Rig floaters investment case – large upside

Pareto – High Yield Conference
London – February 8, 2007
Ole Geir Hagen
CFO
Rig floaters investment case – large upside
Owns 3 semi submersibles bare decks with flexible working modes
SS Viking Producer under reactivation – short time to market
– Enhanced 2 Gen semi for water depth up to 1,500 ft
– Scheduled for delivery end 2007 / early 2008
– Reactivation program making good progress
SS Viking Century & SS Viking Prospector – cold stacked
– Drilling ban put on by Diamond Offshore to reduce market capacity – no technical limitations
– Dialogue with Diamond initiated to delete drilling ban – outcome hard to assess
– Alternative use - Floating production, Accommodation or Tender drilling
– Received inquiries from several industrial players
Very strong market fundamentals and outlook
– Long upturn cycle expected in the oil service industry
– Good visibility for the next 3-4 years
ODS-Petrodata – ”not enough drilling rigs available until 2012 – 14”
– Especially demand for floaters looks very strong
2
1

The world running out of oil production capacity ...
Confidential
Global demand for oil & gas continues to
grow
– Declining production and reserves
– Current producing fields – 30-40% of demand in 2015
– OPEC production near effective capacity
– Reserve Replacement Ratio = 75% - lowest ever
The world needs significant investments in
the whole energy complex
– Develop proven reserves
– Find new reserves
– Oil companies focus changing from cash flow to
exploration
There are reserves out there, the challenge
is to bring them on stream
– Development drilling expected to increase
– 20% of drilling rigs currently used for exploration –
expected to increase
The answer is more exploration!
mbbls/pd
120 OPEC spare capacity
Required new production
100 Existing production
80
60
40
20
0
Reserve replacement problem
Global demand
growth
Depletion on
existing fields
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Source: Norwegian Oil Industry Association (OLF)
3
World floaters – KNOWN supply and demand
250
Caspian region not included
200
No. units
150
100
50
0
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Firm Options Requirements Total Supply
Floater market sold out until early 2009
Total demand is not a forecast, but a picture of known demand from the oil
companies
Source: Fearnley Fonds, ODS – Petrodata Feb 2007
4
2

Global supply - floaters
199 working floaters today
200
5
In addition - 5 semis are cold
stacked
48 new builds under construction
of which 3 units are for the midwater
segment
180
160
140
120
36
The remaining 45 new builds are
for ultra deep water (5,000ft +)
– Not expected to compete with Viking
Producer short term due to current
shortage of ultra deep water rigs
100
80
60
40
161
12
Viking Producer will enter the
market in about a year
– new build delivery today – 2010 / 2011
20
0
Semis
38
Drillships
Working Under construction Cold stacked
Source – ODS Petrodata January 29, 2007
5
Global supply – floaters by water depth
Semis – 202 units
Drill ships – 50 units
90
80
70
60
50
40
30
20
10
0
88
3 4
31
0 1
42
33
0 - 3000ft 3001 - 5000ft 5001ft +
0
25
20
15
10
5
0
25
12
7 6
0 0 0 0 0
0 - 3000ft 3001 - 5000ft 5001ft +
Working Under construction Cold stacked
Working Under construction Cold Stacked
3 floaters under construction for water depth less than 3000 ft
45 floaters under construction for water depth 5000 ft +, 3 for delivery in 2007, 15
in 2008, 23 in 2009 and 4 in 2010
Source – ODS Petrodata January 29, 2007
6
3

Global supply - semis < 3,000ft water depth
Only 24 units become available before June 30, 2008
NS; 36
NON; 8
GOM; 12
BRAZIL;
8
WA; 9
MED; 4
94 semis < 3,000ft water depth of
which:
47 semis fixed beyond June 30,
2008
7 semis with options beyond June
30, 2008
8 semis water depth less than
1,500 ft
GOM – Gulf of Mexico
MED – Mediterranean
NS – North Sea
APAC;
17
WA – West Africa
APAC – Asia Pacific & Middle East
NON – Non-competing
8 semis non – competing (water depth
< 700ft, and Caspian & Black Sea)
Only 24 semis available before
June 30, 2008
Source – ODS Petrodata January 29, 2007
7
Target market – semi < 3,000 ft water depth
Only 14 units become available before June 30, 2008
14
12
10
8
6
4
2
0
12
9
1
2
8
8
4
4
1
1 1
1
3 2
GOM BRAZIL WA MED
Fixed Options Less

