6p
0.4
0.6
1.46
8.33
1.2
2.1
1.0
1.3
3.5p
5.3p
2009E
1.8
4.9
0.3
0.1
15.2p
0.6
2.7
1.9
6.6p
21%
CAGR
2010E (08-10)
2.2
12%
5.6
16%
0.3
23%
0.2
27%
19.7p
36%
0.8
13%
NA
NA
2.9
17%
2.2
28%
8.0p
23%
RIC
ACY.OL
AKSO.OL
AMEC.L
LAM.L
PFC.L
SPMI.MI
SDRL.OL
SUB.OL
TECF.PA
TRE.MC
WG.L
Local
Currency
NOK
NOK
NOK
NOK
Share
price
37
54
468
142
428p
13
60
43
24
20
226
2006
(557)
(71)
687
(3)
144
(39)
(28,540)
(1,265)
827
167
26
Free cash flow (mn) - local

2007
2008E
2009E
71
799
2,059
1,099
2,442
2,948
380
152
185
79
40
68
96
80
192
(173)
(651)
(225)
(6,365)
(13,129)
1,647
(544)
1,463
1,968
239
284
528
141
125
291
15
19
14
CAGR
2010E (08-10)
2,595
80%
3,361
17%
219
20%
85
46%
391
121%
1,168
NA
5,804
NA
2,245
24%
592
44%
270
47%
6
-44%
RIC
Local
Currency
Share
price
2006
108
180
149
239
m)
2009E
317
3,328
175
121
360
829
1,211
335
523
215
298
Growth
2010E (07-08)
374
32%
3,774
22%
208
49%
145
12%
467
29%
1,091
7%
1,404 107%
377
35%
571
31%
243
361
Average
Acergy
Aker Solutions
AMEC
Lamprell
Petrofac
Saipem
Seadrill
Subsea 7
Technip
Tecnicas Reunidas
Wood Group
Average
Acergy
Aker Solutions
AMEC
Lamprell
Petrofac
Saipem
Seadrill
Subsea 7
Technip
Tecnicas Reunidas
Wood Group
Average
Acergy
Aker Solutions
AMEC
Lamprell
Petrofac
Saipem
Seadrill
Subsea 7
Technip
Tecnicas Reunidas
Wood Group
2010E
3758
65116
3199
852
3922
12854
4048
3263
8999
3644
6044
38%
33%
36%
CAGR
(08-10)
12%
4%
11%
20%
12%
12%
40%
14%
8%
19%
8%
Weighted average
Acergy
Aker Solutions
AMEC
Lamprell
Petrofac
Saipem
Seadrill
Subsea 7
Technip
Tecnicas Reunidas
Wood Group
Weighted Average
2006
7.0
5.5
16.0
15.4
18.9
0.7
2.7
5.9
1.8
EPS (local currency)

2007
2008E
7.1
9.6
8.4
10.4
27.5
41.3
21.5
28.0
28.0
42.5
1.4
1.5
4.5
9.8
7.5
11.4
3.0
4.0
1.3
12.7
1.9
17.3
2006
16.9%
5.7%
5.6%
18.6%
10.6%
11.0%
40.2%
16.0%
7.5%
5.3%
7.7%
13.6%
2006
7.8
-2.5
-13.0
15.1
27.5p
1.5
6.6
9.7
3.7
1.5
21.3p
Backlog ($ bn)
2008E
2009E
2010E
EBITDA Margin (%)

2007
2008E
16.5%
19.0%
6.8%
7.8%
7.0%
8.7%
19.2%
17.9%
12.3%
11.4%
12.0%
13.9%
46.2%
47.4%
18.0%
21.2%
8.9%
10.5%
5.6%
6.2%
8.5%
9.6%
2010E
12.0
14.0
62.3
42.1
79.0
2.5
21.6
15.1
5.4
CAGR
(08-10)
11.8%
16.0%
22.8%
22.6%
36.3%
27.9%
48.8%
14.9%
16.6%
3.8
33.2
4.4
40.2
28.0%
23.0%
2010E
18.6%
9.4%
10.3%
19.0%
23.3%
17.8%
53.0%
20.2%
12.0%
6.8%
9.5%
24%
Increase (bp)
(08-10)
-40
160
164
112
1191
390
555
-93
151
64
-17
2009E
18.0%
8.7%
9.8%
18.5%
18.7%
15.9%
54.4%
20.1%
11.6%
6.6%
10.4%
15.4%
16.7%
19.2%
Debt adjusted cash flow per share (local)
2007
2008E
2009E
7.4
13.4
14.1
9.5
12.8
14.6
24.9
41.6
50.2
21.5
30.1
38.2
41.5p
49.1p
76.5p
1.9
3.0
3.3
12.8
18.2
26.3
12.8
15.8
17.5
3.1
5.8
7.0
1.9
2.6
3.7
30.p
44.4p
51.6p
20.0%
2010E
16.5
16.4
60.5
46.0
105.1p
4.1
29.8
19.6
7.6
4.2
59.1p
330
CAGR
(08-10)
11%
13%
21%
24%
46%
18%
28%
11%
14%
27%
15%
21%
Yield (%)
2008E
4.7%
7.8%
4.4%
7.4%
2.5%
4.9%
14.0%
0.0%
8.9%
6.8%
2.3%
2006
1.3%
7.1%
3.1%
0.0%
1.5%
1.6%
0.0%
0.0%
2.2%
6.4%
1.1%
2007
0.9%
2.0%
2.2%
0.0%
1.8%
1.8%
1.3%
0.0%
2.1%
2.2%
1.1%
2.1%
1.6%
6.3%
5.2%
ROACE (clean before goodwill %)
2007
2008E
2009E
38%
40%
36%
46%
48%
53%
48%
73%
na
235%
753%
466%
na
na
na
20%
15%
15%
6%
8%
13%
25%
28%
30%
43%
54%
61%
na
na
na
17%
19%
19%
2006
61%
60%
15%
99%
na
14%
6%
28%
21%
na
14%
19%
2007
2.7
26.6
2009E
10.2
12.4
52.5
35.2
60.9
1.9
18.6
13.4
5.0
2006
27%
39%
Dividend payout (%)
2007
2008E
17%
18%
2009E
4.9%
9.3%
5.6%
9.9%
3.6%
4.8%
0.0%
0.0%
11.1%
9.8%
2.9%
2010E
5.8%
10.5%
6.7%
11.8%
4.6%
6.3%
0.0%
0.0%
12.1%
11.1%
3.6%
6.2%
2010E
42%
56%
na
616%
na
18%
13%
33%
67%
na
19%
29%
34%
2009E
2010E
Acergy
ACY.OL
NOK
37
2.6
3.2
3.8
4.3
4.4
18%
Aker Solutions
AKSO.OL
NOK
54
9.3
10.0
9.5
10.8
12.9
144%
36%
40%
40%
40%
AMEC
AMEC.L
468
6.8
NA
NA
NA
NA
70%
49%
50%
50%
18%
50%
18%
Lamprell
Petrofac
Saipem
Seadrill
Subsea 7
Technip
Tecnicas Reunidas
Wood Group
LAM.L
PFC.L
SPMI.MI
SDRL.OL
SUB.OL
TECF.PA
TRE.MC
WG.L
NOK
NOK
142
428p
13
60
43
24
20
226
0.4
4.2
16.4
3.7
12.9
NA
NA
0.6
4.4
21.1
11,896.4
4.2
12.6
NA
NA
0.7
4.9
22.7
NA
4.8
13.5
NA
NA
0.7
5.2
NA
NA
5.7
14.4
NA
NA
0.8
5.5
NA
NA
7.1
15.3
NA
NA
13%
25%
39%
0%
0%
58%
115%
21%
28%
29%
31%
32%
0%
40%
50%
20%
37%
25%
42%
85%
0%
54%
50%
20%
40%
25%
33%
0%
0%
54%
50%
20%
40%
25%
33%
0%
0%
54%
50%
20%
Page 49
Listed
Curr.
Share
price
Old Rec
New
Rec
Old PT
New PT
Currency
Old
WACC
New
WACC
Old DCF
Comments
New DCF
(Listed
curr.)
Cost of
debt
Cost of
Equity
Beta
NOK
37
Hold
Hold
125
90
NOK
9.5%
15.0%
114
61
4.7%
15.0%
Aker Solutions
NOK
54
Hold
Hold
140
85
NOK
10.9%
16.0%
100
65
3.8%
16.0%
AMEC
468
Buy
Buy
960
760
8.2%
11.5%
1,066
732
4.2%
11.5%
Lamprell
142
Buy
Buy
650
400
7.2%
12.0%
632
314
5.4%
12.0%
0.97 Niche industry exposure offset by Middle East

exposure (region at lowest risk sub $60/bbl) and
strong political capital (NOC and IOC): we argue for a
WACC slightly below sector average
Petrofac
428
Hold
Hold
680
500
8.2%
11.5%
604
460
4.1%
11.5%
0.91 Middle East exposure and strong poliitcal capital

(NOC and IOC) argues for lower WACC vs. peers
Saipem
13
Buy
Buy
30
22
8.0%
11.0%
32
17
4.2%
13.2%
Seadrill
NOK
60
Buy
Buy
210
170
NOK
8.3%
13.5%
435
181
4.4%
24.2%
1.42 ENI 43% ownership, diversified model, high NOC

exposure and excellent execution history argues for
lowest WACC across peers
2.25 Global reach and high NOC exposure are offset by
lack of transparency surrounding company's financial
instruments and niche exposure (leaving it at greater
risk to reduced potential capex growth); we argue for
higher WACC vs. peers
Subsea 7
NOK
43
Hold
Hold
125
100
NOK
8.8%
15.0%
121
65
4.2%
17.5%
Technip
24
Buy
Buy
70
55
8.1%
12.5%
65
42
3.4%
12.5%
Tecnicas Reunidas
20
Buy
Buy
53
47
10.4%
11.5%
52
46
2.5%
11.5%
Wood Group
226
Hold
Sell
430
215
7.7%
13.5%
399
133
4.0%
16.6%
Average

Priced at close 19 October 2008
8.7%
13.0%
1.04 Niche industry exposure leaves it at greater risk to

reduced potential capex growth; we argue for a
0.89 Diversified model and global reach offset by poor
execution history - we argue for higher WACC than
most comparable peer Saipem
0.39 Middle East exposure and strong political capital
(NOC and IOC) argues for lower WACC vs. peers
1.56 Diversified model offset by higher exposure to
Russia and Europe (regions most at risk in sub$60/bbl) and lack of exposure to preferred themes
argues for higher WACC vs. peers
0.85 Niche industry exposure leaves it at greater risk to

reduced potential capex growth; we argue for a
0.93 Higher exposure to Russia and Europe (regions most
at risk in sub-$60/bbl) and lack of exposure to
preferred themes argues for highest WACC vs. peers
0.91 Diversified model, global reach and strong balance
sheet argues for lower WACC vs. peers
Acergy
22 October 2008
Page 50
Figure 66: Key financials and recommendation changes
22 October 2008
Appendix B: Global oil service

spectrum
Making sense of the global service spectrum
The global service spectrum is highly fragmented. So we take a step back and return to
basics to establish how the various themes mentioned above, such as wellhead operations,
drilling, SURF, oil sands, LNG, etc., fit into the service jigsaw (shown in Figures 67 and
68 in the form of flow sheets). We then place a magnifying lens on each part of the oil chain
within exploration related activities and apply a top-down approach in understanding the
future dynamics, degree of profitability and key players within the related themes.
Page 51
22 October 2008
Page 52
Figure 67: Backbone functions of the service sector across the oil life cycle*
Undiscovered oil and gas underneath seabed / ground
M ud line (seabed or dry land)
Engineering &
construction capex
(above mudline) m ainly
European and Asian
based com panies (listed
and private) w ith
relatively few er US
players
Shallow w ater
ECI of fixed
platform s
Exploration (seismic, drilling, well operations, rig

construction)
(broken dow n in next chart )
Engineering and construction (discovered oil and gas

underneath seabed / ground)
M ud line (seabed or dry land)
Onshore
Offshore
Surface facilities* *
Deepw ater
ECI or leasing of
floating platforms:
1) Sem i-submersibles
(SPAR, tension leg
platform s)
2) Floating production
storage and offloading
ships (FPSOs)
Subsea Infrastructure &

Equipment* *
Shallow w ater
1) Conventional
trunklines
2) Subsea equipment
/ system s
3) Topsides and hulls
of platform s
Deepw ater
ECI of advanced
subsea
equipment /
system s
ECI of:
1) Um bilicals, risers and flow lines
(SURF)
2) Rigid & flexible pipes
3) Topsides and hulls of platform s
Produced Oil or Oil sands
Brow nfield and greenfield ECI of:

1) Refineries
2) Petrochem icals plants
3) Oil sands upgraders and process plants
ECI of frontier
developm ents
(harsh
operating
environm ents)
M aintenance m odification and operational

m anagem ent of offshore / onshore
facilities
ECI of
conventional
oil & gas
processing
facilities
ECI of oils
sands.
Extraction
includes m in
(<75m ) and i
situ steam
injection(>75
Produced Gas
ECI of gas to liquid

plants (GTL)
Source: Deutsche Bank *ECI is engineering, construction and installation; **Installation phase completed using various heavy lifting/pipe-laying/inspection vessels (owned or leased by E&C company) also known as lift boats
ECI of liquefaction plants (LNG

follow ed by ECI of re-gasificat
term inals
Exploratory, appraisal and

development capex (below
mudline) m ainly US based
com panies (private & listed)
w ith relatively few er Europeans
/ Asian players
Below m udline (seabed or dry land)
Below m udline (seabed or dry land)
Exploration*
Exploration, appraisal &

developm ent of w ell
Drilling
Services
Associated Well head

Services
Engineering, procurement and

construction of drilling rigs
Floater rigs
Sub/sem im ersibles
1) 2nd
generation:
benign/harsh
w eather
2) 3rd /4th
generation:
benign/harsh
3) 5th /6th
generation:
deckload up to
5000tn/w ater
depth up to
12,000ft
(equivalent to
drilling depth
of 40,000 ft)
Fixed rigs
Drillships
1) 3rd/4th
generation:
benign/harsh
environm ent
2) 5th/6th
generation:
deckload up to
5000tn/w ater
depth up to
12,000ft
(equivalent to
drilling depth
of 40,000 ft)
Tenders/
barges
Surface
Jack-ups
(onshore/offshore)
1) Anchoring
system used
over dynam ic
positioning so
depths are
only typically
up to 500ft.
Benign
environm ent
only
1) JU
200/250/300 etc
through to 400ft
(w ater depth)
equivalent to
drilling up to
30,000ft
2) Harsh or
benign
environment
3) Standard or
high
specification
Servicing
1) Pressure
pum ping* * (e.g.,
cem enting and
stim ulation) and
com pression
services
2) Production w ell
testing.
3) rental and
fishing
4) Operations and
m aintenance.
5) Solids control
and w aste
m anagem ent
Subsurface
Equipm ent
1) Surface
equipm ent (e.g.,
valves & surface
trees, pressure
and flow control)
2) Rig equipment
(e.g., pow er
tongs)
3) Unit
m anufacturing
(e.g., plug valves)
Rig Construction
Services
Newbuilds
1) Sem i-sub, drillship, jack-up (onshore and
offshore) & tender construction
Upgrades
1) Refurbishm ent of all types of drilling
rigs
2) Re-activation
3) Conversion
Servicing
1) Logging
w hile drilling
2) m ud logging
3) Wireline
logging (e.g.,
w ell
intervention,
openhole and
cased hole).
4) Directional
drilling
5) Operations
and
m aintenance
6) Inspection
and coating
7) Coiled tubing
(excludes
m anufacturing
of)
Others
1) M aintenance and repair: rigs typically taken
offline but m ay also be done w hile in operation
using rem ote operating vehicles)
2) Construction and refurbishm ent of lift boats* * *
i.e. heavy lift construction vessels
Equipm ent
and
products
1) Casing & tubing
services and
products (inc
cem entation)
2) Coiled tubing
3) Com pletion
equipment (e.g.,
TCP, tractors,
safety tools)
4) Dow nhole
drilling tools
5) Drill bits
6) drilling &
com pletion fluids
7) Specialty
chem icals
8) tubulars
9) Well servicing
(other than above)
10) Artificial lift
(e.g. electrical
subm ersible,
rod/gas lift and
progressive cavity
pum ps)
Source: Deutsche Bank; *Note we have excluded seismic operations; **we have placed this within surface activities but can arguably be placed in subsurface (servicing) also; ***lift boats are different to rigs in that they are used for E&C type operations within the offshore segment.
Underlying driver for this market will therefore not be exploration but offshore E&C; for simplicity we have included lift boats here as they are typically built by the same companies that construct rigs
Exploration, appraisal &

developm ent of w ell
22 October 2008
Figure 68: Backbone functions of the service sector within exploration based activities
Page 53
22 October 2008
In February we published a physical version of the oil service spectrum in the form of a
laminate. Below we attach a corresponding breakdown across each industry segment
Figure 69: Exploration: Drilling
Exploration: Seismic
Exploration: Drilling in shallow water (up to 1,300 ft)
Seismic
Jackup rigs
Seismic technology Used to identify potential reservoirs and

reduce uncertainties across the entire range of exploration,
development, and production operations. Surveys are used to
model reservoir structures before drilling begins as well as to
plan and execute enhanced-oil-recovery strategies.
BELOW THE
Jackup rigs - mobile, self elevating drilling platforms
equipped with legs which are lowered to the seabed, the
hull then being 'jacked-up' until adequate clearance is
established. Jack-ups are typically used for exploration
drilling, and for drilling development wells through existing,
relatively small structures.
What is it?
Exploration: Drilling in deepwater (up to 12,000 ft)
Exploration: Drilling on land
Semi-submersibles rigs
Drill ships
Land rigs
'MUDLINE'
Semi-submersibles - Floating platforms which can be
self-propelled or towed, and either anchored or
dynamically positioned over the drilling location. Prior to
drilling the hull is ballasted down for stability. Semi-subs
are typically used for drilling exploration wells, plus
subsea development wells through subsea templates.
Drill ships - Designed to operate in ultra-deep waters,
with high levels of drill pipe handling capacity and heavy
duty rigs. Given operational water depths they tend to be
dynamically positioned.
Drilling rigs - Conventional derrick structures with

attendant mud tanks, pumps, power generation
equipment. Work over rigs
Lighter weight structures (can be mobile) used to 'workover' wells, including well stimulation, tubing, tool and
downhole pump replacement.
Where is it?
Onshore and offshore
Shallow water
Deepwater/Ultra deepwater (>7500ft)
Onshore
Nature of contract award
na
Fixed contract / spot / option exercising
Global current capacity (+expansion plans)
Towed seismic fleet: ~ 380 streamers

