>ABAN OFFSHORE LIMITED (MORGAN STANLEY)

IMPROVING FUNDAMENTALS

Investment Conclusion: Aban has outperformed the market by 26% over the last three months; however, the stock is still down 30% YTD. We reiterate our Overweight rating on Aban Offshore and raise our price target to Rs1,114/share, on the back of: 1) improving fundamentals for the offshore jackup industry with rising crude oil prices; 2) increased probability of financial restructuring; and 3) our global view of higher crude oil prices which we believe should lead to even higher rig rates and more contracts for Aban.

Improved fundamentals for jackup players: With crude oil prices having rebounded from the US$40/bbl levels, oil services companies are seeing an uptick in tender inquiries across the globe, especially Mexico, N. Africa and Iran. The day rates for the contracts have been in the region of 110k/day to 120k/day, which we believe would be the contract rates for Aban’s high end “DD” jackup rigs. Aban’s two deepwater assets, 1) Aban Abraham, and 2) Aban Pearl should start earning revenues from September 2009. We expect Aban to deploy another three of its seven
idle rigs by end-F2Q10 and all twenty assets by F2011.

Look forward to F2011; Short-term pain ahead: We expect Aban to report losses for F1H10 as we believe seven of Aban’s assets will remain idle during this period and F2010 will likely be a poor year for the company. We expect Aban to deploy all its assets by end-F2011 and believe that investors should focus on the company’s F2011 earnings.

Financial restructuring in the pipeline: We believe Aban has three options: 1) do a Qualified Institutional Placement; 2) listing of Aban Singapore; and 3) restructure its US$3.2bn of foreign currency debt. We believe any of these choices would be a positive trigger for the stock.

To see full report: ABAN OFFSHORE