Business Overview

Business Overview

OVERVIEW
We are a Malaysia-based multinational provider of drilling and oilfield services for the upstream sector of the oil and gas industry. In our drilling services business, we operate in both Malaysia and in other parts of South East Asia, providing drilling services for exploration, development and production wells with our fleet of offshore drilling rigs and providing workover services through our HWUs. In our drilling services business, we also act as an agent in Malaysia for international companies providing specialized drilling equipment and services. In our oilfield services business, we offer threading, inspection and repair services for OCTG in Malaysia and overseas, with a focus on premium connections used in high-end and complex wells.
The following diagram provides an overview of our main businesses: UMW-OG Drilling Services Oilfield Services
I • Offshore drilling • HydraUlic workover
• Agency services for specialised equipment
• OCTG threading, inspection and repair services
Our drilling services business offers its services through our fleet of offshore drilling rigs, which consist of one semi-submersible and three premium jack-up drilling rigs, and our fleet of four HWUs.
We jointly own and operate NAGA 1, our semi-submersible drilling rig, and we wholly own and operate NAGA 2, NAGA 3 and NAGA 4, our three premium jack-up drilling rigs. In May 2013, we entered into an agreement that includes the acquisition of another premium jack-up drilling rig, which is currently under construction, and we expect to take delivery of the drilling rig by May 2014. We are the first Malaysian owner and operator of jack-up drilling rigs in Malaysia. NAGA 1, NAGA 3 and NAGA 4 are currently providing drilling services to PETRONAS Carigali in offshore Malaysia, and NAGA 2 is currently providing these services to PV Drilling for Hoang Long Joint Operating Company, as the end-client, in offshore Vietnam.
In addition, we are the sole Malaysian owner and operator of HWUs and a PETRONAS­ licenced provider of HWU services, with four HWUs in our fleet: UP GAIT I, UP GAIT II, UP GAIT III and UP GAIT V We also act as an exclusive agent in Malaysia for Dril-Quip, a manufacturer of specialized subsea, surface and offshore production equipment based in the United Stales, and as an agent for Cougar Drilling Solutions, a provider of horizontal drilling services based in Dubai, United Arab Emirates.
In our oilfield services business, we have operations in Malaysia, Thailand, China and Turkmenistan, providing OCTG threading, inspection and repair services. Our operations include specialized services for premium threading, where we offer OCTG threading pursuant to customer-and licence-specific requirements and thread OCTG for premium connections with much higher accuracy and performance for use in complex and demanding operating conditions. In Malaysia, we provide these services at two plants located in Labuan, which have a total of 22 CNC lathe machines. In Thailand, we provide premium threading, inspection and related workshop services at our plants in Songkhla and Sattah·,p. In China, we offer similar services as well as premium accessories threading at our plant in Tianjin. In Turkmenistan, our workshop in Turkmenbashy provides OCTG threading, inspection and repair services mainly in support of the operations of PETRONAS’ subsidiary in Turkmenistan’s offshore fields in the Caspian Sea.
Our revenue was RM724.3 million for the FYE 31 December 2012 and RM325.3 million for the FPE 30 June 2013. We recorded a PAT of RM71.9 million for the FYE 31 December 2012 and RM88.9 million for the FPE 30 June 2013. As at 30 June 2013, our total assets were RM2,715.0 million.
UMWH, our parent company, is a leading industrial conglomerate in Malaysia, with diverse and global businesses in the automotive, equipment, manufacturing and engineering, and oil and gas industries. UMWH has a market presence in countries including Malaysia, Singapore, Indonesia, Thailand, Myanmar, Vietnam, Papua New Guinea, Australia, Taiwan, China, India, Oman and Turkmenistan. It was incorporated under the Act in 1982 and is publicly listed on the Main Market of Bursa Securities. PNS is one of Malaysia’s largest fund­management companies and funds under PNB’s management, including ASS, collectively form UMWH’s largest shareholder.
7.2 COMPETITIVE STRENGTHS
We believe that our position as an established offshore drilling and oilfield services provider in the ASEAN oil and gas industry is due to our following strengths:
7.2.1 We are well-positioned to benefit from strong market prospects as one of Malaysia’s leading oil and gas service providers
We are currently one of the market leaders in the provision of offshore drilling services, hydraulic workover services and related oilfield services including premium connections threading, inspection and repair services for OCTG in Malaysia. As the first Malaysian owner and operator of jack-up drilling rigs, we believe that our leading market position in Malaysia and experience will enable us to benefit from the anticipated increase in upstream activity and spending in the Asia Pacific, and in particular the South East Asian, oil and gas sector. For instance, oil and gas production in South East Asia, in particular the offshore sector, is expected to show continued growth, with gas production playing an increasingly prominent role. For the years 2013-2018, Douglas-Westwood expects an average of 455 offshore wells to be drilled per year in South East Asia, an increase of 15% compared to 395 wells in 2012, while demand for workover units in South East Asia is expected to increase at a CAGR of 7% from 2013 to 2018.
Malaysia, our home market, is the largest offshore oil and gas producer in South East Asia and has the fifth largest proven oil reserves and the fourth largest proven gas reserves in the Asia Pacific region as of the end of 2012* Oil and gas production is expected to increase from 1.7 mboe/day in 2012 to 1.9 mboe/day in 2018, representing a CAGR of 2.0%.’ We believe that our efforts to develop local capabilities, content and talent, in addition to our operational track record, provide us with an advantage over our international competitors within Malaysia. Our revenue derived from Malaysia for the FYE 31 December 2012 and the FPE 30 June 2013 was 74% and 67%, respectively. During the period between 2009 to 2012, we held an approximately 21 %’ share of the Malaysian jack-up drilling rig market, based on the annual average number of contracted rigs, and have structured our business to be flexible and scalable to enable us to take advantage of these growth opportunities in South East Asia.
Note: , Source: Douglas-Westwood.
7.2.2 Our international experience and platforms facilitate further growth overseas
Through our international experience and the establishment of local platforms in various countries overseas including Thailand. Indonesia, Vietnam, China and Turkmenistan, we have been able to expand our operations internationally and into new markets. This has enabled us to accumulate a broad base of knowledge of local regulations and relationships, and we believe that these local platforms and the experience of working in various countries will facilitate further expansion internationally across our businesses. We are currently providing or have provided drilling services for subsidiaries of internationally active oil and gas companies such as PETRONAS, Petrovietnam and HESS, and workover services for subsidiaries of PETRONAS, Shell, Petrovietnam, PTIEP and Murphy Oil. Through these experiences, we have developed a thorough understanding of their operational and HSE requirements, work methods and systems. We believe that our overseas track record developed over the years will enable us to bid for contracts from international oil and gas companies given our familiarity with their operational and HSE requirements and their preference to work with service providers with international experience.
Through the long-term partnerships and business collaborations that we have established with our customers in overseas jurisdictions. we believe we will continue to gain international market access, technical know-how as well as the right assets and human resources to satisfy our customers’ requirements in a timely and consistent manner. This places us in a favorable position to undertake projects for both overseas customers as well as Malaysian customers operating internationally.
7.2.3 We have a well-established working relationship with PETRONAS
We believe that our Group’s well-established relationship with PETRONAS, cultivated from our Group’s long history of service since 1988, in addition to our management team’s professional relationships with PETRONAS, puts us in a competitive position to continue to win drilling and oilfield services contract work that we expect to materialise from PETRONAS’ significant upcoming investment programme. Specifically, in an effort to increase its production, PETRONAS has committed to a five-year investment programme to spend a total of RM300 billion’ on, among others. additional exploration and development programmes.
We expect to benefit from PETRONAS’ focus on the following three key areas:
(i) EOR, an effort to improve the average recovery factor at existing oilfields, will require the drilling of new wells and workover of existing wells;
(ii) the development of small fields which we believe will increase the number of new development wells to be drilled, for which the smaller platforms require jack-up drilling rigs. We expect the development of small fields to provide business opportunities for our jack-up drilling and workover services; and
(iii) intensifying exploration activities which we believe will increase the number of exploration and appraisal wells to be drilled.
We believe we are well positioned to benefit from the significant opportunity presented by PETRONAS’ investment programme through our local capabilities and content. In addition, eligibility to secure contracts from PETRONAS requires certain licences granted specifically by them, which we currently hold. Three out of four of our offshore drilling rigs are currently under contracts with PETRONAS’ subsidiary, PETRONAS Carigali, and we believe that this ability to secure recurring contracts from PETRONAS, both by securing new as well as extending existing drilling contracts, is a testament to our track record, technical capabilities and established relationship with PETRONAS.
Note: Source: Economic Planning Unit’s Malaysia Economic Monitor April 2012.
7.2.4 We have high quality assets operated by an experienced and skilled workforce
Our current fleet consists of premium jack-up drilling rigs that are designed to operate at water depths of up to 350 feet (NAGA 2 and NAGA 3) and up to 400 feet (NAGA 4), as well as one semi-submersible drilling rig capable of operating at water depths at up to 1,000 feet. In May 2013, we entered into an agreement that includes the acquisition of another premium jack-up drilling rig, which is currently under construction, and we expect to take delivery of the drilling rig by May 2014. The newly acquired drilling rig is designed to operate at water depths of up to 400 feet. In addition, our jack-up drilling rigs have the capability to be modified to operate under HPHT conditions, and we expect our newly acquired drilling rig to have a similar capability. The average age of the jack-up drilling rigs of our regionally focused competitors is approximately 18 years according to Douglas-Westwood. Since our jack-up drilling rigs have an average age of approximately 2 years, we believe that our comparatively young and modern drilling rigs can generate higher day rates and incur lower maintenance costs when compared to older jack-up drilling rigs. More stringent regulations after the 2010 Deepwater Horizon oil spill in the Gulf of Mexico have contributed to growth in the demand for premium drilling rigs. Companies have shown a willingness to pay premium day rates for the additional capabilities that newer rig units can offer, such as higher hook load, extended cantilever reach and increased flexibility for off-line activities. To improve the competitiveness and extend the working life of our fleet, we periodically enhance our existing rigs, such as the recent completion of the deepdish conversion on NAGA 1.
We own a collection of quality oilfield services assets, including a threading facility in Labuan, Malaysia, with 22 CNC lathe machines. Our Malaysian and Chinese threading facilities own quality equipment characterized by their high precision and accuracy capabilities.  Together with our 301 experienced and skilled technical employees as at the LPD, we are able to provide our customers with reliable and efficient services, and develop and maintain our position as a leading provider of oil and gas services in Malaysia. We are highly committed to developing talent internally and investing in the training of our employees to ensure continued availability of highly skilled engineers and drillers, which we believe provides us with a critical competitive advantage and complements our high quality asset base. Our key drilling personnel are certified by international certification organisations, including IWCF and IADC. Continuous training and development of our employees is encouraged through various technical programmes. We are establishing the first dedicated drilling academy in Malaysia which will be operated by our subsidiary UDA, and we believe that the development of local talent provides us with a relative cost advantage compared to international competitors We expect the combination of modern assets and skilled employees to facilitate new contract awards and attractive day rates, while helping us to maintain our operating efficiency. During 2012 and up to the LPD, NAGA 2 and NAGA 3 achieved operating efficiencies of above 97%·
Note: * Operating efficiency is calculated as the actual operating hours divided by total available hours (in accordance with the relevant agreement’s terms) during the period while the drilling rig is in operation.
7.2.5 Our strong contracted backlog, with high quality customers, provides cash flow stability
Our drilling rigs are contracted to our customers for periods between a few months and five years. We have and continue to develop a strong contracted backlog that currently consists of contracts for all of our offshore drilling rigs. Our contracted backlog, or future contracted revenues, reflects firm commitments represented by signed drilling services contracts and has been calculated by multiplying the contracted operating day rate by the number of days in the remaining contract period, assuming full utilization throughout the relevant period. As at 30 June 2013, our contracted backlog totalled approximately RM 1,471.3 million. Additional details on our contracted backlog can be found in Section 12.2.13 of this Prospectus.
These customer commitments provide us with stable and recurring cashflows for the coming years and a high degree of revenue and earnings visibility. Our blue chip customer base includes subsidiaries of some of the most sophisticated and credit­worthy international oil and gas companies including PETRONAS, HESS, Petrovietnam, Shell, Murphy Oil and Vietsovpetro.
7.2.6 The complementary activities in workover and oilfield services provide additional growth opportunities
In addition to providing drilling services, we also provide hydraulic workover services and various oilfield services, including premium connections threading, inspection and repair services for OCTG. These activities complement our drilling services and enable us to offer customers a wide range of oil and gas related goods and services. Douglas-Westwood expects demand for workover units in South East Asia to grow at a CAGR of 7% during the period of 2013-2018 due to the increasing number of development wells to be drilled as part of EOR efforts and South East Asia’s relatively aging oil and gas wells. We believe we are well positioned to benefit from the opportunities arising from increasing demand for workover services, as we are currently the sole Malaysian owner and operator of HWUs and a PETRONAS­licenced provider of HWU services.
Our oilfield services division is active and holds key licences in selected countries such as Malaysia, Thailand and China. We believe we will benefit from the expected increasing oil exploration and production spending through growing demand for threaded pipes in these selected markets. During 2013-2018, Douglas-Westwood expects total expenditures on threading in Malaysia to grow at a CAGR of 4%, in China at a CAGR of 5% and in Turkmenistan at a CAGR of 3%. In addition, we believe that drilling and exploration activities in Malaysia are moving towards high­end and complex wells, and in China towards onshore gas wells due to the strong development of unconventional gas, which we expect to induce more premium connections applications that augur well for our oilfield services operations.
7.2.7 We have an experienced management team in place
We have a highly-qualified management team with experience in various senior leadership and operational positions in the oil and gas sector. We believe that our management team’s significant industry experience enhances our ability to effectively operate on an international basis and will playa key role in the further success and growth of our Group. Our Group is headed by Rohaizad bin Darus, who has over 23 years of experience in the oil and gas industry and was previously Chief Executive Officer of Oil & Gas Construction Services at SapuraCrest Petroleum Berhad.
Our drilling services division is led by Noor Azlan bin Adnan who has over 32 years of domestic and international experience in the oil and gas sector with Seadrill and Esso. He is supported by a team of able and competent heads of the offshore drilling and workover operations. For our jack-up drilling rigs, all our rig managers have extensive hands-on experience on the drilling floor. Among them, they have accumulated an average of around 24 years of relevant offshore drilling experience while serving major drilling companies worldwide such as Seadrill, Parker Drilling, Aban Offshore, Premium Drilling and Seawolf in various locations globally. Our workover team is headed by Hadj Laroui who has approximately 16 years of experience working in jack-up and land drilling rig operations, and also in the construction of drilling rigs.
Our oilfield services division is led by Abdul Mutalib bin Idris who has 21 years of experience in the oil and gas sector with, among others, PETRONAS, Esso Production Malaysia and Nippon Oil Exploration. Almost all the heads of our subsidiaries in this business are technically-educated in various local and overseas colleges, and have on average 12 years of experience mainly within our oilfield services business. We believe that their strong entrepreneurial outlook and industry pioneering experience have assisted them to establish international platforms for our Group in Thailand, China and Turkmenistan.
7.3 BUSINESS STRATEGIES AND FUTURE PLANS
Our aim is to strengthen our competitive position and to become a global shallow and deepwater drilling and oilfield services provider-of-choice for the oil and gas industry. We intend to achieve our aim through the following strategies:
7.3.1 Solidify market leadership in Malaysia and further expand into the broader Asia Pacific region to capitalise on favourable industry conditions
The Government’s ETP has identified the oil and gas industry as one of the National Key Economic Areas and an important revenue contributor to the federal budget on the back of building a sustainable energy platform. As a result, we expect the ETP to further accelerate the development of the Malaysian oil and gas industry, leading to a significant increase in investment in the sector. The ETP’s impact is most clearly outlined by PETRONAS’ commitment to a five-year investment programme to spend a total of RM300 billion in an effort to increase its production. We believe that PETRONAS’ programmes on EOR, the development of small fields and intensifying exploration activities will result in a sizeable increase in the demand for our drilling rigs, workover and oilfield services.
We are the first Malaysian owner and operator of jack-up drilling rigs in Malaysia. We believe that our leading market position in Malaysia and proven execution track record in overseas regions such as Indonesia and Vietnam will enable us to capitalise on the favourable industry outlook for oil and gas services not only in Malaysia, but also in the broader Asia Pacific region. Following the period of high oil prices witnessed in 2008, national energy security has become an increasingly important focus area for many countries in Asia Pacific. As a result, we believe national oil companies in Asia Pacific countries such as Malaysia, Indonesia, Thailand and Vietnam have accelerated their oil and gas exploration programmes, resulting in increasing drilling activity levels. We believe that the increased drilling activity levels represent further business opportunities for us.
We intend to increase our market penetration in Malaysia, and we plan to seek opportunities to expand our geographic focus in selected markets in the Asia Pacific region, including through upgrading and expanding our fleet of drilling rigs. We believe our high quality asset base, including our relatively modern jack-up drilling rigs, our central location within the Asia Pacific region and our proven capabilities in international offshore operations, will enable us to win contracts from customers in key oil and gas exploration markets within South East Asia such as Indonesia, Thailand, Myanmar and Vietnam.
We focus on the following strategies for our two core businesses, namely drilling services and oilfield services:
7.3.2 Manage day rates and utilization to drive revenue growth and profitability in drilling services
Since 2009, with the acquisition of NAGA 2, our strategy of investing in a fleet of premium jack-up drilling rigs has enabled us to become the leading Malaysian owner and operator of premium jack-up drilling rigs, while developing valuable industry experience and building a strong reputation for operational and technical excellence. The strength of our fleet and capability of our staff, together with favourable market conditions, have contributed to the continued demand for our drilling rigs, resulting in our drilling services division becoming the key contributor to our revenue and profitability.
The principal strategy for our drilling services division is to optimize day rates and fleet utilization. We aim to achieve this by striking a balance between the shorter term contracts that provide us with the opportunity to capture the upside from higher contract rates in an improving market, versus the longer term contracts that provide greater earnings visibility and revenue stability. We also seek to achieve this goal by leveraging on our strong domestic market position, continuously improving our fleet’s technical capabilities and employees’ expertise and consistently delivering a high standard of customer service. In addition, we believe that our strategy to deploy part of our fleet outside Malaysia will enhance our international credentials and provide us with greater flexibility to pursue a wider range of attractive drilling contracts within the Asia Pacific region. We believe that customer satisfaction with our performance is evidenced by our track record of contract extensions. For example, PETRONAS Carigali extended its contract on NAGA 1 in November 2010 for a further five years and in April 2013 for an additional two years to August 2018, as well as its contract on NAGA 3 in March 2012 for another two years to March 2014, and PV Drilling extended its contract on NAGA 2 in September 2013 for an additional six months to June 2014. Furthermore, we secured a three-year contract (with a two-year optional extension) with PETRONAS Carigali in April 2013 for our new high specification jack­up drilling rig NAGA 4. We aim to optimise fleet utilisation by minimising downtime due to contract renewals and equipment breakdown. During 2012 and up to the LPD, NAGA 2 and NAGA 3 have been operating at average efficiency rates of more than 97%.>
Note: > Operating efficiency is calculated as the actual operating hours divided by total available hours (in accordance with the relevant agreement’s terms) during the period while the drilling rig is in operation.
7.3.3 Continue to develop and further expand our asset base
We intend to further develop our asset base by continuing to invest in upgrading our existing rig fleet, and also by acquiring drilling rigs at competitive prices in order to take advantage of opportunities in new markets as well as to meet the industry’s increasing technical requirements. Our rig acquisition strategy is opportunistic, as we may consider purchasing either existing rigs or acquiring the option for newbuilds, depending on the potential investment returns as well as the outlook for the oil and gas industry. We also intend to ensure a high degree of certainty regarding customer commitment through our discussions with our potential clients and other market intelligence before investing in new rigs. In February 2013, we took delivery of NAGA 4, a high-specification, modern jack-up drilling rig which is able to operate in water depths of up to 400 feet with a drilling depth of up to 30,000 feet and has the capability to be modified to operate in HPHT conditions. In May 2013, we also entered into an agreement that includes the acquisition of another premium jack-up drilling rig, which is currently under construction, and we expect to take delivery of the drilling rig by May 2014. The newly acquired drilling rig is designed to operate at water depths of up to 400 feet with a drilling depth of up to 30,000 feet and to have the capability to be modified to operate in HPHT conditions.
We see our ability to procure rigs on a timely and financially attractive basis as key to the long-term success of our drilling services business. Going forward, our strategy is to primarily own and operate the drilling rigs we acquire. We will also consider participating in selected joint ventures for market expansion when the opportunity arises. We are planning to selectively grow our modern fleet at competitive prices in line with market demand to consolidate our market leadership position as well as to expand into markets within the Asia Pacific region. We intend to use part of the proceeds from the Public Issue for the acquisition, upgrading and maintenance of drilling rigs and HWUs.
7.3.4 Further develop our oilfield services business In addition to Malaysia, we carry out our oilfield services activities in countries with growth potential such as China and Turkmenistan. We expect our business to benefit from the growing demand for pipe threading as a result of increasing oil and gas exploration and production spending in these markets. In Malaysia, as PETRONAS continues to embark on the development of small fields and EOR projects to improve recovery rates at existing oilfields, we believe these activities will drive demand for our threading services for pipes. We aim to continue to win new premium connection licences, improve the operating efficiencies of our plants and expand into new markets to enhance our oilfield services division. We expect the division to provide a recurring and sustainable stream of income which will moderate the impact of fluctuations in other parts of our business.
Additionally we focus on the following general strategies across our businesses:
7.3.5 Solidify our relationships with PETRONAS and other international oil and gas companies
We expect to derive a significant portion of our future revenue from contracts with PETRONAS and other international oil and gas companies in the ASEAN region. These customers tend to take a long-term approach to oil and gas exploration, with multi-year development programmes and capex commitments, which we believe will enhance the likelihood of our ability to secure attractive drilling contracts over the long term.
PETRONAS and its subsidiaries are, and we believe will continue to be, major customers for our core businesses, as evidenced by the fact that NAGA 1, NAGA 3 and NAGA 4 are contracted to PETRONAS Carigali. We also intend to follow PETRONAS outside Malaysia as their trusted oilfield services provider, and we have successfully demonstrated this strategy in Turkmenistan, where we support the operations of a subsidiary of PETRONAS with OCTG threading, inspection and repair services. We aim to increase our technical capabilities and maintain our quality operational standards in order to continue to win future contracts from PETRONAS.
In addition to PETRONAS, we believe that it is also critical for our continued success to add other international oil and gas companies that are operating in the ASEAN region to our customer portfolio for the drilling services business, such as our contracts for NAGA 2 with a subsidiary of HESS in Indonesia and in Vietnam with a subsidiary of Petrovietnam to drill wells for the end-client Hoang Long Joint Operating Company. For our oilfield services, we also managed to further broaden our international customer base to include Chevron and PTTEP. In line with this strategy, as we increase our fleet size and oilfield services capabilities, we aim to attract more international customers by increasing our efforts to market our local platforms and international experience. We believe that our experience with international customers facilitates additional follow-up projects once we have adopted those customers’ systems and requirements. We believe that diversifying our customer base will contribute to further business growth while simultaneously reducing concentration risk.
7.3.6 Focus on HSE standards Customers in the oil and gas industry are demanding more stringent HSE practices as a result of increasing regulations and recent high profile accidents. We believe that a strong HSE culture and reputation is crucial for us to win business from our customers. We aim to continuously improve our HSE performance through the implementation of our HSE Management System, which encompasses our framework of procedures, practices and standards to identify, organise and control potential hazards in a proactive manner. This includes key safety system elements such as management and employee training, inspections, safety and incident analysis, incident investigation, emergency preparedness, protective equipment, health controls, group meetings, promotion of safety cUlture, and environmental protection. We have also clearly outlined the key objectives and responsibilities of our employees. Our focus is on delivering projects on time and within cost without sacrificing our stringent standards in HSE, which is evidenced by HSE certifications received from PETRONAS and IADC.
To further improve our HSE performance, a concerted effort is undertaken throughout our operations emphasising personal safety, identification of safety risks and specification of critical control measures. We are also intensifying our efforts in the area of assurance, where corrective action plans are reviewed and also on continuous HSE awareness campaigns with tailor-made trainings conducted at worksites. Visibility of management commitment is enhanced through management HSE site visits. To ensure a safe and healthy work environment, we have established monitoring programmes and medical clinics on site.
As we expand our business, we seek to deliver an exceptional customer experience by consistently meeting or exceeding customers’ expectations for operational performance that includes maintaining the highest HSE standards and eliminating workplace incidents and injuries. This is in line with requirements of national and international oil and gas companies.
7.4 HISTORY AND MILESTONES
The history of our oil and gas businesses can be traced back to 1988 when our Wholly-owned subsidiary UOS (then a subsidiary of the UMWH Group) began providing OCTG threading, inspection and repair services in Labuan, Malaysia. In 2002, UMWH made a concerted effort to make its oil and gas business a key platform to spearhead its future growth.
In the drilling services business, the UMWH Group acquired UPD, a company providing workover services for oil and gas wells, in 2002. In 2005, the UMWH Group acquired a 50% ownership interest in the semi-submersible drilling rig NAGA 1 and a majority interest in UJD, whose main business is to provide drilling services by operating NAGA 1. The UMWH Group continued to expand its offshore drilling fleet in subsequent years, taking delivery of NAGA 2 in 2009, NAGA 3 in 2010 and NAGA 4 in 2013 and entering into an agreement in 2013 that included the acquisition of a fourth premium jack-up drilling rig. The UMWH Group also acquired UPD, which then owned UP GAIT I in 2002 and took delivery of UP GAIT II in 2004, UP GAIT III in 2008 and UP GAIT V in 2010.
In the oilfield services business, leveraging on the experience of Labuan-based UOS and subsequent operations in Thailand started by UOT in 1997, the UMWH Group ventured into China in 2002 to provide OCTG threading, inspection and repair services through its wholly­owned subsidiary UOS-TJ in Tianjin, which was the UMWH Group’s first wholly-owned oil and gas entity in China. In 2006, another OCTG threading, inspection and repair outfit, UOS­TK, was established in Turkmenistan.
Our Company was incorporated in Malaysia under the Act on 12 November 2009 as a private limited company under the name UMW Oil & Gas Corporation Sdn Bhd, and was converted into a pUblic limited company on 14 May 2013. Prior to the IPO, our Company was a wholly­owned SUbsidiary of UMWH, which reorganised its oil and gas operations to locate the businesses described above under our Group.
The following table highlights our key dates and milestones:
Key dates Milestones 1988 • UOS commenced operations in Labuan, Malaysia, providing OCTG threading, inspection and repair services. 1997 • UOT commenced operations in Thailand, providing OCTG threading, inspection and repair services. 2002 • UPD, which provides workover services for oil and gas wells, was acquired. UPD owned UP GAIT I at the time of the acquisition. • UOS·TJ commenced operations in Tianjin, China, providing OCTG threading, inspection and repair services. 2004 • UP GAIT II was delivered. 2005 • We acquired a 50% ownership interest in NAGA 1, and a majority interest in UJD, which provides drilling services through its operat;’on of NAGA 1. 2006 • UOS-TK commenced operations, providing OCTG threading, inspection and repair services, mainly in support of the operations of PETRONAS’ SUbsidiary in Tu rkmenistan. 2008 • UP GAIT III was delivered. 2009 • NAGA 2 was delivered. 2010 • NAGA 3 was delivered. • UP GAIT V was delivered. 2013 • NAGA 4 was delivered.
• We undertook the Internal Reorganisation.
• We entered into an agreement that includes the acquisition of a fourth premium jaCk-up drilling rig, which is currently under construction, and we expect to take
delivery of the drilling rig by May 2014.
7.5 CORPORATE STRUCTURE
We are an investment holding company and conduct our business through our operating subsidiaries. We are primarily engaged in two areas of business:
(i) drilling services (including agency services); and
(ii) oilfield services.
For further information about our corporate structure, see Section 6.2 of this Prospectus.
7.6 DRILLING SERVICES BUSINESS
In our drilling services business:
(i) we drill offshore wells using one semi-submersible drilling rig, NAGA 1, which we jointly own and operate with a subsidiary of JDC, and three premium jack-up drilling rigs, NAGA 2, NAGA 3 and NAGA 4, which we wholly own and operate;
(ii) we provide workover services for offshore wells with our fleet of four HWUs: UP GAIT I, UP GAIT II, UP GAIT III and UP GAIT V; and
(iii) we provide specialised subsea, surface and offshore production equipment and related services, including riser maintenance, as an exclusive agent for Dril·Quip in Malaysia, and provide horizontal drilling services as agent for Cougar Drilling Solutions.
We are an offshore drilling and workover service contractor. We provide our drilling rigs and crews to drill exploration, development and production wells. We provide our HWUs and crews to conduct workover on existing wells. These services are provided on a contract basis to oil companies engaging in offshore exploration and production activities in South East Asia. As a service provider, our customers compensate us for the delivery of these services, primarily on a daily rate basis, irrespective of whether oil or gas is produced, and we do not have any beneficial interest in the oil and gas produced through these operations. The following table sets forth the number of rigs and utilisation rates for each of our rigs for the periods indicated.  FYE 31 December  FPE 30 June  2010  2011  2012  2013  Number of rigs(1)  Semi-submersible  1  1  1  1  Premium jack-up  2  2  2  3(2)  HWU  4  4  4  4  Total number of rigs  7  7  7  8
Utilisation rates(:!.) Semi-submersible 28%(4)NAGA 1 96% 100% 90% Premium jack-up 26%(5) 80%(6)NAGA2 100% 98% 55%(7)NAGA3 N/A 97% 96% NAGA4(8) N/A N/A N/A 48%(91 HWU 43%(10)UP GAIT I 0% 0% 100% 25%(11)UP GAIT II 100% 100% 100% UP GAIT III 92% 66% 65% N/A(12) 75%(11) 14%(13)UPGAITV N/A N/A
Notes: (1) As at period-end.
(2) In May 2013, we entered into an agreement that includes the acquisition of a fourth premium jack-up drilling rig, which is currently under construction, and we expect to take delivery of the drilling rig by May 2014.
(3) For the FYE 31 December 2010, 2011 and 2012, utilisation rates were calculated by dividing the total number of operating days in a particular year by 365, and for the FPE 30 June 2013, utilisation rates were calculated by dividing the total number of operating days in the period by
181.
(4) From April 2012, NAGA 1 underwent a deepdish conversion, together with other related major upgrading works, which were completed in January 2013, after which NAGA 1 re-commenced operations with PETRONAS Carigali
(5) NAGA 2 commenced operations in September 2010 under a contract with HESS (Indonesia­Pangkah).
(6) NAGA 2 commenced operations in June 2013 under a contract with PV Drilling, after completing a previous contract with HESS (Indonesia-Pangkah) in April 2013.
(7) NAGA 3 commenced operations in March 2011 under a contract with PETRONAS Carigali.
(8) We took delivery of NAGA 4 in February 2013.
(9) NAGA 4 commenced operations in April 2013 under a contract with PETRONAS Carigali.
(10) UP GAIT I commenced operations in July 2012 under a contract wilh P. T Saptawell Tehnicatama.
(11) Pursuant 10 contracls with PETRONAS Carigali, UP GAIT II operated lor the lirst quarter 01 the FYE 31 December 2012 and UP GAtT V operated for the remainder of the FYE 31 December 20f2 while UP GAIT It was undergoing scheduled maintenance.
(12) UP GAIT /II commenced operalions in July 2013 under a contract with PVD Trading and Technical Services Joint Slack Company.
(13) In June 2013, UP GAIT V commenced a new call-oul contract with PTTEP. A call-out contract requires us to make the HWU available so long as the contract is in force and allows the cfient to specify the timing of the HWU’s deployment, subject to a minimum number of weils to be serviced or operating days. Once the unit is deployed under a call-out contract, we are paid a day rate for days we operate the unit and are paid a stand-by rate it the unit is deployed but does not operate.
7.6.1 Offshore Drilling Services
Drilling is an important operation during the exploration and production stages of an oil or gas field. It is used to establish the presence of accumulation of oil or gas, to assess their volume and to build a long-lasting and stable well that connects an oil or gas reseNe to a well head. The efficiency of drilling operations has a material impact on the time span of a project, and drilling usually accounts for a large portion of the overall costs of exploring and developing an oil or gas field.
The following table sets forth the key specifications for our offshore drilling rigs as at the LPD. Key specifications Rig type Mode Rated water depth (It) Rated drilling depth (It) Variable load (MT) Blowout preventer max pressure (psi) Mud pump capacity Mud pumps Top drive Crew accommodation (people) Construction date (year) Delivery date (year) Designer Classification Shipyard Counlry of registration Latest modification and year done NAGA1 Semi-submersible Milsubishi 25-SP propulsion-assisted twin lower hull, 8 column, stabilised semi­submersible drilling unit 1,000 30,000 5,370 10,000 3 x 1,600 HP 3 x Continental Emsco Triplex FB-1-600, each driven by two 600 KW DC motors Va rca TDS-4S, 45,500 It-Ibs continuous torque at 115 rpm, 13,800 It-Ibs at 270 rpm, GE752 high torque DC motor 1,100 HP 120 1974 1974 JOC and Mitsubishi Heavy Industries A1, ABS Mitsubishi Heavy Industries, Hiroshima, Japan Panama Deepdish conversion, replacement of derrick and deck cranes and installation of third mud pump and iron roughneck (2012-2013) NAGA2 Premium jack-up MSC-CJ46-X100D 350 30,000 3,500 15,000 3 x 2,200 HP 3 x NOV 14P-220 TDSS-SA 120 2007 2009 GustoMSC A1, DNV PT DryDocks World Graha, Batam, Indonesia Singapore Additional anchor winches and lifeboat installations (2013) NAGA3 Premium jack-up MSC-CJ46-X1000 350 30,000 3,500 15,000 3 x 2,200 HP 3 x NOV 14P-220 TDS8-SA 120 2007 2010 GustoMSC A1,ONV PT DryOocks World Graha, Batam, Indonesia Malaysia N/A NAGA4 Premium jack-up KeppelFELS B class 400 30,000 3,402 15,000 3 x 2,200 HP 3 x LEWCO W-2155 Triplex TOS8-SA 150 2011 2013 KeppelFELS A1, ABS Keppel FELS, Singapore Malaysia N/A 86
7.6.1.1 Semi-submersible drilling rig
Our semi-submersible drilling rig, NAGA 1, is Jointly-owned 50% by our wholly-owned subsidiary UOC and 50% by a subsidiary of JOC. It is operated by our subsidiary UJO, which is 85%-owned by us and 15%-owned by JOC.
