Industry Overview

11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY. FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT 11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY. FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Prepared for inclusion in the Prospectus) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
Vital Factor Consulting Sdn Bhd (Company No., 266797-1) 75C 8< nc Jalan 5522119 Damansara Jaya 47400 Petaling Jaya Selangor Darul Ehsan, Malaysia -5 MAR 1008 Tel: (603) 7728·0248 FaK: (603) 7728·7248 Ema~: inlo@v~allaclol.lXlm The Board of Directors Website: www.vitallilctor.com Dayang Enterprise Holdings Berhad Lot 868, 1st Floor Jalan Permaisuri 98000 Miri Sarawak Dear Sirs Independent Assessment of the Offshore Supporting Services for the Oil and Gas Industry, focusing on Offshore Topside MaIntenance
The following is a summary of the Independent Assessment of the Offshore Supporting Services for the Oil and Gas Industry, focusing on Offshore Topside Maintenance in Malaysia prepared by Vital Factor Consulting Sdn Bhd for inclusion in the Prospectus of Dayang Enterprise Holdings Berhad (herein together with all its subsidiaries will be referred as Dayang Group or the Group) in relation to its listing on the Main Board of Bursa Malaysia Securities Berhad. 1. BACKGROUND • Dayang Group is a provider of offshore platform services for the upstream sector of the Oil and Gas Industry in Malaysia. The core business activities of Dayang Group are:
Provision of Offshore Topside Maintenance Services; Charter of marine vessels; Minor fabrication; Provision of offshore hook-up and commissioning services.

• For the financial year ended 30 september 2007, Dayang Group’s revenue amounted 10 RM127.1 million.
• Offshore Topside Maintenance Services accounted for a. significant proportion of Oayang Group’s revenue for the financial year ended 30 September 2007. As such, the reJXlrt wm focus on Offshore Topside Maintenance Services as part of the total Offshore Supporting Services Industry under Oil and Gas.

Dayang Enterprise Holdings Berhad Page I Industry Assessment -233­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
2. INDUSTRY STRUCTURE 2.1 Offshore Supporting Services Industry Structure • The offshore supporting services for the Oil and Gas Industry can be further segmented as follows: Platform and Rig Operations  Accommodation and Catering  Geological and Reservoir related Services
Maintenance SeMcos  Safety Applications and Systems  Transportation and Logistics
I- ~ l- I­l-I-Offshore -\ SUppoJ1ing I-Services l-
I­l- I­L­I-Information Technology and Communications  Engineering, Design and Architectural  Drilling Services
Offshore Construction Activities  Underwater Services  Others
Figure 1  Structure of Offshore Supporting Services for the Oil and Gas Industry  •  Offshore Supporting Services involve the provision of various forms of services to support the Oil and Gas Industry from exploration and production of hydrocarbon fluids to the transportation of hydrocarbon using vessels or offshore pipelines.  •  Dayang Group is principally involved in the provision of Offshore Topside Maintenance Services, which are classified under offshore maintenance services.
Dayang Enterprise Holdings Berhad Page 2 Industry Assessment -234­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q
VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions • Offshore Maintenance Services comprised various different types of maintenance works for offshore structures and facilities. Some of the examples of offshore maintenance services include mechanical maintenance such as piping/structural fabrication and welding services, topside structural maintenance, rotating and stationery equipment, storage tanks, hoses, single buoy mooring systems, and electrical maintenance (such as industrial facilities and equipment), instrument maintenance on pneumatic or hydraulic instrument systems, fire detection system, and other types of maintenance (such as grit blasting, materials preservation, repairing of lifting equipment and others). 2.2  Offshore Maintenance Services  •  Some  of  major  offshore  maintenance  activities  undertaken  for  offshore  structures  and  facilities  in  Oil and  Gas Industry Malaysia  can  be  further  classified into the following:  Offshore  Ma.,tenance””””‘,  I
Mechanical Maintenance  Electrical Maintenance  Instrument Maintenance  Others  Top$<ck1 SlI\JCl”‘-‘  I Irod<I!tnaI Fadht,ul Equipmlfll  P'”turnalicfHyd””,lic In5/nlmenl System  Gill OliIslong -.lIPflinting  SlNccura’Plpillg Fi!Jlitncn…,~  E”r.dronlg’O!<;JIIaJ IflstNmtlllt System  Repairs Qt Li!tirIv Equipment  Heal PfOGessinli Equlll>lle/lt  Fire DetlClloo. Alarm and Protect System  lI1.ulatioo Wof\:;  Mactl”*’l! and Fill’f\\! 5eMee!  Ofl.-Iln, Umler P~~lII”e Inweetion  Xmlls lrul Wellhead OIMrofl.~ore struet……. andfadlltin  o  “”‘. o”Y4ngGtouIl·.eor!’lHI….ns
Source: PETRONAS Figure 2 Segmentation of Offshore Maintenance Services .. Some of the main types of offshore maintenance services that are provided to support Malaysia’s Oil and Gas Industry are as follows: Mechanical Maintenance Topside Structural Structural/piping fabrication and welding Dayang Enterprise Ho/dings Berhad Page 3 Industry Assessmem -235­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
Maintenance on heat processing equipment Machining and fitting services Maintenance on Xmas tree/wellhead Maintenance on other offshore structures and facilities (such as rotating and stationery equipment, valves, single buoy mooring systems, hoses, columns, pressure vessels, reactor and drum, surface preparation and maintenance of all nuts and bolts, pipe flanges, and others). Electrical maintenance. for industrial facilities and equipment. Instrumental maintenance comprises maintenance services on pneumalic or hydraulic instrument system, electronic or digital instrument systems, fire detection, alarm and protection systems. Other offshore maintenance services mainly consists of special categories such as grit blasting and painting, repairing of lifting equipment, insulation works, on-line under pressure maintenance and others such as maintenance on heating ventilation air conditioning systems, risk based inspection, catalyst and absorbent change out. • Dayang Group is involved in the provision of Offshore Topside Maintenance primarily on structurai maintenance, structures and pipes fabrication, and welding for the Oil and Gas Industry in Malaysia. 3. OPERATORS IN THE UPSTREAM OIL AND GAS INDUSTRY • The operators in the upstream Gil and Gas Industry in Malaysia are segmented into different tiers and this is depicted as follows:
Thkd Tlo!r Figure 3 Operators In the Upstream Oil and Gas Industry in Malaysia Daycmg Enterprise Holdings Berhad Page 4 Industry Assessment -236­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
• Operators in the upstream Oil and Gas Industry in Malaysia is segmented in the following manner: First tier operators, comprising the principal; Second tier operators, comprising production sharing contract operators; Third tier operators, comprising local and international providers of supporting products and services. First Tier • The first tier operator in the Oil and Gas Industry in Malaysia is Petroliam Nasional 8hd (pETRONAS). the national petroleum corporation.
• PETRONAS is the primary regulator of the Oil and Gas Industry in Malaysia and the licensing body that is responsible for the industry’s long-term development.
• PETRONAS is involved in a wide range of Oil and Gas Industry activities, including upstream exploration and production, oil and gas refining and processing, gas transmission pipeline network operations and marketing and distribution of petroleum products,
• PETRONAS also participates in the international Oil and Gas Industry. For the financial year ended 31 March 2007, PETRONAS has a total of 58 international ventures in 22 countries. (Source: PEETRONASj

