FARSTAD SHIPPING ASA BUSINESS REVIEW 2014

Transcription

1 FARSTAD SHIPPING ASA BUSINESS REVIEW 2014

2 FARSTAD SHIPPING ASA FARSTAD SHIPPING ASA Farstad Shipping s reporting for 2014 consists of two publications; Business Review and Annual Report. The Annual Report is available in Norwegian. This is the Business Review. BUSINESS REVIEW 2014 ANNUAL REPORT 2014

3 CONTENT 1 THIS IS FARSTAD SHIPPING 4 A Word from the CEO 6 Key Figures 8 Global Summary 4 THE FARSTAD FLEET 52 Green vessels painted red 54 The Farstad Fleet 56 Uncompromising Vessels for Deep Waters 12 Important Events 14 Values 15 Vision & Business Concept 16 Board of Directors 18 Corporate Management 20 The Story 22 Company Structure 5 THE MARKET FOR OFFSHORE SUPPLY VESSELS 60 A leading player 62 The Market in General 66 The Asian Pacific Market 68 The Brazilian Market 70 The North-West European Market 2 PEOPLE, ENVIRONMENT & SOCIETY 26 Safety does not happen by accident 28 Our Employees 34 Environment 6 FINANCIAL INFORMATION 74 Analytical Information 78 Financial Covenants 80 Key Figures 37 Safety 7 FLEET OVERVIEW 3 CORPORATE RESPONSIBILITY 42 Social Responsibility brings hopes and jobs 44 Governing Documents 84 AHTS Fleet Contract Overview 88 PSV Fleet Contract Overview 91 SUBSEA Fleet Contract Overview 46 Policies 47 Processes and Procedures 92 Glossary 48 Corporate Social Resonsibility FINANCIAL CALENDAR 2015 (Subject to change) 12 May First Quarter Report 12 May Annual General Meeting 27 May Dividends to Shareholders 20 Aug. Second Quarter Report 10 Nov. Third Quarter Report 3

4 A WORD FROM THE CEO The market for Farstad Shipping's services has changed considerably throughout The figures presented in the annual report provide a clear picture of a challenging market in a period of declining activity and corresponding decrease in earnings. The reports submitted for 2014 can in general, be sorted into three categories; HSEQ results, financial figures and organisational development. During the year we have succeeded in improving our HSEQ results. The total injury rate is reduced, and we register that our employees are committed to the effort of further improving the safety and quality of our operations. This is both pleasing and necessary if we are to reach our goal of an injury-free working environment. The profit for 2014 is not satisfactory. As our quarterly reports show, the market is developing in a way in which we have to expect lower activity and a considerable pressure on the rates for a long time ahead. This challenges our ability to maintain a sustainable development of the company. In Brazil we are achieving relatively good profit, due to solid operations and good handling of the challenges in this market. In North-West Europe the profit is negatively influenced by a weak market and poor rates, reinforced by a considerable spot exposure. Also in the Asian Pacific region (APAC) we notice the consequence of increasing competition and a strong cost pressure from the oil companies. We are well equipped with a robust and competent organisation offshore as well as onshore. During 2014 we have strengthened the Executive Management Team in order to achieve more rational and efficient operations, as well as improving our competitiveness in a challenging market. The Executive Management Team is extended by two new positions responsible for operations and human resources. During 2014 we have sold one older vessel, Far Grimshader (PSV, UT 706L, 1983) as well as taken delivery of four vessels, of which two were AHTS: Far Sigma and Far Sirius, and two PSV: Far Sun and Far Sygna. By the end of the year the fleet consisted of 62 sailing vessels and three subsea vessels under construction. Two of these are to be delivered during the first half of 2015, and one towards the end of The activity within the marine offshore segment, of which Farstad Shipping is a significant participant, has seen a strong growth over the past 5 10 years. The number of vessels active in this market has more than doubled during this period, increasing the completion in the market in a global perspective. Our activity takes place mainly in North-West Europe, Brazil and APAC, and is directly affected by the increasing competition. The oil companies' focus on cost savings was already announced at the beginning of 2014, and after the sharp drop in oil prices in the autumn of 2014, they adopted more drastic cost cuts and reductions in activity. In Brazil we are experiencing a deterioration of the market due to the difficulties that Petrobras, the main player in this market, is facing. This has resulted in a reduction of contracted offshore vessels in Brazil. In addition to purely financial factors the market is also negatively affected by international political issues, causing reduced activity for the offshore fleet, especially in the Northern Areas. With these factors, as well as the increasing surplus of tonnage, we are facing a period characterized by a weak market. In order to improve efficiency and reduce costs of our operations in the North-West Europe region, the management of this region has been reorganised. As a result it was decided to cease operations from the office in Aberdeen and to transfer ownership and operations from our company in Scotland to the office in Aalesund. As a consequence of the market conditions in the North Sea by the year end, we also decided to temporary lay up three newer AHTS and one older PSV. The Company has also initiated other efficiency and cost saving activities. However, as Farstad Shipping has a competent and robust organisation, an efficient and modern fleet as well as good relations with our clients, we are well dressed for a challenging market. Therefore, during a time with a weak market and increasing competition we will be offering more competitive services to our clients in accordance with their needs. KARL-JOHAN BAKKEN - CeO 4

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6 KEY FIGURES FARSTAD SHIPPING 2014 SORTED BY TYPE OF VESSELS AHTS 58% OPERATING INCOME 4,369 NOK MILL. PSV 36 % SUBSEA 6 % 19,395 6,625 TOTAL ASSETS NOK MILL. TOTAL EQUITY NOK MILL. FIRST QUARTER (NOK mill.) SECOND QUARTER (NOK mill.) Operating income* Operating income* EBIT EBIT Profit after tax Profit after tax *incl. gain on sale 6

7 SORTED BY REGION ASIA PACIFIC 44 % OPERATING INCOME 4,369 NOK MILL. BRAZIL 32 % OTHER 3% NORTH-WEST EUROPE 21% LOST TIME INJURY FREQUENCY (LTIF) TOTAL RECORDABLE CASE FREQUENCY (TRCF) Lost Time Injury Frequency per Total Recordable Case Frequency per one million hours worked one million hours worked THIRD QUARTER (NOK mill.) FOURTH QUARTER (NOK mill.) Operating income* Operating income* EBIT EBIT Profit after tax Profit after tax *incl. gain on sale 7

8 FARSTAD SHIPPING GLOBAL SUMMARY NUMBER OF VESSELS SORTED BY REGION 31 AHTS 26 PSV 4 SUBSEA + 3 NEWBUILDS 2,200 EMPLOYEES IN TOTAL GENDER DISTRIBUTION 76 OFFSHORE ONSHORE 134 OPERATING INCOME 4,369 NOK MILL. Other regions: 3% of operating income (147 of 4,369 NOK Mill.) 8 8

9 ASIA PACIFIC SUMMARY SINGAPORE PERTH MELBOURNE 16 AHTS 11 PSV 1 SUBSEA NEWBUILD 878 EMPLOYEES OF TOTAL 2,200 GENDER DISTRIBUTION 9 OFFSHORE ONSHORE OF OPERATING INCOME (1,902 OF 4,369 NOK MILL.)

10 BRAZIL SUMMARY MACAÉ RIO DE JANEIRO 10 AHTS 3 PSV 4 SUBSEA 560 EMPLOYEES OF TOTAL 2,200 GENDER DISTRIBUTION 27 OFFSHORE ONSHORE OF OPERATING INCOME (1,408 OF 4,369 NOK MILL.)

11 NORTH-WEST EUROPE SUMMARY AALESUND 5 AHTS 11 PSV 2 SUBSEA NEWBUILDS 762 EMPLOYEES OF TOTAL 2,200 GENDER DISTRIBUTION 40 OFFSHORE ONSHORE OF OPERATING INCOME (1,042 OF 4,369 NOK MILL.) 11

12 IMPORTANT EVENTS FARSTAD SHIPPING 2014 FIRST QUARTER 1,405 NOK MILL New contracts in East-Africa, Brazil, Australia and North-West Europe worth NOK 1,405 million were announced. SECOND QUARTER NEWBUILD APRIL: AHTS Far Sirius was delivered to Farstad Supply AS from Vard Langsten, Norway. The vessel traded the spot market in the North Sea before departing for a long term charter in Austalia in August. SALE PSV Far Grimshader was sold. 525 NOK MILL New contracts in North-West Europe, Brazil and Australia worth NOK 525 million were announced. NEWBUILD FEBRUARY: AHTS Far Sigma was delivered to Farstad Supply AS from Vard Langsten, Norway. The vessel has been trading the spot market in the North Sea during ANNUAL GENERAL MEETING The Annual General Meeting was held on 14 May, and the Board's proposal for a dividend of NOK 3.00 was approved. NEW HEAD OFFICE The construction of our new head office in Aalesund has started, and the relocation is scheduled to take place during the first quarter of

13 THIRD QUARTER NEWBUILDS JULY: PSV Far Sun was delivered to Farstad Supply AS from Vard Langsten, Norway. Far Sun directly commenced a long-term charter contract for Statoil after delivery. The firm period is 6 years, and the contract contains 3 x 1 year options. FOURTH QUARTER 530 NOK MILL New contracts in Australia and Brazil worth NOK 530 million were announced. AUGUST: PSV Far Sygna was delivered to Farstad Supply AS from Vard Vung Tau, Vietnam. After arrival in the North Sea, the vessel commenced her long-term commitment to Statoil for a firm period of 6 years with an additional 3 x 1 year options. 2,125 NOK MILL New contracts in Australia, North-West Europe and Brazil worth NOK 2,125 million were announced. RESCUING FISHERMEN Our vessel Far Sirius managed to rescue the entire crew of seven people from a small fishing boat sinking in the Java Sea. Using the mob boat, the fishermen were rescued after floating on the shipwreck for hours. Outside Rio de Janeiro, Far Swift rescued two fishermen floating on some fishing gear as their vessel was sinking. At approximately the same time, Far Sagaris was involved in a rescue operation offshore Brazil. Both the fishermen and their boat were rescued. FRAMEWORK AGREEMENT Farstad Shipping ASA has been awarded a 5 year framework agreement by Technip Norge AS for delivery of ROV support operations, light construction work, IMR and other subsea related activities. Farstad Shipping ASA has entered into an agreement with Vard Holding Ltd. to build one subsea/imr vessel (Inspection, Maintenance and Repair) for delivery during 4th quarter FARSTAD MARINE AS As a consequence of the decision to cease operations from the Aberdeen office, the shipowning company Farstad Marine AS was established. Farstad Marine AS bought 9 out of 10 vessels from Farstad Shipping Ltd. in Aberdeen. One vessel was transferred to Farstad Construction AS. 13

14 VALUES Our Values express the attitudes and the culture Farstad Shipping s employees stand for. The Values give clear guidelines for the priorities which form the basis for the further development of the Company. As a leading supply shipping company we depend on having dedicated, knowledgeable and competent people to run our business safely and efficiently. A modern and competitive fleet is also a prerequisite for this. Safety conscious Our general attitudes, our vigilance and our focus on safety secure the safe execution of operations, free of injury or damage. Know-how, proficiency, positive attitudes and well worked-out routines ensure that the job is properly carried out for our clients and with regard to the environment. Farstad Shipping is, and will continue to be, a long-term and responsible employer and operator. Inclusive We are initiators and a driving force behind the development of our industry through cooperation with customers, suppliers and educational establishments. We nurture a sense of belonging and strength by making the most of every employee s potential through development and education, by the sharing of know ledge and expertise and by taking into account individual needs. Value productive We generate values for our owners, collaborating partners, society and surroundings. We are an openminded and ambitious driving force towards constructive changes. By systematically focusing on individual welfare, personal development and safety through orderly conditions, a value-added environment is provided for our employees. Visible and transparent Our Values imply a unified and consistent management style and a market adjustable, transparent and interactive organisation. We stand by our decisions and endeavour to be clear and recognisable. We care about our neighbourhoods and wish to extend positive support to our local communities. We aim to spread and live up to our Values in our every day work. Reliable We are reliable, true and vigorously efficient and loyal regarding decisions that have been made. Our attitudes are characterised by integrity; we step up and take charge and also carry out whatever is necessary to fulfill given promises. 14

15 VISION & BUSINESS CONCEPT Farstad Shipping is one of the leading supply shipping companies within our defined segment of large and more advanced offshore supply vessels. We are a value driven company with focus on safety, quality and efficiency in our services. CORPORATE VISION Better by Far We intend to develop the Company further by abiding our Values in order to maintain a leading, competitive position in the markets where we are present. Business concept We shall be a leading provider of specialized offshore tonnage to the international oil and gas industry. MOTIVATION & OBJECTIVES 0INJURIES TO PEOPLE 0HARM TO THE ENVIRONMENT 0LOSS OR DAMAGE TO EQUIPMENT OBJECTIVES Our overall goal is to have zero injuries to people, zero harm to the environment and zero loss or damage to equipment. The Company s growth shall be based on good profitability and financial strength. Our goal is to provide our shareholders with a competitive return. FOCUS We focus on large, advanced vessels in the anchor handling, supply and subsea segments. We focus on health, safety, environment and quality. This provides the foundation for all our activities and is vital with regard to competitiveness. We focus on stimulating and further developing the competence, knowledge and awareness of our employees. LONG-TERM PERSPECTIVE We are an industrial operator with a long-term perspective on our activities. Our services shall contribute to a sustainable development for our customers and their businesses, as well as form a basis for a long-term value creation which benefits shareholders, employees and society in general. We have a long-term chartering strategy. 15

16 BOARD OF DIRECTORS Farstad Shipping s Board of Directors consists of seven members comprising three women and four men. The Board s statutory responsibilities include the overall management and control of the Company. None of the board members have leading positions in the Company. SVERRE A. FARSTAD (b. 1952) CHAIRMAN ASTRID KOPPERNÆS (b. 1957) DIRECTOR PER NORVALD SPERRE (b. 1946) DEPUTY CHAIRMAN Board member since Business Degree Heriot-Watt University, Edinburgh, Scotland. Chairman of the Board of Tyrholm & Farstad AS. Various board appointments and other positions in banking, insurance and the Norwegian Shipowners Association. Board member since Petroleum Engineering Degree (Siv. Ing) from NTH, M.Sc. from Stanford University and executive MBA from Heriot-Watt University, Scotland. Varied background as a petroleum engineer and manager within the oil industry in Norway and UK since Consultant for operators and service companies in Aberdeen, Scotland. Board member in Koppernæs AS and Advantec AS. Board member since Admitted to the Supreme Court. Law Degree from Oslo, Experience from banking etc. Established own law firm in Partner in the law firm Schjødt DA since November Holds a number of board appointments in industry and shipping. 16

17 JANNE-GRETHE STRAND AASNÆS (b. 1963) MADS ANDERSEN (b. 1965) DIRECTOR GRO BAKSTAD (b. 1966) DIRECTOR LEIF-ARNE LANGØY (b. 1956) DIRECTOR DIRECTOR Board member since MBA Board member since M. Board member since Board member since University of San Francisco, Sc. from Glasgow University and Business Degree, NHH, Bergen Business Degree, NHH, Bergen and Authorised Financial Analyst. associate degree in Bus. Adm. and State Authorized Accountant. and former CEO of Aker. He Varied background as a financial from the Norwegian School of Varied background from account- currently holds a number of analyst and portfolio manager Management. Has 26 years of ing, consulting, finance and directorships, including as in the investment management experience from the oil and gas offshore industry. Been part of the Chairman in DNV GL AS, business. Managing Director industry, and was previously corporate management in Posten Kværner and Sparebanken of Strand Havfiske AS since Executive Vice President in Aker Norge since 2006, first as CFO, Møre Board Member in FHF Solutions ASA. Andersen is currently as Executive Vice (Fiskeri-og Havbruksnæringens currently Division President in President Division Mail. Board Forskningsfond) since OneSubsea, a leading supplier of member in Veidekke ASA. subsea process- and production equipment, owned by Cameron and Schlumberger. 17

18 CORPORATE MANAGEMENT The Corporate Management Team consists of industry leaders who each has more than 20 years experience in the shipping business, and include the roles of CEO, CFO, COO and CHRO. The Executitive Vice Presidents responible for the Company's regional operations together with the Corporate Management Team comprise the Executive Management of Farstad Shipping. KARL-JOHAN BAKKEN (b. 1958) CHIEF EXECUTIVE OFFICER - CEO Karl-Johan Bakken entered the position as CEO 1 January He was earlier Director for Market and Operations, a position he entered in July He joined Farstad Shipping with 15 years international experience from the ship design and ship building industry, latest as Vice President of Ulstein Ship Technology and Director of Ulstein Trading Ltd. AS. He holds a M.Sc. in Naval Architecture from the Norwegian University of Technology in Trondheim (1984). 18

