Sevan Marine has announced that it has secured options to build six additional Sevan drilling units with COSCO Corporation's COSCO Shipyard Group. This is on top of the two recently contracted deepwater drilling units to be provided to Petrobras SA and ONGC, which Sevan has earlier stated they are intending to build at COSCO. So far COSCO Corporation has not made any announcement regarding the contracts (8 in total) as the deals have yet to be finalised though with Sevan making the announcements on their website, we can expect the order announcements to be made very soon by COSCO Corp. We recently had a meeting with management and they have updated that they are negotiating with Sevan to undertake the projects on a turnkey basis, in which the installation of the drilling package will fall to COSCO as well. If this is the case, the estimated contract value of each Sevan semisubmersible for COSCO is in the region of US$400m, as compared to US$200m for just the construction of the hull. If COSCO goes ahead with all 8 semis on a turnkey basis, the total contract value will be in excess of US$3b. We expect the delivery of the 8 semis to be progressively between 2010 and 2012.

We view Sevan's willingness to commit to 8 more Sevan semisubmersibles with COSCO as a strong testament of their recognition of COSCO's ability to complete the current Sevan 650 project on-time and within requirements. Currently the main hull for the Sevan 650 is under construction at COSCO's Nantong Shipyard, with the drill floor under construction with Nemo Engineering in Norway. Both Sevan and COSCO have mentioned in the past that for future Sevan projects, they expect the drill floor to be undertaken by COSCO as well. For the Sevan 650 project, the integration of the drill floor with the main hull is expected to take place in the forth quarter of this year at COSCO Nantong/ Qidong.

Earlier this year, we highlighted that securing offshore projects would likely be the focus for COSCO Corporation this year, given the expected slowdown in dry bulk new building orders. We currently have a BUY recommendation on COSCO with a target price of S$4.30 based on a sum-of-parts valuation. If COSCO were to sign all 8 Sevan contracts, the total orders secured to date would be in the region of US$3.9b for 2008. Please see our attached COSCO Shipyard visit report for more information on the current Sevan 650 project.