Company update 21 May 2015 Share Price: NOK 64 Results date 10 July 2015 Target Price: NOK 25 (30) Value destruction!

Transcription

1 Fred-Olsen Energy SELL Company update 21 May 2015 Share Price: NOK 64 Results date 10 July 2015 Target Price: NOK 25 (30) Share data 21/05/2015 Sector: Offshore Reuters/Bloomberg Risk Rating FOE.OL/FOE Medium Outstanding shares 66 Market cap (USDm) 566 Net interest bearing debt (USDm) 1,277 Enterprise value (USDm) 1,843 Free float 48% Average volume ('000) 354 High/low 52w 175 / 53 Weight OSEBX 0.22% Rel. Perf 3/6/12-12 / -27 / -63 Abs. Perf. 3/6/12-6 / -20 / -59 Estimate changes ESTIMATE 2015E 2016E Change % CHANGES Curr. Prev. Curr. Prev Revenues 1,103 1,188 1,100 1,255-7 % -12 % EBITDA % -8 % Operating profit % -25 % Pre-tax profit % -37 % EPS, rep % -37 % EPS, adj % -37 % DPS n.a n.a. Share price (NOK) & Valuation Scenarios Base; 32 Bollsta; 10 0 Boll/Bred.; 0 May-14 Nov-14 May-15 Nov-15 May-16 Prepared by analyst: Knut Erik Løvstad Fondsfinans AS TEL: kel@fondsfinans.no Håkon Johansen Fondsfinans AS TEL: hj@fondsfinans.no Value destruction! Fred. Olsen Energy (FOE) has transitioned from creating good ROCE on its old asset base into a phase of value destruction. While the rig market is vastly oversupplied and scrapping is long overdue, FOE decided instead to spend USD 2.2bn (NOK 250/share) in capex during 2014 & 2015 by taking five of its old rigs through the 5-year SPS (Special Periodic Survey) and on the delivery of the two newbuilds. We believe several of the old rigs are at risk of being idle, which would have a huge negative impact on the equity value of the company. In addition, we believe the contract for the newbuild Bollsta Dolphin is at risk of being re-negotiated or cancelled altogether if the rig is further delayed from the yard. Combined, this could lead to the equity being wiped out altogether. We therefore reiterate our SELL rating and lower our target price to NOK 25 (30). With a wave of relatively new rigs rolling off contracts in the floater market, with most of them having little hope of finding new work in the near term, there is even less hope for the very old assets of FOE to find employment. Scrapping in our view may have been the best alternative, but FOE is rather spending USD 800m (NOK 90/share) in capex on five of its rigs in 2014 & 2015 with an average age of 35 years in order to make sure they can continue to operate in a market where additional employment is hard to find. In addition, FOE has/is taking delivery of two newbuilds during 2014 & 2015, with an additional capex of USD 1.4bn (NOK 160/share). The newbuild Bollsta Dolphin, scheduled for delivery in 3Q15, may be at risk of being further delayed on top of the six months delay already announced. The rig has a 5-year contract with Chevron for use at the Rosebank field, which has been delayed several times. The latest information suggests that a decision with regards to the project is now postponed from end-15 to end-16. If the rig is further delayed from yard, we believe Chevron may have a good case for cancelling the contract altogether, or at least re-negotiate to a lower day-rate. The combination of spending USD 800m on old rigs that may be idle and worthless soon, and the risk of a possible cancellation/re-negotiation of the Bollsta Dolphin contract, may potentially be lethal for FOE and wipe out the entire equity value. We therefore reiterate our SELL rating and lower our target price to NOK 25 (30). Key figures (USDm) E 2016E 2017E Q214 Q215E Revenues 1,194 1,184 1,103 1,100 1, EBITDA EBIT PTP EPS, rep EPS, adj CFPS Dividend per share Dividend yield (%) 8.9 % 0.0 % 0.0 % 0.0 % 0.0 % Payout ratio 73% 0% 0% 0% 0% EV/EBITDA EV/EBIT P/E P/B ROE 22% 12% 8% 5% -1% ROCE 17% 8% 6% 4% 1% NIBD/EBITDA Source: Fondsfinans Research, Fred-Olsen Energy FONDSFINANS AS, HAAKON VII S GATE 2, P.O. BOX 1782 VIKA, NO-0122 OSLO, TEL: , FAX: , mail@fondsfinans.no This report was prepared by an analyst engaged by Fondsfinans AS, the Norwegian affiliate of Fondsfinans Inc., who is not registered as a research analyst with FINRA or subject to FINRA rules governing research. See page 11 of this report for Important Disclosure Information.

