Industry Overview

ICompany No. 178821-X I ICompany No. 178821-X I 8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad 1.0 Executive Summary Despite the recent economic downturn, global demand for oil continues to rise, particularly from developing countries such as China and India. This is expected to lead to rising oil prices in the long term. In May 2010 the U.S. Energy Information Administration (“EIA”), predicted that the price of oil will increase to USD 133 per barrel in 2035. If the oil price remains high, this will encourage the exploration and development of marginal oil & gas reservoirs. Historically, the majority of global oil and natural gas production has been from onshore discoveries, but since the early 1990s, as onshore discovery rates have declined, the industry’so focus has been changing towards offshore discoveries. In particular, deepwater discoveries are becoming increasingly important in the drive to replace fast depleting oil and natural gas reserves. ODS-Petrodata believes that exploration of deepwater and other harsh environment areas will continue to expand since most of the easily accessible continental shelf areas of the world have already been extensively explored. This trend is expected to lead to increased demand for offshore equipment, such as floating production units and topsides. Accordingly global spending on new offshore production facilities is set to increase slightly in 2010, to be followed by a further substantial period of growth from 2011. To extract offshore oil or gas discoveries deepwater (Le., in the context of this report water depths of over 300 metres), an operator faces a choice of possible types of floating production facilities including FPSOs, FSOs, TLPs, SPARS, and production semisubmersibles. Each of these options also requires topsides facilities to provide drilling, production, and/or accommodation facilities. The Asia Pacific region, which accounted for 21 % of all spending on offshore production facilities in 2009, will be at the forefront of the expected increase in spending and deepwater developments offshore Malaysia will help spur that demand. ODS-Petrodata has identified seven major deep water projects in Malaysia that may require floating production facilities to be installed over the next three to five years. In addition, deepwater exploration drilling continues and there are already seven discoveries in deepwater-Malaysia that could potentially result in further deepwater developments and a subsequent requirement for floating production facilities. In terms of topside fabrication, 2006-2008 saw historically high levels of tonnage fabricated. However, project delays and order cancellations beginning in 2008 resulted in a significant decrease in topside tonnage for 2009. Similarly, the low new order intake seen in 2009 means we expect topside tonnage to remain flat for the current year. However, growth is forecast to return throughout the latter half of 2010 and increase significantly into 2011, as a large number of previously delayed projects are re-authorised and with a return of operator confidence stemming from higher oil prices. For production semisubmersibles, TLPs, and SPARs, there will be a decline in 2010, from the record year in 2009, due to the slowdown in new orders and the completion of existing projects. Annual deployment of these large-scale offshore structures, are expected to improve substantially by 2014. Long term demand for FPSOs/FSOs remains strong, despite the slowdown in new orders that affected the market for most of 2009 as a result of the global economic slowdown. Indeed, ODS-Petrodata expects annual global expenditures on FPSO/FSO facilities to reach USD 12.2 billion in 2014, from USD 4.6 billion in 2009, the majority being spent on the conversion of tankers to FPSOs. Once again, the main driver for this robust demand is the concerted global push into deepwater. In general terms, EPC contractors have so far coped with the global economic slowdown reasonably well compared to other offshore players such as some types of vessel owners and drilling contractors. This is due to their generally large backlogs and solid financials heading into the downturn. Also, EPC project lead time is relatively long and once work has commenced it is difficult to stop or cancel. The main effect of the economic slowdown was the scarcity of new orders, a situation that has improved somewhat beginning in the last quarter of 2009. So despite falling backlogs, going forward, ODS­Petrodata expects spending to increase in 2010 and 2011, particularly in Asia which will increase its share of worldwide spending. Protected by © Copyright 2010 ODS-Petrodata Ltd L ODS-PETRODATA V

8. INDUSTRY OVERVIEW (Cant’e/) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad There are currently seven yards licensed by PETRONAS to fabricate offshore facilities in Malaysia: MMHE, Sime Darby. Kencana, Boustead Heavy Industries, Brooke Dockyards, Ramunia and Oilfab. However, not all Malaysian yards have the experience and/or capability to carry out the more complex and sophisticated projects. The number of yards with experience of manufacturing offshore facilities in the Caspian region is even more limited. The AMEC-Tekfen-Azfen Consortium, J. Ray McDermott, and Keppel Corporation have yards in Azerbaijan and Caspian Energy Group (CNRG) operates a yard in Russia. MMHE operates the only yard in Turkmenistan. . The growth in potential ship repair activity is driven by the size of the cargo carrying fleet which in turn is driven by underlying cargo demand. The shipping market will see a variety of trends across the different vessel segments through the forecast period to 2013. The LNG carrier fleet experienced rapid growth during the last decade, nearly tripling in numbers from 2000 to 2009. However, expectations are that the rate of LNG carrier fleet growth will be sharply curtailed over the next five years. Despite competition from new capacity, yards around the Singapore port remain one of the major hubs of ship repair due to their location within the major shipping routes for tankers such as VLCCs, ULCCs and l..,NG carriers, particularly from the Middle East to Asia. These yards are also successful in securing more complex vessel conversion and refurbishment works such as for FPSO, FSO and LNG carriers. Protected by © Copyright 2010 ODS-Petrodata Ltd h ODS-PETRODATA V
8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad 2.0 Overview of the Oil and Gas Industry 2.1 Market fundamentals The graph below shows world energy use by fuel type for the period 1990 -2035, according to the EIA in their May 2010 publication, International Energy Outlook 2010 Highlight. World Marketed Energy Use by Fuel Type 1990·2035
1990 2000 2007 201Df 2015f 2025f 2035f Source: EIA Inremalionel Energy OuUook 201 o-Highlighls f= Forecast ·Liqulds indude petroleum-deri-..ed fuels and non-petroleum-derlwd liquid fuels. such as ethanol and biodiesel. coal-trIiQulds, and gas-to­I:::. ODS-PKl1lODATAliquids. Petroleum coke. which is 8 solld,ls also Induded.And naluralgas liquids. uude oil. and liquid h}drogen are also induded. Ftoteeted byCop)’ight @ 2010 ODS-Polrodata LId V The oil and gas industry plays a vital role in today’s economy, supplying energy and by-products for a variety of applications. More importantly, the industry provides energy that can be transported from where it is found to where it is needed at a relatively low cost. The industry has traditionally been regarded as having three segments: • Upstream: finding and producing oil and gas
• Midstream: transporting oil and gas from the location of production to the location where it is needed and/or will be processed; and
• Downstream: refining of crude oil into products such as gasoline, jet fuel and diesel, processing of natural gas to remove impurities and liquids and to render it suitable for further use.

This report deals solely with the upstream segment of the industry. One important part of the upstream oil and gas industry is the offshore sector, in which offshore oil and gas reserves are developed using a range of equipment and technologies. This includes supply vessels that supply and service offshore units, drilling rigs that explore for oil and gas, specialist construction vessels and subsea installation vessels that install and maintain the infrastructure used to extract and deliver oil and gas to market. and fixed or floating structures that are used to actually extract the oil and gas. The diagram below describes upstream oil and gas activities from exploration to the eventual decommissioning of an oil and/or gas field. and the typical timeframes for those activities. In some cases those activities relate solely to upstream offshore. Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V
8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad Upstream Activities 1-5years 1-3 years 5-25 years 6-24 months
Seismic Survey
Exploration Drilling & Related Services
Logistics, Transport and Storage
Vessel Support*
Engineering Design
Onshore Construction of Modulesand Facilities
Crane or Float­overBarges*
Installation of Pipelines
Installation of Subsea Facilities*
Development Drilling
Vessel Support*
Development Drilling and Well Maintenance
Production and Processing ofOil
and/orGas. Vessel Support*
Helicopter Services*
Maintenance of Facilities
Remove Infrastructure
Crane and Accommodation Barge*
SubseaVessel Support*
* Offshore only 2.2 Global Investment in Oil and Gas Facilities The fundamental driver for the investment in new oil and gas production facilities is current and anticipated oil and natural gas prices. These are principally set by the supply and demand for these commodities although other factors, such as geopolitical concerns and the. actions of commodity speculators, also play a role. Essentially, unless prices are sufficiently high, development of new production facilities will not be carried out. The price of oil and gas has increased markedly in recent years, culminating in the oil price spike to USD147 per barrel in July 2008. This was closely followed by a sharp decline that, as the following graph of spending illustrates, caused oil and gas companies to revise downward their investment in E&P for 2009 and, to some extent, 2010. This downward revision was further exacerbated by uncertainty over financing, particularly in the case of highly leveraged, smaller independent oil and gas companies. Protected by © Copyright 2010 ODS-Petrodata Ltd L ODS-PETRODATA V
8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad Total Field Developmentand Pipeline Construction Spending by Region, Combined Onshore and Offshore, 2003-2014 600,——————————————, 500 400 300 100 o ~1iiiiiiiI~~Iliiiii””.·.•…iii’..•..’iiI’ .. 2003 1′:-ODS-PEIRODATAf= Forecast VProtected by Copyright © 2010 ODS-Pelrodata LId 2004 2005 2006 2007 200S 2009 20101 20111 20121 2013f 20141 North America and the Asia Pacific accounted for a large share of the growth in global field development and pipeline construction spending from 2003-2008. Apart from the rise in costs, this was primarily linked to a sharp rise in activity in the onshore drilling, production facilities and pipelay segments. Globally, despite the decline in new onshore discoveries, in absolute terms, spending on onshore field development and pipeline construction is larger than offshore-related spending, accounting for 70% of the total in 2009. The Middle East region and Russia & Caspian regions are among the largest in terms of onshore development facilities where a large share of spending is directed towards maintaining production at existing fields. Asia Pacific is expected to remain the largest offshore market in the forecasted period up to 2014, and will be responsible for over one-third of global offshore field development and pipeline construction spending, as shown in the graph below. Offshore Field Development and Pipeline Construction Spending by Region 2003-2014 200 180 160 140 c:: 120 ~ iii 100 c III ::::I 80 60 40 20 2003 2004 2005 2006 2007 2008 20121 2013f 2014f f= Forecast
