NORSK TILLITSMANN NO R W E G I A N TRUSTEE

Denne melding til obligasjonseierne er kun utarbeidet på engelsk. For informasjon vennligst kontakt Norsk Tillitsmann ASA.

To the bondholders in: ISIN: NO 001 035406.1 -FRN Ability Drilling ASA Callable Senior Unsecured Bond Issue 2007/2012

Oslo, 5 July 2011

Information to Bondholders - Annual Reports II

Norsk Tillitsmann ASA (“NTM” or the “Trustee”) acts as loan trustee for the loan mentioned above (the “Loan”) made available under a loan agreement dated 7 February 2007 (the “Loan Agreement”) between Ability Drilling ASA (Company No 989 761 846) as borrower (the “Company” or the “Borrower”) and NTM. The bankruptcy of the Borrower was initiated subsequent to a bankruptcy petition dated 27 May 2009 received by Nordhordland District Court on 27 May 2009. Please find appended the Annual Report no II from the Administrator of the Estate and the Estate Auditor’s report, in English version. NTM expressly disclaims any and all liability whatsoever related to the information provided in the reports.

Yours sincerely 'Nførsk Tillitsmann ASA

PO Box 1470 Vika, N-0116 Oslo | Haakon VIIs gate i, Oslo Switchboard:+47 22 87 94 oo | Fax:+47 22 87 94 to | www.trustee.no

Translation from Norwegian

Nordhordland District Court P. O. Box 7418 NO-5020 BERGEN

ANNUAL REPORT II - CASE NO 09-084819KON-NOHO The estate in liquidation of ABILITY DRILLING ASA

1,

A ddressees

1.1. 1.2. 1.3. 1.4.

Nordhordland District Court, P. 0. Box 7418, NO-5020 Bergen The creditors The Register of Bankruptcies Debtor in liquidation Attn. Chair of the Board Geir Nordahi-Pedersen, Brattholmen 112, NO-5350 Brattholmen The Norwegian Tax Administration P,0. Box 8103, NO-4068 Stavanger Hordaland Police District, [email protected] NAV Lønnsgaranti (Wage Guarantee), P.O. Box 8103 Dep, NO-0032 Oslo The report will be posted on the page for the estate/enterprise in liquidation at www.altlnn.no

1.5. 1.6. 1.7. 1.8.

for the report

2.

W ho the case concerns

2.1. 2.2. 2.3. 2.4. 2.5.

Debtor’s name: Ability Drilling ASA Registered address: Trollhaugmyra 15, NO-5353 Straume The company's organisation number: 989 761 846 The estate in liquidation’s organisation number: 994 148 427 Industry: The company’s object stipulated in the articles of association is to 'Own, operate and manage drilling rigs and offshore equipment, and other activities related thereto within the offshore and onshore petroleum industry, including investment in other companies.' Group: The debtor is the parent company in the group.

2.6.

Translation from Norwegian

3.

Main

2

features of the winding -up proceedings since the previous report

Reference is made to the preliminary report dated 16 September 2009 and to the annual report dated 6 October 2010, The reports must be read in conjunction with each other. The information in the preliminary report will not be repeated unless this is expedient for presentation purposes. Enclosed with this report is the estate auditor’s report dated 30 May 2011, That report is an independent report, and the creditors will already be aware of some of the matters mentioned in it. However, this report also points to some matters which the estate has not given priority to pointing out in our previous reports. Some of these matters are commented on in section 4 below. We ask to be kept informed should the creditors wish further clarification of other matters that have been raised. The estate’s work since the annual report has mostly consisted of following up the settlement agreement and claims against TTS Sense AS and TTS Group ASA, as well as realising assets in the debtor’s subsidiaries. The estate in liquidation has reviewed all material claims and carried out an interim distribution of dividend to the creditors in question. As in previous reports, this report will only deal with important matters, and issues that are less important by comparison will not be dealt with. 4.

T he work

4.1.

Introduction As mentioned above, the estate auditor has completed his report. Important matters in this report that give rise to comments from the estate in liquidation will be discussed in the following chapter.

4.2.

Claim against DnB NOR entered in the accounts - section 7.3 of the report It is stated in section 7.3 of the auditor's report that the debtor had entered a claim against DnB NOR Bank ASA in its accounts following the transfer of an amount to the bank. The estate in liquidation has looked into the matter, which was related to use of the company’s credit card. It has now been clarified that the debtor has no claim against DnB NOR Bank ASA, but that the bank had an amount outstanding with the debtor on commencement of the winding-up proceedings. However, the bank notified the estate of its claim at an earlier time.

4.3.

Payments to Drilltools International FZCO - sections 7.4 and 7,8 of the report Work was in progress on onshore rig no 1 at this shipyard in Dubai when the windingup proceedings commenced. The yard exercised its possessory lien against the rig and equipment until the amount owed to it was settled. The amount owed to the yard was reviewed, negotiated and settled as part of the purchase price on transfer of the

of the estate auditor

Translation from Norwegian

3

onshore rig. All outstanding accounts between the yard and the rigowning company Ability Drilling Malta III Jordan Ltd had thus been settled on transfer of the rig. Prior to the commencement of winding-up proceedings, the subsidiaries in Malta had entered into management agreements with Ability Drilling ASA in the manner already described. This entailed, among other things, that nearly all invoices were received and paid by Ability Drilling ASA, which then invoiced the subsidiary in question. This was also done in the case of the relevant claims from Drilltools International FZCO. The estate in liquidation sees no reason to file legal claims in connection with the disbursements to Drilltools International FZCO immediately prior to the commencement of the winding-up proceedings and partly after the suspension of payments. The main reason for this is that these were payments for services rendered on a running basis, and also that Ability Drilling Malta Jordan Ltd, and subsequently Ability Drilling ASA, have suffered no financial loss as a result of these payments. If these invoice claims had not been paid, it would have resulted in a corresponding amount, plus interest, being deducted from the purchase price in order for the rig to be released. 4.4.