Second Tier • The second tier operators in the Oil and Gas Industry in Malaysia are the production sharing contract (PSG) operators.
• PSC operators are typically international Oil and Gas companies that have entered into a Production Sharing Contract with PETRONAS. These international Oil and Gas companies have the financial and technical capabilities 10 bear the cost and risk of undertaking Oil and Gas exploration, development and production. PETRONAS Carigali Sdn Bhd, a wholly owned subsidiary of PETRONAS, is also a PSC operator.
• There were approximately 60 active PSC between PETRONAS and PSC operators as at 31 March 2006 (Sourr;e: PETRONASj.
• Normally, a PSC operator is given the permission to explore, develop and produce hydrocarbons in a specified area for a specified period at time. Revenue from the sale of any produced hydrocarbons first goes towards covering a specified proportion of the costs involved (inclUding Exploration and Development), and any revenue in excess of this is shared between the PSC operator and PETRONAS.

Dayang Enterprise Holdings Berhad PageS Industry Assessment -237 ­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
• The PSC operator bears all of the risks and initial costs involved in initiating hydrocarbon production in the area granted by PETRONAS under the terms of the production sharing contract.
• In addition to the involvement in the upstream segment of the Oil and Gas Industry, some PSC operators are also involved in transportation, refining and distribution.
Third Tier
• Third lier operators in the Oil and Gas Industry in Malaysia comprised local and international providers of supporting products and serv)ces, for onshore and offshore operations.
• Some of the offshore supporting services for upstream activities include, among many others, platform and rig operations, maintenance services for offshore structures and facilities, offshore construction operations such as hook-up and commissioning and others.
• Both local and international providers of supporting products and services (including offshore supporting services) are required to obtain the appropriate licences or registration for a particular product or service from PETRONAS before they are allowed to service first and second tier operators.
• International providers of supporting products and services are generally required to establish partnership arrangements with a Malaysian party before they are able to provide supporting products and services to first tier and second tier operators,
• Dayang Group is a locally licensed and registered company that is primarily engaged in the provision of offshore supporting services, mainly in Offshore Topside Maintenance for PSC within the Oif and Gas Industry in Malaysia.

4. SUBSTITUTE SERVICES • Offshore Topside Maintenance Services playa critical role in the Oil and Gas Industry. There are no direct substitutes for the provision of Offshore Topside Maintenance Services with the exception of either undertaking these services internally by the PSC operators or owners of offshore platforms. Dayang Enterprise Holdings Berhad Page 6 Industry Auessmem -238­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q
5. 5.1 VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions GOVERNMENT LEGISLATION, POLICIES AND INCENTIVES Govemment Regulations • All rights related to the exploration and extraction of petroleum in Malaysia Is vested in Petroliam NasionaJ Berhad (PETRONAS) under the Petroleum Development Act 1974. PETRONAS was also granted control over the carrying Qut of downstream activities and development relating to petroleum and lts products under the Petroleum O€velopment Act 1974.
• All companies wishing to participate in the Oil and Gas Industry are required 10 obtain the necessary licences, or successfully register with PETRONAS before they are allowed to participate in these activities.
• Companies who wish to tender for contracts from the Government are also required to register as contractors with the Ministry of Finance (MOF), and the Construction Industry Development Board (CIDB).

PETRONAS Licences and Registrations • Applicants are required to specify the scope of work for which the licence or registration is being applied for, based on a set of Standardised Work & Equipment Categories (SWEC). An individual licence or registration must be obtained for each SWEC.
• Companies that have obtained a licence for SWEC are allowed to participate in the upstream sector, downstream sector, and maritime sector for the Onshore and Offshore Oil and Gas Industry.
• In contrast to a licence, companies that are registered for SWEC are allowed to only participate in the downstream sector and maritlme sector of the onshore Oil and Gas Industry. Registered companies are not allowed to participate in the upstream sector.

” Generally, licences and registrations are effective for a period of 1 year. However, the effective period of more than 1 year can be considered. Dayang Emerprise Holdings Berhad Page 7 Industry Assessment -239­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
• Dayang Group currently holds the following licences issued by PETRONAS for both offshore and onshore operations: PETRONAS L1conces -Dayang Enterprise Sdn Bhd SERVICES SUPPLIES  VAUDITY PERIOD  (SM 1) Maintenance Services -~01) Mechanical Maintenance -(01.7) Topside Slructural Maintenance -(01.6) StruclurallPipingIFabricationlWelding -(05) Special Categories _ (05.1) Gritbfasling and Painting  ‘6 June 2006 until 15 June 2008  (SO 2) Offshore Construction -(03) Hook up and Commissioning  16 June 2006 until 15 June 2008  (SO 3) Onshore Construetlonl Fabrication (02) Minor Fabrication! Welding -(02.2) Civil Engineering  16 June 2006 until 15 June 2008
PETRONAS Licences -CESB Marine Services Sdn Bhd SERVICES SUPPLIES  VAUDITY PERIOD  (SM 3) Marine Vessels -(01) Anchor Handling VesseVTug BoaVSupply Vessel (02) Accommodation BargeNessel–(07) Land CraftfTank -(14) Work Vessel -Construction Maintenance (Major)  23 August 2007 untll 22 August 2009
Federal Treasury Sarawak Registration -Dayang Enterprise Sdn Bhd • Oayang Group holds the following registrations with the Federal Treasury Sarawak for its operations: DESCRIPTION  VALIDITY PERIOD  Sand blasting and painting for vessels  1 December 2005 until 30 November 200.  Supplying of manpower  Others  • M9chanical maintenance  • StructuraVpipinglfabricationlwelding and topside structural
Dayang Enterprise Holdings Berhad PageS Industry Assessment -240­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
CIOB Registration • With effect from 20 July 1995, it is mandatory under the Act of Parliament Act 520 (Act 520) for all builders, contractors and sub-contractors, whether local or foreign, to register with the Construction Industry Development Board Malaysia (GlOB), before undertaking Of executing any construction work in Malaysia.
• According to Act 520 of the CIOB Act 1994, all organisations that undertake some form of civil engineering mechanical and electrical works must register with CIOB and hold a valid certificate of registration in order to carry out any construction work.
• Dayang Enterprise, a wholly owned subsidiary within Dayang Group, is registered with the CIDB for the fallowing activities which are valid unlil19 June 2009 before the company is due for renewal:

GRADE  DESCRIPTIONS  G7  Offshore Construction Wor1ts  G7  General Civil Engineering Worh  G7  Specialised Fabrication and Treatment
5.2 Domestic Shipping Licences • With effect from 1 January 2001 onwards, all ships that are involved in providing services, other than fishing in Malaysian waters or exclusive economic zone shall be required to obtain a licence from the Domestic Shipping Licensing Board.
• Type of services shall include: Dredging; Survey inclUding hydrographic survey and seismic survey; Towing ship and barges; Engineering works in the oil exploration industry including all types of shipping services in the offshore oil industry; laying of cables and pipe lines; Marine scientifIC research; salvage; Marine construction including the construction of wharves and jetties; Other similar activities.