~ ODS-PETKODATA Pro/ected by Copyright © 2010 ODS-Petrodata LId V Protected by © Copyright 2010 ODS-Petrodata Ltd L ODS-PETRODATA ‘\I OPEC Surplus Crude Oil Production Capacity and Oil Price  6.0  -­ ——–­ 1999·2011 ————————————-.–­—–­ ———­ ——-­ ——.-­ —­ -.–120  5.5  —­ ——-­ —­ EiillIiiiliI1999-2009 average surplus  5.0  mmmI Surplus Capacity  100  ….  4.5  -Oil Price  ~  4.0   80  ~  3..5  c. en  3.0  60  2!  2.5  :;  2.0  40  .Q c  1.5  ~  1.0  20  :E  0.5  0.0  o
8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad 2.3 Oil and Gas Prices Despite the recent economic downturn, growing demand for energy, particularly in China, India, and other developing countries, is expected to lead to rising oil prices in the long term. In the International Energy Outlook 2010, the EIA predicts that the worldwide lack of excess oil production capacity will drive the price of oil to USD 133 per barrel, in real terms, by 2035. As shown in the graph below, the 2010 surplus capacity of OPEC will be just over 5 million bbl/d, or about 7% of the current daily consumption rate. 1999  2000  2001  2002  2003  2004  2005  2006  2007  2008  2009  2010f  2011f  Source: Oil price: EIA Interrational Energy OuUook 2010 ;OPEC surplus: EIA Sh:>r1 tenn trerd May 2010  f= Forecast Protected by Copyright © 2009 ODS-Petrodata Ltd  ~ ODS-PETRODATAV
The Paris-based International Energy Agency {lEA} has also warned of an oil supply ·crunch”, because most of the world’s major oil fields have passed their production peak. In its first ever assessment of the world’s major oil fields, the lEA concluded in late-2008 that the global energy system was at a crossroads and that current oil consumption levels were “patently unsustainable”, with expected demand far outstripping future supply. On the demand side, the International Monetary Fund {IMF} in its World Economics Outlook Update published in April 2010, forecasted global economic growth of 4.2% in 2010 and 4.3% in 2011. This level of growth will result in increased demand for oil and gas. The IMF also believes that current oil prices in the range of USD 70 to 80 per barrel largely reflect the expectation of accelerating global economic growth and the consequent increase in future demand for oil. Taking into account the depletion of both onshore and offshore oil reserves, which the EIA globally estimates to be approximately 7% per year onshore and between 10% and 18% per year for offshore fields, it appears that the current margin of 7% excess production capacity could disappear relatively quickly as the world economy recovers. The world therefore needs to find and develop “new” oil or face a supply crunch. Despite an annual decline in 2009, global demand for oil actually stabilised mid-year and gradually increased to 83.7 million bbl/d, according to BP’s Statistical Review 2010. As shown in the graph below, going forward. the EIA predicts demand will continue to grow throughout 2010 and 2011 by an average of 1.6 million bbl/d in each year. According to BP, oil consumption is usually higher than production, because refineries produce a higher volume of oil products than they consume in the form of crude oil. This is known as refinery gain. The long term outlook for oil prices also shows growth. In May 2010, the EIA predicted in its reference case scenario that world oil prices would increase steadily from 2010 onwards to USD 94.5 per barrel in 2015 and reach· USD 133.2 per barrel in 2035 in real terms. In its high oil price scenario, the EIA forecasted that world oil prices will reach USD 200 per barrel in 2028; and in its low price case scenario would decline to just below USD 52 per barrel in 2015, with that price being maintained through to 2030. With oil prices recently holding steady at around USD 70-80 per barrel for some months now, as Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA ‘\I
8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad the following graph illustrates, it would appear prices are on track with either the EIA’s reference case or high case scenarios. World Oil Production, Consumption and Oil Price 1980-2035 250 ‘-c”=’=-‘=~”;;Co==n==su==mp=’;’i==on==;————————————-,
100 25 ­.py.n,m.””-r-~~~~~~~~~~~~~-~~ 50 1980 1985 1990 1995 2000 2005 20101 20151 20201 20251 20301 20351 Source: Oil Price: EIAlvlnual EnergyOuUook 201 0 published in tv”lay2010 Production and Consumption: BP statistical review 201 0 f= FOJecast
£:. ODS-PETRODATA Protected by Copyright @ 2010 ODS·Petrodala Ltd yCunsultillg & R~rcb Globally, natural gas resources are large and, like oil, are highly concentrated in a small number of countries and fields. Russia, Iran and Qatar hold 52% of the world’s reserves, according to the BP Statistical Review 2010. Remaining proven reserves amount to 187.5 trillion cU.m, which equates to around 60 years of current production. The following graph shows world gas production, consumption and the Henry Hub gas price from 1980 to 2035 in nominal terms. The Henry Hub Gas Price is a widely used industry benchmark gas price. World Gas Production, Consumption and Henry Hub Gas Price -1980-2035 16 F=====]———————-·_———————————.——–.———-360 200 175 II) ” 150:::> .= 1251l “t: 0. 100 6 75 50 ____—————————————————-95-rr:::::r:::::n ProduClion –LowPrice —High Price -..::,-.:.-;;..-;;;..-…-~_..,,-..,.-~–:—:–:”:-90 –Reference Cas
85 ~ ~ 80 ~ ~ 75 ~ 70 ~ 65 :E 60 55 ! …… Consumption ~ProducUon 300 ~ 12 -GasPrk:e ;;; cE ::l;;/ii ~.§ 8 _-0——————————-· 8~ 180 “t: ~ 0. ” .. D­el 4 120.D ::l :J:: ~~~~~~~~~~~~~~~_._+60:! ~ 0 ,gc ~ 1980 1985 1990 1995 2005 20101 2015f 20201 2025f 2030 2035f Soul’Ce: Gas Price: Historical.BP stalistical re~ew2010. ForecastEIAMnual Energy Outlook 2010, May2010 Consumption & Production: BP statistical re\(ew2010 Henryhubisthe priongpointfOrnaturalgasfubJres contractstradedonthe NewYorkMercantileexchange.It is a point on the nabJral gas pipeline L ODS-PETRODATAs~tem in Erath, Louisiana. ‘yConsulting &; Reseattb Looking forward, according to the EIA report, natural gas consumption worldwide will increase by 44%, from 3.05 trillion cu.m in 2007 to 4.42 trillion cU.m in 2035, although in 2009, world natural gas consumption declined by an estimated 1.1 %, and natural gas use in the industrial sector fell even more sharply. by 6.0%, as demand for manufactured goods declined during the recession. The industrial sector currently consumes more natural gas than any other end-use sector, and in the EIA’s projection it continues to be the largest user through to 2035, when 39% of the world’s natural gas supply is expected to be consumed for industrial purposes. Electricity generation is another important use for natural gas throughout the projection period. and its share of the world’s total natural gas consumption increases from 33% in 2007 to 36% in 2035. Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V
ICompany No. 178821-X 8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad The contribution of the LNG trade to total natural gas supply has been increasing. According to the BP Statistical Review 2009, global LNG demand in 2008 was 165 million tonnes per year (mtpa), up from 130 mtpa in 2004. There is, therefore, expanding demand for LNG, increasingly seen as a ‘green’ or low carbon emissions fuel, for the foreseeable future. To meet this demand there are a large number of LNG projects coming on-stream in the Middle East, Southeast Asia, Australia and Russia. 2.4 Malaysia PETRONAS, Malaysia’s national oil company, dominates the country’s upstream and downstream oil market. According to the EIA, PETRONAS is the single largest contributor to government revenues, and it holds exclusive ownership rights to all E&P projects in Malaysia. Thus, foreign and private domestic companies are only allowed to operate through PSCs with PETRONAS. ExxonMobil (through its local subsidiary Esso Production Malaysia Inc.) is the largest foreign oil company in Malaysia by production volume. The other major foreign companies operating in Malaysia via PSCs include Shell, Murphy Oil and ExxonMobil. 2.4.1 Reserves and Production According to the BP Statistical Review 2010, Malaysia held proven oil reserves of 5.5 billion barrels, nearly all of it in offshore fields, which ranked it as having the third largest oil reserves in the Asia Pacific region. Malaysia’s continental shelf is divided into three producing basins: the Malay basin in the west and the Sarawak and Sabah basins in the east. Most of the country’s oil reserves are located in the Malay basin and tend to be of high quality. Malaysia’s benchmark crude oil, Tapis Blend, is very low in sulphur content and is therefore considered to be high quality crude oil. High quality, low sulphur crude oil is commonly used for processing into gasoline, is in high demand and commands higher prices than other grades of crude. More than half of total Malaysian oil production is transported via the Tapis field oil production system which acts as a collecting point and pumping station for up to 16 fields in the same general area. Asia-Pacific Proven Oil Reserves .2009 China . India •••_ ••_ •• Malaysia • __• __• __ Vietnam • _ Indonesia ••••••• Australia • _
Other Asia Pacific … Brunei.. Thanand .­+—-+—–+—–+——“”1r—-+—–+—–+——i o 2 4 6 8 10121416 Source: BP Statistical Review 201 0 Billion barrels f: OD&PJITRODATAProtected by Copyright @ 2010 ODS-Petrodata Ltd V ‘———-~—————————–­According to the EIA, Malaysia’s total oil production in 2009 was 693,700 bbl/d, consumption was an estimated 535,928 bbl/d, and its net exports about 150,000 bbl/d. 2.4.2 Deepwater Developments According to ODS-Petrodata there are 107 producing oil and gas fields in Malaysia, many of them in shallow water. However, since 2002, much of the focus has been on deepwater fields on the eastern continental shelf, where there are high operating costs and substantial technical expertise is required. Seven deepwater fields are either currently being developed or will enter the development phase over the next three years. The table below provides details on these fields: Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V
8. INDUSTRY OVERVIEW (Cant’e/) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad Deepwater fields in Malaysia  Field  Estimated Reserves (million barrels)  Water Depth (metres)  On-stream Date (including estimates)  Operator  Kikeh  400  1,326  302007  Murphy Oil  Ubah Crest  215  1430  202012  Shell  Kamunsu  401  737  202012  Shell  Gumusut-Kakap  400-900  1,000  302012  Shell  Pisagan  56  1465  302012  Shell  Malikai  108  800  302013  Shell  Jangas  81  >1,000  402011  Murphy Oil  Source: ODS-Petrodata
Fabrication of the Kikeh SPAR, produced for the Kikeh field, was completed in 2007. Operating at a water depth of 1,326 metres, it is the first SPAR platform installed outside the US Gulf of Mexico and the deepest SPAR platform installed in Asian waters. The Gumusut-Kakap project, located offshore Sabah at a water depth of 1,000 metres, will include the regions’ first deepwater semi-submersible with a processing capacity of 150,000 bblld from 19 subsea wells. The system will be connected via pipelines to a new oil and gas terminal to be built in Kimanis, Sabah. Installation work is expected to start in August 2010 and production is now expected in the third quarter of 2012. However, according to ODS-Petrodata’s understanding, the installation of this project could potentially be delayed until 2013, because fabrication of the semi-submersible has just started. Shell is the operator of the Gumusut-Kakap project. holding a 33% interest; ConocoPhillips also holds a 33% interest, Petronas has 20%, and Murphy Oil holds the remaining 14%. Shell is also the operator of the Malikai oil field with a 35% interest, in partnership with ConocoPhillips, 35%, and Petronas with 30%. The field was discovered in 2004, at 800 metres subsea offshore Sabah. In August 2009, Shell invited bids for engineering and design services. ODS-Petrodata estimates that Malakai will come online in 2013 with production of up to 150,000 bblld. 2.4.3 Deepwater Prospects In addition to the known deepwater projects mentioned above, the deepwater drilling market is a leading indicator for future deepwater developments that may require floating production facilities. Deepwater drilling in Malaysia, defined as drilling in water depths of more than 300 metres, has been maintained for some years now and currently there are nine rigs drilling in deepwater offshore Malaysia. Shell currently has two open drilling tenders -one for 30 to 60 days starting August 2011 and another for a long term contract starting in April 2012 for work on the Bijang block SK8 and the Selashi gas project in Sarawak. These projects are still at very early stages, so it is not possible to say what type of development project may be chosen if the drilling proves successful. Discoveries of new oil and gas fields are also indicators of potential future development and ODS­Petrodata has identified 16 discoveries in deepwater offshore Malaysia that could, after proper appraisal, require floating production facilities. There have been a further two discoveries in Brunei, operated by Shell, that could also potentially contribute to demand. Protected by © Copyright 2010 ODS-Petrodata Ltd L ODS-PETRODATA V
