Thule Drilling and QGM Group Enter Loan Agreement

Thule Drilling

QGM Group LLC, in the United Arab Emirates, is constructing the three jackup rigs "Thule Power", "Thule Energy" and "Thule Force" for Thule Drilling.

Thule Drilling and QGM have entered into a loan agreement where Thule Drilling provides a US $22 million loan facility to improve QGM's financial standing. The main purpose of the loan is to finance the current and future investments made in infrastructure, plant and machinery at the yard and enable QGM to expand further and upgrade the yard to meet the increased demands of their customers.

The loan carries an interest rate of 10.5 %. The loan is secured through first priority pledge in the shares of QGM, inventory, and plant and equipment belonging to QGM. The loan matures on May 31, 2008.

Repayment of the loan will mainly be based on the following conditions:

Tranche 1: US $12 million is due on May 31, 2008, with a discount of 30% if "Thule Power" is delivered before February 15, 2007, which will allow for arrival at location in Saudi Arabian waters before penalties for delayed delivery starts accruing under the Saudi Aramco long term contract. This timely delivered discount/bonus will be added to the total project cost of US $100 million (including finance) of "Thule Power".

Tranche 2: US $10 million is also due on May 31, 2008. However, if "Thule Energy" and "Thule Force" are delivered on schedule, which is end November 2007 and end of March 2008, respectively, plus a 3 month grace period, the loan will be converted into a timely bonus of US $5 million for each rig. This timely delivery bonus, if awarded, will be added to the rig cost of US $125 million including US $3 million contingency and US $2 million site supervision.

The price for all three units is, even if the bonuses are awarded, still very competitive and about US $20-25 million less than comparable designs with almost the same specification and equipment being constructed at other yards, and with later deliveries.

If QGM fails to repay the loans or meet delivery deadlines, Thule has the option to acquire between 35-100% of QGM from its owners at no cost, however with no intention to request changes in the Management of the yard. This will secure ownership in a qualified offshore rig building yard with fully developed infrastructure, offices, accommodation for up to 1000 workers, warehouses, workshops and machinery. The yard is ideally placed at a prime location in the busiest and fastest growing area of the Middle East.

As part of the loan condition, the exercise of the new-building options at QGM has been extended by three months, at a price limited to the level of "Thule Energy" and "Thule Force" with added adjustments for price increase in steel, equipment and labor. The subsequent new-building options are based on actual cost to QGM, plus a capped 10% margin on QGM's direct share of the construction cost.

The Board is pleased with this arrangement as it also helps to secure the satisfactory completion of the three Thule Drilling rigs under construction, and at the same time gives the owners of QGM the best incentive to deliver on time. It further improves the ability for QGM to continue to grow and secure future work, including exercising further new-building options by Thule Drilling, assuming the employment and market outlook are promising. If the loan is not repaid or delivery deadlines are not met, Thule Drilling will obtain controlling interest in a modern, well-equipped offshore yard located in a prime area.