(Source: Sarawak Marine Department) Dayang Enterprise Holdings Berhad Page 9 Induslry Assessment -241 ­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY. FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
• DESB Marine Services, a wholly owned subsidiary within Dayang Group has obtained the following ficences from the Domestic Shipping LIcensing Board: NAME OF VESSEL  DESCRIPTIONS  VALIDITY PERIOD  Dayang Pertama  Maintenance Support Vessel  22 Seplember 2006 until 21 Seotember 2008  Dayang Bertian  Maintenance Support Vessel  12 January 2007 until 11 Januarv 2009  Dayang Maju  Supply BoalJLanding Craft  8 February 2007 until 7 February 2009
5.3 Environmental Regulations • The disposal of waste created during the Dayang Group’s operations includes
the following categories: Waste oil and dirty oil Waste thinner mixed with used paint Waste thinner Used garnet.

• All the wastes listed above are categorised under the scheduled waste in the Environmental Quality (Scheduled Waste) Regulation 1989.
• Dayang Group uses OMA Shipping and Forwarding Sdn Bhd for the collection of scheduled wastes from offshore structures. The Group uses Kualiti Alam Sdn 8hd for the disposal of the scheduled wastes once they arrive on land.

6. GOVERNMENT INCENTIVES PETRONAS Inltiative$ • As part of the aim to promote and encourage local participation in the Oil and
Gas Industry, PETRONAS has implemented the following initiatives: licensing and registration of companies with preference given to local companies: implementation of the Vendor Development Programme (VDP) for Bumiputera entrepreneurs.
• In addition, PETRONAS also initiated Cost Reduction Alliance (CORAL) in 1995 with the primary objective to reduce the operating cost of upstream operatIons. CORAL is a forum that seeks to reduce costs and enhance efficiency through sharing of facilities and logistics, standardising of equipment specifications and effective coordination of operations. The introduction of CORAL has enabled the Oil and Gas Industry in Malaysia to reduce costs by awarding a significant proportion of the projects to local companies.

Dayang Enterprise. Holdingj’ Berhad Page 10 Industry Assessment -242 ­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY. FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
7. DEMAND • Essentially, demand for Offshore Topside Maintenance Services for the Upstream Oil and Gas Industry will come primarily from the performance of the upstream activities, including exploration and production operations in Malaysia.
• As demand for Offshore Topside Maintenance Services are ultimately dependent on the growth of the Oil and Gas Industry, the following analysis of the performance of the Oil and Gas Industry will impact on the demand for these types of supporting services.

Investment In Exploration and Production of Oil and Gas • The level of investment made by PETRONAS and PSC operators in the exploration and production of Oil and Gas Industry in Malaysia increased at an average annual rate of 17.7% between the financial years ended 31 March 2002 and 31 March 2007.
• Based on the latest announcement by PETRONAS on 28 June 2007, expenditure on the upstream Oil and Gas sector registered a growth of about 20% to RM19.2 billion compared to the previous year. Of this, RM10.3 billion or 53.4% was spent on development and production projects, and RM1.92 billion or 10.0% was for exploration activities, whilst the balance was spent on operations.
• In the Ninth Malaysia Plan. the Malaysian Government has allocated RM43.8 billion for the development of upstream and downstream segments of the Oil and Gas Industry. Of this, RM13.1 billion has been allocated for upstream activities and RM30.7 billion for downstream activities.
• Between the fmancial years ended 31 March 2003 and 2007, the number of exploration wells drilled increased at an average annual rate of 5.1%. There were 39 exploration wells drilled for the financial year ended 31 March 2007.
• Between the financial year ended 31 March 2002 and 2007. the number of Oil and Gas fields in operation in Malaysia increased from 56 to 85. Of the total 85 r.’elds, 59 were oil fields while the remainder 26 were gas fields for the financial year ended 31 March 2007.

(Source: PETRONAS and Ninth Malaysia Plan 2006-2010) 8. DEMAND DEPENDENCIES • The demand for Offshore Topside Maintenance Services is primarily dependent on the performance of the Oil and Gas Industry in Malaysia. Dayang Enterprise Holdings Berhad Page JJ Industry Assessment -243­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
• Production of Oil and Gas in Malaysia may be classified into two broad categories: Production of Crude Oil and Condensates; Production of Natural Gas. • The demand for supporting prcxiucts and services, particularly those related to exploration and production, is also dependent on the number of recently signed production sharing contracts. Under the terms of production sharing contracts normally signed by PETRONAS, the exploration period (including Appraisal) is between 5 to 7 years, while the deVelopment period is between 4 to 6 years, and the production period is between 15 and 25 years. (Source: PETRONAS)
• The number of production sharing contracts in operation betvveen PETRONAS and PSC operators/contractors increased from 41 for the financial year ended 31 March 2002, to 64 for the financial year ended 31 March 2007. (Source: PETRONAS)
• Demand for Offshore Topside Maintenance Services in Oil and Gas production are also dependent on the number of oil and gas fields that are currently in operation in Ma!ays~.
• Based on the latest announcement from PETRONAS on 28 June 2007, for the financial year ended 31 Match 2007, a total of 85 fields were in operation, of which 59 were oil fields while the remainder 26 were gas fields,
• The farrOWing analysis also provides an indication of the performance of the Oil and Gas Industry in Malaysia:

Between January 2003 and January 2007. Malaysia’s total reserves (including crude oil and condensates, and natural gas) grew at an average annual rate of 1.0%. As at 1 January 2007, Malaysia’s total reserves (including crude oil and condensates. and natural gas) increased by 1.4 % to 20.2 billion barrels of oil equivalent (bee). Belween January 2003 and January 2007, crude oil and condensates reserves grew at an average annual rate of 4.7%. As at 1 January 2007, crude oil and condensates reserves increased by 2.1% to 5.4 billion barrels of oil equivalent (boe). Between January 2003 and January 2007, natural gas reserves declined marginally at an average annual rate of 0.2%. However, as at 1 January 2007, natural gas reserves increased marginally by 1.1% to 14.8 billion barrels of oil equivalent (boe). Between 2002 and 2006, daily production of crude oil decreased at an estimated average annual rate of 2.1%. In 2006. preliminary data indicated that daily production of crude oil decreased by 4.0%, to 548,487 barrels per day. Dayang Enterprise Holdings 8erhad Page /2 Industry Assessment -244­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
Between 2002 and 2006, daily production of natural gas increased at an estimated average annual growth rate of 5.4%. In 2006, the daily natural gas production decreased by 0.4% to 5.8 billion standard cubic feet per day. Between 2002 and 2006, sales value of the manufacture of refined petroleum products grew at an average annual rate of 27.1%. In 2006, the sales value of the manufacture of refined petroleum products increased by 13.7% to RM82.1 billion. Between 2002 and 2006, the export value of petroleum oils, crude, and crude oils obtained from bituminous minerals increased at an average annual rate of 28.8%. In 2006, export value increased by 7.7% to RM32.6 billion. Between 2002 and 2006, the export value of refined petroleum products increased at an average annual rate of 29.8%. In 2006, export value increased by 26.2% to RM19.2 billion. Between 2002 and 2006, the export value of natural gas, whether or not liquefied increased at an average annual rate of 23.9%. In 2006, the export value of natural gas, whether or not liquefied increased by 12.0% to approximately RM23.3 billion. (Source: Bank Negara Malaysia and Department of Statistics) 9. SUPPLY DEPENDENCIES -RAW MATERIALS • There are no raw material purchases per se as Dayang Group is in the provision of Offshore Topside Maintenance Services for the Oil and Gas Industry.
• The Group’s purchases primarily consist of consumables, parts and components, which are used to facilitate the provision of Offshore Topside Maintenance Services to the Oil and Gas Industry. Some of the purchases include:

Valves: Steel pipes and tubes, and fittings; Other secondary steel products (such as welding electrodes, bolts and nuts); Others include paints and coatings, and garnet
Dayang Enterprisit Holdings Berhad Page 13 Industry Assessment -245­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions 10. COMPETITIVE NATURE • Generally, service providers of Offshore Topside Maintenance for the Oil and Gas Industry face normal competitive conditions. However, there are some exceptions: Only companies that are licensed or registered by PETRONAS are allowed to bid directly for work from PETRONAS and production sharing contract operators/contractors in the Oil and Gas Industry. All companies who wish to obtain contracts from the Government or to bid directly for work provided by PETRONAS and production sharing contract operators/contractors in the Oil and Gas Industry are required to register as contractors with the Ministry of Finance (MoF). Companies who wish to cany out construction work in Malaysia are required to register with the Construction Industry Development Board (CIOB) under the Construction Industry Development Board Act 1994. Companies bidding for construction refated work within the Oil and Gas Industry must be registered with the relevant grade that commensurate with the size of the project before they will be considered for any bids. • Although companies that provide Offshore Topside Maintenance Services for the Oil and Gas Industry may operate under normal competitive conditions, it is imperfect due to the requirements for licensing and registration that partly inhibits free competition.
• As with most free enterprise environment, once all the licensing and registration requirements are complied, competition is based on a number of factors, including:
Technical compliance to customers’ specifications and requirements; Quality products and services; Cost competitiveness; Health, Safety and Environment management; Prompt delivery/completion.

• An additional competmve factor that concems service providers for offshore supporting services is the ability to demonstrate a good safety record, typically measured by work time between work-related fatalities and lost time accidents or incidents.
• Generally, competition among companies in the Offshore Topside Maintenance Services for the 011 and Gas Industry is moderate. Considerations on competitive intensity are as follows:

Dayang EIlfi!l’prise Holdings Berhad Page 14 Indusl’)’ Assessment -246­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions Factors that Increase Competitive Intensity A large proportion of the contracts are awarded on an open tender basis. This system tends to create a highly competitive environment. In practice, in all-open tender situations, once the technical specifications are fully complied, the bid with the lowest price normally wins. In many situations, international firms with highly reputable track records are involved in the bidding process where large. complex and high value projects are placed on tender. In many situations, there are many bidders with the relevant credentials for tender and non-tender jobs. Factors that Moderate Competitive Intensity Competition for contracts within the Oil and Gas Industry in Malaysia is ultimately restricted to service providers with the relevant PETRONAS licences or registrations. The number of service providers with the relevant licences or registrations to provide a particular service or product may be limited, particularly in the case of more specialised services for offshore environment. Some clients may award certain contracts based on closed tender, restricted tender or through direct negotiation. In these instances, competitive intensity is reduced. The technical requirements and specifications for some complex projects may be so challenging that only a small number of the more specialised service companies are able to meet the requirements. In some cases, customers may take into consideration other non· price factors, such as ability to provide the extensive services and ability to meet the requirement and specifications timelyI in awarding more chatlenging projects. Barriers 10 entry for the provision of Offshore Topside Maintenance Services are moderate to high, primarily due to the technical skills and knowledge required and the ability to demonstrate a good safety record. Typically good safety record is measured by work time between work· related fatalities and lost time accidents or incidents. These factors will help reduce the competitive pressure and provide some barriers to entry. Dayang Enterprise Holdings Berhad Page 15 Industry Assessmem -247 ­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
Companies that have large capacities and operations have the ability to undertake more and larger sized projects compared to smaller companies. Larger companies are able to enjoy economies of scale thus jncreasing their cost effectiveness. All these would reduce the competitive pressure for larger companies. The provision of Offshore Topside Maintenance 8elVices is a critical part of the Oil and Gas Industry. Thus, the Oil and Gas Industry vlOuld favour established companies with sufficient track record and experience in the required areas of expertise. 11. PLAYERS IN THE INDUSTRY • As at December 2007. there were approximately 59 companies in the provision of offshore topside structural maintenance selVices (Source: Pn’mary Market Research undertaken by Vital Factor Consulting Sdn Bhd) 12. BARRIERS TO ENTRY 12.1 PETRONAS Licences • The need to obtain government licences and registrations, and to comply with government regulations and policies forms a high barrier of entry into the Oil and Gas Industry.
• Under the Petroleum Development Act, 1974 and olher related legislation, activities within the Oil and Gas Industry in Malaysia are regulated by PETRONAS.
• Companies wishing to participate in a particular area of the Oil and Gas Industry are required to either obtain the corresponding licences from PETRONAS, or successfully register with PETRONAS as a selVice or product provider. Licensing or registration is required for both the supply of products and the provision of selVices.
• This is due to the critical nature of the Oil and Gas Industry particulany in adherence 10 safety standards, product and service quality, and the technical skill requirements. As a result of these stringent requirements, these factors would pose some barriers to entry for new entrants.

 

12.2 High Technical Skills • The Oil and Gas Industry, including the provision of offshore supporting services, is highly technical in nature involving a certain degree of specialisation and substantial specialist knowledge. Dayang Enrerprise Holdings Be,had Page 16 Industry Assessment -248­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
• Due to the hazardous nature of Oil and Gas exploration and production, there are stringent requirements in safety compliance and standards in every aspect from the use of equipment, systems, structures and instruments through to services and maintenance of equipment and structures.
• The technical personnel with the necessary qualifications, training and experience are required to undertake supporting services such as Offshore Topside Maintenance Services, for the oil and gas platforms, rig and production facilities.
• Possession of technical skills and experience are distinct competitive advantages in this industry. As SUCh. technical skills would pose as a barrier to entry for new entrants with no skins or technical expertise.