(total count expected to reach ~ 580 by 2010)
Jackup rigs : 364 (+ 67 under construction)
Semis: 156 (+ 40 under construction); Drillships: 35 (+ 21

under construction)
Land rotary rigs: 2894
Typical EBITDA margin*
Margin upside** (2008-09E)

Global market size 2008E
(=$612 bn)
na
Leading edge day rates:

Upto 300 ft - $110 k/day
Above 300 ft - $181 k/day
na
X / XX
Leading edge day rates:

Upto 3000 ft - $290 k/day
3001-5000 ft - $313 k/day
5001-7500 ft - $488 k/day
above 7500 ft - $600-$650 k/day
Day rate ~ $100k/day
X / XXXX
$14,801 mn
$53,413 mn
Relative proportion of global market (2008-10E)
2%
11%
2008-10E average capex growth rate
10%
Players (key participants in blue)
Canada: Destiny Resources

China: BGP, China Oilfield Services
France: CGGVeritas
Kazakhstan: Caspian services
Netherlands: Fugro
Norway: PGS, TGS-Nopec, Seabird Exploration, Odim (cable
handlings solutions)
Russia: Integra,
US: ION, Baker Hughes, Western Geco (owned by
Schlumberger), Bolt Technology (Equipment for seismic
exploration (seismic energy sources)), Dawson Geophysical,
Halliburton, Mitcham Industries (equipment), Seamap, Seitel,
Trace Energy Services, OYO Geospace, OMNI, TGC
20%
Denmark: AP Moller-Maersk
China: China Oilfield Services
Egypt: Egyptian Drilling company
Indonesia: Apexindo Pratama
Italy: Saipem
Norway: Seadrill, Awilco, Thule Drilling, Scorpion Offshore,
Seajacks
UK: Abbot Group
US: Atwood Oceanics, Diamond Offshore, Ensco
International, Hercules Offshore, Nabors, Noble Drilling,
Pride International, Rowan, Transocean/GlobalSantaFe
Australia: Neptune Marine (Drillship)

Italy: Saipem (includes Drillship)
Norway: Aker Drilling, Fred Olsen (includes Drillship),
Ocean Rig, Petrolia Drilling (includes Drillship), Seadrill
(includes Drillship), Songa Offshore (includes Drillship),
Thule Drilling, Odfjell Drilling
US: Atwood Oceanics, Diamond Offshore (includes
Drillship), Ensco International, Helmerich Payne, Nabors,
Noble Drilling (includes Drillship), Pride International,
Transocean/GlobalSantaFe (includes Drillship)
Canada: Akita Drilling, Ensign, Major Drilling, Saxon

Energy Services, Total Energy Trust, Savanna Energy
Egypt: Egyptian Drilling company
Italy: Saipem
Romania: Rompetroll Well Services
Russia: Integra, BK Eurasia, C.A.T. Oil
UK: Abbot Group
US: Bronco Drilling, Grey Wolf, Helmerich Payne,
Hercules Offshore, Nabors, Parker Drilling, PattersonUTI Energy, Pioneer Drilling, Precision Drilling, Rowan
Co.
Source: Wood Mackenzie, Deutsche Bank, www.bakerhughes.com, www.rigzone.com. Pictures - Technip and Saipem, *rig day rates given in the case of drilling, **X = lowest margin upside, XXXX = highest margin upside,
*** notable exceptions respectively include: directional drilling that generates margins between 25-30% and completion/work-over: 30-35%, **** exceptions include purely engineering or construction/construction
management related activities (i.e. not LSTK) which will yield higher overall margin e.g. 9-11%, ***** we have placed this within surface activities but can arguably be placed in subsurface (servicing) also, ******
Construction vessels, pipelaying vessels and ROVs owned by key participants
Page 54
22 October 2008
Figure 70: Exploration continued: Well head services and rig construction
Exploration: Associated Well head services
Rig Construction Services
Surface servicing
Surface equipment
Pressure pumping ***** - used to improve oil

and gas flow rates typically by pumping fluids
under high pressure to crack open reservoir rock.
Compression services at wellhead, gas gathering
and plant inlet.
Production well testing is testing of the wells
producing potential and is usually done during the
initial completion phase.
Fishing services include retrieving equipment lost
or stuck downhole and repairing wellbore
damage. Rental tools are various pieces of
equipment used in the drilling and completion
process.
Solids control and waste management reduces
wastes generated during drilling activities to
acceptable environmental levels. Surface
servicing also includes operations and
maintenance activities.
Surface equipment - valves & surface trees,

pressure and flow control.
Rig equipment - anchors, power tongs, blow
out preventers etc.
Unit manufacturing - plug valves etc.
Where is it?
Onshore
Fixed contract/ Cost plus

(E/P/I/C)
na
na
na
na
Construction yards: 58
What is it?

(=$612 bn)
Sub-surface servicing
Sub-surface equipment
BELOW THE
Wireline logging involves taking measurements to
provide descriptive and quantitative evaluations of the
formations intersected by a well bore.
Logging while drilling (LWD) adopts simlair techniques
to wireline logging, but is conducted during drilling
operations. Measurement while drilling (MWD) is
used for precise location of the drillbit.
Mud logging is done for gathering data and collecting
samples during the drilling of a well to identify possible
indications of hydrocarbons. Directional drilling is
necessary when a well bore needs to be drilled at an
angle other than vertical. Coiled tubing is a specialist
service which allows fluid or gas (e.g., nitrogen) to be
'spotted' into a well at a specific point. Can also be
used for deploying heavier tools downhole than
possible with wireline.
Other services include operations & maintenance,
inspection and coating.
'MUDLINE'
Casing & tubing services and products (including
cementation)
Coiled tubing
Completion equipment (e.g., TCP, tractors, safety
tools)
Downhole drilling tools
Drill bits
Drilling & completion fluids
Specialty chemicals
Tubulars
Well servicing (other than above)
Artificial lift (e.g., electrical submersible, rod/gas
lift and progressive cavity pumps)
New Builds (Exploration)
Upgrades (Exploration)
Others (Development)
Construction of semisubmersible, drillship, jackup (onshore & offshore benign / harsh) & tender
barges
Upgrades of existing rigs

including refurbishment of
all types of drilling rigs,
re-activation and
conversion.
Drilling rig packages:
Drilling equipment used in
rigs.
Maintenance and repair:
rigs are typically taken
offline but may also be
done while in operation
using remote operating
vehicles.
Construction and
refurbishment of lift boats
i.e. heavy lift construction
vessels. Lift boats are
different to rigs in that they
are used for E&C type
operations within the
offshore segment (also
included in marine installation
vessel section). Underlying
driver for this market will
therefore not be exploration
but offshore E&C.
Onshore / Offshore
(Quayside)
(E/P/I/C)
25-30%
20-25%
15-20% ***
10-15% ***
20%
XX
XXXX
XXX
X / XX
X / XX
Onshore
(E/P/I/C)
$36,937 mn
$24,609 mn
$26,248 mn
$52,481 mn
$13,084 mn
$1,308 mn
$2,196 mn
7%
4%
5%
9%
3%
0.3%
0.4%
14%
17%
14%
13%
144%
144%
16%
Canada: Ensign Resource Services, Trican Well

Services, Cafrac Well Services, Peak Energy
services, Enerflex Systems, Canyon Technical
Services, Cathedral Energy Services, Total Energy
Trust
Egypt: Sahara Petroleum Services
Malaysia: SapuraCrest Petroleum, KMC Oiltools.
Norway: Seadrill, Aker Solutions, Petrolia Drilling,
Odfjell Drilling Group, Deepocean
Russia: FESCO, Integra, BK Eurasia, C.A.T. Oil
UK: Wood Group, Expro Intl, Nature Technology
US: Allis-Chalmers, Complete Energy Services,
Schlumberger, Pride International, Baker Hughes,
Helix Energy Solutions, Halliburton, Weathorford,
BJ Services, Basic Energy, Infinity, Exterran, Key
Energy, Michael Baker, National Oilwell Varco,
Natural Gas Services, Newpark Resources, OMNI
Energy Services, Oil States Intl, Parker Drilling,
Patterson UTI Energy, RPC, Smith International,
Superior Energy Services, Superior Well Services,
Tetra Technologiesv, W-H Energy Services
Canada: CE Franklin, Pason Systems, Farr

Canada (McCoy Corp), Tesco
Italy: Vetcogray (owned by GE Oil & Gas)
Norway: Aker Solutions, Maritime Industrial
Services, Bjorge,
Russia: Integra, Mobile Drilling Systems,
Volgograd Drilling Equipment Plant (VZBT)
UK: Abbot Group, Wood Group
US: Pride International, Halliburton,
Schlumberger, Weatherford, Nabors, Baker
Hughes, Cameron, Dril-Quip, FMC
Technologies, Gardner Denver, Hydril (owned
by Tenaris), National Oilwell Varco, Oil States
Intl, Robbins & Myers, Rowan Companies
Canada: Ensign Resource Services, Precision Drilling,

Calfrac Well Services, Cathedral Energy Services,
Mullen Group (E Can Oilfiled services division),
Phoenix Technology, Savanna Energy Services,
ShawCor, Technicoil Corporation, Trican Well Service,
Xtreme Coil Drilling
Egypt: Sahara Petroleum Services
Italy: Saipem
Norway: Seadrill, Aker Solutions, AGR, Roxar, TGSNopec
Russia: Integra, BK Eurasia, C.A.T. Oil
UK: Wood Group, Expro Intl
US: Schlumberger, Pride International, Baker Hughes,
Halliburton, Weatherford, BJ Services, Helix Energy
Solutions, Nabors, Allis-Chalmers, Basic Energy,
Complete Energy Services, International Logging,
National Oilwell Varco, Cudd Pressure Control (owned
by RPC), Core Laboratories, Superior Energy Services,
Superior Well Services, Smith International, Warrior
Energy, W-H Energy Services
China: Yantai Raffles,

COSCO Shipyard, China
State Shipbuilding
Corporation
Korea: Samsung, Daewoo,
Hyundai
Netherlands: SBM
Offshore
Norway: Maritime
Industrial Services, Sevan
Marine
Russia: Integra, Mobile
Drilling Systems,
Volgograd Drilling
Equipment Plant (VZBT)
Singapore: Keppel Corp.,
Labroy Marine, SembCorp
UAE: Dubai Dry Docks
UK: Abbot Group, Lamprell
(based entirely in UAE)
US: National Oilwell,
Rowan Co., J Ray
Mcdermott
China: Yantai Raffles,

COSCO Shipyard, China
State Shipbuilding
Corporation
Hyundai
Netherlands: SBM
Offshore
Norway: Maritime
Industrial Services, Aker
Solutions
Russia: Integra, Mobile
Drilling Systems,
Volgograd Drilling
SembCorp
UAE: Dubai Dry Docks,
QGM
UK: Lamprell (based
entirely in UAE), Abbot
Group
US: J Ray Mcdermott,
National Oilwell, Rowan
Co.
China: Yantai Raffles, COSCO

Shipyard, China State
Shipbuilding Corporation
Hyundai
Netherlands: SBM Offshore
Norway: Maritime Industrial
Services, Sevan Marine
Russia: Integra, Mobile Drilling
Systems, Volgograd Drilling
Labroy Marine, SembCorp
UAE: Dubai Dry Docks
UK: Abbot Group, Lamprell
(based entirely in UAE)
US: National Oilwell, Rowan
Co., J Ray Mcdermott
Canada: CE Franklin, Ensign Resource Services,

Precision Drilling, Calfrac Well Services, Innicor
Subsurface, Savanna Energy Services, Technicoil
Corporation, Tesco, Trican Well Service Co,
Wenzel Downhole Tools, Xtreme Coil Drilling.
Malaysia: Scomi Group, Trenergy, Wah Seong
Norway: Odfjell Drilling, AGR
Russia: Integra, Volgograd Drilling Equipment
Plant (VZBT), Mobile Drilling Systems
UK: Expro Intl, Hunting, Sondex, Wood Group
US: Schlumberger, Pride International, Baker
Hughes, Halliburton, Weatherford, BJ Services,
Grant Prideco, Nabors, Allis-Chalmers, Basic
Energy, Cabot Specialty Fluids, Complete Energy
Services, Core Laboratories, Cudd Pressure
Control (owned by RPC), Dover Corp, Key Energy,
Lufkin Industries, National Oilwell Varco, Newpark
Resources, Oil States Intl, Patterson UTI Energy,
Robbins & Myers, Smith International, Stewart
and Stevenson LLC, Superior Energy Services,
Tenaris, Tetra Technologies, W-H Energy Services
Page 55
22 October 2008
Figure 71: Engineering & Construction: Upstream

E&C (Engineering and Construction) Development Upstream: Offshore surface facilities
Non-floating installations
Floating installations (exc

storage of oil)
Floating installations (inc storage of

oil)
Semi-submersible platforms
are floating installations
similar to semi-sub rigs but
which include production
facilities. They tend to be
moored on location, and can
be re-deployed at some
future date.
SPAR and Extendable Draft
Platforms are cylinder type
floaters
Tension Leg platforms
(TLPs) are floating
production units cables,
which considerably restrict
its heave motion.
Where is it?
Shallow water
Deepwater
Deepwater

(E/P/I/C)

(E/P/I/C)

(=$612 bn)
na
na
Subsea infastructure, Umbilicals,

Risers & Flowlines systems (SURF)
ABOVE THE 'MUDLINE'

SURF facilities - comprise pipelines and
Floating Production, Storage and
Offloading system (FPSOs) comprise equipment connecting the well or
a large floating vessel equipped with subsea system to an installation.
a high-capacity production facility.
Includes pipelaying, trenching or
The vessel is moored via a stationary ploughing as well as instillation of
turret around which the vessel
jumpers (short flexible pipe), pipe-inweather-vanes. Flexible risers and
pipe (two coaxial pipes), umbilicals
flowlines connect the subsea
(flexible connecting sheath, containing
wellheads to the onboard
flexible pipes & cables) and risers
processing, storage and offloading
(manifold connecting the subsea to
systems. FPSO's are differentiated
surface). Flowlines and risers may be
from more traditional fixed or
either hard pipe or flexible composites
anchored to the seabed by taut
according to the development method
vertical semi-submersible platforms
and water depths.
due to integral crude oil storage that
removes the need for additional
storage vessels and supporting
infastructure.
Fixed platforms are

fabricated and tested
onshore, then towed to site
for installation by derrick
barge or similair. Jack-up
platforms e.g., TPG 500, are
based on jack-up rig
technology, but include
processing equipment for
production. Although 'fixed'
(i.e. non- floating), the jack-up
can be moved to a new site.
What is it?
E&C Development Upstream: Infrastructure between offshore facility & well head
Marine Installation vessels (used to implement

infrastructure)
Heavy-lift crane barges & ships (aka liftboats) capable of holding a precise position through the
use of thrusters, thereby counteracting the force
of the wind, sea, current etc. ROV (remotely
operated vehicles) - unmanned vehicle, piloted &
powered via umbilcal. Construction and/or pipelay ships - undertake a wide range of subsea field
development construction tasks which include
flexible flowline and umbilical lay, subsea
installation, flowline tie-in as well as FPSO
mooring installation & tensioning. Also includes
accommodation and support vessels.
Installation components facility or well head

related technologies
Subsea equipment such

as contol systems,
multibooster pumps,
subsea gas compressors,
pipeline technologies (e.g.,
pipe in pipe, advanced
carbon filter rod, fiber
optics, high voltage &
optical communications ultra long stepout).
Overlap here with well
intervention services
associated with
exploration spend.
"Conventional"
Conventional projects
comprise shallow water
activities and proven
technology relating to
platforms attached to
the seabed and their
associated pipelines.
Deepwater / Ultradeepwater
Shallow/deepwater / Ultradeepwater
Shallow/deepwater /
Ultradeepwater
Shallow/deepwater
(often in harsh
environments)
Lump sum/ day rate / spot / option

exercising
Fixed contract/ Cost plus (E/P/I/C)
Lump sum/ day rate / spot / option exercising