2 Investment case: Value destruction Several rigs at risk of being idle... Fred. Olsen Energy (FOE) has for some time created good ROCE on its old asset base. Those days are gone. The backlog is rapidly coming to an end, and new contracts are hard to secure in a fast deteriorating rig market. We would therefore expect that several of the rigs would become idle as the current contracts expire. Based on today s backlog, FOE will have four rigs without contracts by end-15, with another four expiring during This means that eight out of eleven rigs are at risk of being without employment by year-end And even if some work can be secured, it will be at very different levels than current backlog...which will have a huge negative impact.....leading to risk of equity being wiped out We have therefore looked more closely at our sum-of-the-parts (SOTP) valuation, which is based on discounted free cash flow for each of the rigs during their expected lifetime. We have provided two additional scenarios to our base case, which is illustrated in the graph below, and clearly shows the value destruction that is taking place in FOE, caused by the deteriorating rig market combined with the huge capex investments made by the company at the wrong time in the cycle. While our base case scenario assumes a NAV value of NOK 32/share, we fear that there is a real chance that the equity value of FOE could be wiped out altogether. Share Price & Valuation Scenarios Base; Bollsta; 10 Boll/Bred.; 0 0 May-14 Nov-14 May-15 Nov-15 May-16 Source: Fondsfinans Research, Bloomberg, Company Data Capex Rig Built SPS & Newbuild Capex USDm NOKm NOK/share 2014 Blackford , Bideford Borgland , Byford , Belford Sub-total 800 6, Newbuilds Bolette , Bollsta , Sub-total 1,400 10, TOTAL 2,200 16, Scrapping is long overdue and the rig mkt is vastly oversupplied.....but FOE decides to spend NOK 250/share in capex instead SELL Target NOK 25 (30) We expect a wave of relatively new rigs rolling off contracts to experience serious challenges in obtaining work short-to-medium term, and therefore at risk of becoming idle. FOE, with its fleet of very old assets, of which many were originally built in the mid-1970s, there comes a time when scrapping is long overdue, and that time is approaching relentlessly. The company is resisting though, and has recently invested large amounts of fresh capital into these old assets by taking them through 5-year Special Periodic Surveys (SPS), as seen above, with total capex of USD 800m (NOK 90/share). In addition, the company has/is investing USD 1.4bn (NOK 160/share) in two newbuilds. This means that FOE has/will have capex of USD 2.2bn (NOK 250/share) during 2014 & 2015, while the value and future earnings potential of these assets are highly uncertain. Those investment decisions should perhaps have been avoided, given the rapid deterioration of the market we have seen during the past months. We therefore reiterate our SELL rating and lower our target price to NOK 25 (30), but we see a risk that the equity value could be wiped out completely. Page 2 21 May 2015 Fondsfinans Research