ICompany No. 178821-X I 8. INDUSTRY OVERVIEW (Cont’d) Market Report. An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad 3.0 EPC A complex web of companies are engaged in the EPC services sector for the offshore oil and gas industry covering engineering design, facilities construction and facilities installation. Some carry out the full range of activities, some only undertake selected parts and others choose to subcontract all or parts of a contract, depending on factors such as location, local content or expertise required. The following table provides information on the main companies competing in the Asia Pacific offshore oil and gas engineering and construction sector. As Asia Pacific is the most important offshore construction market, all of the companies have shipyards located within Asia Pacific. Daewoo Ship &Marine  DryDock World  Hyundai Heavy Industries  J.Ray McDemott  Keppel Corporation  MMHE  SembCorp Marine  Construction of new Floating Production Facilities  ./  ./  ./  ./  ./  Conversion of existing units to Floating Production Facilities (e.g. tankers to FPSO)  ./  ./  ./  ./  ./  Fabrication of Offshore Modules  ./  ./  ./  ./  ./  ./  Transport & Installation of Offshore Modules  ./  ./  ./  Engineering Design  ./  ./  ./  ./  ./  ./  ./  Management of EPC of Offshore Modules  ./  ./  ./  ./  ./  ./  Source: ODS-Petrodata
Engineering and Construction Product Overview The engineering and construction products mentioned in this report are topsides, semis, TLPs and SPARs. Topsides fabrication includes the fabrication of all relevant structures that interface to either an offshore fixed or floating installation, for either drilling, production or accommodation purposes. Production semisubmersibles (“Semis”), TLPs and SPARs are floating structures that process oil and gas recovered from deepwater fields. The choice of whether to use a Semi, TLP or SPAR is dependent on factors including water depth, reservoir characteristics, access to oil and gas transportation and regulatory restrictions. Since they normally do not have any significant storage capacity, they are normally deployed in locations with extensive pipeline infrastructure, such as The North Sea, where produced oil and gas can be tied into existing pipelines. Alternatively they are used where they can be connected to an FSO. In several countries, including the US and Malaysia, regulations also require a commitment from field development plans to produce any associated gas reserves rather than flare this off into the atmosphere. This implies that floating production alternatives, such as an FPSO, must still be connected to an export gas pipeline, thereby negating their built-in storage advantages. Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V

8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings· Berhad The choice of using either a Semi or SPAR can be influenced by the availability and cost of offshore construction vessels. One of the advantages of using a Semi instead of a SPAR is the ability to install the topsides on the hull in a yard. A SPAR, on the other hand, requires topsides installation to be done in deepwater which requires a heavy lift or f1oatover vessel. 3.1 Topsides Fabrication 3.1.1 Market Size Spending The effect of the global recession on investment in new topsides is illustrated by the following graphs. While 2008 remained largely unaffected by global economic events because projects were too far advanced to be cancelled or delayed, 2009 and 2010 suffered, although spending still remained higher than at any time before 2007. Looking forward ODS-Petrodata anticipates a resumption of the upward trend in spending from late 2010. Global Topsides Fabrication Investment 2003 -2013 25,000 Tr========; 20,000 ~ 15,000 :e Q ~ 10.000 5,000 o f=For8casl Prolocl8d by Copyrlght@2010 ODS-P8vodala LId L ODS-PETRODATA ‘\1 -. 2003 2004 2005 2006 2007 2008 2009 201 Of 2011f 20121 20131 The Asia Pacific region currently accounts for the biggest demand for topsides in terms of value and this trend will continue and even increase slightly in the future. Tonnage The total tonnage of topsides fabricated in the Asia Pacific region has remained relatively stable in recent years, consistently in excess of 200,000 mt per year over 2006, 2007 and 2008, before declining slightly in 2009 to 188,829 mt. ODS-Petrodata’s current forecast for 2010 is that tonnage will increase by around 21 % and sees a similar increase for 2011, as awarded projects increase in number. By 2014, topside tonnage for the Asia Pacific region is expected to be 264,000 mt per year. ODS-Petrodata also expects Asia Pacific region’s share of the market worldwide to increase from the 32% in the period 2003-2009 to 36% between 2010 and 2013. The following graph of visible topside demand includes projects with the following field status, together with our forecast: Possible: A discovery that has led to the commencement of conceptual studies or pre-FEED work scope or that market intelligence has been obtained indicating the degree of certainty regarding the field’s future development. The given timing/year reflects either a preliminary plan from the operator or an ODS-Petrodata estimate based on similar project developments. Planned: When a development that has moved to the FEED stage or has either a potential base case development scenario or a confirmed development and start-up date. -ODS Petrodata considers it likely the topsides will be delivered if commercial arrangements come in place. Protected by © Copyright 2010 ODS-Petrodata Ltd L ODS-PETRODATA V

ICompany No. 178821-X I 8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad Construction: A development that has reached the construction phase of development. This implies that a positive final investment decision (FID) has been made and that contracts have been awarded for the topsides fabrication. Projects under construction have the smallest possibility of being cancelled. Installed: Platform installation has been completed. Global Topsides Fabrication 2003·2013 ——————.————–11,000,000 …… Inslalled = ConsIrUction mm Planned 900,000 :::::::::::::::::::::::::::::—–…..——–:::::::::::::::1 800,000 jL–==-__….J _••• ~_. • .! 700,000 .. …. 600,000′” c c 500,000 -­~ _.400,000 300.000 -­200,000 -­100,000 -­o 2003 2004 2005 2006 2007
• the bars represenllhe visible deployment f= Forecast Protecf!>d by Copyright@2010 ODs–Pel1Odate Ltd
2008 2009 2010f 2011f 20121 2013f l:: ODS-PETRODATA V In ODS-Petrodata’s forecast, we have evaluated the possibility of future topsides fabrication projects, based on all known projects. Furthermore, where topside weight is not explicitly identified for a project, a combination of water depth, reservoir size, expected production rates, facility type and similarity with other projects has been taken into consideration to estimate a topsides weight for-the project. Construction of the total weight will be spread over the project period to reflect limits on how fast fabrication can be executed. However, this approach does not take into account potential fast-track developments or developments that may be sanctioned at a higher oil price from current forecast. While most companies saw a low number of new orders for topside fabrication in 2009, a few particularly high-profile topside fabrication contracts have been awarded recently. According to data compiled by ODS-Petrodata, Hyundai Heavy Industries’ Offshore & Engineering division was the mpst notable, securing near-record levels of new orders in the last quarter of 2009 and first quarter of 2010. However not all of these orders were for topsides. For example, Hyundai Heavy Industries secured a major contract for a pre-assembled unit for the onshore section of the Gorgon LNG plant. As a result, by the end of the first quarter of 2010, Hyundai Heavy Industries’ Offshore & Engineering division recorded its highest ever backlog level of USD 12.2 billion. Despite the effect that these high-value awards have had on backlog levels for a few major yards, ODS­Petrodata still expects consolidated backlog levels to continue falling in 2010 for most, if not all, of the remaining yards because the bulk of backlog levels for many of the major yards relate in part to other types of fabrication. Those yards with backlogs relating to topside fabrication can also expect to see these levels deteriorate for most of 2010, if they have not been depleted already. This is because operators have as yet been hesitant in signing off on new topsides projects, with delays still occurring and few smaller projects being awarded (those that have historically been picked up by the smaller yards). While some yards still have outstanding topside fabrication work to complete, the majority are struggling as a result of a lack of new orders in 2009. Many of the smaller yards are not as diversified as the major yards, and are therefore balanced on a fine line between waiting for the expected increase in topside awards in late 2010 and cutting jobs in their topside fabrication divisions. Several smaller yards in North America and Asia Pacific have already closed and ODS-Petrodata believes a few more could follow suit before the market improves. Depending on whether this trend continues, this could remove some of the immediate over-capacity at the yards in the short term. The graph below illustrates the Asia Pacific topsides fabrication demand in 2003-2013. Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V

ICompany No. 178821-X I 8. INDUSTRY OVERVIEW (Cont’e/) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad Asia Pacific Topsides Fabrication Demand 2003 -2013 300,000 ——————————————–, 250,000 —————1i ! __ oj200,000 CD iii’ ,i g 150,000 —i {!. l 100,000 —·–i ! 50,000 —~ o f= Forecast Protecled byCopyrighl© 2010 ODS-PelTodala LId
V 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f f-: ODS-PEl’RODATA 3.1.2 Major Competitors The topside market is very fragmented, and the contractors within the topsides fabrication market segment range from specialist fabrication yards to major turnkey contractors. Although some companies have global coverage in terms of the location of their yards, many regional contractors generally only serve their own regions. Many of the yards work in a number of other related sectors, including shipbuilding, wind power and onshore fabrication projects to allow diversification and a more predictable flow of projects. In general, only the major yards are able to supply the international market or are capable of delivering the larger more complex projects. South Korea, Netherlands, Singapore, United Kingdom and the United States contain most of the major yards that are able to win contracts consistently at the international level. The table below shows the major fabrication yards in Asia Pacific and the Caspian region and their capability.