Payment to KAN Int Petroleum Services - sections 7.5 and 7.7 of the report Ability Drilling Malta III Jordan Ltd. had signed an agreement to rent premises in Jordan. Payments to KAN int Petroleum Services were disbursed by Ability Drilling ASA and then invoiced to Ability Drilling III Jordan Ltd. in accordance with the management agreements, cf. section 4.2. As in the relationship with Drilltools International FZCO, the consequence of a claim for reversal would have been that the same claim would have been made against Ability Drilling Malta III Jordan Ltd, which in turn would have reduced the assets transferred from the company to the estate. Ability Drilling Malta Ltd had previously signed an agreement with the company for consultancy services, which, as far as the estate in liquidation is informed, had mostly been performed before the commencement of winding-up proceedings. However, Ability Drilling Malta Jordan 111 Ltd needed certain services, such as supervision of equipment etc. in Jordan, and the company continued to carry out such services after the commencement of the winding-up proceedings.

4.5.

Repurchase of bonds, relationship with closely related parties - section 7.12 of the report The background to the estate in liquidation’s petition of 23 July 2010 for depositions from employees of the brokerage firms involved is explained in section 9 of the annual report dated 6 October 2010. Information was also given about the statement from Pareto Securities AS to the effect that two international banks were the counterparts in Pareto Securities AS's purchase of bonds in the bond issue that were subsequently sold to Ability Drilling ASA. The estate in liquidation has not been informed of Fearnely Fonds ASA’s comment on the petition, but the estate has previously been informed thatJLwgs an American

True translation certified, 28 June 2011

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Govenment Authorised Iranslat Allegro AS

Translation from Norwegian

4

investment bank’s holding that was transferred to Ability Drilling ASA via the brokerage firm. This information, plus information given in by Ability Drilling ASA’s former chair of the board and general manager during the meeting of creditors, indicated that there was no reason to uphold the estate in liquidation’s petition for depositions to be taken. Moreover, the dispute with TTS, which was the party that expressed a wish for the matter to be further investigated, had been resolved through the settlement agreement. The petition was withdrawn following a vote in the bondholders’ meeting where the matter of withdrawing the petition for depositions was among the items on the agenda. 4.6.

Directors’ liability - section 10.2 of the report The estate in liquidation has considered the question of whether it constituted a wrongful act involving liability in damages on the part of the company’s board to repurchase bonds at the time in question and subject to the applicable conditions. In retrospect, there is no doubt that the company would have needed the liquidity spent on repurchases in autumn 2008 when the problems with the rigs persisted in 2009. The matter had been considered by the administration, which recommended the repurchase. The board seems to have considered the matter thoroughly. Although the decision, particularly in retrospect, appears unwise, the estate in liquidation is of the opinion that it did nonetheless not constitute a wrongful act involving liability in damages. Another matter is that it would anyway be difficult for the estate to demonstrate that the creditors have suffered any financial loss. There is nothing to suggest that the production of the rigs would have been completed and the rigs been functional even if Ability had had the funds available. The liquidation could thus not have been prevented under any circumstances. Moreover, the price for which the bonds were purchased corresponds roughly to, and is partly lower than, the total dividend that the estate expects to be able to distribute. The estate is therefore of the opinion that there is no basis for pursuing compensation claims against the board on the basis of the decision to repurchase bonds.

5.

T he relationship with TTS sense a s

and t t s

G roup ASA

A thorough account of the dispute, the claims of the parties, the progress of the case and the settlement agreement was given in section 10 of the interim report and the same section in the annual report. Reference is also made to the information provided in the liquidator’s letter to the creditors of 18 November 2010. The settlement agreement and the result of the consideration of the settlement agreement in the bondholders’ meeting held by Norsk Tillitsmann ASA were enclosed with the letter. As a result of the bondholders' meeting's approval of the settlement agreement, a majority of the estate’s creditors

True translation certified, 28 June 2011.

( J W i ' G M jf ,

Government Authorised i ranslator Allegro AS

Translation from Norwegian

5

were in favour of the agreement. There was therefore no need for a separate vote of the creditors’ meeting. After this, TSS has signed an agreement with Weatherford Pipeline Services Spain S.L. concerning the rig and pertaining equipment. Ability has been in negotiations with TTS about consent for disposition and the question of what claim it would give rise to for the estate in liquidation. These questions have not yet been clarified, but TTS has transferred NOK 20,000,000, which will anyway be the minimum compensation to Ability for TTS’s dispition of the rig. Ability has notified TTS that the claim will be pursued through the courts unless documentation is submitted to show that Ability’s claim does not exceed this amount. In accordance with clause 3 of the settlement agreement, interest on the stipulated purchase price must be paid in the amount of NOK 1 000 000 on 1 December 2010 and 1 March 2011, This interest has been paid. The interest that fell due for payment on 1 June 2011 was proportionately reduced as a result of the payment of NOK 20,000,000 of the principal sum, see above. The next due date for payment of interest is 1 September 2011. For any remaining interest payment periods, the instalment for the full principal has been increased to NOK 1,500,000. 6.