3 Fred-Olsen Energy - Company update Valuation Scenarios & Assumptions Quickly deteriorating position Net int. bearing debt approaching USD 2bn Implied value too high With dividends suspended, a rising debt burden, day-rates in free-fall, many rigs at risk of becoming idle due to severe difficulties of finding additional employment, the situation for FOE is deteriorating quickly. All the capex related to the SPS and the newbuilds, has transformed the balance sheet from having a conservative capital structure to becoming much more leveraged. We expect the interest bearing debt to approach ~USD 2bn by yearend The implied value given today s share price in FOE is ~USD 300m per rig (assuming the cold stacked rig Borgny Dolphin and the accommodation rig Borgholm Dolphin are valued at zero). If we further assume that the newbuilds are worth USD 600m each (which probably is too high), the remaining old rigs of FOE are still valued at more than USD 200m each. We therefore believe the market s implied value of FOE today is too high, and we have therefore in the following highlighted a few scenarios. Base case suggest half today s share price Base case at NOK 32/share Our base case value for FOE shows a value of NOK 32/share, which is only half today s share price. We therefore see significant downside risk in today s share price. The details for the valuation are as follows: Valuation (base case) VALUATION Built/ Water NPV NPV Impl. Val. upgraded Depth SOTP Contract Belford Dolphin ,000ft Bideford Dolphin 1975/99 1,500ft Borgland Dolphin 1976/99 1,500ft Borgny Dolphin ,300ft Bredford Dolphin ,500ft Byford Dolphin 1973/98 1,500ft Borgsten Dolphin 1975/00 Ten.sup Blackford Dolphin 1974/08 7,000ft Borgholm Dolphin 1975/02 Flotel Bolette Dolphin ,000ft Bollsta Dolphin ,000ft Total Value of Fixed Assets 2,331 1,191 2,613 Newbuild CAPEX SPS yard-stay CAPEX Net interest bearing debt -1,277-1,277-1,277 Net Asset Value No shares NAV per share (USD) NAV per share (NOK) Current share price (NOK) 64.0 Source: Fred. Olsen Energy, Fondsfinans Research Fondsfinans Research 21 May 2015 Page 3

4 Base case assumptions are not overly cautious The assumptions behind the above SOTP valuation based on discounting the NPV for each rig are as follows: - All current contracts are honored quarters of idle time for rigs coming off contracts in 2015/2016, and with full utilisation from 1Q17. - Day rates of USD ,000 for rigs operating in Norway and ~USD 175,000/day for rigs outside of Norway without contracts from Day-rates are raised by ~25% from 2018 to come back to a more normalised return for the remaining life-time of the units. - Discount rate of 9.5%. - All the old rigs have another 10 year lifespan. - The idle unit Borgny and the accommodation unit Borgholm (which is likely to be stacked) are assumed to have zero value. Despite the base case suggesting a fair value at only half today s share price, we are concerned that our assumptions behind the base case might even be too optimistic. We have therefore in the following highlighted the assumptions behind the two scenarios illustrated in the graph above, yielding much lower valuations. Further delay in delivery of Bollsta... Bollsta Dolphin contract at risk which could wipe out most of equity value? We believe there is a risk that the newbuild rig Bollsta Dolphin, which is to be delivered in 3Q15 might be further delayed. The delivery of the rig from Hyundai Heavy Industries has already been delayed 6 months, and the management