~ ODS-PETRODATA V ICompany No. 178821-X I 8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad
Russia I CNRG I Caspian Yard I Not available Turkmenistan I MMHE I Kivanlv Fabrication Yard I >5,000 Source: Individual companies’ websites and suppliers’ data Malaysia In Malaysia, only seven companies have licenses to fabricate offshore oil and gas structures. These are: MMHE, Sime Darby, Kencana, Boustead Heavy Industries, Brooke Dockyards, Ramunia and Oilfab (Note: Oilfab is currently under receivership). Sime Darby bought Ramunia’s Teluk Ramunia fabrication yards, together with all moveable assets for RM 515 million in April 2010. The bigger fabrication yards in terms of annual tonnage are MMHE’s Pasir Gudang Yard, Sime Darby’s Pasir Gudang Yard, and Kencana’s Lumut shipyard, as tabled below. Comparison of Malaysia Fabrication Yards  Shipyard  Company  Overall Area (m2 )  Annual Tonnage Capacity (mt)  Market Share (% of annual tonnage Capacity)  Fabrication Area (m2 )  Maximum Skid Track Tonnage (mt)”  Deepwater Experience  MMHE Pasir GudanQ  MMHE  150,600  69,700  27.3%  321,400  40,000  Yes  Sime Darby Pasir GudanQ  Sime Darby  404,682  60,000  23.5%  NA  15,000  No  Kencana Lumut  Kencana HL  635,500  48,000  18.8%  ,560,500  20,000  No  Boustead Penang  BousteadHI  160,880  9,000  3.5%  Up to 3 sets of topsides I jackets  4,000  No  Brooke Sejingkat  Brooke Dockyards  82,000  8,500  3.3%  63,500  4,000  No  Sime Darby Teluk Ramunia Fabrication Yard A  SimeDarby  169,968  10,000  3.9%  124,064  6,000  No  Sime Darby Teluk Ramunia Fabrication Yard B  Sime Darby  323,748  30,000  11.8%  292,010  11,000  No  Sime Darby Teluk Ramunia Fabrication Yard C  SimeDarby  194,249  20,000  7.8%  155,312  10,000  No  Source; Individual companies’ websites N.A. =Not Available
Caspian According to the BP statistical review 2010, the Caspian countries (which includes Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan) have oil reserves of 259.3 thousand million barrels (amounting to 19.5% of global reserves) and gas reserves of 3,009.6 trillion cubic feet (amounting to 45% of the world’s gas reserves). The Caspian region saw high growth in tonnage demand between 2003 and 2009. The main reasons for the particularly large increases during 2007 and 2008 were the development of Kashagan and Yuri Korchagin fields. There was, as with most other regions, a fall in demand in 2009, which, in the case of the Caspian, is expected to continue through to 2012; however, work on projects such as Nett Dashlary fields should limit the fall in demand in this region. Azerbaijan was the primary source of demand in this region during 2003-2010, on developments including the Central and West Azeri fields, as well as the work done for the Neft Dashlary field. The Azeri-Chirag-Gunashli partnership signed a USD 6 billion investment agreement to develop the Chirag Oil Project in March 2010. The project will be for the sixth production platform on the giant Azeri-Chirag­Gunashli oil field, With confracts for fabrication of the facilities expected to be awarded by the end of the second quarter 2010. Looking forward, the Caspian part of Russia (notably the Vladimir Filanovsky development) and Kazakhstan (notably the Kashagan field development) are expected to become bigger buyers of topsides. There are six fabrication yards located within the Caspian region that could potentially fabricate the topsides, such as AMEC-Tekfen-Azfen Consortium’s ATA yard in Azerbaijan and .I-Ray McDermott’s Baku Deepwater Jacket Factory. MMHE’s Kiyanly fabrication yard is the only topsides fabrication yard in Turkmenistan. Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V
8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad 3.1.3 Major buyers Based on the annual tonnage fabricated over the 2003-09 period, the top six buyers of topsides were Petrobras, Chevron, PEMEX, ExxonMobil, CNOOC and BP. They accounted for 34% of global demand in the period 2003-2009. The remaining 66% included five operators that installed more than 100,000 mt of topsides each, and another four operators listed on the graph below that each installed more than 75,000 mt of topsides. Global Topsides Tonnage by Operators 2003 -2009 500-.———————————–, 400 S ~300 !l  c  200  ~  100  o
, ——-..—————————-..———-, –..————————–_····—–i.. ………………………………………………………………………………………………····—·–·——······-··1
… –_… _. -.–.————–.. ———————————————–… -….. _. —.. ~
ij i .­0 “llm 0 III -I m 0 III o”ll m 0> 300m =r m )C z “ll 0 =r 0 :I: :!. z .. CD )C ..”ll C) III 0 litIII < 3: 00 ! ~ 0 ~. ~ c­m .. 0 n lQ= 0 IIIiT ~ It0 >< 0 0 ~ !!!olll ;. ~DJo-III.. ~ “ll iii 0 g; ~ = g ;; ..0-5′ ‘” l::: ODS-PETIlODATAProtected by Copyright© 2010 ODS-PelrDdala Lid V Over the period 2010-2014, ODS-Petrodata expects the top six buyers of topsides to be Petrobras, Chevron, ExxonMobil, Total, BP and Shell. Combined, they are expected to account for 46% of total worldwide demand for this period. During this period, ODS-Petrodata expects Petrobras to require 539,000 mt in total fabrication, mainly for its pre-salt (offshore oil and gas found below the salt layer) basin projects. ODS-Petrodata also expects Shell to be a new addition to the top six buyers, requiring 130,000 mt fabricated for projects such as Bonga (Nigeria), Mars B (US Gulf of Mexico) and Carrack (UK North Sea). It is apparent from this analysis that the majority of buyers are IOCs as opposed to NOCs. This is because NOCs have traditionally focused more on the easier onshore oil developments, leaving the higher costs and risks of developing offshore fields to the IOCs. .3.1.4 Trends and Risks Bargaining Power Swing in Favour of Operators Due to the high demand and tight capacity seen at almost all yards prior to 2008/09, price advantage was understandably in favour of suppliers. For many yards, however, the collapse in the number of contract awards during late 2008 and 2009 has meant that this advantage has deteriorated. As new orders shrunk, yards’ backlog levels dried up, as such, ODS-Petrodata expects to see increasing competition, particularly between the minor and medium-sized yards when bidding on new projects. While the outlook appears to have improved with regard to some of the major yards because some still have high levels of backlog to work through, they will increasingly come under pressure from the mid­size and smaller yards as they look to survival. Therefore, for 2010, the advantage when dealing with most yards should have swung firmly back in favour of operators. Technological Developments Developments in technology may influence future topsides projects. For example, subsea tiebacks to existing infrastructures are now viable over greater distances; extended reach drilling over greater distances coupled with multi-lateral technology may remove the requirement for a multi-platform development, while also reducing the number of wellhead topsides. Standardisation, which is commonly used in a number of regions, but mainly with the smaller developments, has now been adopted for larger developments, including a number of SPAR developments in the Gulf of Mexico. Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V
8. INDUSTRY OVERVIEW (Cont’e/) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad Larger Yards Still Retain Negotiating Leverage In contrast, some major yards’ current situation is less dire, or at the very least problems appear to be less imminent, compared with their smaller peers. Major yards did still see some backlog erosion through cancellations in multiple market segments during 2009, in particular with shipbuilding. However, the high level of new orders acquired during recent years has meant they have been able to accumulate two to three years’ worth of outstanding contracts to use as a buffer. Yet for yards, such as those in South Korea, Le. Samsung Heavy Industries, Ayundai Heavy Industries and DSME, a large portion of the backlogs relate to shipbuilding, a market that collapsed in 2009 and is still very weak. Therefore some of these major yards have pushed harder for contracts within the offshore and engineering market. For example, Hyundai Heavy Industries saw its Offshore & Engineering backlog levels almost double quarter-on-quarter in the final quarter of 2009, and in the first quarter of 2010 increase by a further 25% quarter-on-quarter. AS such, Hyundai Heavy Industries has recorded two consecutive all time high backlog levels, and in May 2010, the executive vice president of Hyundai Heavy Industries’ Offshore & Engineering division said that the company could exceed the USD 4.2 billion new orders target for 2010. This means it is unlikely there has been any noticeable the negotiating power of some major yards during 2009. Yard Closures and Lay Offs Prior to 2009, the small-and medium-sized yards were able to support themselves by winning smaller contracts or subcontracting work from the major yards. With a significant portion of smaller projects delayed or abandoned during 2009, and with the major yards less likely to subcontract in tougher times, competition between these yards has intensified. With many of the minor yards around the world struggling to win new orders in 2009, many have now finished or are very close to completing all outstanding topside contracts. Combined with stricter and tighter access to credit facilities, these yards are struggling to survive. Some have been able to continue operating as they offer other services and products than just topside fabrication. Yet it has become apparent, that the prolonged drought in new orders across multiple markets is resulting in some yards laying off some or all of their workforce. ODS-Petrodata has also seen some yards close altogether such as Malaysia’s Oilfab which went into receivership because its parent company, Oilcorp, was unable to payoff its lenders in time. Capacity Utilisation to Increase at Smaller Yards Forecasts prepared by ODS-Petrodata for topsides show demand increasing significantly in 2011 to an all-time high. If the smaller yards are able to survive until then, the rise in demand should see many of their woes disappear as new orders fill their order books. If anything, reduced competition and a streamlined organisation will likely leave those yards that remain in a stronger and healthier position going forward. While there is over-capacity currently at the smaller yards, an expected increase in new orders later in 2010 should see a certain degree of yard capacity constraints return in 2011-12, leading to longer lead times and a return to the weakened bargaining power of operators. Yard Experience is Important The importance of experience and quality within the oil and gas service segments ensures relatively high barriers to entry, and secures a certain negotiating power for experienced supplier/contractors. Accordingly, for new yards without experience or a visible history in offshore engineering, contract awards can be difficult to win. For example, with increased impetus and funding from the Chinese government to enter offshore engineering markets, new yards have opened in China in recent years. However, many are struggling to win new orders, e.g. Dalian Shipbuilding Industry Company’s yard, as a direct result of their lack of experience. Protected by © Copyright 2010 ODS-Petrodata Ltd L ODS-PETRODATA ·v
8. INDUSTRY OVERVIEW (Cont’e/) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad 3.1.5 Barriers to Entry Recent years have seen an increase in new yards opening in low-cost countries, especially in the Asia Pacific region. However, many of these yards are serving the low-end shipbuilding industry. This is especially true for many of the shipyards in China. On a small regional scale, the entry barriers to shipbuilding have been relatively low due to low labour costs and the small amount of technology required. However, for the larger technically complex topsides, where high competency levels and heavier plant, equipment, and fabrication facilities are required, the financial outlay and experience required would be major factors. Getting funding for a topsides fabrication yard is increasingly difficult due to tight financing conditions attached to winning contracts. A few of the new fabrication yards are extensions to regional NOCs providing them with a direct fabrication resource, while providing continuity of work for the yard as well as lowering the yard’s entry barriers, such as China National Petroleum Corporation’s Qingdao and Liaohe yards . This kind of co­operation between buyers and suppliers on a local level also deals with the increasingly important factor of local content. It is anticipated that some of the shipyards in low-cost countries that today serve the low-end shipbuilding industry will try to penetrate the more lucrative high-end shipbuilding and topsides markets in the future. But buyers like to see a history of successfully completed projects before awarding contracts; as a result, new yards will initially find it difficult to gain the required experience and proven track record to win awards. 3.2 Semi, TLP and SPAR Fabrication 3.2.1 Market Size
Semis, TLPs and SPARs can be used for both large and marginal field developments but they do not generally have crude oil and gas storage capability. Most of the world’s Semis, TLPs and SPARs tend to be built for large field developments and are normally owned, as opposed to leased, by IOCs and NOCs. On the other hand there are some Semis, Source: ODS-Petrodata TLPs and SPARs intended for small field developments and these are normally owned by smaller independents and a few of these smaller units are leased from contractors. These projects are particularly vulnerable to oil price fluctuations due to their marginal profitability. As shown in the table above, there are 78 Semi, SPAR and TLP existing as of June, 2010. 2008 was a major turning point for the market for these structures. A sharp decline in oil prices resulted in operators re-evaluating the profitability of new projects and subsequently delaying contract awards. However, 2010 may be a more promising year for contractors because tendering activity has increased and operators have indicated their intention to award several Semi, TLP and SPAR fabrication jobs by end-2010. As shown in the graph below, looking forward, the world semi, TLP & SPAR Capex is expected to be over USD 2,500 million per year from 2011 onwards. Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V
8. INDUSTRY OVERVIEW (Cant’e/) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad World Semi, TLP & SPAR Capex Forecasts (USD million) 5,000-,——————————–, • Semi 0 TlP EI Spar4,500 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f f= Forecast l::. ODS-PETRODATAProtected by Copyright © 2010 ODS-Petrodata Ltd V
Despite the slowdown in 2009 -2010, the long-term fundamentals of this market remain robust. Visible demand remains strong for the long term, with the number of scheduled deployments for 2013/2014 forecast to be higher than the historical average, as illustrated by the graph below. ODS-Petrodata’s forecasts account for delays and cancellations so forecast deployments are lower than visible demand.