19 TORSTEIN L. STAVSENG (b. 1953) CHIEF FINANCIAL OFFICER - CFO SVEIN HELGE GULDTEIG (b. 1960) CHIEF OPERATING OFFICER - COO TERJE LØVOLL (b. 1968) CHIEF HR OFFICER - CHRO Torstein L. Stavseng has held the position and been part of the Management team since He came to Farstad Shipping in 1988, and has a Master s degree from Norwegian School of Economics and Business Administration (NHH) in Bergen. Before he joined Farstad Shipping he had six years experience within the banking industry. Svein Helge Guldteig started as COO in January He has more than 20 years of experience from managerial positions in various shipping companies like Wilh. Wilhelmsen, Torvald Klaveness and Norwegian Car Carriers as most recent. He holds a M.Sc degree in Marine Machinery from Norges Tekniske Hogskole, NTH (1993) and an MBA from BI/ESCP in Paris (2005). He has 6 years of sea going experience with a degree from Trondheim Maritime Academy (1987, Engineer Officer Class I). Terje Løvoll was appointed in January 2015, and he brings with him 25 years of experience in the maritime industry. His last positions were Managing Director at GMC Yard AS and Director Business Development at V. Group Ltd. He holds an MBA in Organizational Development and Change Management from Harvard University and the University of Bergen. WAYNE AITKEN (b. 1964) EXECUTIVE VICE PRESIDENT APAC - EVP-APAC Wayne Aitken entered the position of EVP-APAC 1 October He was earlier Managing Director Farstad Shipping (Indian Pacific), a position he entered August He has worked in the maritime industry for more than 20 years, in a series of executive roles. Prior to joining Farstad Shipping he held the role as Executive General Manager Trading - Rio Tinto Marine. He holds qualifications in Economics and Masters of International business. FELIPE RODRIGUES ALBES MEIRA (b. 1969) EXECUTIVE VICE PRESIDENT AMERICAS - EVP-A Felipe Meira entered the position as EVP-A 1 October He was earlier Managing Director for Brazil Region, a position he entered in February He has been involved with Farstad Shipping Operations in Brazil since 1994, and has been working directly in the company since 1999, when Farstad opened its own office in Brazil. He holds a Bachelor diploma in Economics and also a Post-Graduation in Business Administration from FGV, one of the best educational institutions in Brazil. 19

20 THE STORY FARSTAD SHIPPING Sverre Farstad & Co. was established in 1956 as a traditional shipping company, and it contracted its first vessel, M/S Farland, an ore vessel for delivery in THE NORTH SEA In 1986 we bought the major part of Wilhelmsen's offshore fleet, a total of eight vessels. In 1989 Farstad Shipping signed an agreement to purchase the fleet of Seaforth Maritime in Aberdeen, consisting of eight vessels. After these two acquisitions, Farstad Shipping was the largest offshore shipping company in the North Sea with 26 vessels. PUBLIC LISTED 1988 Farstad Shipping was publicly listed in 1988 under the ticker code FAR. The publicly listed company Herness Shipping was acquired and established as a shipping supply company on the Oslo Stock Exchange. The name was changed to Far Shipping. SHAREPRICE DEVELOPMENT FAR NOK 200 TRANSITION TO OFFSHORE In the early 1970s the company sold out of the traditional shipping segment and was left with funds which made it possible to invest in offshore service vessels for the new and growing market in the North Sea. In 1973 the company contracted its first supply vessel, an anchor handling vessel of the type UT ABERDEEN As a consequence of the expansion in the British sector, Farstad Shipping established a separate company in 1989 in Aberdeen. Farstad Shipping Ltd. was established as an operations and marketing company for the company's vessels on the British shelf. In 2002 Farstad Shipping Ltd. became a ship owning company adapted to the new British Tonnage Tax scheme. In 2014 it was decided to cease operations from the office due to a restructuring of the activity in Nort-West Europe. FAR 0 20

21 FULLY INTEGRATED SHIPPING COMPANY The company became a fully integrated shipping company in 1993 by gathering all functions; ship-owner, operations and marketing in the same group under the name Farstad Shipping ASA. IOS BOS AUSTRALIA 1997 P/R International Offshore Services ANS (IOS) was established in 1997 as a joint venture between Farstad Shipping and P&O Australia. This establishment gave Farstad Shipping access to Australian and South-East Asian waters. In 2003 Farstad Shipping aquired P&O's share in the IOS fleet, and at the same time the P&O operating companies in Melbourne and Perth were also acquired BRAZIL OFFSHORE SERVICES In order to develop the focus on supply vessels in Brazil, Brazil Offshore Services (BOS) was established in Macaé, Brazil in 1999, together with the Brazilian company Petroserv S.A. The company was responsible for operations, local staffing and marketing of the Farstad fleet in Brazil. During the period 2005 to 2007, the company took delivery of three AHTS built at Brazilian shipyards. In 2011 the company was acquired 100% and its name changed to Farstad Shipping S.A. The Farstad Shipping S.A. office in Rio de Janeiro opened in SINGAPORE Farstad Shipping Pte. Ltd. in Singapore was established as a ship owning company in OFFSHORE SIMULATION CENTRE The centre in Perth, Australia opened in December 2011 and is important to Farstad Shipping's focus on developing and training our sailors. A GREEN VESSEL PAINTED RED In 2009 Far Samson received the Heyerdahl Environmental Award, and was also awarded «Support Vessel of the Year». In 2012 Far Solitaire was awarded «Support Vessel of the Year». This vessel was also an important reason why the company received the award «Innovator of the Year» in the same year. INVESTING INTO SUBSEA From being one of the leading offshore supply vessel companies in the world, Farstad Shipping decided to further invest into the Subsea vessel market. This strategy is made visible through the company s latest newbuilding programme. Three subsea vessels will be delivered in 2015 and

22 COMPANY STRUCTURE FARSTAD SHIPPING ASA Aalesund, Norway 84 employees / 0 vessels 100% FARSTAD SHIPPING INDIAN PACIFIC PTY. LTD. Melbourne, Perth, Australia 786 employees / 0 vessels FARSTAD SHIPPING PTE. LTD. Singapore 13 employees / 8 vessels FARSTAD SHIPPING S.A. Macaé - Rio, Brazil 560 employees / 3 vessels FARSTAD SHIPPING LTD. Aberdeen, UK 4 employees / 0 vessels 100% 100% FARSTAD SHIPPING OFFSHORE SIMULATION CENTRE PTY. LTD. Perth, Australia FARSTAD SHIPPING CREWING SERVICES PTE. LTD. Singapore 9 employees / 0 vessels 262 employees / 0 vessels CORPORATE STRUCTURE The Company s head office is located in Aalesund and the major part of the Groups Fleet is owned by Norwegian entities. In addition to Norway, the Group has ship owning companies in Singapore and Brazil. The Company is operating vessels out of offices in Aalesund, Melbourne, Perth, Singapore, Macaé and Rio de Janeiro. Also part of the Group is our Singapore based crewing service company and an offshore simulation centre in Perth, Australia. ASIA PACIFIC The subsidiary in Australia, with offices in Melbourne and Perth, has operational, commercial and crewing responsibility in this region. The company in Singapore owns 8 vessels and operates other Farstad vessels located in the region. It also has an important function during docking of our vessels in Singapore. As an integral part of the Group, the Simulator Centre in Perth plays a key role in building staff competencies and total team performance and is continuously developing its service offerings to enhance this support. 22

23 FARSTAD SHIPPING AALESUND AS Aalesund, Norway FARSTAD OFFSHORE AS Aalesund, Norway FARSTAD CONSTRUCTION AS Aalesund, Norway FARSTAD MARINE AS Aalesund, Norway FARSTAD SUPPLY AS Aalesund, Norway 482 employees / 0 vessels 0 employees / 0 vessels 0 employees / 2 vessels 0 employees / 9 vessels 0 employees / 36 vessels 3 newbuilds 50% 100% P/R INTERNATIONAL OFFSHORE SERVICES ANS Aalesund, Norway 0 employees / 3 vessels FARSTAD INTERNATIONAL AS Aalesund, Norway 0 employees / 0 vessels 50% BRAZIL The subsidiary in Brazil has the "Brazilian Shipping Licence" and is authorized to charter vessels with foreign flags for operation in Brazilian waters. The company owns 3 vessels and has also total or partial operational responsibility for other Farstad vessels operating in Brazilian waters. The Brazilian sailors on board our vessels are all employed by the Brazilian subsidiary. The company has also employed sailors of other nationalities residing in Brazil. NORTH-WEST EUROPE AND AFRICA The management of vessels operating in North-West Europe and Africa are carried out from the head office in Aalesund. Manning of the vessels operated from Norway is administered through Farstad Shipping Aalesund AS. The head office is responsible for the vessels under construction. The former activities carried out from our Aberdeen office were terminated by the end of 2014 as a consequence of the reorganization of the activities in this region. 23

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25 02 BUSINESS REVIEW 2014 PEOPLE, ENVIRONMENT AND SAFETY

26 Safety does not happen by accident Farstad Shipping has a work environment where safety and security is the cornerstone of our corporate culture. The goal is zero injuries to people, zero harm to environment and zero loss or damage to equipment. Having employees who take the initiative to operate safer is a major contributory factor. Safe workplaces. Our aim is for all Farstad Shipping employees to come home safely to their families after work. During offshore operations, anyone, anytime, can stop the operation if a risk situation arises, or they must ensure that safety and security is safeguarded. Both our customers and our company have strict safety and security procedures, which must be adhered to. Safety, security and development of employees is the basis for all our operations. Karl-Johan Bakken, CEO, Farstad Shipping Both our customers and our company have strict safety and security procedures, which must be adhered to, says Chief Officer Yngve Andresen. Making hose handling safer. Hose transfer to rigs is used for products such as diesel, fresh water, dry bulk, and many types of drilling fluids. All have different coloured connections, reducing the likelihood to connect a hose for cement to a diesel coupling, says Chief Officer, Yngve Andresen. He was not surprised when crew members initialized a new, and far safer, hose handling system. Hoses are usually handled manually and not without risks. The new system has retaining arms installed on both sides of the vessel, which can be run out to clasp, and safely take on board rig hoses. The rig s crane operator leads the hoses onto the deck, where deck crew can safely make the connection while the arms retain the hoses keeping them secure. Simple and ingenious, continues Andresen. Now the hoses are secured and cannot cause damage by lifting out or sliding away in the wrong direction. The new hose system is the result of good cooperation between Farstad Shipping, Rolls-Royce Marine and Statoil. Hose handling operations have undoubtedly become much safer. Demanding operations simulator training. In the early 2000's Farstad Shipping, in collaboration with Rolls- Royce Marine, Marintek and Aalesund University College, took the initiative to develop a simulator centre for training in offshore operations. The centre opened in Aalesund in The experiences were extremely positive, so Farstad Shipping built another simulator centre in Perth, Australia. Completed in 2011, it was the largest and most advanced offshore simulation centre for marine operations. Investing in two advanced simulator centres reflects the company's commitment to competence building and training. This unique training programme is part of the effort towards the development and empowerment of employees. Security and development of employees is the basis for all our operations. The purpose of the centres is to provide facilities for training personnel and the development and testing of marine operations under critical and extreme conditions, says Karl-Johan Bakken, CEO, Farstad Shipping. 26

27 Farstad has a great focus on training, and courses at the simulator centers are excellent experiences which enable us to understand all aspects of the operations. Jürgen Rust, Captain Far Scimitar Shark Jaw: At the end of the 1970s, the company took the initiative to developing the shark jaw. This was to replace the old pelican hook which was a dangerous way of securing the anchor chain on deck. Cargo Rail Crane. Far Santana was the first anchor-handling vessel equipped with a movable rail-mounted crane. This crane has been further developed into today s driveable rail cranes with lifting and manipulator function. Color codes displaying hose transfer products onboard Far Sun Naut OSV. On the initiative of Farstad Shipping, DNV GL launched this class notation for standardization of equipment location on, and the view from, the bridge. It contributes to increased safety through the effects of heightened recognition as crews transfer from ship to ship. Cable lifter changer. In 2010, we received, together with Rolls-Royce Marine, Offshore Support Journal's Innovation Award for the idea and development of the cable lifter changer. The main purpose of this equipment is to make changing of the cable lifters safer at sea. 27

28 OUR EMPLOYEES In order to maintain our goal of being one of the leading operators within our market segments, we depend on having committed, competent and knowledgeable people to run our business safely and efficiently both onshore and offshore. TRAINING AND DEVELOPMENT In Farstad Shipping we focus on further development of our employees, and we spend considerable resources on awareness work and executive development. We emphasize that our employees comply with the competence requirements set by authorities and customers at all times. We work proactively with regard to developing competence building measures ensuring that the Company is ahead of the industry. During 2014 we have continued our effort to standardize courses throughout the Group to ensure that our employees have the same opportunities to do a good job. A number of courses were held emphasising safety (STCW and NOG), operator courses, technical courses, and personal development courses as well as other kinds of courses. Upgrading the certificates of the sailors in the company represents a significant investment. This includes, among other things, studies at maritime colleges around the world with duration of six to twelve months. Farstad Shipping invested a total of NOK 110 million for training and development of our employees in The training participation rate across our regional offices in Asia Pacific has increased by 47% from 2013 to Throughout the year we also have implemented competence building measures with regard to regional challenges. In the Asia Pacific region training was provided internally to enable the successful implementation of the Fleet Team approach. A facilitated workshop concluded with training Fleet Team Leaders in leadership, communication and change management, with an emphasis on teamwork and communication. The crews on board our vessels represent many nationalities. This creates challenges in relation to both communication and cooperation on board, and organized language courses were established on the vessels in Brazil in In 2014 we have continued the language courses as a permanent offer on half of the Brazilian fleet. We also have language teachers on board our vessels with multinational crew in Brazil. The Brazilian crew learn English, while the European crew learn Portuguese. There is also focus on culture and cultural understanding in these courses. The courses have resulted in better communication and better understanding of cultural differences on board. SIMULATOR TRAINING Simulator training is an important part of our competence building. Important elements of simulator training are team training, interaction and communication between various functions on board a vessel. In the simulator, the crew can practice in maritime operations under critical and extreme conditions. Since the establishment of the Offshore Simulator Centre (OSC) in Aalesund, Farstad Shipping has used the centre for training of its own employees. Several of our captains have been hired as instructors at the centre. OSC opened in 2004 on the basis of a collaboration and joint ownership between Farstad Shipping, Rolls-Royce Marine, Marintek and Aalesund University College. Based on the experiences from OSC, Farstad Shipping established its own simulator centre in Perth, Australia in December The training programme at the centre in Perth was developed in collaboration with OSC and Aalesund University College. 28

29 During 2014, 589 employees have attended courses at the Simulation Centre in Perth lasting from two to five days. This is a 72% increase from the 2013 participant rate. The feedback is very positive. The courses included dynamic positioning, anchor handling and platform supply work. This year, strategically important courses such as ECDIS (Electronic Chart Display Information System) training, and Transfer Loads courses have been added to the list of Simulator Courses. These courses are critical to safety and capability development strategies. Many of our employees in the APAC region have now completed more than three sessions. Our instructors and the administration at the centre have contributed to setting a new standard for training and competence development in this region. Both our own employees and people with experience from the simulator centre in Aalesund have contributed to the development of our courses. In January 2014 the Farstad Shipping Offshore Simulation Centre hosted the first Farstad Shipping Global Training Workshop. This workshop gathered participants from all our regional offices, and focused on qualification standards in Farstad Shipping. RECRUITMENT Farstad Shipping has been, and shall continue to be, a company which takes the responsibility for the training of its employees both offshore and onshore. We recruit actively, and visit schools and fairs throughout the year in order to attract young students. More than 150 youths are currently employed as apprentices or cadets with us. Recruiting apprentices and cadets is an ongoing process and an important responsibility for our company and the maritime industry in general. Young apprentices and cadets have their natural place amongst our crews, and represent the company s investment into the future where we need committed, competent and knowledgeable employees to run our advanced vessels and operations. As part of our CSR policy, we have also recruited future colleagues through some of our social projects, among them Karanba in Brazil and our collaboration with Woodside in the Kimberley region in Australia. As of today we have employed five people on our vessels in Brazil, where youth from the Karanba project has been sponsored maritime courses. From our indigenous project together with Woodside we have employed 14 people, now working on our vessels in the APAC region. 29

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31 VALUES AND VALUE WORKSHOPS The goal for the Values Workshops is to increase our competitiveness through awareness of our Values as well as our respect for people, environment and society. We focus on making our Values known to our employees, and in 2006 we started our Values Workshops within our Values Programme. We spend significant resources on strengthening the organisation through arranging these workshops. Each workshop last for two days, and the participants are employees from both sailing crew and office staff. The purpose of the Values workshops is to develop a common understanding of the Values of Farstad Shipping, as well as making the Values tangible in daily tasks and challenges at work. There is emphasis on understanding different cultures and focus on cultural differences, as well as the individual responsibility based on the Values. In addition to the Corporate Management and the regional Liaison Officer, external consultants in each region participate in the Values workshops. The consultants are an important resource for a local and professional adaption of the programme to each region. Presence and involvement from the management is important to improve understanding of the relationship between the company's Values, our organisational culture and how we interact with each other and our surroundings. Having already been established in the North-West Europe and Brazil region, the Values program commenced its official roll out during 2014 in the Australian region. Seven Values workshops were completed in Melbourne, and ten in Rio during The opportunity for sailing crew and office staff to come together and share their thoughts, ideas and experiences has been a welcome and appreciated experience for all who have attended this far. Participation in Values workshops is mandatory for all our employees. OUR EMPLOYEES' HEALTH Starting up in 2013 on board our vessels operating in Brazil, we have an ongoing nutrition project with focus on healthy eating habits. In Brazil this project has been supported by our largest customer; Petrobras. The cooks working on board have been trained in selecting ingredients and preparing healthy dishes. We focus on measures to reduce wastage both with our suppliers and on board, and hope that increased awareness of healthy ingredients will result in less absence due to illness in the long run. Similar projects are run in the other Farstad regions, and have resulted in dietary improvement on the vessels. 31