of FOE did not seem overly confident at the 1Q15 presentation that the rig would be delivered according to the current schedule in 3Q15. The rig has a 5 year contract with Chevron at a day-rate of USD 560,000/day. Chevron is supposed to use the rig at the Rosebank field development northwest of the Shetland Island, where they are the operator. However, the fate of the project is not yet decided due to uncertainty with regards to the return on the project. One of the license partners, OMV, recently stated that a decision with regards to this project has now been further delayed from end-2015 to end might put Chevron contract at risk.. It is therefore possible that Chevron would like to get out of this contract, especially given the very high day-rate. If the rig is delivered in 3Q15, Chevron might not have a very good case, but if the rig is further delayed by 3 6 months, they may have an opening in their contract to cancel or at least re-negotiate the day-rate. Although FOE would have built in penalties related to delays from the yard in the contract, we do not believe those penalties would compensate for the potential loss/re-negotiation of the contract....which would wipe out much of the equity value In order to account for this uncertainty, we have assumed that the day-rate is renegotiated to USD 400,000/day, which is still quite a generous day-rate given that the latest fixtures in the market have been below USD 300,000/day. That assumption alone would wipe out another NOK 22/share, and the remaining equity value of FOE would fall to NOK 10/share. Page 4 21 May 2015 Fondsfinans Research

5 Fred-Olsen Energy - Company update With Bredford being stacked as well... Bredford Dolphin idle as well? In addition to the re-negotiation of the Bollsta Dolphin contract, we further believe that the rig Bredford Dolphin will be stacked when the current contract expires at the end of 3Q15 (which management confirmed if it does not obtain work). If that happens it may never return to the market, meaning the value is less than the current NPV of the backlog as FOE also will use part of that value in stacking costs in the hope that it will find employment in the future...the equity value is vaporised completely If we add that assumption as well, the equity value of FOE would be wiped out completely. We certainly believe there is a high risk that these occurrences could happen. Norway - Demand for 2015 & Tender; 2 Firm 1 Probable; 1 Potential Norway - Supply for 2015 & 2016 Dayrates Rig Rig name (USDk) type 2Q 3Q 4Q 1Q 2Q 3Q 4Q West Navigator Drillship Transocean Barents 562 Semi-sub Transocean Spitsbergen 509 Semi-sub West Venture 441 Semi-sub Transocean Searcher 368 Semi-sub Deepsea Atlantic 561 Semi-sub Borgland Dolphin 525 Semi-sub Bredford Dolphin 442 Semi-sub Transocean Barents 562 Semi-sub Island Innovator Semi-sub Transocean Arctic 387 Semi-sub Songa Trym 355 Semi-sub Leiv Eiriksson 545 Semi-sub Transocean Winner 425 Semi-sub COSLPioneer 420 Semi-sub Songa Delta 374 Semi-sub Songa Dee 340 Semi-sub Source: Fondsfinans Research, IHS Petrodata UK - Demand for 2015 & Pretender; 4 Firm Source: Fondsfinans Research, IHS Petrodata 8 Possible; 2 Probable; 6 Potential UK - Supply for 2015 & 2016 Dayrates Rig Rig name (USDk) type 2Q 3Q 4Q 1Q 2Q 3Q 4Q Ocean Princess Semi-sub Ocean Guardian 350 Semi-sub Transocean Prospect Semi-sub West Phoenix 464 Semi-sub Sedco Semi-sub Ocean Valiant Semi-sub WilHunter 385 Semi-sub Stena Spey Semi-sub Paragon MSS1 275 Semi-sub Byford Dolphin 346 Semi-sub Sedco Semi-sub Transocean John Shaw 414 Semi-sub Ocean Valiant Private Semi-sub Sedco Semi-sub Sedco Semi-sub WilHunter 385 Semi-sub Byford Dolphin 346 Semi-sub Stena Spey Semi-sub Sedco Semi-sub Fondsfinans Research 21 May 2015 Page 5