 

12.3 Proven Track Record • Track record also forms one of the barriers to entry for new entrants. It is unlikely that a new entrant without any track record will be able to compete effectively in the contract-bidding environment within the Oil and Gas Industry.
• Track record is important, as products and services demanded by the Oil and Gas Industry tend to be critical in nature, and as SUCh, a customer typically requires some assurance that an organisation is able to properly fulfil the contact. Having established a proven track record goes a long way in providing this assurance.
• In addition, service providers are typicaliy required to demonstrate track record of “similar experience” at the company level when submitting applications for contracts tendered by PSC Contractors/Operators. A new entrant wishing to submit a bid is at a disadvantage, as they are not able to demonstrate any track record of similar experience at a company level.
• In addition. as the demands by the Oil and Gas Industry tend to be critical in nature. a flawless safely record is also an important factor in securing a contract. For example, Health, Safety and Environment (HSE) Management continues to be a top priority in all PETRONAS’ operations (SOurce: PETRONAS).
• In this respect, established service providers with a proven track record of successfully completing projects and maintaining the required safety standards have a distinct advantage over new entrants.

 

 

12.4 Capital Set-up Cost • Capital set-up costs are generally a high barrier to entry for new entrants. Participation in a large number of Oil and Gas Industry niches requires substantial capital investment, particularly in terms of equipment and facilities that are used for larger sel’\’ice providers to facilitate specialised services such as Offshore Topside Maintenance. Dayang Enterprise Holdings Berhad Page 17 Industry Assessment -249­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
• In order for the service provider to provide more comprehensive activities, service providers need to have extensive in-house facilities, include offshore workboat for offshore supporting services works, and onshore fabrication yard to undertake minor fabrication for modification of parts and components prior to offshore activities.
• Some of the capital investment required to start-up as a service provider to facilitate Offshore Topside Maintenance Services in a small scale operation would cost approximately RM10 million. This includes the purchasing of equipment such as equipment and tools. project materials and working capital including bank guarantee of RM3 million. (Source: Dayang Group)
• A new entrant that is unable to make a substantial capital investment is likely 10 be restricted to dealing in generic services. As such, this would pose some barriers to entry for new entrant to compete effectively when bidding for new contracts from PSC operators/contractors.

13. INDUSTRY OUTLOOK • The outlook of the Offshore Topside Maintenance Services for the Oil and Gas Industry in Malaysia is favourable. The offshore topside maintenance services for the Oil and Gas Industry in Malaysia are forecasted to grow by 8% to 10% per annum for the next five years.
• The outlook for the Offshore Topside Maintenance Services Industry as a whole is dependent on the performance of the Oil and Gas Industry. As such, the favourable outlook for the Offshore Topside Maintenance Services Industry in Malaysia is based on the following observations and analyses:

Locat Exploration Activity Between the financial years ended 31 March 2002 and 31 March 2007, the level of Investment made by PETRONAS and PSC operators in the exploration and production of Oil and Gas Industry in Malaysia increased at an average annual rate of 17.7%. Based on the latest announcement by PETRONAS on 28 June 2007, expenditure on the upstream Oil and Gas sector registered a growth of about 20% to RM19.2 billion compared to the previous year. In the Ninth Malaysia Plan, the Malaysian Government has allocated RM43.8 billion for the development of upstream and downstream segments of the Oil and Gas Industry. Of this, RM13.1 billion has been allocated for upstream activities and RM30.7 billion for downstream activities. Between the years ended 31 March 2002 and 31 March 2007. a total of 30 production sharing contracts were signed between PETRONAS and PSC operators. Dayang Enterprise Holdings Berhad Page 18 Indusrry Assessmem -250­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
Between the financial years ended 31 March 2003 and 2007. the number of exploration wells drilled increased at an average annual rate of 5.1 %. There were 39 exploration wells drilled for the financial year ended 31 March 2007. Between the financial year ended 31 March 2002 and 2007. the number of Oil and Gas fields in operation in Malaysia increased from 56 to 85. Of the total 85 fields, 59 were oil fields while the remainder 26 were gas fields for the financial year ended 31 March 2007. (Source: PETRONAS and Ninth Malaysia Plan 2006-2010) Number of Platforms A relatively large number of platforms for offshore oil and gas supporting services provide significant growth for operators within the Industry. As at Seplember 2007. there were approximately 400 offshore platforms in Malaysia. (Source: Primal}’ Market Research undertaken by Vita! Factor Consulting Sdn Bhd) Reserves and Local Production Between January 2003 and January 2007, Malaysia’s lotal reserves (including crude oil and condensates, and natural gas) grew at an average annual rate of 1.0%. As at 1 January 2007, Malaysia’s total reserves (including crude oil and condensates, and natural gas) increased by 1.4 % to 20.2 billion barrels of oil equivalent (boe). Between January 2003 and January 2007, crude oil and condensates reserves grew at an average annual rate of 4.7%. As at 1 January 2007, crude oil and condensales reserves increased by 2.1% 10 5.4 billion barrels of oil equivalent {boo}. Between January 2003 and January 2007, natural gas reserves declined marginally at an average annual rate of 0.2%. However, as at 1 January 2007, natural gas reserves increased marginalfy by 1.1% to 14.8 billion barrels of oil equivalent (boe). Between 2002 and 2006, daily production of crude oil decreased at an estimated average annual rate of 2.1 ‘%. In 2006, preliminary data indicated that daily production of crude oil decreased by 4.0%, to 548.487 barrels per day. Between 2002 and 2006, daily production of natural gas increased at an estimated average annual growth rate of 5.4%. In 2006, the daily natural gas production decreased by 0.4% to 5.8 billion standard cubic feet per day. Dayang Emerprise Holdings Berhad Page 19 lnduslry As.sessmenl -251 ­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q
VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
Between 2002 and 2006, sales value of the manufacture of refined petroleum products grew at an average annual rate of 27.1%. 10’2006, the sales value of the manufacture of refined petroleum products increased by 13.7% to RM82.1 billion. (Source: BanI< Negara Malaysia and Department of Statistics) Exports Between 2002 and 2006, the export value of petroleum oils, crude, and crude oils obtained from bituminous minerals increased at an average annual rale of 28.8%. In 2006. export value increased by 7.7% to RM32.6 billion. Between 2002 and 2006, the export value of refined petroleum products increased at an average annual rate of 29.8%. In 2006, export value increased by 26,2% to RM19.2 billion. Between 2002 and 2006, the export value of natural gas, whether or not liquefied increased at an average annual rate of 23.9%. In 2006, the export value of natural gas, whether or not liquefied increased by 12.0% to approximately RM23.3 billion. (Source: Department of Statistics) 14. DRIVERS OF GROWTH • Some of the drivers of growth for Offshore Topside Maintenance Services within the Oil and Gas Industry are as follows: Market Price of Hydrocarbons Sustained at a High Level For the financial year ended 31 March 2007, the average price of West Texas Intermediate (WTI) and Brent crude increased by 8.5% and 12.2% respectively. The average price of West Texas Intermediate (WTI) and Brent crude reached USD64.92 per barrel and USD65.08 per barrel respectively for the financial year ended 31 March 2007. The weighted average price of Malaysian Crude Oil (MeO) rose in tandem to USD68.5D per barrel. an increase of 11.2% for the financial year ended 31 March 2007, over the same period. In January 2008, the price of the Malaysian benchmark oil grade. the Tapis Blend increased by 69.3%. In January 2007. the average price of the Tapis Blend increased from USD58.15 per barlel 10 USD98.46 per barrel in January 2008. (Source: PETRONASj Dayang Enterprise Holdings Berhad Page 20 I”dustry AsseSSmltnl -252 ­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
Sustained high market price for hydrocarbons is likely to encourage hydrocarbon producers to maintain production at a high level, or even increase production by developing new fields, including marginal fields. Efforts to maintain and increase production are likely to spur the demand for the application of supporting products and services such as Offshore Topside Maintenance Services. tn addition, a sustained high market price for hydrocarbons may lead to the development of marginal or previously commercially unviable deposits. The development of these hydrocarbon deposits will drive the growth in the Oil and Gas Industry. including supporting services such as Offshore Topside Maintenance Services. Technological Advances Technological advances that enhance production efficiency, lower production cost, or enable production to take place in previously inaccessible areas are likely to increase demand for supporting product and service providers, including providers of Offshore Topside Maintenance Services. Existing hydrocarbon producers may be inclined to apply technological advances to increase production efficiency, lower cost or improve recovery rates. Technological advances that enable production in previously inaccessible areas may drive growth by bringing new deposits inlo production. This will in turn, promote growth for supporting products and services including Offshore Topside Maintenance Services. PETRONAS Policy and Leadership PETRONAS has a policy of nurturing the development of local Oil and Gas organisations, including local supporting product and services providers. In addition, PETRONAS encourages Malaysian organisations to participate in the Oil and Gas Industry overseas. Qualified Malaysian Oil and Gas Industry organisations, including local Offshore Topside Maintenance Service providers are encouraged to support PETRONAS’ foreign operations. As at 31 March 2007, PETRONAS has 58 international exploration and production ventures in 22 countries. (Source: PETRONASj Opening of Acreage for New Exploration The opening of new blocks of Malaysian territorial waters for exploration, development and production will create new demand for supporting products and services including Offshore Topside Maintenance Services. Dayang Enterpriu floldings Berhad Page 21 /lIdusrry Assessmenr -253­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
With a large proportion of shallow water (generally with depth of tess than 200 metres) already allocated to PSC operators, the opening of new acreage is most likely for deep-water exploration, development and production. For the financial year ended 31 March 2006, there were nine new PSC, six of which were awarded Ultra-deepwater blocks. There were an additional four new PSC for the financial year ended 31 March 2007, which includes two deepwater blocks. (Source: PETRONASj Discovery of New Reserves The discovery of new reserves win stimulate the demand for products and services to support the development and production of new reserves. Products and services related to development, among many others include, the use of offshore drilling and production platforms. maintenance services, marine services, transportation and logistics, pipelines and others. In 2005, a total of 7 new offshore oilfields were discovered. Of these discoveries, 4 were in Sabah, 2 in Sarawak, and one in Peninsular Malaysia (Source: Bank Negara Malaysia). For the financial year ended 31 March 2006, new oil and gas reserves amounted to 645.3 million barrels of oil equivalent were discovered in Malaysia (Source: PETRONAS) If production from new reserves is to be carried out through the use of offshore production platforms. this will increase the demand for the fabrication of new platforms and maintenance of those platforms. This will ultimately spur lhe demand for offshore supporting services including Offshore Topside Maintenance Services. Development of Deepwater Resources According to PETRONAS, nearly 60% of the additions to the nation’s Oil and Gas reserves for the financial year ended 31 March 2006 comes from deepwater areas, while 6 of the 9 new PSC awarded during this period were for ultra.cteepwater blocks. For the financial year ended 31 March 2007, there were four new PSC, which includes two deepwater blocks. In August 2007, Murphy Oil Corporation has commenced oil production from Kikeh Field, offshore deepwater in Sabah, Malaysia (Source: Murphy Oil Corporation). This is followed by another two deepwater projects, Gumusut-Kakap and Malikai fields which are expected to come onstream by 2010 and 2012 respectively. (Source: PETRONAS) Dayang Enterprise Holdings Berhad Page 22 Industry Assessment -254­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q
15. VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions This is expected to help spur the growth and development of Malaysia’s Oil and Gas Industry, which would have a favourable impact on Ihe demand for Offshore Topside Maintenance Services. Deepwater areas are recognised as the most promising fields of the development of the Oil and Gas Industry in Malaysia. As exploration and production activities in these areas are typically more challenging, they are expected to require more support from providers of supporting products and services to the Oil and Gas Industry, including Offshore Topside Maintenance Service provider. SUSTAINABILITY • The sustainability of the overall Oit and Gas Industry, particularly in the exploration and production sectors, is dependent to a large degree, on the availability of Hydrocarbon Resel\’es in the Malaysian territory. Similarly, the sustainabil;ty of the tocal service providers of supporting products and services such as Offshore Topside Maintenance Services is also dependent on the activities of the Oil and Gas Industry.
• Hydrocarbon reserves are those quantities of hydrocarbons that are anticipated to be commercially recoverable from known accumulations from a given date forward. Over time, Hydrocarbon Reserves are depleted as hydrocarbons are extracted from reserves.
• Hydrocarbon reserves may increase through new discoveries of Oil and Gas reserves that are commercially viable.
• Reclassification of previously discovered, but not commercially viable deposits may also occur, leading to an increase in the quantity of reserves. This may occur through the following:

a sustained increase in the market price of hydrocarbons, and an upward revision of the forecast future price of hydrocarbons, may cause previously discovered but not commercially viable deposits to be re-classified as commercially viable. These deposits are then re­classified as reserves. advances in production technology may tower the cost of extracting hydrocarbons from a particular deposit to a point where production is commercially viable. advances in producUon technology may allow production from previously unreachable hydrocarbon deposits. the application of enhanced oil recovery techniques such as gas injection, fluid injection, or chemical injection may increase the hydrocarbon recovery rate of a deposit, which may warrant an increase in the level of reserves in that deposit. Dayang Enterprise Holdings Berhad Page 13 Industry Assessment -255­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions Total Reserves • Between January 2003 and January 2007, Malaysia’s total reserves (including crude oil and condensates, and natural gas) grew at an average annual rate of 1.0%.
• As at 1 January 2007, Malaysia’s total reserves (including crude oil and condensates, and natural gas) amounted to 20.2 billion barrels of oil equivalent (boe). The growth is a result of the continuous exploration campaign undertaken by PETRONAS and its production sharing contractors.

(Source: PETRONAS) Crude Oil and Condensates Reserves • Between January 2003 and January 2007, the crude oil and condensates reserves grew at an average annual rate of 4.7%.
• As at 1 January 2007. the crude oil and condensates reserves increased by 2.1% to 5.4 billion barrels of oil equivalent(boe).
• If these reserves were extracted at a constant rate equal to the crude oil (including condensates) production rate recorded as at 1 January 2006, production is projected to continue for 21 years.