32 KARI JENSEN GALLEFOSS COOK, FAR SIGMA INTERNAL COMMUNICATION Farstad Shipping is emphasising development and maintenance of common information channels for the entire group. Through this work, regularity and quality of information are ensured, as well as giving all employees access to the same information. The company magazine «FarInfo» is an important information channel. The idea behind «FarInfo» is to connect employees and their families closer together across regions through presenting various events and work related happenings in the company. FarInfo has been issued three to four times per year since the late 1990 s. «What s Up» is a monthly internal newsletter which is distributed from the local operational offices. The newsletter contains updates on what the onshore organisation is working with and especially in relation to vessel operations. Although this is a regional newsletter, «What's Up» is available to all our employees across the regions, and in both the local language and in English. Based on a global survey a social and informal forum, a closed Facebook group, has been established throughout our whole organization, where all employees can participate and contribute to share day to day activities, ideas and stories. Employees and their families as well as the company's retirees also have access to our internal website «Farstad Community». This website is updated continuously with stories from everyday life in Farstad Shipping. The Farstad Community is available in three different versions, administrated from Norway, Brazil and Asia Pacific. All employees have access to all information here regardless of regional affiliation. WELFARE The Company has developed a number of welfare offers for both crew and office employees, to give added value beyond the usual benefits. In order to facilitate and develop these offers, a dedicated Liaison Officer in each region has a strong focus on developing good communication between sailing crew and office staff. The Liaison Officer works closely with the Human Resources depart- 32

33 ment to make sure we develop good social meeting points, to create better understanding of the work situation between sailing crew and office staff, and to make everybody feel they are an important part of the Company. education, experience, results, and other professional criteria shall form the basis with regard to hiring, training, wages and promotion. At the end of the year 106 out of the Company's 240 office employees were women. The welfare concept, which was developed at the head office, is created in close collaboration with our employees and their union representatives. The concept, adapted to local conditions, is now established in all Farstad regions. The employees' families are an important asset for the Company. We have developed and implemented routines to maintain contact with the families. Through social events, good welfare offers, and conveying information we wish to create a feeling of belonging to the Company, as well as knowledge of our daily activities. GENDER EQUALITY Farstad Shipping recognises the importance of embracing diversity and valuing the differences in its employees. The Board and the Management work continuously to promote gender equality in all areas in order to create a diverse organisation. At the end of the year the Group had 2,200 employees representing 29 nationalities. In 2014 Farstad Shipping in Australia was awarded the renowned Gold Stamp by the Australian Women in Resources Alliance (AWRA). Understanding the strong business case for greater diversity in our workforce, Farstad Shipping in Australia started a process of formalising our diversity initiatives in 2013 when, as a company, we were the first participant in the AWRA assessment program and received Silver recognition. Farstad Shipping has a challenge with regard to motivating women to choose a maritime education. At the end of the year the total number of crew employees was 1,960, however, only 76 of these were women. The Company will continue to recruit women to maritime related jobs. It participates in initiatives such as the Australian Maritime College s Graduate Career programme, with an emphasis on educating and encouraging females to pursue maritime careers. In addition to focusing on gender equality, there are efforts to include people from groups which are underrepresented in the labour market, including people with disabilities. ABSENCE DUE TO ILLNESS Absence due to illness for employees on board our vessels has had a negative development compared to last year. In 2014 absence due to illness was 2.93 % (2.64 % in 2013). Absence due to illness among our office employees has also had a negative development from 1.57 % in 2013 to 1.63 % in After taking on board the feedback and recommendations from that initial assessment, and after a year of working on developing formal diversity policies and procedures, Farstad Shipping in Australia are now able to display their Gold AWRA recognised stamp, reflecting our achievements in gender diversity and women s workforce participation. The foundation for this result was an assessment of our workplace policies, procedures and practices towards best practice management of workplace (gender) diversity. The AWRA recognition assists Farstad Shipping in building our gender diversity capability, become a preferred employer for women and realise the advantages of a gender diverse workforce. We are conscious of preventing gender based discrimination. The principle of equal pay for equal work applies in wage determination. Only relevant qualifications such as 33

34 ENVIRONMENT Farstad Shipping's goal of zero injury to people, zero harm to the environment and zero loss or damage to assets and equipment is the basis for our efforts in reducing our impact on the environment. ENVIRONMENTAL INVESTMENTS IN NEWBUILDS In close collaboration with designers, shipyards and equipment suppliers we make use of the latest available technological solutions in order to build and operate vessels with minimal risk of releasing environmentally hazardous substances into air and water. For our four newbuilds delivered in 2014, as well as our three newbuilds to be delivered in 2015 and 2016, we have invested in environmental measures far beyond class and authority requirements. Among these are measures to reduce fuel consumption through the use of hybrid propulsion systems, installation of exhaust catalysts, the use of environmental friendly antifouling and Clean Design. There are also installations for measuring and logging fuel oil consumption in various operational modes, providing overview of accurate fuel usage and identifying areas for improvement. ENVIRONMENTAL IMPACT FROM THE OPERATION OF SUPPLY VESSELS Pollutants into the sea and emissions into the air have been considerably reduced over time as a result of continuous improvements of technical solutions, better control and maintenance of the equipment as well as the choice of more environmentally friendly products. This applies among others to topics such as anti-fouling, lubricants and detergents. In all our vessels delivered after 2006, we have invested considerable amounts in eco-friendly measures beyond current rules and requirements when it comes to reduction of emissions into air. These emissions mainly consist of CO2, NOx, and to a lesser extent, SOx. The amount of emissions depend on various conditions related to fuel quality as well as the vessel's operational profile, including the number of operating hours and average load on the diesel engines. Farstad Shipping use only marine diesel (Marine Gas Oil) with very low sulphur content which gives neglectable emissions of SOx. On all vessels built after 2006 as well as on some older vessels, catalysts have been installed in order to reduce the amount of NOx emissions. Experience shows that efficient use of catalysts alone reduce NOx emissions by up to 95%. CO2 emissions are directly related to the amount of fuel used, and the company is focused on minimizing con- 34

35 sumption in connection with the vessels' operation profile offshore as well as during transit and in port. New technology combined with optimal use of propulsion systems and other heavy consumers on board may reduce CO2 emissions up to 50% compared to vessels built a few years ago. Vessels with diesel electric or hybrid propulsion systems provide opportunities for optimal use of heavy machinery, depending on operational requirements at the time. Electric drive and variable speed control of propellers and other main consumers permit vessels to carry out the required tasks with reduced fuel consumption and at optimal load without compromising safety requirements. Raising focus and training of crew in optimal use of the various technical installations on board have proven to contribute to increased environmental awareness and reduced emissions. continued in Through the project we receive a lot of valuable data which help us develop a better management tool both in order to reduce the environmental impact from the company's activities, and contribute to better prediction and planning of maintenance. The Energy Monitoring System (EM1) project has been continued throughout the year. Equipment for identifying and measuring the vessels' operational profile and energy consumption has been installed on board a number of vessels and newbuilds. EM1 enables us to analyse trends for each vessel, as well as compare the various vessels' efficiency, consumption and emissions. Historical data accumulated by EM1 will be utilized for further analysis with the aim to identify areas for improvement in terms of reduced fuel oil usage and thus emission. In addition, modification of electrical and power supply systems on board a selection of the company's vessels built a few years ago has been carried out. This makes it possible to reduce the number of diesel engines running at the time, depending on the vessel's operational mode. Thus both diesel consumption and maintenance costs are lowered due to reduced number of operating hours. The Company participates in several projects established in order to minimize the offshore supply vessels' impact on the environment. In 2012 phase one of the project EEOP (Energy Efficient Offshore Partners) organised by DNV GL was implemented. Phase two was implemented in 2013 with the same participants in addition to a selection of oil companies. The project was completed in The project's overall goal is «the Norwegian-controlled offshore fleet shall be the most environmentally friendly and cost effective in the world and thus preferred because it consciously operates with lower consumption of fossil oils». A pilot project for one of our PSV vessels in cooperation with a charterer and DNV-GL, were analysing the findings from phase one by implementing a selection of measures to the operation of the vessel, documented significant savings in fuel usage. In late 2014, an agreement for carrying out an Optimal Trim -pilot in cooperation with DNV-GL and another of our charterers was signed. Trim and optimal use of the vessels are of great significance when it comes to fuel usage, and we have great expectations that the pilot will provide us with valuable insight into how to optimise the way our vessels are used in daily operations. The HeMoS project (Health Monitoring System), which includes condition monitoring of equipment on board one of our PSV vessels and one of our AHTS vessel, has been Equipment for safe and optimal utilisation of shore power has been installed on board a number of our vessels and newbuilds. Throughout 2014 we have continued to gain distinction in connection with efficient utilisation of shore power during port stays. In this context we have also contributed in various forums discussing how the ports may offer standardized solutions for offshore supply vessels, so that the same electrical power technology is available in various ports. BALLAST WATER Farstad Shipping is continuing its focus on the environmental consequences of transfer of vessels from one geographical area to another with regard to the presence of marine organisms in the ballast water. Vessel-specific plans have been created for handling ballast water in accordance with international regulations. The company's vessels operate mainly within the regions North-West Europe, Africa, Brazil and Asia Pacific but are from time to time moved between the regions and also within these regions. The Company is planning to retrofit all treatment systems for ballast water in accordance with upcoming international regulations, which have yet to come into force. Over the recent years all newbuilds have treatment systems installed for ballast water. ENVIRONMENT REGISTRATION AND WASTE HANDLING Throughout 2014, the internal project «Environmental Footprint» has been carried out. The project has been vital to control, measure and visualize the environmental impact of our operations. Previously described projects will also be valuable tools in this context. 35

36 The reporting tool Vessel Manager has been implemented on all our vessels, with options for accurate registration and control of focus areas such as fuel consumption, waste handling, and thus also environmental impact. All waste and garbage on board the vessels are sorted in accordance with international guidelines and reported monthly. Septic waste and grey water are handled, treated and deposited in accordance with current regulations. The Company s environmental accounts are, together with the SEEMP, the guidance for future improvements. Previous years' efforts to improve air conditioning and air cooling systems on board our vessels with regard to reducing the emissions of greenhouse gases have continued. When upgrading vessels in operation, as well as installations on board newbuilds, we have applied refrig- FO (Tonnes) FO (Tonnes) erants which are environmentally friendly, as well as using sea water for cooling where possible. As a result of these measures we see a positive development in the reduction of greenhouse gas emissions. USE OF CHEMICALS ON BOARD A project for standardizing use of chemicals on board was started in The overall aim is to reduce environmental impact and reduce the number of chemicals used on board The Company makes best efforts to use environmentally friendly chemicals to the largest possible extent. We also focus on increase knowledge among crew and improve the understanding of risk and hazard in use of 0 Jan Feb Mar Apr May various chemicals through control and safe handling of the chemicals. CO 2 Emission (Tonnes) PSV AHTS SUBSEA Jun Jul Aug Sep Oct Nov Dec CO CONSUMPTION AND EMISSIONS AHTS PSV SUBSEA FO (Tonnes) SO X Emission CO 2 Emission (Kg) (Tonnes) NO Fuel oil (tonnes) SOx Emission (kg) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec PSV AHTS SUBSEA PSV AHTS SUBSEA Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 0 0 Jan Feb Mar Jan Apr Feb May Mar Jun Apr Jul MayAug Jun SepJul Oct Aug Nov Sep Dec Oct Nov Dec SO X Emission CO 2 Emission (Kg) (Tonnes) PSV AHTS SUBSEA NO X Emission Cleaned PSV AHTS PSV AHTS SUBSEA SUBSEA 2000 CO2 Emission (tonnes) NOx Emission cleaned (kg) SO X Emission (Kg) NO X Emission Cleaned Jan Feb Mar Jan Apr Feb May Mar Jun Apr Jul MayAug Jun SepJul Oct Aug Nov Sep Dec Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec A 500 PSV AHTS PSV AHTS SUBSEA SUBSEA PSV AHTS SUBSEA 36 0 business review Jan Feb 2014 Mar - farstad Apr May shipping Jun asa Jul Aug Sep Oct Nov Dec 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

37 SAFETY Farstad Shipping's goals within health, safety and environment (HSE) are to operate without injury to people, harm to the environment and loss or damage to assets and equipment. The Company works actively on several levels to make employees aware of this goal. Both the Parent Company's board of Directors and the boards of the subsidiaries are focusing on this and discuss the development in health, safety and environment in their meetings. All the company s employees are at all times obligated to follow our policies, procedures and instructions based on our governing documents (pages 44-45). This is vital in order to obtain safe, efficient and environmentally friendly operation of our vessels in accordance with national and international requirements and regulations. Caution shall be exercised to protect oneself, colleagues, the environment, the vessel, the cargo, offshore installations and the third party. Farstad Shipping is focused on learning and sharing experiences across the company's fleet, based on all types of incidents both with and without damage. Significant resources are invested in order to create safer workplaces and improve the working environment through automation, remote and mechanization of operations with a high risk potential. This is done to facilitate work as well as to eliminate the need for the crew to be placed in risk exposed areas. In order to obtain this, priority is given to performing risk analyses in connection with events which entail high risk when it comes to injuries and incidents with major accident potential. We also focus on developing the safety culture through awareness work and leadership development. It is among other things embodied in the company's Health, Safety and Environment policy that everyone has the right and a duty to stop work which is not performed safely. ment work. One of these measuring indicators is the frequency of lost time injuries (LTIF). The Company measures this as the number of injuries with absence per one million hours worked, measured 24 hours a day so that recreational injuries are also included. For 2014, the lost time injury frequency was This is a slight improvement compared with 0.77 in The actual number of lost time injuries was six in 2014, same number as in This is disappointing since we are putting a lot of efforts into reducing this figure. However, it still confirms the downward trend we have seen over a five-year period. Another performance indicator for personal injuries is the Total Recordable Case Frequency (TRCF) see graph on next page. This figure indicates injuries where medical attention has been given, and provide a more comprehensive picture of the number of injuries. We have seen a positive development in the TRC frequency during the last years. In 2013, the TRC frequency was 3.22 and the figure was reduced to 2.32 in This is the best TRCF Lost Time Incidents LTIF - No of incidents per million work hours 1,75 1,50 1,25 1,00 An important part of HSE management is recording, reporting and assessment of various HSE data. A number of measurement indicators have been established to help us in this work. The purpose is to document quantitative development over time as well as to strengthen the decision indicators for a systematic and targeted improve ,75 0,50 0,25 0,00 37

38 figures we have achieved ever, and we are now among the best in this area in our industry. Various measures have been implemented based on investigation of both incidents that have caused injuries and of incidents with great potential for injuries. This work will be continued and further developed. Vessels contact/collision with offshore installations during transit and loading operations have high attention in the industry. Implementation of measures to ensure avoidance of this is a high priority in our company. It is satis factory to see that we had no incident within this category in Total Recordable Case TRCF - per mill. work hours To continuously improve our safety performance and make our operations safer and more efficient, we also have a strong focus on learning from incidents. In that respect more than 30 safety alerts were distributed to the fleet in We also focus on safety associated with the vessels visits to shipyards both with regard to docking, repairs and reno vation of existing vessels, as well as when new vessels are built. There is ongoing work to improve safety in connection with our vessel operations, both in collaboration with our customers and our suppliers. Good control of the vessels' technical condition and backup systems (redundancy), as well as management of operational safety, consist mainly of the following elements: Transfer of experience and prioritizing when projecting and building new vessels, ongoing maintenance and upgrading of vessels. All operations are performed by qualified and competent personnel. Focus on awareness and compliance with external and internal requirements. RISKOP RISKS IN OFFSHORE OPERATIONS We are participating in the research project «Risks in Offshore Operations». The project shall submit a report describing the identified risk factors associated with platform supply services, anchor handling and subsea operations. A separate report highlighting the risk factors of lifting operations will also be prepared. The intention is that the material from the study shall be used in a planned Master s Degree in Nautical Studies at the Haugesund and Aalesund University Colleges, as well as contribute specific suggestions for strengthening the offshore simulator training in which some of the participants are involved. 38