6 Backlog Drilling RIG Norway Bideford Dolphin Borgland Dolphin Bredford Dolphin Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q USD 441k per day USD 488k per day USD 411k per day UK Byford Dolphin Borgsten Dolphin (tender support) Borgholm Dolphin (flotel) Bollsta Dolphin Borgny Dolphin Blackford Dolphin USD 345.5k per day USD 202k per day USD 240k per day USD 560k per day USD 0k per day USD 428k per day Africa Belford Dolphin Bolette Dolphin USD 495k per day USD 488k per day On contract Option Free SPS / Yard stay Construction NAV- and NPV based valuation VALUATION Built/ Water NPV NPV Impl. Val. upgraded Depth SOTP Contract We find limited support from earnings to back up asset values Belford Dolphin ,000ft Bideford Dolphin 1975/99 1,500ft Borgland Dolphin 1976/99 1,500ft Borgny Dolphin ,300ft Bredford Dolphin ,500ft Byford Dolphin 1973/98 1,500ft Borgsten Dolphin 1975/00 Ten.sup Blackford Dolphin 1974/08 7,000ft Borgholm Dolphin 1975/02 Flotel Bolette Dolphin ,000ft Bollsta Dolphin ,000ft Total Value of Fixed Assets 2,331 1,191 2,613 Newbuild CAPEX SPS yard-stay CAPEX Net interest bearing debt -1,277-1,277-1,277 Net Asset Value No shares NAV per share (USD) NAV per share (NOK) Current share price (NOK) 64.0 Source: Fondsfinans Research, Fred-Olsen Energy Page 6 21 May 2015 Fondsfinans Research

7 Fred-Olsen Energy - Company update Credit Information Credit Metrics Credit Metrics (x) E 2016E Q214 Q314 Q414 Q115 Q215E Gross debt / EBITDA 12m Net debt / EBITDA 12m EBITDA / Net Interest expense EBIT / Net Interest expense Debt / Equity Equity / Total Assets Net debt / Market Cap Market Cap. / EV Current ratio Quick Ratio Debt overview Princ. Outst. Type Crncy amount amount Maturity Covenants Group debt FOE04 NOK1,400m SR Unsecured Bond USD May-16 Yes FOE05 NOK 1,100m SR Unsecured Bond USD Feb-19 Yes "New" credit facility USD 2Bn USD 2,000 1,133 ~Jul-20 Total Debt USD 2,323 1,455 Covenants Covenants* Requirement Description Free cash USD 30m USD 65m for bank loans and USD 30m for bonds Interest coverage ratio > 2.5 EBIT / Interest expense (12m rolling) Leverage < 4.5 NIBD / EBITDA (12m rolling) Free cash USD 30m Interest coverage ratio Q213 Q114 Q414 Q315E Q216E 0.0 Q213 Q114 Q414 Q315E Q216E Leverage < Q213 Q114 Q414 Q315E Q216E Equity Ratio 60% 50% 40% 30% 20% 10% 0% Q213 Q114 Q414 Q315E Q216E Fondsfinans Research 21 May 2015 Page 7