(E/P/I/C)
Fixed contract/ Cost

plus (E/P/I/C)
Vessels: 40 (+ 11 under
construction)
Vessels ******:
Pipelay vessels : 36 (+4 under construction)
Construction (heavylift) vessels : 32 (+ 5 under construction)
Construction and pipelay vessels : 67 (+ 18 under construction)
ROVs : 99 (+ 23 under construction) ( ~ 70% of the construction & pipelay vessels are
fitted with ROVs)
Heavy transport vessels: 29 (+ 3 under construction)
4-5%
8-9%
8-9%
15-17%
na
16-17%
XXX
XXX
XXXX
na
XXX
XX
$14,080 mn
$25,074 mn
$8,358 mn
$13,373 mn
$36,776 mn
$23,610 mn
13-15%
6%
5%
2%
4%
1%
2%
3%
23%
3%
3%
3%
3%
Australia: Worley Parsons, Clough

France: Technip
Italy: Saipem
Korea: Hyundai
Netherlands: Heerema
Norway: Aker Solutions, Acergy,
Deepocean, Subsea 7
Switzerland: Allseas Marine
Contractors
UK: Wood group
US: Cal Dive (73% owned by Helix
Energy Solutions), Halliburton, Chicago
Bridge & Iron, J Ray Mcdermott, Global
Industries, Oceaneering, BJ Services,
Dril-Quip, Foster Wheeler, Oil States
Intl
Australia: Mermaid Marine

China: Yantai Raffles
France: Technip
Italy: Saipem
Korea: Hyundai
Malaysia: SapuraCrest Petroleum, Scomi Group
Norway: Acergy, Aker Solutions, Dockwise, DOF
Subsea, Deepocean, Farstad Shipping, Siem
Offshore, Solstad Offshore, Subsea 7
Switzerland: Allseas Marine Contractors
UK: Hallin Marine (vessels, diving systems,
ROVs), Soil Machine Dynamics
US: J Ray Mcdermott, Global Industries, Helix
Energy Solutions (includes 73% owned Cal Dive),
National Oilwell Varco, Oceaneering (Underwater
robots), Gulfmark, Seacor Marine, Seacore,
Tidewater
Malaysia: Scomi Group

Norway: Aker Solutions,
Bjorge
US: FMC Technologies, J
Ray Mcdermott, Cameron,
Baker Hughes, Dril-Quip,
Hydril (Drilling systems
and accessories. Owned
by Tenaris), Weatherford
International
Australia: Worley
Parsons
Denmark: AP MollerMaersk
France: Technip
Italy: Saipem
Malaysia: SapuraCrest
Petroleum
Netherlands: SBM
Offshore
Norway: Acergy, Aker
Solutions
US: J Ray Mcdermott,
KBR, Global Industries
Australia: Worley Parsons,

Clough
France: Technip
Italy: Saipem
Korea: Hyundai, Samsung,
Daewoo
Netherlands: SBM Offshore,
Heerema
Vetco Aibel, Maritime
Industrial Services
Singapore: Keppel Corp,
Sembcorp
UK: Amec, Wood Group
US: J Ray Mcdermott, Fluor,
KBR
Australia: Worley Parsons,

Clough
France: Technip
Italy: Saipem
Japan: Modec
Korea: Hyundai, Samsung,
Daewoo
Heerema
Vetco Aibel, Maritime
Industrial Services
Singapore: Keppel Corp,
Sembcorp
US: Chicago Bridge & Iron, J
Ray Mcdermott, Fluor, KBR

China: Yantai Raffles
France: Technip
Italy: Saipem
Japan: Modec
Korea: Hyundai, Samsung, Daewoo
Heerema
Norway: Aker Solutions, BW
Offshore, Prosafe, Sevan Marine,
Teekay Petrojarl, Vetco Aibel
Singapore: Keppel Corp, Sembcorp
US: Chicago Bridge & Iron, J Ray
Mcdermott, Fluor, KBR
Page 56
22 October 2008
Figure 72: Engineering & Construction: Upstream/Mid-Stream

E&C Development Upstream: Onshore facilities and infastructure
E&C Development Upstream: Facility and

infrastructure construction yards
Brownfield/greenfield developments
Fabrication / Construction and onsite plants

ABOVE
Oil & gas processing units (as well as other components such as hydrogen,
sulphur etc), power generation, tanks,oil & gas gathering centres,utilities and
offsite facilities (e.g., condensate and LPG storage). Analogous to SURF facilities
in the offshore, this segment also includes pipelines, pumps/turbines.
What is it?
Fabrication plants used for flexible pipes,

umbilicals and subsea equipment. Construction
yards typically used to build offshore installations
e.g., fixed & floating platforms, FPSOs, SPARS,
etc. On site yards are generally smaller
construction yards placed to leverage off local
content as well as meet strict local content
requirements such as in the emerging oil nations
of Kazakhstan, Angola and Nigeria.
E&C Development Upstream & Downstream:

Operational management
Maintenance, modifications, operations (MMO)

and de-commissioning
THE 'MUDLINE'
Operational management includes outsourcing
services from simple management of
maintenance scehdules to near-autonomous day
to day operation and customers facilities. Also
includes modification work on mature instillations
and training/consultancy services for customer
employees.
Where is it?
Onshore (often in harsh environments)
Onshore
Onshore/Offshore
Cost plus reimbursible
E&C Development Mid-stream LNG/Regas
Liquefaction plant
Receiving terminals
Liquefaction trains - common/inlet facilities,

acid gas removal, very powerful compressors,
refrigeration process.
Utilities - power generation, cooling water. 'Off
site' - LPG & condensate storage and loading,
loading jetty security facilities. Infrastructure roads & fences, control room-substations etc.
Regasification terminals - used to regassify

liquefied natural gas. Usually land-based, but
can also be located near shore or more
remotely offshore.
Onshore: with proposals to build floating LNG

plants offshore
Onshore (potentially offshore)

6-8% ****
na
4-5%
5-6%
2-3%
XX
na
XX
XXX / XXXX
$185,318 mn
na
$5,015 mn
$17,910 mn
$7,487 m
29%
na
1%
2%
1%
4%
na
3%
5%
5%
Australia: Worley Parsons

France: Technip, Lurgi (owned by Air Liquide)
Germany: Krupp Uhde, Linde
Italy: Saipem/Snamprogetti, Maire Tecnimont
Japan: Chiyoda, JGC, Toyo
Korea: Hyundai
Middle East: Consolidated Contractors
Company
Norway: Aker Solutions
Spain: Tecnicas Reunidas
US: Air Products, Bechtel, Black & Veatch,
Chicago Bridge & Iron, Fluor, Matrix Service,
Mcdermott, Foster Wheeler, KBR

Japan: Chiyoda, Toyo
Korea: Hyundai
Norway: APL
US: Bechtel, Black & Veatch, Chicago Bridge &
Iron, Fluor, Foster Wheeler, KBR

(=$612 bn)

Canada: SNC Lavalin, Hunting, Pe Ben Oilfield, Shawcor
France: Technip
Italy: Saipem
Japan: JGC, Hitachi Zosen (GTL/LPG/ Refinery equipment), Kawasaki, Toyo
Korea: Hyundai, Samsung, Daewoo
Malaysia: Trenergy, Wah Seong
Middle East: Consolidated Contractors Company
Norway: Aker Solutions, Grenland Group, Maritime Industrial Services, Vetco
Aibel
Panama: Willbros
Russia: Transneft
Singapore: Sembcorp
UK: Petrofac, Amec, Ramco Energy, Wood Group
US: J Ray Mcdermott, Bechtel, BJ Services, Cameron (natural gascompression,
separators, refinery equipments,etc), Chicago Bridge & Iron, Fluor, Foster
Wheeler, Ingersoll Rand, Jacobs Engg, KBR, Lufkin, Markwest Hydro, National
Oilwell Varco, Shaw Group, Stewart and Stevenson LLC, Tenaris, Weatherford
International (pumps & pipelines)
China: Yantai Raffles, COSCO

France: Technip
Italy: Saipem, Socotherm
Japan: Hitachi Zosen, Mitsui Engg
Korea: Hyundai, Daewoo, Samsung
Norway: Aker Solutions, Aker Yards
Singapore: Keppel Corp, Sembcorp
UK: Abbot Group, Soil Machine Dynamics Ltd
(Robotics), Wood Group
US: Chicago Bridge & Iron, J Ray Mcdermott,
Gulf Island Fabrication, Oceaneering (Multiflex
Umbilicals), Seacore, Shaw Group,Tenaris,
Tidewater
Germany: Krupp Uhde

Italy: Saipem
Japan: Modec
Malaysia: SapuraCrest Petroleum
Netherlands: Brunel, Heerema
Norway: Aker Solutions, Grenland Group,
Prosafe, Vetco Aibel, Bjorge
UK: Wood Group, Petrofac, Amec
US: BJ Services, Boots & Coots (Emergency
response company to oil and gas sector), KBR,
Bristow Group RPC
Page 57
22 October 2008
Figure 73: Engineering & Construction: Downstream

E&C Development Downstream: GTL
E&C Development Downstream: Oil sands
E&C Development Downstream: Refining
E&C Development Downstream: Petrochemicals
Gas to liquid conversion
Brownfield / greenfield developments
Brownfield / greenfield developments
Brownfield / greenfield packages
Most methods are based on the Fischer-Tropsch

process to synthesise very clean and sulphur free
products from natural gas (diesel and naphtha). Key
differentiator between methods being type of catalyst
used along with capital cost of process.
What is it?
ABOVE THE MUDLINE'

Application of various proprietary technologies to
Two primary extraction methods: mining and in-situ. In
improve refining processes (e.g., increasing refinery
mining, the oil-bearing is extracted at surface, mixed with
complexity and yield) as well as brownfield
water to form a slurry and piped to the separation facility
extensions or newbuild greenfield sites.
where the bitumen is extracted, and then either transported
or upgraded to a synthetic crude oil. In-situ methods include
Cyclic Steam Stimulation (CSS) and Steam Assisted Gravity
Drainage (SAGD). Both use steam injected into shallow
reservoirs to mobilise the oil. Newer technologies include
Asphaltene Gasification, VAPEX and Toe-to-Heel Air Injection
(THAI).
Application of various proprietry technologies in improving

petrochemicals process as well as brownfield extensions
or newbuild greenfield sites.
Where is it?
Onshore
Onshore
Onshore
Onshore

(=$612 bn)
3-4%
5-6%
5-6%
XX
XXX
XXX / XXXX
$4,900 mn
$16,674 mn
5-6%
XXX / XXXX
$27,417 mn
1%
3%
4%
38%
23%
13%
Canada: Hunting
Italy: Saipem/Snamprogetti
Japan: JGC, Toyo, Chiyoda
Korea: Hyundai
Norway: APL
UK: Amec
US: Air Products, Chicago Bridge & Iron, Foster
Wheeler Fluor
Australia: Worley Parsons (acquired the Canadian oil sands

company - 'Colt')
Canada: Gemini Engineering, SNC Lavalin, Hatch, Talisman
Energy
France: Technip (downstream only)
Nigeria: Equinox
UK: Amec, IMV (owned by Wood Group)
US: Fluor, Jacobs Engg, KBR, Noramac Ventures

Canada: SNC Lavalin
Italy: Saipem/Snamprogetti
Japan: Chiyoda, JGC, Shinko Plantech, Toyo
Korea: Hyundai, Daewoo
Malaysia: Wah Seong
US: Air Products, Bechtel, Chicago Bridge & Iron,
Core Laboratories, Fluor, Foster Wheeler, Jacobs
Engg, KBR, Markwest Hydro, Matrix Service, NATCO,
Shaw Group, Team Inc

Canada: Shawcor, SNC Lavalin
Japan: Chiyoda, JGC, Shinko Plantech, Toyo
Korea: Hyundai, Daewoo
Malaysia: Wah Seong
UK: Wood Group, Amec
US: Air Products, Bechtel, Chicago Bridge & Iron, Fluor,
Foster Wheeler, Jacobs Engg, , KBR, Matrix Service,
Shaw Group, Team Inc
Page 58
22 October 2008
Appendix C: Explanation of
historical capex revisions
Figure 74: Analysis of revisions in Engineering & Construction capex vs. 2007 report
Region
Africa
Reasons for variances

Variance in capex from 2007 report
2005
2006
2007 2008E 2009E
4%
7%
-3%
30%
62% Ghana: Addtion of Tullow in 2009
Nigeria
- 2007: Delays in JV budgets
- 2008-09: Cost revisions, Oyo field newly modelled, addition of Usan profile and Escaravos GTL
Angola: Cost revisions and addition of Block 31 projects
Caspian
-11%
-10%
20%
68%
60% Azerbaijan:
2005-06: Capex downgrades as previous estimates were replaced with actual data.
2007-09: Capex upgraded due to increased cost, especially from the Azeri-Chirag-Guneshli field.
Kazakhstan: Significant cost increases from the Kashagan, Karachaganak and Tengiz projects
Europe
-9%
-4%
21%
44%
61% Mainly due to currency impact and increased activity in mature fields in UK and Norway.
Middle East
-20%
-29%
-23%
2%
N. America
22%
29%
33%
42%
Canada Heavy Oil
-5%
0%
12%
35%
19% Cost inflation
Russia
-1%
8%
11%
15%
18% - Impact of depreciating dollar

- Cost revisions
S. America
9%
15%
31%
54%
59% Argentina: Increased onshore activity

Brazil: Increased cost estimates in deepwater segment
Trinidad: Updated with revised BP figures
21%
33%
53%
71%
73% China:
- Major update of Chinese assets and huge increase in activity
- Impact of inflation on costs and currency impact of depreciating dollar.
Australia: Added Pluto LNG field
India: Updated ONGC expenditure
7%
12%
20%
39%
45%
SE Asia
2% Kuwait: 2008-09: Projects pushed back.

Oman: 2007: Project delays
Data availability is an issue with Middle east. So, there are changes to estimates based on any
additional information becoming available.
44% GOM: Cost revisions
Western Canada: Change in methodology of cost estimation
Overall, the changes are mainly due to increase in coverage, cost inflation and changed costing
methodology
Page 59
22 October 2008
Appendix D: Strategic
analysis of the E&C themes
Having established which
markets we expect to show
the greatest growth in
spend, we identify their
degree of margin
achievement both in
absolute and relative terms
Given the array of functions that exists within the oil service industry, it is no surprise that
each theme across the oil chain described above will have its own characteristic competing
forces. Advanced technology and specialised hardware, relevant project management
experience, local presence via assets or resource, strong financial capabilities as well as the
degree of capacity creep are to list but a few of the internal dynamics that will underpin each
segments relative and absolute margins near term.
Whilst difficult to quantify, intuitively we know that a theme, for example, with high barriers
to entry, limited competition and suffering little capacity creep and cost inflation, should
realise top-quartile margins against a backcloth of strong demand for its services. With this in
mind we have analysed the effect of competitive forces (please refer to Appendix E) upon
each of the major oil service sub-segments. Our conclusions and their implications for
margins are summarised in Figure 75. This strategic analysis has helped us to determine
which themes we believe are best placed to deliver relative performance over the forecast
period.
Having liaised with the companies under our coverage, as well as Wood Mackenzie and
various other industry professionals, we show on the next page the degree of margin
achievement (both relative and absolute) we think each theme could realise across our
forecast horizon. Implicit in our forecasts is the reversal of the negative effects that cost
inflation and FX had on margins across 2004/05. We marry these broad expectations with
bottom-up analysis of the components that drive each companys margins to arrive at the
base case around which we model each of the companies.
Page 60
22 October 2008
Figure 75: Degree of absolute and relative margin achievement across the development capex spectrum
Theme
Typical EBITDA 2007-09E-Base

Summary of strategic analysis (see Appendix E)
margins*
case scenario*
E&C themes (in order of relative margin achievement)

Offshore infrastructure deepwater SURF
Offshore facilities - deepwater
XXXX
8-9%
XXX
As above.
7-8%
XXX
Medium levels of substitution and high barriers to entry suggest that this industry is
structurally robust with top quartile margins expected relative to other service segments.
Near term, we expect a cyclical shift in pricing power to Service Cos (esp. on larger
contracts with limited competition) and subsequent margin expansion despite upside
pressure on supplier prices.
4-5%
Structurally weak industry with bottom quartile margins (relative to deepwater). Near term,
however, we expect mild expansion in margins due to a cyclical shift in pricing power.
5-6%
XXX/XXXX
Medium levels of substitution and barriers to entry suggest that structurally this
industry is robust with medium quartile margins expected relative to other service
segments onshore. Near term, we expect a cyclical shift in pricing power to Service
Cos (esp. on $1bn+ contracts with limited competition) and subsequent margin
expansion despite upside pressure on supplier prices.
4-5%
Structurally weak industry with bottom quartile margins (relative to other offshore themes).
Near term, however, we expect mild expansion in margins due to a cyclical shift in pricing
power.
4-5%
XX
As above.
6-8%*
XX
Structurally robust industry with medium quartile margins (relative to other onshore
themes). Near term, however, we expect reasonable expansion in margins due to a
cyclical shift in pricing power particularly for those services will to take on lump sum
turnkey risk.
3-4%
XX
Industry still relatively fertile but structurally robust. Expect upside from low-level margins
driven by demand placed on alternative technologies within the energy complex.
4-5%
XXX
Whilst this industry is a relatively fertile one, we believe the lack of players able to
provide contract services within oil sands should defend impressive margin
expansion; equally driven by an expected up-tick in demand on oil sand technology
from 2009
2-3%
Structurally weak industry with bottom quartile margins (relative to other offshore themes).
Near term, however, we expect mild expansion due to a cyclical shift in pricing power.
Onshore/offshore frontier (nonconventional)
Offshore facilities - shallow water