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41 03 BUSINESS REVIEW 2014 CORPORATE RESPONSIBILITY

42 Social responsibility brings hope and jobs As a 14-year-old, Aborigine Nick Marley began work as a pearl diver on the Northwest coast of Australia. Even after years of hard work, it is difficult for an Aborigine to get an education or advance to higher positions in the pearl industry. Nevertheless, for Nick Marley, an offer of training from Farstad Shipping was his big turning point. Broome, Australia. 32 years old Nick Marley is one of the maritime trainees from indigenous Kimberley, who graduated after completing a two year course in marine training in cooperation with Farstad Shipping. Farstad has become a name that s heard a lot around Broome these days, because of the opportunities that they ve given to myself and 15 other indigenous lads living here, says Nick. PEARLDIVER: Nick Marley as a pearl diver in Kimberley The talented saltwater people. They have a natural talent for working at sea, says Peter Barrow, HR manager of Farstad Shipping in Australia. Previous experience in the pearl or fishing industry, or just their daily living with the sea and boats means it s second nature for them. Peter adds. We have always worked with the ocean, so for us this is the top of the career ladder, and we get to work with one of the most professional companies operating at sea. says Nick. For years we ve seen the big ships coming into the port of Broome and dreamed of being able to work there. But it was difficult to get into the maritime industry. Then we got the opportunity, and we ve not looked back since. Nick Marley, Seaman, Farstad Shipping Farstad Shipping has been operating in the Broome region for many years. CEO Karl-Johan Bakken explains: We aim to be a contributor in all communities where we operate. A long standing maritime tradition in this region has created a solid sailor culture with dedicated, motivated and qualified seafarers, which for us is completely natural to engage in. Football in Rio de Janeiro, Brazil. On the other side of both the Indian Ocean and the South Atlantic, Rio is host to another social project in which Farstad Shipping is heavily involved: Karanba. Karanba was established by the Norwegian footballer Tommy Nilsen in The aim is to help disadvantaged children and young people from the favelas, through education and personal development. Karanba gathers and engages youngsters whose tough lives are deeply affected by crime and drug trafficking. Karanba has nearly 700 girls and boys aged 6-20 involved in daily football activities and attending regular English lessons. The project employs 25 Brazilians and Norwegian volunteers at any given time. A committing sponsorship. As one of four general Karanba sponsors, Farstad Shipping has entered into an agreement to offer apprenticeships to a number of appropriately qualified youths each year. During 2013, this participation led to us recruiting apprentices, who all completed their training with good results. We now permanently employ five of them on board our ships in Brazil. Autumn 2014 saw a new group of five more boys arrive from Karanba with the shared goal of working for Farstad Shipping. Supporting our home region in Norway. In 2014, Farstad Shipping has supported 115 initiatives of varying sizes within culture, sport and the community in the Sunnmøre region. As a small sponsor supporting many activities, our community involvement is wide ranging. 42

43 Nick Marley started working at sea already when he was 14 years old, working through school holidays to make some pocket money. He wasn t treated any different from the grownups and had to pull his weight. It was physically demanding with work hours from dusk till dawn. The work was on very remote areas from south of Broome to the top of Northern Australia, and he has had some very close calls with saltwater crocodiles and tiger sharks. INDIGENOUS PEOPLE IN AUSTRALIA The indigenous people of Broome and the Dampier Peninsula have close ties to the sea. They are often called The Saltwater people and historically, Broome is known for its pearls. It is these people, who for many years have driven the pearl industry. However, in recent times the pearl industry has declined and with it, the need for local labour. Thanks to the emergence of the oil and gas industry, new job opportunities have arisen. Nick Marley s first vessel was the Far Fosna, and he has later worked on many of Farstad s vessels. Here from the AHTS Far Stream outside Broome. In partnership with Woodside, Farstad Shipping began recruiting in this region to attract suitable candidates during The recruitment programme builds on a close cooperation with young candidates and their families, to ensure a thorough understanding of the necessary obligations and requirements for commitment to this program. So far, the program has produced very good results. Since 2010, we have recruited 14 trainees from the Kimberley region. 19 sailors have participated in the programme consisting of a week course and 38 weeks at sea leading to an Inte grated Rating Certificate of Proficiency. Today, 14 have full time jobs with Farstad Shipping. One employee has taken another career step and is presently Farstad s first indigenous Second Mate. He now plans further education to become Chief Mate. Currently there are four trainees participating in this programme. 43

44 GOVERNING DOCUMENTS Governing documents are determined by the Board of Directors and shall be decisive in how we reach our goals. They shall provide guidance for the development of corporate culture, and together with the values contribute to our employees making the right choices. The documents form the basis for our policies, processes, procedures and best practice documentation. CODE OF BUSINESS CONDUCT Farstad Shipping's Code of Business Conduct describes goals and rules, as well as our obligation to maintain our integrity in our daily work. This provides guidelines for what is acceptable behaviour for our employees and anyone representing the Company. The code defines how we should run our business and emphasize the ethical standards we must follow in order to establish trust with our stakeholders. Farstad Shipping's Code of Business Conduct is based on the company s Values, and provides principles and indications for right and wrong with regard to making decisions. The code, along with our endorsement of the United Nations Global Compact, also provides clear indications with regard to the principles regarding human rights, labour rights, environment and anti - corruption. CORPORATE GOVERNANCE Farstad Shipping's principles for good corporate governance shall lay the foundation for long-term value creation in the best interest of shareholders, employees and society in general. "Norwegian code of practice for corporate governance" (last revised 30/10/2014) forms the basis for the company's reporting in this area. Every year the management and board of Farstad Shipping evaluate the principles for corporate governance and how these are addressed in the Group. A more thorough description of the principles for corporate governance can be found on the company's website. ISM (INTERNATIONAL SAFETY MANAGEMENT) The «International Safety Management» code is the international standard for safe leadership, operation of vessels and prevention of pollution. ISM certification is mandatory for all passenger ships and all vessels over 500 GT in international traffic and for shipping companies operating such vessels. Both the Company and all our vessels are certified according to this code. ISPS (INTERNATIONAL SHIP AND PORT FACILITY SECURITY CODE) The «International Ship and Port Facility Security» code is the international standard establishing the minimum safety arrangements for vessels, ports and government authorities. ISPS certification is mandatory for vessels in international traffic including passenger ships, cargo vessels over 500 GT and mobile offshore drilling units as well as ports servicing these vessels. All our vessels are certified according to this code. 44

45 1 GOVERNING DOCUMENTS 2 POLICIES 3 PROCESSES, PROCEDURES AND HANDBOOKS CERTIFICATION ISO 9001:2008 This demonstrates that our management system is certified according to the standard for good quality management. The certification is performed by an independent third party and documents to our customers, among others, that they can trust that we have implemented the necessary internal routines in order to meet their obligations. ISO 9001:2008 is a particularly good tool for reducing errors. The system identifies potential defects before they occur, and prevents errors from being repeated. Such error reduction gives advantages in the form of increased safety and fewer operational disruptions with following cost savings. The standard is process oriented and emphasizes continuous improvements and customer satisfaction. It is adapted to all business processes affecting quality. CERTIFICATION ISO 14001:2004 This demonstrates that our management system is certified according to the standard for good environmental management. The certification is performed by an independent third-party and documents to our customers, among others, that they can trust that we actively reduce the company's and the services' environmental impact to a minimum. The standard requires the Company to prepare environmental goals and the necessary management system in order to reach such goals. ISO 14001:2004 certification establishes a good practice for a precautionary policy for our company's environmental impact. With an ISO certified management system, we go further than just complying with regulations. Our focus will be on continuous improvements. CERTIFICATION OHSAS 18001:2007 The Company was certified according to OHSAS 18001:2007 in OHSAS 18001:2007 provides us with a good framework for control and improvement within health and safety in relation to working environment. This certificate documents that our management system is measured in relation to a standard for good practice and found to be in compliance with this. The certificate is issued by DNV-GL and shows employees and other interest groups that we work according to the precautionary principle in order to secure our employees' working environment. 45

46 POLICIES Farstad Shipping is working to reinforce its position as an internationally competitive and profitable company through efficient use of common procedures and work processes. A policy is a formal statement of a principle or rule that members of an organization must follow. It is a statement of intent, and is implemented as a procedure or protocol. A procedure tells members of the organization how to carry out or implement a policy. Each policy addresses an issue important to the organization s mission or operations. Based on the directives included in the company's governing documents, Farstad Shipping has developed a number of policies to regulate our actions and decisions in relation to important areas. Our policies shall communicate our Values and expectations for how things are done in our organization. They aim at keeping our organization in compliance with legislation. Another function is to document and implement best practices appropriate to the organization, and to support consistent treatment of staff, fairness and transparency. The policies shall help the management to make decisions that are consistent, uniform and predictable, and protect individuals and the organization from the pressure of expediency. Authority and responsibility regarding the policies rest with the CEO. Farstad Shipping's policies provide guidelines for our behaviour, course of action, and our decisions within important areas such as health, safety, quality and environment, as well as social responsibility, ethics and transparency, human rights, labour rights. These policies are the same throughout the Group and apply to our employees as well as anyone representing the Company. Our policies can be found on our website. 46

47 PROCESSSES AND PROCEDURES Our management system IMS (Integrated Management System) is based on our governing documents and our policies, and provides guidelines for the operation of the Company and the fleet. Our management system, deals with the obligations Farstad Shipping has in relation to HESQ, compliance with rules and regulations and compliance with contractual obligations in relation to the operation and management of vessels. The management system is process-orientated and continually revised and updated to ensure compliance with applicable laws, regulations and internal requirements at all times. As part of the efforts to make the IMS more user friendly to our employees, we publish this in a common document handling system. The system accounts for users needing different information, and enables us to make changes and distribute these to the entire Group within 24 hours. Training office employees and sailors in using the system is a central part of the efforts to ensure that our operations are in accordance with Farstad Best Practice. Our processes describe the functional requirements made to our operations. Our procedures and manuals contain documentation related to activities and control procedures within each field. The responsibility for processes, procedures and manuals rests with the respective process owner. In recent years the Company has undertaken a project that includes the implementation of common work processes and procedures which shall apply to the entire Group. The introduction of common work processes supported by common IT systems has resulted in better integration and interaction and thus improved the flow of information. This applies both between the company's regional offices, within each office and between vessel and office. EMERGENCY PREPAREDNESS In recent years the Company has implemented an extensive upgrade of the emergency preparedness system across the Group in order to be better equipped to handle a possible emergency situation. This means that we now have a common system and pattern of action regardless of region and area of operation. We have in cooperation with professional external parties prioritized strengthening competence in emergency management through exercises and training for dedicated emergency preparedness personnel. In 2012 we started an extensive revision of our IMS for the vessels with a view to improve the quality of the system and make it more user friendly while ensuring that the system reflects Farstad Shipping's adopted common practice. The revision continued in Our HR Offshore, Insurance and Newbuild departments and Subsea operations started revising their processes in 2014, and will continue training and implementation during first half of

48 CORPORATE SOCIAL RESPONSIBILITY By profitable and responsible operation our company shall create positive financial, environmental and social effects. We shall run our company in accordance with current laws and regulations as well as good business practice. We aim to encourage a positive impact on the environment and our stakeholders including customers, employees, investors, communities and others. UNITED NATIONS GLOBAL COMPACT We are associated with United Nations Global Compact at a GC Active level. Our annual report with regard to the UNGC s ten principles within human rights, labour rights, environment and anti-corruption demonstrates our commitment to progress and transparency. The ten principles are a management platform for developing and implementing responsible and sustainable guidelines as well as procedures, and can be found at unglobalcompact.org/aboutthegc/thetenprinciples/. CODE OF BUSINESS CONDUCT During the past few years we have conducted a thorough internal process developing the company s Code of Business Conduct. The Code of Business Conduct has been implemented during All office staff and our sailing crew have been presented and familiarised with the content of this document. Our Code of Business Conduct is governing for our employees and anyone representing the Company. The presentation of the document throughout our company has engaged our sailing crew and office staff in discussions on how to continue this work and the ongoing process of living our Values and thereby following our Code of Business Conduct on all levels. Our focus in the coming year is to develop periodic training and guidelines in how to handle dilemmas that may occur. Anti-corruption is a prioritized area. Information to all employees, including guidelines and training, is communicated throughout our organization. There is focus on giving support and building up dilemma training, so our Staff is better equipped to make the right decisions. A reporting channel for whistle blowing is also established. The Company now looks at the initial experiences with anti-corruption and how we can improve transparency, through supporting our employees. In 2014, a supplier declaration was launched by our purchase departments, which started an internal process of adaption to our Code of Business Conduct, selfassessment form and terms and conditions. These documents aim to communicate to our suppliers the expectation of compliance with all applicable laws and regulations, and to be in full compliance with the Farstad Shipping Code of Business Conduct: code-of-business-conduct. Through our updated guidelines and demands towards our suppliers, we now point at the obligation to keep accurate records of business and financial transactions. We are also focusing on the third party, and on financial transactions undertaken on Farstad Shipping s behalf. This will help secure good and regulated working conditions for anyone involved in the manufactoring of goods and services to our company. FINANCIAL SUPPORT AND COLLABORATION Farstad Shipping wishes to be a positive contributor to the local communities where we are present. Through our contributions to sports, culture, various organisations and events we aim to create positive associations 48

49 and make our company visible. Through active collaboration and support for cultural and sports events we contribute to create social meeting points in the local community. We support various projects in connection with education and social initiatives for children and youth. Farstad Shipping has ongoing sponsorship agreements with social projects in Australia, Brazil and Norway. We focus on education of young people, and hope to motivate them to be our future colleagues or choose a future in the maritime industry. Karanba is a social project in Brazil supported by, amongst others, Farstad Shipping. Through this project we take in a certain number of trainees every year. In 2013 Farstad Shipping employed five students from Karanba who had completed six months of intensive education under the auspices of the Brazilian Navy. In 2014 a new group of trainees from Karanba attended the maritime courses, and we hope to see them as colleagues in the maritime industry in the future. By supporting Karanba we contribute to giving these young people an opportunity to receive an education and a job, and at the same time we invest in future maritime expertise. In collaboration with Woodside, we have for several years, offered a training programme aimed at the indigenous population of the Kimberley region in Australia. Through this programme they get an opportunity to achieve an integrated Rating Certificate of Proficiency. The training consist of 15 weeks of school in order to prepare for the job on board. After this they must undergo 38 weeks of mandatory training at sea before they receive their certifi cate. Through this scheme they also have the oppor tunity for further education. As of today Farstad Shipping employs 14 sailors who have participated in this programme. In Norway we have a partnership with Stafsethneset School. This is a specialised school for young people in Aalesund. The school offers training in boating in addition to other practical projects.when the school was in need of a new boat, Farstad Shipping donated one to them and assisted them in adapting the boat to the school's needs. We are continuing the collaboration with the school on an annual basis, and skilled maritime personnel amongst our active retired colleagues also assist the school on behalf of Farstad Shipping. In 2014, Farstad Shipping supported 115 initiatives within culture, sports and social involvement. As a small sponsor to many activities we create a broad community engagement. We wish to maintain this form of social participation in the regions where we operate, adapted to local culture and needs. Farstad Shipping donated this boat to Stafsethneset School. From the left: Hans Pilskog (Stafsethneset school), Nils Kristian Drønnen (Vegsund Slip AS) and Alf Giske (Farstad Shipping). Source: Sunnmørsposten 49

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51 04 BUSINESS REVIEW 2014 THE FARSTAD FLEET

52 Green vessels painted red In the near future, Norway s first berth with onshore electric power supply for offshore vessels will open in Bergen. It is no coincidence that Farstad Shipping has been a contributor to this important environmental milestone. ZERO: Far Sapphire, Farstad Shippings first vessel in the zero-vision programme, deleivered in Saturday 1 st November 2014: Sister vessels Far Sygna and Far Sun are moored at Festningskaien in Bergen, decked in flags ready for their inevitable rendezvous with champagne and wishes for good luck on all seas. They are packed with world class green technology a continuance of the company s long standing environmental commitment. Both ships are also equipped to use onshore electricity, which replaces electricity production on board while in dock, thereby reducing harmful gas and particle emissions to zero. Bergen s topography has made onshore power to cruise and offshore vessels a major environmental issue in the city. Milestones. Farstad Shipping has led the way in developing new environmental technology for more than 10 years and in close cooperation with the maritime cluster in Western Norway. All the ships delivered after 2006 have significant investments in environment saving measures that extend way beyond class and authority requirements. This environmental commitment resulted in the 2009 Heyerdahl Environmental Award, established by Thor Heyerdahl and the Norwegian Shipowners Association in The award recognizes individuals, or companies within the maritime industry that have introduced or developed new and profitable environmental technology. Farstad Shipping is a leading force in using newly developed, environmentally friendly technology and we prove once more that we take climate change seriously. Karl Johan Bakken, CEO, Farstad Shipping Cooperation. In June 2014, when Bergen Havn (Port of Bergen) decided to build Norway s first onshore power system for offshore vessels, they had little experience to draw upon. For Bergen s Harbourmaster, Inge Tangerås, the environmental aspects of the harbour s development, operation and management are vital. Since Farstad Shipping is one of the users of the berth at Festningskaien, with multiple vessels equipped for using onshore power, the company s Vice President Technology & Development, Børge Nakken, was asked to contribute as a technical consultant. Continuous renewal. All Farstad newbuilds contribute to the environment through hull design, dieselelectric propulsion and new catalyst technology for reduced fuel consumption and emissions. NOx emissions are reduced by up to 95% and the risk of harmful pollution via accidental damage is minimized by ensuring that all cargo tanks placed against the outer hull contain only water. Conscious use of recyclable materials contributes further to the environment. Continuous renewal of the fleet is an important step in our long-term goal of eliminating harmful discharges into the sea and air. The interaction between competent, dedicated crews and modern, energy-efficient vessels, enables us to operate with a significantly reduced environmental footprint, says CEO Karl-Johan Bakken. 52