Annual Semi, TLP and SPAR deployments, in other words the number of these structures achieving first production every year, are expected to improve substantially by 2014, although a year-on-year decline is expected for 2010-2012 due to a slowdown in new orders and completion of existing projects. Note, however, that the graph shown is for actual deployment of finished units and that construction of those units will necessarily occur in the preceding two years, as shown in the graph of capex spending above. The Asia Pacific region is not a major market for Semis, TLPs and SPARs due to a general preference for FPSOs, with their accompanying in-built storage facilities. One reason for this trend is the presence of deepwater fields, which tend to be far away from established offshore pipeline infrastructure. As a result, the Semis, TLPs and SPARs operating in this region tend to be smaller, wellhead facilities that Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V
8. INDUSTRY OVERVIEW (Cant’e/) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad are linked to floating storage units. An example is the Kikeh SPAR operating in Malaysia, which was paired up with the Kikeh FPSO. . A Shell-operated production semisubmersible for its GumusutlKakap field will be an exception to the trend. This unit is expected to have a huge oil processing capacity of 150,000 bid. First oil for this semisubmersible is expected in 30 2012. In the longer term, future demand is supported by expected growth in Southeast Asia and Australia. Newbuilds Competition amongst yards for new Semis, TLPs and SPARs orders should be strong in 2010, with fewer of these structures under construction, and most of them being scheduled for delivery in 2010. However, a recovery in new orders from 2011 onwards could lead to the return of supply chain bottlenecks, such as long equipment lead-times. Several companies, such as Hyundai Heavy Industries and SSM Offshore, which subcontracts most of their work to a variety of yards, have record high backlogs in 2010 after securing non-Semi, TLP or SPAR related orders.
In Malaysia, a TLP is believed to be the preferred development concept for Shell’s deepwater Malikai project offshore Sarawak. First production for this TLP is expected in 2013. Fabrication will be carried out by a local yard. 3.2.2 Major Competitors Construction of a Semi, TLP or SPAR is can be divided among several contractors. Hull construction and topsides fabrication may be undertaken by different contractors, although most Semi, TLP and SPAR yards have the ability to do both. The following yards have been involved in building either Semi, TLP or Spar units since 2003.
Semi, TLP and SPAR Yards  Aker Solutions  Norway  DSME  South Korea  Estaleiro Atlantico Sui  Brazil  Gulf Island Fabrication  USA  Hyundai Heavy Industries  South Korea  J. Ray McDermott  USA, Mexico, Azerbaijan, Indonesia and Dubai  Keppel Corporation  USA, Brazil, China, and Singapore  Kiewit  USA
Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V 8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad
Semi, TLP and SPAR Yards  MMHE  Malaysia  Quip consortium  Brazil  Sarnsung Heavy Industries  South Korea  SembCorp Marine  USA, China, and Singapore  Technip  Finland  Source: ODS-Petrodata
In addition, the table below shows those yards which have been involved in building Semi units from 2003 onwards. . ~, ” ·~r.ubm~i’$ft;ili)\,fior’tlai :D: …;. -‘ No.  Unit Name  Operator  Hull Yard Aker Solutions Atlantica Sui COSCO Shipyard DSME DSME Dyna-Mac Gulf Island Fabrication Hyundai Heavy Industries Keppel Corporation Keppel Corporation Keppel Corporation MMHE Samsung Heavy Industries Samsung Heavy Industries SembCorp Marine: Signal Intemational  1  Blind Faith  Chevron  2  P-55  Petrobras  3  Octabuoy  ATP  4  Atlantis  BP  5  Thunder Horse  BP  6  Thunder Hawk  Murphy  7  ATPlltan  ATP  8  Na Kika  BP/Shell  9  P-56  Petrobras  10  P-52  Petrobras  11  P-51  Petrobras  12  GurnusutlKakap  Shell  13  Krlstln Semi  Statoil  14  Gjoea  Statoll  15  Independence Hub  Anadarko  16  ATP Innovator  ATP  Source: ODS-Petrodata
Topsides Yard  Country  Gulf Island Fabrication  USA  Quip  Brazil  Not available  UK  J Ray McDermott  USA  J Ray McDermott  USA  Kiewit  USA  Gulf Island Fabrication  USA  HyundaiHeavylndustries  USA  Keppel Corporation  Brazil  Keppel Corporation  Brazil  Keppel Corporation  Brazil  MMHE  Malaysia  Aker Solutions  Norway  Aker Solutions  Norway  Kiewit  USA  Omega Natchlq  USA

Competition to build Semis is normally intense, there are 12 yards globally that have been involved in building Semi hulls, compared to only four or five yards for TLP and SPAR hulls. The same trend prevails for the related topsides fabrication, with more yards active for the Semi segment as compared to the TLP and SPAR segment . MMHE is currently building the Gumusut-Kakap Semi for Shell and has a 6.2% market share (based on number of projects) from 2003-2010. Keppel Corporation is the market leader for Semi hulls with the company haVing a market share of 18.8% for 2003-2010 projects. For TLP hull construction, Samsung Heavy Industries is the clear leader, being involved in five projects. HyundaiHeavyWest Seno TLP-A 3 Chevron Clough IndonesiaIndustries 4 Matterhorn Total Keppel Corporation Gulf Island Fabrication USA 5 ‘ P-61 TLWP Petrobras Keppel Corporation Keppel Corporation Brazil Samsung Heavy Kiewit·Marco Polo Anadarko6 USAIndustries Samsung Heavy 7 MagnoliaTLP ConocoPhillips Gulf Island Fabrication USAIndustries Samsung Heavy Samsung Heavy 8 OkumelEbano TLP Hess Equatorial Guinea Industries Industries ~ ODS-PETRODATA ‘\I
ICompany No. 178821-X I 8. INDUSTRY OVERVIEW (Cant’e/) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad 9  OvengTLP  Hess  Samsung Heavy Industries  Samsung Heavy Industries  Equatorial Guinea  10  Shenzi  BHP Billiton  Samsung Heavy Industries  Kiewit  USA  11  NeptuneTLP  BHP Billiton  Signal International  Gulf Island Fabrication  USA  Sou~e:ODS-Petrodam
Technip, J. Ray McDermott and Gulf Island Fabrication were the only three companies involved in building SPAR hulls until MMHE entered the market in 2005. MMHE, with a 2003-2010 market share of 9.1 % (based on number of projects),. has competed with the other companies in this segment on its ability to provide an integrated construction solution since the company is able to fabricate both topsides as well as hulls.
1 2 3 4 5 6 7 8 9 10 11 Red Hawk Medusa Devils Tower Front Runner Kikeh SPAR Global Producer VII Holstein Mad Do Constitution Perdido Hub Tahiti Sou~: ODS-Petrodam Anadarko Mu h Dominion E&P Murph Mu h Anadarko BP BP Anadarko Shell Chevron
Central and South America BP 5 0 12%5 North America Anadarko 5 0 5 12% North America Mu h 4 0 4 10% Central and South America Chevron 3 0 3 7% North America, Asia Pacific ATP 1 2 3 7% North America, Euro e BHP Billiton 2 0 2 North America 5% ExxonMobil 2 0 2 5% Africa Shell o 2 2 North America, Asia Pacific 5% 1 1Statoil 2 Euro e5% Others 7 0 17%7 Total 33 8 100%41 Protected by © Copyright 2010 ODS-Petrodata Ltd L ODS-PETRODATA V 8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad
3.2.4 Trends and Risks There is little risk of a supply overhang from asset speculation. Unlike the FPSO market. only one Semi has been ordered on speculation, and this unit has since been purchased. Since Semi. TLP and SPAR units are normally deployed for a long duration on a single field and are normally scrapped after finishing their deployments, idle units and consequently the redeployment of idle units is rare. This is also evident from market trends as only two Semis have been redeployed since 2003. 3.2.5 Barriers to Entry Barriers to entry in this market are high, mainly due to a steep learning curve and the need for a good track record. Even new entrants with strong engineering resources may struggle with their first project due to a steep learning curve. For example. J. Ray McDermott experienced significant losses and associated financing difficulties on its first three SPAR projects in 2002-2003. Meanwhile, Keppel Corporation encountered cost overruns while building the P-52 SEMI. This lump-sum, turnkey contract was secured in 2003. A successful track record is crucial due to the high opportunity costs (delay in production) created by unexpected downtime. Technip’s Pori yard has captured the lion’s share of all the hull fabrication contracts for SPARs due to its status as one of the first yards to successfully deliver a SPAR hull. Furthermore, building the unique cylindrical structure of a SPAR hull also requires specialised equipment and facilities that are not normally present hi most shipyards. As a result, companies that already have this equipment are at an advantage. 4.0 Marine Conversion 4.1 FPSO/FSO FPSO/FSO vessels are used in many areas of the world. This is because installation of fixed structures is generally not viable in water depths over 300 metres or because the accumulation of oil is too small or distant from existing infrastructure, such as pipelines, to make it economical to deliver the oil to market. According to ODS-Petrodata, nearly three-quarters of all floating production systems facilities globally are either FSO or FPSOs with the remaining systems mainly being Semi, TLP. and SPAR units. Increased  discovery of deepwater  oil  and  gas  will  drive  demand  for  an  increasing  number  of  future  FPSO/FSO  development opportunities. but shallow water areas will also  continue to drive demand, as oil and gas companies seek to  139 Source: ODS-Petrodata  84  efficieritly develop smaller stranded assets. A higher oil price will increase the likelihood of both activities, as the gap  between revenue and development cost increases.  4.2 Market Size

Long term demand for FPSO/FSO vessels remains strong. despite the slowdown in new orders that affected the market for most of 2009. as a result of the global economic slowdown. Indeed. ODS­Petrodata expects annual global expenditure on FPSO/FSO facilities to reach USD 12.2 billion in 2014 from USD 4.6 billion in 2009-with a majority of it being spent on the conversion of tankers to FPSOs. The estimated FPSO/FSO capital expenditure for Asia Pacific is expected to increase from USD 873 million in 2009 to USD1.2 billion in 2014. For the Russian and Caspian regions. FPSO/FSO capital expenditure was just USD 25 million in 2009 and we currently do not expect any capital expenditure at all between now and 2014. Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA ‘\7
137 ICompanyNo.178821-X 8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad FPSO/FSO Capital Expenditure 2003-2014 14,000 ~—;=======:;-~~~~~~~~~~~~~~~~~~
2003 2004 2005 2006 2007 2008 2009 20101 2011f 2012f 2013f 2014f f=Forecast Protected by Copyright© 2010 ODS-Petrodata Ltd L ODS-PETRODATA ‘\I Forecast and visible deployments have been presented separately in the graph below. Since forecasts account for delays/cancellations, forecast FPSO -demand (as represented by annual deployments) is normally lower than the visible demand generated by ODS-Petrodata’s databases. In contrast, forecast FSO demand is normally higher than the visible demand due to the lack of visibility and the shorter lead times associated with FSO projects. Robust demand for FPSO/FSO vessels in the period 2003-2008 was driven by a concerted push into deepwater, where floating production was the only viable alternative. Until the second half of 2008, continued strength in oil prices also favoured new processing infrastructure via subsea tie-ins to existing infrastructure, thereby improving the profitability of previously stranded discoveries. However, the sharp drop in oil prices in late 2008 resulted in a number of projects being delayed or cancelled, particularly projects based on smaller, more marginal field development projects. With oil prices increasing from their 2009 lows and improving credit conditions, operators have become more confident in near-term market dynamics and a broad recovery in contract awards for both large and marginal fields has been noted. This increase in contract awards will result in FPSO deployments increasing dramatically from its 2010 lows. Most of the FPSO/FSO vessels on order are intended for Asia Pacific, Central & South America and Africa. They are widely used in these regions due to the relative scarcity of offshore pipeline infrastructure and/or widespread presence of deepwater reservoirs. As the following graph illustrates, the longer-term outlook for the FPSO/FSO market remains positive, with deployment activity rebounding strongly in 2013/2014. One of the drivers behind the predicted turnaround is a return in demand for smaller, more marginal field developments. While a number of these projects are expected to ultimately run into additional delays or fall by the wayside, operator interest in FPSO/FSO vessels for these projects indicates a growing comfort with near-term oil prices and access to capital for project financing. Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V