T he estate’s

realisation work since the annual report - main features

6.1.

Maintenance rigs in Canada In April 2011, Ability Drilling Malta Ltd and IO & R Ltd signed an agreement for the sale of two 150 T maintenance rigs with pertaining equipment. After adjustments for rightful claims, a change in liability relating to transport and an adjustment because IO & R Ltd. paid sooner than originally agreed, the purchase price was stipulated at NOK 50,250,000. The rigs and equipment were sold ‘as is, where is’. The deadline for claims was set to 11 August 2011. The agreement also includes a ‘mud package’ and a generator set for which the estate has had to make separate agreements in order to be able to offer the desired rig package. For the unit defined as the ‘mud package', Ability Drilling Malta Ltd. entered into an agreement with Ml-Swaco AS/Schlumberger Norge for the company to supply a fungible and tested package in return for the transfer of NOK 6,050,000, and whereby the company at the same time withdrew its claim of NOK 13,307,766.26 against the estate in liquidation. Ability also had to provide a generator set for NOK 1,500,000. This was finally arranged by IO & R Ltd purchasing this equipment directly from Mongstad Elektro AS in return for a corresponding reduction in the purchase price. The buyer has also pointed out that a diesel tank that is supposed to be part of the equipment package for the maintenance rigs is missing. Ability is of the opinion that

True translation certified, 28 .lune 201 \c X -'' O jO \kr/ GoYenfvrienTAuthorised 2m Authorised Translat Translator Allegro AS

Translation from Norwegian

6

this diesel tank should be handed over by TTS, but TTS has resisted this. As a result, Ability has had to accept that 10 & R Ltd will purchase a replacement tank for the estate’s account at a price of up to NOK 400,000. 6.2.

Repayment, reversal claims As mentioned in the previous annual report, the estate in liquidation entered into an agreement with the general manager for the reversible disbursement of holiday pay in the amount of NOK 177,693. The amount has been transferred to the, estate In accordance with the agreement.

6.3.

Return of premium The debtor's insurance company stated that the estate in liquidation was entitled to a return of premium in the amount of NOK 29,242. Since it was indicated in section .6.3 of the auditor's report that a larger amount was owing to the estate than stated by the insurance company, the estate requested the insurance company’s comments on the auditor’s findings. The insurance company is still looking into this matter, and the amount of premium to be returned has therefore not yet been finally clarified.

6.4.

Loans to employees As mentioned in the previous annual report for the year, the estate has entered into an agreement with a former employee concerning the repayment of a loan. The agreement has been complied with.

7.

Particular matters

7.1.

Claim against Porosity Reference is made to section 5.2 of the annual report dated 6 October 2010. The estate has not received payment from Porosity. The estate will decide if and how to pursue this matter in the near future.

7.2.

Reimbursement of value added ta x -th e Netherlands Ability Drilling Malta II Germany Ltd has filed a claim for reimbursement of value added tax that the company had paid to the Dutch authorities before the commencement of winding-up proceedings for Ability Drilling ASA. Reimbursement has been obtained for one payment period, but reimbursement claims totalling EUR 654,469 remain outstanding. This amount concerns value added tax on goods that have now been sold. The Dutch VAT authorities have requested a detailed overview of what goods the paid-in VAT relates to, as well as a detailed overview of which goods have been sold and which, if any, are still In storage in the Netherlands. This is very time-consuming and complicated work for the estate, both as regards proving what the payments relate to and demonstrating in detail which goods had been sold before the commencement of winding-up proceedings.

Translation from Norwegian

7

The estate is cooperating with PwC in the Netherlands and hopes to clarify this matter within a few months. 7.3.

Claims against a former employee Section 11.2 in the annual report dated 10 June 2010 describes the basis for a claim against a former employee. The matter was considered by Askøy Conciliation Board on 30 May 2011. The matter has become somewhat more elucidated in the course of the proceedings, and some of the documentation that the estate has requested has appeared. No settlement was reached in the case, and the former employee did not consent to a judgment being pronounced. The case has therefore been discontinued. The estate is considering whether or not to pursue this matter.

7.4.

Bonds The circumstances surrounding the repurchase of own bonds have been thoroughly described in previous reports. The estate in liquidation considers this part of the administration of the estate to have been completed, see section 4.5.

8.

T he financial relationship between the subsidiaries and the debtor Section 8 of the interim report explained how the subsidiaries established in Malta had been financed. Among other things, it contained a description of the loan agreements between Ability Drilling ASA and Ability Drilling Malta Ltd and between Ability Drilling ASA and Ability Drilling Malta II Germany Ltd in the amount of EUR 18,047,118 and EUR 24,563,780, respectively. Both loans were interest-bearing, and the interest corresponded to the interest rate agreed by Ability Drilling ASA in the bond issue. The purpose of the loans was to fund the building of rigs to be owned by the borrowing companies. In addition to these loans, Ability Drilling ASA furnished credit to the subsidiaries in that many invoices were paid by Ability Drilling ASA before being invoiced to the subsidiary in question. In connection with the transfer of ownership of the various rigs, the debtor has explained that the pertaining liabilities of the rigs in question were entered in the books as claims between subsidiaries. Thus, a claim in the amount of EUR 19,013,051 from Ability Drilling Malta Ltd against Ability Drilling Malta II Germany Ltd is entered for the transfer of onshore rigs no 1 and 2. Correspondingly, a claim from Ability Drilling Malta II Germany Ltd against Ability Drilling Malta III Jordan Ltd in the amount of EUR 16,869,135 is entered relating to onshore rig no 1. Following the realisation of the assets, the purchase amounts were credited to the respective subsidiaries’ accounts in DnB NOR Bank ASA. Since the subsidiaries had no other external creditors than the companies’ advisors and accountants in Malta after the settlement agreement had been signed, the boards of directors of the companies in question decided to use some of the deposits in their accounts for