Target market – expected demand
US Gulf of Mexico
– Rigs continue to exit area due to soft gas price
– Expected to generate more opportunities for the semis in the area
– Mostly short term contracts available today
Mexico
– Production is declining
– Long term requirement for min. 4 semis (1,000 – 1,500 ft WD)
Central America
– Long term requirement for 2 semis in Venezuela
Brazil
– Long term requirement for 5 – 10 semis over next 5 years
West Africa
– Long term requirement for 3 – 5 semis
Mediterranean
– Long term requirement for 4 – 6 semis
9
Substantial upside in rig value
Confidential
SS Transocean Wildcat (2G semi, 1300 ft, built 1977) recently sold to Essar, India for
implicit price of $ 300 m
– Purchase price as-is / where-is $ 221m
– Been cold stacked since 2001
– Require investment of $ 60 – 80m to get the rig back in operational condition
– 2 year contract, starting 06/2007 to Gujarat State Petroleum Corp (GPSC) at $ 342,000 / day in India
SS Deepsea Trym (2G semi, 1300 ft, built 1976) recently sold to Songa Offshore,
Norway for implicit price of $ 350 – 400m incl. negative value of charter contract
– Purchase price $ 238,5m
– Bareboat charter $ 50,000 per day until March 2009, if all options are exercised
– $ 180 – 230,000 per day below current market
SS Viking Producer implicit value $ 170m ready-to-drill end 2007
– Based on current share price, NOK 11.25
– Two other semi bare decks valued at purchase price, $ 28.5m en bloc
– Base on refurbishment cost $ 115m
We believe the fair market value of SS Viking Producer is substantially higher today
10
5

Further upside in day rates
Confidential
Current day rate around USD 300,000 for 2G mid-water floaters
– Rig EBITDA $ 77m p.a. - $ 300,000 / day at 94% utilisation
GOM – contract fixtures 2GSS
– Ocean Voyager – 120 d to Newfield at $ 300,000 starting March 2007
– Ocean New Era – 2,5 yr to Pemex at $ 265,000 starting July 2007
– Transocean Amirante – 3 yr contract to Repsol at $ 350,000 starting May 2007
– Frontier Driller – 3 yr contract to Shell at $ 340,000 starting July 2007
Brazil – contract fixtures 2GSS
– Olinda Star – 5 yr to Petrobras at $ 270,000 starting Dec. 2008
– Atlantic Venture – 5 yr to Petrobras at $ 230,000 starting Oct. 2008
West Africa – contract fixtures 2GSS
– Pride South Seas – 1.2 yr to undisclosed client in South Africa at $ 285,000 starting Feb. 2008
– Ocean Lexington – 3 yr to BP, Egypt at $ 265,000 starting Oct. 2006
DnBNOR Markets foresee near term upside in day rates in mid-water floaters
– according to rig sector analysis (Sep. 2006)
Transocean foresee day rates of USD 350,000 – 400,000+ for mid-water floaters in
Europe and African region
– according to statement made at Lehman Brothers Energy Conference Sep 2006
11
Key milestones achieved
Confidential
Mr W. Dennis Heagney – CEO & President since Jan. 2, 2007
– COO Transocean Offshore Inc and President Sonat Offshore Drilling Inc
– Most recently Senior VP – Business development of Songa Management, Houston, Texas
Construction management team in place with substantial experience
– Odin Rig Services Inc, Houston, Texas, owned and headed by Mr Ole Peter Blom
– the construction team on site counts 17 highly qualified and experienced engineers and planners
– Allum Marine AS, Norway acting as technical advisor
Yard capacity secured for reactivation of SS Viking Producer
– Gulf Copper, Galveston, Texas – 50 years experience including major conversions of semis and
reactivations of jack-up rigs
– Major customers include GlobalSantaFe, Nabors, TODCO and US Navy
Detailed engineering capacity secured
– Noble Denton / ODL Services Inc, Houston
– Zentech Inc, Houston
All ”long-lead” equipment secured for SS Viking Producer
12
6