53 Far Sygna and her sister vessel Far Sun are one of the worlds most environmentally friendly offshore vessels ever built. Since 1990 Farstad Shipping has spent 22 billion NOK in the construction and development of new vessels. The Company was awarded the Heyerdahl Environmental Award in 2009, and both Skipsrevyen and Offshore Support Journal awarded two of our vessels Ship of the Year, respectively in 2009 and We hope the pilot project for offshore vessels is the start of electrification of the harbour. Farstad Shipping is an important partner for us. Even Husby, Project Manager for environment, Port of Bergen. Farstad Shipping, as a tech nical consultant, con tributed to the develop ment of the world s first shore power plant for offshore vessels in Bergen. An offshore vessel uses auxiliary engines to produce the necessary power and energy to maintain essential operations while docked. Using shore power instead of auxiliary engines while the ship is docked reduces sulphur particles, NOx and CO2 emissions to zero. 53

54 THE FARSTAD FLEET We have a modern and competitive fleet consisting of 61 vessels, whereof 26 PSV, 31 AHTS, and 4 SUBSEA vessels. As a part of our fleet renewal we have three subsea vessels under construction, two Vard 3 07 and one Vard 3 17, for delivery in the period April 2015 to November At the moment, 17 vessels are stationed in Brazil, 16 in North-West Europe, 27 in Asia Pacific, and 1 in East-Africa. AHTS 31 ANCHOR HANDLING TUG SUPPLY VESSELS PSV 26 PLATFORM SUPPLY VESSELS SUBSEA 4 +3 newbuilds CONSTRUCTION AND MAINTENANCE VESSELS Specially designed vessels for anchor handling and towing offshore platforms, barges and production modules/vessels. Specially designed vessel for transporting supplies and equipment to and from offshore installations. These vessels transport general cargo, primarily in containers. Vessels specially designed for operations at great depths, installation and maintenance of seabed facilities. VALUE-WEIGHTED AVERAGE AGE Through our investment programme, as well as sale of our older vessels, the current fleet presents itself as modern with a value-weighted average age as per of 7.3 years. For the PSV fleet the value-weighted average age is 6.4 years, for the AHTS fleet 7.6 years, while the subsea fleet has a value-weighted average age of approx. 8.3 years. The remaining newbuild programme will reduce the value-weighted average age of the subsea fleet with about 3.5 year. This presupposes that no vessels are sold before all the newbuilds have been delivered in November For all newbuilds the expected cost price is set equal to market value. CHANGES TO THE FLEET IN 2014 Delivery of newbuilds: Far Sigma (UT 731 CD) and Far Sirius (UT 731 CD) were delivered from Vard Langsten in February and April respectively. In addition, Far Sun (Vard 1 07) was delivered from the same yard in July. Far Sygna (Vard 1 07) was delivered from Vard Vung Tau, Vietnam in August. Sale of vessels: In 2014 we sold one older vessel, PSV Far Grimshader (1983, UT 706 L). The sale gave a book gain of NOK 15 million. In March 2015 Far Sky was sold. Contract for newbuild: In December 2014, Farstad Shipping signed an agreement with Vard Group AS for the construction of one SUBSEA/IMR vessel at Vard Vung Tau, Vietnam. The contract is connected to a Framework agreement with Technip Norway AS. The vessel is of Vard 3 17 design and is constructed for subsea/ IMR operations (Inspection, Maintenance and Repair). The vessel will be delivered in November CONTRACT COVERAGE The contract coverage for the Farstad fleet including charterer options is about 67% for 2015 and about 52% for BUSINESS REVIEW FARSTAD SHIPPING ASA

55 CONTRACT OVERVIEW AS PER FEBRUARY 2015 % OPTI TERM 0 1ST Q ND Q RD Q TH Q ST Q ND Q RD Q TH Q ST Q ND Q RD Q TH Q ST Q ND Q RD Q TH Q - 18 TERM CONTRACTS OPTIONS 55

56 UNCOMPROMISING VESSELS FOR DEEP WATERS During 2015, Farstad Shipping will take delivery of two new subsea vessels in the construction segment. Both vessels are designed and equipped in order to live up to the corporate vision Better by Far. These vessels will conduct subsea construction work as well as inspection, maintenance and repair of subsea equipment and installations, down to a depth of more than three thousand meters, under various conditions. Taking into account such challenging, harsh environment, efficiency and safe operations must be considered a common issue. What our clients really require is operational predictability and reliability with highest degree of uptime. Delays, breakdowns and other unforeseen events may have considerable cost implications. For such demanding operations the vessels, including equipment and crew, simply have to be the best there is. This also means there has to be technical redundancy within all critical components and systems. Systems have additional capacities beyond the minimum requirements built in, and there is for example four main engines, one harbour generator, six thrusters, one main propeller with dual electric drive system, two subsea cranes, four service cranes, two moon-pools, two work ROVs (and space for a third), DP3 Dynamic Positioning System of the highest redundancy class, etc. In the unlikely event of a worst case single failure, the vessel has the capability to complete the operation safely without need of any assistance. Double and triple redundant systems is as obvious onboard this vessel, as in airplanes. In accordance with Farstad Shipping s environmental objectives, the hull design and propulsion configuration is optimized to reduce fuel consumption and emission under any operative condition. Furthermore, selective catalytic converters clean the exhaust gases. All these measures offer not only cost savings, they also reduce harmful emissions. Finally, it is of utmost importance that our newbuilds are regarded as comfortable, safe workplaces that attracts the best professionals at all levels. 56

57 350 TONS CRANE Efficient and redundant crane with capacity of 350t until 1500m and 250t until 3000m water depth. 50 TONS CRANE Efficient and redundant auxiliary crane with capacity of 50t and 3000m water depth to efficient support ROV and crane operations. WORK ROV 2 x Work ROV for inspection, survey and support of any subsea operations. MOONPOOL SAFE 2 x moonpool for safe and efficient installation of subsea equipment and launch and recovery of ROV. FAR SLEIPNER TBN DESIGN VARD 3 07 YEAR BUILT 2015 YARD VARD Langsten / Yard No. 822 LENGTH (LOA) m DEPTH 11 4 m DRAFT 8 0 m 57

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59 05 BUSINESS REVIEW 2014 THE MARKET FOR OFFSHORE SUPPLY VESSELS

60 A leading player The close cooperation between shipbuilders, shipowners and equipment suppliers on the coast of Norway started more than 100 years ago, when most activity was fishing related. This cooperation laid the foundation for what is now the world s leading maritime cluster in the offshore industry. Welcome to the region of Møre on the northwest coast of Norway. GLOBAL CENTRE OF EXPERTISE GCE: The Møre region s maritime cluster encompasses companies from all segments of the global value chain for advanced marine operations. Because of its leading position in the world and the high rate of innovation, this cluster was given Global Centre of Expertise status in Møre is home to one of the world s very few complete maritime clusters. It consists of approximately 215 companies in ship design, shipbuilding, shipping education, equipment, research and finance. Among the biggest players are Farstad Shipping, Rolls Royce Marine, Ulstein Group, Vard and Brunvoll. The cluster s turnover in 2013 was approximately 55 billion NOK, and it employs 22,000 people in the region. A driving force. Farstad Shipping is a driving force in Norway s maritime industry. When requesting solutions from different providers in a project, the shipyards, designers and other suppliers are strongly encouraged to collaborate and create new answers. This coordination ensures new technologies are quickly implemented on newbuild Norwegian vessels. The demand for continuous innovation contributes to the increased expertise and competitiveness of the entire cluster. years. Secondly, Far Sirius reflects the breadth within this maritime region: It encompasses design from Ulsteinvik, rescue equipment from Aalesund, vacuum toilet system from Hareid, steering gear from Tennfjord, generator set from Søvik and deck machinery from Harøy. And of course: She was built in Tomrefjord and sails with a captain from Brattvaag. The key lies in our culture of cooperation. We compete when we have to, and cooperate whenever we can. Karl-Johan Bakken, CEO, Farstad Shipping Farstad Shipping and the Cluster. During 1990 to 2015, Farstad Shipping ordered 67 vessels at a value of approx. 22 billion NOK. Half of this was spent on ships delivered from the region. Karl-Johan Bakken, CEO, Farstad Shipping says: The Cluster has become a popular concept in recent times. It reflects the structure of industry in our region. A true child of the Cluster. Far Sirius, delivered in 2014, is a good example of the cluster and its activities. Firstly, it is a very environmentally friendly vessel a consequence of technology created in Møre that has reduced emissions from this type of vessel by almost 50% in 15 Karl-Johan Bakken reflects: The maritime cluster is crucial in order to keep and develop a viable maritime industry here in the region. It is the best form of protection against competition from low cost Asian suppliers. To stay ahead in both shipbuilding and design & development, is necessary to maintain our competitiveness. Farstad Shipping aims to be at the forefront in adopting new and environmentally friendly technologies. Far Sirius is a sparkling example of this, and I m proud of what our employees and partners in the maritime cluster have achieved together. 60

61 SUM OF EXPERTICE Far Sirius was delivered in 2014, and is one of the most environmentally friendly offshore vessel ever built. 42 local companies from 18 locations in the Maritime Cluster has contributed in developing and building the vessel, where design, equipment and technology all comes from local suppliers. 65% LOCAL DELIVERY LOCAL COMPANIES LOCATIONS NOK MILL. LOCAL DELIVERY INDUSTRY CLUSTER A geographical concentration of related companies and institutions within an industry, technology or value chain. NORWAY INNOVATION The Maritime Cluster in Møre has grown as a result of the strong cooperation between shipowners, shipyards and equipment suppliers. This experience based product development has ensured rapid implementation of new solutions and provided common competitiveness. It began centuries ago with traditional open fishing boats and made a huge leap with the engine revolution of the 1900s. The Cluster saw opportunities when oil was found in the North Sea and is currently leading the way forward for advanced vessels for offshore operations. Farstad Shipping has been a key driver since the 1970s. The advantage of clusters is that expertise and ideas flow between businesses in a way that they all benefit from. The best known industrial cluster today, is probably Silicon Valley. Møre s cluster is one of the few complete maritime clusters in the world, and has strong international players at all levels. Maritime Cluster 2014: 20 shipowners, 13 design companies, 14 yards and 169 equipment manufacturers totaling approx. NOK 55 billion in revenue, and employs more than 22,500 people. 50% of all large offshore vessels in the world are built within our cluster. One third belongs to shipowners within the cluster while 75% of them are based on the cluster designs. FAR SIRIUS Design: UT 731 CD Build: No. 810 Vard Langsten, 2014 Length: 87,40 m Breadth Moulded: 21m Draft (max): 7.8m + 0.9m Skeg/Nozzle Deadweight: 3954mt (d=7.765m) Gross Register Tonnage:

62 THE MARKET IN GENERAL In 2014, the market for offshore service vessels was characterized by overcapacity of tonnage and pressure on rate levels. The drop in the oil price further adversely affected the market prospects. Reduced activity level, cost reductions and the high contracting activity of offshore service vessels recent years have created a substantial market challenge for the industry. An improvement in the market balance of offshore service vessels is dependent in an increased activity level offshore, and a reduction in the contracting activity of new offshore service vessels. Even though there are expectations for an increase in the oil price towards the end of 2015, the uncertainty is high as to how long it will take for the demand to pick up, and how long it will take to absorb the oversupply of vessels. With the existing fleet and newbuild structure it is expected that the subsea market will recover earlier than the traditional AHTS and PSV markets. Especially, the growth in the PSV fleet will be too large in the years to come as contracting activity of PSVs has continued with surprising strength in Traditionally, Farstad Shipping has concentrated its activity in the segment of large and medium sized AHTS and PSV. Within the Subsea segment we have concentrated our activity on ROV support operations, light construction work, ploughing and IMR work (Inspections, Maintenance and Repair). AHTS AND PSV The segment of large and medium sized AHTS and PSV has historically been defined as AHTS with engine power above 10,000 BHP and PSV with load capacity larger than 2,000 DWT. In the 1990s the market in North-West Europe was the most important market for this segment. However, the increased oil activity worldwide has made this into a global industry. The key drivers for this development have been increased demand for harsh and deep water operations supporting both exploration and production activity. Increased subsea activity has also contributed to the development. The largest markets for large and medium sized supply vessels are North-West Europe (20.5%), Asian Pacific (20.0%), Brazil (18.5%), the Gulf of Mexico (16.5%) and West-Africa (13.5%). There are currently 220 operators within this segment. This represents more than a tripling of the number of operators in 10 years. Since the beginning of 2004, the number of vessels worldwide has increased from 473 units to 1,520 units. The largest part of the fleet growth has taken part outside North- West Europe. The growth in the number of vessels in markets outside North-West Europe has been 265% during this period. This development is expected to continue as 90% of all newbuilds are being built outside North-West Europe. At the beginning of 2004, the number of large and medium sized AHTS in the North-West Europe market was 50 units, which was 23% of the world AHTS fleet. Currently there are 67 units in this market corresponding to 13% of the AHTS fleet. A similar development has taken place for the PSV fleet. At the beginning of 2004 there were 93 PSV in North-West Europe, corresponding to 36% of the fleet. This number has now increased to 249 units, corresponding to 25% of the total PSV fleet. The number of PSVs in North-West Europe is currently as big as the total PSV fleet 10 years ago. After delivery of two newbuilds in 2014 Farstad Shipping has a fleet of 32 AHTS. The AHTS fleet contributed 57.8% of Farstad Shipping s income in The PSV fleet counted 26 units at the end of 2014 and contributed 35.5% of the income. 62

63 AHTS > BHP AND PSV >2 000 DWT AND NEWBUILD SORTED BY OWNERS (20 largest) Number of vessels NEWBUILD PSV AHTS NYBYGG (503) PSV > 2000 DW AHTS > EDISON CHOUEST TIDEWATER BOURBON OFFSHORE GULF OFFSHORE MÆRSK FARSTAD SHIPPING HORNBECK SWIRE DOF COSL DEEP SEA SUPPLY HARVEY SEACOR SOLSTAD OFFSHORE EZRA HOLDING SIEM OFFSHORE VROON ISLAND OFFSHORE BUMI ARMADA HAVILA Source: IHS/Platou/Farstad AHTS > BHP PER REGION Number of vessels Jan JAN JAN JAN JAN JAN Jan.-14 Jan.-13 NORTH-WEST EUROPE SOUTH/ CENTRAL AMERICA ASIA PACIFIC/ CHINA WEST AFRICA GULF OF MEXICO CANADA MEDITER./ BLACK SEA Jan.- 12 Source: IHS/Farstad Jan.-11 PSV > 2000 DWT PER REGION Number of vessels 200 Jan Jan Jan JAN JAN JAN JAN JAN Jan.-12 Jan.-11 NORTH-WEST EUROPE GULF OF MEXICO SOUTH/ CENTRAL AMERICA ASIA PACIFIC/ CHINA WEST AFRICA MEDITER./ BLACK SEA/ MIDDLE EAST CANADA Source: IHS/Farstad BUSINESS REVIEW FARSTAD SHIPPING ASA 63