NAGA 1 was delivered in 1974 and underwent a major upgrade from Apnl 2012 to January 2013 It consists of an upper working and living quarters deck resting on vertical columns connected to lower hull pontoons. When the pontoons and columns are filled with water, the unit becomes “semi-submerged” to a predetermined depth, so that the lower hull is below the waterline and the upper deck protrudes above the surface. NAGA 1 is a “moored” semi-submersible drilling rig, meaning it is positioned over the well head location with mooring chains and anchors. This arrangement is in contrast with a dynamically positioned semi-submersible drilling rig, which is positioned over the well head location by a computer-controlled thruster system. As a moored semi-submersible drilling rig, NAGA 1 is connected to a well head through a riser, and moves in tandem with the sea motion. The unit’s drilling equipment, mud system and living quarters are installed on the upper hull deck, while ballast tanks, thrusters and sea water pumps are equipped in the lower hulls. The lower hull has the buoyancy capacity to float and support the upper hull equipment. The drilling rig is self-propelled and is capable of operating in water depths of up to 1,000 feet and drilling depths of up to 30,000 feet.
From April 2012, NAGA 1 underwent a deepdish conversion, together with other related major upgrading works, which were completed in January 2013. The deepdish conversion involved an innovative combination of pontoon-sponsons and integrated cross-bracing. This conversion was designed to strengthen NAGA 1’s structure, increasing its transit variable deck-load (the deck-load applicable when the rig is in transit) from 1,320 MT to 2,800 MT, survival variable deck-load (the deck­load applicable to the rig in survival mode under the harshest conditions) from 1,420 MT to 2,900 MT and operating variable deck-load from 2,470 MT to 3,200 MT. The conversion is also expected to increase NAGA 1’s durability and fatigue life by approximately 15 years.
In addition to jointly owning and operating NAGA 1, in November 2011, we provided expertise, materials, consumables and personnel in connection with the deployment of the HAKURYU-5 semi-submersible drilling rig under a contract with PETRONAS Carigali. HAKURYU-5 is owned by Hakuryu 5 Inc., a wholly-owned subsidiary of JOC. We entered into a bareboat charter arrangement to provide the drilling rig to PETRONAS Carigali, and we contracted with various suppliers for other materials and services to operate the rig. In line with our business strategy of focusing on operating our own drilling rigs, we discontinued this service for HAKU RYU-5 and novated our contract with PETRONAS Carigali to Petronnic, effective 1 February 2013.
7.6.1.2 Premium Jack-Up Drilling Rigs
We are the first Malaysian-owned drilling contractor owning and operating jack-up drilling rigs in Malaysia. Our subsidiaries own 100% of NAGA 2, NAGA 3 and NAGA 4, while our wholly-owned subsidiary UMWSO is the operator of all these three drilling rigs.
NAGA 2 was delivered in 2009, NAGA 3 was delivered in 2010 and NAGA 4 was delivered in 2013. A jack-up drilling rig is a mobile, self-elevating drilling platform that is towed to the drill site, with its hull riding in the sea as a vessel and its legs raised. At the drilling site, the rig’s legs are lowered to the ocean floor until a foundation is established to support the drilling platform. Once a foundation is established, the rig’s legs are raised or “jacked up” so that the drilling platform is above the highest expected ocean waves. After completion of drilling operations, the hull is lowered until it rests on the water, the legs are raised and the rig is relocated to another drilling site. The rig hulls of each of our premium jack-up drilling rigs are equipped with a drilling rig, jack-up system, crew quarters, loading and unloading facilities, storage areas for bulk and liquid materials, helicopter landing deck and other related equipment. Each of our jack-up drilling rigs has independent legs well-suited for harder or uneven seabed conditions and a cantilever design that permits the drilling platform to be extended out from the rig hull to perform drilling operations over certain types of pre-existing platforms or structures.
As premium jack-up drilling rigs, NAGA 2 and NAGA 3 have operating water depths of up to 350 feet and drilling depths of up to 30,000 feet. NAGA 4, our newest premium jack-Up rig, is capable of operating in water depths of up to 400 feet and drilling depths of up to 30,000 feet. In addition, NAGA 4 incorporates KeppelFEL’s advanced, fully-automated high capacity rack-and-pinion elevating system and its self-positioning fixation system. All our premium jack-up rigs have the capability to be modified to operate under HPHT conditions.
In May 2013, we entered into an agreement that includes the acquisition of a fourth premium jack-up drilling rig, which is currently under construction, and we expect to take delivery of the drilling rig by May 2014. The neWly acquired drilling rig is designed to operate at water depths of up to 400 feet with a drilling depth of up to 30,000 feet. We also expect this drilling rig to have the capability to be modified to operate under HPHT conditions.
7.6.1.3 Current Deployment of Offshore Drilling Rigs
NAGA 1 has a five-year contract with PETRONAS Carigali that commenced in November 2010 under an extension of a contract that originally commenced in January 2006. This contract was extended until August 2016 and was later further extended for another two years until August 2018. From April 2012, NAGA 1 underwent a deepdish conversion and major upgrade and maintenance programme that was completed in January 2013, and it recommenced its operations with PETRONAS Carigali in offshore Malaysia, in January 2013.
NAGA 2 has a six-month contract with PV Drilling for the end-client Hoang Long Joint Operating Company that commenced in June 2013, with an option to extend the contract for another six months, and currently operates in offshore Vietnam. Hoang Long Joint Operating Company is a tripartite joint venture that is 41.0%-owned by Petrovietnam, 30.5%-owned by subsidiaries of SOCO International and 28.5%­owned by PTTEP. NAGA 2 previously operated under a contract with HESS (Indonesia-Pangkah), which commenced in September 2010 and ended in April 2013, to drill 7 wells, with an option to drill an additional 13 wells, in an offshore field in Surabaya, Indonesia.
NAGA 3 was awarded a one-year contract in March 2011 by PETRONAS Carigali, which was extended for two years, and currently operates in offshore Malaysia. In August 2013, PV Drilling issued a letter of award to UMWSD, as sub-contractor, to provide NAGA 3 for use by NPC to drill two wells, with an option to drill an additional two wells, in offshore Vietnam, commencing after the completion of the current contract with PETRONAS Carigali. NAGA 3 is expected to be mobilised for work under the contract for JVPC in the first half of 2014. Prior to the completion of our current contract with PETRONAS Carigali and before the commencement of the provision of our services for JVPC, NAGA 3 will undergo unscheduled repair work on a few of its ballast tanks in November 2013 for approximately three weeks. These repairs and their associated costs are not expected to have any impact on our contractual obligations under NAGA 3’s current contract with PETRONAS Car/gall and are also not expected to have a material impact on our financial performance for the FYE 31 December 2013.
NAGA 4, which was delivered in February 2013, has a three-year contract with PETRONAS Carigali that commenced in April 2013, with an option to extend the contract for another two years, and currently operates in offshore Malaysia.
The following table summarizes the relevant contracts for our offshore drilling rigs as at the LPD: Contract  Contract end date  Contract end date  Offshore  commencement  (excluding optional  (including optional  drilling rig  Contract type  Client  date  extension(s))  extension(s))  Area of operation  NAGA 1  Term  PETRONAS  November 2010(1)  August 2018  N/A  Offshore Malaysia  Carigali  NAGA2  Term  PV Drillingt’)  June 2013  December 2013  June 2014(3)  Block 16-1 and Block 9-2,  Offshore Vietnam  NAGA 314)  Term  PETRONAS  March 2011  March 2014  N/A  Offshore Malaysia  Carigali  NAGA4  Term  PETRONAS  April 2013  April 2016  April 2018  Offshore Malaysia  Carigali
Notes:
(1) The contract commenced its current term in November 2010 under an extension of a contract that originally commenced in January 2006.
(2) In March 2013, we entered into a contract with PV Driiling for NAGA 2 to drill wells for the end-client, Hoang Long Joint Operating Company
(3) In September 2013, PV Drilling extended the contract for NAGA 2 for an additional six months to June 2014.
(4) In August 2013, PV Drilling issued a leller of award to UMWSD, as sub·contractor, to provide NAGA 3 for use by JVPC to drill two wells, with an option to drill an additional two wells, in offshore Vietnam, commencing after the completion of the current contract with PETRONAS Carigali. NAGA 3 is expected to be mobilized for work under the contract for JVPC in the first half of 20 14. Prior to the completion of our current contract with PETRONAS Carigali and before the commencement of the provision of our services for JVPC, NAGA 3 will undergo unscheduled repair work on a few of its ballast tanks in November 2013 for approximately three weeks.
The following table sets forth the total revenue, total operating days and revenue per rig operating day for our offshore drilling rigs for the periods indicated. FYE 31 December FPE 30 June 2010 2011 2012 2012 2013 Offshore drilling rigs Aggregate revenue (RM in millions) 152.1 404.0 347.9 195.7 244.4 Aggregate operating days 445 930 816 468 562 Average revenue per rig operating day (RM in millions) 0.34 0.43 0.43 0.42 0.43
7.6.2 Drilling Process
Drilling is the process of cutting through the earth to create a borehole or well by applying pressure and rotation, using drill pipes with drill bits attached at the end. Weight is applied to the drill bit through the use of drill collars, which are thick-walled tubular pieces machined from solid bars of steel.
We have the in-house expertise and capability to undertake various forms of drilling activities for various types of wells. We are able to perform both vertical and directional drilling. While vertical drilling involves drilling vertically into the ground to access a targeted deposit, directional drilling involves drilling at an angle into the ground towards the targeted zone.
Operators, which are the companies that undertake oil and gas exploration and production projects, drill two basic types of wells, namely exploration wells to find new oil or gas reserves and development wells to prepare the discovered reserves for production, and we can drill both types of wells.
The drilling of oil and gas wells involves the following process:
Oil or Gas Preparation
Oil or Gas Well Exploration for Drilling* Testing Production* (Source: Douglas-Westwood)
Note:
Includes activities that are performed by a drilling service provider such as our company; other activities are performed by the operator or other contractors acting tor It.
(i) Oil or Gas Exploration: Before we provide our drilling services for an exploration well, an operator will conduct a geological survey of an area to determine the potential for oil or gas reserves and to identify specific target areas for drilling.
(ii) Preparation for Drilling: Following exploration, the operator selects a site, surveys it to determine its boundaries and conducts other studies, such as those related to environmental impact and legal jurisdiction. The operator then hires a drilling contractor with a self-contained mobile offshore drilling unit to drill exploration wells offshore. The operator chooses the location and supervises the around-the-clock drilling operations.
(iii) Drilling Exploration Well: The well is drilled using a drill string, which comprises connected lengths of drill pipes, a bottom hole assembly and a drill bit. Heavy weight drill pipes and drill collars, which are part of the bottom hole assembly, add weight and provide stability to the drill bit. As drilling proceeds and the well deepens. new sections of drill pipes are added to the ever-lengthening drill string. Drilling fluid or “mud” is continuously circulated down the drill pipes and back to the surface equipment using mud pumps to create hydrostatic pressure against formation pressure, cool the drill bit, flush out rock cuttings and carry the cuttings out of the hole. A steel casing is run into completed sections of the borehole and cemented into place. The casing provides structural support to maintain the integrity of the borehole and isolates underground formations. When the production hole reaches the planned total depth, the hole is cased with production casing, and well testing is performed to establish the well’s flow rate. Throughout the process, the risk of an uncontrolled flow from the reserve to the surface is controlled using blowout preventers, a series of hydraulically actuated rams that can close quickly around the drill string or casing to seal off a well. Please see the diagram below for an illustration of this process: 1 345 6
driled using a drill bit on the
connected lengths ~f drlll pipe.
3) Awide diameter casing (conductor casing) is lowered ,into the well after 10­20 melres and cemMted into place.
4 &5) /'” smallefdiarll~terbit \~lhen used to drill further before another $maUel~\~mel~r~ask1g tUb~ is cemented into place, Jhispr05~~~i~j~~peated.~ numb er of time s. 6) Once thewe)l.reaCf)esil~*,sired demh the production tubing can be towered)ntot~e ca~ing leaving an annulus,
(Source: Douglas-Westwood)
(iv) Oil or Gas Testing: Once drilling reaches the oil or gas reserve, tests are conducted to measure rock formations, determine characteristics of the reserve’s rocks and confirm the existence of an oil or gas reserve.
(v) Well Production: A well is completed to allow oil or gas to flow into the casing in a controlled manner. This is accomplished by lowering a perforating gun into the well, which is then set off to create holes in the casing through which oil or gas can flow. A small-diameter pipe called “tubing” is run into the hole as a conduit for oil or gas to flow up the well. A packer device is run down the outside of the tubing to the well’s production level, where it expands to form a seal around the outside of the tubing. A multi-valve structure called a “Christmas tree” is connected to the top of the tubing and cemented to the top of the casing to control the flow of oil or gas from the well.
7.6.3 Workover Services
We also provide workover services for offshore and onshore wells, which involve the use of HWUs and ancillary equipment to conduct well intervention operations. We offer and market our workover services on a standalone basis or as part of an integrated package including our HWUs, pedestal platform crane and accommodation work barge We are a PETRONAS-Iicenced provider of HWU services, with a “Category A” rating from PETRONAS Carigali, and we are the sole Malaysian owner and operator of HWUs.
The following table sets forth the key specifications for our HWUs as at the LPD. Key Specifications  UPGAITI  UP GAIT \I  UP GAIT III  UP GAIT V  Rig type  HWU  HWU  HWU  HWU  Blowout preventer max pressure (psi)  5,000  5,000  5,000  5,000  Mud pump capacity  300 HP  850 HP  420 HP  1,000 HP  Mud pumps  HT 400  Gardner Denver PZ-8  BJ Pacemaker  MKP-l000  Maximum puiling capacity (Ibs)  340,000  460,000  460,000  460,000  Maximum snubbing capacity (Ibs)  150,000  225,000  225,000  225,000  Stroke (ft)  12  10  10  10  Rotary torque and speed (ft-lbs)  15,000  22,000  22,000  22,000  Bore size  11-1/16″  14″  14″  14″  Construction date (year)  2000  2003  2007  2009  Delivery date (year)  2001  2004  2008  2010  Designer  Mateo Industrial Pte Ltd,  MicroCADD Engineering and  MicroCADD Engineering and  Canadian Energy Equipment  Singapore  Consulting Services,  Consulting Services,  Manufacturing, Dubai  Singapore  Singapore  Constructor  Mateo Industrial Pte Ltd,  MicroCADD Engineering and  MicroCADD Engineering and  Canadian Energy Equipment  Singapore  Consulting Services,  Consulting Services,  Manufacturing, Dubai  Singapore  Singapore  Country of registration  Malaysia  Malaysia  Malaysia  Malaysia
Our wholly-owned sUbsidiary UPD owns and operates our UP GAIT I, UP GAIT II, UP GAIT III and UP GAIT V HWUs. Our HWUs are modular, lightweight, easily mobilised between locations and able to be configured for rapid rig-up and rig-down for offshore and onshore operations. As platform deck space is usually limited, their modularity and compactness are features that are particularly important for offshore workover operations.
UP GAIT I has a one-year contract with P.T. Saptawell Tehnicatama and commenced operations under this contract in July 2012. From July 2013 until end September 2013, UP GAIT I operated on similar contractual terms for P.T. Saptawell Tehnicatama. UP GAIT I was demobilised at the end of September 2013. UP GAIT II has a multi-year contract extension with PETRONAS Carigali that commenced in July 2005, and in June 2013, PETRONAS Carigali issued a letter of award for the deployment of UP GAIT II for workover operations for two wells, which were expected to commence in direct continuation from the completion of workover operations under the existing contract. In August 2013, the contract with PETRONAS Carigali for UP GAIT II was amended, whereby the contract now covers the period from June to August 2013. The Company is currently seeking bids for a new contract. UP GAIT III completed a 2+1+1-year contract with PETRONAS Carigali for integrated workover services, which included the provision of a pedestal platform crane and accommodation work barge, in October 2012, and UP GAIT III currently has a two-year call-out contract, with a one-year optional extension, with PVD Trading and Technical Services Joint Stock Company to provide workover operations for a minimum of three wells and commenced operations under this contract in July 2013. UP GAIT V has a three-year call-out contract, with a one-year optional extension, with PTIEP and commenced operations in July 2013.
The following table summarises the relevant contracts for our HWUs as at the LPD. Contract  Contract end date  Contract end date  commencement  (excluding optional  (including optional  HWU  Contract type  Client  date  extension(s))  extension(s))  Area of operation  UP GAIT I  Term  P.T. Saptawell  July 2012  July 2013(1 )  N/A  Karmila A platformlfields,  Tehnicatama  Indonesia  UP GAIT II  Firm, Multi-well  PETRONAS Carigali  July 2005  June 2013  N/A  Semarang A-20 Multi  platformlfields,  Malaysia  Term  PETRONAS Carigali  June 2013  August 2013(2)  N/A  Semarang A-OS and Tukau  A-14 platformlfields,  Malaysia  UP GAIT III  Call-out(3)  PVD Trading and  JUly 2013  July 2015(4)  July 2016  Su Tu Vang field, Block 1S­ (minimum of  Technical Services  t, Offshore Vietnam  three wells)  Joint Stock  Company  UP GAIT V  Call-out(3)  PTTEP  July 2013  JUly 2016  July 2017  Bongkot, Greater Bongkot  (110 days  South, and G12/48, Gulf of  minimum per  Thailand  year)
Notes:
(1) From JUly 2013 to end September 2013, UP GAIT I operated on similar contractual terms for P T. Saptawell Tehnicatama. UP GAIT / was demobilised at the end of September 2013.
(2) In June 2013, PETRONAS Carigali issued a leiter of award for the deployment of UP GAIT” for workover operations of two wells, which were expected to commence in direct continuation from the completion of workover operations under the existing contract. In August 2013, the contract with PETRONAS Carigali was amended, whereby the contract now covers the period from June to August 20 13. The Company is currently seeking bids for a new contract.
(3) A caf/-out contract requires us to make the HWU available so long as the contract is in force and allows the client to specify the timing of the HWU’s deployment, subject to a minimum number of wells to be serviced or operating days, as specified in the relevant contract. Once the unit is depioyed under a call-out contract, we are paid a day rate for days we operate the una and are paid a stand-by rate if the unit is deployed but does not operate.
(4) UP GAIT III has a two-year call·out contract, with a one-year optionaf extension, wah PVD Trading and Technicai Services Joint Stock Company to provide workover operations for a minimum of three wells.
The following table sets forth the total revenue, total operating days and revenue per HWU operating day for our HWUs for the periods indicated. FYE 31 December FPE 30 June 2010 2011 2012 2012 2013 HWUs Aggregate revenue (RM in millions) 38.1 33.8 40.1 18.6 16.3 Aggregate operating days 699 607 761 312 386 Average revenue per HWU operating day (RM in millions) 0.05 0.06 0.05 006 0.04
7.6.3.1 Workover Operations
Our workover operations include maintenance and services for existing wells in connection with:
(i) restoring and reworking a well to increase production and prolonging a well’s productive life, including by:
• deepening of a well; and
• re-completion of a well, in which a channel is established through which oil and gas may flow from a reservoir to the surface. Effective well re-completion protects the oil and gas reservoir, increases productivity and extends oil and gas production, thereby optimising commercial production;
(ii) stimulating a well to achieve planned and enhanced productivity, including by:
• re-perforations of a well to increase reserve flow to the borehole;
• washing well perforations to maximise reserve flow within perforations; and
• well stimulation;
(iii) repairing a well’s mechanical problems to restore and sustain production, including by:
• recovering lost wireline tools, parted coil tubing, production tUbing and drill pipes; and
• dislodging equipment trapped in a well; and
(iv) plugging and abandonment of a depleted well, including by assisting with cementing works to prevent the flow of water, gas or oil from one strata of a well to another when the well is abandoned.
Our workover operations are mainly conducted under killed-well conditions. During the well killing process, heavy-weight fluid such as filtered sea water is pumped into the well to suppress the positive pressure of the well until a near balance in well pressure is achieved. Under these killed-well conditions, we are able to safely conduct workover operations.
7.6.4 Agency Services
Through our subsidiary UPD, we are also an exclusive agent in Malaysia for Dril­Quip, a manufacturer of specialised subsea, surface and offshore production equipment based in the United States, and an agent for Cougar Drilling Solutions, a provider of horizontal drilling services based in Dubai, United Arab Emirates. In November 2012, Sabah Shell Petroleum awarded us a contract for the supply of a Single Combo Top Tension Riser manufactured by Dril-Quip for the Malikai Project, a deepwater drilling project in offshore Sabah, Malaysia. Our agency service for Cougar Drilling Solutions permits us to combine their horizontal drilling tool services with our HWUs to offer an economical alternative to conventional drilling that is capable of improving hydrocarbon recovery and accelerating oil or gas field production.
7.7 OILFIELD SERVICES BUSINESS
We operate our oilfield services business through subsidiaries that offer OCTG threading, inspection and repair services focused on premium connections.
OCTG are tubular products used in the oil and gas industry, such as drill pipes, casing, tubing, couplings and accessories. OCTG threading is the cutting of threads on tubular ends for connection purposes. Proper threading is critical for ensuring perfect seals on each connection. Premium connections with much higher accuracy and performance are applied for complex and demanding operating conditions. Inspection involves the process of ensuring that goods conform to specifications before the goods are used, and this is generally applicable to third-party inspection of new pipes, inspections to segregate used pipes that are reusable and re-inspection of goods that were stored for long periods. Repair services involve the process of recovering and rectifying all products that fail an inspection.
We provide the following services related to threading, inspection and repair
(i) threading;
(ii) swaging and stress relief, which involves cold working plain-end pipe to reduce its dimensions;
(iii) thread surface treatment, including the application of zinc phosphate, manganese phosphate, copper plating, zinc plating and sand blasting; (iv) bucking or make-up processes to tighten each joint or connection according to its specific torque; and
(v) other services, including inspection, testing (such as hydrostatic testing) and pipe maintenance.
7.7.1 UOS
Our wholly-owned subsidiary UOS provides premium OCTG threading, inspection and repair services at its two plants in Labuan, Malaysia, which have a total of 22 CNC lathe machines. In 1989, UOS became the first threading plant in Malaysia to be approved in meeting API Q1 and API 5CT specifications. UOS is accredited with ISO 9001:2008 and ISO 14001:2004, and is capable of threading various sizes of OCTG, with an outside diameter range of 2 and 3/8 inches to 20 inches, utilising a CNC lathe machine with high spindle speed to thread the internal or external diameter for tubing, casing and couplings.
In addition to threading of casing and tubing, manufacturing of couplings, swaging and stress relief and providing running inspection services, UOS also provides OCTG OSS integrated services, which include pipe maintenance for long-storage pipes, as well as re-inspection, coating and repair services.
The products serviced by our subsidiary UOS are primarily used by end-users in the Malaysian oilfield services and the suppliers market. The following table sets out the number of threaded joints by UOS for the periods indicated. FYE 31 December FPE 30 June 2010 2011 2012 2012 2013 No. of threaded joints 13,672 20,942 21,000 10,424 13,835
7.7.2 UOT
Our subsidiary UOT is a machine shop operator focusing on the repair of damaged threaded pipes and the threading of OCTG and accessories at its two plants in Songkhla and Sattahip, Thailand.
UOT provides its services for OCTG and accessories tools. The products it services are provided primarily to end-users in the oil and gas markets. The following table sets out the number of threaded joints by UOT for the periods indicated. FYE 31 December FPE 30 June 2010 2011 2012 2012 2013 No. of threaded joints 17,208 17,024 16,505 6,822 11,873
7.7.3 UOS-TJ
Our wholly-owned subsidiary UOS-TJ is the UMWH Group’s first oil and gas venture in China and owns a threading plant accorded with ISO 9001 :2008, API 5CT and API 7-1 accreditations and various premium connection threading licences from both Chinese and international licensors. UOS-TJ is a “one-stop shop” multi-premium connection threading base, and is qualified to thread a full series of API tubing, casing and drill pipes for its customers at its plant in the West Zone of the Tianjin Economic-Technological Development Area in Tianjin, China. UOS-TJ’s main business activities include accessories threading, inspection and other workshop­related services. UOS-TJ uses all imported high-end CNC lathe threading machines. It received an appreciation letter from Schlumberger China and one of the “best suppliers” award under Schlumberger’s global supplier system in 2012. UOS-TJ provides threading services for OCTG accessories. The products it services are primarily supplied to end-users such as oilfield service providers and operators, steel mills and oilfield equipment manufacturers, as well as trading houses. The following table sets out the number of connections serviced by UOS-TJ for the periods indicated.
FYE 31 December FPE 30 June 2010 2011 2012 2012 2013 ~~-~—-~-­Unit threaded (connections) 9,622 11,696 17,299 10,280 6,605
7.7.4 UOS-TK
Our subsidiary UOS-TK provides machine shop services for repair and threading of casing, tubing and oilfield accessories, tubular inspection and hardbanding of drill pipes and collars (which involves the depositing of hardfacing alloys onto these components to protect them from abrasive wear) at its workshop in Turkmenbashy, Turkmenistan. UOS-TK primarily supports the operations of PETRONAS’ subsidiary in Turkmenistan’s offshore fields in the Caspian Sea.
7.7.5 Licences
We have obtained licences from key international licensors in the threading industry, inclUding the API, VM, JFE, TenarisHydril, as well as local licensors in China, including Tianjin Pipe Company Ltd. and Baosteel. For further information about our major licences, please refer to Annexure A of this Prospectus.
7.7.6 Threading Process The threading of plain-end pipe involves the following process:
(Source: Douglas-Westwood)
(i) Reception: Plain-end pipe is received at our threading facilities.
(ii) Sawing: Plain-end pipe is sawed and cut to required lengths.
(iii) Swaging/Stress Release: Plain-end pipe is subjected to a swaging or stress release process, which involves cold working plain-end pipe to reduce its dimensions. This process is accomplished by rapidly hammering on the outside surface of the pipe until it reaches the desired measurements.
(iv) Threading: Threading of the plain-end pipe involves cutting threads around the circumference of the pipe, either on its inside andlor outside diameter, providing the pipe with screw-threaded ends for use with mechanical joints, couplings and hydraulic seals as well as protection against leakages.
(v) Bucking/Make-up: The bucking or make-up operation for pipe involves the use of special equipment to screw or tighten a connection between threaded coupling and pipe to produce joints.
(vi) Surface Treatment/Finishing: Threaded pipe is subjected to surface treatment or surface finishing according to product requirements, which can involve the application of zinc phosphate, manganese phosphate, copper plating and/or zinc plating. Threaded pipe may also be sand-blasted before the application of certain treatments to ensure its surface is free of rust and scale.
(vii) Inspect/on, Testing and Shipment/Delivery: Finally, threaded pipe is subjected to surface and dimension inspection to ensure its conformity with product requirements, and, at the request of the customer, threaded pipe may also be subjected to testing (such as hydrostatic testing to ensure its ability to withstand higher pressure), after which conforming products are packed for shipment or delivery.
7.8 SALES AND MARKETING
7.8.1 Drilling Services Business
Approximately 85%, 72% and 76% of the sales from our drilling services business were to clients in Malaysia for the FYE 31 December 2010, 2011 and 2012, respectively. Approximately 78% and 69% of the sales from our drilling services business were to clients in Malaysia for the FPE 30 June 2012 and 2013, respectively.
7.8.2 Oilfield Services Business
Approximately 10%, 47% and 49% of the sales from our oilfield services business were to clients in Malaysia for the FYE 31 December 2010, 2011 and 2012, respectively. Approximately 51 % and 45% of the sales from our oilfield services business were to clients in Malaysia for the FPE 30 June 2012 and 2013, respectively.
The following tables set out our revenues, both in Maiaysia and overseas, and as a percentage of total revenues of our drilling services business and oilfield services business for the periods indicated. See sections 12.2.4.2, 12.2.5(i), 12.2.6(i) and 12.2.7(i) of this Prospectus for a discussion of our revenues for the periods indicated, including factors that affected our revenues in Malaysia and various overseas countries.
Revenues in Malaysia and Overseas FYE 31 December 2010 2011 2012 %of %of %of Revenue revenue Revenue revenue Revenue revenue (RM in millions, except percentages) Malaysia 211.6 60.7 385.0 70.0 538.6 74.4 Turkmenistan 848 24.3 3.1 0.5 3.9 0.5 Indonesia 36.4 10.4 144.7 26.3 161.4 223 Singapore 11 0.3 2.2 0.4 2.3 0.3 Others 149 4.3 15.3 28 18.1 2.5 348.8 100.0 550.3 100.0 724.3 100.0Total revenues  FPE 30 June 2012 2013 Revenue % of revenue Revenue % of revenue _~::..c—‘-“:”:”:::=-=­(RM in millions, except percentages) Malaysia 293.2 76.5 218.6 67.2 Turkmenistan 16 0.4 1.6 0.5 Indonesia 78.2 W.4 ~.3 ~.3 Vietnam 10.8 3.3 Singapore 1.3 0.3 0.4 0.1 Others _____9’-‘.-‘-1 -‘-2.-‘-4. -‘-11’-‘.-‘-6 -‘-3.-‘-6 Total revenues 383.4 100.0 325.3 100.0 ~~~~~ ~~~~~
Our marketing strategy is to position ourselves as a key provider of support services and products for the oil and gas industry in Malaysia and the other markets in which we operate. We participate in and attend local and overseas industry exhibitions to cultivate relationships with new customers and maintain relationships with our existing customers and business partners. We also seek to expand our market presence overseas by developing new business opportunities by working in close collaboration with customers and partners. For example, in our drilling services business, we continuously participate in market surveys conducted by our clients and potential clients, through which we update them on our drilling assets and their potential availability to work on projects. Our participation in these surveys is frequently the basis of invitations to submit proposals when these parties put projects out for tender.
Our presence in various markets, primarily Malaysia, Thailand, China, Indonesia and Turkmenistan, enables us to promptly and effectively gauge existing and potential customer demand, and more effectively conduct targeted sales and marketing activities in particular markets. In addition, our presence in domestic and international markets assists us in our marketing and distributing efforts by providing customer support in the regions in which they operate.
7.9 SUPPLIERS AND CUSTOMERS
We rely on the supply of various products, raw materials and services for our businesses.
Our drilling services business relies on the supply of products, such as drill pipes, and services, such as manpower services, rig refurbishment services, tow boat services, accommodation work barge and catering services for offshore drilling rigs and HWUs. The prices of these products and services are generally volatile, as they are based on local or international market prices.
7.9.1 Major Suppliers
The following tables set out the suppliers who accounted for 10% or more of our total purchases, which consist of our total inventories used in operations and amounts paid to providers of bare boat charter services, providers of equipment, spare parts, outsourced manpower services, equipment repair and maintenance, warehousing, insurance, mobilisation and pre-mobilisation services, and providers of technical and procurement services for the periods indicated.
2010 2012 % of total % of total % of total Purchases purchases Purchases purchases __PurC?ha~es purchases (RM in thousands, except percentages) Suppliers Hakuryu 5, Inc.(1) 304 0.1 155,311 35.8 IHI Marine United!’) 84,700 19.5 JDC Panama!’) 29,045 11.1 45,450 15.7 14,275 3.3 JDC(4) 32,399 12.4 30,351 10.5 81,056 18.7 FPE 30 June 2012 2013 1%:1 of total % of total Purchases purchases Purchases purchases (RM in thousands, except percentages) Suppliers Hakuryu 5, Inc(1) 66,015 29.3 25,170 17.3 JDC(4) 41,241 18.3 28,263 19.4 IHI Marine United!’) 20,835 9.2 JOG Panama(3) 13,458 60 15,294 105
Notes:
(1) Provided HAKURYU-5 drilling rig on bare boat charter basis.
(2) Provided contracting services for NAGA l’s deepdish conversion.
(3) Provided NAGA 1 drilling rig on bare boat charter basis.
(4) Provided technicat and procurement services and personnet for NAGA 1.
We are dependent on providers of specialty equipment and parts, including top drives and related parts from National Oilwell Varco and blowout preventers and related parts and supplies from Cameron.
7.9.2 Major Customers
Customers for our drilling services business include PETRONAS Carigali and other contractors engaging in exploration and production activities in South East Asia. In our oilfield services business, we also provide services to PETRONAS Carigali and other contractors operating in waters off Sabah, Malaysia. The following table sets out the customers who accounted for 10% or more of our total revenues for the periods indicated.
FYE 31 December ___–‘–‘-=-=-c===.. _…_… .__ 2010 2011 2012._……_ ._ … ::..::.c_=____ % of total % of total % of total Revenues revenues Revenues revenues Revenues revenues (RM in thousands, except percentages) Customers PETRONAS Carigali 189,514 54.3 372,824 67.8 494,743 683 HESS (Indonesia-43,084 12.4 140,020 25.4 146,813 20.3 Pangkah) FPE 30 June 2012 2013 (Yo of total % of total Revenues revenues Revenues revenues (RM in thousands, except percentages) Customers  PETRONAS Carigali  239,793  62.6  214,572  66.0  HESS (Indonesia­ 74,208  19.4  53,303  16.4  Pangkah)*
Note: * Our contract with HESS (Indonesia-Pangkah) ended in April 2013.
We are dependent on PETRONAS and its subsidiaries as our key customers.
7.10 COMPETITION
The businesses in which we operate are competitive. The companies in these businesses typically compete for customers and market share on the basis of experience, past performance, safety record and practices, reliability, range of services, technical support and price. In our drilling business, we compete against global and regional drilling contractors in the South East Asian market, such as Ensco, Seadrill and Shelf Drilling. In Malaysia, among the global and regional competitors, Ensco, Seadrill and Shelf Drilling had market shares of 19%, 19% and 13%, respectively, based on the number of contracted Jack-up rigs* In certain markets, where local companies have established positions and may enJoy regulatory advantages, we compete with local drilling operators, such as Vietsovpetro and PV Drilling in Vietnam and Apexindo in Indonesia. Among these local competitors, based on the number of contracted jack-up rigs in their respective countries, Vietsovpetro had a market share of 29%, PV Drilling had a market share of 14% and Apexindo had a market share of 12%*
For our OCTG threading, inspection and repair services and pipe services, we compete with international companies in this sector, such as US-based Weatherford International, and regional competitors, such as Malaysia-based OMS Oilfield Services and the China-based Hilong Group.
Malaysia was the largest offshore oil and gas producer in South East Asia, and was the second largest exporter of LNG in the world at the end of 2012. The Government’s ETP has identified the oil and gas industry as one of the national key economic areas. As part of the ETP initiative, PETRONAS announced in June 2011 a capital expenditure plan that includes additional drilling of wells for EOR from existing fields and for the development of marginal fields, for which jack-up drilling rigs and HWUs are well suited. In line with growing demand for drilling rigs and HWUs is the increase in demand for oilfield services equipment, including threaded OCTG, for use in oil and gas operations.
Note: Source: Douglas-Westwood, IMR Report
The performance of the Malaysian economy and the potential for growth in Malaysia’s oil and gas sector has attracted potential competitors, including multinational groups, to explore opportunities in the development of the drilling services business and oilfield services business. Accordingly, competition for new projects and from new operations related to these businesses may increase in line with long-term economic growth in Malaysia.
We also expect to see increased competition in other markets in South East Asia, both from global and local players in these markets. Because of the specialised regulatory schemes applicable to the offshore drilling services business, prior experience in a jurisdiction is particularly important in winning new business in that jurisdiction. To compete successfully in these markets outside Malaysia, it is particularly important for us to establish and maintain good track records in these jurisdictions.
7.11 BUSINESS INTERRUPTIONS T
here has not been any material interruption to our business activities in the 12 months preceding the LPD.
7.12 RESEARCH AND DEVELOPMENT
Currently, we do not have any formal research and development facilities in place, and, accordingly, for the FYE 31 December 2010, 2011 and 2012 and the FPE 30 June 2013, we have not incurred any research and development expenditures.
7.13 QUALITY CONTROL AND CERTIFICATIONS AND RECOGNITIONS
Quality control is important to maintain our high level of performance with respect to our drilling services business and oilfield services business. As a company operating in industries utilising sophisticated technologies, quality control is paramount to our ability to consolidate our market position and our continued growth. We have invested in the necessary equipment and in implementing relevant methodologies to enhance our product quality, optimise the productivity of our facilities and equipment and meet our customers’ schedules and other demands. We conduct quality control inspections for the services that we provide to our customers, and we have established procedures for supervising and evaluating our provision of services. Our quality control policies have received a variety of certifications in relation to our operations.
Our drilling services business has received various certifications, including the following:
(i) ISO 9001 :2008 Certification from Bureau Veritas Certification for UPD (scope of supply: provision of HWU and services for oil & gas industry) (2010);
(ii) 1,000,000 Safe Manhours with Zero LTI for Workover Rig Operations of UP GAIT I and UP GAIT II from PETRONAS Carigali for UPD (2010);
(iii) ISO 9001 :2008 Certification from Lloyd’s Register Quality Assurance for UMWSD (scope of supply: management of mobile offshore drilling unit) (2010);
(iv) Health, Safety and Environment Special Award for 250 Days Free of Total Recordable Case from PETRONAS Carigali for UJD (2010);
(v) Bronze Award for Good Health, Safety and Environmental Performance and Contributions Towards PETRONAS Carigali Health, Safety and Environmental Performance from PETRONAS Carigali in 2010 and 2011 for UPD (2011);
(vi) Best Health, Safety and Environmental Performance Drilling Contractor from PETRONAS Carigali in 2011 for UJD (2011);
(vii) Outstanding Vendor Award 2011 from PETRONAS Carigali for UJD (2011);
(viii) Twelve Years with Zero LTI for NAGA 1 from 6 June 2000 to 5 June 2012 from IADC for UJD (2012); and
(ix) “Category A” Service Provider Rating from PETRONAS Carigali for workover services for UPD (2013).
Our oilfield services business has received various certifications, including the following:
