Speech by Lim Chee Onn,

Executive Chairman, Keppel Corporation Limited

on the occasion of the launch of Keppel Offshore and Marine Ltd

The Minister for Health and 2nd Minister for Finance, Mr Lim Hng Kiang and Mrs Lim, Distinguished Guests, Fellow Directors & Keppelites, Ladies and Gentlemen.

May I begin by thanking all of you for sharing this joyous occasion with us on May Day. I believe some of us would consider it appropriate to give birth to Keppel’s newly formed Offshore and Marine Business entity on Labour Day. It was not without hassle but without a doubt it is worth the effort.

The creation of Keppel Offshore and Marine (Keppel O&M for short) will reinforce Keppel’s position as a leader in the construction and repair of jack-up drilling rigs as well the conversion of large vessels into Floating Production Storage and Off-loading units (FPSOs) and Floating Storage Off-loading units (FSOs). This integration will increase Keppel’s global footprint in the offshore and marine industry, with a total of 14 shipyards & repair facilities in 6 countries, and 3 engineering design offices in Bulgaria, China and Singapore.

Keppel O&M will increase our competitiveness considerably. It will enable us to pool our human, financial and physical resources to serve our customers more efficiently. However, forming Keppel O&M means more than just the merger of our shipyard facilities in Singapore and abroad. It provides us with a stronger platform to secure more projects with higher value content by leveraging on Keppel FELs and Keppel Hitachi Zosen’s distinct global reputation and customer relationships. In short, integration will not only reduce costs but it will also increase our revenue potential.

As an indication of the magnitude of the benefits, we expect cost savings to be about S$10M from today up to the end of the year. We reckon we should be able to attain annual cost savings of S$20M for next year and annually beyond. With some hard squeeze by Keppel O&M management, we might well exceed S$20M per annum. As for securing more projects going forward, I am confident that CB Choo, Chairman and CEO of Keppel O&M, together with CH Tong, his COO and other members of his team should be able to translate the strong enquiries for jack up rigs into some real orders during the rest of the year.

However, our plan for Keppel O&M is more than just improving our bottomline whether it is for this year or next. Our aim is to build on our current design capability in jack-up rigs and jacking systems as well as our experience in FPSO and FSO conversions and transform our Singapore design office into a Centre of Excellence for the offshore rigbuilding and marine conversion industry. There are quite a few reasons for having this objective.

We believe that increasing our design and engineering capabilities will enable us to move up the value chain and serve a wider range of customers as we focus increasingly on intellectual capital, higher skill level conversions and higher value projects. It will also allow us to make the best use of all the resources at our disposal to deliver at competitive prices world-class quality products and solutions to our customers regardless of wherever they are.

As an example, we are designing and fabricating parts of a semi-submersible in Keppel FELS for assembly and commissioning in our Baku yard for deployment in the Caspian area. This gives a deeper meaning to our aim of being “close to the market and close to the customers”. Yet another example is that Arab Heavy Industries AHI, our yard in the Middle East which previously focused on shiprepair would be able to bid for offshore projects with the support of our three design offices. I feel that increasing such flexibility and capability is crucial for us since over 90% of our revenue is derived from global customers.

Moreover, the ability of our yards to cross sell globally and move up the value chain will enable Keppel O & M Singapore to meet the increasing competition from shiprepair yards in locations with lower labour costs. Indeed it will enable Keppel to fully capitalize on such situations by outsourcing component fabrication to these lower cost locations rather than to just wring our hands in despair with each announcement of a new low cost yard in China, Vietnam, or wherever.

In addition, using modern communication networks we should be able to build up in Singapore a procurement centre for all our global facilities by tapping on a common database of products, suppliers and price information to yield the best prices for our customers.

This Centre of Excellence for Offshore and Marine industry should create more attractive career opportunities for our engineers and other supporting staff. Such employment prospects will be both in Singapore and abroad. Equally importantly, it will change the public perception especially amongst students and young engineers that the offshore and marine industry is one to be avoided if at all possible. If we do not change such a negative attitude, I feel that it will be difficult to sustain a vibrant offshore and marine-based industry in Singapore further down the road.

Building up a successful knowledge base for the offshore industry will require the involvement of the industry, our tertiary institutions, technical and professional bodies such as classification societies as well as other similar centres abroad. As an example, a tie up with a centre in Houston, Texas will give us a link with the design work and research being done in the US to support the exploration and production activities in the Gulf of Mexico.

Keppel’s intellectual property and knowledge currently reside in our Offshore Technology Development (OTD) Unit. It is exploring with the NUS and other interested bodies how best we can enhance Singapore’s capabilities in the following areas:

1.Development and design of drilling rigs and production systems for offshore oil and gas

2.Designs for specialised vessels e.g. supply vessels

3.Production technology and processes

4.Central database for engineering data, equipment, suppliers and logistics

This is a beginning and we can expand into other areas once we get the development started.

This May Day event augurs well for our offshore and marine industry. Keppel shall build on its capabilities and experience to ensure that we shall continue to be a centre for offshore engineering and marine conversions. I urge all those who share a similar vision to work with us to bring this about.

May I wish everyone in Keppel O&M an exciting and enriching career going forward. Henceforth, it looks like we shall gather every year on 1st May for a double celebration - May Day and Keppel O&M’s birthday.

May I thank Minister Lim Hng Kiang for having consented to be the Guest of Honour. Minister, as the Adviser to our unions in Keppel O & M, your presence carries a very special meaning for all of us in Keppel. I wish also to thank Mrs Lim Hng Kiang and all our honoured guests for sharing this happy occasion with us.

Thank you.

1