8 Financials Income Statement Figures in USDm E 2016E 2017E Q413 Q114 Q214 Q314 Q414 Q115 Q215E Q315E Q415E Q116E Q216E Operating revenues 1,149 1,112 1,042 1, Reimbursables Other revenues Total revenues 1,194 1,184 1,103 1,100 1, Opex Reimbursables Other opex Total OPEX (ex. DA) EBITDA Depreciations and amortization Impairment Operating profit Interest income Interest expenses Other Net finance Pre-tax profit Taxes Minorities Discontinued operations Net profit Balance Sheet E 2016E 2017E Q413 Q114 Q214 Q314 Q414 Q115 Q215E Q315E Q415E Q116E Q216E Assets: Inventories Account receivables Other current assets Cash and short-term deposits Total current assets Rigs, machinery and equipment 2,476 2,902 3,543 3,244 2,972 2,476 2,596 2,823 2,796 2,902 2,990 3,100 3,620 3,543 3,466 3,389 Goodwill Other LT assets Total non-current assets 2,519 2,946 3,586 3,287 3,015 2,519 2,640 2,866 2,839 2,946 3,033 3,143 3,663 3,586 3,509 3,432 Total assets 3,066 3,469 3,959 3,729 3,714 3,066 3,364 3,401 3,374 3,469 3,516 3,607 3,999 3,959 3,905 3,845 Equity and debt: Shareholders' equity 1,437 1,308 1,450 1,529 1,513 1,437 1,460 1,242 1,234 1,308 1,377 1,421 1,446 1,450 1,476 1,497 Non-controlling interests (Minorities) Total equity 1,437 1,308 1,451 1,530 1,515 1,437 1,460 1,243 1,234 1,308 1,377 1,421 1,446 1,451 1,477 1,498 Short term interest bearing libilities Other current liabilities Total current liabilities Long-term interest bearing debt 662 1,360 1,829 1,502 1, ,191 1,300 1,410 1,360 1,239 1,414 1,829 1,829 1,709 1,622 Other non-current liabilities Total non-current liabilities 787 1,499 1,964 1,637 1, ,322 1,434 1,541 1,499 1,374 1,549 1,964 1,964 1,844 1,757 Equity and liabilities 3,066 3,469 3,959 3,729 3,714 3,066 3,364 3,401 3,374 3,469 3,516 3,607 3,999 3,959 3,905 3,845 Cash Flow E 2016E 2017E Q413 Q114 Q214 Q314 Q414 Q115 Q215E Q315E Q415E Q116E Q216E Cash earnings Depreciation & amortization Working capital Other items CF from operations Rig capex Rigs sold Other investments CF from investments Debt raised 115 1, , Debt repayed , , Issuance of equity Dividend paid Other CF from financing Currency effects on cash Net cash flow Source: Fondsfinans Research, Fred-Olsen Energy Page 8 21 May 2015 Fondsfinans Research

9 Fred-Olsen Energy - Company update Segments REVENUES PER SEGMENT E 2016E 2017E Q413 Q114 Q214 Q314 Q414 Q115 Q215E Q315E Q415E Q116E Q216E Offshore Drilling 1,153 1,158 1,082 1,077 1, Engineering & Fabrication Eliminations Total revenues 1,194 1,184 1,103 1,100 1, OPEX PER SEGMENT* E 2016E 2017E Q413 Q114 Q214 Q314 Q414 Q115 Q215E Q315E Q415E Q116E Q216E Offshore Drilling Engineering & Fabrication Eliminations Total opex *Operating expenses excluding depreciation and amortization EBITDA PER SEGMENT E 2016E 2017E Q413 Q114 Q214 Q314 Q414 Q115 Q215E Q315E Q415E Q116E Q216E Offshore Drilling Engineering & Fabrication Eliminations Total EBITDA EBITDA PER RIG E 2016E 2017E Q413 Q114 Q214 Q314 Q414 Q115 Q215E Q315E Q415E Q116E Q216E Belford Dolphin Bideford Dolphin Borgland Dolphin Borgny Dolphin Bredford Dolphin Byford Dolphin Borgsten Dolphin Bolette Dolphin Blackford Dolphin Borgholm Dolphin Bollsta Dolphin EBITDA rigs Net reimbursables EBITDA (Offshore Drilling) AVG DAYRATES ($'000) E 2016E 2017E Q413 Q114 Q214 Q314 Q414 Q115 Q215E Q315E Q415E Q116E Q216E Belford Dolphin Bideford Dolphin Borgland Dolphin Borgny Dolphin Bredford Dolphin Byford Dolphin Borgsten Dolphin Bolette Dolphin Blackford Dolphin Borgholm Dolphin Bollsta Dolphin Average dayrates AVG OPEX PER DAY ($'000) E 2016E 2017E Q413 Q114 Q214 Q314 Q414 Q115 Q215E Q315E Q415E Q116E Q216E Belford Dolphin Bideford Dolphin Borgland Dolphin Borgny Dolphin Bredford Dolphin Byford Dolphin Borgsten Dolphin Bolette Dolphin Blackford Dolphin Borgholm Dolphin