Financing of reactivation in place for SS Viking Producer
Confidential
200
IINVESTMENTS
$ m
180
160
Interest costs,
G&A USDm 16
Add.
Financing
USDm 20
Construction
Cost =
USDm 159
Acquisition three hulls 44
Reactivation SS Viking Producer 115
Interest cost, G&A to Dec. 2007 16
140
Financing need 175
120
Equity
issued
USDm 79
FINANCING SOURCES
100
80
Reactivation
cost Viking
Producer
USDm 115
Equity already issued, net 79
Bond financing in place, net 77
Further financing required 20
60
Total financing 176
40
Bond 1.pri
USDm 77
20
Acquisition
cost USDm 44
- All numbers are Viking estimates
- Assume equity issue or new loan of USDm 20 in order to finance completion of
reactivation of SS Viking Producer, to have a small capital buffer and to service
interest payments in the construction period.
0
Asset Value
Security Structure
13
Lead investor – Mr Christen Sveaas
Confidential
Lead investor - Mr Christen Sveaas
owns 17.2% (23.8% incl. warrants)
Orion Securities retained as market
maker in the stock
The stock is covered by three
Norwegian investment bankers:
– Pareto Securities AS
– Orion Securities ASA
– Corporate Advice & Research AS
Largest shareholders Jan 8, 2007
SHARES % HOLDER
9 705 700 17,1 % SVEAAS CHRISTEN incl. controlled companies (1)
9 743 250 17,2 % UBS AG, LONDON BRANC S/A IPB SEGREGATED C
7 500 000 13,3 % TEIGEN FRODE
6 200 000 11,0 % DEUTSCHE BANK AG LON S/A PRIME BROKERAGE
6 150 000 10,9 % CREDIT SUISSE SECURI (EUROPE) PRIME BROKE
3 172 308 5,6 % GOLDMAN SACHS INTERN EQUITY NONTREATY CUS
2 500 000 4,4 % TEIGEN OLE
1 821 489 3,2 % BANK OF NEW YORK, BR BNY GCM CLIENT ACCOU
1 484 703 2,6 % STATE STREET BANK AN A/C CLIENT OMNIBUS F
1 230 000 2,2 % DEUTSCHE BANK AG LON PRIME BROKERAGE FULL
39 801 750 70,3 % SUB-TOTAL
16 798 250 29,7 % OTHERS
56 600 000 100,0 % TOTAL
(1) Kistefos Investment AS, AS Holding, Portfolio Management AS, Polar Quest AS
and Kistefos Skog AS
6.2 mill warrants outstanding at the following terms:
subscription price NOK 1.00 per share
can be executed any time on or before Nov. 9, 2007 provided the
market share price is min. NOK 15.00 over 10 consecutive
working days with a an accumulated min. traded volume of 1.0
mill shares
14
7