(Source: PETRONAS and Bank Negara Malaysia) Natural Gas Reserves • Between January 2003 and January 2007, the natural gas reserves declined marginally al an average annual rale of 0.2%.
• However, as at 1 January 2007, the natural gas reserves increased marginally by 1.1 % to 14.8 billion barrels of oil equivalent (bOe).
• If these reserves are extracted at a constant rate equal to the rate of natural gas production recorded as at 1 January 2006, production in Malaysia is projected to continue for 34 years.
• Between the financial years ended 31 March 2002 and 31 March 2006, a cumulative of approximately 3.4 billion BOE of New Discoveries of Oil and Gas were made in Malaysia by PETRONAS and PSC Operators.
• The most fruitful year was the financial year ended 31 March 2005, whereby new discoveries of Oil and Gas were recorded at 1,084.7 million BOE. This was 51.2% higher compared to the financjal year ended 31 March 2004.

Dayang Enterprise Holdings Berhad Page 24 Industry Assessment -256­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
• Deepwater discoveries accounted for near1y 70% of reserve additions for the financial year ended 31 March 2005. Significant oil and gas discoveries during the year induded: deepwater Gumusut-Kakap and Malikai fields offshore Sabah; NC4 and F2 Attic fields offshore Sarawak; Anding Utara oilfield offshore Peninsular Malaysia.
(Source: PETRONAS and Bank Negata Malaysia) New Discoveries of Oil and Gas • The Anding Utara discovery introduces further exploration prospects for the Malay basin (the area offshore the east coast of Peninsular Malaysia), previously regarded as a mature area. (Source: PETRONAS)
• In June 2005, Murphy Oil Corporation announced that it had discovered oil and natural gas deposits in its Endau 1 exploration well in offshore Sarawak.
• For the financial year ended 31 March 2006, a tolal or 645.3 million barrels of oil equivalent of hydrocarbons reserves were discovered in Malaysia. Of this, deepwater discoveries accounted for nearly 60%. For the financial year ended 31 March 2006, significant amount of the oil and gas discoveries were from deepwater Block K and Block G, and shallow water blocks PM 3 eM, PM 301, PM 314 and SK 306. (Sourc.: PETRONAS)

16. THREAT AND RISK ANALYSIS 16.1 Sustained Fall in the Market Price of Hydrocarbons • Hydrocarbons, including crude petroleum and natural gas, are internationally traded commodities whose price fluctuates with the constant interaction between supply and demand for hydrocarbons. Factors such as geopolltical factors and unforeseen supply disruptions may also influence the market price of hydrocarbons.
• Activities in the Oil and Gas Industry are, to some degree, affected by fluctuations in the market price of hydrocarbons, for instance:

Activities tend to increase during periods of sustained high hydrocarbon prices. This is due to elevated production activities, as well as increased activities in exploration and development; Activities tend to decline during periods of sustained low hydrocarbon prices. This is due to lower production activities, as well as temporarily reducing or shutting down production from reserves that are no longer commercially viable. However exploration activities will still continue. Dayang Enterprise Holdings Berhad Page 25 IndUSTry Assessment -257 ­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
• There is a risk that sustained lower price of hydrocarbons will negatively affect activities in the Oil and Gas Industry, leading to lower demand for supporting products and services, including Offshore Topside Maintenance Services. Mitigating Factors • However the maintenance of offshore structures and platform is affected to a lesser degree due to the nature of the industry. There will always be a requirement for maintenance services to ensure thai the integrity of the existing and aging offshore structures and platforms are not compromised.
• OPEC, a grouping thai includes many of the world’s largest petroleum producing nations, has some influence on the price of hydrocarbons through their control of a sizable proportion of the world’s production capacity and reselVes. Although the influence of OPEC over the market price of hydrocarbons is not absolute, OPEC has a vested interest in ensuring that hydrocarbon prices do not collapse, and as such, are likely to actively attempt to sustain hydrocarbon prices at an ‘acceptable’ level.

16.2 Downturn In the Local and Global Economies • Any prolonged andlor widespread downturn in tI1e global economy is likely to negatively affect the global demand for hydrocarbons, and production of hydrocarbons. This in turn is likely to negatively affect demand for supporting products and services in Malaysia, as activities in the Oil and Gas Industry in Malaysia slows down, Mitigating Factors • Agiobal economic slowdown does not automatically lead to a sustained fall in the market price for hydrocarbons, as the demand for hydrocarbons for power generation and transport tends to be relatively inelastic.
• The Malaysian Government has taken pro-active policies in mitigating negative impacts of global economic downturn in the past, by implementing stimulus packages to boost domestic spending and demand in countering a slowdown in the local economy.

 

16.3 Depletion of Hydrocarbon Resources • All hydrocarbon deposits are non-renewable, whereby it is not possible to regenerate these hydrocarbons witl1in a reasonable tlmeframe once they have been extracted. As SUCh, hydrocarbon resources in all hydrocarbon producing regions, including Malaysia, will eventually be depleted.
• It is likely that demand for supporting products and services in Malaysia, including Offshore Topside Maintenance Services will be adversely affected after Oil and Gas Industry exploration and production activities ceases in Malaysia.

Dayang Enterprise Holdings Berhad Page 26 Industry Assessmenf -258­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
Mitigating Factors • As at 1 January 2007, hydrocarbon reserves in Malaysia are as follows: Reserves of crude oil (including condensates) amounted to 5.4 billion barrels of oil equivalent (boe); Reserves of natural gas amounted to 14.8 billion boo. (Source: PETRONAS) • At the present rate of prod!Jction, hydrocarbon reserves in Malaysia are expected to sustain production as follows: Production of crude all (including Condensates) for 21 years; Procluction of natural gas for 34 years. (Source: Bank Negara Malaysia) • The relatively long period of lime before current reserves of crude oil (including condensates) and natural gas in Malaysia are expected to be completely depleted enables Oil and Gas Industry companies, including providers of Offshore Topside Maintenance Services, to diversify into other industries and/or venture into overseas mark.ets.
• The National Depletion Policy introduced in 1980 to safeguard the exploitation of the natura! oil reserves by postponing development and control the production of major oil fields (with reserves of 400 million barrels or more) will also ensure that extraction is carefully managed and sustained over the long term.
• Current reserve estimates tend to be conservative and may underestimate the actual amount of hydrocarbons that is ultimately extracted, as they do not take into account the following:
the existence of currently undiscovered hydrocarbon reserves; technolog:cal advances that increases the amount of hydrocarbons that may be commercially extracted from existing reserves; technological advances that enable production from previously inaccessible regions.
• As such, activities in the Oil and Gas IndusllY in Malaysia may very weH continue beyond the currently estimated date of complete hydrocarbon reserve depletion.