64 SUBSEA Subsea production systems are used to develop reservoirs, or parts of reservoirs, which require drilling of the wells from more than one location. Deep water conditions, or even ultra-deep water conditions, can dictate the development of a field by means of a subsea production system, since traditional surface facilities might be either technically unfeasible or uneconomical due to the water depth. Subsea installations help to exploit resources at progressively deeper waters. The trend has been towards more extensive and complex subsea equipment and larger subsea modules. Subsea production systems can range in complexity from a single satellite well with a flow-line linked to a fixed platform, FPSO or an onshore installation, to several wells on a template or clustered around a manifold, and transferring to a fixed or floating facility, or directly to an onshore installation. The trend is to conduct more of the production operations subsea with no installations visible above the sea. Subsea production is chosen to an increasing extent both in order to develop new fields and to increase production of older fields. There are around 5,000 producing subsea wells worldwide which need to be inspected and maintained. In Norway this has become the dominant solution. The development of subsea oil and gas fields requires specialized equipment. The equipment must be reliable enough to safeguard the environment and make the exploitation of the subsea hydrocarbons economically feasible. The installation, inspection, maintenance and repair of such equipment requires specialized and expensive vessels. The vessels need to be equipped with suitable lifting capabilities, large open decks, high levels of station keeping with DPII or DPIII and with diving and/or ROV equipment. The size of vessel and capacities of equipment needs to be suited to the water depths and the weather conditions in the area of operations. There are currently 215 vessels operating within the segment characterized by the research company IHS as Harsh & Deepwater pipe lay and subsea support vessel. IMR (Inspection, Maintenance and Repair) vessels constitute about 60% of the fleet. With its three Subsea vessels under construction, Farstad Shipping has chosen to focus on the top end of the IMR market. The vessels will also be well suited for some light construction work and pipe laying activities. As shown in the table below, the market in North-West Europe is still the largest within this type of tonnage. However, it is worth noting that expected growth in the time to come is greater in other regions. The implementation of planned projects will of course depend on how the new oil price regime will affect the oil companies spending in the years to come. This may lead to revised schedules and a possible flattening of the activity level. At the end of 2014 Farstad Shipping had four vessels in the subsea segment contributing 6.3 % of the income in This share will increase with the delivery of the newbuilds. Another six of the Company s AHTS are equipped to perform ROV operations. All ROV operations on board the vessels are performed by companies that are specialists in this type of operations. H&D SUBSEA SUPPORT VESSEL DEMAND PER REGION Vessel years (300 days basis) Transit Asia Pacific Med. & M.I.E. West Africa Latin America North America NW Europa (Source: IHS) Source: IHS 0 64 BUSINESS REVIEW FARSTAD SHIPPING ASA

65 NEWBUILD ACTIVITY In 2014, the total fleet of large and medium sized supply vessels increased by 122 vessels. This represents an increase of 8.7%. The increase in number of AHTS was 4 (0.8%) and in PSV 118 (13.2%). The corresponding numbers for 2013 were an increase of 162 vessels, 22 AHTS (4.5%) and 140 PSV (18.5%). At the beginning of 2015 the order book for this type of tonnage contained 413 (379) units. This corresponds to an increase of 27% of the existing fleet. Of these, 85 (48) are AHTS and 328 (331) are PSV. About 75 % of the vessels are scheduled to be delivered in We consider it unrealistic that all these vessels will be delivered in The order book for various types of subsea vessels has also increased the past few years and now lists 64 vessels, which is an increase in the fleet of 32%. About 50% of the vessels are scheduled to be delivered in 2015 which also seems to be optimistic. Out of the 64 newbuilds, 36 units are so-called ROV support vessels. The maritime industry in Norway still has a leading position in the development of new offshore vessels, and Norwegian shipyards still play an important role in the construction of the more advanced offshore vessels. This is particularly true when it comes to subsea vessels. However, Asian yards including Chinese yards have substantially increased their market share in recent years, especially within the PSV segment. At present, Chinese and Asian ship yards count for about 70% of all supply vessels (PSV and AHTS) on order. Chinese yards alone have 208 vessels on order out of a total order book of 413 vessels (market share of 50%). Back in 2007, the total order book consisted of 290 vessels and the market share of Chinese yards was 9% (26 vessels). Also within the subsea segment the Chinese shipyards are strengthening their position with a market share of 23%. Norwegian shipyards now count for 5 % of the order book of PSV and AHTS (36% at the beginning of 2007). However, within the subsea segment the Norwegian shipyards still have a strong position. At the beginning of 2015, 15 subsea vessels (23% of the order book) were under construction in Norwegian yards. The order book at Brazilian shipyards has decreased during At Brazilian shipyards there are 38 (44) offshore service vessels under construction. These are distributed on 3 AHTS (5), 31 PSV (38) and 4 subsea vessels (1). The vessels are being built for work on the Brazilian continental shelf and mainly for long-term contracts with Petrobras. Also the order book at US shipyards has declined during There are currently 52 (77) vessels ordered at shipyards in this region. These comprise 5 AHTS (2), 37 PSV (71) and 10 subsea vessels (4). It is expected that most of these vessels will be trading the market in the US Gulf of Mexico. NEWBUILD BY CONSTRUCTION PLACE Number of vessels CHINA USA BRAZIL NORWAY INDIA JAPAN INDONESIA VIETNAM ROMANIA NEDERLANDS KOREAN POLEN MALAYSIA RUSSIA SINGAPORE SUBSEA (64) PSV (328) AHTS (85) NEWBUILDS BY DELIVERY TIME NEWBUILDS BY DELIVERY TIME 1Q 2Q 3Q 4Q 1Q 2Q 3Q 1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q SUBSEA SUBSEA AHTS < BHP AHTS < BHP BHP AHTS BHP Number of vessels Number of vessels Q 1Q 2Q 3Q 0 4Q 16 1Q 17 2Q 17 3Q AHTS > BHP AHTS PSV < > DWT BHP PSV < > 4000 DWT PSV > 4000 DWT Source: IHS/Platou/Farstad BUSINESS REVIEW FARSTAD SHIPPING ASA 65

66 THE ASIAN PACIFIC MARKET In 2014, 43.5% of the revenue in Farstad Shipping came from this region (47.5% in 2013). This is equivalent to a revenue of NOK 1,902.4 million (NOK 1,901.4 million). The region again experienced over supply of tonnage, significantly out-weighing stagnant demand, with the older vessels the worst affected in terms of time charter rates and second hand values. The challenge within the region is to realise strong utilisation and revenue for all outstanding tonnage following such a significant downturn in the world market. Within Australia Farstad Shipping maintained its strong position by securing a number of new key long term contract awards. The long term contract award with INPEX Corporation in supporting their Ichthys Development provides further long stability within our Australian operations and again demonstrates Farstad Shipping s long term commitment to Australia. This also highlights another key oil & gas operator aligning themselves with us for the delivery of key services for their critical project. South-East Asia has performed well on the global stage despite the large emerging economies of China and India, experiencing sharp reductions in growth as central banks worldwide gradually withdrew liquidity from the market. South-East Asia s growth and development prospects will depend critically on its capacity to meet rapidly growing energy demand with secure and affordable supplies. This region is one of the more attractive oil and gas markets offering high potential for growth in exploration and production activities. Overall rig utilisation remained steady throughout the year at approximately 82%. Within Australia it was a somewhat volatile market for rigs. Rig numbers remained steady, however there was about 30% movement in the actual rigs within the market due to operational requirements. Farstad Shipping has 27 vessels in the region (16 AHTS and 11 PSVs) which continue to be of service to our clients. Within 2014 the arrival of AHTS Far Sirius and PSV Far Seeker into Australia further enhanced the fleet profile and our strong market position, service de livery (offshore/onshore) and reputation. The focus of our fleet safety, service and competency will be the foundation for our continued successful operations. 66

67 OFFSHORE SERVICE VESSELS Number of vessels OFFSHORE SERVICE VESSELS IN ASIA PACIFIC SORTED BY OWNERS AHTS > BHP and PSV > DWT (20 largest) Number of vessels PSV AHTS FARSTAD COSL EZRA HOLDINGS SWIRE GULF BOURBON OFFSHORE DEEP SEA SPPLY FEMCO POSH SEMCO TIDEWATER JASA MARIN MÆRSK EXECUTIVE SHIPPING GREAT OFFSHORE GREATSHIP INTRA OIL SHIPPING CORP INDIA BUMI ARMADA GO OFFSHORE JAYA OFFSHORE PSV > 2000 DWT AHTS > BHK Source: IHS/Farstad PSV AHTS NEWBUILDS PSV > 2000 DWT AHTS > BHP FARSTAD SHIPPING OFFSHORE SIMULATION CENTRE (FSOSC) FSOSC in Perth continues to provide critical support to Farstad Shipping in the Asia Pacific region and constitutes an important part of our profiling in the Australian market. As an integral part of the Group, the centre plays a key role in building staff competencies and total team performance and is continuously developing its service offerings to enhance this support. range of clients in Dynamic Positioning and Offshore Crane Operations. FSOSC also provides consultancy services to Farstad Asia Pacific in the areas of Dynamic Positioning and ECDIS operations. FSOSC has made a significant investment in six partmission bridge simulators and the addition of new classroom facilities for the intended delivery of Electronic Display and Information Systems (ECDIS). This programme has been a great success in 2014 with a significant proportion of Farstad officers trained in readiness for the implementation of ECDIS on board the vessels in FSOSC is recognised as a centre of excellence both within Farstad and in the wider offshore and oil and gas industries. This has resulted in an increase in verification of competence and offshore audits being carried out for a BUSINESS REVIEW FARSTAD SHIPPING ASA 67

68 THE BRAZILIAN MARKET In 2014, 32.2% of the revenue in Farstad Shipping came from this region (29.6% in 2013). This is equivalent to a revenue of NOK 1,407.7 million (NOK 1,186.7million). The Brazilian economy had a weak performance in 2014 compared to the previous years. The main problems were the stagnation of it s economy with a GDP growth of just 0.1%, high inflation (6.4%), low industrial competitiveness and indolent fiscal policy conducted by the government. The Brazilian currency also devaluated 25% in the past 15 months, and the interest benchmark rate ended 2014 at 11.75% per year. The president, Ms. Rousseff, was re-elected in October by a narrow margin, and directly after the election recognized that Brazil needed more business-oriented policies. The outlook for 2015 according to most market analysts will remain the same as In order to recover credibility, the government started an adjustment process, naming a market-friendly Finance Minister who announced measures to improve fiscal results and reduce inflation. Petrobras also had a very difficult year due to the several corruption scandals related to political campaign financing involving the country s largest construction firms, and somehow paralyzed capital spending. Three former directors were arrested during the investigation. The resig nation of all managing directors at the beginning of 2015 further challenges the performance of Petrobras. Petrobras operational performance has also disappointed investors in recent years. Petrobras revenues remained stable over the past few years, approximately USD 130 billion from 2010 to However, due to increasing costs there has been a slight increase in its reserves and production. Its EBITDA margin has reduced from 36% in 2010 to 22% in 2014 (data from 2014 is related to market consensus as PB has not released final 2014 figures). The major consequence was the reduction of more than 50% of its market value from September 2014 to February

69 OFFSHORE SERVICE VESSELS Number of vessels OFFSHORE SERVICE VESSELS BRAZIL SORTED BY OWNERS AHTS > BHP and PSV > DWT (20 largest) Number of vessels PSV AHTS EDISON CHOUEST TIDEWATER MÆRSK CBO SAVEIROS DOF FARSTAD DEEP SEA SUPPLY ULTRAPETROL SIEM OFFSHORE SOLSTAD STARNAV E.R.OFFSHORE AUGUSTA BRAVANTE FINARGE HAVILA OLYMPIC HARTMANN HORNBECK PSV > 2000 DWT AHTS > BHK Source: IHS/Farstad PSV AHTS The possibility for Petrobras to lose its credit investment rating is clear as the rating company Moody s already has downgraded its rating in February This would directly affect the company s capability of refinancing its debt, and could slow down the actual aggressive business plan (USD 221 billion from 2015 to 2019). In order to recover its financial results and credibility, Petrobras recently announced to the market, a goal of selling USD 13 billion in assets to keep the focus on the pre salt oil cluster in Brazil. However, a good prospect is the new oil & gas bidding rounds confirmed on the roadmap that could generate additional opportunities in the industry. This bid round is expected to take place during the second half of 2015, and the government expects to raise close to BRL 5 billion with the exploration rights, in both pre salt and post salt areas. and 11% SUBSEA vessels (56 vessels). The rest is various type of vessels related to offshore services. From this total fleet, approximately 88% are on long-term contracts to Petrobras, 9% are working for international oil companies and independent companies and the remaining vessels are trading the spot market. Farstad Shipping s fleet working in Brazil remained stable and ended 2014 with 17 vessels. 14 vessels were on long-term contracts to Petrobras (9 AHTS, 3 PSV and 2 SUBSEA). The Far Senator (AHTS) was working for Karoon, an Australian E&P company. Far Sea (AHTS) worked in the spot market for several clients. The OSCV Far Samson, which is on a long term contract to Saipem, has also been working in Brazil in The AHTS Far Sagaris left Brazil in November 2014 due to the end of its contract within Queiroz Galvão, an independent Brazilian E&P company. By the end of 2014 there were 500 offshore supply vessels working in Brazilian waters of which 243 are Brazilian flagged and 257 flying international flags. Approximately 50% of the total fleet, 248 vessels, are PSVs (included in this number are PSVs converted to be dedicated Oil Spill Response Vessels (OSRV), 19% are AHTS (96 vessels), It is expected that Farstad Shipping might further increase its presence in the Brazilian market in 2015 with new tenders from Petrobras due out in February and March 2015 for AHTS and PSVs, and also due to ongoing business with other charterers. BUSINESS REVIEW FARSTAD SHIPPING ASA 69

70 THE NORTH-WEST EUROPEAN MARKET In 2014, 20.5% of the revenue in Farstad Shipping came from this region (20.3% in 2013). This is equivalent to a revenue of NOK million (NOK million). The activity in the region shows continued growth. In 2014 the demand for supply vessels here increased by 4.7% up from 2.0% in 2013, and ended at a year average of 314 (300) boat-years. However, as can be seen from the figures to the right, the 4 th Quarter activity was lower in 2014 compared with the 4 th Quarter figures in The average demand per quarter was: 1 st Quarter 315 boat-years (292 in the 1 st Quarter of 2013), 2 nd Quarter 324 boat-years (307), 3 rd Quarter 325 boat-years (302), and 4 th Quarter 297 boat-years (301). During 2014 the number of supply vessels in North-West Europe decreased by 3.5% (increase in 2013 by 4.5%). The reduction in fleet was not high enough to have any effect on the market, except for some weeks during 3 rd Quarter. The average utilization rate for 2014 was 90% (91%). For the individual quarters, the utilization rate was: 1 st Quarter 88% (89%), 2 nd Quarter 89% (92.5%), 3 rd Quarter 94% (91.5%), and 4 th Quarter 88% (89.5%). A general description of the rate level in 2014 is disappointing, and especially this is valid for the large AHTS. Except for the 3 rd Quarter the rate level was lower than for The rates for the PSV fleet were, except for a few weeks, lower than the year before. The rate development is shown in the figures on next page. The demand is traditionally split between term and spot activity. Of the total demand in 2014, 74% were term contracts, which is lower than the year before (75%). The trend has been downward for the last years, and is expected to drop also for This is the reflection of a deteriorating market balance. In 2014, an average of 232 vessels were on term contracts compared to 226 in The largest part of the term contracts (about 62%) are associated with fields in production. In 2014, an average of 143 boat-years were related to this type of activity (140 in 2013). Forecast for the activity for 2015 shows a 3% decrease in production related activity. The demand connected to drilling activity was in average 42 boat-years (38). The demand connected to this type of activity is expected to decrease significantly in The activity connected to the development of fields and infrastructure (pipelines, pumping stations and buoys) represented a demand of 8 boat-years in 2014 (9). We expect a similar level of this type of activity in Another 39 (38) supply vessels on average have been engaged in activities related to subsea construction, flowlines etc. in The same level is expected for The research company IHS forecasts a decrease of approximately 3% in the total demand for supply vessels in this region for Unless we see a substantial reduction in the available fleet, the market in the region will remain very soft during A reduction in the fleet by units is necessary in order to achieve a significant improvement of the market situation. This is not likely to happen in the short term. 70

71 OFFSHORE SERVICE VESSELS Number of vessels OFFSHORE SERVICE VESSELS NORTH-WEST EUROPE SORTED BY OWNERS AHTS > BHP and PSV > DWT (20 largest) Number of vessels PSV AHTS GULF ISLAND OFFSHORE DOF FARSTAD HAVILA MØKSTER SOLSTAD EIDESVIK REM OFFSHORE VIKING ATLANTIC OFFSHORE OLYMPIC NORDIC AMERICAN BOURBON OFFSHORE MÆRSK SIEM OFFSHORE TIDEWATER VROON DEEP SEA SUPPLY GOLDEN ENERGY PSV > 2000 DWT AHTS > BHP Source: IHS/Farstad PSV AHTS NORTH SEA AVERAGE WEEKLY SPOT RATES AHTS 20,000+ BHP GBP 000 NORTH SEA AVERAGE WEEKLY SPOT RATES PSV 900+ M 2 DECK AREA GBP Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Source: Platou NORTH SEA FLEET SUPPLY - DEMAND - UTILISATION Boat-year % JAN. 12 JUN. 12 DEC. 12 JUN. 13 DEC. 13 JUN. 14 DEC. 14 E-JUN. 15 E-DEC. 15 TERM DEMAND SPOT DEMAND TOTAL UTILISATION TERM UTILISATION FLEET SIZE Source: IHS/Farstad BUSINESS REVIEW FARSTAD SHIPPING ASA 71

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73 06 BUSINESS REVIEW 2014 FINANCIAL INFORMATION