True translation certified, 28 .Tune 2011 AJLa a

Government Authorised Translator Allegro AS

Translation from Norwegian

8

partial payment of the companies’ internal liabilities, including the companies' loans, to the estate in liquidation of Ability Drilling ASA. 9.

T he position and status of the

9.1.

Annual financial statements Please find the estate In liquidation’s accounts as of 31 May 2011 enclosed with the annual report.

9.2.

More about the group finances In addition to the account balance in the debtor (see the accounts), the subsidiaries have total cash and cash equivalents of approx. NOK 15,000,000. There is also NOK 2,550,000 in a frozen client account as security for any claims by 10 & R Ltd., money which will be transferred if no claims are received by 11 August 2011.

estate in liquidation

It is repeated that cash and cash equivalents include a provision in the amount of NOK 9,194,128 for potential payment of dividend to creditors who did not receive payment in the distribution on 2 May 2011 (see below). The important claims that still exist in the subsidiaries are the residual settlement concerning the agreement with TTS (see section 5), the claim for reimbursement of value added tax from the Netherlands (see section 7.2.) and the residual claim concerning the sale of the maintenance rigs (see section 6.1.). 9.3.

Accounts for subsidiaries Since the assets in the subsidiaries have now been sold, there is basis for concluding the accounts of the subsidiaries in the manner required to wind them up. This work will be given priority in the time ahead.

1o.

C laims against the estate - distribution

10.1.

Examination of claims The estate notified the district court and the creditors of the examination of claims in a letter dated 7 March 2011 which contained the estate’s list of claims filed and clarified by the estate. Claims that in the estate’s opinion were unclarified in terms of basis and amount were recommended for postponed consideration. Provisions corresponding to payment of dividend for fully approved claims were made for the claims in question. These claims will undergo further examination and dividend, if any, will be distributed on a subsequent occasion, cf. the Bankruptcy Act section 111, third paragraph, second sentence. The estate reviewed the claims on 21 March 2011. Since there was no coverage for claims without priority, such claims were not examined. The following claims were approved and provisions for them made:

Translation from Norwegian

9

Approved NOK 2 824 218.00 NOK 10 881.00 NOK361 800 280.00 NOK364 635 379.00

A. Priority claims class 1 B. Priority claims class II C. Claims without priority Total:

Provision NOK 468 043.00 NOK 0 NOK 28 148 662.00 NOK 28 616 705.00

Objections to the recommended claims were made by two of the creditors, but the objections were withdrawn after some correspondence. An objection was also received from an employee who had been entered with a lower amount then he was entitled to in the liquidation committee’s recommendation. However, the amount in question was low and the estate had counter-claims against the employee, so the objection had no bearing on the distribution. This will be adjusted in the next recommendation. The estate also received a query from a wage-earner who, in retrospect, wished to claim a greater amount than the one approved by the estate during the examination of claims. The estate informed the person in question of the right to appeal to the district court pursuant to section 130 of the Bankruptcy Act, but no such appeal has been lodged. For one creditor, certain clarifications were made before payment took place. Payment was therefore withheld. The estate will reconsider this matter in its next recommendation. 10.2.

Claims w ith class I and class II priority The estate recommended payment of claims with class l priority in the total amount of NOK 3,318,501. Most of these claims concern employees' claims for coverage of pay for May 2009, pay during their periods of notice and holiday pay for 2009, in addition to various claims for reimbursement for expenses. The estate deemed several of the items in the employees' claims not to be entitled to coverage pursuant to the Satisfaction of Claims Act. Other claims were re-classified as claims without priority. In its recommendation, the estate also reduced several claims by making deductions for other income during the application period. Class I claims in the total amount of NOK 2,824,218 were approved for distribution, while, for the time being, a provision for dividend was made for nine claims totalling NOK 468,043. The estate has made provisions corresponding to 100% dividend for these claims. Priority claims class I for which provisions have been made mostly comprise claims from foreign employees, in whose case it has so far not been possible to verify that they have had no other income during their periods of notice that should be deducted from their claims. Claims with class II priority were recommended for approval in full

True translation certified, 28 June 2011. ( A

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J a-

O K Lt

Government Authorised Translator Allegro AS

Translation from Norwegian

10.3.

10

Claims without priority The claims without priority were significantly reduced after the estate had reduced its bond debt, so that the claim from Norsk Tillitsmann ASA could be reduced correspondingly. Moreover, the claims from Ability Drilling Malta IV UK Ltd and MlSwaco AS lapsed as a result of the agreement entered into relating to the sale of the maintenance rigs, see section 6.1. The estate recommended 92 claims without priority, totalling NOK 361,800,280. It was decided to postpone the consideration of 28 claims totalling NOK 28,148,662. As mentioned, the estate has made provisions corresponding to a 31% dividend for such unclarified claims without priority.

10.4.