SS Viking Producer – Reactivation Program
15
SS Viking Producer (ex. Pan Producer, Neptune 7 & Pentagone 81)
The rig will be outfitted as 2G drilling rig
– Water depth 1,500 ft, drilling depth 22,000 ft, BOP 10,000 PSI, 3 mud
pumps
– Standard rig, less complex than modern state-of-the-art new builds
Hull in good condition
– The rig has not worked since 1989
– Bare deck - no removal cost of old equipment
– USDm 20 was invested in the lower hull and main deck in 2001/02 by
Crest Petroleum
– Dry docking of the rig not required, confirmed by ABS (class)
– One horizontal brace to be mounted between column A & E to reach
class
The rig was successfully re-floated in December 2006
– Structurally inspected and found to be sound with no leaks
The drilling and marine equipment will be totally “new”
– New and reconditioned equipment will be used
– The living quarter onboard, which is 40-50% completed (new in
2001/02), is in good condition
All “long-lead” equipment is secured
– Availability of resources and equipment in Houston, Texas area is good
Estimated completion end 2007 / early 2008
– Detailed planning and engineering ongoing
– Construction work has started
– Estimated re-construction cost $ 115m ex. financing cost
Increased capabilities presently being evaluated
– If decided re-construction cost will increase and delivery will be
postponed
SS Viking Producer
(after hull refurbishment in 2002)
16
8

Detailed engineering – making good progress
General Arrangements drawings are completed
Derrick substructure, moon pool arrangements and drilling systems
engineering is completed
Main system electrical engineering is completed and drawings are
issued for installation
Global strength and stability analysis, and weight engineering and
control is completed
Dead weight survey of the rig has been successfully completed and a
baseline for the total weight has been set
Evaluating installation of additional buoyancy in order to increase
Variable Deck Load
– If decided, the re-construction cost will increase and the delivery will be postponed
17
Construction work ramping up
The following construction work is currently ongoing:
Removal of existing excess steel
Blasting and painting of internal compartments
Selection of contractor for the electrical installation is made (IEC
Systems, Houston, Texas) and the installation has started
Selection of contractor for the completion of living quarter is made
(GVMS, Houston, Texas) and the work has started
Painting of machinery room
Painting of column A
Connection of construction crane pedestal
18
9

All “long-lead” equipment ordered
New equipment:
– Mooring system (Bodewes Winches)
complies with new regulations in US Gulf of
Mexico
– Electrical equipment package (IEC
Systems)
– Drilling string (Grant Prideco)
– Riser (Rucker Schaffer)
– Deck cranes (Seatrax)
– Drill floor handling equipment incl iron
rough neck (Wellquip)
– Derrick handling equipment (Wellquip)
– BOP handling equipment (Wellquip)
Used equipment:
– 4 main diesel generators (EMD)
– Drilling Derrick incl provision for pipe
handling system and top drive (LoadMaster)
– Riser Tensioner System (NOV)
– BOP – stack (Rucker Schaffer)
– Heave compensator (NOV)
– Draw-works (NOV)
– Rotary table (NOV)
– Traveling Block (NOV)
– Mud pumps (Wirth)
– Motors for mud pumps and draw-works
– Top drive (NOV)
NOV – National Oilwell Varco
19
All used equipment will be reconditioned
Draw-works at NOV
Rotary table at NOV
Mud pumps at Wirth
Drill string compensator Diesel generator no 2 at Stewart & Stevenson Riser tensioner at Schaffer
20
10

Gulf Copper Shipyard, Galveston, Texas
Confidential
The reactivation of SS Viking Producer will
take place at Gulf Copper shipyard,
Galveston.
Steel-work, painting, sand blasting and
provide crane capacity and other support
services.
– Odin Rig Services – will engage specialized
contractors for other work
Gulf Copper 50 years experience
– Track record includes conversion of tankers to FPSOs
and major conversions on semi submersibles as well
as reactivated five jack-up rigs
– Since May 2005, about 10 rigs and vessels have been
dry docked
– 800 employees
The yard is located in an area with long
history within rig refurbishment and
construction, close to suppliers
Offshore track record
Major customers include
– GlobalSantaFe
– Nabors
– TODCO
– US Navy
21
Sister rigs of SS Viking Producer
Confidential
There are eight Pentagone rigs in the world
– Six rigs are working
SS Viking Producer is one of the two rigs not
currently in operation
Estimated 15 – 20 years of useful lifetime after
reactivation
SS Zagreb 1
(similar design as SS Viking Producer)
In operation
Year Water Drilling
Rig name Owner Built depth Depth Employment
ft ft
Pride Mexico Pride International, US 1973 1 400 22 000 Pemex, Mexico
Noble Lorris Bouzigard Noble Corporation, US 1975 4 000 25 000 Mariner, GOM
Noble Therald Martin Noble Corporation, US 1977 4 000 25 000 Petrobras, Brazil
Atlantic Star Queiroz Galvao Perfuracoes, Brasil 1976 2 000 25 000 Petrobras, Brazil
Zagreb 1 Crosco Ltd, Kroatia 1977 1 500 20 000 Devon, West Africa
Petrolia Petrolia Drilling, Norway 1976 1 200 25 000 Apache, North Sea, UK
Asterie Ghana National Petroleum Company 1974 660 20 000 Cold- stacked
Viking Producer Viking Drilling, Norway 1969 1 500 22 000 Reactivation
Source: ODS-Petrodata / www.coltoncompany.com
22
11