74 ANALYTICAL INFORMATION The company s shares are listed on Oslo Børs (FAR). In addition the Company has two bonds listed on Oslo Børs (FAR03 and FAR04). OPENNESS CREATES TRUST One of Farstad Shipping s values is to be Visible and Transparent. A good and open dialogue with shareholders, bondholders, potential investors, analysts, media and the financial markets in general is a logical consequence of this Value. The company s goal is to distribute to its stakeholders as good and relevant information as possible about the Company and its businesses. Simultaneous notification to all parties is an important principle of our information work. We want our financial information to appear clear and recognizable. The intention is to give the shareholders and others the best possible understanding in order to be able to evaluate and understand the underlying values in the Company. The information is primarily distributed through the company s quarterly reports and the annual reports which are made available in press releases and on the company s website. All stock exchange announcements are distributed through Nasdaq OMX. The Company gives regular presentations in addition to meetings with analysts and investors. The Company gives priority to being available for analysts. THE SHARES The company s share capital is NOK 39.0 million, distributed on 39 million shares with the nominal value of NOK 1.00 in one share class. The price of the shares was NOK at the beginning of At the end of the year the price was NOK This represents a decline in value of 61.8%. The highest closing price in 2014 was on , while the lowest was NOK on The market capitalization (share price multiplied by the number of shares) was NOK 1,979 million at the end of The Company had 2,472 shareholders by compared to 2,190 shareholders at the end of 2013.The number of foreign shareholders was 136 (111), and they owned about 15,0% of the shares (about 19.5% in 2013). Foreign shareholders may own up to 33.3% of the shares. In 2014, 6.7 million Farstad Shipping shares were traded, compared to 5.2 million shares in Throughout the year the shares have been traded 244 out of 250 trading days. SHAREPRICE DEVELOPMENT INDEX FARSTAD SHIPPING ASA OSE10GI OSEBX Source: OSE 74 BUSINESS REVIEW FARSTAD SHIPPING ASA

75 THE BONDS Farstad Shipping ASA has two bonds listed on Oslo Børs. Nominal value of FAR03 is NOK 400 million, final maturity is February 2017 and the interest terms are NIBOR3M plus a margin of 4.20%. Nominal value of FAR04 is NOK 1 billion, final maturity is May 2018 and the interest terms are NIBOR3M plus a margin of 3.40%. THE COMPANY'S 10 LARGEST SHAREHOLDERS (PER 13 MARCH) % Tyrholm & Farstad AS FLPS - PRINC ALL SEC STOCK SUB 7.84 Folketrygdfondet 4.93 Pareto Aksje Norge 4.32 Jan Henry Farstad 2.69 Sverre Andreas Farstad 2.56 Pareto Aktiv 2.38 The Northern Trust Co Odin Offshore 1.15 Pareto Verdi 1.13 A detailed overview of the company s largest shareholders per is shown in Note 27 on page 50 in the Annual Report. DIVIDEND PER SHARE MARKET CAPITALIZATION Dividend NOK NOK billion DIVIDEND BOARD PROPOSAL DIVIDEND MARKET CAPITALIZATION 75

76 THE ANNUAL GENERAL MEETING Last year, the Annual General Meeting was held on Dividends were set to NOK 3.00 per share with payment to shareholders on 27 May. Shareholders, registered as share owners in the shares protocol on the date of the Annual General Meeting, were entitled to receive dividends. The shares were traded excluding dividends on The Annual General Meeting gave the Board of Directors extended authorisation to increase share capital by issuing up to 3.9 million shares without preferential rights for existing shareholders. The Board was also authorised to buy up to 3.9 million of the company s own shares. The authorisations are valid until the Annual General Meeting in SEGMENT INFORMATION The company s activities are divided into two equal operating segments based on regions and type of vessels. The operating segment based on region is divided into North-West Europe, Brazil and Asia Pacific, and the operating segment based on type of vessels is divided into platform supply vessel services (PSV), anchor handling tug supply vessel services (AHTS) and subsea services (SUBSEA). Note 3 in the Annual Report gives detailed financial information sorted by segments. The main figures relating to our geographical segments are summarized on page 77. The Board will propose a dividend for 2014 of NOK 3.00 per share to the Annual General Meeting on 12 May It will also be proposed that the above mentioned authorisations are renewed. Dividends are expected to be paid on 27 May BOOK VALUE PER SHARE EBIT PER SHARE NOK NOK SHARE PRICE BOOK VALUE PER SHARE INCL. GAIN ON SALES EXCL. GAIN ON SALES 76 Share Price EXCL. GAIN ON SALES INCL. GAIN ON SALES

77 PROFIT PER OPERATING SEGMENT REGION 2014 NOK Asia Pacific Brazil North-West Europe Other sectors Freight income and other income Operation and administration cost ( ) ( ) ( ) (89 732) Operating profit before depreciation (EBITDA) Depreciation/write-down ( ) ( ) ( ) ( ) Operating profit (EBIT) (32 181) EBITDA, per cent 33.4 % 37.4 % 43.5 % 45.4 % EBIT, per cent 16.9 % 20.3 % 21.7 % (19.6) % FINANCIAL DEVELOPMENT % NOK mill OPERATING INCOME EBITDA EBIT EBITDA-MARGIN EBIT-MARGIN 77

78 FINANCIAL COVENANTS SENIOR UNSECURED BONDS In the Bond agreements the following financial covenants remain in force as long as any amount is outstanding under the Bond. The financial covenants applies for Farstad Shipping ASA on a consolidated basis, and they are tested quarterly and reported to the Bond Trustee in writing. Consolidated Free Liquid Assets: The value of the Consolidated Free Liquid Assets shall at all times be at least equal to 50% of the scheduled instalments (any balloon payments excluded) on long term debt falling due within the next 12 months. Working Capital: The Working Capital shall be positive at all times. Working capital means the Current Assets less Current Liabilities. In this connection Current liabilities means the aggregate amount of the consolidated current liabilities reduced by the aggregate amount of 50% of the scheduled installments (any balloon payments excluded) on long term debt falling due within the next 12 months and 100 % of the scheduled balloon repayments of long term debt falling due within the next 12 months. Capitalization: The Value Adjusted Equity Ratio shall be minimum twenty five per cent (25.00%) at all times. Value Adjusted Equity Ratio means Value Adjusted Equity over Value Adjusted Total Assets. Value Adjusted Total Assets means the book value of all assets, adjusted for the difference between the book value of the Farstad Fleet and the Vessel Market Value. VESSEL MARKET VALUE Farstad Shipping obtains market value estimates for the fleet twice per year, at the end of the year and at mid-year. The market value of a vessel means the fair market value of a vessel being the arithmetic average of the valuations of the vessel determined by three Norwegian shipbrokers; Fearnley Offshore, Seabrokers and Platou Offshore. The valuations are given on the basis that vessels are immediately available for sale in the market at arm s length on normal commercial terms as between a willing buyer and a willing seller, on an as is, where is basis, free of any existing charter or other contract of employment and/or pool arrangement. The shipbrokers have quoted their values as high and low value estimates per vessel and all values are in NOK. Value adjusted equity Liquid assets vs current portion of short term debt Working capital % % NOK ,5 2,0 1,5 1, FS ASA GROUP FINANCIAL COVENANT FS ASA GROUP FINANCIAL COVENANT FS ASA GROUP FINANCIAL COVENANT 78

79 VAE (NOK MILL) Total Market value vessels Book value vessels Excess value vessels Book value equity VAE Book value ratio 34.2 % VAE ratio 42.7 % At the end of 2014, average value estimate for the Farstad fleet was estimated to NOK 18.7 billion. The fleet s market value has decreased by 5.4% in 2014 (decrease of 3.9% in 2013). The difference between the vessel market value and the book value of the fleet is NOK 2.9 billion. Based on the value estimates per , the Value Adjusted Equity Ratio (VAER) is calculated to 42.7% (49.9%). If the brokers average high values are used, the VAER is 44.1%, while using the average low values gives a VAER of 41.3%. A 10% decrease in average market values lead to a VAER of 37.5%. These calculations do not take into consideration any potential excess values in the Company other than those apparent from the difference between the vessels market value and their book value. INTEREST BEARING DEBT At the end of the year the gross interest bearing debt including bonds was NOK billion which gives a difference between the vessel market value and the debt of NOK 7.24 billion. This represents a potential for additional borrowing. The net interest bearing debt was NOK 9.07 billion.the company s repayment profile is presented below. VALUE OF VESSELS VS. MORTGAGE DEBT NOK mill. REPAYMENT PROFILE NOK mill MARKET VALUES BOOKED VALUES MORTGAGES half-year half-year half-year half-year half-year half-year half-year half-year half-year half-year half-year half-year -20 INSTALLMENTS BALLOONS BONDS GUARANTEE RENEWALS BUSINESS REVIEW FARSTAD SHIPPING ASA 79

80 KEY FIGURES FARSTAD SHIPPING ASA - GROUP (NOK MILL) Profit and loss account Operating income ex. sale of fixed assets Profit (loss) on sale of fixed assets (10.3) Operating expenses ( ) ( ) ( ) ( ) ( ) Operating profit before depreciation (EBITDA) Depreciation and write-down (856.1) (654.4) (575.9) (544.8) (516.2) Gain from gradual acquisition 70.4 Operating profit (EBIT) Net financial items (792.3) (589.6) (405.6) (413.7) (377.4) Pre-tax profit (7.0) Balance sheet Fixed assets Current assets Total assets Equity capital Non-current liabilities Current liabilities Net interest bearing debt (1) Liqudity Liquid assets Working capital (2) Cash flow (3) Capital Total assets Equity capital Equity ratio (4) 34.2 % 39.2 % 43.4 % 46.7 % 44.8 % Value adjusted equity ratio (5) 42.7 % 49.9 % 55.1 % 57.8 % 55.9 % Fleet Book value of vessels, incl. spare parts Mortgage debt vessels (6) Definitions: (1) Interest bearing debt- interest bearing liquid assets. (2) Current assets - short-term liabilities. (3) Pre-tax profit - taxes paid + depreciation/write-down + change in revalutation of liabilities - gain from gradual acqusition. (4) Equity capital as % of total assets. (5) Value adjusted equity as % of total value adjusted assets, for calculation method see page 79. (6) Debt excl. bonds 80

81 Liquidity ratio (1) EBITDA- margin excl. sale of fixed assets 37.2 % 37.9 % 35.5 % 39.1 % 41.6 % EBIT- margin excl. sale of fixed assets (2) 17.6 % 21.5 % 19.9 % 23.9 % 26.1 % Return on Equity (ROE) (3) (0.1 %) 3.8 % 4.6 % 8.5 % 6.7 % Return on capital employed (ROCE) (4) 5.2 % 6.3 % 5.8 % 7.9 % 7.8 % Number of vessels per 31 December Number of employees per 31 December LTIF (5) TRCF (6) PER SHARE Share capital (NOK million) Share price high Share price low Share price at Change in share price (61.8 %) (1.1 %) (10.9 %) (13.7 %) 36.2 % Market capitalization (7) (NOK mill.) Dividend per share Average number of outstanding shares (million) Profit per share incl. sale of fixed assets (8) (0.21) Profit per share excl. sale of fixed assets (0.60) Cash flow per share including sales profit (9) Cash flow per share excluding sales profit Booked equity per share Definitions: (1) Liquid assets divided by short-term debt. (2) Excl. gain from gradual acquisition in (3) Profit divided by average booked equity. (4) EBIT divided by total average booked equity and net interest bearing debt. (5) Lost Time Injury Frequency per one million hours worked. (6) Total Recordable Case Frequency per one million hours worked. (7) Total number of shares x share price at (8) Net profit, divided by average number of shares. (9) Pre-tax profit - taxes paid + depreciation + change in revaluation of liabilities, divided by average number of shares outstanding. 81

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83 07 BUSINESS REVIEW 2014 FLEET OVERVIEW

84 AHTS FLEET OVERVIEW (AT ) FAR SIRIUS YEAR BUILT: 2014 DESIGN: UT 731 CD OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: DWT: 3954 DECK-AREA: 755 M2 CHARTERER: WOODSIDE EMPLOYMENT: MAR OPT. FAR SIGMA YEAR BUILT: 2014 DESIGN: UT 731 CD OWNER: FARSTAD SUPPLY AS REGISTER: NOR BHP: DWT: 3954 DECK-AREA: 755 M2 EMPLOYMENT: LAY UP FAR STATESMAN YEAR BUILT: 2013 DESIGN: UT 731 CD OWNER: FARSTAD SUPPLY AS REGISTER: NOR BHP: DWT: 3954 DECK-AREA: 755 M2 EMPLOYMENT: LAY UP FAR SENATOR YEAR BUILT: 2013 DESIGN: UT 731 CD OWNER: FARSTAD SUPPLY AS REGISTER: NOR BHP: DWT: 3954 DECK-AREA: 755 M2 CHARTERER: KAROON EMPLOYMENT: MAR OPT. FAR SARACEN YEAR BUILT: 2010 DESIGN: UT 731 CD OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: DWT: 3954 DECK-AREA: 755 M2 CHARTERER: CHEVRON AUSTRALIA EMPLOYMENT: MAY 2017 FAR SHOGUN YEAR BUILT: 2010 DESIGN: UT 731 CD OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: DWT: 3990 DECK-AREA: 755 M2 CHARTERER: CHEVRON AUSTRALIA EMPLOYMENT: MAY 2017 FAR SAGARIS YEAR BUILT: 2009 DESIGN: UT 731 CD OWNER: FARSTAD SUPPLY AS REGISTER: IOM BHP: DWT: 3912 DECK-AREA: 755 M2 EMPLOYMENT: LAY UP FAR SCORPION YEAR BUILT: 2009 DESIGN: UT 731 CD OWNER: FARSTAD SUPPLY AS REGISTER: NOR BHP: DWT: 3934 DECK-AREA: 755 M2 EMPLOYMENT: SPOT FAR SCIMITAR YEAR BUILT: 2008 DESIGN: UT 712 L OWNER: FARSTAD SUPPLY AS REGISTER: IOM BHP: DWT: 2913 DECK-AREA: 540 M2 CHARTERER: BHP EMPLOYMENT: JAN OPT. 84

85 UNDER CONSTRUCTION AHTS 31 VESSELS Specially designed vessels for anchor handling and towing offshore platforms, barges and production modules/vessels. CONTRACT CHARTERER S OPTION SPOT MARKET FAR SABRE YEAR BUILT: 2008 DESIGN: UT 712 L OWNER: FARSTAD SUPPLY AS REGISTER: IOM BHP: DWT: 2350 DECK-AREA: 540 M2 CHARTERER: INPEX EMPLOYMENT: FEB OPT. FAR SAPPHIRE YEAR BUILT: 2007 DESIGN: UT 732 CD OWNER: FARSTAD SUPPLY AS REGISTER: NOR BHP: DWT: 4583 DECK-AREA: 800 M2 EMPLOYMENT: SPOT FAR SOUND YEAR BUILT: 2007 DESIGN: UT 712 L OWNER: FARSTAD SUPPLY AS REGISTER: IOM BHP: DWT: 2350 DECK-AREA: 540 M2 CHARTERER: BHP EMPLOYMENT: JAN OPT. BOS TURQUESA YEAR BUILT: 2007 DESIGN: UT 722 L OWNER: FARSTAD SHIPPING S.A. REGISTER: BRA BHP: DWT: 2640 DECK-AREA: 475 M2 EMPLOYMENT: SPOT FAR STRAIT YEAR BUILT: 2006 DESIGN: UT 712 L OWNER: FARSTAD SHIPPING PTE. LTD. REGISTER: SGP BHP: DWT: 2965 DECK-AREA: 540 M2 CHARTERER: INPEX EMPLOYMENT: FEB OPT. FAR STREAM YEAR BUILT: 2006 DESIGN: UT 712 L OWNER: FARSTAD SUPPLY AS REGISTER: IOM BHP: DWT: 3068 DECK-AREA: 540 M2 CHARTERER: INPEX EMPLOYMENT: APR OPT. FAR SWORD YEAR BUILT: 2006 DESIGN: UT 712 L OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: DWT: 3024 DECK-AREA: 510 M2 CHARTERER: IMPEX EMPLOYMENT: MAR OPT. BOS TURMALINA YEAR BUILT: 2006 DESIGN: UT 722 L OWNER: FARSTAD SHIPPING S.A. REGISTER: BRA BHP: DWT: 2721 DECK-AREA: 450 M2 CHARTERER: PETROBRAS EMPLOYMENT: OCT OPT. BOS TOPAZIO YEAR BUILT: 2005 DESIGN: UT 728 L OWNER: FARSTAD SHIPPING S.A. REGISTER: BRA BHP: DWT: 2882 DECK-AREA: 560 M2 CHARTERER: PETROBRAS EMPLOYMENT: AUG OPT. Certain freight contracts con tain clauses which give the char terer the right to cancel the contract. 85