Interim distribution The liquidation committee found that there was basis for an interim distribution in the amount of NOK 123,187,315, including provisions for dividend in the case of claims that were not recommended in this round. Distribution took place on 2 May 2011 with the court's consent. Claims with class I and class II priority were covered in full, while the dividend for claims without priority was 31%.

10.5.

Further distribution. As the estate obtains a basis for examining unclarified claims, a recommendation will be made and notification of examination of claims will be sent to the creditors by separate letter. Further distribution to creditors with approved claims will thus take place as soon as there is a basis for it.

11.

Criminal offences/ period of disqualification In connection with his review of the company's accounting in relation to tax withholdings, the auditor found that tax withholdings have not to a sufficient extent been transferred to the bank account for tax withholdings and that the company has also not complied with the applicable rules relating to tax withholdings, which means that the company has violated the Tax Payment Act section 5-12. In this connection, the estate notes that the company's management has maintained that there have always been sufficient funds in the tax withholdings account to cover advance payroll tax deductions. This was also the situation on commencement of wlnding-up proceedings. Consequently, the estate considers this to be a formal violation that will not be reported to the police. No circumstances have been uncovered that would constitute grounds for imposing a period of disqualification.

True translation eertified5„28 .Tune 2 0 JJ. Government Authorised Translator Allegro AS

Translation from Norwegian

12.

11

Further work - new distribution and dividend prospects

Now that a settlement agreement has been entered into with TTS whereby the estate no longer has title to onshore rigs no 2, 3 and 4 with pertaining equipment, this part of the administration of the estate in liquidation has been concluded. The remaining work now concerns collection of the claim against TTS. Since the maintenance rigs have also been sold and paid for, see section 6.1, most of the assets have been realised. Other remaining administration of the estate in liquidation mostly consists of collection of claims relating to value added tax in the Netherlands, and follow-up of a few other matters mentioned above. Before the administration of the estate in liquidation can be concluded, the estate in liquidation’s subsidiaries established in Malta must be wound up in accordance with Maltese law. The estate in liquidation plans to merge the companies Ability Drilling Malta Ltd, Ability Drilling Malta II Germany Ltd, Ability Drilling Malta III Jordan Ltd and Ability Drilling Malta IV UK Ltd into Ability Drilling Malta Holding Ltd, and then wind up Ability Drilling Malta Holding Ltd. The company Ability Drilling GmbH is a wholly-owned German subsidiary of Ability Drilling ASA. This company must be wound up in accordance with German law if the estate does not succeed in selling the shares as a shelf company. Further settlement from TTS will be decisive for any further distribution to the creditors. Since a dividend has been paid or provisions made for 100% dividend in the case of all claims with class I and class II priority, only distributions relating to claims without priority remain. The estate aims for a total dividend payment to creditors without priority in excess of 45%.

Bergen, VOGT & WIIG AS

liquidator/Advocate

*The annual report and accounts have been sent to Eystein Koppang, member of the creditors’ commitee. Because of the late date at which they were sent and since it is holiday time, he has requested more time to review them. Any comments that he may have will be sent to the creditors as soon as they are presented, see the Bankruptcy Act section 121, first paragraph (3).

vogtwug ABILITY DRILLING AS Bankrupt estate ORG.NO. 994 148 427 ACCOUNTS FOR THE PERIOD 27.5.2009 - 20.6.2011 Office Translation

Excl. VAT

Paid to the estate Payment of loan from subsidiaries From NAV wage guarantee Transfer from various accounts etc. Realisation of machinery and plant etc. Annulment claim genera! manager Interest income as of 31,12.2010 Refund cost absorption for subsidiaries Loan against prom, note employee Refund NAV Refund VAT Ability Drilling ASA Credit memo Oslo Børs {stock exchange) Sum

110 110 508 3 306 914 8 175 929 318 156 177 693 136 654 915 910 408 885 26 289 1 841 911 51 000 125 469 849

Paid out from the estate Paid to employees and refund NAV Rent Harlingen / loose drilling equipment Wage and tax deductions, assistance from former employees Employer's contribution Account remuneratuion trustee, trustee board members etc. Salary legal assistance Malta (Ganado) Consulting services Administration costs Rent Distribution creditors Insurance Sum

3 308 179 757 673 361 382 46 332 3 603 327 68 863 904 666 26 812 71 077 114 941 823 230 952 124 321 086

Estate's balance as of 20.6.2011

1 148 603

Translation from Norwegian

KPMG

The estate in liquidation o f Ability Drilling ASA Organisation no of the estate: 994 148 427

Estate Auditor’s report to Nordhordland District Court Case no. 09-084819KON-NOHO

Bergen, 30 May 2011 KPMG AS (Signature)

Tom Rasmussen State Authorised Public Accountant

KPMG AS 30 May 2011 This report consists of 33 pages

© 2011 KPMG AS, a Norwegian member firm o f the KPMG network of independent member firms affiliated with

Translation from Norwegian The estate in liuidation o f Ability Drilling Estate Auditor's Report Audit 30 May 2011

T a b le o f c o n te n ts 1 1.1 1.2 1.3

INTRODUCTION Mandate Scope of the audit The auditing process

1 1 1 1

2 2.1 2.2 2.3 2.4 2.5

3 3 3 3 3

2.6 2.7 2.7.1 2.7.2

THE DEBTOR The debtor’s business name etc. The liquidation Date of formation Share capital and shareholders The object of the company under the articles of association and its activities before the commencement of the winding-up proceedings Group The company’s bodies Board of Directors General Manager