LNG & refining/petrochemical
plants
Offshore infrastructure shallow

water
Onshore/offshore operations and
maintenance
Onshore facilities & infrastructure
Gas to Liquids plants

Heavy Oil sand plants
Re-gas terminals
Medium levels of substitution and high barriers to entry suggest that this industry is
structurally robust with top quartile margins expected relative to other service
segments. Near term, we expect a cyclical shift in pricing power to Service Cos and
subsequent margin expansion despite upside pressure on supplier prices.
15-17%
* x = lowest margin upside, xxxx = highest margin upside; *exceptions include purely engineering or construction related activities (i.e. not LSTK) which will yield
higher overall margin e.g. 9-11%
Page 61
22 October 2008
Appendix E: Porters 5 forces

on key service segments
Figure 76: Deepwater sub-sea (SURF & equipment) and facilities we expect top quartile margin growth near term
Strength
Strength of
of suppliers:
suppliers: medium
medium
Suppliers
equally
Suppliers equally split
split between
between
steel
steel for
for construction
construction and
and
subcontracting
subcontracting functions
functions that
that will
will
include
procurement,
include procurement,
construction
and
installation
construction and installation
depending
depending on
on level
levelof
of in
in house
house
capacity
capacity (e.g.
(e.g. owner
owner of
of vessels)
vessels)
Expect
Expect cyclical
cyclical led
led squeeze
squeeze on
on
sub
sub--contracting
contracting and
and installation
installation
capacity
as
demand
for
their
capacity as demand for their
services
services increase.
increase. This
This will
will place
place
upside
upside pressure
pressure on
on supplier
supplier
prices
prices in
in the
the near
near term
term
Note
Note that
that subsequent
subsequent increase
increase
-in
in raw
raw material
material and
andsub
sub
contracting
contracting prices
pricespotentially
potentially
passed
passed through
through to
toBuyer
Buyer
depending
depending on
on initial
initial terms
terms &&
conditions
conditions of
of Oil
Oil Service
Service
company
company--Buyer
Buyer contract.
contract.
Barriers
Barriers to
to entry
entryhigh
high
Capital
Capital intensive
intensive business
business whose
whose participants
participants
leverage
leverage the
the necessary
necessary equipment
equipment (e.g.
(e.g. heavy
heavy
lift/pipe
laying vessels,
vessels, remote
remote operating
operating vehicles)
vehicles)
lift/pipe--laying
and
and their
their geographic
geographic flexibility
flexibilityto
to win
windeepwater
deepwater
projects.
projects.(Lead
(Leadtime
time on
onvessel
vessel new
new builds
buildsbetween
between
33--44 years
years and
and average
average vessel
vessel cost
cost c.
c. $350mn)
$350mn)
Advanced
Advanced technology
technology (often
(often with
with long
long patent
patent
expiries)
expiries) on
onsubseaequipment/systems
subseaequipment/systems and
and to
to aa
--laying
lesser
lesser degree,
degree, pipe
pipe
laying vessels/operations
vessels/operations
Technical
Technical human
human expertise
expertise in
in deepwater
deepwater (not
(not to
to
-deep)
mention
-deep) with
mention current
current advances
advances into
into ultra
ultra
with
established
established track
track records
records
--medium
Levels
Levels of
of substitute
substitute competition
competition
medium::
Players
Players look
look to
to seek
seek market
market share
share with
with expansion
expansion of
of their
their
installation
installation capacity
capacity through
through new
new builds,
builds, vessel
vessel charters
charters or
or
converted
ships
(see
Appendix
1
for
comprehensive
list
converted ships (see Appendix 1 for comprehensive list of
of
market
players)
market players)
Technip
Acergy(~15%),
Technip (~35%),
(~35%), Saipem
Saipem (~25%),
(~25%),
Acergy(~15%),
-10%
Aker
-10% each)
AkerKvaerner
Kvaerner,,Subsea7
Subsea7 (b/w
(b/w c.
c. 55
each)
Strength
Strength of
of buyers:
buyers: low
low
Medium
Medium levels
levels of
of
substitution
substitution and
and high
high barriers
barriers
to
to entry
entry suggest
suggest that
that this
this
industry
industry isis structurally
structurally robust
robust
Near
Near term,
term, expect
expect cyclical
cyclical
led
led shift
shift in
in pricing
pricing power
power to
to
Service
Servicecos
cosand
and subsequent
subsequent
margin
margin expansion
expansion despite
despite
upside
upside pressure
pressure on
onsupplier
supplier
prices
prices
Threat
Threat of
of substitutes:
substitutes: low
low
NOC
NOC and
and IOC
IOC investment
investment shifting
shifting
away
away from
from shallow
shallow water
water fields
fields as
as
economics
economics become
become more
more
attractive
in
deepwater.
attractive in deepwater.
Size
Size of
of reserves,
reserves, ultimate
ultimate
recoveries
recoveries and
and rates
rates of
of flow
flow
potentially
higher
in
potentially higher in deepwater.
deepwater.
Source: Deutsche Bank
Page 62
22 October 2008
Figure 77: Shallow water sub-sea and facilities we expect bottom quartile margin growth near term
Barriers
Barriersto
toentry
entry low
low
Capital
-layingvessels
Capitalintensity
intensity(pipe
(pipe-laying
vesselsetc)
etc)represent
represent
aalow
lowbarrier
barrierhere
heregiven
giventhe
theexisting
existingnetwork
networkof
of
vessels
vesselssupporting
supportingsuch
suchaamature
maturebusiness
businesse.g.
e.g.
leasing
leasing would
wouldbe
beaasimple
simplecost
costeffective
effectiveoption
option
Utilises
Utilisesmore
moreconventional
conventional(less
(lesstechnically
technically
challenging)
challenging)types
typesof
ofequipment
equipment
Strength
Strength of
of suppliers:
suppliers: medium
medium
Suppliers
Suppliersequally
equallysplit
split between
between
steel
steelfor
forconstruction
constructionand
and
subcontracting
subcontractingfunctions
functionsthat
thatwill
will
include
includeprocurement
procurementand/or
and/or
construction
and/or
installation
construction and/or installation
depending
dependingon
onlevel
levelof
ofin
inhouse
house
capacity
capacity(e.g.
(e.g.owner
ownerof
of vessels)
vessels)
We
Expect
expect
cyclical
cyclical
led
led
squeeze
on
Expect
cyclical
ledsqueeze
squeeze
on on
sub
sub--contracting
contractingand
and installation
installation
capacity
capacityas
asdemand
demandfor
fortheir
their
services
servicesincrease.
increase.This
This will
willplace
place
upside
pressure
on
supplier
upside pressure on supplier
prices
pricesin
inthe
thenear
nearterm
term
Note
Notethat
that subsequent
subsequentincrease
increase
in
inraw
rawmaterial
materialand
andsub
sub-contracting
contractingprices
pricespotentially
potentially
passed
passedthrough
throughto
toBuyer
Buyer
depending
on
initial
depending on initialterms
terms&&
conditions
of
Oil
Service
conditions of Oil Service
company
company--Buyer
Buyercontract.
contract.
Levels
Levels of
of substitute
competition -- high
high
Players
Playerslook
lookto
toseek
seekmarket
marketshare
sharewith
withexpansion
expansionof
oftheir
their
installation
installationcapacity
capacitythrough
throughnew
newbuilds,
builds,vessel
vesselcharters
chartersor
or
converted
ships
often
designed
for
dual
purpose
i.e.
deep
converted ships often designed for dual purpose i.e. deepand
and
shallow
water
(see
Appendix
for
comprehensive
list
of
market
shallow water (see Appendix for comprehensive list of market
players)
players)
Technip
Technip (~35%),
(~35%),Saipem
Saipem (~25%),
(~25%), Acergy
Acergy (~15%),
(~15%),
Aker
Aker Kvaerner
Kvaerner,, Subsea
Subsea 7,
7,SBM
SBMOffshore,
Offshore,Samsung,
Samsung,
Mcdermott
Mcdermott,, Heerema
Heerema,, Hyundai
Hyundai
Strength
Strengthof
ofbuyers:
buyers:high
high
High
Highlevels
levelsof
ofsubstitution
substitution
and
andlow
lowbarriers
barriersto
toentry
entry
suggest
that
this
suggest that this industry
industryisis
structurally
weak
structurally weak
Near
expect
expect
cyclical
cyclical
Nearterm,
term,we
expect
cyclical
led
ledsupport
supportin
inpricing
pricing
power
powerbetween
betweenService
Service
Cos
andbuyer.
buyer.Margins
Margins
Cos and
should
subsequently
should subsequently
improve
improve(albeit
(albeitslightly)
slightly)
despite
despiteupside
upsidepressure
pressureon
on
supplier
supplierprices
prices
Threat
Threat of
of substitutes:
substitutes:high
high
NOC
NOCand
andIOC
IOCinvestment
investmentshifting
shifting
towards
towardsdeepwater
deepwaterfields
fieldsas
as
economics
economicsbecome
becomemore
more
attractive.
attractive.
Size
Sizeof
of reserves,
reserves,ultimate
ultimate
recoveries
recoveriesand
andrates
ratesof
of flow
flow
potentially
higher
in
potentially higher indeepwater.
deepwater.
Figure 78: Onshore/offshore frontier developments we expect medium quartile margin growth near term
Barriers
Barriers to
to entry
entry high
high
Technical
Technicalhuman
humanexpertise
expertiseand
andlocal
localpresence
presencein
in
some
someof
of the
theharshest
harshest weather
weatherconditions
conditionsOil
Oil Service
Service
companies
will
encounter
companies will encounter
Superior
Superiortechnology
technology(often
(oftenwith
withlong
longpatent
patent
expiries)
expiries)on
onsubsea
subseaequipment
equipmentand
and advanced
advancedpipepipelay
layvessels/operations
vessels/operations able
ableto
todeal
dealwith
withharsh
harsh
operating
environments
operating environments
Strength
Strength of
of suppliers:
suppliers: medium
medium
Main
Main supply
supply isis steel
steel (up
(up to
to 50%
50%
of
of cost
cost base)
base) with
with remainder
remainder of
of
supply
chain
split
across
various
supply chain split across various
sub
sub--contracting
contracting functions
functions (e.g.
(e.g.
construction,
construction, procurement)
procurement)
We
Expect
expect
cyclical
cyclical
led
led
squeeze
on
Expect
cyclical
led squeeze
squeeze
on on
sub
sub--contracting
contracting capacity
capacity as
as
demand
demand for
for their
their services
services
increase.
increase. This
This will
will place
place upside
upside
pressure
pressure on
on supplier
supplier prices.
prices.
Note
Note that
that subsequent
subsequent increase
increase
in
in raw
raw material
material and
and sub
sub-contracting
contracting prices
prices potentially
potentially
passed
passed through
through to
to Buyer
Buyer
depending
depending on
on initial
initial terms
terms &&
conditions
of
Oil
Service
company
Buyer
contract.
company-Buyer contract.
Strength
Strength of
of buyers:
buyers:medium
medium
Levels
Levels of
of substitute
competition--medium
medium
Players
Playerslook
lookto
toseek
seekmarket
marketshare
sharewith
withexpansion
expansionof
of
resource
resource base
base in
in these
these frontier
frontier areas
areas via
via build
build of
of local
local
content
content(increased
(increasedinvolvement
involvementof
of local
localpersonnel)
personnel)and
and
construction
constructionyards
yards(greenfield
(greenfieldor
orbrownfield
brownfieldexpansion)
expansion)
Saipem,
Saipem,Aker
AkerKvaerner,
Kvaerner, Petrofac,
Petrofac, Daewoo,
Daewoo,Linde,
Linde,
Hyundai,
Hyundai,Amec
Amec
Medium
Medium levels
levels of
of substitution
substitution
and
andhigh
highbarriers
barriersto
toentry
entry
suggest
suggestthat
that this
this industry
industryisis
structurally
robust
structurally robust
Near
we
expect
cyclical
cyclical
led
Near term,
term, expect
expect
cyclical
led led
shift
shiftin
inpricing
pricingpower
powerto
toService
Service
Cos
(esp.on
onlarger
largercontracts
contracts
Cos (esp.
with
with limited
limited competition)
competition) and
and
subsequent
margin
expansion
subsequent margin expansion
despite
despiteupside
upsidepressure
pressureon
on
supplier
supplierprices
prices
Threat
Threat of
of substitutes:
substitutes:medium
medium
NOC
NOCand
andIOC
IOCinvestment
investmentshifting
shifting
away
away from
from traditional
traditional more
more
accessible
areas
as
economics
accessible areas as economics
become
become more
more attractive
attractive in
in frontier
frontier
areas
areas
Size
Sizeof
ofreserves
reservesand
andultimate
ultimate
recoveries
recoveries potentially
potentially higher
higher in
in
frontier
frontier areas
areas
Page 63
22 October 2008
Figure 79: LNG We expect medium to top quartile margin growth near term
Strength
Strength of
of suppliers:
suppliers: medium
medium
Main
Main supply
supply isis steel
steel (up
(up to
to 50%
50%
of
cost
base)
with
remainder
of cost base) with remainder of
of
supply
supply chain
chain split
split across
across various
various
sub
sub--contracting
contracting functions
functions (e.g.
(e.g.
construction,
construction, procurement)
procurement)
Expect
Expect cyclical
cyclical led
led squeeze
squeeze on
on
sub
contracting capacity
capacity as
as
sub--contracting
demand
for
their
services
demand for their services
increase.
increase. This
This will
will place
place upside
upside
pressure
pressure on
on supplier
supplier prices.
prices.
Note
Note that
that subsequent
subsequent increase
increase
-in
in raw
raw material
material and
and sub
sub
contracting
prices
potentially
contracting prices potentially
passed
passed through
through to
to Buyer
Buyer
depending
depending on
on initial
initial terms
terms &&
conditions
of
Oil
Service
--Buyer
company
company
Buyer contract.
contract.
Barriers
medium
Barriers to
to entry
entry
medium
Large
requiring
Large scale
scale projects
projects
requiring contractors
contractors with
with
strong
strong balance
balance sheets
sheets given
given turn
turn key
key nature
nature of
of LNG
LNG
awards
awards
Established
NOCs(from
Established relationships
relationships with
with
NOCs(from whom
whom aa
larger
larger number
number of
of LNG
LNG contracts
contracts originate)
originate)
Regional
Regional presence
presence and
and partnership
partnership with
with local
local
personnel.
personnel. Necessary
Necessary infrastructure
infrastructure (e.g.
(e.g. yards)
yards)
required
for
construction
and
installation
phases
required for construction and installation phases
Technology
Technology licensed
licensed out
out selectively
selectively
Levels
--medium
Levels of
of substitute
competition
medium
Only
Only largest
largest players
players able
able to
to handle
handle increasing
increasing
number
number of
of EPIC
EPIC contracts
contracts valued
valued >> $1bn.
$1bn.
Combination
Snamthreatens
Combination of
of Saipem
Saipem &
&
Snamthreatens market
market
share
share here
here (see
(see Appendix
Appendix 11 for
for comprehensive
comprehensive list
list of
of
market
players)
market players)
Technip
Technip (~20%),
(~20%), Chiyoda
Chiyoda (~20%),
(~20%), JGC
JGC (~10%),
(~10%),
KBR
KBR (~10%),
(~10%), Saipem
Saipem Snamprogretti
Snamprogretti (~5%)
(~5%)
Strength
--low
Strength of
of buyers
buyers
low
Medium
Medium levels
levels of
of
substitution
substitution and
and barriers
barriers to
to
entry
entry suggest
suggest that
that this
this
industry
structurally
robust
robust
Near
Near term,
term, expect
expect cyclical
cyclical
led
led shift
shift in
in pricing
pricing power
power to
to
Service
cos
(esp.
on
Servicecos (esp. on
$1bn+
$1bn+ contracts
contracts with
with
limited
limited competition)
competition) and
and
subsequent
subsequent margin
margin
expansion
expansion despite
despite upside
upside
pressure
pressure on
on supplier
supplier prices
prices
Threat
Threat of
of substitutes:
substitutes: low
low
Economies
Economies of
of scale
scale (bolt
(bolt on
on
liquefaction
liquefaction trains
trains around
around existing
existing
infrastructure
infrastructure &
& established
established supply
supply
chain)
chain) increases
increases attractiveness
attractiveness of
of
LNG
LNG vs.
vs. other
other advanced
advanced energy
energy
alternatives
e.g.
GTL
alternatives e.g. GTL
Monetisation
Monetisation of
of gas
gas using
using pipelines
pipelines
increasingly
increasingly difficult
difficult for
for stranded
stranded
reserves.
LNG
more
feasible
reserves. LNG more feasible option
option
Page 64
22 October 2008
Figure 80: Deepwater drilling Day rates expected to show varying results; however structurally a robust industry
Barriers
Barriers to
toentry
entryhigh
high
Capital
Capital intensive
intensive business
business whose
whose participants
participants
leverage
drillships
leverage the
the necessary
necessaryassets
assets(e.g.
(e.g.
drillships,,semi
semi-submersible
submersiblerigs)
rigs) and
and their
theirgeographic
geographicflexibility
flexibility to
to
win
win deepwater
deepwater drilling
drilling contracts.
contracts.(Lead
(Lead time
timeon
on rig
rig
new
newbuilds
builds between
between3-3-44 years
years and
and average
average rig
rigcost
cost
-300mn)
between
-300mn)
between$100
$100
Advanced
Advanceddrilling
drilling technology
technologyrequired
requiredon
onultra
ultra
deepwater
deepwaterfields
fields
Technical
Technicalhuman
human expertise
expertise with
withestablished
established track
track
records
records
Strength
Strengthof
ofsuppliers:
suppliers: low
low
Key
supply
to
drillers
will
be
Key supply to drillers will bedrill
drill
bit
bit components
components e.g.
e.g.casing,
casing,
specialised
fluids
for
well
hole
specialised fluids for well hole
etc.
etc.Expect
Expectcyclical
cyclicalled
leduptick
uptickin
in
demand
demandfor
for these
thesematerials
materials and
and
subsequent
rise
in
supplier
prices
subsequent rise in supplier prices
In
In the
thecontext
context of
ofnew
new build
build
capacity
capacitymain
mainsupply
supply isissteel
steel
--medium
Levels
Levels of
ofsubstitute
competition
medium
Players
look
to
seek
market
share
with
Players look to seek market share withexpansion
expansionof
of their
their
drilling
drilling capacity
capacity through
through new
new builds
builds and
and rig
rigcharters
charters
Transocean
Transocean,,Seadrill,
Seadrill, Pride
Pride (largest
(largest players),
players),
Saipem,
Saipem,Noble,
Noble,Nabors,
Nabors,Fred
Fred Olsen
Olsen
Strength
Strength of
of buyers:
buyers: low
low
Medium
levels
of
substitution
Medium levels of substitution
and
andhigh
highbarriers
barriers to
toentry
entry
suggest
suggestthat
that this
this industry
industry isis
structurally
robust
structurally robust
Near
Near term,
term,expect
expectcyclical
cyclicalled
led
shift
shift in
inpricing
pricingpower
power to
toservice
service
cos
and
subsequent
margin
cos and subsequent margin
expansion
expansiondespite
despiteupside
upside
pressure
pressureon
onsupplier
supplierprices
prices
Threat
Threatof
of substitutes:
substitutes: low
low
NOC
and
IOC
NOC and IOC investment
investment shifting
shifting
towards
towards deepwater
deepwater fields
fields as
as
economics
economics become
become more
more
attractive.
attractive.
Size
Size of
of reserves,
reserves, ultimate
ultimate
recoveries
recoveries and
and rates
rates of
of flow
flow
potentially
higher
in
potentially higher in deepwater
deepwater
Page 65
22 October 2008
Figure 81: Heavy oil sands we expect medium quartile margin growth near term
Strength
Strengthof
ofsuppliers:
suppliers:medium
medium
Suppliers
Suppliersequally
equallysplit
split between
between
steel
steelfor
forconstruction
constructionand
and
subcontracting
subcontractingfunctions
functionsthat
thatwill
will
include
includeprocurement,
procurement,
construction
construction
Expect
Expectcyclical
cyclicalled
ledsqueeze
squeezeon
on
sub
sub--contracting
contractingas
as demand
demand for
for
their
theirservices
servicesincrease.
increase.This
Thiswill
will
place
placeupside
upsidepressure
pressureon
onsupplier
supplier
prices
pricesin
inthe
thenear
nearterm
term
Note
Note that
thatsubsequent
subsequent increase
increase
-in
inraw
rawmaterial
materialand
andsub
sub
contracting
contractingprices
pricespotentially
potentially
passed
passedthrough
throughto
tobuyer
buyer
depending
dependingon
oninitial
initialterms
terms&&
conditions
conditionsof
ofOil
Oilservice
service
company
company--buyer
buyer contract.
contract.
Barriers
Barriers to
toentry
entryhigh
high
Capital
Capital intensive
intensive business
business whose
whose participants
participants
leverage
leverage the
the necessary
necessary equipment
equipment (e.g.
(e.g. heavy
heavy lifting
lifting
trucks
trucks and
and mining
mining equipment)
equipment) to
to win
win projects.
projects.
Established
Established infrastructure
infrastructure not
not to
to mention
mention
relationships
NOCs;
relationships with
with IOCs
IOCs and
and
NOCs; track
track record
record often
often
-client
results
-clientbusiness
results in
in repeat
repeat contractor
contractor
businessand
and
reluctance
reluctance from
from client
client to
to change
change
Advanced
Advanced technology
technology (often
(often with
with long
long patent
patent
expiries)
expiries) on
on types
types of
of extraction
extraction methods
methods e.g.
e.g. in
in situ
situ
bitumen
bitumen production
production or
or processes
processes e.g.
e.g. tailing
tailing
management.
management.
Technical
Technical human
human expertise
expertise and
and know
knowhow
howhard
hard to
to
reproduce
reproduce
--medium
Levels
Levels of
of substitute
competition
medium
Players
look
to
seek
market
share
as
they
build
Players look to seek market share as they buildtrack
track record
record
-requisite
and
-requisite for
and relationships
relationships with
with client
client base
base(a
(a pre
pre
for winning
winning
contracts)
often
through
long
standing
contacts
in
other
contracts) often through long standing contacts in other
industries
industries
Colt
Worley
Parsons
(15%),
Fluor
Colt Worley Parsons (15%), Jacobs
Jacobs (10%),
(10%),
Fluor(10%),
(10%),
Amec
Amec(10%),
(10%), Hatch
Hatch (10%)
(10%)
Technip,
22
-5%
Technip, SNC,
SNC, Equinox,
Equinox, Vista,
Vista, Gemini,
Gemini, IMV
IMV (b/w
(b/w c.
c.-5%
each)
each)
Strength
Strengthof
ofbuyers:
buyers: low
low
Medium
Medium levels
levels of
of
substitution
substitution and
and barriers
barriers to
to
entry
entry suggest
suggest that
that this
this
industry
structurally robust
robust
Near
Near term,
term,expect
expectcyclical
cyclical
led
led shift
shift in
in pricing
pricing power
power to
to
service
cos(esp.
(esp. on
on larger
larger
servicecos
contracts
contracts with
with limited
limited
competition)
competition)
Medium
Medium term,
term, expect
expectaa
slowing
slowing in
inmargin
margin expansion
expansion
due
due to
to upside
upside pressure
pressure on
on
supplier
prices
and
supplier prices and greater
greater
resistance
from
Oil
cos
resistance from Oilcos
Threat
Threat of
of substitutes:
substitutes: medium
medium
NOC
NOC and
and IOC
IOC investment
investment shifting
shifting
away
away from
from traditional
traditional more
more
accessible
accessible areas
areas as
as economics
economics
become
becomemore
more attractive
attractive in
in oil
oil
sands
sands
Size
Size of
of reserves
reserves and
and ultimate
ultimate
recoveries
recoveries potentially
potentially higher
higher in
in oil
oil
sands
sands
Page 66
22 October 2008
Figure 82: Rig construction services we expect medium quartile margin growth near term
Barriers
Barriersto
toentry
entry medium
medium
Established
Establishedrelationships
relationshipswith
withIOCs,
IOCs, NOCs
NOCs and
andoil
oil
service
servicecompanies;
companies;track
trackrecord
recordoften
oftenresults
results in
in
repeat
-clientbusiness
repeatcontractor
contractor-client
businessand
andreluctance
reluctance
from
fromclient
clientto
tochange
change
Location
Locationand
andpartnership
partnershipwith
withlocal
localgovernment
governmentand
and
personnel.
personnel.Clients
Clientswill
willoften
oftenopt
optfor
forcontractors
contractors
located
in
close
proximity
located in close proximity
Necessary
Necessaryexpertise
expertiseand
andinfrastructure
infrastructure(e.g.
(e.g.yards)
yards)
required
requiredfor
forconstruction
constructionand
andprocurement
procurementphases.
phases.
Large
Largescale
scaleprojects
projectsrequires
requirescontractors
contractorswith
with
strong
strongbalance
balancesheets
sheetsgiven
giventurn
turnkey
keynature
natureof
of
awards
awards
Strength
Strengthof
ofsuppliers:
suppliers:medium
medium
Main
Mainsupply
supplyisissteel
steel(up
(upto
to35%
35%
of
ofcost
costbase)
base)with
withremainder
remainderof
of
supply
supplychain
chainsplit
splitacross
acrossvarious
various
sub
contracting
functions
(e.g.
sub -contracting functions (e.g.
construction,
construction,procurement)
procurement)
We
expect
cyclical
squeeze
Expect
cyclical
led led
squeeze
on on
sub
sub--contracting
contractingcapacity
capacityas
as
demand
demandfor
fortheir
theirservices
services
increase.
increase.This
Thiswill
willplace
placeupside
upside
pressure
on
supplier
pressure on supplierprices.
prices.
Note
Notethat
thatsubsequent
subsequentincrease
increase
in
inraw
rawmaterial
materialand
andsub
sub-contracting
contractingprices
pricespotentially
potentially
passed
passedthrough
throughto
tobuyer
buyer
depending
dependingon
oninitial
initialterms
terms&&
conditions
of
Oil
Service
company
buyer
contract.
company -buyer contract.
Levels
Levelsof
ofsubstitute
substitutecompetition
competition
by
bytheme:
theme:medium
medium
Large
Largescale
scaleplayers
players (operating
(operatingEPIC
EPICcontracts
contracts>>$500mn)
$500mn)seeking
seeking to
totake
take
on
onsmaller
smallersized
sizedprojects
projectsand
andaccept
acceptlower
lowerprices
prices(advantaged
(advantagedby
by economies
economies
of
scale)
could
alter
market
share
within
each
of
the
themes
bel
ow:
of scale) could alter market share within each of the themes bel ow:
Jack
Jack--up
uprefurbishment
refurbishmentand
andnew
newbuild
buildconstruction
constructionplayers:
players:
Lamprell
Lamprell(40%),
(40%),Keppel
KeppelFELS
FELS(20%),
(20%),PPL
PPL(15%),
(15%),Maritime
MaritimeIndustria
Industria l lServices
Services
(5
-10%),Dubai
10%),QGM
QGM(5
(5-10%),
DubaiDry
Drydocks
docks(5%)
(5%)
(5--10%),
Semi
subrefurbishment
refurbishment&
&new
newbuild
buildconstruction
constructionplayers:
players:
Semi--sub
Keppel
Keppel(15%),
(15%), Sembcorop
Sembcorop Marine
Marine(10%),
(10%), Jurong
Jurong (10%),
(10%),JJRay
RayMc
McDermott
Dermott
(10%),
(10%), DubaiDryDocks
DubaiDryDocks (15%),
(15%),PPL
PPL(10%),
(10%),Samsung
Samsung(10%)
(10%)Daewoo
Daewoo(10%),
(10%),
Lamprell,
Lamprell,MIS,
MIS,QGM
QGM (all
(all<10%)
<10%)
by
byregion
region:: high
high
Strength
Strengthof
ofbuyers
buyers --medium
medium
Medium
Mediumlevels
levelsof
ofsubstitution
substitution
and
andbarriers
barriersto
toentry
entrysuggest
suggestthat
that
this
thisindustry
industryisisstructurally
structurallyrobust
robust
Medium
Mediumterm,
term,expect
expectaaslowing
slowing
in
inmargin
marginexpansion
expansionfor
forOil
Oil
Services
due
to
upside
pressure
Services due to upside pressure
on
onsupplier
supplierprices
pricesand
andgreater
greater
resistance
resistancefrom
fromOil
Oil cos
cos
Threat
Threatof
ofgeographical
geographicalsubstitution
substitutionisisreal:
real:regional
regionalmarkets
markets will
will
increasingly
increasinglycompete
competeagainst
againsteach
eachother
otherfor
forbusiness
business
Regional
Regionalplayers
players(includes
(includessemi/
semi/jackup
jackup refurb
refurband
andnew
newbuilds):
builds):
Middle
MiddleEast
East --mainly
mainlyUAE
UAE(25%),
(25%),Singapore
Singapore(40%),
(40%),S.E
S.EAsia
Asia(15%)
(15%)
USA/GoM
USA/GoM (15%),
(15%),West
WestAfrica
Africa(5%),
(5%),
Threat
Threatof
ofsubstitutes:
substitutes:low
low
Industry
Industryitself
itselfhas
hasno
noalternative
alternative
Page 67
22 October 2008
Appendix F: Detailed
specifications of yards in
Eastern Hemisphere
Figure 83: Detailed yard specifications
Location
Company
Yard name
Status
New build/
Refurbishment
Oil and gas/ Non
Products / Services
The range of services offered are those that are typically required during a
docking, including: general fabrication and repair in steel, stainless steel and
aluminium, heavy engineering and diesel fitting, electrical marine
maintenance, blasting and painting, hydraulic repair, propulsion system
servicing and repair including CPP and azimuthing drive units.
Australia
Mermaid Marine Dampier
Existing
Others
Non oil and gas
Azerbaijan
Keppel Corp.
Existing
New build +
Refurbishment
Oil and gas
Construction and repair of offshore drilling rigs
Caspian Shipyard Company Ltd
Azerbaijan
Mcdermott
International
Baku
Existing
New build
Oil and gas
From MCCI fabrication yard and marine base at BDJF, the company offers
services including design, fabrication and installation of offshore platforms
and installation of offshore pipelines for the oil and gas industry.
China
China State
Shipbuilding
Corporation
Changxing Shipbuilding Base
Greenfield expansion
New build
Oil and gas
The new capacity will be capable of building various high-tech ships, such
as LNG ships, offshore engineering facilities and cruise ships shall have
been completed before the year 2015
China
China State
Shipbuilding
Corporation
Chengxi shipyard Co. Ltd.
Existing
New build +
Refurbishment
Oil and gas
It specializes in shiprepair and newbuilding, steel construction as well as