86 AHTS FLEET OVERVIEW (AT ) LADY ASTRID YEAR BUILT: 2003 DESIGN: UT 712 OWNER: P/R INTERNATIONAL OFFSHORE SERVICES ANS REGISTER: NIS BHP: DWT: 2656 DECK-AREA: 510 M2 EMPLOYMENT: SPOT LADY CAROLINE YEAR BUILT: 2003 DESIGN: UT 712 OWNER: P/R INTERNATIONAL OFFSHORE SERVICES ANS REGISTER: NIS BHP: DWT: 2656 DECK-AREA: 510 M2 CHARTERER: INPEX EMPLOYMENT: JAN OPT. FAR SALTIRE YEAR BUILT: 2002 DESIGN: UT 728 L OWNER: FARSTAD MARINE AS REGISTER: IOM BHP: DWT: 2195 DECK-AREA: 490 M2 CHARTERER: CONOCO AUSTRALIA EMPLOYMENT: MAR OPT. LADY GURO YEAR BUILT: 2001 DESIGN: UT 719 OWNER: FARSTAD SHIPPING PTE. LTD. REGISTER: NIS BHP: 5450 DWT: 2048 DECK-AREA: 403 M2 CHARTERER: SHELL PHILIPPINES EMPLOYMENT: OCT OPT. FAR SCOUT YEAR BUILT: 2001 DESIGN: UT 722 L OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: DWT: 2806 DECK-AREA: 570 M2 CHARTERER: PETROBRAS EMPLOYMENT: FEB OPT. FAR SANTANA YEAR BUILT: 2000 DESIGN: UT 730 OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: DWT: 2964 DECK-AREA: 500 M2 CHARTERER: PETROBRAS EMPLOYMENT: JUL FAR SOVEREIGN YEAR BUILT: 1999 DESIGN: UT 741 OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: DWT: 3961 DECK-AREA: 620 M2 CHARTERER: PETROBRAS EMPLOYMENT: MAR OPT. FAR SENIOR YEAR BUILT: 1998 DESIGN: UT 722 L OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: DWT: 2784 DECK-AREA: 585 M2 CHARTERER: PETROBRAS EMPLOYMENT: FEB OPT. LADY SANDRA YEAR BUILT: 1998 DESIGN: KMAR 404 OWNER: FARSTAD SHIPPING PTE. LTD. REGISTER: SGP BHP: DWT: 2725 DECK-AREA: 540 M2 EMPLOYMENT: SPOT 86

87 UNDER CONSTRUCTION AHTS 31 VESSELS Specially designed vessels for anchor handling and towing offshore platforms, barges and production modules/vessels. CONTRACT CHARTERER S OPTION SPOT MARKET FAR SAILOR YEAR BUILT: 1997 DESIGN: UT 722 OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: DWT: 2681 DECK-AREA: 540 M2 CHARTERER: PETROBRAS EMPLOYMENT: NOV FAR FOSNA YEAR BUILT: 1993 DESIGN: UT 722 OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: DWT: 2418 DECK-AREA: 570 M2 EMPLOYMENT: SPOT FAR GRIP YEAR BUILT: 1993 DESIGN: UT 722 OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: DWT: 2418 DECK-AREA: 570 M2 EMPLOYMENT: SPOT FAR SKY (SOLD MARCH ) YEAR BUILT: 1991 DESIGN: ME 303 II OWNER: - REGISTER: - BHP: DWT: 1920 DECK-AREA: 540 M2 CHARTERER: - EMPLOYMENT: - FAR SEA YEAR BUILT: 1991 DESIGN: ME 303 II OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: DWT: 1920 DECK-AREA: 540 M2 EMPLOYMENT: SPOT Certain freight contracts con tain clauses which give the char terer the right to cancel the contract. 87

88 PSV FLEET OVERVIEW (AT ) FAR SYGNA YEAR BUILT: 2014 DESIGN: VARD 1 07 OWNER: FARSTAD SUPPLY AS REGISTER: NOR BHP: DWT: 5700 DECK-AREA: 1170 M2 CHARTERER: STATOIL EMPLOYMENT: SEPT OPT. FAR SUN YEAR BUILT: 2014 DESIGN: VARD 1 07 OWNER: FARSTAD SUPPLY AS REGISTER: NOR BHP: DWT: 5635 DECK-AREA: 1170 M2 CHARTERER: STATOIL EMPLOYMENT: JULY OPT. FAR STARLING YEAR BUILT: 2013 DESIGN: PSV 08 CD OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: 9996 DWT: 4000 DECK-AREA: 810 M2 CHARTERER: WOODSIDE EMPLOYMENT: SEPT OPT. FAR SITELLA YEAR BUILT: 2013 DESIGN: PSV 08 CD OWNER: FARSTAD SHIPPING PTE. LTD. REGISTER: SGP BHP: 9996 DWT: 4000 DECK-AREA: 810 M2 CHARTERER: SHELL AUSTRALIA EMPLOYMENT: JUN OPT. FAR SPICA YEAR BUILT: 2013 DESIGN: PSV 08 CD OWNER: FARSTAD SUPPLY AS REGISTER: IOM BHP: 9996 DWT: 4000 DECK-AREA: 810 M2 EMPLOYMENT: SPOT FAR SOLITAIRE YEAR BUILT: 2012 DESIGN: UT 754 WP OWNER: FARSTAD SUPPLY AS REGISTER: NOR BHP: DWT: 6336 DECK-AREA: 1023 M2 EMPLOYMENT: SPOT FAR SKIMMER YEAR BUILT: 2012 DESIGN: PSV 08 CD OWNER: FARSTAD SHIPPING PTE. LTD. REGISTER: NIS BHP: 9996 DWT: 4000 DECK-AREA: 810 M2 CHARTERER: SHELL AUSTRALIA EMPLOYMENT: SEPT OPT. FAR SCOTSMAN YEAR BUILT: 2012 DESIGN: PSV 08 CD OWNER: FARSTAD MARINE AS REGISTER: IOM BHP: 9996 DWT: 4000 DECK-AREA: 810 M2 CHARTERER: STATOIL EMPLOYMENT: MARCH OPT. FAR SERVER YEAR BUILT: 2010 DESIGN: HY832 CD OWNER: FARSTAD MARINE AS REGISTER: IOM BHP: 7500 DWT: 4000 DECK-AREA: 800 M2 EMPLOYMENT: SPOT 88

89 PSV 26 VESSELS Specially designed vessel for transporting supplies and equipment to and from offshore installations. These vessels transport general cargo, primarily in containers. UNDER CONSTRUCTION CONTRACT CHARTERER S OPTION SPOT MARKET FAR SERENADE YEAR BUILT: 2009 DESIGN: UT 751 CD OWNER: FARSTAD SUPPLY AS REGISTER: NOR BHP: 9465 DWT: 5944 DECK-AREA: 1003 M2 CHARTERER: STATOIL EMPLOYMENT: APR FAR SEARCHER YEAR BUILT: 2008 DESIGN: UT 751 E OWNER: FARSTAD SUPPLY AS REGISTER: NOR BHP: 9465 DWT: 5127 DECK-AREA: 1091 M2 EMPLOYMENT: SPOT FAR SEEKER YEAR BUILT: 2008 DESIGN: UT 751 E OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: 9465 DWT: 4905 DECK-AREA: 1091 M2 CHARTERER: INPEX EMPLOYMENT: MAY OPT. FAR SPIRIT YEAR BUILT: 2007 DESIGN: VS 470 MK II OWNER: FARSTAD MARINE AS REGISTER: IOM BHP: 6530 DWT: 3624 DECK-AREA: 725 M2 CHARTERER: CHEVRON EMPLOYMENT: APR OPT. FAR SWAN YEAR BUILT: 2006 DESIGN: VS 470 MK II OWNER: FARSTAD SHIPPING PTE. LTD. REGISTER: SGP BHP: 5500 DWT: 3628 DECK-AREA: 704 M2 EMPLOYMENT: SPOT FAR SPLENDOUR YEAR BUILT: 2003 DESIGN: P 106 OWNER: FARSTAD SUPPLY AS REGISTER: IOM BHP: 7760 DWT: 3503 DECK-AREA: 691 M2 CHARTERER: PETERSON EMPLOYMENT: APR OPT. FAR SYMPHONY YEAR BUILT: 2003 DESIGN: P 105 OWNER: FARSTAD SUPPLY AS REGISTER: NOR BHP: 9930 DWT: 4929 DECK-AREA: 951 M2 CHARTERER: CONOCOPHILLIPS EMPLOYMENT: APR OPT. LADY MELINDA YEAR BUILT: 2003 DESIGN: UT 755 OWNER: FARSTAD SHIPPING PTE. LTD. REGISTER: SGP BHP: 5450 DWT: 2777 DECK-AREA: 567 M2 CHARTERER: CONOCOPHILLIPS EMPLOYMENT: DEC LADY GRETE YEAR BUILT: 2002 DESIGN: UT 755 L OWNER: FARSTAD SHIPPING PTE. LTD. REGISTER: SGP BHP: 5450 DWT: 3264 DECK-AREA: 678 M2 CHARTERER: CONOCO EMPLOYMENT: MAR OPT. Certain freight contracts con tain clauses which give the char terer the right to cancel the contract. 89

90 PSV FLEET OVERVIEW (AT ) LADY GRACE YEAR BUILT: 2001 DESIGN: UT 755 OWNER: P/R INTERNATIONAL OFFSHORE SERVICES ANS REGISTER: IOM BHP: 5450 DWT: 2936 DECK-AREA: 615 M2 CHARTERER: WOODSIDE EMPLOYMENT: MAY 2015 FAR STAR YEAR BUILT: 1999 DESIGN: UT 745 OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: 9600 DWT: 4403 DECK-AREA: 817 M2 CHARTERER: PETROBRAS EMPLOYMENT: AUG OPT. FAR SUPPLIER YEAR BUILT: 1999 DESIGN: VS 483 OWNER: FARSTAD MARINE AS REGISTER: IOM BHP: 6700 DWT: 4709 DECK-AREA: 896 M2 CHARTERER: ESSO AUSTRALIA EMPLOYMENT: MAY OPT. FAR STRIDER YEAR BUILT: 1999 DESIGN: VS 483 OWNER: FARSTAD MARINE AS REGISTER: IOM BHP: 6700 DWT: 4709 DECK-AREA: 902 M2 CHARTERER: PETROBRAS EMPLOYMENT: AUG OPT. FAR SUPPORTER YEAR BUILT: 1996 DESIGN: UT 750 OWNER: FARSTAD MARINE AS REGISTER: IOM BHP: 7200 DWT: 4680 DECK-AREA: 956 M2 CHARTERER: PETROBRAS EMPLOYMENT: MAY 2016 FAR SERVICE YEAR BUILT: 1995 DESIGN: UT 745 OWNER: FARSTAD MARINE AS REGISTER: IOM BHP: 7200 DWT: 4683 DECK-AREA: 965 M2 CHARTERER: ADTI EMPLOYMENT: MAR FAR SCANDIA YEAR BUILT: 1991 DESIGN: UT 705 OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: 6700 DWT: 3100 DECK-AREA: 868 M2 CHARTERER: ESSO AUSTRALIA EMPLOYMENT: JUL OPT. FAR SUPERIOR YEAR BUILT: 1990 DESIGN: UT 705 L OWNER: FARSTAD MARINE AS REGISTER: IOM BHP: 6600 DWT: 3796 DECK-AREA: 988 M2 EMPLOYMENT: LAY UP 90

91 SUBSEA FLEET OVERVIEW (AT ) UNDER CONSTRUCTION CONTRACT CHARTERER S OPTION SPOT MARKET FRAMEWORK AGREEMENT SUBSEA 4 VESSELS + 3 NEWBUILDS Vessels specially designed for operations at great depths, installation and maintenance of seabed facilities. FAR 838 TBN YEAR BUILT: 2016 DESIGN: VARD 3 17 OWNER: FARSTAD CONSTRUCTION AS REGISTER: NOR BHP: - DWT: - DECK-AREA: 875 M2 CHARTERER: TECHNIP NORGE AS EMPLOYMENT: MAR OPT. FAR SENTINEL TBN YEAR BUILT: 2015 DESIGN: VARD 3 07 OWNER: FARSTAD CONSTRUCTION AS REGISTER: NIS BHP: - DWT: - DECK-AREA: 1800 M2 CHARTERER: EMPLOYMENT: FAR SLEIPNER TBN YEAR BUILT: 2015 DESIGN: VARD 3 07 OWNER: FARSTAD CONSTRUCTION AS REGISTER: NIS BHP: DWT: 9200 DECK-AREA: 1800 M2 CHARTERER: TECHNIP EMPLOYMENT: SEP INCL. OPT. FAR SAMSON YEAR BUILT: 2009 DESIGN: UT 761 CD OWNER: FARSTAD CONSTRUCTION AS REGISTER: IOM BHP: DWT: 6103 DECK-AREA: 1450 M2 CHARTERER: SAIPEM EMPLOYMENT: JUN OPT. FAR SWIFT YEAR BUILT: 2003 DESIGN: UT 755 OWNER: FARSTAD SUPPLY AS REGISTER: NIS BHP: 5450 DWT: 3084 DECK-AREA: 588 M2 CHARTERER: PETROBRAS EMPLOYMENT: OCT OPT. FAR SAGA YEAR BUILT: 2001 DESIGN: UT 745 L OWNER: FARSTAD SUPPLY AS REGISTER: NOR BHP: DWT: 3054 DECK-AREA: 510 M M2 CHARTERER: PETROBRAS EMPLOYMENT: MAY OPT. FAR SCOTIA YEAR BUILT: 2001 DESIGN: UT 755 OWNER: FARSTAD CONSTRUCTION AS REGISTER: IOM BHP: 5450 DWT: 3022 DECK-AREA: 468 M2 CHARTERER: PETROBRAS EMPLOYMENT: NOV OPT. Certain freight contracts con tain clauses which give the char terer the right to cancel the contract. 91

92 GLOSSARY APAC ASA BHP Charterer Asia Pacific Public Limited Company in Norway Brake Horsepower (measure of an engine s horsepower) The company paying for the assignment Charter Party (CP) Contract for chartering a vessel CIRR CO2 DNV GL DP DP HIL DWT EBIT EBITDA ECDIS FAR FSOSC GDP GT HSEQ IFRS IHS IMR IMS ISM ISO ISPS LTIF NCR NIS NOG NOR NOx OHSAS OSC OSCV PLSV SEEMP SOx STCW TRCF UNGC VAE Commercial Interest Reference Rate Carbon Dioxide Det Norske Veritas Germanischer Lloyd. Classification company. Controlling and approving the vessels technical condition, security and quality according to the company s own rules and the national laws Dynamic Positioning Dynamic Positioning Hardware in Loop Deadweight Tonnage (measure of how much a vessel can safely carry) Operating profit Operating profit before depreciation Electronic Chart Display and Information System The company code (ticker) at the Oslo Stock Exchange Farstad Shipping Offshore Simulation Centre Gross Domestic Product Gross Tonnage Health, Safety, Environment and Quality International Financial Reporting Standards Inventory of Hazardous Substances Inspection, Maintenance and Repair Integrated Management System International Safety Management code International Standards Organization International Ship and Port Facility Security code. International framework to detect/ assess security threats and take preventive measures against security incidents affecting ships or port facilities used in international trade Lost Time Injury Frequency Non-Conformance Reports Norwegian International Ship Register Norwegian Oil and Gas Association Norwegian Ordinary Ship Register Nitrogen Oxides Occupational Health & Safety Advisory Services Offshore Simulator Centre AS - Aalesund Offshore Subsea Construction Vessel Pipe Lay Support Vessel Ship Energy Efficiency Management Plan Sulphur Oxides Standards of Training, Certification and Watchkeeping Total Recordable Case Frequency United Nations Global Compact Value Adjusted Equity 92 BUSINESS REVIEW FARSTAD SHIPPING ASA

93 Design: Havnevik AS Available in digital version: Photo/illustrations: Tony Hall, Vegard Fimland, Harald Walderhaug, Ståle Wattø, Farstad Shipping archive, Fuglefjellet, Havnevik, Global Maritime.

94 FARSTAD SHIPPING ASA PO. Box 1301 Sentrum, 6001 Aalesund, Norway Tel: , FARSTAD SHIPPING LTD. Farstad House, Badentoy Avenue, Badentoy Park, Portlethen, Aberdeen AB12 4YB, Scotland Tel: , [email protected] FARSTAD SHIPPING (INDIAN PACIFIC) PTY. LTD. Melbourne: GPO Box 5111, Melbourne Victoria, 3001 Australia Tel: , [email protected] Perth: Level 9, 16 St Georges Terrace Perth WA 6000 Australia Tel: , [email protected] FARSTAD SHIPPING OFFSHORE SIMULATION CENTRE PTY. LTD. PO Box 1375 Bibra Lake DC, Bibra Lake WA 6965 Perth Australia Tel: , [email protected] FARSTAD SHIPPING PTE. LTD. 78 Shenton Way, #19-02, Singapore Tel: , [email protected] FARSTAD SHIPPING S.A. Macaé: Rua Abilio Moreira de Miranda, No. 606, Imbetiba, Macaé, RJ CEP , Brazil Tel: , [email protected] Rio de Janeiro: Av. Rio Branco, 01 - Sala Centro CEP , Rio de Janeiro - RJ, Brazil Tel: , [email protected]