Bollsta Dolphin Total AVERAGE UTILIZATION (%) E 2016E 2017E Q413 Q114 Q214 Q314 Q414 Q115 Q215E Q315E Q415E Q116E Q216E Belford Dolphin 95% 95% 64% 24% 94% 95% 95% 95% 95% 95% 95% 95% 15% 50% 95% 0% Bideford Dolphin 95% 74% 95% 95% 91% 95% 95% 45% 60% 95% 95% 95% 95% 95% 95% 95% Borgland Dolphin 95% 75% 84% 94% 91% 95% 95% 95% 95% 15% 50% 95% 95% 95% 95% 94% Borgny Dolphin 95% 32% 0% 0% 0% 95% 95% 33% 0% 0% 0% 0% 0% 0% 0% 0% Bredford Dolphin 95% 95% 71% 47% 94% 95% 95% 95% 95% 95% 95% 95% 95% 0% 0% 0% Byford Dolphin 95% 78% 55% 78% 90% 95% 25% 95% 95% 95% 15% 15% 95% 95% 95% 95% Borgsten Dolphin 84% 95% 95% 55% 94% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 65% Bolette Dolphin 0% 71% 95% 95% 95% 0% 0% 95% 95% 95% 95% 95% 95% 95% 95% 95% Blackford Dolphin 64% 47% 94% 94% 94% 0% 0% 0% 94% 95% 94% 94% 94% 94% 94% 94% Borgholm Dolphin 62% 64% 45% 0% 0% 95% 67% 33% 65% 90% 90% 90% 0% 0% 0% 0% Bollsta Dolphin 0% 0% 0% 82% 96% 0% 0% 0% 0% 0% 0% 0% 0% 0% 40% 96% Total 87% 73% 78% 74% 93% 95% 83% 76% 88% 86% 80% 85% 85% 88% 88% 91% Source: Fondsfinans Research, Fred-Olsen Energy Fondsfinans Research 21 May 2015 Page 9

10 Fred.Olsen Energy Analyst: Knut Erik Løvstad, Tel Håkon Johansen, Tel Date: 21 May 2015 Price (NOK): Sector: Offshore Next result: Price (USD): 8.53 Shares outstanding: 66.3 Recommendation: SELL Book equity per share: 21 Market cap (USDm): 566 Target (NOK): 25 Equity ratio: 39% Net int.-bearing debt (USDm): 1,277 Target (USD) month high/low: 175 / 53 Enterprise value (USDm): 1,843 Income statement (USDm) E 2016E 2017E Q214 Q314 Q414 Q115 Q215E Contract revenues 1,140 1,149 1,112 1,042 1, Other revenues Total revenues 1,181 1,194 1,184 1,103 1,100 1, Operating expenses EBITDA Depreciation & Amortization Operating profit Net financial items Pre-tax profit Taxes Minorities Discontinued operations Net profit (reported) Segment information E 2016E 2017E Q214 Q314 Q414 Q115 Q215E Contracted Day Rates Belford Dolphin Bideford Dolphin Borgland Dolphin Borgny Dolphin Bredford Dolphin Byford Dolphin Borgsten Dolphin Bolette Dolphin Blackford Dolphin Borgholm Dolphin Average dayrates Utilization rates (%) Belford Dolphin 96% 95% 95% 64% 24% 94% 95% 95% 95% 95% 95% Bideford Dolphin 94% 95% 74% 95% 95% 91% 45% 60% 95% 95% 95% Borgland Dolphin 96% 95% 75% 84% 94% 91% 95% 95% 15% 50% 95% Borgny Dolphin 95% 95% 32% 33% Bredford Dolphin 88% 95% 95% 71% 47% 94% 95% 95% 95% 95% 95% Byford Dolphin 96% 95% 78% 55% 78% 90% 95% 95% 95% 15% 15% Borgsten Dolphin 62% 84% 95% 95% 55% 94% 95% 95% 95% 95% 95% Bolette Dolphin 71% 95% 95% 95% 95% 95% 95% 95% 95% Blackford Dolphin 94% 64% 47% 94% 94% 94% 94% 95% 94% 94% Borgholm Dolphin 90% 62% 64% 45% 33% 65% 90% 90% 90% Average utilization 89% 93% 78% 77% 65% 92% 79% 89% 82% 74% 82% Key figures and valuation E 2016E 2017E Q214 Q314 Q414 Q115 Q215E No. of shares, avg m Price (NOK) EPS reported EPS adjusted Op. CF - net capex per share CFPS EV/EBITDA Sensitivity EPS, adj. 2016E 2017E EV/EBIT P/E, rep BASE ESTIMATE P/E, adj % Revenue growth P/B % EBITDA margin ROE 44% 22% 12% 8% 5% -1% ROCE 37% 17% 8% 6% 4% 1% Balance Sheet Data E 2016E 2017E 10 largest shareholders Non-current assets 2,325 2,519 2,946 3,586 3,287 3,015 Name No. shares % Current assets Bonheur Asa % Total assets 2,859 3,066 3,469 3,959 3,729 3,714 