(i) ISO 14001:2004 from BM TRADA for Environmental Management System of UOS (2010);
(ii) ISO 9001 :2008 Certification from the International Certification Network (IQ Net) for Quality Management System of UOS (2011); and
(iii) ISO 9001: 2008 Certification from SIRIM QAS International for Quality Management System of UOS (2011).
7.14 HSE MATTERS
We are committed to the health and safety of our personnel, protection of the environment and compliance with applicable laws and regulations. Our operations are subject to domestic and international regulations with regard to air and water quality and other environmental matters, and our drilling services business in particular is subject to nurnerous laws and regulations in the form of international conventions and treaties, dornestic and international regulations and domestic laws in force in the jurisdictions in which our offshore drilling rigs and HWUs operate or are registered. In addition, our customers, in particular oil and gas cornpanies that are the customers of our drilling services business, emphasis the safety records and quality management systems of their service and product providers. Many of these customers require their providers to obtain HSE certifications to evidence their adoption of HSE systems that identify occupational health and safety hazards, evaluate the impact of these hazards on the environment, the company and the employees and adopt procedures to mitigate these hazards. Therefore, injuries to our personnel, our physical assets and the environment in which we operate may disrupt our operations and pose a threat to our reputation.
To ensure compliance with applicable laws, regulations and customer standards, we have established and implemented a set of occupational HSE procedures. which require the provision of a safe working environment for our personnel, including:
(i) instructions and measures for safely operating offshore drilling rigs and HWUs;
(ii) implementation of STOP, under which supervisors and employees are trained to systematically observe people as they work, speak with them to correct unsafe actions and encourage safe work practices;
(iii) scheduled inspections and periodic drydock inspections or special examinations of our offshore drilling rigs by classification bodies using third-party inspectors and the witnessing and certification of our HWUs’ capacities by third-party inspectors, as well as other systematic inspections of our drilling rigs, HWUs, tools and equipment;
(iv) procedures for responding to emergencies and other problems arising from equipment malfunction, personnel error and the marine environment, either while on­site or during mobilization (such as capsizing, sinking, grounding, collision, piracy, damage from severe weather and marine life infestations);
(v) provision of adequate tools and equipment to our personnel;
(vi) implementation of appropriate work procedures to minimize our personnel’s exposure to certain health risk factors inherent to our drilling services business and oilfield services business;
(vii) regular health examinations of our personnel; and
(viii) preventative maintenance of our equipment and work sites.
We conduct both internal and third-party audits, and we review our HSE performance from time to time in view of the expansion and increasing complexity of our operations to ensure that we comply with relevant standards and applicable laws and regulations. We have adopted a HSE Management System to ensure that activities undertaken by us and their associated hazards have been systematically identified, organised and controlled, and can be audited by relevant regulatory authorities, our customers and ourselves. In addition, we encourage regular meetings regarding HSE issues. Monthly HSE meetings address various issues. such as reviews of hazards, presentations on safety SUbjects or potential quality improvements, and daily toolbox meetings communicate HSE topics to all employees by means of information placed on notice boards located in work areas. Quarterly HSE rneetings analyse incident statistics and reported hazards to identify trends that will allow us to direct resources productively to mitigate these incidents and hazards. We require our management and supervisory personnel to attend HSE training both on an initial basis and periodically within three years of their initial training. We also require our senior drilling and workover personnel, such as assistant rig managers, offshore installation managers, senior drillers, tool pushers, superintendents and supervisors, to participate in quarterly HSE meetings at least three times per year and our employees and contract staff to attend all HSE meetings and toolbox meetings.
The following table sets out our LTI frequency, total recordable case frequency and actual man hours worked for the periods indicated. This data is presented using methodologies adopted by the lADe, an organisation we belong to, the mission of which includes improving health, safety, environmental and training practices in our industry.
Eight months ended FYE 31 December  31 August  2010  2011  2012  2012  2013  LTI frequency!1}  1.2  1.7  0.6
Total recordable case frequenci2) 5.1 4.2 3.9 3.3 Actual man hours worked 986,875 1,657,937 1,799,274 1,205,423 1,643,141
Notes: (1) For a period, the LTI frequency is equal to the number of LTis multiplied by 1,000,000 and divided by actual man hours worked. LTis consist of fatalities, permanent total or partial disabilities and lost workday cases (excluding restn’cted workday cases).
(2) For a period, the total recordable case frequency is equal to the number of total recordable cases multiplied by 1,000,000 and divided by actual man hours worked. Total recordable cases consist of fatalities, permanent total or partial disabilities, lost workday cases (including restricted workday cases) and injury cases that require medical treatment.
Some of our operations, in particular, drilling, create or emit noise and wastewater, gas and dust (specifically, rock dust) and drilling fluids. It is common practice in the oil and gas industry for the well or oil or gas field owners and developers to clean up rock dust, drilling fluids, wastewater and other waste produced during the drilling process. We are not subject to these regulations specific to oil and gas exploration and production companies, as we are primarily service providers. Nevertheless, our oilfield services business is subject to certain environmental laws and regulations in jurisdictions where we have operations. These laws and regulations generally empower government authorities to impose fees for the discharge of waste, levy fines for offences or order closure of any facilities that fail to comply with related laws and regulations.
We are in compliance in all material respects with all applicable HSE laws and regulations regarding our drilling services business and oilfield services business. However, the adoption of new HSE laws and regulations, new interpretations of existing laws and regulations, increased governmental enforcement of laws and regulations or other developments in the future may require that we make additional capital expenditures or incur additional operating expenses or that we curtail our operations.
7.15 INSURANCE
We maintain insurance at levels that are customary in the businesses in which we operate to protect against various losses and liabilities that may arise from the risks and hazards of our operations. These risks and hazards include physical loss of, or damage to, our equipment and equipment belonging to third parties, liabilities arising from rig operation, industrial accidents and natural disasters. We generally maintain insurance for the equipment and infrastructure of our offshore drilling rigs, HWUs and facilities and worker’s compensation insurance in respect of death or injury to our employees in accordance with worker’s compensation regulations in Malaysia and the other jurisdictions in which we operate, as well as group term life and group personal accident policies. To determine appropriate insurance policies and levels of insurance coverage, we regularly employ risk management tor purposes of analysing the risks faced by our businesses.
For the FYE 31 December 2010, 2011 and 2012 and the FPE 30 June 2012 and 2013, we incurred an aggregate of RM5.8 million, RM11.0 million, RMll.4 million, RM5.6 million and RM7.3 million, respectively, in insurance policy premiums.
7.16 EMPLOYEES
The following table sets out our number of employees for the dates indicated. As at 31 December As at the Employee category 2010 2011 2012 LPD Senior managers and above 23 19 2322 Managers 28 27 33 49 General staff 256 260 295 318 Technical staff 233 253 263 301 Total 540 559 614 690
As at the LPD, we employed a total of 431 permanent staff and 259 contract staff. Permanent staff generally includes employees from all categories, while contract staff generally includes certain members of the technical staff and the general staff. Our permanent staff and contract staff were deployed in the following locations as at the LPD. As at the LPD Employee type Malaysia China Thailand Turkmenistan Singapore Indonesia Vietnam Total Permanent staff 326 49 40 14 431 Contract 43 staff 194 2 15 5 259 Total 520 51 40 16 1 5 57690
Malaysian employment regulations require employers and employees to contribute to the. EPF to provide for the retirement and other needs of employees. Under present regulations, employees contribute 11 % of their monthly salary to the EPF via payroll deductions. Employers are required to contribute a minimum amount equivalent to 12% of an employee’s monthly salary to the EPF, and we contribute between 12% and 16% of our employees’ monthly salaries to the EPF. Other than our contributions to the EPF, we do not maintain any other retirement, pension or severance plans or have any unfunded pension liabilities, nor do we owe any amounts to any present or former employees not in the ordinary course of business operations.
As at the LPD, we had one union (Trade Union of Tianjin Free Trade Zone), which represented the local, Chinese employees of our wholly-owned subsidiary UOS-TJ in accordance with China’s labour regulations. We have not entered into any collective bargaining agreement or other contract or plan related to our union, and we have not experienced any strike or work stoppages in the past and have also not experienced any significant problems with our union. We believe that our wages and benefits are generally in accordance with market practices and our relationships with our employees and our union are generally good.
7.16.1 Training and Development
We recognise the need to retain our senior and middle management in order to ensure continuity in the achievement of our corporate objectives and the seamless implementation of our programmes and initiatives. Our Board believes that continued success depends on the support and dedication of our management personnel. In addition, we believe our employees are the cornerstone of our success. We provide extensive and ongoing training and development opportunities through a variety of training programmes. Our drilling teams undergo various technical training programmes, including:
(i) rigging and slinging training, which provides the drill crew with information and training about such skills as operating hoists and winches, anchor handling, load calculation and lifting beams;
(ii) stuck-pipe prevention training, which teaches drill crew and supervisors practical techniques for eliminating or significantly reducing stuck-pipe incidents, as well as steps to free stuck-pipes qUickly when such incidents occur; and
(iii) hydrogen sulphide training, which is a safety training programme for all employees working on a drilling rig or HWU who may be exposed to environments where hydrogen sulphide is present.
The key personnel on our drilling rigs and HWUs, namely those who hold the position of assistant driller or above, are all certified by one of the well-known certification bodies such as IWCF and IADC. IWCF is an organisation that aims to improve well control competency globally by promoting and promulgating knowledge about well control and establishing uniform training, assessment and certification programmes that are acceptable globally to all operators, contractors and regulatory bodies in the oil and gas industry. IADC is an association aimed at advancing drilling and completion technology, improving industry HSE and training practices and advocating sensible regulation and legislation that facilitate safe and efficient drilling.
The following table provides information on additional training programmes attended by our directors, officers and employees:
Skills  Name of programme  Attendee  Year  Corporate governance  Risk Management Forum Embracing Risk for Long Term Corporate Success (Boosting Your Risk Governance)  Director  2013
Risk managem ent Enterprise Risk Senior 2013 Management Education management/Manager! Programme Executive Corporate governance Malaysian Code 01 Director!Senior 2013 Corporate Governance management Skills Name of programme Attendee Year Corporate governance PNB’s Directors Seminar Director 2013 Corporate governance Corporate Governance & General manager 2013 Short-Termism Leadership/Personal Management Competency Manager/Executive 2012/2013 mastery Development Programme General management Global Economics Shift & Director 2012 and skills the Impact to Malaysia Technical Well and Drilling Course Manager/Executive 2012 Technical Training Oil & Gas Field Manager 2012 Development & Producf,on Sharing Contracts 51llGeneral knowledge and Deepwater Asia Senior management 2012 skills Congress Malaysia Corporate governance Running Effective Board Senior management 2012 and General Meetings Essential Guide for Directors and Company Secretaries of PLCs Commercial and legal Oil & Gas Contract Senior management 2012 skills Drafting Training
In 2013, we established UDA to operate a drilling academy to heip build the capabilities and competencies at local drilling crews and to address the shortage of skilled Malaysian personnel in the oil and gas industry in general and the drilling services business in particular. The academy, which is expected to be (ully operational by the first quarter ot 2014, will be the first academy in Malaysia dedicated to drilling, and will be located in Kuala Terengganu, Malaysia. It will offer structured training in drilling services operations and certification programmes. including through the use of training rigs and simulators and through classroom training, related to both offshore drilling rigs and HWUs. Once operational, the academy will apply for certification by international certifying bodies such as IWCF. IADC and Offshore Petroleum Industry Training Organisation.
7.17 MATERIAL PROPERTIES AND MATERIAL EQUIPMENT
Details of material properties owned by our Group or leased/tenanted by our Group and our material equipment are set out in Annexure B of this Prospectus.
7.18 TECHNOLOGY AND INTELLECTUAL PROPERTY
Save as disclosed below, as at LPD, we do not have any brand names, patents, trademarks, technical assistance agreements, franchises and other intellectual property rights.
7.18.1 Technology licences
(i) Atlas Bradford technology
UOS is the licencee for the Atlas Bradford technology pursuant to the Tenaris Sublicence Agreement dated 1 April 2012 whereby UOS has been granted the right by the licensor to carry out the following activities: (i) threading and reconstruction of full length products; (Ii) threading and reconstruction of accessory equipment; (iii) sale of threaded full length products; (iv) sale of threaded accessory equipment; (v) use of trademarks; and (vi) threading and sale of connections on full length tubular not manufactured by the licensor The Tenaris Sublicense Agreement is effective from 1 April 2012 and shall continue in effect and be automatically renewed on a yearly basis unless otherwise terminated. For further details of the Tenaris Sublicence Agreement and its salient terms, see Annexure A.1.2 (1) of this Prospectus.
(ii) Premium Connections technology
(a) UOS is the licencee for the Premium Connections technology pursuant to the UOS Tenaris Licence Agreement dated 1 April 2012 whereby UOS has been granted the right by the licensor to carry out the following activities: (i) threading and repair of products; (ii) threading, repair and conversion of accessory equipment; (iii) sale of threaded products; (iv) sale of repaired products; and (v) sale of threaded or repaired accessory equipment. The UOS Tenaris Licence Agreement is effective from 1 April 2012 and shall continue in effect until 31 December 2013, thereafter renewable for up to two one-year periods upon its expiration. For further details of the UOS Tenaris Licence Agreement and its salient terms, see Annexure
A.1.2 (2) of this Prospectus.
(b) UOS-TJ is the licencee for the Premium Connections technology pursuant to the UOS-TJ Tenaris Licence Agreement dated 1 August 2011 whereby UOS-TJ has been granted the right by the licensor to carry out the following activities: (i) repair of products; (ii) threading, and repair of accessory equipment; (iii) sale of repaired products; and (iv) sale of threaded or repaired accessory equipment. The UOS-TJ Tenaris Licence Agreement is effective from 1 August 2011 and shall continue in effect until 31 December 2012, thereafter renewable for up to two one-year periods upon its expiration. For further details of the UOS-TJ Tenaris Licence Agreement and its salient terms, see Annexure A.1.2 (10) of this Prospectus.
(iii) VAM Joints technology and VAM Trademarks UOS is the licencee for the VAM Joints technology and VAM Trademarks pursuant to the UOS VAM Agreement dated 20 May 2011 whereby UOS has been granted the right by the licensor to carry out the following activities: (i) manufacture of VAM Joints accessories; (ii) repair damaged VAM Joints; (iii) sale of VAM Joints; and (iv) use of VAM trademarks. The UOS VAM Agreement is effective from 20 May 2011 and shall continue in effect and be automatically renewed on a yearly basis unless otherwise terminated. For further details of the UOS VAM Agreement and its salient terms, see Annexure A.1.2 (3) of this Prospectus. 7. BUSINESS OF OUR GROUP (Cont’d) (iv) JFE BEAR Thread
(a) UOS is the Iicencee for the JFE BEAR Thread pursuant to the JFE BEAR Licence Agreement dated 10 June 2008 whereby UOS has been granted the right by the licensor to cut the JFE BEAR Thread for the accessories (Pin & Box), the coupling, the repair work and the manufacturing work in the licencee’s plant and to sell them in Malaysia. The JFE BEAR Licence Agreement is effective from 10 June 2008 and shall continue in effect until 9 June 2010, thereafter renewable on a yearly basis unless otherwise terminated. For further details of the JFE BEAR Licence Agreement and its salient terms, see Annexure A.1.2 (4) of this Prospectus.
(b) UOS-TJ is the licencee for the JFE BEAR Thread pursuant to the UOS-TJ JFE BEAR Licence Agreement dated 16 April 2007 whereby UOS-TJ has been granted the right by the licensor to cut the JFE BEAR Thread for the accessories or the repair work in the licencee’s plant and to sell them in China. The UOS-TJ JFE BEAR Licence Agreement is effective from 16 April 2007 and shall continue in effect until 15 April 2009, thereafter renewable on a yearly basis unless otherwise terminated. For further details of the UOS-TJ JFE BEAR Licence Agreement and its salient terms, see Annexure A.1.2 (8) of this Prospectus.
(v) API Monogram
UOS is the licencee for API Monogram pursuant to the API Licence Agreement dated 24 August 2009 whereby the licencee has been granted the right by the licensor to use the API Monogram. The API Licence Agreement is effective from 24 August 2009 and shall continue in effect until 23 July 2014. For further details of the API licence Agreement and its salient terms, see Annexure A.1.2 (5) of this Prospectus.
(vi) FOX Thread
(a) UOS is the licencee for FOX Thread pursuant to the Kawasaki Licence Agreement dated 1 May 1998 whereby the licencee has been granted the right by the licensor to carry out the following activities: (i) to cut and sell FOX Thread on accessories; (ii) to make coupling for repair work and manufacturing work and accessories;
(iii) to conduct repair work; and (iv) to conduct and sell manufacturing work. The Kawasaki Licence Agreement is effective from 1 May 1998 and shall continue in effect until 30 April 2001, thereafter renewable on a yearly basis unless otherwise terminated. For further details of the Kawasaki Licence Agreement and its salient terms, see Annexure A.1.2 (6) of this Prospectus.
(b) UOS-TJ is the licencee for FOX Thread pursuant to the JFE Steel Corporation Licence Agreement dated 19 August 2003 whereby the licencee has been granted the right by the licensor to cut FOX Thread for accessories, repair work in its plant and to sell them in China. The JFE Steel Corporation Licence Agreement is effective from 19 August 2003 and shall continue in effect until 18 August 2005, thereafter renewable on a yearly basis unless otherwise terminated. For further details of the JFE Steel Corporation Licence Agreement and its salient terms, see Annexure A.1.2 (9) of this Prospectus
7. BUSINESS OF OUR GROUP (Cont’d) (vii) (viii) (ix)
(x)
(xi)
Grant technology and trademarks UOT is the licencee for Grant products and trademarks pursuant to the Grant Licence Agreement dated 28 September 2005 whereby the licencee has been granted the right by the licensor to manufacture and reconstruct Grant products which consists of: (i) Hi Torque connectors; (ii) XT connectors; (iii) XT-F connectors; (iv) SST thread forms; and (v) Turbotorque connectors. The Grant Licence Agreement is effective from 28 September 2005 and shall continue in effect until terminated. For further details of the Grant Licence Agreement and its salient terms, see Annexure A.1.2 (7) of this Prospectus. Tubing threaded connection structure UOS-TJ is the licencee for a tubing threaded connection structure pursuant to the UOS-TJ Jiangsu Changbao Patent Licence Agreement dated 1 September 2012 whereby the licencee has been granted the right by the licensor to process HQSC1 thread pup and accessory for oil and casing pipes within China. The UOS-TJ Jiangsu Changbao Licence Agreement is effective from 1 September 2012 until 31 August 2014. For further details of the UOS-TJ Jiangsu Changbao Licence Agreement and its salient terms, see Annexure A.1.2 (11) of this Prospectus. Casing thread connector and casing thread joint UOS-TJ is the licencee for the casing thread connector and casing thread joint pursuant to the UOS-TJ Baoshan Steel Technology Licence Agreement dated 22 June 2013 whereby the licencee has been granted the right by the licensor to process and repair threads for special connectors of Baoshan Steel within China. The UOS-TJ Baoshan Steel Technology Licence Agreement is effective from 22 June 2013 until 22 June 2015. For further detaiis of the UOS-TJ Baoshan Steel Technology Licence Agreement and its salient terms, see Annexure A.1.2 (12) of this Prospectus. WSP special thread connectors UOS-TJ is the licencee for four types of WSP special thread connectors pursuant to the UOS-TJ Wuxi Seamless Licence Agreement dated 20 January 2012 whereby the licencee has been granted the right by the licensor to process male and female buckles for special thread connectors i.e. WSP-H, WSP-2T, WSP-3T and WSP-4T within China. The UOS-TJ Wuxi Seamless Licence Agreement is effective from 20 January 2012 until 20 January 2014. For further details of the Wuxi Seamless Licence Agreement and its salient terms, see Annexure A.1.2 (13) of this Prospectus. Special buckle connectors, non-API specification BC screw joint technology UOS-TJ is the licencee for TP-CQ special buckle connector, TP-G2 special buckle connector, TP-FJ special buckle connector, TP-NF special buckle connector, TP-QR special buckle connector, TP-JC special buckle connector, TP-TS special buckle connector, TP-TS2 special buckle connector, non-API specification BC screw Joint technology pursuant to the UOS-TJ Tianjin Pipe Licence Agreement dated 1 January 2011 whereby the Jicencee has been granted the right by the licensor to process contracted products on recognised equipment. The UOS-TJ Tianjin Pipe Licence Agreement is effective from 1 January 2011 until 31 December 2012, and shall thereafter continue in effect unless otherwise terminated. For further details of the UOS-TJ Tianjin Pipe Licence Agreement and its salient terms, see Annexure A.1.2 (14) of this Prospectus. 7. BUSINESS OF OUR GROUP (Cont’d) (xii) Tianjin Tiangang tubular thread connector UOS-TJ is the Iicencee for a tubular thread connector for oil and gas industries pursuant to the UOS-TJ Tianjin Tiangang Licence Agreement dated 18 August 2010 (and extension of agreement dated 28 July 2012 whereby the licencee has been granted the right by the licensor to process the thread pup Joint and accessory for TG-QMI, TG-XC oil and casing pipes within China. The UOS-TJ Tianjin Tiangang Licence Agreement is effective from August 2012 until July 2015 For further details of the UOS-TJ Tianjin Tiangang Licence Agreement and its salient terms, see Annexure A 1.2 (15) of this Prospectus. 7.18.2 Trademarks Our Group does not own any trademarks in connection with our business. 7.18.3 Patents and other intellectual property Save for the licence granted by UMWH to our Company on 17 May 2013 for the use of, amongst others, the “UMW” trademark, we are not dependent on any patents or other intellectual property for the operation of our business. 7.18.4 Dependency on licences, trademarks, patents and other intellectual property Save as disclosed in Annexure A and Section 7.18.1 of this Prospectus, respectively, our Group is not dependent on any other major licences, permits, registrations and other intellectual property rights for our business operations. 7.19 GOVERNING LAWS AND REGULATIONS Our business is regUlated by, and in some instances required to be licensed under specific laws of Malaysia. The relevant laws and regulations governing our Group and which are material to our operations are summarised below. The following does not purport to be an exhaustive description of all relevant laws and regulations of which our business is subject to. 7.19.1 Governing laws and regulations relating to the industry (i) Petroleum Development Act 1974 (“PDA”) and the Petroleum Regulations 1974 The Petroleum Development Act 1974 vested in PETRONAS the entire ownership in, and the exclusive rights, powers and privileges of exploring, exploiting, winning and obtaining petroleum which includes hydrocarbons, natural gas and bituminous shales, onshore or offshore of Malaysia. Companies who participate in activities relating to the exploration and production of petroleum in Malaysia are obliged to enter into a PSC with PETRONAS. Amongst the PSC contractors operating in Malaysia is PETRONAS Carigali (PETRONAS’ operations company) which is involved in exploration, development and production of hydrocarbons and generally all oil and gas activities taking place prior to the processing and refining of hydrocarbons. The PDA has spawned a whole support industry, which provides services and products to PSC contractors. Contractors and suppliers who wish to participate in any business or services to supply of equipment, facilities and services to the upstream oil and gas activities are first required to register with PETRONAS’ Licensing and Registration Department pursuant to the Petroleum Regulations 1974 and must also obtain a licence from PETRONAS. 7. BUSINESS OF OUR GROUP (Con/d) Since we provide drilling and oilfield services for the upstream oil and gas industry and in particular, to PSC contractors, we are registered with PETRONAS and we have valid licences to provide such services as required under the Petroleum Regulations 1974. We are aware that failure to maintain valid licences or to comply with any condition of such licences shall make us liable to a fine not exceeding RM50,000 or to imprisonment for a term not exceeding two years or to both and in the case of a continuing offence, we shall be liable to a further fine of RM1 ,000 for each day or part of a day during which the offence continues. (ii) Exclusive Economic Zone Act 1984 (“EEZA”) As many of our oilfields are located in the exclusive economic zone of Malaysia (which is defined as the area beyond and adjacent to the territorial sea of Malaysia, extending to a distance of 200 nautical miles from the baselines from which the breadth of the territorial sea is measured), the EEZA plays a key part in regulating activities for the economic exploitation and exploration of the zone in Malaysia, to which we are bound. Under the EEZA, any search, excavation or drilling operations as well as the laying of pipelines in the exclusive economic zone requires authorisation from the Government. We are also required to observe the environmental policies in accordance with a duty under the EEZA to protect and preserve the marine’ environment in the zone. We are aware that any discharge or escape of oil in the exclusive economic zone is punishable with a fine not exceeding RM1.0 million. (iii) Industrial Co-ordination Act 1975 and the Industrial Co-ordination (Exemption) Order 1976 (“ICA”) Under the Industrial Co-ordination Act 1975 and the Industrial Co-ordination (Exemption) Order 1976, a licence is required for any manufacturing activity with shareholders’ funds of RM2.5 million and above and/or manufacturing activity employing 75 or more full-time paid employees. A licence will have to be obtained for the manufacture of specified products at each separate manufacturing site. Licences are typically issued in accordance with national economic and social objectives and to promote the orderly development of manufacturing activities in Malaysia. They are issued by the MITI, subject to conditions of the licence and are non-transferable save with the prior approval of MIT!. Under the ICA, UOS is under an obligation to maintain the requisite licences as licenced manufacturers. 7.19.2 Other relevant Malaysian legislation (i) Factories and Machinery Act 1967 (“FMA”) The Factories and Machinery Act 1967 governs the occupational safety, health and welfare of persons working in a factory. The FMA also governs the registration and inspection of the machines used in a factory. The FMA and the regulations enacted under it is the cornerstone legislation for occupational, safety and health improvement in the manufacturing industry, mining, quarrying and construction industries, apart from the general duties to employees under the Occupational Safety and Health Act 1994. 7. BUSINESS OF OUR GROUP (Cont’d) Under the FMA, our Group has a duty to maintain the standards of safety, health and welfare of our factories and our factory workers. In addition, our Group must ensure that the machineries used are in good condition and must be registered. (ii) Occupational Safety and Health Act 1994 (“OSHA”) Under the OSHA, our Group, specifically through UOS, has a general duty to our employees to provide and maintain the plants and systems of work that are, so far as is practicable, safe and without risks to health, provide information, instruction, training and supervision to ensure, so far as is practicable, the safety and health of our employees at work; and to provide a working environment, which is as far as possible safe, without risks to health, and adequate as regards facilities for their welfare at work. We also have a duty to ensure, so far as is practicable, that other persons, not being our employees, who may be affected are not thereby exposed to risks to their safety or health. The promulgation of the OSHA is based on a self regulation scheme with the primary responsibility of ensuring safety and health at the workplace lying with those who create the risks and work with the risks. In line with the requirements of the OSHA, we have employed a competent person to act as the safety and health officer for the purposes of ensuring the due observance and the promotion of a safe conduct of work at the place of work. There is also the requirement to establish a safety and health committee under the OSHA as we currently employ more than 100 employees. The general penalty under the OSHA provides that a person who by any act or omission contravenes any provision under the OSHA or any regulation made thereunder shall be guilty of an offence and where no penalty is expressly provided shall, on conviction, be liable to a fine not exceeding RM10,000 and/or to imprisonment for a term not exceeding one year and in the case of a continuing offence, to a fine not exceeding RM1 ,000 for every day or part of a day during which the offence continues after conviction. (iii) Environmental Quality Act 1974 The Environmental Quality Act 1974 restricts pollution of the atmosphere, noise pollution, pollution of the soil, pollution of inland waters without a licence, prohibits the discharge of oil into Malaysian waters without licence, discharge of wastes into Malaysian waters without a licence, and prohibits open burning. The agency responsible for implementing and monitoring Malaysian’s environmental regulations and policies is the Malaysian Department of Environment and the local environmental authority. (The rest of this page has been intentionally left blank) 7. BUSINESS OF OUR GROUP (Cont’d) 7.20 DEPENDENCY ON COMMERCIAL CONTRACTS 7.20.1 UDC (i) Rig Co-Owning Agreement dated 11 March 2005 between JOC, UMWC, JOC Panama and UOC whereby JOC being the owner of the rig known as “HAKURYU-Ill” (now known as NAGA 1) agrees to form a joint venture with UMWC and as a pre-requisite for the implementation of the joint venture thereof, JOC and UMWC agree to co-own HAKURYU-lil together with all ancillary equipment and machinery, at a cash consideration of US034.0 million to be paid equally by JOG’s subsidiary, JOC Panama, and UMWG’s subsidiary, UOG. Upon payment of the consideration thereof by JOC Panama and UOC to JOC, the ownership of HAKURYU-1I1 would be transferred to JOC Panama and UOC in equal shares. 7.20.2 UJD (i) Bareboat Charter Contract dated 6 January 2006 between JOC Panama and UOC and UJO, as supplemented by the latest addendum No. 10 dated 1 January 2012, whereby UJO agrees to a bareboat charter of a semi­submersible drilling rig known as “NAGA 1” which is co-owned equally by JOC Panama and UOC for the purpose of carrying out the contract offshore drilling business and operations in Malaysia and other overseas areas under the drilling contract awarded to UJD by PETRONAS Carigali, who is the operator under the drilling contract (“Operator”). UJO shall pay to JOC Panama and UOC cash consideration of US030,000 per day as bareboat charter fees, which may be reviewed and revised from time to time as shall be mutually agreed upon by the parties (“BBC Fees”). Nevertheless, in the event no contractual daily rate is applicable and to be paid by UJO to the Operator during the term of the drilling contract, the BBC Fees shall likewise not be paid by UJO to JOC Panama and UOC. The agreement is valid from 6 January 2006 and shall remain in full force as long as the Joint Venture Agreement executed by JOC, UPO and UMWC on 11 March 2005 remain in force, unless otherwise terminated in accordance with the terms thereof.
(ii) Agreement dated 21 June 2006 entered into between PETRONAS Carigali and UJO which became effective on 25 January 2006, as supplemented by
(a) a letter of amendment and contract extension from PETRONAS Carigali to UJO dated 17 September 2010; and (b) a letter for rig upgrade reimbursement and contract extension dated 3 April 2013, for the provision of semi-submersible drilling rig “NAGA 1” by UJO for PETRONAS Carigali’s drilling program whereby UJO agrees to carry out for PETRONAS Carigali drilling, workover and associated operations off the continental shelf of Peninsular Malaysia and Sabah and Sarawak and to furnish the drilling rig and other related equipment, spare parts, materials, expendables and other supplies with the drilling personnel and insurances for the completion of PETRONAS Carigali wells (“Work”). In consideration for the satisfactory performance of the Work, PETRONAS Carigali has agreed to pay UJO cash consideration at an agreed rate based on the unit day rates and the consideration shall not be revised for any reason whatsoever throughout the duration of this agreement. This agreement commenced on 20 May 2006. Vide their letter dated 17 September 2010, PETRONAS Carigali has extended this agreement by exercising their right to the first extension option for a further period of five years. During the current contract duration of five years, which commenced on 13 November 2010 and ends on 12 November 2015, rig upgrading works were carried out for a duration of 281 days from 13 April 2012 until 18 January 2013. Hence, PETRONAS Carigali has, vide their letter dated 3 April 2013, granted a further extension to this agreement to 19 August 2016, which is represents an additional 281 days, at an agreed daily operating rate (“Second Extension Letter”). In addition, the Second Extension Letter also extends the agreement for a further period of two years 7. BUSINESS OF OUR GROUP (Conl’d) commencing from 20 August 2016, subject to the terms and conditions of the agreement. All the terms and conditions of this agreement will continue to be applicable and effective for the said two year extension period, save for the daily operating rate, unless otherwise terminated in accordance with the terms thereof. The estimated contract value is approximatefy USD130 million. 7.20.3 UMWSD (i) Agreement dated 28 April 2011 entered into between PETRONAS Carigali and UMWSD which was effective on 21 January 2011, as supplemented by a letter of contract amendment and extension from PETRONAS Carigali to UMWSD dated 20 March 2012, for the provision of jack-up drilling rig known as “NAGA 3” for PETRONAS Carigali’s drilling programme whereby UMWSD agrees 10 carry out for PETRONAS Carigali drilling and exploration programme and associated operations off the continental shelf of Peninsular Malaysia, Sabah, Sarawak and South East Asia and to provide the drilling rig and other related equipment, spare parts, materials, consumables and other supplies with the drilling personnel and insurances (“Work”). In consideration for the satisfactory performance of the Work, PETRONAS Carigali has agreed to pay UMWSD cash consideration at an agreed rate based on the unit day rates and Jhe consideration shall not be revised for any reason whatsoever throughout the duration of this agreement. Vide their letter dated 20 March 2012, PETRONAS CarigaJi has extended this agreement for a further period of two years commencing on 22 March 2012 (inclusive) and shall be valid until 21 March 2014 (inclusive), unless otherwise terminated in accordance with the terms thereof.
(ii) Agreement dated 20 March 2013 entered into between UMWSD and PV Drilling (“Subcontract”) to be read together with the Reciprocal Agreement dated 26 September 2013 pursuant to a Drilling Services Contract between PV Drilling and Hoang Long Joint Operating Company (“Hoang Long”) dated 20 March 2013 (“Main Contract”), to be read together with the Addendum No. 1 dated 26 September 2013, for the provision of jack-up drilfing rig known as “NAGA 2” and services whereby UMWSD agrees to carry out the drilling, bypass (sidetrack), deepening, workover, testing, completion or plug and abandon exploration, appraisal and development wells in Block 16-1 offshore Vietnam and all other services as defined in the Main Contract (“Work”), in accordance with the terms and conditions of the Main Contract which shall apply to the Subcontract on “back-to-back” terms, except as specifically provided in the Subcontract. In consideration for the satisfactory performance of the Work, PV Drilling has agreed to pay UWMSD cash consideration at an agreed rate based on the daily operating rates well as mobilisation costs and other associated costs. This agreement is valid and effective from 20 March 2013 and shall remain in full force as long as the Main Contract remains valid, which is for an estimated duration of six months from 16 June 2013 to cover four wells (‘Primary Period”) and an option for Hoang Long to extend the contract period for a further six months (“Option Period”), unless otherwise terminated in accordance with the terms thereof. Notwithstanding the Primary Period and the Option Period, this agreement may be extended by Hoang Long and PV Drilling by written agreement prior to the end of the term of the Main Contract. On September 2013, Hoang Long has extended the Main Contract by exercising their right to the Option Period for a further period of six months commencing on 16 December 2013 until 15 June 2014, and in turn PV Drilling has extended the Subcontract for a similar period.
7. BUSINESS OF OUR GROUP (Cont’d) (iii) Agreement dated 10 April 2013 entered into between PETRONAS Carigali and UMWSD for the provision of Jack-up drilling rig known as “NAGA 4” for PETRONAS Carigali’s drilling programme whereby UMWSD agrees to carry out for PETRONAS Carigali drilling and exploration programme and associated operations off the continental shelf of Peninsular Malaysia, Sabah, Sarawak and South East Asia and to provide the drilling rig and other related equipment, spare parts, materials, consumables and other supplies with the drilling personnel and insurances (“Work”). In consideration for the satisfactory performance of the Work, PETRONAS Carigali has agreed to pay UMWSD cash consideration at an agreed rate based on the unit day rates. This agreement is valid and effective from 14 March 2013 and shall commence on the time and date signified in the IADC Daily Drilling Report which will occur when the jack-up drilling rig, complete with all equipment, materials and personnel required for drilling operations arrive at the mobilisation site, and is positioned, anchored, preloaded and fully jacked-up and successfully function-tested and pressure-tested and accepted by PETRONAS Carigali (“Commencement Date”) for an initial period of three years from the Commencement Date (“Primary Term”) and an option for PETRONAS Carigali to further extend the contract period for a further two years, unless otherwise terminated in accordance with the terms thereof. (The rest of this page has been intentionally left blank)