offshore engineering, lifting gears and mechanical-electric equipments
repair and manufacture. Ship repair is the main business of the company,
and the annual capacity of ship repair is 200 vessels around including but
not limited to bulk carrier, container, chemical tanker (tanker), self-unloader,
LPG and engineering vessels.
China
China State
Shipbuilding
Corporation
China State Shipbuilding

Corporation
Existing
New build
Oil and gas
FPSO, Tension leg platforms, Semi submersibles, Jack ups
China
China State
Shipbuilding
Corporation
Guangzhou Huangpu Shipyard
Existing
Others
Non oil and gas
Established in 1851, having long been specialized in military and civil

products in South China, Guangzhou Huangpu Shipyard is adept in service
crafts,cargo ships, yachts,work boats,high speed aluminum ships, offshore
structures,large-sized steel structures for land-based construction and
heavy duty harbour machinery and so on.
China
China State
Shipbuilding
Corporation
Non oil and gas
It is the largest modern ships building complex in South China with a history
of 50 years. This company has long focused on developing and building
handysize tankers and has grown into a domestic winner in building tankers
for the European owners. It has scored significant achievements in the
development of new and high-tech ships such as the ro/pax vessels and
semi-submersible heavy lift vessels and so on.
China
China State
Shipbuilding
Corporation
Guangzhou Wenchong Shipyard Existing
New build +
Refurbishment
Oil and gas
Being a large shipbuilding and shiprepairing yard and a heavy industry

enterprise in South China, it is capable of building a range of ships and
machinery, such as containerships (in series),dredgers(in series),product oil
tankers, multipurpose cargo ships of 20,000 dwt,habour machinery, cranes
and processing large-sized machine works. For shiprepairs, annually this
yard can handle as many as 120 units of ships with tonnage of not
exceeding 200,000 dwt.each.
China
China State
Shipbuilding
Corporation
Hodong Zhonghua
Shipbuilding(Group)Co. Ltd
Others
Non oil and gas
A large shipbuilding complex having a history of over 70 years, it can build

not only naval and civil ships but also low-speed/two-strok diesel engines
and large steelstructures.It has already delivered more than 3,000 ships to
the domestic and overseas owners.And its products have been exported to
over 30 countries and regions worldwide.
Guangzhou Shipyard
International Co.,Ltd.
Existing
Existing
Others
China
China State
Shipbuilding
Corporation
Jiangnan Shipyard(Group)Co. Ltd Existing
New build
Oil and gas
New build liquefied gas carriers, car carriers, crude oil tankers, Panamax
bulk carriers, Handymax bulk carriers, Lake suitable bulk carriers, multipurpose cargo ships, fast feeder container ships etc. And in particular, gas
carriers have become one of the major products of the shipyard in the past
years. Apart from new building section, Jiangnan Shipyard has specific
divisions specializing in manufacturing pressurized tanks liquefied gas
carriers, large steel structures for civil architect engineering, variety of
mechanical and electrical equipment, nonstandard equipment, pressure
containers, port machinery etc.
China
China State
Shipbuilding
Corporation
Longxue Shipbuilding Base
Others
Non oil and gas
In light of the agreement signed between CSSC and Guangzhou Municipal

Government,a sum of 4.5 billion yuan RMB will be invested in the first
phase of the construction.With this done,the shipbuilding capability of
Longxue Shipbuilding Base shall have grown into the largest shipbuilding
base in South China and the firet-rate shipbuilding base in the world.
Other Details
Page 68
22 October 2008
Figure 84: Detailed yard specifications continued