12  ::~:~I~:UthArrerica  ~ ~~: and Caspian  . _  on  – – _ h  -. -­ 1  10  .-=-~~~~.~~  -.-.—-..—­ -.. ————————–·-··———–1  .f!lc::  CD  E  8  ~  Q.13  6  o  W IL  4

8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad Visible and Forecast FPSO Deployments* 2003·2014 35 ———————————————————————–j 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f “\1cludes redeployments f=Forecast
L::: ODS-PETRODATA Protected by Copyright© 2010 ODS-Petrodata Ltd ‘\1L-L-….! The Asia Pacific region was the single largest market for both FPSO and FSO deployments from 2003­2009. FPSO projects in this region are often characterised by smaller, shallow-water field development projects that lean toward floating storage solutions due to their remote location. In addition, these projects are often undertaken by smaller operators, which often have more limited access to capital resources. As a result of these factors, FPSO projects in the Asia Pacific region have a higher risk of being delayed or cancelled. Small-scale projects in the area that have been hit with delays include BGEC’s Camago-Malampaya Oil Leg project and Otto Energy’s Calauit project off the Philippines. Visible and Forecast FSO Deployments* 14-.;;.~~-~——IIIIIIIIIIIII A~~~——————·—————l o 2011f 2012f 2013f 2014f L ODS-PETRODATA V 2003 2004 2005 2006 2007 2008 2009 2010f *Indudes redeplo~ents f= Forecast
Protected by Copyright© 2010 ODS-Petrodata Ltd _ Asia-Pacific_EiJrope….._…_._.__________30 = t>brth America r:zzlI Africa= Central & South America ~MddleEast –Forecast
c:: CD [20 o  D.  .g  15  o  w  Q. U.  10  -­
5 o
_J! j,, ..i i ,! –1 ,; ! ··1 1 –;, ! Protected by © Copyright 2010 ODS-Petrodata Ltd h ODS-PETRODATA V ICompany No. 178821-X I 8. INDUSTRY OVERVIEW (Cant’e:/) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad There are currently no FPSOs planned for the Russia and Caspian regions, whereas there were three FSO deployments from 2003-2010. Two of these three FSOs are operating in the Caspian Sea while the BW Offshore-owned Belokamenka FSO is working for Rosneft in the Barents Sea. Activity in this region is expected to stay flat from 2011-2014, with no visible requirements from operators. Newbuilds The global fleet of FPSO/FSO units is expected to grow by 15% from 239 to 278 units from 2010 to 2014. There are 95 units currently in the Asia Pacific region and 10 units under construction. According to ODS-Petrodata, this growth should be driven by 10 projects at the tendering phase and another 39 projects at the ·planned or possible” stage globally, some of which could be contracted between now and 2014. Scheduled FPSO/FSO Deliveries 2010 -2014 10 I1!iiIFPSO .FSO 8 ‘——–~-_ _——-” J!J…………………………………………………………………… ····················1
‘c 6 ::J …. 0 4ci z ··························1 2 o. 2Q1 0 3Q1 04Q1 01 Q11 2Q11 3Qf1 4Q111 Q122Q12 3Q12 4Q121 Q132Q13 3Q13 4Q131Q142Q14 • the bars represent the visible deployment, and exclude the speculative newbuilds t: ODS-PETRODATA VProtected by Copyright © 2010 ODS-Pelrodata Ltd
Based on data compiled by ODS-Petrodata, near-term vessel deliveries will continue at a high pace, but as the market progresses into the latter part of 2011, the delivery schedule will begin to reflect the 2008­2009 hiatus in new FPSO/FSO orders. However, with contracting and new FPSO/FSO order activity already outstripping even the most optimistic predictions for 2010, this lull in the delivery schedule should be relatively short-lived. New orders exceeded deliveries in the first quarter of 2010, resulting in a slight increase in the number of vessels under construction. 4.3 Major Competitors FPSO yards normally focus on either newbuilds or conversions, with the contract scope for each category being very different. Converted FPSOs are normally intended for smaller field developments and hence the size of each conversion contract is relatively small as compared to the billion dollar contracts associated with newbuild jobs. Hull conversions normally involve life extension work on the tanker, fabrication of a flare tower and heli­deck and the installation of piping and topsides modules. Based on the number of 2003-2010 projects, Keppel Corporation and SembCorp Marine have so far been the preferred choice for FPSO conversions, having completed 19 and 12 projects respectively, implying a market share of 36.5% and 23.1 % respectively. One reason for this trend is because of the first mover’s advantage secured by these companies. Both have been involved in FPSO conversions for more than two decades and have a good track record in timely deliveries. Drydocks World rank third in the sector with 8 conversions or a market share of 15.3% followed by COSCO Dalian and MMHE, each with a market share of 3.8%. Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V
8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad Market share for hull newbuilds is dominated by the South Korean yards with Hyundai Heavy Industries, DSME and Samsung HI building most of the newbuild hulls. as the following graphs demonstrate. FPSO Hull Conversions Market Share FPSO Hull Newbuilds Market Share 2003·2010 2003·201030 .——————-~ , 10 ~=—–;=:===========;—i ProIedrHlby CopyrlghtO 2010 OOs-Pel1’OdalB Lid ~ ~~ fi 15  : [U ::JiI!_~~_I~~~~~ __~_~_~~~~~r::::::::::::::::::::::J .—:~: .——–.—-~.–.————–.——————~  ~8 -; ,Q 6 ~  1-Delivered B Construction 1 jm umm ! —————————————————j  c  4  • -~ ——•.. _ •• ——•••.• ——–• ——-~ -. ——j  i 1~  ::::—-:::::;;.::::,::~::I::~::,::=::,::IJ  ~  2  o  Q, .. III o Cu_ .a ..E IIIIll:!! l/)  l1! i: III :!! t;  (J 2! W CD0 s::.8 0 t-OD&PKrRODATA  V
The FSO segment is far smaller than the FPSO segment in terms of annual new deployments. Shipyards in the Asia Pacific region, a region known for FSO deployments, have been heavily involved in building these vessels. MMHE has secured a 12% market share in FSO conversions from 2003 to 2010, based on the number of projects in 2003 to 2010.
The various construction yards involved in FPSO/FSO construction contracts and their main area of expertise are highlighted below.
14 12 rn c 10.2 r! 8 CI) c >6 0u 4 -~ 2:::I: 0 ~ ~ CI) :::I:~ 0 0 u .5 ~ ~ ~ CI) .cE ns c. (1)~ c. CI) tn ~ Protected by Copyright © 2010 ODS-Petrodata Ltd FSO Hull Conversions Market Share 2003-2010
c. W rn ~ ‘t:S ‘i:u 0 ‘t:S 0 ~~ C C)E C) rn CI)C .5S ‘C ~ .cns ~ CI) ~ m (1)~ ~ 0­~ …J .5 .c tn ~ C) .e­<t c .c W tn £:.: ODS-PETRODATA V Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V 8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad

x Sin a oreSembCo Marine xCOSCO Shi ard x x x Aker Solutions Aibel x J.Ra McDennott x xMMHE Quip consortium x Source: ODS-Petrodata
4.4 Major Buyers The table below shows the number of new deployments of FPSO/FSO from 2003 to the year to date, 2010, and the number of units under construction for the major buyers globally.
Petrobras  20  9  29  22%  ExxonMobii  7  0  7  5% 5% 5% 4%  Eni  4  3  7  CNOOC  7  0  7  Total  4  2  6  ConocoPhillips  4  0  4  3%  Woodside  3  1  4  3%  BP  1  2  3  2%  Chevron  3  0  3  2%  CNR  3  0  3  2%  Petronas  2  1  3  2%  Others  46  12  58  43%  Total  104  30  134  100%
• Includes FPSOs ordered on s ulation Source: OOS-Petrodata Petrobras is by far the largest buyer in the FPSO/FSO market, with a total of 29 deployments from 2003 onwards. ExxonMobil, CNOOC and Eni are a distant second, with seven deployments each. All of ExxonMobil’s projects have been destined for -developments in Africa, while CNOOC’s FPSO deployments have been in China. Eni’s projects have been evenly divided between Asia Pacific, Europe and Africa. Having a large buyer’s market share has allowed Petrobras the fleXibility of issuing tenders with stringent local content requirements to contractors. Petrobras has also started ordering multiple FPSOs in a single tender in an effort to capture economies of scale.and learning curve benefits. 4.5 Trends and Risks 2010 will be a good time for operators to order FPSOs. Spare capacity for engineering and construction of FPSOs continues to improve because the number of FPSOs under construction is at its lowest level since 2005 and the number under construction is likely to stay at a comfortable level for operators in 2010, even if 15-20 more FPSOs are ordered. MMHE is the only-.shipyard in Malaysia with a track record in FPSO conversions and should be well positioned to get conversion contracts for any new orders in the Asia Pacific region. Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V
142 8. INDUSTRY OVERVIEW {Cont’d} Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad Chinese Shipyards Since 2004, tight capacity for experienced FPSO conversion yards globally has given less experienced Chinese yards the opportunity to enter this market. For FPSOs, hull and topsides can be constructed I converted by different shipyards. It is a comparatively easier job to build topsides, and this was the initial focus of most Chinese shipyards. The proximity of topsides fabrication yards such as BOMESC (Bohai Oil Marine Engineering and Supply) and COOEC (China Offshore Oil Engineering) also makes China an attractive destination for FPSO conversions. There are currently three FPSO conversion projects in Chinese yards, according to ODS-Petrodata. Among the major FPSO owners, MODEC has been the most active in subcontracting work to the Chinese yards, with four units completed and another unit under conversion in Chinese yards. MODEC was one of the first companies in the world to award conversion jobs to Chinese yards such as COOEC and COSCO Shipyard Group. COSCO Dalian, a part of COSCO Shipyard Group, received its first FPSO conversion contract from MODEC in 2007. However, the steep learning curve involved resulted in delays and cost overruns. COSCO Shipyard Group been climbing the learning curve quickly and has since secured multiple contracts from MODEC. They have also since, leveraged on its growing track record in order to secure a large conversion job from BW Offshore in 2010 to convert the Papa-Terra FPSO which will be deployed in Brazil. BW Offshore had only subcontracted tasks such as structural steel replacement, paint and blasting to COSCO Dalian previously. Despite the learning curve difficulties, the willingness of lease contractors to continue working with the Chinese yards suggests that these new entrants will continue to playa role in the industry. This implies greater competition for MMHE and other incumbent conversion yards and a greater pool of contractors for FPSO owners to choose from. Redeployment of existing idle units The redeployment of idle FPSO/FSO units could provide a potential source of supply for operators but this is likely to be limited to smaller field development projects due to the smaller size of these units. According to ODS-Petrodata, there are currently 10 idle units: seven FPSOs and three FSOs. However most re-deployments to date have required extensive modification before re-deployment, and this could actually increase demand for FPSO/FSO conversion yards. 4.6 Barriers to Entry Entry barriers for FPSO shipyards remain high. Shipyards with an established reputation in building or converting FPSO vessels enjoy a substantial first mover advantage and tend to get repeat orders. The entry barriers involved in building an FSO are lower compared to an FPSO. COSCO Shipyard Protected by © Copyright 2010 ODS-Petrodata Ltd L ODS-PETRODATA V
8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad 5.0 Marine Repair The growth in potential ship repair activity is driven by the size of the cargo carrying fleet, which in turn is driven by underlying cargo demand. This section starts with a brief overview of the shipping market. 5.1 Shipping Market Overview Shipping is the most cost effective mode of long haul transport for all goods other than those with very high value-to-weight ratios. Since 1990, the volume of world trade has grown much faster than the growth in total world output as measured by GOP. China’s economic progress has contributed to the growth in demand for shipping since its accession to the WTO in 2001, and driven bulk trade of many commodities through the recession of 2008-2009. As with Japan, Korea and other Asian economies before it, Chinese industrialisation has been in large part export-led, and much of the oil, gas and industrial raw materials that underpin its development are imported, often over long distances. However the scale of Chinese industrialisation and development dwarfs its Asian neighbours. 5.1.1 Demand The characteristics and volume of cargos determines the type and size of ships employed. Notwithstanding vessels carrying vehicles and people, seaborne cargos are customarily divided into ‘wet’ and ‘dry’ trades, as detailed in the table below.