 

Industry Overview

GLOSSARY Glossary Technical Terms API API thread appraisal well bbl bbl/day bet bcm BHA bn BOP btoe btu CAGR capex casing CBM CNC DCR DD deepwater drilling development well .. American Petroleum Institute Standardised thread licensed by the API Wells drilled as part of an appraisal drilling programme which is carried out to determine the physical extent, reserves and likely production rate of a field Barrel Barrel per day Billion cubic feet Billion cubic metre Bottom Hole Assembly is the lower portion of the drill string which is used to provide weight to the bottom of the drill string, to assist in the drilling of a hole by crushing the rock formation using the drill bit Billion Blowout preventer Billion tonne of oil equivalent British thermal unit which is a traditional unit of energy equal to about 1,055 joules Compound Annual Growth Rate Capital expenditure Large-diameter pipe set inside a drilled well to protect the wellstream Coal bed methane refers to methane adsorbed into the solid matrix of the coal. It is called ‘sweet gas’ because of its lack of hydrogen sulfide. Computer Numerically Controlled machine refers to the automation of machine tools that are operated by abstractly programmed commands encoded on a storage medium Daily charter rate Drilling Depth often refers to the depth of the well being drilled, not the water depth and hence, it can be used interchangeably with the term “well depth” Process of oil and gas exploration and production in depths of more than 500 metres (1 ,640ft) A well drilled to the depth of a geologically proven horizon that is likely to be productive within the proved area of an oil or gas reservoir, so as to maximise the chances of success 123 8. INDUSTRY OVERVIEW (Cont’d) INDEPENDENT MARKET REPORT drillship drill bit drill collar drill stabiliser drill string E&A E&P EIA EOR EPC ETP exploration well Fixed Platform FLNG FPSO FPSS Douglas Westwood ……. _~_—-­Vessel-shaped floating drilling rigs capable of drilling in deepwater A rotating apparatus that usually consists of three cones made up of the hardest of materials (usually steel, tungsten carbide and/or synthetic or natural diamonds) and sharp teeth that cuts into the rock formation and sediment when drilling an oil or gas well Thick-walled tubular pieces machined from solid bars of steel that provides weight on the drill bit for drilling and is a component of a drill string A downhole equipment used in the BHA of a drill string to mechanically stabilise the BHA in the borehole in order to avoid unintentional sidetracking, vibrations and ensure the quality of the hole that is being drilled Drill string is made up of BHA and drill pipe, which transmits drilling fluid via the mud pumps to the drill bit Exploration & Appraisal Exploration & Production The U.S. Energy Information Administration, a statistical and analytical agency within the U.S. Department of Energy, is responsible for collecting, analysing, and disseminating independent and impartial energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment Enhanced Oil Recovery Engineering, Procurement, Construction refers to a contract between a company and a contractor to perform detailed engineering, procurement of materials and equipment and construction of structure Economic Transformation Programme, The ETP is an initiative by the Malaysian government to turn Malaysia into a high income economy of USD 15,000 to USD 20,000 per capita, compared to the USD 6,700 recorded in 2010 A well drilled to find oil or gas in an unproven area Offshore production structure consisting of a topside facility that is attached to the seabed via a steel jacket or a concrete foundation, Floating Liquefied Natural Gas refers to offshore LNG production platform
Floating, Production, Storage and Offloading refers to production units that are the most commonly used method of deepwater production which are typically shipshaped and are often converted from crude oil carriers and are spread-moored on location but can be re-deployed to several fields over its lifespan Floating Platform Semi-Submersible offers all the advantages of semi-submersible drilling rigs such as the ability to provide a highly stable workstation in water depths up to 3,000 metres 124 I Company No.: 878786-H