Risk factors
Oil price below $ 40 – may reduce drilling activity
Financial markets
Significant delays
Significant cost overruns
23
Confidential
Appendix
SS Viking Producer – planned technical spec.
SS Viking Century
SS Viking Prospector
Management
24
12

SS Viking Producer – planned technical specification
Confidential
General:
Rig design: Forex Neptune Pentagone
Built 1969 – CFEM, LeHavre, France
Water depth: 1,500 ft
Drilling depth: 22,000 ft
Living quarters: 100 men
VDL: 4,600 kips (2.100 MT)
Main power: 4 EMD @ 2,200 hp
Mooring system: 10 point single drums system with 83 mm wire MBL of
620 mt (DB2K)
Cranes: 2 SeaTrax series S90, each 70 tonnes capacity
Drilling equipment:
BOP: 18 ¾” 10,000 PSI stack Rucker Shaffer type SLX
Riser: 1,650 ft (2 spares) Rucker Shaffer 21” OD
Drill string – 22,000 ft, 5.5 inch, grade S-135
Mud pumps: 3 triplex @ 1,600 hp
Draw works: One 3,000 HP 1 5/8” drill line, Lebus drum
Rotary table: One 49.5” w/independent drive @ 800 HP
Top drive: One National P2S-650
Automatic pipe handling equipment
Noble Therald Martin
(similar design as Viking Producer)
25
Confidential
SS Viking Century (ex. Ocean Century & Diamond M Century)
Purchase price USDm 14.25 as-is/where-is
Korkut class
Built 1973 – Alabama Dry Dock & Shipbuild.
270’ x 173’ x 83’ hull
Last worked July 1998, cold stacked since Oct
2000
Out of class
Major refurbishment (USDm 15-20) in 1997/98
by Diamond Offshore
Requires substantial investment in hull and topside
facilities
Living quarter, main engines, mooring winches
in fair condition and can be used
Hull back to class – est. cost USDm 15 - 20
Liberia flag
Working modes: Tender Drilling, Floating
Production, Accommodation / Service
Drilling ban – put on by Diamond to reduce
market capacity
SS Viking Century in Sabine Pass, Texas May 2006
26
13