WET CARGOS 3,052 3,128 3,227 3,255 3,194 3,327 3,453 3,564 3,656 3,779 Crude Oil 2,033 2,013 2,047 2,051 1,993 2,045 2,104 2,161 2,197 2,273 Oil Products 683 750 798 816 789 809 842 869 892 920 Chemicals 138 147 152 156 160 168 177 186 198 204 Liquid Petroleum Gas (LPG) 5859 61 64 65 70 77 82 84 89 Liquid Natural Gas (LNG) 141 158 170 168 188 235 253 266 284 293 DRY CARGOS 4,713 5,084 5,367 5,572 5,254 5,642 5,999 6,335 6,667 6,966 Dry Bulk 2,566 2,728 2,874 2,964 2,883 3,176 3,400 3,580 3,756 3,910 Container 1,044 1,148 1,278 1,340 1,236 1,303 1,413 1,545 1,689 1,835 General cargo 1,075 1,178 1,184 1,238 1,107 1,135 1,158 1,181 1,193 1,193 Reefer Cargo 2829 3030 28282929 30 29
7,765 8,211 8,594 8,827 8,448 8,969 9,451 9,898 10,323 10,745 3.0% 5.7% 4.7% 2.7% -4.3% 6.2% 5.4% 4.7% 4.3% 4.1% In their simplest form, wet cargos are carried in unpressurised tankers, ranging from Handysize ships (10,OOO-70,000 dwt) employed primarily in oil products trade, to VLCC and ULCC vessels, employed exclusively in crude oil trade. Chemical tanker cargos are more sensitive to contaminants and have specially coated tanks and pipes. The most complex are LNG and LPG carriers which carry large quantities of commodities under regulated temperature and pressure to keep them in a dense liquid form. Dry cargos are primarily split by loose bulk and unitised cargo. Loose bulk cargos such as iron ore, coal and grains are principally shipped in dry bulk vessels. Reefer (refrigerated) bulk cargos are transported in similar bulk ships that can regulate the temperature of the holds. Unitised cargo comprise containerised, palletised or break-bulk. Containerised cargo is shipped in dedicated FCC (fully cellular containership) vessels while palletised and break-bulk cargos are shipped in general cargo carriers. Shipping demand drivers are as diverse as international trade. Industrial goods are tied to the economic cycle, agricultural goods are affected by population growth, consumer preferences and weather, raw materials/fuels are determined by geographic natural resource imbalances, while manufactured goods are governed by comparative advantage and competition. Voyage time also impacts shipping demand which is affected by factors such as distance, speed and shore-based infrastructure. Protected by © Copyright 2010 ODS-Petrodata Ltd L ODS-PETRODATA V
8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad
5.1.2 Supply In broad terms, the supply of ships is governed by the cargo capacity of the existing stock of ships, together with the future inflow of newbuildings and the outflow of ship demolitions. The table below highlights the growth in the global supply by vessel types. . … . …::.’.:’;,: ” . :.’:::->.: . ..-,l.’~_’..: .-:. ,”,:”. ,” ,.’:21)~ii” . 2007 . ‘.’ 2008 . ·.2b09 . •… 2010f 20111.> . 2012f 2013f ~Ch4f TANKER FLEET  365  383  406  430  470  489  512  529  546  556  Crude Oil Tankers  272  281  294  302  329  341  361  374  386  391  Oil Products Tankers  32  33  35  36  36  37  38  40  42  44  Chemical Tankers  37  42  48  57  66  70  71  73  74  75  LPG Carriers  11  11  12  13  13  13  13  14  14  16  LNG Carriers  13  15  18  22  26  27  28  29  30  30
DRY CARGO FLEET 516 556 599 646 694 766 817 860 891 905 Dry Bulk Carriers 345 368 392 422 463 521 561 591 612 620 FCC Container Carriers 113 129 145 163 172 187 197 210 222 230 General Cargo Carriers 52 53 55 55 54 53 53 53 52 51 ReeferCarriers 6666655555 TOTAL BULK FLEET 881 940 1,005 1,076 1,164 1,255 1,329 1,389 1,437 1,461 (%Ch yoy) 7.2% 6.6% 7.0% 7.0% 8.2% 7.8% 5.9% 4.5% 3.5% 1.7% Source: MSI f=Forecast The last decade saw a significant boom in shipping, and new vessel contracting reached unprecedented heights during 2007, across all vessel types. More than 3,400 vessels of 233 million dwt were contracted in 2007, of which 61% were dry bulk carriers. In 2008-2009, an ensuing fall in trade and a consequent drop in earnings and asset values for almost all sectors resulted in are-organisation of the industry’s orderbook, with many contracts cancelled and deliveries delayed. The following section relates only to the tanker fleet, the sectors where MMHE is actively engaged. 5.1.3 Market Size LNG Carrier Sector The LNG fleet has grown rapidly during the last decade, rising from 128 ships at the end of 2000 to 367 ships at the end of 2009, an average annual growth rate of 14.7%. This has resulted in an increasing share of younger vessels, with LNG carrier capacity under ten years old rising from 50% to almost 75%. Fleet growth was particularly strong from 2004 to 2007 due to a peak in new vessel contracting of an average 7.1 million cU.m per year. Contracting has since dropped away with no new contracts in 2009. MSI anticipates fleet growth to be sharply curtailed over the next five years with the fall-off in new vessel deliveries. LNG Carrier Employment After a period of intense growth in demand for LNG carriers, at an average 11.2% year-on-year since 2002, 2010 is expected to be a markedly strong year for this sector, with demand for ships rising from 230 to 279 vessels, as demonstrated in the following graph. 2010’s boost to trade is expected as a result of a robust increase in LNG exports from Qatar, where a tranche of new developments are due to come on stream following a long construction delay. Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V
8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad # Ships LNG Carriers Demand –=,————————-100% -===:::..-…..——-“”-……………
,_:=:::::::::=————-=_ 90′ 111””’0 OthEr Non-A93 ———=-==—“””””~,———–:::::::=—=–==”””””=–“”…,,, OthErA9380′ -….::;:;0′”/ -70~ 60~ ,00′:’ Africa-A93 50′ _ Ooeanh..A93 o ~ ~~=~ 21103 21104 21105 21106 21107 21108 21109 21110f 211111 21112f 211131 21114f MSI~ PrcJ.fI:1e:J by Copyrif/1t © 2010 MtTitimeSntrfjfSlntErnEticna Ltd 11~.weA!l;l’ofli&et;Sliilli:~i:;:\:2Q’~21r~:o:a¥§}20)~T!200$’;S;ii1’2l!:((~];t~OO~f;i:ij;t~@~;:r”(’20o·~p;{;··;!O:·;:201~:.::iiL:2’mJf:I~1tlfJ:;!lIMff;..:ot~tft:c~One % 17.5 76.0 73.9 71.3 69.7 69.9 75.8 64.9 57.9 58.0 57.9 58.6 59.5 Employment rate declined during the latter half of the past decade, due to a chronic and growing oversupply of LNG ships caused by delays of many shore-based LNG production facilities due to technical difficulties compared to the delivery of LNG ships. 2010’s boost in trade will mark a turning point in falling LNG employment rates, which MSI expects to gradually improve through to 2014. Following a steady fall in the market share of trade routes through Asia Pacific, MSI expects this share to remain steady at around 60% going forward, with support coming from Middle East exports. VLCC and ULCC Sector The VLCC and ULCC vessel fleet has grown steadily at an average 3.5% year-on-year since 2002. Two years of peak contracting in 2006 and 2008 have lifted anticipated vessel deliveries over the next few years. Fleet growth is’ expected to be particularly strong in 2011 and continue increasing at an average 5% per annum to 2014. A spate of new deliveries coupled with increased scrapping of older vessels and an exodus of old tonnage converted for the bulker sector means the share of younger vessels will grow. MSI expects the share of 0-4 year old ships to peak at’44% in 2011. VLCC and ULCC Employment After remaining relatively flat between 2000 and 2009 (except for a relatively stronger period between 2004 and 2007), MSI anticipates VLCC employment to grow by an average 5.3% year-on-year to 2014, as illustrated in the graph below. Increased demand from Asia, particularly China, is the primary driver behind an expected boost in VLCC employment to 2014. With such a substantial fleet growth forecast, MSI anticipates VLCC employment rates to remain under 90%. Protected by © Copyright 2010 ODS-Petrodata Ltd L ODS-PETRODATA V
ICompany No. 178821-X I 8. INDUSTRY OVERVIEW (Cont/e/) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad # Ships VLCCI ULCC Demand 500 100·­HOIII•• Other non-Asia 450 90′ ;~.~1r.llt~’I~t~~~~~:,: 150 =—=__11= =11″,IIlJl=II-II=~~ _~= :~ ­MiddeEast-otherAsia 100 11-II-.-~ 0 ~ ~&Wr.-~ ~ ~ wP?~ ~ ~ ~ -EmplC¥llEllt Rale(right sideAxlsj 50-10′ o 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 20121 2013f 2014f &ll.l”ce: MS f=forecast Prri«1fl1Or Cq:1jrig,t © moMcritirreSrciqjfBlnffTnctima Ltd.