3 3.1 3.1.1 3.1.2 3.1.3 3.2 3.2.1 3.3

ACCOUNTING, FINANCIAL CONTROL AND AUDITS Financial control and reporting Reporting to die financial markets Chief accountant Accounting Auditor The auditor’s conclusions Minutes of board meetings

7 7 7 7 7 7 8 8

4

DISBURSEMENTS TO THE BOARD AND GENERAL MANAGER Board of Directors General Manager Hans Petter Eilceland

9 9 9

4.1 4.2

5 5.1 5.2 5.3 5.4

COMPANY OPERATION AND CAPITAL DEVELOPMENT Overview of accounts - key figures in the income statement and balance sheet Development of financial result Balance sheet and capital development Liquidity development 30. mat 2010 © 2011 KPMG AS. All rights reserved.

d 24 June 2011

Trai^Jat^THkgrtTTi^'

5 5 6 6 6

10 10 10 11 12 i

Translation from Norwegian The estate in liuitlatlon o f Ability Drilling Estate Auditor's Report Audit 30 May 2011

5.5 5.5.1 5.5.2 5.5.3

Capital situation Formation Capital increases Bond loan

14 14 14 14

6 6.1 6.2 6.3 6.4 6.4,1 6.4.2

SPECIAL CIRCUMSTANCES Repurchase of outstanding debt (bonds) Loans to employees Pre-paid insurance Value added tax Value added tax, Ability Drilling ASA Value added tax, Ability Drilling Malta Ltd. (Organisation no 992 787 325) Ability Drilling Gmbh (93047 Regensburg Maierhoferstr. 1) Information received from a whistle-blower

15 15 16 17 17 17

19 19 19 19 19 20 20 21

7.10 7.11 7.12

POTENTIALLY VOIDABLE TRANSACTIONS Payment to DnB Nor before the due date Payment to Oslo Børs before the due date Transfer to DnB NOR Payments to Drilltools International FZCO Disbursements to Kan International Petroleum Services Payments to Drill-Quest Engineering GmbH Payment to Kan Int Petroleum Services after the suspension of payments Disbursement to Drilltools International FZCO after Hie suspension of payments Disbursements to Crux Kommunikasjon Bergen AS after suspension of payments Tax withholdings Employer’s National Insurance contributions Repurchase of bonds - relationship with closely related parties

8 8.1 8.2 8.3 8.4

REASON FOR LIQUIDATION Delays and deficiencies relating to the delivery of completeddrilling rigs Execution of agreed assignments Repurchase of bonds Market situation

24 24 24 25 25

9 9.1

TIME OF BECOMING INSOLVENT Excess of liabilities over assets

26 26

6.4.3 6.5

7 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9

17 18 18

21 21 21 22 23

Translation from Norwegian The estate in liuiiiation o f Ability Drilling Estate Auditor's Report Audit 30 May 2011

9.2 9.3

Inability to meet liabilities as they fall due Conclusion regarding insolvency

27 28

10

COMPLIANCE WITH LAWS AND REGULATIONS / POSSIBLE CRIMINAL AND/OR WRONGFUL ACTS INVOLVING LIABILITY IN DAMAGES Compliance with laws and regulations The Tax Payment Act Directors’ liability

29 29 29 29

10.1 10.1.1 10.2

30. mai 2010 0 2011 KPMGAS. All rights reserved.

June 2011

C ^ M

2 ____ _

amlato\yAllegro AS

iii

Translation from Norwegian The estate in liuidation o f Ability Drilling Estate Auditor’s Report Audit 30 May 2011

1

INTRODUCTION

1.1

Mandate State Authorised Public Accountant Tom Rasmussen of KPMG AS (KPMG) has been appointed auditor to the Ability Drilling ASA’s estate in liquidation, in accordance with the ruling of Nordhordland District Court of 29 June 2009. The estate auditor’s tasks are limited by the general mandate provided for in Section 90 of the Bankruptcy Act. By agreement with the liquidator and in accordance with the court order, the audit of the estate was not initiated immediately, but postponed pending completion of the debtor’s accounts up until the date of commencing the winding-up proceedings. This work was essentially completed in the course of the autumn of 2009.

1.2

Scope of the audit For now, the audit addresses the debtor’s activities, particularly its activities during the period leading up to the creditors’ petition for liquidation, the petition for voluntary liquidation and the liquidation order. Most of the work has to do with the securing of accounting data, examination of liquidity development, analysis of accounts and examination of reporting to the financial market. We have also examined minutes of board meetings in relation to financial reporting. We have furthermore assessed matters relating to the bond issue and the repurchase of parts of this debt. How the company’s operations and liquidity have developed. Control of the company’s other reporting duties, including to public bodies. A detailed and time-consuming review of disbursements during the period prior to the commencement of winding-up proceedings has been carried out with a view to considering any voidable transactions or

1.3

The auditing process By agreement with the liquidator, the work of examining the debtor’s accounts and business activities was commenced in the course of January 2010. The tasks of securing of accounting data and examining the company’s situation in detail, including the disbursements made before the petition for voluntary liquidation was filed, have been time-consuming. Furthermore, for a long period we have been denied access to the estate’s vouchers and systems because of a discussion between the landlord and the estate concerning lease of premises. During the period reserved for the assignment, we have repeatedly sought the assistance of what used to be the debtor’s finance and accounting department, particularly with a view to obtaining their help in reviewing matters relating to the subsidiaries in Malta. 1 30 May 2011 © 2011KPMG AS. All rights reserved.

tftimlation cemftsd 24 June 2011 ovarhment Auiføfised Translator, Ø egro AS

Translation from Norwegian The estate in liuUiation o f Ability Drilling Estate Auditor's Report Audit30 May 2011

After a whole series of attempts, we have had to give this up. We have not received the help that we might reasonably expect in carrying out our assignment These circumstances are part of the reason why our report has been delayed compared with what was expected when we started the task.