 

16.4 Change in PETRONAS Policy • A fundamental change in PETRONAS policy with regards to regUlating the
Oil and Gas Industry in Malaysia can take either one of two forms: Uberalisation of the Oil and Gas Industry; Nationalisation of the Oil and Gas Industry.
• PETRONAS may liberalise the Oil and Gas Industry by: Removing licensing requirements for the provision of all supporting products and services;

Dayang Enrerprise Holdings Berhad Page 27 Industry Assessmenr -259­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
Loosening licensing requirements such that it becomes easier to obtain a licence; Allowing foreign suppliers to operate in Malaysia without restrictions and the need to operate with a local partner.
• liberalising the Oil and Gas Industry in this manner will negatively impact on incumbent organisations by increasing competition in the industry.
• Nationalisation of the Oil and Gas Industry will prevent all private companies from operating in the Oil and Gas Industry in Malaysia.

Mitigating Factors • Malaysia as an open market and dependent on foreign investments is not likely to nationalise any industry for fear of frightening off foreign investments.
• Currently, despite the restrictions of licensing and registration, there exists competition. In the event of any Iiberalisation, existing organisations in the Oil and Gas Industry would not be any worse off as they have already been operating in a competitive environment.
• On the contrary, the liberalisation of the Oil and Gas Industry may provide benefits to existing organisations as they may be able to enter into new areas that leverage from their existing strengths and customer base.

17. AREAS OF GROWTH AND OPPORTUNITIES

17.1 Overseas Operations • The Malaysian Oil and Gas Industry is large, and has been able to sustain the development of local organisations. However to grow further. it is important thai these organisations operate in other markets.
• It is also important to venture into new areas to survive beyond the depletion of Malaysia’s own hydrocarbon resources, although given the current size of reserves and production rate. this is not likely 10 happen in the near or medium term.
• Organisations within Offshore Topside Maintenance Services sector may also gain a foothold in overseas markets by first providing products and services to PETRONAS and its affiliates and operations overseas.

 

17.2 Technological Advancement • The Oil and Gas Industry is driven by technology, and organisations are generally wilting to adopt new technologies. This is particularly true for advances that increase production efficiency, decrease cost of production, and/or enable production in previously inaccessible areas. Dayang Enterprise Holdings Berlwd Page 28 Industry Assessment -260­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions • Development of technological advancement that fits one or more criteria is likely to create an opportunity for organisations that are able to provide that technology.
17.3 Sustained High Price of Hydrocarbons • The expectations that high market price for hydrocarbons can be sustained should encourage the development of marginal fields.
• With the high market price for hydrocarbons, the expected value of the extractable hydrocarbons rises such that the expected returns from production becomes ea>nomically viable.
• Development of marginal frelds is likely to create an opportunity for operators that are providing supporting products and services to either enable or help maintain production activities in these fields.
• High hydrocarbon prices could also revive some old wells that still contain some proportion of reserves to be commercially viable for extraction. Operators may undertake development projects in mature fields to increase production in these areas.

17.4 Redefinition of Blocks • PETRONAS has the authOrity to redefine petroleum blocks to encourage exploration and production activities.
• In some cases, petroleum blocks that are allocated to PSC operators/contractors are found to be uneconomical as a whole, after initial exploration results. This may be because discovered hydrocarbon reserves are found to be too scattered or dispersed to allow for economical development of the entire petroleum block.
• PETRONAS has the authority to redefine the petroleum blocks in question to “carve our the fields with economical hydrocarbon reserves into one or more new petroleum blocks. This is likely to create an opportunity for service providers. including Offshore Topside Maintenance Services, to facilitate activities on these fields.

18. CRITICAL SUCCESS FACTORS • The critical success factors for offshore supporting services for the Oil and Gas Industry, including providers of Offshore Topside Maintenance Services, are as follows: PETRONAS Licensing and Registration: Companies wishing to participate in the Oil and Gas industry in Malaysia are required to obtain PETRONAS licences, or to be successfully registered with PETRONAS, as providers of specified products and services. The Dayang Enterprise Holdings Berhad Page 29 Industry Assessment -261 ­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions
possession of these licences or registrations is a fundamental requirement for direct entry and participation. Track Record: An established track record is a key advantage when submitting tenders or proposals for contracts. This is particularly true for Offshore Topside Maintenance Services as these services are otten critical to ensure that the integrity of the existing and aging offshore structures and platforms are not compromised. Thus, PSC operators/contractors would commonly prefer to deal with organIsations that have a proven track record. Quality of Product and Services: Organisations that are able to oHer proof of quality through formal quality accreditations are able to provide assurance to their clients. Health, Safety and Environment (HSE) Concerns: HSE Management continues to be a top priority in all PETRONAS’ operations (Source: PETRONAS). Companies in the Oil and Gas Industry require that their contractors and sub-contractors to have a good HSE record. As a company’s HSE record is one of the factors considered when evaluating tender submissions, the possession of a good HSE record evidenced by low work-related fatalities, injuries and lost~time incidents is one of the success factors. Financial Stability: OffshOre supporting service providers, including providers of Offshore Topside Maintenance Services, who are in a healthy financial position, are more likely to retain and attract new customers. Potential customers would emphasise financial stability as a key criterion in the evaluation of a prospective organisation as they would not want any disruption in the supply of products and services, particularly in a Jong·term contract. A financially strong provider would be in a better position to upgrade its services, if necessary, to keep abreast with technology, or to meet future demand for additional services. Organisations without sufficient cash flow or reserves would run into possible supply problems. Multi·Oiscipline Engineering Capability: Companies that have multi-discipline engineering capabilities are able to provide a wider range of supporting services including, maintenance of topside structures, piping systems. electrical and instrumentation, offshore hook-up and commissioning works as well as fabrication and welding works. Dayang Emerprise Holdings Berhad Page 30 Industry Assessmem -262 ­11. EXECUTIVE SUMMARY OF THE INDEPENDENT ASSESSMENT OF THE OFFSHORE SUPPORTING SERVICES FOR THE OIL AND GAS INDUSTRY, FOCUSING ON OFFSHORE TOPSIDE MAINTENANCE REPORT (Conl’d) Q VITAL FACTOR CONSULTING Creating Winning BlJsiness Solutions 19. MARKET RANKING Market Ranking of Providers of Offshore Topside Maintenance andJor Offshore Hook-up and Commissioning Services in Malaysia • In 2007, Dayang Group ranked ninth among companies that undertake Offshore Topside Maintenance and/or hook-up and commissioning in Malaysia based on total company revenue from the Oil and Gas sector. Note: The above ranking of companies is based on total company revenue, which includes revenue from Offshore Topside Maintenance and/or offshore hook-up and commissioning and/or related or non-related business activities. Nevertheless, all companies in the ranking must undertake Offshore Topside Maintenance andlor offshore hook-up and commissioning. Vital Factor Consuiting Sdn Bhd has prepared this report in an independent and objective manner and has taken all reasonable consideration and care to ensure the accuracy and completeness of the report. It is our opinion that the report represents a true and fair assessment of the industry within the limitations of, among others, secondary statistics and information, and primary market research. Our assessment is for the overall industry and may not necessarily reflect the individual performance of any company_ We do not take any responsibilities for the decisions or actions of readers of this document. This report should not be taken as a recommendation to buy or not to buy the shares of any company. Yours sincerely
Wong Wai Ling Director Dayang Enterprise Holdings Berhad Page 1/ Industry Assessmem -263­

 

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