Scorpion Semisub Project at Risk

In July 2008 Scorpion Offshore Ltd.'s wholly owned special purpose company, Scorpion Deepwater Ltd. (Deepwater) entered into a contract with Keppel FELS for the construction and delivery of a DSS-38 class semisubmersible in December 2011 (Deepwater Rig). Additional contracts were signed with third parties for the provision of the Deepwater Rig’s drilling and subsea equipment. Scorpion has issued a parent company guarantee to Keppel FELS for the performance of Deepwater’s contract with Keppel FELS.

To date Deepwater has paid Keppel FELS and third party equipment providers approximately US$74 million in connection with the construction of the Deepwater Rig which is scheduled to commence in March or April of 2009.

As a result of the turmoil in the global credit markets, Deepwater has been unable to secure necessary financing in order to complete the construction of the Deepwater Rig and meet its future payment obligations to Keppel FELS.

Scorpion and Deepwater along with Keppel FELS and third party equipment providers continue to explore all options recognizing the value associated with the long term drilling contract for the Deepwater Rig with Petrobras in Brazil. If a solution acceptable to Deepwater and Keppel FELS cannot be determined in the near term, the construction contract may have to be terminated.

Scorpion Offshore Ltd. is a Bermuda based corporation founded in 2005 to own and operate state-of-the-art offshore drilling rigs.

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