% 54.9 56.9 58.7 60.7 62.5 62.3 60.5 61.8 63.2 64.5 65.0 66.0 66.0 The share of Asia/Pacific routes in VLCC/ULCC trade has increased year-on-year since 2001, and MSI expects this trend to continue through to 2014. By 2014, two-thirds of VLCC/ULCC imports will be to Asian countries, with much of the growth coming from the Middle East and Africa into China, outweighing falls to Japan. 10,000-70,000 dwt Products and Chemical Tanker Sector The 10,000-70,000 dwt tanker fleet comprises ships of varying sophistication. Crude oil tankers can only carry crude oil, products tankers can carrY both crude oil and oil products and chemical tankers can, in addition, carry sensitive chemical cargos. While there is some inherent crossover in employment between the segments and cargos the 10,000-70,000 dwt fleet primarily comprises products and chemical tankers. At end 2009, only 15% of the fleet was designated crude oil tankers. The past decade saw a steady progression of younger tonnage as new deliveries have picked up strongly. Since 2000, capacity has increased by an average 5.4% year-on-year. MSI anticipates this trend to wind down as the wave of new tonnage graduates to the 5-9 year old bracket and new deliveries are low. The share of 0-10 year old vessels will nevertheless remain very high, accounting for close to 70% of the fleet towards 2014. MSI anticipates negative fleet growth in 2011, before a period of very slow fleet growth to 2014 at an average 1.5% year-on-year. Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V

Report for Malays,”a Marine ngmeering Holdings=~~-;,:::::::-~ ~==~a:n:d~H:e:a:V~~E=n, ” Products Tanker EAs th mployment e graph bela .:by an average 8 7~ Illustrates, productshalf at an averag~ 1~~~-on-year from 2~;~~r demand grew str “” • _ ‘ ear-on-year from p 200~. 2008. This was ::”:iI~u arly weighted t Ithrough the past d ecade. rising ___ rod….. T……D awards the latt _ .m,..d er Protected by © Co .pynght 2010 ODS-Petrodata Ltd LODSPETRODATAV ­148
ICompany No. 178821-X I 8. INDUSTRY OVERVIEW (Cant’e/) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad
49.1 49.1 52.2 53.4 53.3 51.2 53.6 54.5 57.5 5.2 Rigs Repair Market Overview Developing and producing offshore discoveries requires drilling rigs, floating or fixed production facilities, pipelines, subsea equipment, and various offshore vessels. Drilling rig activity is one of the key leading indicators of future E&P activity. With 70.6% of jackups over 25 years old, it could be argued that there will be a high level of future demand for repair and upgrading services. With falling steel prices and diminishing shipyard order books such repairs and upgrades may continue to be a competitive option for maintaining market share and utilisation of older units. Global Jackups Fleet Age June2010 -462 Units 240,———————————­200 +———————­j::+———————­k mBO ~ 40 o 0-5years 6-10years 11-15years 16-20years 21-25years 26-30years 31~5years >35 years _byCopyriglll@2010ODs-PeIrodal3l.h1 ~ ODS-l’k-TRODATA ‘7
Similarly, 41.9% of the current tender rig fleet are over 25 years old, as illustrated in the graph below. Global Tender rigs Fleet Age June 2010 -31 Units 15 .. -…. -.-.———–.-.—-…——–.——————..———.———————-…————.. –.. -.—-.–.————­-=co10 ~ ‘0 :;; E :::J Z o -5 years 6 -10 years 11 -15 years 16 -20 years 21 -25 years 26 -30 years 31-35 years >35 years Protected by © Copyright 2010 ODS-Petrodata Ltd t:c ODS-PETRODATA ”’1 8. INDUSTRY OVERVIEW (Cont’e/) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad 5.3 Ship Repair Market Overview The supply of ship repair capacity is difficult to quantify. This is primarily due to the flexibility of dry-dock facilities. A shipyard’s dry-dock used for repair work could, in theory, convert to a newbuilding yard within 1-2 years and vice versa. Further, in addition to dock size, capacity also depends on yard efficiency and vessel turnaround times. Repair capacity is a particularly grey area in China, where enormous shipbuilding capacity has been developed recentlY, but a significant proportion of this capacity may find employment in the repair sector if newbuilding contracts are not forthcoming. Beyond Chinese yards, new repair capacity have been reported in Vietnam, Indonesia, the Middle East, Turkey and Eastern Europe in recent years. Despite competition from new capacity, yards around the Singapore port remain one of the major hubs of ship repair due to their location within the major shipping routes for tankers such as VLCCs, ULCCs and LNG carriers, particularly from the Middle East to Asia. These yards are also successful in securing more complex vessel conversion and refurbishment works such as for FPSO, FSO and LNG carriers. Quantifying the demand for ship repair facilities is also difficult as it depends on a multitude of factors, including statutory vessel surveys, periodic maintenance, damage repair and technical improvements. A declining market in repairs to 20+ year old tankers is expected to be more than compensated by a substantial increase in Asian VLCC trade, offering over 8% annual growth over the next few years. The repair needs for 1990s-built double hull tankers, which typically have extensive internal spaces that are susceptible to corrosion and increased inspections, may also lead to an increase in average time spent in dock. There is additionally an expanding specialised niche market for the repair and refurbishment of LNG carriers. The single most important consideration in scheduled repairs is the drydocking cycle. Although vessel owners are required by the Classification Society and the Safety of Life at Sea {“SOLAS”) regulations to make scheduled repairs of their vessels at least twice during every five-year period, the schedule of the intermediate survey can be brought forward or delayed by three months from the two and a half years since the last special survey done while the special survey can be brought forward by 3 months from the five years since the last special survey docking. During periods when freight rates are low, vessel owners may opt to delay either surveys as long as possible or if required to, the surveys will be for minimal levels of maintenance and repairs to meet regulatory requirements, which may adversely affect marine repair business. On the basis that vessels require dry-docking every two and a half years, and notwithstanding the impacts of market movements nor fleet age profile and associated wear-and-tear, the charts below summarise MSI’s estimates for repairs for vessels employed in Asian versus non-Asian bilateral routes by vessel type during the last decade, and forecasts to 2013/14. VlCC and lIlCC Derived Repair Demand
‘l////.Othll’ # Ships VLCCt ULCC Repair Demand % mangey-o-y _Asia -Growth In Asia (right sideAxlsj 2000& 2001e 2002e 2003e 2004e 2005e 2006e 2007& 2008& 2009& 2010f 2011f 2012f 2013f 2014f S:>urce: MS e=estimale, f=forecast Prrte:tf1J0; Cb(:1jrig,t © 2010 Ma-itimeStTctr;gfStntf1Tl<tionli Ltd
Protected by © Copyright 2010 ODS-Petrodata ltd L ODS-PETRODATA V
ICompany No. 178821-X I 8. J’ Marine and Heav £.Report for Malavsiay ngmeering Holdings
timeStrot LNG Carriers D . egwdntematiazalLtd. enved Re . __ by Copyrilflt©20lOMari .. #. pair Demand 22D SliPS % mangey-o-y200 LNG Carri 16%180
W//h OthB” 160 140
_Asia120 100 80 60
-GrowthlnAs4020 (right sideAXi; o e=estimate f-f 2006e 2007e 2008 -b;’ -“”””” • “”” Qpjr/(/Jt © 2010 M ..Eg5/ntEmcticna LtdCJ1tirreSrlt .
Protected bY© Copyright 2010 OD5-Petrodata Ltd ~ODS-PETRODATAV 151 ICompany No. 178821-X I 8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad 5.3.1 Major shipyards in Southeast Asia
Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia Malaysia Malaysia Philippines Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Vietnam Vietnam Vietnam Vietnam SembCorp Marine Labroy Marine Labroy Marine Otto Marine Pan United Pan United ASL Marine MMHE MMHE Keppel Corporation Keppel Corporation Subic Shipyard & Engineering SembCorp Marine SembCorp Marine SembCorp Marine SembCorp Marine SembCorp Marine Jurong Shipyard Jurong Shipyard Jurong Shipyard Jurong Shipyard Keppel Corporation Keppel Corporation Keppel Corporation Keppel Corporation Keppel Corporation Keppel Corporation Pan United Pan United Pan United Hyundai Vinashin Shipyard Co. Hyundai Vinashin Shipyard Co. Dung Quat Shipbuilding Industry Co Dung Quat Shipbuilding Industry Co PT Karimum Sembawang PT Nanidah Mutiara Shipyard -Dock 1 PT Nanidah Mutiara Shipyard -Dock 2 PT Batamec -Graving Dock Batam Dock 4 Batam Dock 5 PTASL Pasir Gudang Yard -Dry Dock 1 Pasir Gudang Yard -Dry Dock 2 Keppel Cebu Shipyard Keppel Batangas Shipyard Pacific Dock Premier President KG VI Republic KFD Number 1 Number 2 Number 3 Number 5 Admiral Dock Tuas Dock Raffles Dock Temasek Dock 15 Benoi Yard -No.1 Dry Dock 15 Benoi Yard -No.2 Dry Dock Singapore Dock 1(1) Singapore Dock 2(1) Singapore Dock 3(1) Number 1 Dock Number 2 Dock Dung Quat -No. 1 Dung Quat -No.2 230.0 92.0 166.0 145 116 235 260 385 270 210 200 350 384.0 290.0 303.0 202.0 230.0 270.0 350.0 380.0 335.0 380 350 355 301 350 300 122 195 187.5 260 380 380 520 35.0 24.0 32.2 40 21.6 40 60 80 46 30 38 65 64.0 48.0 39.6 42.0 35 40.0 56.0 80.2 65.0 80 66 60 52 60 60 22 34.6 36.5 45 65 86 110 65,000 N.A.
N.A. 150,000 450,000 140,000 35,000 20,000 340,000 400,000 150,000 100,000 60,000 65,000 100,000 300,000 500,000 200,000 400,000 360,000 330,000 150,000 300,000
170,000 N.A.
N.A. 80,000 400,000 300,000 150,000
Source: Company data, supplier websites (1) Floating docks N.A. =Not Available As per the table above, MMHE’s Pasir Gudang yard is one of the largest shipyards in Southeast Asia, . with one of the largest dry dock spaces, along with SembCorp Marine’s Premier Yard, Keppel Corporation’s Admiral Dock, Jurong’s Number 3 Dock and Hyundai Vinashin’s Number 2 Dock. MMHE is one of the handful of yards in Southeast Asia that are able to service LNG carriers, handle VLCC and ULCC vessels of more than 450,000 dwt and a shiplift system with a capacity to handle Panamax sized vessels. Critically, both Singapore and Malaysia have to import labour, thus the costs and flexibility of continuing to do so presents risks to them. The increasing demand for LNG carriers in the coming years will create opportunities for LNG carrier repair and refurbishment in particular -a market in which only few yards in Southeast Asia compete. Within this region, in 2009, SembCorp Marine repaired the most LNG carriers, with approximately 48% of the market share, followed by MMHE with 30% market share and Keppel Corporation with 20% market share. MMHE’s high market share is largely due to its inherent advantage in gaining high-value ship repair jobs from MISC, which has a large LNG fleet, and has tended to use MMHE for the majority of its repair work. Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V
8. INDUSTRY OVERVIEW (Cont’d) Market Report An ODS-Petrodata Report for Malaysia Marine and Heavy Engineering Holdings Berhad 5.3.2 Trends and Risks Key factors set to dominate near term ship repair markets include:
• Tightening regulatory and chartering policies regarding vessel standards and maintenance,
• Continued development of low cost ship repair centres,
• Restructuring and reorientation of conventional shipbuilders towards ship repair,
• A significantly lower freight rates environment than in recent years, and
• Potential excess regional capacity is expected to encourage specialisation and the development of niche markets such as the LNG carrier sector.

5.3.3 Barriers to Entry As with parts of the offshore fabrication sector, see section 4 earlier, recent years have seen new yards opening up in low cost countries, especially within the Asia Pacific region, given their small local scale, low labour costs and limited technology requirements. Looking forward, it is anticipated that shipyards serving low end shipbuilding may gravitate towards ship repair as new ordering volumes remain subdued. Factors such as government policies and yard location will also playa part in the establishment and support of repair facilities. Protected by © Copyright 2010 ODS-Petrodata Ltd ~ ODS-PETRODATA V


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