8. INDUSTRY OVERVIEW (Cont’d) INDEPENDENT MARKET REPORT FPU GDP It hook load HP HPHT HSE HWU IADC IMF lac jack-up killed-well KNOC Ib LNG LTI mboe mboe/day mcf mmbtu mn moonpool MODU Douglas Westwood Floating Production Unit are offshore production platforms that are not fixed to the seabed via a fixed structure which includes FPSO, FPSS, TLP, SPAR and FLNG Gross Domestic Product A foot (or plural feet) is a unit of length measuring 0.3048 metre The total force pulling down on the hook (travelling block) of a drilling rig, which includes the weight of the drill string and any ancillary equipment under the travelling block Horse power High Pressure High Temperature is typically used as a classification for reservoirs that are subject to pressure greater than 10,000 psi and temperature greater than 150″C Health, Safety and Environment Hydraulic Workover Unit International Association of Drilling Contractors International Monetary Fund International Oil Company Jack-up drilling rigs are primarily used for continental shelf drilling operations in water depths typically ranging from 91 to 152 metres (300 to 500 It) Well pressure suppressed by kill fluid or kill mud to the extent preventing flow of reservoir fluids without the need for pressure control eqUipment at the surface Korea National Oil Corporation Pound Liquefied Natural Gas Lost Time Incident refers to an accident resulting in personnel not being able to work as a result of their injury Million barrels of oil equivalents, is a metric used to measure both the rate of oil production or oil transportation, and also used to measure total proven reserves in the ground Million barrel of oil equivalent per day Million cubic feet Million British thermal unit Million A feature of marine drilling platforms, drillships and diving support vessels. It is an opening in the floor or base of the hull, platform, or chamber giving access to the water below Mobile Offshore Drilling Unit which includes jack-up drilling rigs, semi-submersible drilling rigs and drillships 125 8. INDUSTRY OVERVIEW (Cont’d) DouglasINDEPENDENT MARKET REPORT Westwood NOC O&M OCTG OEM OIM OPEX pin and box premium jack-up drilling rigs premium thread PSC Psi riser pulling capacity RSC semi-submersible drilling rig (semisub) shallow water drilling snubbing capacity SPAR National Oil Company Operation and Maintenance Oil Country Tubular Goods which includes drill pipes, casings, oil well tubings, plain-end casing liners, pup joints, couplings and connectors but excludes linepipes which are commonly used to transport oil and gas from production fields to end users Original Equipment Manufacturer Offshore Installation Manager Operational Expenditure A type of connection to join parts of OCTG without couplings where the box is a thick-walled collar with threads on the inside whilst the pin is threaded on the outer circumference and is screwed into the box Cantilevered rigs that are capable of operating in water depths of 91 metres (300 It) or more A class of high-performance thread types that are commonly used in modern oil well and gas well completions, especially in offshore wells and onshore gas wells Production Sharing Contract. An agreement between the parties to a field and a host country regarding the percentage of production each party will receive after the participating parties have recovered a specified amount of costs and expenses Pound per square inch A conduit that provides a permanent extension of a well head to a production platform The pulling capacity of a HWU while performing workover services, often measured in pounds. Average maximum pulling capacity of a typical HWU is 300,000 Ibs Risk Sharing Contract is a contract governing 10Cs to supply services and know-how to the state from exploration through production phases for the government in exchange for an agreed-on fixed fee or some other form of compensation and in risk service contract, 10Cs bear all the exploration costs Floating drilling platforms that provide station-keeping and a large deck space making them an ideal MODU solution for development drilling in deepwater of rough sea conditions Process of oil and gas exploration and production in water depth of less than 500 metres (1,640 ft) of water Pushing capacity of a HWU while performing workover services, often measured in pounds. Average maximum pushing capacity of a typical HWU is 125,000 lbs Single Point Anchor Reservoir, a floating system with infield flow lines and associated subsea infrastructure to connect the subsea production and injection wells, is a cylindrical, partially submerged offshore drilling and production platform that is particularly well­adapted to deepwater 126 I Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) INDEPENDENT MARKET REPORT sq metre SWOT tel tcm threads TLP trunklines tubing tubular products ultra deepwater drilling water depth (WD) vs. well depth well kill wellbore Others APAC Asia Avg. No. BP Chevron CNOOC CNPC Douglas Westwood —~ ——.._-_._—-. –~ Square metre Strengths, Weaknesses, Opportunities, Threats Trillion cubic feet Trillion cubic metre Ridges at the end of a pipe or tube that allows several similar pipes or tubes to be joined together Tension Leg Platform are offshore production platforms that are permanently tethered to the seabed which eliminates vertical movement on the surface and allows wells to be completed on the platform to increase recovery rate Pipelines with large diameter, typically designed to transport oil and gas from production fields to various onshore facilities including refineries, and separation plants Production tubing is placed inside the casing and assembled with other completion components to make up the production string Also called tubular, includes linepipes and OCTG such as tubing, casing, drill pipes, drill collars and couplings Process of oil and gas E&P in depths of more than 1,500 metres (4,921 tt) The water depth refers to vertical distance between the sea level and the seabed where the drilling starts whilst well depth refers to the total length drilled to complete a well An operation aimed to stop a well from floWing into the wellbore so that workover intervention can take place Any hole drilled for the purpose of exploration or extraction of natural resources Asia-Pacific. Countries include: Bangladesh, Brunei, Cambodia, China, India, Indonesia, Japan, Malaysia, Myanmar, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand, Vietnam, Australia, East Timor, New Caledonia, New Zealand, and Papua New Guinea Bangladesh, Brunei, Cambodia, China, India, Indonesia, Japan, Malaysia, Myanmar, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand, and Vietnam Average number BP Pic Chevron Corporation China National Offshore Oil Corporation China National Petroleum Corporation 127
8. INDUSTRY OVERVIEW (Cont’d) INDEPENDENT MARKET REPORT OW or Douglas-Westwood Europe and Eurasia Latin America Middle East MMHE Murphy Oil Non-OECD North America OECD PETRONAS PETRONAS Carigali PTTEP PV Drilling ROTW SEA Shell Technip Total UAE UK UKCS UMW-OG USA Douglas Westwood Douglas-Westwood Pte. Ltd. Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Republic of Ireland, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Russian Federation, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan Argentina, Bahamas, Brazil, Chile, Colombia, Cuba, Dominican Republic, Ecuador, EI Salvador, Falkland Islands, Jamaica, Mexico, Nicaragua, Panama, Peru, Puerto Rico, St Eustatius, Trinidad, Uruguay, and Venezuela United Arab Emirates (UAE), Bahrain, Gaza Offshore, Iran, Iraq, Israel, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, Turkey, and Yemen . Malaysia Marine and Heavy Engineering Sdn Bhd Murphy Oil Corporation All countries that are not members of the OECD Canada, USA
Organisation for Economic Co-operation and Development
Petroliam Nasional Berhad Petronas Carigali Sdn Bhd PTT Exploration and Production Pic
PetroVietnam Drilling & Well Services Corporation
Rest of the world South East Asia. Countries include: Brunei, Cambodia, Indonesia,
Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam Royal Dutch Shell Pic Technip SA
Total SA The United Arab Emirates The United Kingdom United Kingdom Continental Shelf
UMW Oil & Gas Corporation Berhad
The United States of America
128 I Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood 1. MACRO-ECONOMIC ENVIRONMENT 1.1. Global Energy Demand Outlook Global energy demand is the principle indicator of activity for UMW-OG’s suite of drilling and oilfield related services and is estimated to increase by 31%, from 12.5 btoe in 2012 to 16.4 btoe per annum in 2030.  btoe  btoe  btoe  20  10  10
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BBOther ,. ,. Other, …….
6 ,.” 6 …. ,… ………. ,
4′ 4 .., ” ,:,~>.•,… “, 2 •••• ,.,,’ Gas2 0 , ,, 0 ,, ,, ~ 0000,…,…0 0 0 0 0 ,…000 13 ,…0 o o 0 “‘ co 00 “‘ “‘ 0 “‘ “‘ NN “‘ 0 00 “‘ 8′” ‘” ~~ ‘” ~ ‘”‘” ~ 0 NN 00 N 0 NN 0 “‘0 N ‘” 0 N ‘” ~ N “‘0 N 0 ‘”N ~~ N ‘”N o Year Year Year Fig.1: Global Energy Demand Outlook Fig.2: APAC Energy Fig.3: Global Energy Mix [Source: BP Energy Outlook 2030 (2013)] Demand Outlook [Source: [Source: Douglas­Douglas-Westwood] Westwood] Overview Energy consumption from industry, power generation and transportation is the primary indicator for all hydrocarbon related business activities including the suite of drilling and oilfield related services proVided by UMW-OG. Oil and gas is used in a wide variety of essential services such as power generation, transportation fuels, and consumer products such as plastics and cosmetics. Driven by an increasing population and purchasing power of individuals in developing non-OECD economies, global energy consumption is expected to increase by 31% from 12.5 btoe per annum in 2012 to 16.4 btoe per annum in 2030. Regional Demand Outlook Energy demand growth is expected to be mainly driven by the emergence of Asian economies. By the end of 2012, Asia accounted for 39% of global energy consumption and is projected to account for 65% of incremental demand from 2012 to 2030, with China alone accounting for 44% of the expected global incremental demand growth for the same period. Whilst some of this consumption growth is linked to exports for European and American consumer markets, a significant proportion is expected to include indigenous demand which will drive an anticipated increase in Chinese GDP per capita from USD 6,091 in 2012 to USD 12,300 by 2020 (Silverstein et ai, 2012), representing an increase of 102%. Such macro trends are expected to place a considerable emphasis on the Asian E&P industry to discover and develop new oil and gas reserves to keep pace with consumption growth, which in turn is anticipated to drive demand for UMW-OG’s drilling and oilfield related services. Increasing Role of Natural Gas Recently, the increasing cost of finding new oil reserves combined with security concerns over nuclear power. greenhouse gas reduction strategies and geopolitics have led many nations to embrace natural gas as a cleaner, cheaper and more abundant fuel for power generation over other fossil fuels. This shift has largeiy been made possible by the commercialisation of LNG technology. This has allowed exporters to reach consumer markets beyond the traditional 1,100 km reach of conventional trunklines. As of 2012, the three largest LNG exporters are Qatar, Malaysia, and Australia whilst the three largest importers are Japan, South Korea and Spain. We expect growth in demand for natural gas to substantially outpace that of oil and to grow from 3.0 btoe in 2012 to 4.3 btoe in 2030, representing 24% of the global energy mix in 2012 and 26% by 2030.

8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood ….. _—-~~~~ 1.2. Global Oil and Gas Reserves & Production The Middle East, Europe & Eurasia, and Latin America are the key regions, accounting for the estimated 33% increase in oil and gas proven reserves. Gas production is expected to increase at a CAGR of 3.8% whilst oil production increase is estimated at a CAGR of 1.2% from 2013 to 2018. Europe & Eurasia 8% Latin America 4% lLatin America Middle East20% 43% FigA: Global Oil Reserves by Region by the end of 2012 Fig.S: Global Gas Reserves by Region by the end of 2012 [Source: BP Statistical Review 2013] [Source BP Statistical Review 2013] Global Oil Reserves Global oil reserves stood at an estimated 1,669bn barrels by the end of 2012, an increase of 33% compared to the year 2000 reserve estimate of 1,258bn barrels, equalling a CAGR of 2.4%. On a regional basis, the Middle East holds the largest reserves and accounts for an estimated 48% of global total, other major reserve holders such as Latin America with 20% and North America with 13%. Over the past decade, major reserve growth came from Latin America which accounted for 56% of incremental additions over this time, largely due to the discovery and commercial viability of heavy oil and bitumen resources in Venezuela. Although being a significant oil producing region, APAC holds only 3% of the estimated global oil reserves and has accounted for less than 1% of incremental additions over the past decade. Within Asia, China holds the largest oil reserves, making up 42% of the regional total. Vietnam, Malaysia and Indonesia are the most significant oil reserve holders in SEA with 11 %,9% and 9% of total APAC oil reserves respectively. Global Gas Reserves By the end of 2012, global gas reserves were estimated at 187 tcm representing an increase of 34% compared to the year 2000, a CAGR of 2.5%. Regionally. the largest reserves are found in the Middle East and the Europe & Eurasian continent, accounting for 43% and 31 % of the global total respectively. In particular, Russia has traditionally been one of the largest holders of natural gas in the world and accounts for 18% of global reserves. Outside Russia, Iran and Qatar are the two largest reserve holders which account for 18% and 13% of the global total respectively, resulting from the discovery of the giant North/South Pars fields in the Persian Gulf which is now estimated to hold up to 50 tcm of natural gas alone. Subsequent reserve estimate revisions have led to substantial additions for both countries which has been a major factor in the Middle East accounting for 45% of global incremental reserves since 2000. APAC plays a more central role in the global gas sector, accounting for an estimated 8% of global reserves in 2012. The largest reserve holders in APAC are Australia, China and Indonesia with 24%, 20% and 19% respectively of the region. 70  11%  -…………..  ~  18%/  60  —-­ -_.,-‘-‘”  50  40  30  20  10 o  Middle East 33%  Europe & Eurasia  “>t lO  r.o  I’­ O’J  20%  g  ~  ~  ~  ~  Year  Fig.6: Global Oil Production Outlook by Source [Source: Douglas-Westwood]  Fig.7: Global Oil Production 2012 by Region [Source: Douglas-Westwood, BP Statistical Review 2013]
8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood mboe/day
Asia Pacific North America 90 Africa____…. 1. o~80 ~.–…._­Global Oil Production Outlook In 2012, global oil production reached 86.1 mboe/day, showing signs of a full recovery from the effects of the global financial crisis of 2009 where year-an-year outputs declined for the first time since 1998. Total production is expected to increase at a CAGR of 1.9% between 2013 and 2018 and to be characterised by the consolidation of the Middle East as the world’s primary supplier of crude oil and an increasing reliance on deepwater reServes by IOCs. Regional Review: The Middle East has been the world’s primary supplier of crude oil since 1969, a position interrupted only during the 1980s as a result of the Iran-Iraq war. Currently, the region accounts for 33% of global oil production with Saudi Arabia accounting for 13% of global oil production while other major producers such as Iran, the UAE, Kuwait and Iraq each accounts for approximately 4% of global oil production. The Middle East is expected to increase its oil production significantly over the next decade which is driven primarily by major new investment in Iraq. We estimate the region to account for 34% of global oii production by 2018. Other major regional oil producers include Europe & Eurasia which currently accounts for 20% of global oil production. This region is highly reliant on Russia which accounts for 62% of the regional total and 12% of global production. Russia is currently the second largest oil producer globally after Saudi Arabia. However, current production operations are mature with limited major new development prospects on the horizon. As such, Europe & Eurasia’s share of global oil production is expected to fall to 18% by 2018. In 2012, APAC accounted for 10% of global oil production. However, similar to Russia many of APAC’s existing basins are increasingly mature which will lead to the region’s share dropping to an estimated 9% by 2018. Major producers in APAC include China, Indonesia, India and Malaysia, accounting for 50%,11%,11% and 8% of regional production respectively. Increased Deepwater Focus: In 2000, deepwater (water depths exceeding 500m) oil production accounted for only 2% of global oil supply. By 2012, this proportion had grown to 10% and is expected to increase to 13% by 2018. Deepwater is becoming an increasingly important area for IOCs to find and develop new reserves of oil & gas in areas where there are limited onshore prospects (such as the Gulf of Mexico or Brazil) or where governments have lacked the technical capability to develop such complex resources themselves (such as West Africa). Deepwater oil production in Asia began in 2001 and currently accounts for 7% of total oil supply in the region. Over the next decade, substantial new investment is expected in deepwater fields in Asia to offset the maturing of existing onshore and shallow water fields which is expected to drive this proportion up to 16% by 2018. However, it is important to note that shallow water production still remains the key source of oil production globally. This will sustain the increase in demand for jack-ups. 131

8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood mboe/day 90 80 70 North America60 /27% 50 40 30 20 10 Latin America g ;; 5% o 00 NN Fig.9: Global Gas Production 2012 by Region [Source: Douglas-Westwood, BP Statistical Review 2013]
Global Gas Production Outlook Douglas-Westwood estimated global gas production at 55.9 mboe/day In 2012, following a decrease in 2009 due to the global financial crisis which saw gas production fall from 56.2 mboe/day in 2008 to 55.1 mboe/day in 2009. Production is projected to increase at a CAGR of 3.8% to 85.9 mboe/day from 2013 to 2018. This is higher than the growth in oil production due to a shift towards gas demand globally. Rapid development of unconventional gas such as shale gas, especially in North America from 2002 to 2012, has partly reshaped the dynamics of natural gas price. In 2011, the USA narrowed the gap between natural gas consumption and production from 1.9 mboe/day to 0.6 mboe/day. The increase in supply has resulted in the wide disparity in gas prices globally. Exporting USA natural gas to the global market also remains uncertain due to political motivations as American manufacturers have been lobbying to limit the export of natural gas export to keep power price low. China has plans to increase unconventional gas production, specifically shale gas production with targeted outputs at 6.5 bcm per annum by 2015 and 60 to 100 bcm per annum by 2020. However, key challenges including weak infrastructure, lack of incentive policies, technologies and resource management may limit projected growth. Regional Review: Key suppliers of natural gas include Europe & Eurasia and North America, accounting for approximately 31 % and 27% of the global production respectively. In Europe & Eurasia, production is mainly dominated by Russian production which accounted for 57% of the total regional production in 2012. From 2013 to 2018, both Europe & Eurasia and North America are expected increase natural gas production by a CAGR of 3.5% and 1.5% respectively. Other key regions include the Middle East and APAC. APAC will see the highest growth rate from 2013 to 2018, increasing gas production from 1.3 mboe to 2.7 mboe, representing a CAGR of 15.5%. This is due to several LNG projects in Australia including Gorgon, Wheatstone and Ichthys being developed to supply gas to East Asian economies such as Japan and South Korea over the forecast period from 2013 to 2018. APAC accounts for 15% of global gas production in 2012 at 8.2 mboe/day. This is projected to increase over the 2013 to 2018 forecast period to 10.7 mboe/day in 2018, representing a CAGR of 3.5%. The Middle East accounted for 16% of global natural gas production at 9.1 mboe/day in 2012. This is expected to increase to 19.1% in 2018 at 15.6 mboe/day, representing a CAGR of 8.5% over the 2013-2018 period. Increased Deepwater Focus: Similar to oil, global gas production will see a shift towards offshore production, particularly in deepwater. Deepwater natural gas production was estimated at 3.6 mboe in 2012. This is projected to grow to 6.2 mboe/day in 2018, representing a CAGR of 11.6% over the 2013 to 2018 period. However, it is important to note that shallow water production still remains the key source of gas production globally. This is expected to sustain the increase in demand for jack-ups. 13 Europe & Eurasia 31% Year Fig.a: Global Gas Production Outlook by Source [Source: Douglas-Westwood] 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood

1.3. Global Oil Price Outlook Over the next 5 years there is a consensus that oil price will remain stable between USD 90-100/bbl, in line with Douglas-Westwood’s oil price outlook. USD Ibbl 160 120 80 40 FORECAST o ~~ ~~~~~~~ a _NM ~ m ~~~~ 0_ NM ~ mm ~ 00m0 _ NM ~ mm ~ 00 oo~oooooooooooooooommmmmmmmmmoooooooooo ~ _ ________________ ____NNNNNNNNNNNNNNNNNNNmmmmmmmmmmmmmmmmmmmmoooooooooooooooooooYear Fig.10: Oil Price Outlook [Source: EIA]
Global Oil Price Outlook Oil prices are generally seen as a key indicator of drilling activity with rig counts typically reacting to short term fluctuations. This correlation is perhaps most apparent in the USA where active rig counts fell by 33% between 2008 and 2009 in line with a 37% drop in the average USD/bbl of oil witnessed over the same period. Unfavourable oil price movements can have a negative short term influence on the demand for UMW-OG’s drilling related products and services. Over the 2013 to 2018 period, EIA projects oil prices to hover around USD 100/bbl in their reference case forecast. However, month to month price movement is expected to experience more volatility as compared to the annual data presented above. Douglas-Westwood projects a similar oil price outlook to EIA’s reference case, assuming a constrained oil supply and substantial emerging market demand. Our price outlook also factors in carrying capacity (the oil price at which consumption begins to fall) of various OECD and non-OECD economies. Carrying capacities are adjusted over time given changes due to a number of factors. The mosl important factors are GOP growth, oil efficiency gains, and dollar inflation. Douglas-Westwood estimates a carrying capacity of USD 90-100/bbl for OECD economies and USD 110-120/bbl in non-OECD economies. This is seen in 2010 where the USA saw a peak in recovery when Brent crude oil dropped below USD 90/bbl and in China where growth rate decreased in 2011 when price rose above USD 125/bbl. These carrying capacity levels are expected to grow between 6-9% annually moving forward, representing a high case where consumption and price lend to decrease above such level. Incremental growth in the oil supply will be both d’,fficult and expensive as countries move towards cost intensive offshore productions given maturing onshore fields. Currently, the cost of producing a marginal barrel of oil ranges from USD 65-80/bbl, representing a potential price floor. On the demand side, the vast majority of developed countries are able to increase consumption at oil prices less than USD 75/bbl. Therefore, if oil prices are below this level, global consumption will tend to increase, reverting to current levels at USD 100/bbl. 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood ~~
1.3. Global Oil Price Outlook Given the projected oil price at USD 100/bbl, Douglas-Westwood does not expect demand for UMW· OG’s services to be negatively impacted with oil developments expected to be sanctioned. •Middle East (Onshore) j~W
Brazil Pre-salt (Deepwater)  iJ1!”‘”  Canadian Ojl Sands  ~m*t~ifF&;i~  Coa! to Liquid ArcUc Oil o Fig.ll: Viability of Oil Development  50  150 USD { bbl  200  250  300  350
[Source: Financial Times, Barclays Capital, International Energy Agency, Douglas-Westwood] Impact of Oil Price on Project Sanctioning The economic viability of oil development projects is largely determined by oil price. A breakeven oil price determines if a development can achieve its targeted rate of return and takes into account the cost involved in producing a barrel of oil over the life of the development. These costs include exploration, drilling, construction of infrastructure, and lifting cost. As such, onshore conventional production generally commands a lower breakeven point due to less complex drilling, construction and lifting methods as compared to an offshore field. A field with a longer operating life typically has a lower breakeven oil price as costs are spread over a larger production base. Other factors that can influence the breakeven oil price include availability of government subsidies, geological factors, and availability of existing infrastructure. All types of oil development with the exception of Arctic oil development and certain coal to liquid developments are considered economically viable at current price level of around USD 100/bbl. Moving forward, with EIA reference case hovering around current price levels, Dougias-Westwood expects continued developments for projects that require a relatively higher breakeven point such as offshore projects in shallow and deepwater. PETRONAS expects offshore oil developments to remain viable with oil price above USD 50-70/bbl, providing ample buffer with oil price at current levels around USD 100/bbl. Its EOR plan to rejuvenate existing fields will shape future developments with an estimated breakeven price between USD 30-80/bbl depending on field size amongst a host of other factors such as available infrastructure and government policies. I Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood 1.4. Global Gas Price Outlook Key gas markets are expected to retain their individual price structures with prices in Europe and Japan being forecasted to decrease slightly. Project viability is expected to vary drastically amongst regions. Stable natural gas price will see continued gas developments going forward. USO/mmbtu 18 16 14 12 10 8 6 4 2

–Natural Gas, European ‘” “‘” = Natural Gas, US –LNG, Japanese ··FORECAST
Conventional Tight Gas Shale Coal Bed Methane Sour Deepwater Arctic o
Year  Fig.12: Gas Price Outlook  Fig.13: Viability of Gas Development (transport excluded)  [Source: World Bank]  [Source: Financial Times, Barclays Capital, International  Energy Agency, Douglas-Westwood]  Global Gas Price Outlook
Currently, there are 3 principal gas markets globally including Europe, the USA and Japan. Price differentials amongst these three markets can vary drastically with a 2012 average price of USD 2.8/mmbtu in the USA and USD 16/mmbtu in Japan due to different market characteristics and pricing structure. In the USA and the UK, prices are determined by gas trading hubs: the Henry Hub in the USA and the National Balancing Point in the UK. Prices in both these hubs are determined by supply and demand. However, in other regions such as continental Europe and APAC, prices are determined by long term contracts and are often tied to current oil price. Although it is difficult to predict natural gas price, based on World Bank’s commodity price forecast released in January 2013, European and Japanese gas prices are expected to decline to USD 10.7/mmbtu and USD 14.3/mmbtu in 2018 respectively. USA’s gas price on the other hand is expected to increase from USD 2.8/mmbtu in 2012 to USD 5.8/mmbtu in 2018, converging with global prices as the country is seeking to export its natural gas. It is important to note that while prices appear to be converging in the forecast, each region is expected to retain its individual price structure and market dynamics over the next few years. Impact of Gas Price on Project Sanctioning Similar to oil, the price of gas impacts viability of gas developments with a higher gas price resulting in more projects being sanctioned. A breakeven gas price determines if a development is able to achieve its targeted rate of return. This takes into account the cost involved in producing gas over the life of the development including exploration, drilling, and construction of infrastructure lifting cost. However, given a lack of a global gas price and different types of transportation, economic viability of projects can vary drastically amongst regions. Offshore and onshore projects that are transported through pipes tend to require an additional USD O.30/mmbtu to USD 1.2/mmbtu to be considered viable while LNG projects will require an additional transport cost of USD 3.1/mmbtu to USD 4.7/mmbtu due to liquefaction, transportation, and regasification requirements. Despite a projected decrease in gas price, developments are expected to continue in Asia given the region’s exposure to relatively cheaper conventional gas developments. The USA will see more projects becoming viable as gas price is expected to increase as the country starts to export its natural gas. 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood —————-~ ——~—————-­1.5. Global E&P Expenditure Global E&P expenditure reached new heights in 2012. This increasing trend is expected to continue going forward due to higher production costs associated with incremental oil and gas production. USD bn
<D …. ro 0) 0N C”J <D …. rom 0 N M <D …. rom 0 N;; M;,00 00roro <Xl 0)0)0)mmm m m0 00000000 “‘ “””‘ “””‘ (j) 0)mmm mm0000000000000 ;; ;;'” ‘” “‘0~~~~ ~~~~ NNNNNNNNNNNN N NN –N Year Fig.14: Global E&P Expenditure (USD) [Source: Barclays Capital] Global E&P Expenditure Global E&P expenditure encompasses all onshore, shallow water and deepwater related upstream expenditure including drilling and workover services. Historically, global E&P expenditure has been highly correlated to oil prices and grew rapidly over the 2003-2008 period before suffering a 14% drop in 2009 after a record year of spending amounting to USD 475bn In 2008. This dip is directly attributable to the global financial crisis when oil prices contracted by 37% between 2008 and 2009. After two years of supressed Investment in 2009 and 2010, the global E&P industry rebounded with an estimated spending of USD 556bn in 2011, suggesting that the sector had moved past the temporary downturn caused by the global recession. 2012 represented another record year for many companies as spending increased by a further 10% to reach USD 614bn. This was largely due to engineering and construction expenditure on major LNG projects and deepwater developments in Brazil, the Gulf of Mexico and West Africa. Whilst oil prices and total production are key indicators of total E&P expenditure, it should be noted that an increased dependence on deepwater and other reserves which are hard to access is expected to drive the average cost of each barrel of oil produced. As such, it is expected that E&P investment will need to follow a considerably more aggressive growth pattern if targeted production levels of oil and gas are to be mel. From 2013 to 2015, Barclays Capital projected a CAGR of 11.2% with regards to total E&P spending compared to the CAGR of 3.1% expected in global oil and gas supply (Barclays Capital, Global 2013 E&P Spending Outlook,2012).
8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood 1.6. Asia Oil Production Outlook Oil production in Asia is expected to see mild contraction over the 2012-2020 period whilst deepwater oil production is anticipated to experience growth at 13.2% CAGR. China and Malaysia are expected to account for the largest proportion of offshore oil production in Asia. mboefday mboe/day 9 1.2 1.0 CHINA B IQ7 OB 6 ~~MALAYSIA 5 0.6 4 _—_’NDONESIA ……….•…•..•• VIETNAM
….3 04 ‘” ..’ ……..
“. 2 02 ,-,,.—–……———__ THAILAND,.–‘ 0 ,.., ,..,0 N ~~~~ ro ~ 0 N ~~ 0 ;; 0 0a0 0 0aa aa0a0 0 0aa0 ;; aa0 00 N NNNNNNNNNNNNNNN
Year Year Fig.15: Asia Oil Production Fig.16: Offshore Oil Production by Country [Source: Douglas-Westwood] [Source: Douglas-Westwood] Asia Oil Production Outlook Oil production in Asia accounted for 10% of global production in 2012 and is expected to increase in the short to midterm from 7.6 mboe/day in 2012 to 8.0 mboe/day in 2014 before retracting towards 2018 mainly due to the expected decrease in shallow water production as the NOCs of the region move towards deeper water reserves. Over the forecast period between 2013 to 2018. onshore production is expected to account for majority of production at 56% whilst global offshore oil production takes up the remaining 44% with shallow water production contributing approximately 39% and deepwater production at 5%. Deepwater production is expected to see the highest growth from 0.4 mboe/day in 2012 to 1.0 mboe/day in 2018 representing a CAGR of 13.2%. It is worth noting that this high growth rate can be explained by the low base of deepwater production (0.4 mboe/day. 2012) as compared to shallow water production (2.9 mboe/day, 2012). The majority of these are expected to stem from countries with deepwater reserves such as Malaysia and Indonesia. Shallow water production is expected to decline beyond 2014 given the move towards deeper waler. Douglas-Westwood expects production from shallow water fields to decrease from 2.9 mboe/day in 2012 to 2.6 mboe/day in 2018. representing a CAGR of -1.8%. However, it is important to note that shallow water production still remains the key source of production in Asia, accounting for 88% of Asia total offshore oil production in 2012. By 2018, shallow water oil production is expected to maintain its domination over the deepwater figure. accounting for 75% of Asia total offshore oil production. Offshore Oil Producer Analysis On a country level, the top oil producers in the region include China and Malaysia producing at 1.0 mboe/day and 0.6 mboe/day respectively in 2012 with the remaining key countries, i.e. Indonesia, Vietnam and Thailand producing 0.5.0.4, and 0.2 mboe/day respectively. With the exception of Thailand, the region’s key producing countries are expected to see growth over the short to mid-term from 2012-2016 with the highest growth coming from Malaysia, Indonesia and Vietnam before declining over the longer horizon from 2014 onwards. Myanmar’s offshore oil production is negligible. Malaysia and Indonesia are expected to focus on deepwater production with several key developments planned over the 2012-2018 period whilst Vietnam, Thailand, and Myanmar will retain their focus in shallow water production. 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood ~~—-“-~—‘-~~” . -~ “‘–~~’–“”””””~ 1.7. Asia Gas Production Outlook Asian gas production is expected to see significant growth over the forecast period, Key offshore countries include Indonesia and Malaysia with deepwater production becoming significantly more prominent. mboe/daymboe/day 12 1.4 10 B 6
4 • Offshore Deep Offshore Shallow III Onshore 2 0 N ~~ <D ~ ro 0 N ~~ <D ~ ro 0 .. .. 0 ;; 000000 00 ‘”;; ;;0000000000 0000000 N NNNNNN NNN NNN NNNNN N Year Fig.17: Asia Gas Production [Source: Douglas-Westwood] Asia Gas Production OUI/ook Douglas-Westwood estimates gas production in Asia to account for 13% of global production in 2012, higher in terms of volume and proportion as compared to oil production. Given the increasing demand for natural gas, production is expected to see significant growth from 8.4 mboe/day in 2012 to 11.0 mboe/day in 2020 representing a 3.3% CAGR, in line with global growth rate of 3.8%. In terms of production Iype, offshore production will account for the majority of gas production in Asia at 55% with shallow water contributing 47% of lotal gas production while deepwater accounting for 8% of Asia gas production in 2012. Onshore production is expected to contribute the remaining 45% of the total gas production in Asia (2012).’ Gas production from both onshore and offshore fields is expected to increase with the highest growth from offshore fields, particularly in deepwater. Deepwater gas production will see CAGR of 12.9% from 2012-2020 with shallow water and onshore production at CAGRs of 2.2% and 1.9% respectively. Key countries producing gas from offshore fields include Indonesia, Malaysia and Thailand. Offshore Gas Producers Analysis The top offshore gas producers in the region include Indonesia and Malaysia, both of which were estimated to have produced approximately 1.1 mboe/day each in 2012. The remaining countries, i.e. China, Vietnam and Myanmar were estimated to produce 0.2 mboe/day each in 2012 and Thailand at 0.6 mboe/day. In terms of growth, ail counlries are expected to continue to see growth over the 2012-2020 forecast period with the highest growth rates coming from China, Vietnam and Myanmar at a CAGR of 14%, 10% and 9% respectively. Malaysia and Indonesia are expected to increase their production at a CAGR of 1.0% and 2.1% respectively. However, it is important to note that shallow water production remains the key source of gas production in Asia, which is expected to sustain the increase in demand for jack-ups in Asia. 19 138
IICompany No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) DouglasINDEPENDENT MARKET REPORT Westwood 1.8. Malaysia’s Economic Transformation Program Malaysia’s Economic Transformation Program (ETP) has identified the oil and gas industry as a Key Economic Area with plans to increase growth by 5% per annum through increasing exploration and production activity. Overview The Malaysian government plans for the country to become a high-income nation of USD 15,000 to USD 20,000 per capita compared to the USD 6,700 recorded in 2010. This initiative plans to be inclusive in nature, allowing all communities to benefit from the programme with a focus on developing higher-wage jobs, education and training. There will also be a stronger emphasis on lower income (bottom 40%) households to raise the average monthly income. The Malaysian government plans to achieve this goal through sustainable growth, without compromising future generations in terms of natural resource, environment and in the country’s fiscal policies. Given the significance of the oil and gas industry in Malaysia, the government has identified the industry as one of its National Key Economic Area (NKEA) which will drive income growth to 2020 with a target CAGR of 5% per annum. The Malaysian Upstream Oil and Gas Industry To achieve a 5% grow1h per annum target by 2020, the government has identified 3 key entry point projects (EPP) in the upstream segment. These EPP includes rejuvenating existing fields through EOR, developing small fields and intensifying exploration activities. PETRONAS is Malaysia’s NOC, holding exclusive ownership to all domestic exploration and production projects under the Petroleum Development Act in 1974. Since 1985, there was a 15% minimum equity requirement for PETRONAS in PSCs with private and foreign companies. The NOC is tasked with regulating the oil & gas industry and is pivotal in Malaysia’s ETP initiative. The Three (3) EPPs identified are: EPP 1: Rejuvenating existing fields through EOR. PETRONAS has created a three-pronged strategy to put these EOR techniques in place. This includes a review of current PSCs to include new incentives for operators to implement EOR techniques. Operators with EOR expertise will be made aware of such initiatives and opportunities to attract development plans. Lastly, PETRONAS plans to regulate development plans to ensure new methods and technologies are disseminated and installed. In 2011, PETRONAS signed 2 PSCs with Shell for EOR projects in Sabah and Sarawak over 9 oil fields in the Baram Delta and 4 oil fields in North Sabah Development area. Such plans are expected to generate robust opportunities for UMW·OG’s drilling and workover services given increased demand for drilling and well interventions. The EOR programme is expected to cause demand for jack-ups and HWUs to continue growing steadily in Malaysia. EPP 2: Developing small fields through innovative solutions. PETRONAS plans to review PSC terms to allow operators more economic incentives in terms of sanctioning investments. Operalors specialising in smaller field developments will also be invited with plans to ensure better collaboration. An increase in development plans for smaller fields is expected to drive UMW-OG’s drilling and oilfield service business given an overall increase in exploration and production activities due to these small field developments. EPP 3: Intensifying exploration activities. PETRONAS is tasked to review PSC and/or introduce new arrangements to increase exploration. Current processes for drilling activities will also be reviewed to increase efficiency and expedite future drilling programs. An increase in exploration activities is expected to generate robust opportunities for UMW-OG’s drilling and oilfield service market, given its exposure to the drilling market. 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood 1. MACRO·ECONOM!C ENV!RONMENT 1.9. Malaysia Oil and Gas Production Outlook Total oil and gas production in Malaysia is expected to increase at a CAGR of 2.0% from 2012 to 2018. This is expected to be achieved by strong development in deepwater production, robust EOR programme and marginal field development. mboe/day mboefday 1.0 YeEir Fig.19: Malaysia Oil Production [Source: Douglas-Westwood] Overview Malaysia is the largest offshore oil and gas producer in SEA, accounting for 23% of the total offshore production in SEA. Total production in Malaysia is expected to increase from 1.7 mboe/day in 2012 to 1.9 mboe/day in 2018 representing a CAGR of 2.0% due to a strong growth in deepwater production which is expected to increase by 35% from 305,000 boe/day in 2012 to 412,000 boe/day in 2018. The Malaysian government has established comprehensive programmes to develop the oil and gas sector. To support exploration and field development, new tax and investment incentives were introduced in 2010 under the ETP. PETRONAS was tasked to curb the decline in oil and gas production by enhancing output from existing fields with EOR programme and marginal field development via RSCs and further promoting deepwater field development under EPP1 and EPP2 in the ETP program for oil, gas and energy sector. Approximately RM 300bn was committed to these programmes over the next five years to 2018. In 2012, the highlight of the Malaysian oil and gas industry was the USD 4bn (RM 12bn) merger that involved a major EPC contractor (Kencana Petroleum Bhd) and a drilling and offshore support vessel company (SapuraCrest Petroleum Bhd) to form SapuraKencana Petroleum Bhd. This merger was viewed as being in line with PETRONAS’ plan of building local companies to become giants in asset and integrated services to secure high-valued contracts. Malaysia Oil Production Outlook By the end of 2012, the proven oil reserves in Malaysia was estimated at 3.7bn barrels, accounting for 26% of the total 14.5bn barrels proven oil reserves in SEA. This represents the fifth largest oil reserve in APAC and the second largest oil reserve in SEA. Malaysian oil production has decreased gradually from the peak of 861 mboe/day in 2004 to 633 mboe/day in 2012 due to production decline from its maturing fields. Robust development in deepwater oil production is expected to increase the total oil production over the next decade. By 2020, deepwater oil production is estimated at 148 mboe/day, increasing by a CAGR of 1.5% compared to 2012 at 132mboe/day. The first two deepwater oil fields in production are Kikeh in Sabah and Gumusut-Kakap in Sarawak which came onstream in 2007 and 2012 respectively. Their production capacities are estimated at 120,000 bbl/day and 135,000 bbl/day respectively. Malikai in Sabah is the third major deepwater oil project under development by Shell, which is expected to come onstream in 2016. Shell had chosen to develop Malikai with a TLP platform given its smaller production capacity of 60,000 bbl/day compared to deepwater oil fields in Kikeh and Gumusut-Kakap. 21 140