Confidential
SS Viking Prospector (ex. Ocean Prospector)
Purchase price USDm 14.25 as-is/where-is
Ocean Victory class
Built 1971 – Mitsubishi Heavy Ind., Japan
338’ x 263’ x 126’ hull
Stacked since 1998
Out of class
Last upgraded 1981
Requires substantial investment in hull and top-side
facilities
Hull back to class – est. cost USDm 15 - 20
Large deck space, particularly suited for floating
production
Marshall Island flag
Working modes: Floating Production, Accommodation /
Service
Drilling ban – put on by Diamond to reduce market
capacity
SS Viking Prospector in Galveston, Texas May 2006
27
Management – proven track record
Confidential
W. Dennis Heagney
Ole Geir Hagen
CEO & President
More than 30 years of experience and proven
track record in the offshore drilling industry.
CFO
Strong background in finance and
restructuring.
– SVP Business Development Songa
Management, Houston (2005 – 2006)
– COO Transocean Offshore Inc
(1996 – 2002)
– President Sonat Offshore Drilling Inc
(1986 – 95)
– Sonat Offshore Drilling Inc – various
positions since 1969
Heagney is a graduate of the Colorado School
of Mines with a professional degree in
Petroleum Engineering.
– CFO Tandberg Data ASA (2003 – 06)
– CFO Management for hire (2002 – 03 & 1998 – 00)
– CEO Cappit ASA (2001 – 02)
– CFO Viking Supply Ships AS / Viking Rigs AS
(1990 – 97)
– Vice President Oslobanken AS (1987 - 89)
– Financial Controller/Contracts Engineer Stolt-Nielsen
Seaway AS (1982 - 87).
Hagen holds a Master of Business
Administration degree from the Norwegian
School of Management, Oslo, Norway, 1981.
Source: Viking Drilling
28
14

Confidential
Odin Rig Services Inc – the Construction Manager
Ole Peter Blom
Odin Rig Services Inc. (the Blom Group) with
Ole Peter Blom in charge
Ole Peter Blom has 30 years experience from
leading management teams involved with
offshore drilling operations, rig new builds and
rig refurbishment projects
Mr. Blom has a reputation for completing
marine projects “correctly”, on time and on
budget. Mr. Blom holds a Norwegian Chief
Engineer license, Master of Science Mech.
Engineering
President/CEO, ADC TX, Client Sonangol
– USDm 40 conversion of Dolphin III shallow water jack up
drilling unit to Mobil Production Unit at Gulf Copper
Director of Engineering and Winterisation of
SS Eirik Raude, Halifax, Canada
Vice President of Engineering, Marine Drilling
Companies, Houston, Texas
- Responsible for all engineering and construction projects for
the company’s fleet of jack up and semi-submersible offshore
drilling rigs, including the USDm 270 U.S. deep water project
of Marine 700 and USD m 110 upgrade of Marine 500 to deep
water application. Completed on time – on budget.
Executive Vice President Operations &
Engineering, Arethusa Offshore, Houston, Texas
- Exmar, Belgium acquired Zapata Offshore together with
Swedish partners in 1991 and went public with the company
as Arethusa Offshore in 1994. Blom joined Exmar in 1981 and
held several positions with Exmar and Zapata / Arethusa until
the company was merged with Diamond Offshore in 1996.
Dyvi Offshore
- Responsible for 2 new build jack ups and 1 new build semi
Fearnley & Eger
- Responsible for site team in Finland for 2 new build semi’s
29
30
15

Allum Marine – technical advisor
Technical advisor and project verifier
– Bjørn Bakken and Bjørn Håvard Brænden
– Perform independent progress survey of the reactivation work
on Viking Producer
– Verification of the quality of the work
Allum Marine AS - a Norwegian engineering
company specializing in rig reactivation and rig new
buildings
Allum Marine AS provides high qualified engineering
services within naval architecture, marine- and
topside engineering and contractor services to shipand
offshore industries, highlighting all type of
floating units.
Confidential
Track record
Bideford Dolphin Drill Semi
Bingo 9000#1 Drill Semi
Bingo 9000#2 Drill Semi
Bingo 9000#3 Drill Semi
Bingo 9000#4 Drill Semi
Borgland Dolphin Drill Semi
Borgny Dolphin Drill Semi
Borgsten Dolphin Drill Semi
Bow Drill II
Drill Semi
Bow Drill III
Drill Semi
Byford Dolphin Drill Semi
Deep Sea Bergen Drill Semi
Drill Star
Drill Semi
Drillmar
Drill Semi
Dundee Explorer Drill Semi
Dyvi Alpha
Drill Semi
H3
Bingo
Bingo
Bingo
Bingo
H3
H3
H3
Pacesetter
H4.2
H3
H3
Pacesetter
Pacesetter
H3
H3
31
16