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Translation from Norwegian The estate in liuillation o f Ability Drilling Estate Auditor's Report Audit 30 May 2011

2

THE DEBTOR

2.1

The debtor’s business name etc. The debtor’s business name: Ability Drilling ASA Address: Trollhaugmyra 15, NO-5353 Straume The debtor’s organisaton no: 989 761 846 The estate’s organisation no: 994 148 427

2.2

The liquidation The liquidation order was issued on 27 May 2009 by Nordhordland District Court on the basis of a debtor’s petition. The filing date was set to 20 May 2009 on the basis of the previously submitted creditors’ petition. Egil Horstad of Vogt & Wiig AS was appointed liquidator.

2.3

Date of formation The company for formed on 26 April 2006 and was registered in the Register of Business Enterprises on 2 May 2006.

2.4

Share capital and shareholders At the time of commencing winding-up proceedings, the company had a share capital of NOK 500,700,000, registered as fully paid-up. The share capital was divided between 50,070,000 shares, each with a nominal value of NOK 10.

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30 May 2011 O 2011KPMG AS. All right« morved.

;cmslation certified 24 June 2011

Translation from Norwegian The estate in linitiation o f Ability Drilling Estate Auditor's Report Audit 30 May 2011

In its report to the Court, the liquidator has specified the company’s major shareholders according to the share register on the date of commencing winding-up proceedings as follows: Shareholders

Shareholding 19.68%

•

Goldman Sachs In t.

•

Ability Holding AS

4.65%

•

Regni A/S

4.59%

•

PirAS

4.14%

•

Holberg Norden

4.03%

•

Lande Investering AS

3.48%

•

Holberg Norge

3.32%

*

Aid Invest AS

2.94%

•

SJA Invest AS

2.20%

•

Mons Holding AS

1.79%

•

TomTerjesen

1.70%

•

Nord-Peko Holding AS

1.60%

•

Nord-Peko invest AS

1.54%

♦

Lunde & Haugland Invest AS

1,37%

*

Haugum Invest AS

1.34%

•

Eikeland Holding AS

1.28%

•

Keilen Holding AS

1.00%

•

Mathias Holding AS

1.00%

•

Nor-Par Holding AS

1.00%

•

Staff-Gruppen

0.99%

Total for 20 largest shareholders

63.64%

Other shareholders

36.36% 100.00%

Total

4 30 May 2011 ©2011KPMO AS. AU rights reserved,

!, 24 June 2011

Government Authorised Translaku^AUegro AS

Translation from Norwegian The estate In Uuidation o f Ability Drilling Estate Auditor's Report Audit 30 May 2011

2.5

The object of the company under the articles of association and its activities before the commencement of the winding-up proceedings From the date of formation until the date of commencing winding-up proceedings, the object of the company under the articles of association has been to: ‘Own, operate and manage drilling rigs and offshore equipment, and other activities related thereto within the offshore and onshore petroleum industry, including investment in other companies.’ During its period of operation, the company’s activities have been in accordance with the object provided for in tire articles of association.

2.6

Group At the time of commencing winding-up proceedings, Ability Drilling ASA was the parent company of a group of companies. The company had two almost fully owned subsidiaries: Ability Drilling GmbH (Germany) and Ability Drilling Malta Holding Ltd. (Malta). Through the company Ability Drilling Malta Holding Ltd. (Malta) the company had almost full ownership of the Malta-based companies Ability Drilling Malta Ltd., Ability Drilling Malta (II) Germany Ltd. Ability Drilling Malta (III) Jordan Ltd. and Ability Drilling Malta Ability Drilling Malta (IV) UK Ltd. The ownership structure is illustrated in the figure below.

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Translation from Norwegian The estate in linitiation o f Ability Drilling Estate Auditor's Report Audit 30 May 2011

2.7

The company’s bodies

2.7.1

Board of Directors On the date of commencing winding-up proceedings, the Board of Directors was composed of the following persons:

2.7.2

Geir Nordahl-Pedersen

Chair

Trygve Amesen

Director

Maj Elisabeth Vangsnes

Director

Elin Steinsland

Director

Stig Hetlevik

Director

General Manager Hans Petter Eikeland has been registered as the general manager from 20 June 2006 until the date of commencing winding-up proceedings.

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Translation from Norwegian The estate in liuiilaiinn o f Ability Drilling Estate Auditor’s Report Audit 30 May 2011

3

ACCOUNTING, FINANCIAL CONTROL AND AUDITS

3.1

Financial control and reporting Kennet Tunes, the company’s chief financial officer (CFO), had overriding responsibility for the company’s financial control and financial reporting. Tunes held this position from autumn 2007 until commencement of the winding-up proceedings.

3.1.1

Reporting to the financial markets After having conducted an overall review of the company’ reporting to the financial market, we find that the company and the company’s management have fulfilled their reporting duties. This topic has also been considered by the liquidator. However, reference is made to the comments in section 6.1 of the report.