8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood Despite the strong development of deepwater projects in Malaysia, shallow water production still plays a key role in the oil industry, accounting for 79% of Malaysia total offshore production in 2012. As shallow water fields continue to mature, demand for drilling and workover activities in the shallow water segment is expected to continue to grow steadily for these fields to maintain their production level. This in turn will translate into an increase in demand for jack-ups and HWUs given their preferential advantages in the shallow water environment. From 2012 to 2018, demand for jack-ups and HWUs in Malaysia is expected to increase by a CAGR of 4% and 2% respectively. Malaysia Gas Production Outlook Malaysia holds 22% of the total gas proven reserves in SEA, estimated at 46.8 tcf as of 2012. This represents the fourth largest gas reserve in APAC and the second largest gas reserve in SEA Similar to oil production, nearly all the gas production in Malaysia comes from offshore fields. In 2012, total gas production in Malaysia was recorded at 2.3 tel (BP Statistical Review 2013). Total gas production is expected to increase from 2.3 tcf in 2012 to 2.4 tel in 2020 with expected decline in shallow water gas production beyond 2015 whilst deepwater production is anticipated to triple from 2015 to 2020. With relatively strong gas production that exceeds domestic consumption, Malaysia is ranked the second largest LNG exporter globally in 2012 with total export volume estimated at 1.1 tel. The Malaysia-Thailand Joint Development Area located at Gulf of Thailand is One of the most active gas production areas in Malaysia with 8.5 tcf of proven gas reserves in 22 fields. Within the Malaysian territory, gas production continues to focus on offshore Sarawak and Sabah. Major gas field projects under development are the Kumang Cluster in Block SK306 developed by PETRONAS with 500 mel/day capacity and is expected to come online in 2013. Three new gas fields in Block SK308 are being developed jointly by Shell and PETRONAS. PETRONAS’ first FLNG with the capacity of 1.2mn tonne LNG per annum is expected to come onstream in 2015. [ Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood 1.10. The Oil and Gas Lifecycle Review The businesses of UMW-OG are primarily focused on the upstream oil and gas activity in particular in the field development and O&M stages. UPS TRE AM  FORMATION EVALUATION  EXPLORATION & APPRAISAL  FIELD DEVELOPMENT  OPERATIONS & MAINTENANCE  MIDSTREAM

Upstream The upstream oil and gas sector covers the exploration, appraisal, development and maintenance of oil and gas reserves. The key stages within the upstream business are covered below: Formation Evaluation: The use of seismic acquisition to identify and model the geology of potential hydrocarbon bearing formations. Life of field seismic can also be used to optimise EOR strategies. UMW-OG has minimal exposure to this segment. E&A: Once potential reservoirs are identified, the exploration and appraisal drilling phase commences to determine the actual existence and commercial viability of oil and gas reserves. UMW-OG’s offshore drilling rigs are used to drill these wells which also require premium threaded OCTG. Field Development: Typically the most capex intensive segment of the oil and gas lifecycle. This segment covers the drilling, completion of production wells as well as the construction of processing facilities such as offshore platforms. UMW-OG’s business is highly exposed to this segment providing offshore rigs to drill new wells, premium threading to complete the wells, and workover rigs for well intervention services. O&M: Once hydrocarbon production has commenced the wells and process facilities require constant maintenance to ensure optimal productivity and safety. UMW-OG has substantial exposure to this segment through the provision of HWUs used to increase production from existing wells. Midstream Covers the transportation of produced hydrocarbons from the source to refineries and to end users such as power plants via large diameter trunklines or tankers. The transportation of natural gas via tanker is also possible due to LNG technology where gas is liquefied at source prior to marine transit, and then regassified at the end market. Downstream Entails the processing of crude hydrocarbons into consumer products such as fuels for transportation, petrochemicals and plastics. E1Pany No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood 2. DRILLING SERVICES 2.1. Drilling: Overview & Definitions UMW-OG currently owns and operates 3 premium jack-ups and jointly owns and operates 1 shallow water semi-submersible <1,000 ft drilling rig, The fleet is involved in drilling operations for offshore E&A and development wells but is not able to carry out operations in deepwater.
Introduction to Offshore Drilling Offshore drilling is a mechanical process where a wellbore is drilled through the seabed during the exploration and extraction of petroleum, typically in rock formations between the seabeds. The process of drilling offshore is technically more difficult than drilling onshore as offshore drilling often takes place in remote and harsher environments. Offshore Drilling Rigs Definitions The offshore drilling sector is served by offshore rigs. These rigs are generally fixed units that sit on production platforms or self-contained mobile units, partly (tender rigs) or fully independent of platforms. Mobile rigs either rest on the sea floor Uack-ups) or they float (semi-submersibles and drillships). These floating rigs are either anchored to the seabed or dynamically positioned with thrusters and global positioning systems. Typically, the drilling rigs are categorised based on the drilling depth and on the rig’s ability to float. Except for platform rigs, all offshore rigs fall under the category of MODU. The offshore drilling rigs and its capabilities are discussed in the following pages: I Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood
Jack-up Drilling Rigs (Jack-Ups) Jack-ups are a type of MODU with a self-elevating mobile platform used to drill wells. These platforms can be configured to install subsea wellheads. Jack-up rigs with a platform and three or more suppOliing legs were developed from mobile offshore docks. The first design in 1950 was converted from a mobiie jack-up for radar towers off the east coast of the USA and incorporated into a permanent platform in 10m of water. However, the first mobile jack-up drilling rig was built in 1954 after which improved designs were progressively introduced. By the 1980s, jack-ups were being built throughout the world with water depth capabilities of over 100m. The deepest water units can now drill in up to 125m and withstand severe weather conditions. Jack-ups are commonly used for drilling in the continental shelf area with water depth typically ranging from 91 to 152 metres (300-500ft) since bending stresses in legs become disproportionately greater as they are lengthened. When drilling, jack-ups attach their legs to the seabed providing a stable work platform. A buoyant hull fitted with the legs enables the rig to move to desired locations. After analysing the condition of the sea floor at the drilling location, a jack-up rig is towed to the planned drilling location and its legs are jacked down until the floating rig hull section that carries the derrick is raised above maximum wave height. The weight of the rig keeps it stable and spud cans prevent excessive penetration of the legs into the soft seabed. Platform structures are designed to quickly move between locations and the type of jack-ups that oil companies and operators choose are dependent on cost, water depths and sea conditions. The two broad categories of jack-ups are the independent-leg type jack-up and the mat-type jack-up. The independent-leg type jack-up usually has three legs with lattice construction while the mat-type jack-up has legs attached to a large mat that rests on the bottom of the ocean. Mat-type jack-ups are relatively inexpensive and do little environmental damage but are susceptible to damage from any object on the seabed, making it unpopular despite the low building costs. The jack-ups are further classified by their structural design and drilling capabilities: Cantilever Jack-up: Designed with the ability to drill through existing production piatforms (or without them), the drilling derrick of the Cantilever Jack-up is mounted on an arm that extends outward from the drilling deck which provides the derrick with a large range of motion. This is the most popular type of jack-up. Slot-type Jack-up: The slot-type jack-up is characterised by a slot through the floor of the hull. During operations, a drilling derrick is positioned over the platform and lifted above it when the platform moves to another location. Open-truss Jack-up: Open-truss jack-up is a crisscross of steel tubes which provides a strong, stable and light-weight leg structure that can withstand rough sea conditions. 144 8. INDUSTRY OVERVIEW (Cont’d) Dougl”sINDEPENDENT MARKET REPORT Westwood —.. —~_._-._._–_._­
Columnar Platform: A columnar platform is constructed in a rectangular form which reduces its effective weight-bracing facility, making it less stable in extreme weather conditions and does not function well in deeper water depths beyond 61 metres (200ft). UMW-OG owns and operates three premium jack-up drilling rigs which are self-elevating cantilever jack-up drilling rigs with three triangular trussed independent legs. [The rest of the page is intentionally left blank] (Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d)
Douglas INDEPENDENT MARKET REPORT Westwood 2. OHILUNG SERVICES Semi-Submersible Drilling Rigs (Semi-subs) Semi-subs are a type of floating MODU platform with legs and connecting pontoons, favoured for their stability in adverse weather conditions and its ability to conduct drilling operations beyond 130 metres (400ft). The drilling platform on these rigs sits upon a series of pontoons and is typically moored to the seabed during drilling operations and the drilling equipment is located in the centre of the structure where there is the least movement. Older semi-subs were designed to work in maximum water depths of up to 400m, securely anchored to the sea floor. However, many such vessels have now been converted, increasing their size and strength, and these along with newer types first built in the 1980s have capabilities to drill in much greater water depths. Sixth generation semi-subs can operate in up to 3000 metres (9000ft) of water. Column-stabilised semi-sub: The column-stabilised semi-sub is the more common semi-sub. In this column-stabilised semi-sub, two horizontal hulls are connected via columns to the drilling deck above water. Bottle-type semi-sub: The bottle-type semi-sub was designed originally to be submersible however achieved better stability when only partially submerged. UMW-OG jointly owns and operates one propulsion-assisted twin lower hull, 8 column-stabilised semi-sub with water depth rated up to 305 metres (1,000ft).
Drillships Either built as new keel or converted from an existing hull, drillships provide a floating rig solution that is often dynamically positioned (onboard thrusters that maintain the vessels position) allowing for operations beyond (3,OOOm). Drillships are sometimes preferred due to faster mobilisation times as they are able to propel themselves. The first drillship was created through an adaption of a naval deep-sea barge in 1953 but it was not until the 1960s that Shell developed modern floating rigs. Drillships were originally adapted from existing vessels fitted with drilling apparatus mounted in the centre of the ship over a moonpool. They may be dynamically positioned or anchored during operation. Drillships tend to be deployed in remote regions and in the deepest waters but are not the best in harsh sea conditions. They are valued for their high load capacity and the ability to propel themselves. I Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d)

Douglas INDEPENDENT MARKET REPORT Westwood 2. DRiLLiNG SERVICES Platform Rigs Platform rigs are located on existing production platforms and allow operators to drill new development wells, perform workovers of existing wells and drill exploratory sidetracks. Multiple wells directed at different parts of a reservoir are drilled from the platform using these rigs, which will have a moveable substructure and derrick. Platform rigs can be permanent facilities or modular rigs that can be mobilised as required. Rigid platform rigs: These platform rigs rest on the seafloor -also include the caisson-type platform, concrete gravity platform and the steel-jacket platform. Compliant platform rigs: These platform rigs are used in deeper waters and yield to water and wind movements -such as the the guyed-tower platform and the tension-leg platform. These rigs utilise the primary design of fixed platforms and made them operational in depths 450 to 900 metres (1500-3000ft) Tender Rigs Tender rigs allow operators to perform platform drilling services from smaller platforms by holding large modules such as pumps, living quarters and generators on a barge which can be mobilised when necessary. Tender rigs are more common in shallow water, such as West Africa and Asia. [The rest of the page is intentionally left blank] I Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood ~~~-~~~–~~~~~~~~~~–~~.~—–~.. 2. DF<!L!.I~\!G ~;EF~V!CES 2.2. Drilling: Key Drivers From 2013 to 2018, offshore drilling demand in SEA is expected to remain stable at 455 wells on average whilst demand for semi-sub >1,000ft (305m) is expected to increase by 25%.
Platform Rig Jack-up 92 385 12%
10% 4% Fig.22: Offshore Drilling Rig Count as of 5 September 2013, Global [Source: RigLogix] Global Well Drilling Activity Douglas-Westwood estimated that a total of 13,848 wells were drilled from 2009 to 2012, representing an annual average of 3,462 wells. Over the next six years from 2013 to 2018, we expect a total of 26,063 wells to be drilled worldwide. This would represent an annual average of 4,344 wells drilled, an increase of 25.5% from the historical 2009-2012 period. This anticipated growth in global demand stems from the anticipated growth from Latin America (driven principally by deepwater Brazilian fields). Latin America alone is expected to account for about 2,854 wells drilled or 11 % of the global number of wells drilled between 2013 and 2018. In terms of drilling expenditure, APAC is expected to experience robust growth at a CAGR of 11% from 2012 to 2018. This growth will be mainly driven by growing domestic oil & gas demand in Malaysia, Indonesia, Thailand and China combined with increased levels of deepwater related activity which is considerably more expensive as compared to conventional shallow water developments. Jack-ups and Semi-subs Representing the Majority of Offshore Drilling Rigs Globally Globally, jack-ups represent 51 % of the total offshore drilling rig count. Asia has the highest number of jack­ups, accounting for 31 % of tolal jack-ups worldwide as of 5 September 2013. The Middle East and Latin America represent 26% and 12% of the jack-up market, respectively. Semi-subs make up 23% of the total offshore drilling rig count globally as of 5 September 2013. Of the 171 semi-subs worldwide, only 3% are represented by semi-subs in the <1 ,000f! water depth category. The robust growth in semi-subs is expected to be represented by the growth in the number of semi-subs in the >1 ,000f! water depth category. 8. INDUSTRY OVERVIEW (Cont’d) Doug[as INDEPENDENT MARKET REPORT Westwood
Unit 600 E&A Jack-up II! Development
Semisub619450 67’1 [ 10% 300 150 o Drillship Tender Rig 3 18 3% 20%
Fig.23: Annual Offshore Wells Drilled, SEA Fig.24: Offshore Drilling Rig Count as of 5 September [Source: Douglas-Westwood] 2013, SEA [Source: RigLogix] SEA Well Drilling Activity Between 2013 and 2018, SEA is expected to see a stabilised development of well drilling activity with 455 offshore wells being drilled on average annually, representing a 15% increase from 395 wells in 2012. Offshore drilling activities in the region is expected to be characterised by increasing well complexity moving towards horizontal and deviated wells as opposed to vertical wells. Douglas-Westwood expects the number of horizontal we[ls and deviated wells to grow by 28% whilst conventional vertical wells is expected to decline by approximately 5% from 2013 to 2018. This anticipated growth in more complex offshore wells is expected to be driven in part by accelerated oil & gas exploration and enhanced oil recovery programmes by NOC in Ma[aysia, Indonesia, Thailand and Vietnam who view augmented domestic production capacity as an increasingly important measure of national energy security to offset the potential impact of high oil prices such as those witnessed in 2008. Dominance of jack-ups in SEA Due to the shallow water drilling environment in SEA, the rig profile in the region is dominated by jack-ups, accounting for 67% of total MODU rig counts. Tender rigs rank second with 20% of tota[ contracted rig count. Amongst the 9 semi-subs in SEA, 8 have water depth rated above 1,000ft and UMW-OG’s NAGA 1 is the only semi-sub with water depth less than 1,OOOft. This demonstrates the preference over semi-subs with deeper water capability.

 

[ Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) ……………………..
DouglasINDEPENDENT MARKET REPORT Westwood 2. DH!LLiNG S[-:~RViCES Unit Unit 40 75
60
30 ____~Malaysia —………_–Jackup
45 20 30
10 15 Semisub>1000ft Drillship ~..-:..::..7..::..-:..::..7..::..-:..:: . Semisub<:1 aoonoo ,I IIii i o N <0 “. <D t-ro m 0 ~ N ~~~ m ~ ro o o ‘”;; ;; o ;; ;;;; ;; 8000 0 ;;5000 NN N NN NN N N NNNNN NNNN Year Year Fig.25: Offshore Drilling Rig Demand by Country, SEA Fig.26: MODU Rig Demand by Rig Type, SEA [Source: Douglas-Westwood, RigLogix] [Source: Douglas-Westwood, RigLogix] Offshore Drilling Rig Demand by Country in SEA The key SEA countries with rig demand are Malaysia, Vietnam, Indonesia, Thailand and Myanmar. The strongest rig demand comes from Malaysia in 2009-2012, accounting for an average of 33% of total SEA rig demand. This is followed by Vietnam and Indonesia at 29% and 23% respectively. In the forecast years from 2013 to 2018, Malaysia, Vietnam, and Indonesia will remain as the key countries contributing to rig demand, accounting for 39%, 28%, and 17% of the total rig count respectively. Malaysia has aimed to increase production by focusing on deepwater projects while also enhancing performance and productivity of existing fields. New deepwater developments, such as Malikai (expected to come onstream in 2016), have commenced. Although Vietnam’s production is less than that of Indonesia, its contracted rig count is greater than Indonesia driven primarily by strong E&A activities. Growth of jack-ups and semi-subs >1,OOOft in SEA Due to the shallow water drilling environment in SEA, the rig profile in the region is dominated by jack-ups, accounting for 69% of total MODU rig count within SEA. The pronounced growth of an annual average of 11 % between 2009 and 2012 for jack-ups is expected to stabilise by 2015. With the strong development of deepwater drilling and anticipated projects in SEA, we expect the demand for semi-subs with water depth of more than 1,000tt to increase by 25% from 2013 to 2018 Demand for drillships is anticipated to increase at a slower rate of 4%. As such, semi-sub <1 ,000tt is expected to see a flat demand period from 2013 to 2018. 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood

Unit 200 SemisubJack-up 416150 /16% 100 50 o Tender Rig 5 20%, Fig.28: Offshore Drilling Rig Count as of 5 September 2013, Malaysia [Source: RigLogix] Malaysia Well Drilling Activity Douglas-Westwood estimated a total of 488 wells drilled from 2009 to 2012 -an annual average of 122 wells. Over the next six years from 2013 to 2018, we expect a total of 954 wells to be drilled in Malaysia. This would represent an annual average of 159 wells drilled, an increase of 30.3% from the historical 2009-2012 period. Most of the wells are development welis, representing 85% of the total wells drilled; the remainder are represented by E&A wells. There will be an increasing number of deepwater projects going into production over the next six years that will account for the 2013-2018 growth profile of wells drilled in Malaysia. Dominance of Jack-ups in Malaysia, Remaining Market Divided between Tender Rigs and Semi-subs Jack-ups, tender rigs and semi-subs make up the Malaysia’s offshore drilling rig market. Jack-ups dominate Malaysia’s offshore drilling rig count, representing 64% of total rig count as of 5 September 2013. This reflects the shallow water developments in Malaysia. With the increase in deepwater projects coming on-stream, we expect to see more demand for semi-subs, particularly for those with water depths greater than 1,000f!.

 

[COmpany No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood 2. DRILLING SERVICES 2.3. Drilling: Market Outlook UMW-OG’s addressable market is dominated by demand for jack-ups due to the shallow water driliing environment in SEA. Thailand OthersUnit Indonesia7360 5% 9 Myanmar 12%\ /16%1 2% 40 20 Malaysia 20 37%
o O”J 0 …—N U) <f) DO'” ” 8a0ao oaa a NNNNNNNN N Fig.3D: Drilling Market for Jack-ups and semi-sub <1 ,0001t by annual average rig count from 2013 to 2018. SEA. 2013-2018 Fig.29: Annual Average Contracted Jack-Ups, SEA [Source Douglas-Westwood] ISource: Douglas-Westwood] Drilling Rig Analysis UMW-OG’s addressable markel is generally dominated by jack-ups as opposed to semi-subs <1 ,000ft. This is mainly due to the growing demand towards jack-ups, caused by the increased demand for drilling activities in the shallow water segment whilst operators attempt to maintain production level in mature fields as set out in section 19 above. As the deepwater drilling market is expected to grow substantially over the next ten years, demand for semi­subs >1 ,000ft is expected to increase by 43% in 2018 compared to 2012. This high growth rate is mainly due to the low base of semisubs >1,000ft (8 units. 5 September 2013) as compared to jack-ups (61 units, 5 September 2013) in SEA. We expect the contracted rig ratio of semi-sub >1 ,000ft against semi-subs <1 ,000ft to be 8 to 1 from 2013 to 2018. As such, UMW-OG may be able to capitalise on the strong growth in deepwater drilling if UMW·OG acquires semi-subs >1 ,000fl. Country Analysis Malaysia Malaysia is the largest market in SEA for jack-ups and semi-subs <1 ,000ft due to strong offshore production, accounting for 37% of annual average contracted rig count of jack-ups and semi-subs <1.000ft from 2013 to 2018 The market is expected to increase by 33% from 15 average contracted rigs in 2012 to 20 average contracted rigs in 2018. The operator structure in the country is relatively well-established with PETRONAS holding 60% of fixed platforms while Shell owns 19%. Currently UMW-OG has two jack-ups and one semi-sub contracted to PETRONAS. Demand for jack-ups In Malaysia is expected to peak in 2015 due to the increase of shallow water drilling activities in the same year. Malaysia presents robust demand growth for semi-sub >1 ,000ft with an expected increase from 4 contracted rigs on average in 2012 to 8 contracted rigs on average in 2018 due to the focus on deepwater drilling. 33 152 8. INDUSTRY OVERVIEW (Cont’d) Douglas . INDEPENDENT MARKET REPORT Westwood Indonesia Indonesia is expected to contribute 16% of annual average contracled rig count of jack-ups and semi-sub <1,000f! from 2013 to 2018. Unlike Malaysia, Indonesia has a less consolidated operator structure with the state’s oil and gas company namely PT Pertamina, holding only 36% of the fixed platforms. Other main operators in the country are Total, CNOOC, and Chevron. This structure may potentially give UMW-OG, as a foreign rig owner in Indonesia, a competitive market condition as compared to an operator structure dominated by NOCs. Furthermore, NAGA 2 and NAGA 3 were built in Batam, Indonesia, which potentially helps UMW-OG to satisfy local content requirements in Indonesia. Vietnam Vietnam is the third largest oil producer in SEA. Peak oil production was 400,000 bbl/day in 2004. Since then, oil production has slowly declined, down to 348,000 bbl/day in 2012 Similar to the situation in Malaysia, the Vietnam oil and gas industry fully relies on offshore production with negligible onshore reserves. From 2013 to 2018, Vietnam is expected to account for 28% of annual average contracted rig count of jack­ups and semi-subs <1,000ft. This presents a robust opportunity for UMW-OG’s drilling business as the company has started to enter the drilling market in Vietnam early 2013 via the drilling contract with PetroVietnam. [The rest of the page is intentionally left blank] [iompany No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d)
70% .””””::…-:-:;:­60% 50% 40% 30%
20% 20% 10% 10%,+:~ –.-~~ 0 0% M ~~~ ~ ro rn 0 ~ NM ~~ ~ ~ ~ M ~~~ ~ ro rn 0 ~ NM ~~~ ~ ro o0 0aaaa ~~~ ~~~888gg88ooooo gg oo g~~g~~~~~~~gg~~~NNN NNN NN NN NN'”‘”NN Year Year Fig.31: Jack-up DCR & Utilisation, SEA Fig.32: Semi-sub <1 ,OOOft DCR & Utilisation, SEA [Source: Douglas-Westwood] [Source: Douglas-Westwood]
Methodology DCR forecasting has been divided into three cases: High Case, Low Case, and DW Case. The first two cases are estimated by using a nat SEA inflation rate (3%) forecasted by IMF and anticipated growth in rig demand whilst DW Case is computed based on the average figures of the High Case and Low Case. Douglas-Westwood is unable to forecast utilisation in this report due to a number of limitations preventing us from estimating the number of rigs available in a given market The drilling business is sensitive to changes in oil price because rigs are commonly built on speculative demand when oil price is high or anticipated to increase. With the lack of visibility for future contracts, it is not possible to predict rig movements in and out of a region. Speculative build and rig movement are the two key limitations that make forecast utilisation inaccurate as compared to the actual figures. Jack-up DCR of jack-up is expected to reach USD 153,000 on average from 2013 to 2018, an increase of 26% compared to USD 121,000 in 2012 due to strong demand for Jack-up in SEA. OCR of jack-ups in the region reached USD 179,000 in 2008 before declining during 2009-2011. This decline was due to the drop in utilisation rate from 88% in 2008 to 72% in 2009 which potentially caused downward price pressure. Semi-sub <:1 ,000ft DCR of semi-sub <1,000ft is expected to reach USD 164,000 on average during 2013-2018, an increase of 19% compared to USD 138.000 in 2012. Over the past decade, the number of contracted semi-sub <1 ,000ft in SEA is considerably insignificant (one to three in a given year). As such. their utilisation rate tends to nuctuate more than jack-up’s utilisation rate. As of 5 September 2013. NAGA 1 is the only contracted semi-sub <1,000ft in SEA.
Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) INDEPENDENT MARKET REPORT  DouglasWestwood  2. DH!LLING SEF~\f!CE:S  2.5. Drilling: Competitive Landscape
UMW-OG’s competitors are categorised into 3 main groups: Large Drilling Companies, Medium Drilling Companies and Regionally Focused Drilling Companies as shown in the table below. Company Name HQ rigs MYS Transocean Inc SUI94 0 Ensco Pic GBR72 4 a Noble Corporation USA68 1 ‘;; Nabors Offshore Corp. USA59 0 ~ Seadrlll ltd. NOR45 3 o Hercules Offshore Inc. USA44 0 ~ Diamond Offshore Drilling Inc. USA44 1 j Shelf Dlilling Holdings Ltd ARE36 2
Rowan Companies Inc USA35 2 .~~..M.?I!~~ -Maersk Group ONK33 1 Average 54 1 ci China Oilfield Sel’\o1ces CHN33 0
o Atwood Oceanics Inc USA16 0 :§ ~ 8oo1ga Offshol€ AS NOR9 0 ~ Vantage Drilling USA7 1 ~ S1ena Dniling ltd GBR7 0