Location
Company
Yard name
Status
New build/
Refurbishment
Oil and gas/ Non
Products / Services
Other Details
Oil and gas
Being reorganized by two shipyards,originally called Shanghai Shipyard and

Chengxi Shipbuilding respectively,Shanghai-Chengxi Shipbuilding Co.,Ltd.is
a leading extra large shipbuilding enterprise in China.It is specialized in
building many kinds of hightech vessels,such as containerships,bulk
carriers,reefer containerships,semi-submersible drilling rigs,some of which
have been exported to Europe,Asia and other areas in the world.In
addition,this yard is adept in shiprepairs and ship conversion for the
shipowners worldwide.
New build
Oil and gas
Known as the largest and most advanced shipyard in China,Shanghai

Waigaoqiao Shipbuilding Co.,Ltd.is renowned for its leading position mainly
of building the sophisticated ships,namely,the 175,000-dwt green Capesize
bulk carriers,105,000-dwt Aframax crude oil tankers and 150,000-dwt and
170,000-dwt floating production, storage and offloadings (FPSO). Its
products have been sold to some foreign countries and regions in the world
such as Belgium,America,Japan,Greece,Hong Kong and Taiwan and so on.
Existing
Others
Non oil and gas
A new Shipbuilding Industry Zone in Wuhu is being planned

and will be established, and when Wuhu Xinlian moves to the
The Wuhu Xinlian is now the biggest shipyard in Anhui Province and is also
Zone in 2010, its shipbuilding capacity will reach 500,000
a large (Grade 1) shipbuilding enterprise in China.
DWT, with a sales volume of 4 billion yuan (approx.
US$533,000,000).
COSCO Shipyard Dalian
Existing
Refurbishment
Oil and gas
Repair and conversion of large bulk carrier, container carrier and VLCC,
Semi submersibles and FPSO.
Capacity of 200 large-size ocean vessels' repair and

conversion annually. It has one world's biggest DWT 300,000
floating dock, one DWT 180,000 dock, one DWT 80,000 dock
and 9 repair berths including DWT 300,000 wharf and 10,000t
slipway. Its land area totaling 1,200,000 sq meter.
China
COSCO Shipyard Guangzhou
Existing
Others
Non oil and gas
Ship repair.
COSCO (Guang Zhou) Shipyard is equipped with a Panama

size DWT 80,000 floating dock, a DWT 150,000 dock, four
repair berths, a deep quay of 1200m, and 200,000 m2 land
area as well as other perfect facilities.
China
COSCO Shipyard Nantong
Existing
Others
Non oil and gas
Ship repair and ship conversion.
Shipyard has one DWT 150,000 floating dock, one DWT

80,000 floating dock, four repair berths and 400,000m2 land
areas.Capacity is of approximately 150 vessels per year.
China
COSCO Shipyard Shanghai
Existing
New build
Oil and gas
Onshore and offshore engineering activities for refrigerated carrier,

chemical tanker, LPG tanker and other emergency projects.
COSCO (Shang Hai) Shipyard has one DWT 50,000 floating

dock, 350m berthing quays.
A newly built shipyard with one DWT 150,000 dock and four
piers in service.
Zhoushang shipyard is building a very large ship repairing,
building and conversion base composing of 3 docks ranging
from DWT 80,000 to DWT 300,000 ( dock capacity: nearly
DWT 1,110,000), three piers, 4,500m coastline and 2,000,000
m2 land area. Within the next few years, it will have the
potential to grow into a mega shipyard and capable of
servicing all marine activities, including VLCC repairs and
offshore blocks fabrication.
China
China State
Shipbuilding
Corporation
China
China State
Shipbuilding
Corporation
Waigaoqiao Shipbuilding Co.,Ltd Existing
China
China State
Shipbuilding
Corporation
Wuhu Xinlian Shipbuilding Co
China
Shanghai-Chengxi Shipbuilding
Co.,Ltd
Existing
New build
Existing + Brownfield
expansion
Others
Non oil and gas
Ship repairing, building and conversion base (expansion work in progress)
Keppel Nantong Shipyard

Company Limited
Existing
Others
Non oil and gas
Shipbuilding and repairing
Yantai Raffles
Existing
New build
Oil and gas
New build semisubmersible rigs, Jackup rigs, platform conversion, Vessels,

Dry dock with an area of 72 hectares
FPSO, FPO, Heavy lift carrier, pipelay vessels etc.
China
COSCO Shipyard Zhoushan
China
Keppel Corp.
China
Yantai Raffles
India
SembCorp
Pipavav Shipyard
New Build
Oil and gas
VLCC vessels
Indonesia
Clough
Petrosea
Existing
New build
Oil and gas
A comprehensive range of services are undertaken from offshore wellhead

& production platforms, subsea pipeline and umbilical installations, mooring
systems and Floating Production, Storage and Offloading (FPSOs) through
to downstream processing facilities.
Indonesia
Labroy Marine
Batam Island
Existing
New build
Oil and gas
Labroy is in the areas of delivering high specification of offshore support

vessels (OSV), Anchor Handling/Supply Tugs (AHTS) and Platform Supply
Vessel(PSV) and has recently started with Jack up rig construction.
Indonesia
Mcdermott
International
Batam Island
Existing
New build
Oil and gas
It offers services including design, fabrication and installation of spar

platforms; design and installation of subsea facilities; design, fabrication,
and installation of new and refurbished bottom-founded offshore platforms;
and, installation of offshore pipelines for the oil and gas industry.
Indonesia
SembCorp
Karimun Sembawang Shipyard
Existing
Others
Non oil and gas
Main activities encompass block fabrication, tank cleaning, afloat ship

repairs, de-sludging and de-sloping of tankers. Construction of multipurpose barges/vessels for accomodation, work and bulk cargoes.
The 85-hectare shipyards infrastructure is under

development and construction is scheduled for completion in
September 2008. It will comprise a 600-metre-long VLCC
drydock equipped with shipbuilding workshop facilities and
equipment, gearing it towards the building of large VLCC
sized vessels in the future.
Operates from a 35-hectare site located on Karimun Island in

Indonesia, approximately 40 km southwest of Singapore.
Page 69
22 October 2008

Location
Company
Yard name
Status
New build/
Refurbishment
Oil and gas/ Non
Products / Services
Other Details
Indonesia
SembCorp
SMOE Indonesia
Existing
Others
Non oil and gas
Provides support to the Groups operations and is capable of delivering a

full spectrum of turnkey solutions that include engineering, procurement,
construction, transportation, installation and commissioning services.
Japan
Kawasaki
Shipbuilding
Corporation
Kobe
Existing
New build +
Refurbishment
Oil and gas
Its product ranges include high-performance LNG and LPG carriers,

container ships, bulk carriers and VLCCs, as well as submarines. The
Company is spearheading development of offshore structures and research
vessels.
Japan
Kawasaki
Shipbuilding
Corporation
Sakaide
Existing
New build +
Refurbishment
Oil and gas
Its product ranges include high-performance LNG and LPG carriers,

container ships, bulk carriers and VLCCs, as well as submarines. The
Company is spearheading development of offshore structures and research
vessels.
Japan
Mitsui
Engineering &
Shipbuilding
Mitsui
Existing
New build
Oil and gas
The company builds LNG carrier, bulk carrier, oil tanker, FPSO, ROVs Patrol
ships etc.
Kazakhstan
Keppel Corp.
Keppel Kazakhstan LLP
Existing
New build +
Refurbishment
Oil and gas
Construction and repair of offshore drilling units and structures and

specialised vessels
Korea
Daewoo
Daewoo
Existing
New build
Oil and gas
It also works on:

Fixed platforms, rigs, FPSO/FPU/FSOs for offshore oil and gas exploration &
Tankers, LNG & LPG carriers, container ships, roll roll-on rollproduction. It also manufactures Gas Carriers(LNG,LPG), VLCC, Container
off carriers, chemical carriers, product tankers, passenger
ships, Roll-on Roll-off freight carrier, Pasenger carriers, Bulk carriers, Naval
ferries, submarines, destroyers, battle ships, submarine
ships: Submarines, war ships, auxiliaries
rescue vessels, AUV, and other specialty vessels
Korea
Hyundai
Hyundai
Existing
New build
Oil and gas
Floating Units, Fixed Platforms, Pipelines & Subsea Facilities, Offshore

Installations. It also works on VLCCs, Tankers, Product Carriers, Chemical
Tankers, Containerships, Bulk Carriers, OBO Carriers, Ro-Pax Ships, Ro-Ro
Ships, Pure Car Carriers, LNG Carriers, LPG Carriers, Submarines,
Destroyers, Frigates
Korea
Samsung
Geoje Shipyard
Existing
New build
Oil and gas
Crude Oil Tankers, Container Vessels, Cruiser & Ferries,

Shipbuilding Capacity - 4,000,000 gt/yr
Gas Carriers(LNG,LPG),FPSO, Drillships, Offshore Platforms, Cargo &
Offshore and Steel Structure capacity - 250,000 mt/yr
Material Handling Equipment, Tension leg platforms, Semisubmersibles etc
Offshore yard covering over 229 acres, including a156-acre

assembly yard and a 73-acre fabrication shop.
Kuwait
Maritime
MIS Kuwait
Industrial Services
Existing + Brownfield
expansion
Refurbishment
Oil and gas
The facilities comprise a two-story warehouse, covered

machine shop, and mechanical fabrication bays, each having
its own overhead crane, with capacities ranging from 5 to 15
tons. The facility is equipped with lathes, boring machines,
Used primarily as a comprehensive oilfield machine shop and support base
milling machines, grinders, shapers, valve repair and test
for MIS services in Kuwait and the Northern Gulf, the Kuwait facilities are
equipment, and welding and cutting equipment.
located in East Ahmadi, Kuwait.
In order to gear up for the additional fabrication work MIS
Kuwait is expanding the facilities to a second work area at
Mina Shuaiba (about 15 kms away) in addition to the existing
facility at East Ahmadi.
Philippines
Keppel Corp.
Keppel Cebu Shipyard Inc
Existing
Others
Non oil and gas
Philippines
Keppel Corp.
Keppel Philippines Marine Inc
Existing
Others
Non oil and gas
Philippines
Keppel Corp.
Subic Shipyard & Engineering Inc Existing
Others
Non oil and gas
Shipbuilding and Repairing
Qatar
Keppel Corp.,
Nakilat JV
Keppel Corp., Nakilat JV
New build
Oil and gas
LNG infrastructure (refurbishment of LNG tankers, FPSOs)
Keppel and Qatar Gas Transport Company Ltd

(NAKILAT) formed a 20/80 joint venture to develop a shipyard
in the Port of Ras Laffan by 2010. The yard covers 42
hectares of land area. Quay side includes six full length wet
berths, totalling 2.4 km long.
Saudi Arabia
Maritime
MIS ARABIA
Industrial Services
Existing
Refurbishment
Oil and gas
Jack up refurbishment (derived from projects underatken)
MIS-Arabia covers a total land area of 85,000m2 with a

covered fabrication shop of 4,000 m2. The fabrication shop
holds five overhead cranes of various capacities (10 tons, 30
tons). It also holds various equipment required for pressure
vessels manufacturing, including dished end forming
machines. Furthermore, the facility contains a stress-relieving
furnace of 3m x 3m x 12m (MIS-Arabia is in the process of
doubling the area of its fabrication shop and introducing a
new furnace of 6m x 7m x 18m).
Saudi Arabia
SembCorp
FDSCO
Others
Non oil and gas
Shipbuilding, ship repairing, marine engineering facilities. Other associated

facilities will include ship construction halls, wet and dry berths, final
outfitting and commissioning quay, supporting infrastructures and services
as well as training facilities.
The yard will have a shiplift system for new building and
repair of vessels up to Handymax size and a floating dock for
repair of vessels up to Suezmax size. The shipyard is
expected to be completed in 2009.
Singapore
Clough
Asia Offshore
Existing
New build
Oil and gas
Asia Offshore specializes in engineering and fabrication of steel structure,

process modules, topsides modules and other process facilities for the
onshore and offshore oil and gas industry.
Singapore
Keppel Corp.
FSTP Pte Ltd
Existing
New build +
Refurbishment
Oil and gas
Construction, fabrication and repair of offshore production facilities and

drilling rigs
Singapore
Keppel Corp.
Keppel FELS Ltd
Existing
New build +
Refurbishment
Oil and gas
Construction, fabrication and repair of offshore production facilities and

drilling rigs, power barges, specialised vessels and other offshore
production facilities.
Singapore
Keppel Corp.
Keppel Shipyard Ltd
Existing
Others
Non oil and gas
Shiprepairing, shipbuilding and marine

construction
Singapore
Keppel Corp.
Keppel Singmarine Pte Ltd
Existing
Others
Non oil and gas
Singapore
Keppel Corp.
Offshore Technology
Development Pte Ltd.
Existing
New Build
Oil and gas
Production of jacking systems and provision of jacking analysis
Page 70
22 October 2008

Location
Company
Yard name
Status
New build/
Refurbishment
Oil and gas/ Non
Products / Services
Other Details
Over a total land area of 68 hectares in 2 locations, Jurong
Shipyard operates four graving docks with a total capacity of
1,100,000 dwt and berthing quays stretching over a total
length of 2,728 metres with a maximum draft of 9 metres.
Singapore
SembCorp
Jurong shipyard
Existing
New build +
Refurbishment
Oil and gas
ship repair, newbuilding, ship conversion and offshore engineering.
Singapore
SembCorp
Jurong SML
Existing
Others
Non oil and gas
Repair of small and medium-sized vessels, including afloat and anchorage

repairs and the construction of mid-sized vessels.
Operating from two locations that cover an area of 12

hectares, Jurong SML has two dry docks (17,500 dwt
capacity) at Shipyard Road, as well as a floating dock and
three slipways at Tuas.
Oil and gas
Design and construction of mobile offshore jack-up and semi-submersible

drilling rigs, offshore construction and support vessels. Repair, upgrading
and conversion of offshore rigs, as well as afloat repairs and conversions.
With a total land of 18.6 hectares, PPL Shipyard's operations

span two locations. The Pandan Road yard is equipped with a
sea frontage of 700 metres, 250 metres of wharf with a
water depth of 7 metres 2 large workshops and 5 large open
concrete fabrication slabs. Its newly developed yard in Tuas
has a shoreline frontage of 700m, and 100m of wharf with a
water depth of 5.5 metres.
Tankers, bulk carriers and container & cargo vessels,passenger ships

conversions & upgrading, FPSO conversions, offshore conversions and
newbuildings, complex lengthening conversions, damage repairs, chemical
tankers, LNG carriers, liquefied gas carriers and navy ships repairs.
The shipyard has five docks totalling 775,000 dwt with

adjacent engineering and fabrication facilities. It has almost 4
km of continuous deep and sheltered berthage of up to 14
metres in depth. The shipyard's 100,000 dwt dry dock is one
of the deepest in South-east Asia with a draft of 13.1 metres
allowing cruise and naval vessels to dock without restrictions.
Singapore
SembCorp
PPL Shipyard
Existing
New build +
Refurbishment
Oil and gas
Singapore
SembCorp
Semwabang Shipyard
Existing
New build +
Refurbishment
Singapore
SembCorp
SMOE Shipyard
Existing
New build
Oil and gas
Thailand
Clough
Clough Thailand
Existing
New build
Oil and gas
Thailand
Lamprell
Sattahip
Existing
Refurbishment
Oil and gas
Drilling rig upgrade and refurbishment facility. Under Construction:

Expected completion in Q4 2008
UAE
Consolidated
Contractors
Company
Mussafah fabrication Yard
Existing
New build
Oil and gas
Wellhead jackets and decks, topsides, modules and loading terminals.
UAE
Dubai Dry Docks Dubai Dry Docks
Existing
New build +
Refurbishment
Oil and gas
Jackup refurbishment, newbuild semisubmersibles, FPSO conversions etc. Also provides ship repair service
UAE
Keppel Corp.
Arab Heavy Industries Public

Joint stcok company
UAE
Lamprell
Hamriyah
SMOE operates a 29-hectare fabrication yard that is shared

Engineering and construction of offshore production platforms and floating
with Sembawang Shipyard on the north-eastern shore of
production facilities. Construction of fixed platforms and offshore
Singapore. The company also operates a 30-hectare
installations, and the fabrication, integration and pre-commissioning of
fabrication yard in the Kabil Industrial Zone on Batam Island,
topside modules for FPSOs.
Indonesia.
Cloughs fabrication facility in Sattahip Thailand, specialises in the
fabrication of minimal facility Well Head Platforms (WHP), FPSO process
modules, process modules for petrochemical and offshore platforms,
onshore modular fabrication for mining and minerals sector
The yard's total production capacity is 67,000 tons/year of

steel, and load-out facilities are available for loading single
structures up to 12,000 tons. Adjacent to the loadout area is
the marine jetty, which is 1,000m long with a water depth
ranging from 4.5 to 6.5 meters.
Existing
Others
Non oil and gas
Shipbuilding and Repairing
Existing
New build +
Refurbishment
Oil and gas
This facility will be primarily undertaking jackup rig upgrade and

refurbishment projects.
This 40,000 m portside facility has direct quayside access

Lamprell has signed a 25 year lease for 330,000m of land in
the Hamriyah Free Zone. This land, when fully developed, will
have 1.25km of direct quayside access and a low tide water
depth of 8.5m. Operations in Hamriyah are anticipated to
commence in 2008, thus releasing capacity from the existing
facilities in Sharjah and Jebel Ali. The shipyard is expected to
be completed in 2008.
UAE
Lamprell
Hamriyah New
New build +
Refurbishment
Oil and gas
It will be one of the most modern in the Middle East, with a quayside
capacity to execute up to 10 jackup rig upgrade and refurbishment projects
at any one time. It will also contain large covered and open fabrication areas
that will allow Lamprell to undertake major new build projects, such as the
construction of jackup rigs and the integration of process modules onto
FPSO vessels.
UAE
Lamprell
Jebel Ali
Existing
New build +
Refurbishment
Oil and gas
Jackup upgrade and refurbishment, Offshore fixed structures, FPSO.

