SKDP Currently Constructing 3 Jackups Suited for NCS Operations

Skeie Drilling & Production is currently constructing 3 large N-Class Jackup offshore drilling rigs suited for operations on the Norwegian Continental Shelf at Keppel FELS shipyard in Singapore.

On April 17, 2009, SKDP announced a re-structuring proposal based on (i) agreed amendments to the yard construction contracts with Keppel FELS and (ii) commitment from the SKDP main shareholders Skeie Technology and Wideluck to underwrite US $85m of new equity in a US $85-100m Equity Private Placement on terms described in the said SKDP re-structuring proposal.

Since such announcement, SKDP has been in negotiations with a group of bondholders holding a majority of its three secured bond loans issued by SKDP. Such direct negotiations were requested by the group of bondholders as a prerequisite to consider the re-structuring proposal and recommended by the loan trustee Norsk Tillitsmann. This group of bondholders has engaged its own financial and legal advisors (UK based Blackstone and Bingham, respectively) who have had access to all relevant data and inter alia carried out a financial and legal due diligence during the past four weeks. The group of secured bondholders has rejected the SKDP re-structuring proposal and has requested alternative terms unacceptable to Keppel FELS, Skeie Technology and Wideluck.

On May 31, several important agreements entered into between SKDP and its main vendors expired. Inter alia, the agreed amendments to the yard construction contracts setting out the terms for the extended delivery schedule as well as the underwriting commitments for injecting US $85m of new SKDP equity expired. Furthermore, a US $37m milestone payment on Rig 1 fell due on  May 31 without SKDP having free liquidity to pay this instalment. SKDP is also in breach under the Prodjack 1 bond loan agreement calling for US $18m of additional equity by the end of May 2009 in case of no employment contract being secured by that date. Finally, a US $40m milestone payment on Rig 3 is due on June 4. SKDP will not be able to make this payment as the amount is supposed to be financed out of the escrow account now being blocked, by the Trustee on behalf of the Prodjack 3 bondholders. The breaches described above will, if not remedied, also result in a breach of the bank loan agreements, and the bank's present US $ 675,000,000 commitment to finance the rigs will terminate forthwith.

Based on the expiry of important agreements above, the inability to honour its contractual obligations towards Keppel FELS as well as current rig values estimated to be substantial lower than the current face value of the SKDP outstanding debt and remaining contractual obligations related to its rig construction program with Keppel FELS, the SKDP Board of Directors believes SKDP is insolvent and will soon be illiquid unless the proposed re-structuring is approved.

Consequently, before filing for bankruptcy as per the fiduciary obligations by the SKDP Board of Directors according to Norwegian laws, the board has decided to seek irrevocable pre-acceptances from a qualifying majority (2/3) of the three SKDP secured bond loans and the convertible loan to the proposal as set out in the SKDP announcement dated April 17 and as described in the SKDP Company Presentation dated April 17 posted on the company's web-page Such acceptances to be signed and returned to the SKDP financial advisor Pareto Securities AS no later than Thursday, June 4, at 8 p.m. local (Oslo) time. A separate Irrevocable Acceptance Form will be posted on our web-page. For responses and questions to this acceptance form, please contact your contact person at Pareto Securities or Stian Winther ( dir line +47 2287 8773).

Based on required pre-acceptances by minimum 2/3 of holders in each bond loan, SKDP will seek extensions to the yard amendment contracts and the equity underwriting commitments, as well as sending out notices to bondholders for formal votes on the SKDP re-structuring proposal in line with the terms set out in the April 17, 2009 Company Presentation.

SKDP believes a bankruptcy filing is detrimental to both shareholder and bondholder values and would imply a substantial lower recovery to secured bondholders than what offered in the SKDP re-structuring proposal dated April 17, 2009.

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