i:l Aban OffsrlOre ltd INO5 1 GBR3 1~ .~~~.P~~:~.~..~.~~p. … Average 11 0 Japan Drilling Co. Ltd. JPN5 2 . Jagson Intematlonal Ltd INO5 0 8 UMW-QG MYS4 2 .~ PT Apexlndo Pratama Duta Thk ION5 0 6 Yielso\oPetro VNM4 0 ‘£ PV Dnlling (Petrov;elnam) VNM4 0 BKS Energy Sei’\lces LLC SGP4 0 ~ Tnumph Dnlling Sei’\lces SGP4 0 ~ SapuraKencana Pell’Oleum Bhd MYS21 4 5 Safln Gulf FZCO ARE2 0 ‘:;r Korean National Oil Corp. KOR2 0 no Mermaid Drilling ltd. THA2 0 SAAG all And Gas Sdn. Bhd MYS1 0
-,~,-~,,———~-~——–~—-_.~—-­Average (excluding UMW-OG) 51 Fig.33: Drilling Competitive Landscape, 5 September 2013 [Source: Douglas-Westwood, RigLogix] (OS)  24  0  9  0  11  0  0  49  10  3  0  14  5  a  0  1  4  0  4  10  7  8  0  0  3  1  0  0  3  a  4  0  2  0  0  0  2  0  0  0  0  0  0  0  0  4  0  0  0  1  0  0  0  4  0  21  0  0  0  1  0  2  0  1
-_._-_._——­03 Maiaysl Rest of 21 28 30 34 33 33 32 33 32 17 10 5 23 17 67 9 22 17 4 26 28 35 16 18 17 36 36 2 39 31 15 5 16 3 29 ——-~~~~,,_. 1a 33 M” , Asia WD(JU) 348 29,298 •312 28,094 •0 •291 26,574 165 15,170
(t•0 ••362 31,289 222 23,386 7 314 28,409 ct • 300 23,132 ct ••1 361 33,571 •0 •1 405 28,121 …..•4 312 26,719 287 26,727 0 •0 •375 30,500 26,839
(t ••1 375 34,286 (t 4 31,114 C\ () 3a 327 23,000 (t •3aa 25,000 (t ct.. 11 350 28,209 360 27.000 ct •0 •280 22,200 367 30,000 3a1 25.000
() 0 •319 25.000 0 •367 28,333 350 27,500
<) • 20,250 ct ••23,333 •0 •• 400 30,000 22,343
ct • 19,750 0 •0 •375 20,000…_—….._~­354 24,226 155 I Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood ._———_._.~—-.. ~————_._—-_.. 2. Df~ILLH\iG SERV(CES UMW-OG’s competitors can be categorised into 3 main groups with each group sharing relatively similar fleet size, rig types and geographical coverage. UMW-OG is well positioned within its peer group given its younger fleet with higher technical specifications. Overview The drilling market is characterised by high barriers to entry due to high upfront capital required and proven track record. Drilling contractors can be divided into 3 main groups: large drilling companies, medium drilling companies and regionally focused drilling companies. While companies in all groups are considered direct competitors, large and medium categories may charter drilling rigs from rig owners. Large drilling companies: These companies typically have a large asset base of over 30 rigs of various types. With the exception of a few, most large drilling companies have a range of assets spanning across all rig types such as jack-ups, semi-subs, drillships and other rigs including drilling barges and platform rigs. Companies in this group also tend to have an international presence with a smaller percentage of their fleet consolidated within a single country. Medium drilling companies: Companies that fall in this group have an asset base that can vary from 3 rigs to over 20 rigs. Larger companies such as China Oilfield Services and Atwood Oceanics may have a wider range of assets including semi-subs and/or drillships as compared to smaller companies which will typically operate jack-ups. Similar to large drilling companies, companies in this category tend to have a wider geographical reach across several countries Regionally focused drilling companies: These companies tend to have a smaller asset base with 5 or less rigs with a larger focus on jack-ups and other shallow water operations such as drilling barges and platform rigs. These companies tend to operate within their region with minimal international presence UMW-OG: The company falls in the regionally focused companies category with 3 jack-ups and 1 semi-sub <1,000f!. As compared to its peer group, the company owns and operates a relatively larger fleet of jack-ups. These jack-ups are generally younger at average of 2.3 years and have higher technical specifications such as maximum drilling depth and BOP ratings.
8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood 2. DR.ILLiNG SERVICES UMW-OG owns and operates a relatively young jack-up fleet as compared to its peer group. The company also has a higher number of rigs, in particular jack-up rigs within SEA. Unit 8 IIUMW-OG Ili Large Drilling Co. Medium Drilling Co. Regionally Focused 0.0 0.2 0.0 0.0 Avg. No. of Drillship Fig.34: Drilling Competitive Landscape by Rig Type [Source: Douglas-Westwood] Age 3535 IIUMW-OG R Large Drilling Co. 30 30 :n Medium Drilling Co. Regionally Focused 2525 2020
1515 1010 24 17.5 5135 oo Avg. Max DO (LHS) Avg. BOP (LHS) Units -‘000 It Units -‘000 PSI
Fig.35: Drilling Competitive Landscape by Specification -Jack-ups only [Source: Douglas-Westwood] Asset Overview UMW-OG is well placed amongst its competitors with higher than average specifications and lower average age for its jack-ups. Within the regionally focused category, the company has the third largest competitive fleet behind Japan Drilling Co and Jagson International. UMW-OG is also ranked first in terms of jack-up age. Regional Fleet Size (SEA): The regional fleet size is calculated based on average number of rigs per rig type within each competitive group: large drilling companies, medium drilling companies and regionally focused companies (UMW-OG is excluded from the calculation for regionally focused companies). UMW-OG has a relatively larger fleet of 4 rigs within the region as compared to its competitors in the medium and regionally focused categories, with an average fleet size in SEA of 1.9 and 1.7 rigs respectively. Companies within the large category generally have a larger number of rigs at 7.0 on average. These large drilling companies also tend to have a higher number of semi-subs and drillships contracted in SEA as compared to companies in other categories which have a larger focus in jaCk-ups. Rig Specifications: UMW-OG owns and operates a relatively younger jack-up fleet of 2.3 years (excluding the semi-sub NAGA 1) as compared to companies in all 3 categories which have fleet with average age ranging from 16.2 years to 23.1 years. In terms of BOP ratings, UMW-OG’s fleet have an average of 15,000 psi, higher than most of its competitors across all groups. Higher BOP ratings allow rigs to meet operator’s technical requirements to drill deeper higher pressure well. UMW-OG’s jack-ups also have the highest maximum drilling depth, ratings at 9,144 metres (30,000tt). 38

 

I Company No.: 878786-HJ 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood ;1 DRILLING SERVICES 2.6. Workover: Overview and Definitions UMW-OG owns and operates four hydraulic workover units for use on offshore platforms. These units can potentially offer a cheaper alternative compared to the conventional workover rigs and are able to perform workover service to wells under pressure. Overview Workover is a collective term for a wide variety of specific tasks that can be performed on an existing well in order to improve its productivity, monitor performance or stabilise structural integrity. In order to perform these tasks, tools must be lowered into the well via a conveyance unil. The choice of conveyance unit is determined by the type of operation, required pulling power and well deviation. The type of well completion is another key factor as subsea completed wells will require a dedicated vesselJrig in order to convey tools downhole. It is a difficult task to predict well intervention frequency as this figure often depends on a number of variables, including reservoir properties, current state of the infrastructure, and economic considerations. The two most common reasons for well intervention are stimulation and remedial conformance application. It is worthwhile to note that well interventions are typically performed to address specific issues of the reservoir as opposed to repair downhole equipment and completions. Together with wireline and coiled tubing (CT), UMW-OG’s HWUs adopt rigless workover technique which does not require the use of a conventional workover rig and is able to perform downhole applications on wells that are still under pressure (live wells). It is important to note that all three mentioned workover unit types ­wireline, CT. and HWUs can only perform workover on wells completed on the production platforms (dry wells). Hence, they are often referred to as platform-based workover units The two production platforms that allow wells to be completed on the platforms themselves are fixed platforms and TLP. Workover Unit Definitions As mentioned above, platform-based workover units include wireline, CT, and HWUs whilst monohull intervention vessels and intervention semi-submersibles are able to perform intervention tasks to wells completed subsea.
Wireline Either mechanically (slickline) or electrically (E-Line) operated, wireline units lower tools down the well on a single or braided wire whilst mobilisation times and overall costs are lower than other methods. The range of potential operations are restricted due to pulling strength limitations and inability to access highly deviated wells. There are different types of wireline operations. The most common ones are perforating, logging, well cleaning. and cement
dumping. Coiled Tubing (CTl CT is a continuous metal pipe typically ranging in diameter from 1 inch to 4 inch. The development of new alloys and higher wall thickness have increased the strength of coiled tubing, allowing the tubing to endure extreme pressure loadings and to betler resisl stress corrosion cracking belter. Using CT as a conveyance provides two principle benefits. including pushing tools through horizontal completions and pumping fluids such as acids, proppants and nitrogen.  39  158
8. INDUSTRY OVERVIEW (Cont’d) INDEPENDENT MARKET REPORT ..~~~~—–­
Douglas Westwood –~ –~ —–~~~ Hydraulic Workover Units (HWUs) Hydraulic workover (or snubbing) is a heavy well intervention method whereby the BHA or toolstring is run on pipe via a workover rig. This method provides full access to the well under pressure allowing a full scope of intervention and completion service. If compared to CT, HWU is able to handle more complex job scopes, involving deeper reservoirs with higher pressure. . Mast Basket —+)7::;’1″ Support Frame Slips BOP Stack AccumulatorPipe Rack Power Pack
Dog House HWU Structure [Source: Khurana et aI., WeI/Intervention Using Rigless Techniques, Offshore Technology Conference, 2003] The history of HWU dated back to the 1920s when the world first hydraulic workover unit was designed, patented, and built. It was the first unit that could run or pull pipe under pressure (live wells) and designed as a cable-operated rig-assist system. Nowadays, the latest HWU structure typically follows a modular design with an incorporated mast and a pivot, allowing the mast to be erected using a limited capacity crane with a jib reach of 35 ft. The drive mechanism of a modern HWU is exceptionally compact. It has the ability to push as well as to pull. The typical maximum pushing and pulling capacity are 125,000 Ibs and 300,000 Ibs respectively. UMW-OG owns and operates four HWUs with competitive specifications: 150,000-230,000 Ibs maximum snubbing capacity and 340,000-460,000 Ibs maximum pUlling capacity. All four units can handle BOP up to 5000psi. As pushing and pulling capacity is one of the most important features for HWU to secure contracts, UMW-OG workover fleet is considerably well-positioned to compete in the SEA workover market. UMW-OG’s typical workover operations include, but are not limited to, pullin9 and running completion strings, well cleaning, fishing, milling/retrieving production packers, running diagnostic and surveys, cementing, stimulation, sand control, gravel packing as well as plug and abandonment activities. 159 I Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d)
Douglas INDEPENDENT MARKET REPORT Westwood As the recovery rate from subsea wells is around 30-40% lower than trom wells completed on the platform, subsea well intervention plays a key role in maintaining production capacity in subsea wells. The cost of subsea well intervention is significantly higher than platform well intervention cost. With strong growth in floating platforms that require subsea wells, the need for cost-effective subsea well intervention has become more and more imminent. Monohull Intervention Vessels The use of monohull intervention vessels allow wireline and coiled tubing deployed tools to access subsea completed wells. Whilst these units provide a cheaper alternative to drilling rigs, dayrates can exceed USD 200,000 and hydraulic workover can not be performed on a monohull intervention vessel. A conventional monohull intervention vessel has a water depth limit of 2,460ft or 750m whilst a dynamic positioning (OP) monohull intervention vessel with riser is capable of well intervention at 1O,OOOft or 3,048m. Intervention Semi-Submersible Offshore rigs allow a full range of intervention tasks to be performed on subsea completed wells -including hydraulic workover. However, dayrates can exceed USD 600,000 which makes their use commercially unviable in all workover activities but only in the most neccesary situations.

8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood
2.7. Workover: Key Drivers Global spending on hydraulic workover is expected to increase by CAGR 7%, from USD 0.9bn in 2012 to USD 1.3bn in 2018. APAC and SEA are forecasted to account for 31% and 22% of global spending on hydraulic workover respectively in 2018. ‘000 Unit Unit’000 mi!lion USD Fixed PI.aHorm TLP14 ROTW 12.2 60 12 mRest of APAC 50• South East Asia 12.0 40 11.8 30 20 11.6 102 o 11.4 0 m o .,-<0 N ro N ro ~~o ~~ 0 00oooo 0 NN NNNN NN Year Year Fig.37: Global Total Count of Fixed Platforms and TLP [Source: Douglas·Westwood] Global Expenditure on Hydraulic Workover The role of well intervention has become more profound to minimise production decline in mature fields worldwide. Heavy workover task performed by HWU accounts for about 52% of the total number of offshore well interventions. Global expenditure on hydraulic workover is estimated to reach USD 1.3bn in 2018 as compared to USD 0.9bn in 2012, growing by a CAGR of 7%. APAC is expected to increase its contribution to the global expenditure on hydraulic workover from 24% in 2012 to 31% in 2018 whilst SEA’s contribution to the global expenditure on hydraulic workover is expected to accelerate from 17% in 2012 to 22% to 2018. Drivers leading to growth in the hydraulic workover market are the tolal number of fixed plalforms and TLP as these are the only two production platform types that allows HWUs to work on wells completed on the platform. The lotal number of fixed platforms is expected to increase by 3% from 11,717 units in 2012 to 12,056 units in 2018 globally whilst the total number of TLP is anticipated to grow at a faster rate of 92%, increasing from 25 units in 2012 to 48 units in 2018. The robust growth in the number of TLP can be explained by the global trend towards deepwater production as TLP is one of the most stable deepwater floating platforms with the highest recovery rate because wells can be completed on the platform instead of subsea. The dominance of fixed platforms and its slow growth rate (3%) can be explained by the current dominance of shallow water production in the offshore oil and gas industry with a relatively gradual growth of 3% CAGR from 2012 to 2018. On the other hand, robust growth in deepwater production at 9% CAGR from 2012 to 2018 is expected to translate into growth in the number of floating platforms such as TLP. Other key regions in the hydraulic workover market are North America, Western Europe, and the Middle East, accounting for 37%, 12%, and 11 % of global hydraulic workover spending in 2012. 42 161
Year Fig.36: Global Expenditure on Hydraulic Workover [Source: Douglas·Westwood]
I Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d)
Douglas INDEPENDENT MARKET REPORT Westwood 2. DF~ILL!NG SF: Unit UnitFixed Platform TLP81,500 -: 1() yC’Ci!S
“)jOC ,,,,-.. ,,:,1,450 6 1,400 4
1,350 2 1,300
\ 1{)-;;O \..yeats, 17%01,250 roN ro C;0 o N
N Year N Year Fig.38: Total Number of Fixed Platform and TLP, SEA Fig.39: Fixed Platforms by Age Group 2013, SEA [Source: Douglas-Westwood] [Source: Douglas-Westwood] SEA Hydraulic Workover Drivers As mentioned in the overview section earlier, HWUs can only perform workover service to wells completed on a piatform as opposed to subsea weils. As such, the number of fixed platforms and TLPs is the main driver for this market. The number of fixed platforms in SEA is estimated to reach 1,456 units by 2018, increasing by 8% compared to 1,348 units in 2012 whilst TLPs wiil double from 3 units in 2012 to 6 units in 2018. Strong growth in TLP number is due to the increase in deepwater production in SEA. As of 2013, all visible TLP projects are expected to be in Malaysia with the deepwater Malikai project being awarded recently to the joint venture between Technip and MMHE in February 2013. SEA has a considerably large population of aging fixed platforms. Currently, 59% of the platforms are more than 20 years old and 17% of the platforms are between 10 and 20 years old. Aging piatforms wiil require intervention workover service at a more frequent rate as compared to younger ones. As such, the aging characteristic of SEA platforms provides a robust growth potential for UMW·OG’s workover business. As operators are the direct customers of the workover service, the market share structure amongst operators is a key consideration for driiling contractors to be aware of once entering and operating in a given country. For example, a foreign driiling contractor without track record may find it easier to enter a market with fragmented share structure amongst the operators as opposed to a more consolidated share structure with the country’s NOC dominating the market. Malaysia and Thailand are the two most consolidated markets in terms of market share with PETRONAS and Chevron being the largest operator in each country, holding 60% and 74% share of total fixed platforms in Malaysia and Thailand respectiveiy. Indonesia and Vietnam have a more fragmented operator market share structure with PT Pertamina and Vietsovpetro commanding only 36% and 46% of the total fixed platforms in Indonesia and Vietnam respectively. Given these market share structures amongst operators, UMW-OG may find the environment in Indonesia and Vietnam to be more advantageous for a foreign driiling contractor as compared to Thailand. Malaysian Hydraulic Workover Drivers Similar to SEA, drivers in the hydraulic workover market in Malaysia are the number of fixed platforms and TLP as weil as the age profile of fixed platforms. The number of fixed piatforms in Malaysia is expected to increase from 339 units in 2012 to 394 units in 2018, increasing by 16% whilst the number of TLP in Malaysia will increase to 3 by 2018 from none in 2012. Currently, 57% of fixed platforms in Malaysia are more than 20 years old and 17% of them are between 10 to 20 years aid. This aging population of fixed platforms presents a strong market condition for the hydrauiic workover business as aging fixed platforms wiil potentiaily require a higher weil intervention frequency compared to younger ones.

IICompany No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT W”,stwood –~ 2. DR!LL!r’JG SEr~VICES 2.8. Workover: Market Outlook Demand for workover rigs is expected to increase from 19 to 26 representing a CAGR of 7% from 2013 to 2018. Key countries contributing towards the demand for workover units include Indonesia and Malaysia due to higher volume of aging wells in these two countries. Unit 30
Indonesia.25 t8 %’ 20 15 10 –‘__ M(lIi:::li~id,5 21% 2013-2018 o o ~8oo o;; ‘” ;;'”‘ 0″‘” ‘” oo ‘” ‘” o NNN NN'”‘”‘” ‘” Year FigAO: Assumed Average Contracted HWU, SEA FigA1: Workover Market by Country, SEA [Source: Douglas-Westwood] [Source: Douglas-Westwood] Workover Rig Analysis Workover rigs are mainly driven by heavy well interventions. With an increasing number of development wells drilled coupled with operators in the region seeking to increase production of current fields through various EaRs, Douglas-Westwood expects the demand for workover rigs in SEA to increase over the forecast period from 19 in 2013 to 26 in 2018, representing a CAGR of 7%. Country Analysis Indonesia is expected to be the largest market, accounting for 38% of total demand for HWU in SEA from 2013 to 2018 given the country’s higher number of maturing wells. Malaysia is expected to account for 21 % of the market with the remaining countries accounting for 41% of total demand for HWU in SEA from 2013 to 2018. Given PETRONAS’ shift in development strategy towards higher production through EaRs on producing wells, the demand for workover services in Malaysia is expected to see robust growth. This can be substantiated by the recent Baram Delta and North Sabah PSCs entered into with Shell which aims to be developed under EaR. Since June 2011, Murphy Oil has also been carrying out workover operations for its Kikeh deepwater field after the decrease in production from 68,000 bbl/day in 2010 to 52,000 bbl/day in 2011. • Key operators in these countries are mainly made up of NOCs such as PETRONAS in Malaysia, PT Pertamina in Indonesia, and PTTEP in Thailand. Key laCs operating in the region include Chevron which has a larger presence in Thailand, Vietnam and Indonesia, Shell in Malaysia, and Total in Indonesia. 44 163
8. INDUSTRY OVERVIEW (Cont’d) DouglasINDEPENDENT MARKET REPORT Westwood ——‘-‘:”‘:: 2. DRILLING SERVICES 2.9. Workover Competitive Landscape Relatively few competitors compete in UMW-OG’s workover market in the Malaysia. In SEA, the company is seen as a top tier competitor given the higher capacity of its workover rigs. ~ ~ j,fffrt!Mt~~~<. T, ,” .~ . ,j; ~ ~>:o .’ ~•.•._,,,'”!\>i’:: {< e_.• • Snubbing Range Rolating Head Rest ofCompany Name HQ Malaysia China’OOOlbs Ran e fLllbs Asia PT Elnusa ION 00 •hi m1jonal Snubbin SeNces ISS USA 500-220 0 () 0 •UMW-o MYS 7 500~ 2 000 () ()•Sn1..lbco Group CAN () ()•PT Saptawell T~chrlicatama ION’ Ct 0 •
SVSOilfield SeNCes -lHA Ct 0 PT Ratu Prabu _E;n~rgi (PT Lekom Maras) IDN 00 •Alriianspory’Specia}is.ed Engiheering. ARE Ct 0 •EMAS Ener SGP 340-600 <) <) • UMW-OG’s workover business segment. The majority of these companies tend to be regional companies with the exception of International Snubbing Services (ISS) and Snubco Group which have a wider geographical reach. Regional companies are mostly based in Indonesia with a larger focus in its domestic market. These companies currently do not compete in the Malaysian market. UMW-OG is well positioned within its peer group in terms of rigs specification with workover rigs in the higher range in terms of pulling and snubbing capacity and rotating head torque. Companies with similar specifications include ISS and PT Elnusa. Fig.42: Workover Competitive Landscape [Source: Douglas-Westwood] Competitive Landscape Douglas-Westwood has identified eight key competitors in the APAC region within I Company No. 878786-H 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood 2. DHILllNG SEJ~:ViCES 2.10. UMW-OG’s Market Share In the highly competitive drilling environment of SEA, UMW-OG holds 7% and 11% of the Drilling and Workover market respectively. In Malaysia, UMW-OG’s market shares are 21% and 36% respectively. Malaysia accounts for 27% of the total rig count in SEA for the period from 2009 to 2012. Drilling Workover Drilling Fig.43: UMW-OG’s Market Share’ in SEA based on Fig.44: UMW-OG’s Market Share’ in Malaysia, based on annual average contracted rig count from 2009 to 2012 annual average contracted rig count from 2009 to 2012 [Source: Douglas-Westwood] [Source: Douglas-Weslwoodj Drilling UMW-OG’s market share is estimated at 7% of the Drilling market for jack-ups and semi-subs <1,000ft in SEA based on annual average contracted rig count from 2009 to 2012. By establishing a good track record and strong relationship with PETRONAS domestically, UMW-OG has secured contracts overseas for Hess (Indonesia-Pangkah) in Indonesia and PV Drilling to drill wells for the end client Hoang Long Joint Operating Company in Vietnam. As drilling activity in the region is dominated by jack-ups and conventional shallow water rigs, UMW-OG’s fleet is relatively well positioned to compete, especially with the new jack-up NAGA 4 which has a higher set of specifications. NAGA 4 was contracted to PETRONAS Carigali from April 2013 for three years. As of 5 September 2013, UMW-OG has three jack-ups and one semi-subs <1,000f! operating in SEA, accounting for 6% of the total 61 contracted jack-ups and 1 contracted semi-sub <1 ,000ft in the region. During the period between 2009 to 2012, UMW-OG had 2.5 rigs contracted on average annually, which gives the company 21% share of the Malaysian market for jack-ups and semi-subs <1,000f!. Whilst demand for semi-sub <1,000f! in Malaysia is expected to follow the constant trend in SEA, demand for jack-up in Malaysia is expected to experience a steady growth in the next five years and increase by 21% by 2018 as compared to 2012. As of 5 September 2013, UMW-OG has two jack-ups and one semi-subs <1,000f! operating in Malaysia, accounting for 18% of the total 16 contracted jack-ups and 1 contracted semi-sub <1,000ft in the country. Workover UMW-OG holds 11 % and 36% of the Workover market in SEA and Malaysia respectively. In Malaysia. UMW­OG is one of the few companies in the drilling business which is able to offer both drilling and workover services. Hence, the well-established drilling business line could potentially provide opportunities for workover service, which may increase UMW-OG’s workover market share in the near future. * Note: Market Share is estimated by taking into account the average contracted rigs over the period of 2009-2012, not the total number 01 rigs available. 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood
2.11. Regulations and Requirements Regulations and requirements in UMW-OG’s operating region differ on a country basis and are influenced by both governing bodies and operators. Local content requirement in Malaysia creates barriers to entry for non-Malaysian competitors. Overview UMW-OG mainly operates in SEA and is subjected to foreign regulations and requirements by local governing bodies and E&P companies. In general, rigs are required to meet basic safety, communication, maintenance and inspection requirements. With respect to technical requirements, laCs have more stringent rig reqUirements in terms of rig class and related HSE requirements whilst NOCs tend to have lower requirement ratings due to their focus on shallow water. Other regulations include regional conventions regarding drilling discharge. UMW-OG’s main operating region does not have a convention in place and is not expecled to adopt more stringent regulations in the short to mid-term. Indonesia Cabotage law in Indonesia requires offshore drilling vessels to be Indonesian flagged. Exemptions are however given to drilling and offshore support operations. These exemptions are given when there are insufficient Indonesian flagged vessels to be contracted and would require the foreign vessel to obtain a permit from the country’s Ministry of Trade. Malaysia Malaysia has a local content requirement in place which wiil pose a barrier to entry for non-Malaysian companies. E&P companies operating within the country are mainly under PSCs with PETRONAS. As such, contracts typically favour domestic providers who meet the required standard of quality. The Petroleum Development Act and Petroleum Regulations 1974 require suppliers and service providers including drilling contractors to have a valid license issued by PETRONAS, the country’s NOC. PETRONAS have a Bumiputera participation requirement” in place which reqUires 30%, 51% or 100% of employees to be of bumiputera status depending on the Standardised Work and Equipment Categories. Non­Malaysian companies tendering for drilling work are also able to appoint a Malaysian company as a representing agent or form joint ventures with a local company to compete in the country’s drilling market. Myanmar Foreign companies investing in the Myanmar are required to do so through a PSC partnership with Myanma Oil and Gas Enterprise (MaGE). Operators are also required to have a local partner and may influence contracting process. There are no explicit regulations relating to UMW-OG’s drilling services, however, technical compliance will be imposed by related operators. Thailand and Vietnam Neither of these countries have explicit regulations regarding drilling. Technical compliance will be Imposed by related operators. Douglas-Westwood expects laCs in Thailand and Vietnam to have more stringent rig requirements in terms of rig class and related HSE requirements than NOCs whose focus is typically on shallow water. Turkmenistan Turkmenistan has a 30% quota on companies for foreign personnel. While there are no explicit regulations on contracting, priorities are given to local suppliers and contractors who meet the required standard of quality. Laws and business regulations within the country lacks transparency and is SUbject to frequent change. • Source: According to Application for PETRONAS License and Regis/ration General Guidelines (24’/’ April 2012)

8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood
2. DRILLING SE!”WIC 2.12. Industry Risks The key external industry risks faced by the drilling business are mainly low oil prices and the potential impact of incidents similar to the Deepwater Horizon incident in SEA. USD/bbl #Rigs INDEX 120 3,500
1.6 DEEPWATER HORIZON INCIDENT ..’ 3,000100 …….
…… .12 2,50080 2,000 60 0.8 1,500 40 US GoM­1,000
–US GoM -Floating0.4 RolW -Jackups 20 500 …… RolW -Floating Rigs o 0.0 N ill ro DN W ro 0 N ill ro 0 N ro ro ro ro mmm m m 00000 “” mm 0 ” 00 ;; ;;00 ~ ~ ~ ~ ~ ~~ ~~ NN NNN NN Year Fig.45: Oil Prices ($2011) Versus Contracted Rigs Fig.46: Impact of the Deepwater Horizon Incident on US [Source: Douglas-Westwood, RigLogix] Offshore Drilling [Source: Douglas-Westwood, RigLogix] Overview The global drilling industry is faced with a number of key risks (which may include commercial or technical risk) that may impact projected levels of activity. It should be noted that whilst these risks have been acknowledged in our wider analysis and used to sensitise our outputs they slill pose a certain level of threat to the drilling business. Market Cyclicality Risks The global oil & gas industry is inherently cyclical and is impacted by wider macro-trends as illustrated by Fig45 which tracks the historical relationship between oil prices and global contracted drilling rigs (onshore and offshore). Whilst the offshore drilling sector is typically less vulnerable to short term oil price movement and substantial drop in price (similar to that witnessed in 2009). both factors would still pose a significant risk to demand for drilling services. Safety and Operational Risks Offshore drilling presents a large number of technical and operational hazards that must be properly managed to ensure the safety of rig personnel. In April 2010, the Deepwater Horizon semi-submersible drilling rig suffered a catastrophic blow-out whilst drilling for BP at the Macondo oilfield in the Gulf of Mexico leading to the death of 11 on-board workers. The subsequent fall-out impacted not just the companies involved but also the drilling industry as a whole. In January 2010 there were 29 active fioating rigs drilling in deepwater in the Gulf of Mexico, however. a drilling moratoriu m imposed by the government of the USA resulting from the Deepwater Horizon incident saw that figure fall 10 just 1 rig in August 2010 and average of just 5 for 2011. A similar incident in SEA would likely impact UMW-OG’s business significantly even if UMW-OG were not directly involved. Risk of Substitutes Whilst other types of drilling rigs exist, it is unlikely that larger semi-subs and drillships would compete directly with UMW-OG’s jack-ups due to the substantially higher dayrates these fioating rigs would typically be able to obtain. 48 167 ~~ ro rom m 00 N 0 ‘? 0 ‘?’?’?CC’S ‘Sc’Sc’Sc’Scm , m , m , m , m , m,,,,,, I Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood .. _–~~-~—–~-~-~–­2. ()RiLLlf\lG SERVICES 2.13. SWOT Analysis UMW·OG has a relatively strong asset base coupled with an established foothold in Malaysia with potential upsides due to strong market growth. However. the move towards deepwater and uncertainty in rig supply may pose as challenges to the company’s outlook. Strengths • Ownership of young jack-up drilling fleet at an average age of 2.3 years and high specifications jack­ups amongst peer group provide a competitive advantage.
• Established presence in Malaysia. one of the key markets for offshore drilling and workover in SEA. Stringent local content requirements in Malaysia acts as a high barrier \0 entry to non-Malaysian competitors.
• Strong drilling backlog with future drilling contracts until 2018.