Lamprell regularly executes projects to inspect and overhaul mechanical
and rotary equipment, fabricate new mud systems and construct new land
camps.
The facility occupies an area of 161,000m that includes more

than 15,000m of covered work spaces with internal
overhead cranes suitable for carrying out fabrication and
assembly activities under cover.
UAE
Lamprell
Sharjah
Existing
Refurbishment
Oil and gas
Jackup upgrade and refurbishment, Offshore fixed structures, FPSO.

Lamprell regularly executes projects to inspect and overhaul mechanical
and rotary equipment, fabricate new mud systems and construct new land
camps.
The facility has a total surface area of 36,000m that includes

28,000m of open fabrication areas that are serviced by
mobile crawler cranes and tower cranes, as well as 3,500m
of covered fabrication areas.
A 3,000 sq m fabrication shop, complete with overhead
cranes, plate rolling, bending, pressing, shearing, cutting,
welding, and other metal work equipment; Extensive open
and table fabrication areas, with access to gantry and mobile
cranes, as well as manual, semi-automatic, and automatic
welding facilities; and Support facilities, including stress
relieving furnaces, hydrotest facilities, an instrumentation and
calibration shop, wheelabrator shotblast unit, and a
completely enclosed blasting and painting building.
UAE
Maritime
MIS Sharjah
Industrial Services
Existing
New build +
Refurbishment
Oil and gas
Focusing primarily on structural, mechanical, marine, process skids,

modules, and pressure vessel fabrication
UAE
Mcdermott
International
Existing
New build
Oil and gas
It offers services including design, fabrication and installation of spar

platforms; design and installation of subsea facilities; design, fabrication,
and installation of new and refurbished bottom-founded offshore platforms;
and, installation of offshore pipelines for the oil and gas industry.
Oil and gas
Has facilities for Inspection, repair, maintenance (IRM) facility in Hamriyah

free zone port Sharjah U.A.E. Engineering, procurement, fabrication, outfit,
test, pre-commission, load-out and sea fasten a wide range of structures
associated with oilfield developments which include:
- Several drilling rig conversions,
- Topside modules with a variety of uses (i.e. accommodation, utility,
recreational, process, control, drilling etc.) helidecks, bridges, flare flacks
substructure steelwork and process pipework
- subsea structures including protection frames, templates, manifolds, tiein spool pieces and platform risers.
- Process PAUs and PARs, flotation tanks, jacket caisson guides, mud
storage tanks, bridges and suction anchors.
UAE
QGM
Jebel Ali
QGM
Existing
Refurbishment
Page 71
22 October 2008
Appendix G: License expiry in

shallow water and onshore
Figure 87: Shallow water licenses (i.e. <400m) awarded
since 2000 has increased almost tenfold
Figure 88: Shallow water license average term length

since 2000 has remained broadly constant
30
700
25
20
500
Years
Licenses awarded
600
400
15
300
10
200
100
2000
2000
2001
2002
2003
2004
2005
2006
2007
2001
2002
2003
Exploration
2004
2005
2006
2007
Development
Figure 89: Onshore licenses (i.e. <400m) awarded since

2000 has increased almost sixfold
Figure 90: Onshore license average term length since

2000 has remained broadly constant
1,800
30
1,500
25
1,200
20
Years
Licenses awarded
900
15
600
10
300
5
-
2000
2001
2002
2003
2004
2005
2006
2007
2000
2001
2002
Exploration
Page 72
2003
2004
2005
2006
2007
Development
22 October 2008
Appendix H: GOM deepwater

licenses expiry by depth
Figure 91: Breakdown of deepwater licenses expiring by depth in GOM
450
400
350
Licenses expiring
300
250
200
150
100
50
0
2007
2008
2009
2010
2011
2012
2013
2014
400-799 (Peak 2010)
800-1199 (Peak 2016)
1200-1599 (Peak 2013)
2000-2399 (Peak 2014)
2400-2799 (Peak 2012)
>2800 (Peak 2015)
2015
2016
2017
1600-1999 (Peak 2012)
Page 73
22 October 2008
Appendix I: Drilling activity

the complete picture
Drilling days
Drilling days
200
Licenses aw arded
Drilling days
2010E
2000
2010E
2009E
2008E
2007
2006
2005
2004
2003
2002
2001
0
2000
800
400
2009E
5000
2008E
1000
600
2007
10000
800
2006
1200
1000
2005
15000
2004
1400
1200
2003
20000
2002
25000
1600
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
1400
2001
1800
1600
Days
30000
Days
2000
Licenses aw arded
10000
Drilling days
Page 74
2010E
2009E
2008E
2007
2006
2005
2004
2003
2002
2001
0
2000
Licenses aw arded
10000
Drilling days
2010E
100
20000
100
2009E
20000
2008E
200
30000
200
2007
30000
2006
300
40000
300
2005
40000
50000
2004
50000
400
60000
400
2003
Days
60000
500
70000
500
2002
70000
600
600
2001
700
80000
2000
90000
Days
100000
800
900
Licenses aw arded
Licenses aw arded
2010E
0
2000
2010E
2009E
2008E
5000
Drilling days
2007
2006
2005
2004
2003
2002
2001
0
2000
10000
2009E
500
500
2007
1000
15000
2008E
1000
20000
2006
Days
1500
1500
25000
2005
2000
2000
30000
2004
2500
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
2003
2500
2002
3000
3000
2001
3500
Days
Licenses aw arded
22 October 2008
Appendix J: Regional spread

of contracted newbuild rigs
Figure 98: Contracts signed for semi-submersible rigs and drillships coming online
2008-12
6%
4% 2%
29%
12%
21%
26%
S America
Uncontracted
GOM
Europe
Africa
Russia
E Hemisphere
Source: ODS Petrodata, Deutsche Bank
Figure 99: Contracts signed for Jackup rigs coming online 2008-12
4%
3%
1%
1%
7%
13%
71%
Uncontracted
E Hemisphere
Middle East
S America
Africa
GOM
Europe
Source: ODS Petrodata, Deutsche Bank
Page 75
22 October 2008
Appendix K: Snapshot of each

companys financing
We have analysed the debt position, spread of maturity and interest rates to assess the
refinancing risks for companies under our coverage. The underlying refinancing risk potential
for companies is measured by taking a look at the timing of debt maturity (bond loans, bank
loans, convertible bonds etc) along with the companys current cash position, access to undrawn credit facilities and their expected free cash flow generation. Data has been sourced
from 2007 annual reports.
Figure 100: Acergy
Figure 101: Aker Solutions
700
4,000
600
3,500
3,000
400
NOK mn
300
200
2,500
2,000
1,500
1,000
100
500
Free cash flow
LT debt maturity
Convertible note maturing in 2013.

Strong cash position and free cash potential should
cater for future re-financing requirements.
Figure 102: Amec
Figure 103: Lamprell
800
2013
2012
2011
180
150
Euro mn
600
ST debt maturity
60
Nil
2010
Free cash flow
Free cash flow
Strong net cash position supported by positive free

cash flows.
Undrawn borrowing facilities (GBP 316mn) available for
potential financing requirements.
2009
Cash
2010
30
2009
2008
Cash
ST
GBP 1mn GBP 1mn
90
2008
200
120
Debt
400
debt
GBP mn
Free cash flow
- Strong cash position and free cash flow should cater for LT
debt maturities.
- Un-drawn revolving credit facility of Euro 750mn expiring in
Oct 2012, with option of 2x1 year extension.
Source: Company data, Deutsche Bank
2010
Year of maturity of LT debt
.Source: Company data, Deutsche Bank
2009
2008
Cash
2013
2012
LT debt maturity
2011
2010
2009
2008
LT debt
Cash
LT debt
USD mn
500
No debt.
Page 76
22 October 2008
Figure 105: Saipem
750
3,500
600
2,800
450
2,100
Euro mn
300
150
1,400
700
-
> 5 years
Year of maturity of total debt

Debt maturity
Free cash flow
2017
LT debt maturity
Petrofac has a strong net cash position.

Strong free cash flows should cater for future
refinancing requirements.
2011
2010
2009
2008
LT debt
(700)
Cash
4-5 yrs
3-4 yrs
2-3 yrs
1-2 yrs
1 yr
LT debt
ST debt
Cash
ST debt
USD mn
Figure 104: Petrofac
Free cash flow
78% of loan is provided for by Eni, which has a 43%

stake in Saipem. Eni provides strong financial backing
for Saipem and thus the refinancing risk is low.
Following the aggressive capex spend in 2008E-09E,
the strong free cash flows from 2010E should cover the
long term debt maturities.
Unused lines of credit available to the extent of
$926mn.
Figure 107: Subsea7
500
4,000
400
3,000
300
USD mn
5,000
2,000
1,000
LT debt maturity
$ 0.4 mn
Free cash flow
2017
2011
2010
2009
2008
LT debt
Cash
ST debt
(3,000)
$ 0.4mn
2013 and after
2012
2011
2010
2009
2008
LT debt
(2,000)
ST debt
(1,000)
200
100
Cash
USD mn
Figure 106: Seadrill
Year of maturity of total debt
Debt maturity
Free cash flow
Has the highest debt exposure relative to peers.
Two convertible bond loans maturing in 2011 and 2017.
Strong free cash flows after 2010E provides sufficient

cover to meet long term debt maturities.
Strong free cash flows should cater for future refinancing requirements.
Un-drawn credit facilities of $587mn.
Page 77
Figure 109: Tecnicas Reunidas
2,800
500
2,400
400
200
Debt maturity
Cash
2011
LT debt
ST debt
2010
2009
100
2008
400
2010
800
300
2009
1,200
Maturity details not available
2008
Euro mn
1,600
Cash
Euro mn
2,000
LT debt
Figure 108: Technip
ST debt
22 October 2008
Free cash flow
Free cash flow
Strong net cash position (even after excluding prepayments from lump sum turnkey contracts which
represent broadly 50%).
Strong free cash flows should cater for future refinancing

requirements.
400
350
300
250
ST debt maturing in one year and

LT debt maturing between 2-5
2013
2012
2011
2010
Year of maturity of Total debt

Debt maturity
2009
2008
LT debt
ST debt
200
150
100
50
Cash
USD mn
Figure 110: Wood Group
Free cash flow
Un-drawn borrowing facilities (floating rate) available
:$38mn expiring in one year and $436mn expiring
between 2 and 5 years.
Page 78
22 October 2008
Figure 111: Detailed break-up of debt as at year ending 2007 (last annual report)
Curr.
Acergy
Type
$mn
$mn
Debt book value
Maturity
Interest rate
Net
debt/
(cash)
2007
Additional info
Convertible notes
Unsecured loan provided by Sonangol
to Sonamet
Total
NOK mn Bond - ISIN NO 0010341316
500
6
2013
2010
2.3%
2.8%
506
491
1-Dec-09
6.5%
Floating interest
638
1-Dec-11
6.9%
Floating interest
295
1-Dec-13
7.2%
Floating interest
6.0%
Fixed interest
Aker
Solutions
NOK mn Deferred acquisition costs of TH
Resources
-73
147
1-Dec-13
407
Fixed annual instalments of 96mn (including

interest) till 2012
NOK mn Loan
20
2010: 18mn
2011: 2mn
Amec
Total
GBP mn Loan
1,998
1
Lamprell
$ mn
$ mn
$ mn
$ mn
$ mn
Petrofac
No debt
Current:
Revolving credit facility
Short-term loan
Bank overdrafts
Current portion of
term loan
$ mn
Non Current:
Revolving credit facility
$ mn
Term loan
Eur mn
Eur mn
Eur mn
Eur mn
Eur mn
Eur mn
Eur mn
Eur mn
Eur mn
Eur mn
Eur mn
Eur mn
Eur mn
Eur mn
Short term loans from:

Eni SpA
Eni SpA
Eni Coordination Center SA
Eni Dacin BV
Third parties
Third parties
Third parties
Third parties
Long term loans from:

Eur mn Eni SpA
Eur mn Third parties
Eur mn Third parties
-1526
-733
-159.1
6.500
3.627
15.666
Within 1 year
Within 1 year
Within 1 year
2.662
Within 1 year
8.953
2-3 yrs: $0.448 mn

3-4 yrs: $2.015 mn
4-5 yrs: $3.134 mn
> 5 years: $3.356 mn
1-2 yrs: $10.000 mn
2-3 yrs: $11.250 mn
3-4 yrs: $15.625 mn
4-5 yrs: $18.750 mn
> 5 years: $19.394 mn
72.687
110
Saipem
It is the calculated NPV of yearly

payments, using a discount rate of
6%
1,621
14
597
105
3
4
227
5
81
3
55
238
39
41
400
480
16
3,929
US LIBOR + 0.875%
KD Discount Rate + 1.5%
UK LIBOR + 0.875%,
US LIBOR + 0.875%,
KD Discount Rate
+ 1.50%
US/UK LIBOR
+ 0.875% (4.95% to 5.84%)
US/UK LIBOR +0.875%
US/UK LIBOR + 0.875% (4.95% to

5.84%)
-471
3.821% - 3.852%
2.462%
3.853% - 5.385%
5.484% - 6.545%
4.9550%
2.462%
6.251%
6.540%
5.540%
5.970%
3.761% - 4.722%
5.222% - 6.545%
1.451%
2017
2008: E5 mn
2010: E275 mn
2011: E200 mn
2009
4.710%
4.527% - 4.542%
5.541%
1759
Page 79
22 October 2008
Figure 112: Detailed break-up of debt as at year ending 2007

Curr.
Seadrill
Type
$ mn
Secured Credit Facilities Agreement

for $1500 mn
$ mn
Term Loan Facility Agreement for

$185 mn
Pre- and post delivery loan facility for
$100 mn
$ mn
Debt book value
Maturity
1,468
98
Senior Secured Credit facility for $585

mn
536
$ mn
Rig Finance (sale and lease back) for

$165 mn
Rig Finance (sale and lease back) for
$170 mn
Seawell: Multi-tranche Senior Bank
Debt Facility of NOK1,100 million
with Fokus Bank.
130
149
Tranche A: $750 mn,
Tranche B: $350 mn
Tranche C: up to
$200 mn (based on value of
drilling contract)
Seawell: subordinated loan

$ mn
West Eminence:
- Tranche A: $150 mn
- Tranche B: $150 mn
Subsea 7
Bonds
Bonds
Bonds
Bonds
Bonds
Bonds
Convertible bond loan
Other non-current loans
$ mn
$ mn
Convertible bond loan 2006-2011

Convertible bond loan 2007-2017
$ mn
Finance lease obligations
Eur mn
Eur mn
Technip Eur mn
Eur mn
Bond loan
Bank borrowings and credit lines
Bank overdrafts
Accrued interest payable
Eur mn Financial debt - Current

Tecnicas
Eur mn Financial debt - Non Current
Reunidas
$ mn
Bank loan - long term
$ mn
Bank loan - short term
Matures in 2013, 28 period repayment profile and LIBOR + 1.10%

a balloon of US$600 mn.
5 yr repayment profile
Additional info
LIBOR + 1.25%
6 yrs maturity, quarterly repayments with a final LIBOR + 0.70% upto Q4'08
balloon payment of US$300 mn.
Thereafter a grid pricing apply which
ranges from 70-100 basis points p.a.
depending on the Net Debt to
EBITDA ratio.
73 months maturity
LIBOR + 1.15%
72 months maturity
LIBOR + 1.20%
- Tranch A: 5 years repayment profile starting at 31 October 2008.