3.1.2

Chief accountant The accounts have been kept by the company’s own financial department. This function was headed by Lillian Espedal. The company has used recognised programs and suitable tools for the task.

3.1.3

Accounting The scope and complexity of the requirements for reporting and keeping of accounts will have increased as Ability Drilling ASA formed an underlying operational organisation in Malta and was listed on Oslo Axess. The accountant and the rest of the financial department will have been faced with considerable challenges relating to the establishment and organisation of uniform reporting throughout the group. During the period subsequent to the establishment of the organisation in Malta, the accounts were apparently kept by the financial department in Norway. After the closing of the accounts for 2007, this task was apparently transferred to Malta. The reporting procedures between Malta and Norway seem to have been chiefly manual, and following them up will have been time-consuming. However, there is nothing to suggest that the quality of the reporting and follow-up suffered significantly as a result, and the written communication is characterised by a good overview being kept by the financial department.

3.2

Auditor The debtor’s auditor was State Authorised Public Accountant Hallvard Aare of PricewaterhouseCoopers AS. PricewaterhouseCoopers AS has been the company’s 7

Translation from Norwegian The estate in liuidatbn o f Ability Drilling Estate Auditor's Report Audit 30 May 2011

auditor throughout the period of operation, Correspondingly, the subsidiaries in Malta were audited by PricewaterhouseCoopers in Malta. 3.2.1

The auditor’s conclusions Auditor’s reports have been issued for the debtor’s annual accounts for the 2006, 2007 and 2008 financial years. We have not noted anything in particular concerning the performance of the auditor’s tasks. The auditor has issued auditor’s reports for the 2006, 2007 and 2008 financial years. The auditor has not made any reservations or specifications in the auditor’s reports for the 2006 or 2007 financial years. In the auditor’s report for the 2008 annual accounts the following was specified or subject to reservations for the period of operation:

3.3

-

Specification that there was material uncertainty as to whether this was a going concern

-

Specification that the annual accounts for 2008 were published after the deadline provided for by the Securities Trading Act Section 5-5

-

Specification that the Norwegian Tax Payment Act’s provisions on the treatment of tax withholdings had not been complied with.

Minutes of board meetings Minutes of the board’s discussions have been reviewed for most of the period of operation from start-up until the commencement of winding-up proceedings. Board meetings have been held regularly and as required throughout the period of operation. Relevant matters have been submitted to the board in what appears to be a correct and timely manner. We have not noted any special or censurable matters other than the individual matters discussed below, see 6.1

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Translation from Norwegian The estate in liuidation o f Ability Drilling Estate Auditor's Report Audit 30 May 20} J

4

DISBURSEM ENTS TO THE BOARD AND GENERAL M ANAGER

4.1

Board of Directors Directors’ fees were specified in the annual accounts for 2008. A check against the company’s accounting did not reveal any discrepancies. According to the company’s accounting, no director’s fees were charged to income in 2009. In connection with the review, no other remuneration of the company’s directors was noted. In reviewing the company’s bookkeeping for 2008 and 2009, no material transactions with closely related companies were noted except as stated in the company’s annual accounts for 2008, and those that follow from the current business mentioned there. For 2007, a payment of NOIC 16.75 million was made to Lonavegen Partners AS in connection with the transfer of rights to contract new drilling rigs from Sense. The matter was correctly dealt with in the annual accounts for 2007 in connection with information about transactions with closely related parties. Seen in retrospect, at least, it can be questioned whether the transfer of the rights and agreements concerning the relationships with Sense EDM from Lonavegen Partners AS to Ability Drilling ASA, represented values in the order indicated by the amount of the consideration. The same applies to the agreements that were previously replaced by this agreement.

4.2

General Manager Hans Petter Eikeland Hans Petter Eikeland received a payment of NOK 230,285 on 20 May 2009. Reference is made to the liquidation committee’s preliminary report to the District Court in which this matter is described and discussed.

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Translation from Norwegian The estate in liuidation o f Ability Drilling Estate Auditor’s Report Audit 30 May 2011

5

COM PANY OPERATION AND CAPITAL DEVELOPMENT

5.1

Overview of accounts - key figures in the income statement and balance sheet As part of the audit, we have examined the company’s reported annual financial statements and the board’s adopted and audited financial statements for 2008.

5.2

Development of financial result The annual report and accounts for the relevant accounting periods shows the following development in the debtor’s result:

Figures in NOK 1,000 Revenues Other operating income Total income

ABILITY PRILLING ASA 2008 27 773 54 064 81837

Cost of sales Wages and other payroll costs Other operating costs Operating profit/loss before depreciation Depreciation Operating profit/loss Financial income Write-down of investments in subsidiaries Write-down of group receivables Other fiancial expenses Profit/loss before tax Tax Profit/loss for the year

2007 19 937 9 624 29 561

-51275 -23 938 6 624 -1 285 5 339

-36 731 -13 795 -20 965 -435 -21 400

67 713 -205 353 -160 735 -61 886 -354 922 -11 022 -365 944

14 080 -

-12 721 -20 041 4 461 -15 580

2006 139 129 -

139 129 -137 129 -3 139 -13 682 -14 821 -

-14 821 1 810 -

-13 011 -

-13 Oil

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30 May 2011 msm

O20I1KPMO AS. All rights reserved.

24 June 2011 ^m entA utfioriseJT ram ^^r, Allegro AS