Weakness • UMW-OG’s geographical coverage within SEA may expose the company to country-specific risks. Opportunities • Strong underlying demand for Drilling and Workover services. Workover demand is anticipated to rise due to ageing platforms coupled with development plans from PETRONAS.
• Growing DCR given current pickup in demand indicating potential upside to UMW-OG’s drilling business.
• Wide geographical coverage of existing customers especially PETRONAS provides entrance avenues to foreign markets within SEA, APAC, and Middle East, allowing UMW-OG to expand beyond current operating regions.
• Malaysian Government’s ETP to increase production of existing and new marginal fields through EPP 1, 2 and 3 is expected to bolster demand for workover and drilling services.

Threats • High cyclicality in the driliing market stands out as a threat causing fluctuating demand for drilling services_
• Regulatory changes due to incidents similar to Deepwater Horizon incident in 2010 may increase operation cost, lowering margins.
• A move towards deepwater is anticipated as oil and gas operators in the region develop deepwater reserve. This may potentially cause demand for jack-up rigs to slay constant, in favour of semi-subs >1 ,000f( and drillships.
• Mobilisation of rigs into SEA and speculative building of rigs may increase aggregate supply and increase competitive pressure in the region.
B. INDUSTRY OVERVIEW (Cont’d)

Douglas INDEPENDENT MARKET REPORT Westwood-.—_ _­3. OILFIELD SERVICES 3,1, Threading: Overview and Definitions UMW-OG provides threading services used in the oil and gas industry. Threading services are used in onshore and offshore wells producing both oil and gas. Typically, offshore wells and gas wells would require premium OCTG threads for beller seals. Overview Different types of casing and tubings are required to be inserted in the well to facilitate oil & gas production. These casing and tubings are inserted into the well and are Joined together through threaded connectors or with each other from the wellhead to the reservoir. Threads Threads are ridges at the end of a pipe or tube that allows several similar pipes or tubes to be joined together. Threaded pipes can be classified into 2 main categories: premium threads and API standardised threads. Premium threads provide superior seals independent of thread profiles. UMW-OG currently provides both premium and API threads. Threading Licenses Threading licenses are typically provided by OCTG manufacturers or by trade associations such as API. These licenses allow the license holders to provide threading services for the licensor in the given country. UMW-OG currently holds licenses from various manufacturers in its plants in Malaysia, China and Thailand. Casing In order to protect the wellstream, large-diameter pipes would have to be inserted into a drilled well. This is typically cemented into place with a variety of casings depending on well pressure Tubings/casings are generally joined by coupling whilst flush joints are directly joined between pin and box ends without coupling, Tubing Production tUbing or tubing strings are placed inside the casing to protect the casing from wear and tear while the well is in its production phase, The tubing runs from the wellhead to the production zone and is connected to one another direclly or through a casing/joint connector. Joint Connectors Casing and tubings are either connected directly to each other through a male and female end or through a threaded joint connector. UMW·OG currently manufactures joint connectors and couplings.

I Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood :1 O!I.F1ELD SERV 3.2. Threading: Key Drivers Whilst the Malaysian market is dominated by offshore wells, onshore wells are expected to take the lead in China. Strong development of unconventional gas in China presents positive market opportunities for threading despite possible delay due to the lack of technology and infrastructure. km ‘OOOkm 1,000 70 60 800 50 600 40 30400 20 200 10 o  0  Q)  o  N  ‘”  “‘  <D  ….  co  m  0  ~  N  ‘”  “”  “‘  <D ….  co  o o N  o N  o N  o N  o N  o N  0 N  0 N  0 0 N  0 N  0 N  0 N  0 N  0 N  o N  o N o N  o N  Year  Year  FigA7: Metres Drilled, Malaysia  FigAB: Metres Drilled, China  [Source: Douglas-Westwood]  [Source: Douglas-Westwood]
As UMW-OG provides both premium threading and API threading services for OCTG, the number of metres drilled is the key driver for the company’s threading business. Dominance of Offshore Activity in Malaysia The Malaysian market is characterised by the dominance of offshore wells with negligible onshore facilities. This implies a higher average well depth as offshore wells generally have greater well depth as compared to onshore wells. This market condition is anticipated to provide robust growth opportunities for premium threading as OCTG used for offshore wells typicaliy require a better seal quality that premium threads are able to provide. From 2013 to 2018, annual average metres drilled in Malaysia is estimated to be 780km, increasing by 37% as compared to 569km in 2012. The increase in annual metres drilled is mainly due to the anticipated increase in average well depth as the offshore oil and gas industry in Malaysia moves towards deepwater production which generally requires deeper well depth. Robust Growth for Premium Threading in China In contrast to the Malaysian market, onshore wells take the lead in China. Metres drilled for onshore gas has outpaced onshore oil metres in 2012, accounting for 53% of total metres drilled and is expected to continue growing faster than onshore oil metres drilled. This is mainly due to the strong growth in gas production in China, especially unconventional gas, as a direct result of the government-led 12’h Five-Year Development Plan for Natural Gas. Given the increase in the number of onshore gas wells, Douglas-Westwood expects the market for premium threading in China to experience robust growth with the assumption that most, if not all of gas tubing and casing require premium threading. 170

[company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood –~._-_ _._._-~——_._–..-_.. _–~
Index 6 –Unconventional …… Conventional5 4 3
2 ……’.~ .~ o gJ o N CD ro;! “­~ ~ ‘” oo oo 0oooo NN N NNNNN Year N Fig.49: Index of Onshore Gas Wells Drilled, China. [Source: Douglas-Westwood] Strong Growth of Unconventional Gas in China The growth of onshore gas in China mainly comes from strong development of unconventional gas, led by the 12th Five-Year Development Plan for Natural Gas which sets the plan of the Chinese government to produce 6.5bcm of shale gas by 2015 from nearly zero in 2012. Conventional gas production is expected to maintain a plateauing level, partly because the priority has been set by the government to focus on unconventional gas production. The first production sharing contract to develop shale gas in China was signed between Shell and CNPC in 2012 to develop the Fushun shaie gas block in the south-western province of Sichuan. Shell estimated that it will spend approximately USD 1bn on this project. It is worth noting that besides shale gas, the development of CBM, another type of unconventional gas, in China is dated back to the 1980s. By 2006, approximately 1,000 test CBM wells were drilled but no commercial gas was produced due to a number of factors, inclUding the lack of geology understanding, inadequate well completion techniques, and the lack of commercial operation experiences. However, the Chinese government had started allowing international CBM companies to enter the domestic market from 2007. Since then, up to 2,000 CBM wells were drilled, which resulted in the commercial CBM project of the Qinshui basin in Jincheng mining area. Similar to the CBM experience, China’s ambitious plan on shale gas poses some uncertainty in the infant development stage due to the lack of technology for unconventional gas production and infrastructure in remote areas where the resources are located. I Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) INDEPENDENT MARKET REPORT  Douglas Westwood  3. OILFIELD SERVICES  3.3. Threading’ Market Outlook  ,…•
Threading expenditure in Malaysia is estimated at USD 187mn over 2013-2018. China’s expenditure is estimated to reach USD 1.9bn in 2018. USD mn USD bn 40 20 1.835 1.6 30 1.4 25 1.2 20 1.0 0.815 0.6 10 0.4 5 0.2 0 0.0

 

a:>'”” “””
oooooN o
~~ 0NoNNNN Year Fig.50: Threading Expenditure, Malaysia [Source: Douglas-Westwood]
Malaysia Total threading expenditure in Malaysia is estimated at USD 187mn for the period 2013-2018 with a CAGR of 4%. Assuming that offshore tubing and casing will continue to require premium threading, premium threading will make up most of the demand as the majority of wells in Malaysia are offshore. The increased focus in deepwater in Malaysia will potentially result in increased well depth and well complexity, which in turn is expected to translate into a bigger market for threading as the total metres drilled increases assuming that the average length of a pipe remains unchanged. Thailand Threading expenditure in Thailand is estimated at USD 81 mn over the forecast period 2013-2018, accounting for 10% of the total threading market in SEA. The Thailand market is dominated by shallow offshore production with the demand for wells drilled expeCted to decline by 4% CAGR from 2013 to 2018, which translates into a reduction in market size from USD 15bn in 2013 to USD 13bn in 2018. This is mainly due to production decline in mature fields in the country. As offshore production contributes 90% of total oil & gas production in Thailand, the threading market here is dominated by premium threading as opposed to API threading. China Total threading expenditure in China is expected to reach USD 1.9bn in 2018, a 5% CAGR increase from 2013. The threading market in China will be mainly driven by onshore wells, especially onshore gas due to strong development of unconventional gas in the country. The Chinese government has aimed to increase the share of natural gas in the overall energy mix to 8% by 2016 by promoting large-scale production of shale gas. A target of 6.5bcm of shale gas has been set in the country’s 1ih five-year Development Plan. Besides shale gas, CBM in China also experienced robust growth with an estimation of 2,000 wells being drilled over 2006-2009. In contrast to Malaysia, the threading market in China will grow due to the increase in the number of wells rather from the increase in well depth as market growth in China mainly comes from onshore wells. Turkmenistan Threading expenditure in Turkmenistan is estimated at USD 42mn over the forecast period with a 3% CAGR increase from 2013 to 2018. Increasing demand for shallow offshore wells and onshore gas wells are the main contributors to the 3% CAGR market growth. Similar to Thailand, the threading market in Turkmenistan is dominated by premium threading due to the country’s focus on offshore production and onshore gas which typically require premium threading for tubing and casing. 8. INDUSTRY OVERVIEW (Cont’d) INDEPENDENT MARKET REPORT  Douglas Westwood  3. ()iLF~EL”D  SEF{VICES  3.4. Threading: Competitive Landscape
UMW-OG’s competitors can be categorised into 3 main groups with different scope of services, size and geographical coverage. UMW·OG is well positioned within its peer group but will largely be influenced by demand for licensor’s products. Company Name HQ  Inspection  Repair   API  Premium  OCTG Mfg  Malaysia  China  Rest of ASia
~ ;::>umllomo l…-orporaiion J~” 1§ Hllong Group CHN ~ Liaocheng Xinpengyuan OCTG Co, Ltd CHN .E PT Mulia Jaya Mandiri ION ‘VI T<, Vlewoes I…,;orporatlon Ltd VNIVI +-‘ Deer Park Oil Tools Ply Ltd AUS ~ Cadeng Pty Ltd AUS ‘G PT Citra Tubindo ION i’l EPIC (Tubex Sdn Bhd) MYS ~ I.T.S Petroleum TUbular & Equipment CHN E Bossong Engineering Pty Ltd AUS -g Besmindo Group ION ~ PT Hymindo Petromas Utama ION J-International TUbular Serilices INO PT Patraindo Nusa Pertiwi ION Sobena Offshore Inc Sdn Bhd (SOl) MYS Jr to Holdings Inc J~N ~ Nippon Steel & Sumltomo Metal JPN a NS Connection Technology USA ~ Tiangang Special Petroleum Pipe MFG CHN .~ WSP Holdings Limited CHN ….J Tenarishydrill Group LUX Vallourec SA FRA  •() 0 0••0 0 0•0 0 0 0 0 0 0 0 0 0 0 0 0 0  •() 0 ()•• •0 0•0•0 0 0•0 0 0 0 0•0  • ()••••• ••• ••••() () () ()•••  •• ••••••• •• ••0 0 0 0• 0•  •() 0••• • •••0•••0• •• •  • •() 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ()•  •0 0 0•0 0 0 0•0 0•0 0 0•0 0 0 0 0•0  0• 0•0 0 0 0 0•0•0 0 0 0•0 0• 0  •() 0••• • 0 0• ••0• () 0 0•


Fig.52: Threading Competitive Landscape [Source: Douglas-Westwood] Competitive Landscape With the exception of China, significant barriers to entry exist in the threading market given the need to establish key relationships with threading suppliers and threading license requirements. Threading contractors can be
divided into 3 categories: integraled, specialist and licensors. On top of threading services, each category may provide a varied range of services including inspection and repair. Integrated companies: Companies in this category have both threading and OCTG manufacturing capabilities.
Unlike licensors, these companies typically do not provide licenses to third party threading companies. Companies in this category are generally larger conglomerates and provide a varied scope of service ranging from inspection, repair, and threading services.
Threading specialists: Companies in this category provide threading services but do not have OCTG manufacturing capabilities. Each company typically holds licenses from various licensors. Larger companies tend to have a larger geographical reach and provide related services including inspection and repair. Competitors in the region generally provide both API and premium threading services.
Licensors: These companies provide thread licenses to threading companies. Although these licensors may have threading capabilities, they typically outsource the threading work to local threading providers. The competitive landscape is heavily infiuenced by licensors who competes with each other for contracts with end users.
UMW·OG: UMW-OG is a threading specialist, with various thread licenses in China, Malaysia and Thailand from companies such as JFE Steel Tubular Technology, Tenaris Connection, Baker Hughes and Tianjin Pipe Corporation Lid. While we consider UMW-OG to be well positioned in its peer group as it provides additional services including inspection and repair work, it is important to note that the demand for its threading services will be largely influenced by the company’s licensor, their performance and capability to secure contracts.
I Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) DouglasINDEPENDENT MARKET REPORT Westwood –~——-_.-… _——-~ ._—-~_.-~~_._—–_-_.—-…_–…. :J. OILFIELD SEHVICES 3.5. UMW-OG’s Markel Share UMW-OG’s threading market share in Malaysia and China is 29% and 0.3% on average respectively over 2009·2012.
Fig.51: UMW-OG’s Threading Market Share in Malaysia on Fig.52: UMW-OG’s Threading Market Share in China on average over 2009-2012 [Source: Douglas-Westwood] average over 2009-2012 [Source: Douglas-Westwood] UMW-OG’s threading market share in Malaysia and China is estimated to be 29% and 0.3% of total threading expenditure respectively on average over 2009-2012. It is important to note that the significant difference in UMW-OG’s market share for these two countries is mainly due to the difference in market size: the Chinese threading market is approximately 60 times larger than the threading market in Malaysia. Given the dominance of offshore wells which require premium threading in Malaysia, UMW-OG may be able to increase its market share by relying on its ability to provide high quality premium threading. The Chinese threading market presents a significant growth opportunity due to the larger market size when compared to Malaysia coupled with expected strong annual growth due to anticipated robust development of unconventional gas. If UMW-OG could be involved in providing threading services for OCTG used in unconventional gas projects in China, the company’s market share in China may improve over time as unconventional gas projects are realised gradually. ~mpany No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood —-~._~-~
3.6. Regulations and Requirements Regulations and requirements in UMW-OG’s operating region differs on a country basis and are influenced by both local governing bodies and licensors. Overview UMW-OG operates its oilfield services in Malaysia, China, Thailand, and Turkmenistan. Hence, the company is subject to different regulations and requirements by both the local government bodies in these countries, as well as licensors. OCTG manufacturers or sleel mills typically issue threading licenses for the right to thread within the appointed country.
Malaysia Malaysia has a local content requirement in place which will provide a barrier to entry for international companies. E&P companies operating within the country are mainly under PSCs with PETRONAS. As such, contracts typically favour domestic providers who meet the required slandard of quality given PETRONAS’ preference for local contractors and suppliers.
PETRONAS have a Bumiputera participation requirement in place which requires 30%, 51% or 100% of employees to be of bumipulera status depending on the Standardised Work and Equipment Categories. Foreign companies tendering for contracts are also able to appoint a local company as a representing agent or form joint ventures with a local company to compete in the country’s oil and gas market.
Indonesia Local content regulations in Indonesia require a minimum local content of 35% of goods and services including threading services. High quality standards not met by local suppliers can be considered for exemptions. Requests for such exemptions must be made through the country’s Ministry of Trade.
Myanmar Foreign companies investing in Myanmar are required to do so through a PSC partnership with Myanma Oil and Gas Enterprise (MOGE). Operators are also required to have a local partner which may infiuence contracting process. There are no explicit regulations regarding UMW-OG’s oilfield services. Threading providers will require respective licenses from licensors to operate within the country.
Thailand and Vietnam There are no explicit regulations regarding UMW-OG’s oilfield services. Threading providers will require respective licenses from licensors to operate within the country.
China There are no expticit regulations regarding UMW-OG oilfield services. Threading providers will require respective licenses from licensors to operate within the country. It may be important to note that local companies typically have a preference towards local OCTG suppliers.
Turkmenistan
Turkmenistan has a 30% quota on companies for foreign personnel. While there are not explicit regUlations on contracting, priorities are given to local suppliers and contractors who meet the required standard of quality. Laws and business regulations within the country lacks transparency and is subjected to frequent change.
There are no explicit regulations relating to UMW-OG’s oilfield services. Threading providers will require respective licenses from licensors to operate within the country.
[iompany No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood –~’—–~–_._-~….__.­3. O!LF·!ELD SERVICES 3.7. Industry Risks Key risks faced by UMW-OG’s oilfield business include reliance on suppliers, low oil prices and the potential impact of incidents similar to the Deepwater Horizon incident in SEA. Delays and uncertainties in China’s unconventional gas market may see a downside to future growth. Overview UWM-OG’s oilfield business faces a number of key commercial and technical risks that may impact projected levels of activity. It should be noted that whilst these risks have been acknowledged in our wider analysis and used to sensitise our outputs, they still pose a certain leve[ of threat to the business. Market Cyclicality Risks The company’s business is involved in the E&A and the development drilling stage of the O&G Iifecycle in both onshore and offshore segments. These markets tend to be vulnerab[e to macro-economic factors such as O&G prices, making it relatively suscept[ble to price fluctuations. Whilst the business’ offshore sector is less volati[e to short term oil price movements as compared to the onshore sector, long term price changes would pose a significant risk, affecting the demand for drilling related supplies. Supplier Risks UMW-OG’s threading business is heavily influenced by the quality of parts supplied and capacity of its suppliers. Suppliers are required to meet high standards specifically in the offshore sector and supply products in a timely manner. Given a relatively low switching cost with several OCTG suppliers in the market, a risk of being substituted is inherent in the competitive environment which will directly impact UMW-OG’s business.These suppliers also pose a threat to UMW-OG’s market given potential movement into threading services provided through their in-house threading capabilities, increasing competitive pressures. Uncertainties in China’s Unconventional Gas Sector China has laid down ambitious development plans for its unconventional gas outputs with plans to increase shale gas output to 6.5 bcm in 2015 and 60-100 bcm in 2020. However, key challenges including uncertainty of reserves, resource management, cha[lenging geological conditions, lack of proper infrastructure to transport unconventional gas to related terminals and refineries, and lack of incentive policies may adversely impact the projected output leve[s, and subsequently causing delays in development plans. Safety and Operational Risks Companies operating in the offshore dri[ling industry will be exposed to many technical and operational hazards that have to be properly managed to ensure the safety of rig personnel. [n Apri[ 2010, the Deepwater Horizon semi-submersible drilling rig suffered a catastrophic blow-out whilst drilling for BP at the Macondo oilfield in the Gulf of Mexico leading to the death of 11 onboard workers. The subsequent fall-out impacted not just the companies involved but the drilling industry as a whole. [n January 2010 there were 29 active floating rigs drilling in deepwater in the Gulf of Mexico. However, with the dril[ing moratorium imposed by the government of the USA resulting from the Deepwater Horizon incident led to the drop in active floating rigs (i.e August 2010 -1 rig) dri[ling in Gulf of Mexico. As such, a similar incident in SEA may impact UMW-OG’s oilfield services due to the chain effect in the offshore sector as a whole 8. INDUSTRY OVERVIEW (Cont’d) Douglas INDEPENDENT MARKET REPORT Westwood –~ 3. OILFIELD SEf{VICES 3.8. SWOT Analysis UMW-OG has a range of licenses to thread in high growth markets. The company however relies heavily on its major clients and faces potential threats from vertical integration by manufacturing houses. Strengths • UMW-OG holds a strong foothold within Malaysia given its established relationship with NOC PETRONAS.
• Possession of licenses to thread in high-growth markets such as China and Malaysia is expected to further augment demand. Robust growth is anticipated, especially in China.
• Sound HSE records with practices, programmes and safety standards in place including several awards from PETRONAS in recognition of UMW-OG’s HSE performance.
• Experienced key personnel

Weaknesses • With geographical concentration in Malaysia and China, UMW-OG is exposed to country-specific risks.
• Potential over-reliance on key customers.

Opportunities • China’s ambitious shale development plan may increase demand for OCTG and related threading services. • With more wells drilled in deeper waters, we expect increasing demand for OCTG and threading services. • A move towards deepwater and an increasing number of gas developments present significant growth potential for premium threading service for UMW-OG.
• Strategic relationships with licensors will be vital to further growth.

Threats • As the demand for threading service heavily depends on drilling activity, the threat of demand fluctuation is also inherent in the threading business given the high level of cyclicality in the drilling market.
• Vertical integration by manufacturing houses may suppress demand for standalone threading

services. • Uncertainty with regard to China’s ambitious unconventional gas development may result in delays in the market.
• Threat of licenses being revoked due to external factors including performance of current suppliers.

8. INDUSTRY OVERVIEW (Cont’d) INDEPENDENT MARKET REPORT  DouglasWestwood –­.._-_._.­ APPENDICES  Table A 1: Contracted Jack-ups in Malaysia, 5 September 2013
Company Name  Rig Name  Country  Max WD (tt)  Operator  Aba n Offshore  Deep Driller 3  Malaysia  350  Petronas Carigali  ENSCO  ENSCO 105  Malaysia  400  Petronas Carigali  ENSCO 106  Malaysia  400  Newfield  ENSCO 52  Malaysia  300  Murphy  Maersk Drilling  Maersk Convincer  Malaysia  375  Petronas Carigali  Noble Drilling  Noble George McLeod  Malaysia  300  Talisman  Rowan  JP Bussell  Malaysia  300  Petrolac  Rowan E><L IV  Malaysia  350  Carigali-Hess Operating Co.  West Courageous  Malaysia  350  Hess Corp.  Seadrill Ltd  West Leda  Malaysia  375  ExxonMobil  West Vigilant  Malaysia  350  Talisman  Shell Drilling  Galveston Key Trident IX  Malaysia Malaysia  300 400  Petrofac Petrofac  UMW-oG  Naga 3  Malaysia  350  Petronas Carigali  Naga 4  Malaysia  400  ~etronas Carigali  Vantage Drilling  Aquamarine Driller  Malaysia  375  Petronas Carigali
I Company No.: 878786-H 8. INDUSTRY OVERVIEW (Cont’d) DouglasINDEPENDENT MARKET REPORT Westwood
Table A2: Contracted Jack-ups in the Rest of SEA, 5 September 2013 Company Name  Rig Name  Country  Max WD (It)  Operator  Aba n Offshore  Deep Driller 8  Brunei Darussalam  350  Shell  Atwood Mako  Thailand  400  Salamander Energy  Atwood Oceanics  Atwood Orca  Thailand  400  Mubadala Petroleum  Vicksburg  Thailand  300  Coastal Energy  Sohai VIII  Indonesia  250  PelroChina  China Oilfield Services Ltd.  COSL 937 COSLBoss  Indonesia Indonesia  300 400  CNOOCSES BP  COSLSeeker  Indonesia  375  Pertamina  ENSCO 107  Vietnam  400  ENI  ENSCO 108  Thailand  400  PTTEP  ENSCO  ENSCO 56  Indonesia  300  Pertamina  ENSCO 67  Indonesia  350  Perlamina  ENSCO 85  Indonesia  300  Pertamina  Hercules Offshore  Hercules 208  Myanmar  200  PTIEP  Japan Drilling  HAKURYU-10 HAKURYU-11  Indonesia Vietnam  375 425  Total Con Son Joe  KS Energy Services Ltd.  KS Java Star  .Indonesia  300  Pertamina  Maersk Drilling  Maersk Completer  Brunei Darussalam  375  Shell  PT Apexindo  Raniworo Soehanah  Indonesia Indonesia  350 375  Totar Total  PV Drilling  PV Drilling II PV Drilling 11/  Vietnam Vietnam  400 400  Lam Son JOC VietSovPetro  Rowan  Rowan EXL I  Indonesia  350  Hess Corp.  West Ariel  Vietnam  400  VietSovPetro  West Cressida  Thailand  375  PTIEP  Sea drill Ltd  West Defender  Brunei Darussalam  350  Shell  West Prospera  Vietnam  400  VietSovPetro  West Tucana  Vietnam  400  PetroVietnam  Compact Driller  Thailand  .300  Chevron  Harvey H Ward  “Indonesia  300  Pertamina  Key Gibraltar  -Vielna’m  300  PetroVietnam  Shelf Drilling  Parameswa”ra  IndMesia  300  Total  Randolph Yost  Indonesia  300  Mubadala Petroleum  Trident 15  Thailand  300  Chevron  Trident 16  Vietnam  300  PetroVietnam  GSF Constellation I  Indonesia  400  Total  Transocean Ltd.  Transocean Andaman  Thailand  350  Chevron  Transocean Siam Driller  Thailand  350  Chevron  UMW-QG  Naga 2  Vietnam  350  PetroVietnam  Vantage Drilling  Emerald Driller Topaz Driller  Thailand Indonesia  375 375  PTIEP Total  Cuu Long  Vietnam  300  VietSovPetro  VietSovPetro  Tam Dao 01 Tam Dao 02  Vietnam Vietnam  300 375  VietSovPetro VietSovPetro  Tam Dao 03  Vietnam  300  PetroVietnam

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