- Tranche has 5 years repayment profile starting at 31 October 2009.
The interest rate of Tranche A and B is 3 months NIBOR and an
interest margin of 115 basis points. Commitment fees regarding the above facility are
40 percent of the applicable margins. As at December 31, 2007, NOK750million of the
facility has been drawn.
544
DnB NOR Bank multi-tranche secured West Phoenix:

term and revolving credit facility of
Tranche A: $175 mn,
upto $800 mn.
Tranche B: $125 mn
Tranche C: up to
$200 mn (based on value of
drilling contract)
$ mn
$ mn
$ mn
$ mn
$ mn
$ mn
$ mn
$ mn
Net
debt/
(cash)
2007
100 5 yr maturity and a 12 yr repayment profile, hence LIBOR + 0.70%

there will be a balloon payment at maturity.
$ mn
$ mn
Interest rate
42
19
186
93
93
30
1,000
53
4,601
256
132
0.4
388
650
3
25
19
697
46
12
58
350
6 months NIBOR + 250 basis points

- A Tranches: 15 yrs repayment profile from delivery of each rig and an interest rate
margin of 200-215 basis points pre-delivery and 115-195
basis points post-delivery whereby applicable margin is based on charter values.
- B Tranches: cash sweep mechanisms and may be refinanced or added to the A
Tranches. The interest rate margin is 107.5 basis points (Eminence Tranche B 200 basis
points) pre-delivery and 115-300 basis points post-delivery also dependent on charter
values.
- C Tranche has a tenor over the period of the drilling contract(s) qualifying Seadrill X AS
to make drawdown under the facility. The interest margin is 100 basis points.
Commitment fees regarding the above facilities are 50% of the applicable margins. As
at December 31, 2007, US$465 million of the facility was utilized.
19-Nov-08
19-Nov-08
23-Jan-09
23-Jan-08
29-Sep-12
14-Feb-12
08-Nov-12
NIBOR+2.95%
Fixed 7.70%
NIBOR + 1.25%
NIBOR + 0.75%
NIBOR + 1.60%
LIBOR + 2.03%
3.625%
06-Jun-11
29-Jun-17
2.8%
Zero coupon
YTM 0.95% p.a.
3588
2008
220
26-May-11
Average interest
rate at group level
is 4.84% for 2007
-1704.3
-422.3
2-5 years
Wood
Group
45
395
4.625%
Loans o/s in different currencies and

effective interest rates in 2007
(loans bear interest based on LIBOR
or respective foreign equivalents):
In USD: $116mn , 5.35%
In GBP: $78.6mn, 6.4%
In Eur: $21.9mn, 5.08%
In Canadian $: $151.5mn, 5.26%
Others: $27mn
Interest swaps
entered into for
50% of long term
borrowings
1 year
279
Page 80
22 October 2008
Appendix L: Glossary of terms

and simplifications
Understanding contingencies
Contingencies are captured either within the estimated costs for conditions or situations
(often called knowns) or under management reserves (known unknowns) i.e. they are not
included in estimated costs. Contingency is an amount that must be added by the contractor
to account explicitly or implicitly for knowns, i.e., those risks which are likely to occur but
cannot be specifically identified at the time the estimate is prepared. Contingency thus is the
amount added to the estimate to allow for providing for expenses that experience shows will
likely be required, and are therefore part of the total estimated cost (not an extra), and
conditions arising during the execution of the project which could not be specifically priced,
foreseen or anticipated. Contingency is typically managed by the project manager and the
amount is established by issues such as design definition level, estimating methodology,
time frame and the probability of meeting the required schedule, whether the project
involves new or emerging technology, remoteness of job site, infrastructure requirements,
engineering physical progress, degree of equipment and material commitment, etc.
Management reserve is an amount that the contractors manage, rather than the project
manager, establishes to cover for execution performance risks that may arise from known
unknowns and is not included in the estimated project cost. These known unknowns are
risks that are neither explicit nor normally expected, i.e., risks that are typically discrete
events with a low frequency of occurrence and a high severity of impact, such as shortages
of trained contract administration/project controls personnel, shortages of resources,
technology failures, etc.
Oil service companies and different project teams within the same company quantify risk into
contingency differently for different project delivery methods and contract types. The
difference in booking lump sum contracts and cost reimbursable contracts can be summed
up in how the oil service company evaluates contingency. In a lump sum bid, the contingency
is included in the booked backlog, and may or may not increase the margin that is realized at
completion of the project. For example, if the risks included in the contingency do not
emerge, margin is increased. On the other hand, if risks were not properly and adequately
estimated, margins at completion will be less, such as when project execution delays occur.
Note, however, that an owner/operators use of prescriptive specifications is tantamount to
saying that this is what the owner/operator wants and expects. The oil service company only
has risk associated with its execution of exactly what is called for in the contract documents.
In other words, the companys duty is to conduct a reasonably prudent review of the plans
and specifications. Oil service companies recently have increased their exposure, however,
to the performance of sub-contractors. When allocating construction risks, appropriate
allocation is not achieved due to the inferior bargaining position held by lower tier parties. Oil
service companies tend to push risk down to the lowest level through successive levels of
contracting. This approach almost guarantees project delays and increased costs because:
It pushes risk to the lowest level in the contracting chain where the firms have the least
financial depth.
The lowest levels have to accept the risk because they do not have the clout to ward off
the allocation.
The ability of the firms who are left with the risk can do very little to alter the risk should
it emerge on the project.
Page 81
22 October 2008
The result is that accountability is not in line with the risk and oil service companies have to
fund the completion of the project, and try and recover the costs from the sub-contractors or
through extras from the projects owner/operator.
Variation orders, extras and changes whats the difference?

Variation orders (relating to turnkey projects) are submitted when the scope of the
project changes due to a shift in client scheduling/demands, change in design specifications
or execution problems that have incurred additional costs. Whilst these are usually realised
across the life of the contract, delays in their approval often mean that they cannot be booked
(under new IFRS rules, change orders cannot be accounted for until they are formally
acknowledged by the client). Indeed, the greatest risk to contractors is that despite delivering
on the contract, the client does not agree with the value of the variation orders claimed
leading to a ripple of legal procedures and ultimate charges to the companys P&L relating to
the specific problem contract.
An Extra is an item of work or a method of performing work that is not normally required
to complete to the original scope of work. It can arise in the same type contexts as changes,
but it is outside what was or would be assumed as necessary to complete the original
project scope. Extras are the responsibility of the owner/operator no matter the type of
contract, unless there is an issue with the E&C s performance. For instance, issues related
to the standard of care which the owner/operator demanded.
A Variation generally applies to Unit Price type contracts where the quantities are actually
estimated and made a part of the contract. Variations are the difference between an
estimated quantity and the quantity actually required to complete the item of work. Generally
the contract specifies a band (+/-) around the estimated quantity for which the price is valid.
Variations are the responsibility of the owner/operator, unless there is an issue with the
contractors performance. For instance, issues related to the standard of care which the
owner/operator demanded or issues, such as, if the E&C under-estimated the quantity. As is
obvious, issues are emerging currently as project costs increase and/or are accompanied by
delay concerning the standards of care that are applicable. Where there are disagreements
between owner/operators and contractor, a change, extra and/or variation morphs into a
claim. A claim is a bona fide disagreement between the owner/operators and the
contractor for a project as to a change, extra or variation. As far as backlog and revenue
recognition against such backlog is concerned, all or some of claims are booked provided the
oil service company makes a reasonable assessment of the likely magnitude it will recover. If
the project owner/operators and the contractor cannot agree with respect to a claim, the
claim further morphs into a dispute. Once again, there are considerable differences
between publicly traded firms in regards to whether the cost of disputed items and/or some
portion should be booked and/or revenue recognised. Oil service companies must assure
that they do not recognise revenue from claims or disputes that is in excess of the amount of
likely recovery because it will necessitate a write down if the amount is not ultimately
recovered.
As is obvious, internal or external misunderstandings create a large amount is risk which
must be managed by all stakeholders. The heart of risk management is the process by which
changes, extras, variations, claims and disputes are handled at the corporate level or the
project level. For owner/operators it is the means of preventing or reducing contractors
costs through efficient oversight and quality management. For contractors it means costs are
properly identified and recorded, and they do not give away assets to owner/operators by
improper or inadequate processes.
Page 82
22 October 2008
Glossary
AHTS (Anchor Handling, Tug & Supply ship): Combination vessels operating in the offshore
market, intended for use in anchor-handling, tug operations and transportation of supplies.
Conventional/shallow waters: Depth of up to 400 metres (1,300ft).
Cost plus: The client is charged a day rate or project rate across the life of the project, with
any extra work required to complete the job added to the bill
Deep waters: Depths of over 400 metres (1,300 ft).
Commissioning: Series of processes and procedures undertaken in order to start operations
of a gas pipeline, associated plants and equipment.
Decommissioning: Series of processes and procedures undertaken in order to end
operations of a gas pipeline, associated plants and equipment. It may occur at the end of the
life of the plant, following an accident, for technical or financial reasons, and/or on
environmental or safety grounds.
Development (of a gas or oil field): All operations associated with the construction of
facilities to enable the production of oil and gas.
Drillship: A maritime vessel modified to include a drilling rig and special station-keeping
equipment. The vessel is typically capable of operating in deep water. A drillship must stay
relatively stationary on location in the water for extended periods of time. This positioning
may be accomplished with multiple anchors, dynamic propulsion (thrusters) or a combination
of these. Drillships typically carry larger payloads than semi-submersible drilling vessels, but
their motion characteristics are usually inferior.
Dynamically Positioned Heavy Lift Vessel: Vessel equipped with a heavy-lift crane, capable
of holding a precise position through the use of thrusters, thereby counteracting the force of
the wind, sea, current, etc.
EPC (Engineering, Procurement, and Construction): A type of contract typical of the onshore
construction sector, comprising the provision of engineering services, procurement of
materials and construction. The term turnkey indicates that the system is delivered to the
client ready for operations, i.e. already commissioned.
EPIC (Engineering, Procurement, Installation, Construction): A type of contract typical of
offshore construction sector, which relates to the realisation of a complex project where
global or main contractor (usually a construction company or a consortium) provides
engineering services, procurement of materials, construction of the system and
infrastructure, transport to site, installation and commissioning/preparatory activities to
start-up of operations.
the
the
the
its
the
FEED: Front-End Engineering Design

Facilities: Auxiliary services, structures and installations required to support the main
systems.
Flexible flowline: Flexible pipe laid on the seabed for the transportation of production or
injection fluids. It is generally an infield line, linking a sub-sea structure to another structure
or to a production facility. Its length ranges from a few hundred metres to several
kilometres.
Page 83
22 October 2008
Flexible riser: Riser constructed with flexible pipe (see Riser).

Floaters: Floating production units including floating platforms, and FPSOs.
Floatover: Type of module installation onto offshore platforms that does not require lifting
operations. A specialised vessel transporting the module uses a ballast system to position
itself directly above the location where the module is to be installed; it then proceeds to deballast and lower the module into place. Once this has been completed the vessel backs off
and the module is secured to the support structure.
FPSO vessel: Floating Production, Storage and Offloading system comprising a large tanker
equipped with a high-capacity production facility. This system, moored at the bow to
maintain a geo-stationary position, is effectively a temporarily fixed platform that uses risers
to connect the sub-sea wellheads to the on-board processing, storage and offloading
systems.
FPU (Floating Production Unit): A ship-shaped floater or a semi-submersible used to process
and export oil and gas
GTL (Gas-to-Liquids): Transformation of natural gas into liquid fuel (Fischer Tropsch
technology).
Hydrotesting: Operation involving high-pressure (higher than operational pressure) water

being pumped into a pipeline to ensure that it is devoid of defects.
IRM (Inspection, Repair and Maintenance): Routine inspection and servicing of offshore
installations and sub-sea infrastructures.
Jacket: Platform underside structure fixed to the seabed using piles.

Jack-up: Mobile self-lifting unit comprising a hull and retractable legs, used for offshore
drilling operations.
J-laying: Method of pipe-laying that utilises an almost vertical launch ramp, making the pipe
configuration resemble a J. This configuration is suited to deep-water pipe-laying.
LNG: Liquefied natural gas is obtained by cooling down natural gas to minus 160C at normal
pressure. Gas is liquefied to make it facilitate its transportation from the place of extraction to
that of processing and/or utilisation. A tonne of LNG equates to 1,400 cubic metres of gas.
LSTK: Lump sum turnkey project. One fixed price for the project that will typically
encompass engineering, procurement, installation and construction activities.
Midstream: Sector comprising all those activities relating to the construction and
management of the oil transport infrastructure.
Mobile offshore drilling unit: A generic term for several classes of self-contained floatable
or floating drilling machines such as jackups, semi-submersibles, and submersibles.
Mooring buoy: Offshore mooring system.
NOC: National Oil Company
Offshore/Onshore: The term offshore indicates a portion of open sea and, by induction, the
activities carried out in such area, while onshore refers to land operations.
Page 84
22 October 2008
Pre-commissioning: Comprises pipeline washing out and drying.

PSV (Platform Supply vessels): Offshore vessel serving the offshore oil installations.
Regasification terminal: Coastal plant that accepts deliveries of liquefied natural gas and
processes it back into gaseous form for injection into the pipeline system. Also known as a
receiving terminal.
Riser: Manifold connecting the sub-sea wellhead to the surface.
ROV (Remotely Operated Vehicle): An unmanned sub-sea vehicle remotely controlled from a
vessel or an offshore platform. It is equipped with manipulator arms that enable it to
perform simple operations.
S-laying: Method of pipe-laying that utilises the elastic properties afforded by steel, making
the pipe configuration resemble an S, with one end on the seabed and the other under
tension onboard the ship. This configuration is suited to medium to shallow-water laying.
Spar: Floating production system, anchored to the seabed through a semi-rigid mooring
system, comprising a vertical cylindrical hull supporting the platform structure.
Spool: Connection between a sub-sea pipeline and the platform riser, or between the
terminations of two pipelines.
Submersible/semi-submersible drilling rig: A particular type of floating vessel, usually
used as a mobile offshore drilling unit (MODU) that is supported primarily on large pontoonlike structures submerged below the sea surface.
Sub-sea Technology: All products and services required to install and operate production
installations on the seabed.
SURF facilities: Sub-sea Umbilicals Risers Flowlines pipelines and equipment connecting
the well or sub-sea system to a floating unit.
Template: Rigid and modular sub-sea structure where the oilfield wellheads are located.
Tendons: Pulling cables used on tension leg platforms used to ensure platform stability
during operations.
Tension leg platform (TLP): Fixed-type floating platform held in position by a system of
tendons and anchored to ballast caissons located on the seabed. These platforms are used in
ultra-deep waters.
Tie-in: Connection between a production line and a sub-sea wellhead or simply a connection
between two pipeline sections.
Topside: Portion of platform above the jacket.
Trunkline: Large diameter oil pipeline connecting large storage facilities to the production
facilities, refineries and/or onshore terminals. Used in shallow waters.
Trenching: Burying of offshore or onshore pipelines.
Umbilical: Flexible connecting sheath, containing flexible pipes and cables.
Page 85
22 October 2008
Upstream/Downstream: The term upstream relates to exploration and production

operations. The term downstream relates to all those operations that follow exploration and
production operations in the oil sector.
Wellhead: Fixed structure separating the well from the outside environment.
Wellservicing: Intervention in sub-sea production wells carried out from a floating rig or a
dynamically positioned vessel.
Workover: Major maintenance operation on a well or replacement of sub-sea equipment

used to transport the oil to the surface.
Sources:
http://lnglicensing.conocophillips.com/about/glossary/index.htm
http://www.glossary.oilfield.slb.com/Display.cfm?Term=submersible%20drilling%20rig
http://www.rabt.se/index.php?id=102&L=1
http://www.skibskredit.dk/Default.aspx?ID=503
http://www.technip.com/english/html_top/p_glossaire.html
Saipem Annual Report 2004
Page 86
22 October 2008
The authors of this report wish to acknowledge the contribution made by Dev Deep M an
employee of Irevna, a division of CRISIL Limited, a third-party provider to Deutsche Bank of
offshore research support services.
Page 87
22 October 2008
Appendix 1
Important Disclosures
Additional information available upon request
For disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see
the most recently published company report or visit our global disclosure look-up page on our website at
http://gm.db.com.
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject
issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any
compensation for providing a specific recommendation or view in this report. Christyan Malek
Equity rating key

Buy: Based on a current 12- month view of total shareholder return (TSR = percentage change in share price from
current price to projected target price plus pro-jected
dividend yield ) , we recommend that investors buy the
stock.
Sell: Based on a current 12-month view of total share-holder
return, we recommend that investors sell the stock
Hold: We take a neutral view on the stock 12-months out
and, based on this time horizon, do not recommend either a
Buy or Sell.
Notes:
1. Newly issued research recommendations and target
prices always supersede previously published research.
2. Ratings definitions prior to 27 January, 2007 were:
Equity rating dispersion and banking relationships
400
48%
42%
300
200
32%
29%
10%
100
21%
0
Buy
Hold
Companies Covered
Sell
Cos. w/ Banking Relationship
European Universe
Buy: Expected total return (including dividends) of 10%

or more over a 12-month period
Hold: Expected total return (including dividends)
between -10% and 10% over a 12-month period
Sell: Expected total return (including dividends) of -10%
or worse over a 12-month period
Page 88
22 October 2008
Regulatory Disclosures
1. Important Additional Conflict Disclosures
Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the
"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent
or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at
http://gm.db.com.
3. Country-Specific Disclosures
Australia: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian
Corporations Act.
EU
countries:
Disclosures
relating
to
our
obligations
under
MiFiD
can
be
found
at
http://globalmarkets.db.com/riskdisclosures.
Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc.
Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No.
117. Member of associations: JSDA, The Financial Futures Association of Japan. Commissions and risks involved in stock
transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction
amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price
fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange
fluctuations.
New Zealand: This research is not intended for, and should not be given to, "members of the public" within the meaning of
the New Zealand Securities Market Act 1988.
Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any
appraisal or evaluation activity requiring a license in the Russian Federation.
Page 89

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International locations
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Deutsche Bank AG London

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London EC2N 2EQ
United Kingdom
Tel: (44) 20 7545 8000
Deutsche Bank AG
Level 55
Cheung Kong Center
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Deutsche Securities Inc.

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Tel: (81) 3 5156 6701
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