Ganger Rolf Asa % Equity 1,366 1,437 1,308 1,450 1,529 1,513 Clearstream Banking S.A % Non-current liabilities ,499 1,964 1,637 1,637 Folketrygdfondet % Current liabilities Euroclear Bank S.A./N.V. ('Ba') % Schroder International Selec Tion % Book equity / share J.P. Morgan Chase Bank N.A. Londo % Equity ratio 47.8 % 46.9 % 37.7 % 36.7 % 41.0 % 40.8 % Bnp Paribas Sec. Services S.C.A % Net interest bearing debt ,252 1,902 1,537 1,281 Nordnet Bank Ab % Net int. bear. debt / EBITDA J.P. Morgan Chase Bank N.A. Londo % Total 10 largest % Cash flow statement E 2016E 2017E Others % Cash flow from operations Total % Cash flow from investments Cash flow from financing Free cash flow Page May 2015 Fondsfinans Research

11 Definitions of ratings Buy Low risk: with a potential of min 5%. Medium risk: with a potential of min 10%. High risk: with a potential of min 20%. Neutral Low risk: -5% to +5%. Medium risk: -10% to +10%. High risk: -20% to + 20%. Sell Low risk: min -5%. Medium risk: min -10%. High risk: min -20%. Risk ratings are based on price volatility, fundamental criteria and perceived risk. Ratings are: Low (L), Medium (M) and High (H). Target: Our valuation as of today. Time frame of target: Target is what we value the share as of today. Recommendation distribution as of : Companies in each recommendation category that have been investment banking clients over the past 12 months: Recommendation No Percent Recommendation No Percent Buy % Buy 1 3 % Neutral % Neutral 1 10 % Sell % Sell 0 0 % Total % Total 2 Our intention is to issue preview and update research on a quarterly basis. Our investment recommendation is elaborated in accordance with The Norwegian Securities Dealers Associations standards. This report has not been sent to the companies for correction of any factual errors. Fondsfinans is organized with Chinese walls between the Corporate Department and the Research/Broking Department. In addition, Fondsfinans has internal instructions and guidelines for handling sensitive information. The analyst receives compensation that is impacted by overall firm profitability, including investment banking activities. Fondsfinans is under supervision of The Financial Supervisory Authority of Norway. The recommendation has not been changed from SELL. The previous recommendation was issued Ownership per in Fred-Olsen Energy ASA: Analyst (including his/her closely related persons or companies): 0, corresponding to 0% of the company share capital Employees (including their respective closely related persons or companies): 0, corresponding to 0% of the company share capital Group Fondsfinans (including the holdings of its Chairman, his spouse and their closely related companies, Erik Must AS and its 100% controlled subsidiaries): 0, corresponding to 0% of the company share capital. Fondsfinans may hold shares in Fred-Olsen Energy ASA as a result of daily trading/market making. Information on such holdings is not given when of non-significant value. Fondsfinans does not act as market maker in Fred-Olsen Energy ASA. Fondsfinans has not acted as corporate adviser, lead manager in IPO etc. during the past 12 months. This report was issued and distributed DISCLAIMER This report is provided for information purposes only. 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