Supply market report Siem Offshore 3Q12 Preview Recommendation Buy - Target NOK 12.5 23.10.2012 Petter Narvestad (+47) 23 11 30 40 pn@fondsfinans.no This report was prepared by an analyst employed by Fondsfinans ASA, the Norwegian affiliate of Fondsfinans Inc., who is not registered as a research analyst with FINRA or subject to FINRA rules governing research. See the last page of this report for Important Disclosure Information 1
Positive dayrate development seen in 2H12 as expected SUPPLY MARKET OVERVIEW Seasonal dayrate evolution AHTS & PSV GBP/day 250000 200000 150000 100000 50000 AHTS 16000 BHP+ Demand side: - Back-end heavy drilling- & subsea activity in 2012 - Fewer period contracts relative to 2011 - Brazil fleet dropping off in 2012 0 1 5 9 13 17 21 25 29 33 37 41 45 49 GBP/day High/Low 2005-2011 Average 2011 2012 50000 PSV 4000 dwt+ 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 1 5 9 13 17 21 25 29 33 37 41 45 49 High/Low 2005-2011 Average 2012 2011 Source: Fondsfinans Research, Hagland Offshore, broker reports Supply side: - Owners moving vessels back to the North Sea expecting a strong market - Larger spot fleet - Weak underlying PSV market as newbuilds are delivered 2
2012 drilling activity lagging... DRILLING ACTIVITY NCS* exploration drilling activity OSV = Offshore Support Vessel (PSV, AHTS, Standby) North Sea spot market has picked up, but not delivered the same spikes as seen last year t Drilling of exploration/appraisal wells lagging targets - Late arrival of new rigs - More demanding geology - Successful wells take longer to complete Disappointing drilling activity: Only 27 exploration wells started in 9M12 leaving vs. an annual forecast of 55 from NPD at start of the year and 41 as of 9m11 Source: Fondsfinans Research, Norwegian Petroleum Directorate (NPD), Deloitte *NCS: Norwegian Continental Shelf Not possible to close the gap in 4Q12 Still potential for high dayrates through November 3
Fixing activity is volatile but rising high levels SPOT MARKET OVERVIEW WEEKLY REPORTED SPOT FIXTURES 60 Other 50 Supply duties Rig Move 40 30 20 10 0 Fondsfinans Research, Hagland Offshore, Westshore 4
What a difference Greenland makes on vessel supply SPOT MARKET OVERVIEW VESSEL SUPPLY VS. LARGE AHTS SPOT RATE 4X AHTS and 3X PSV drilling off Greenland 160000 95 140000 AHTS dayrate 90 120000 Spot fleet 85 100000 80000 80 75 60000 70 40000 65 20000 60 0 55 5 30.03.2009 30.05.2009 30.07.2009 30.09.2009 30.11.2009 31.01.2010 31.03.2010 31.05.2010 31.07.2010 30.09.2010 30.11.2010 31.01.2011 31.03.2011 31.05.2011 31.07.2011 30.09.2011 30.11.2011 31.01.2012 31.03.2012 31.05.2012 31.07.2012 30.09.2012 no. vessels GBP/day Fondsfinans Research, Hagland Offshore, Westshore
Who do we spot in the spot market? SPOT MARKET OVERVIEW KEY SPOT MARKET PLAYERS AHTS PSV Current End 2Q12 End 1Q12 End 2011 Current End 2Q12 End 1Q12 End 2011 Siem Offshore 5 5 6 5 0 0 0 1 Deep Sea Supply 3 3 2 1 0 0 0 0 Farstad Shipping 3 3 2 1 5 1 2 2 Solstad Offshore 3 4 3 1 3 1 1 0 Havila Shipping 3 2 3 3 1 1 1 1 DOF 2 1 2 2 1 1 0 2 Maersk 4 4 5 6 0 0 1 0 Viking Supply Ships 5 5 6 5 1 1 1 1 Rem Offshore 1 1 1 0 1 2 2 4 Sum 29 28 30 24 12 7 8 11 Other 10 12 12 17 36 40 34 32 Total 39 40 42 41 48 47 42 43 Fondsfinans Research, Hagland Offshore, Westshore 6
...which, puts utilization under pressure SPOT MARKET OVERVIEW SPOT MARKET UTILIZATION 100% 90% 80% 70% 60% 50% 40% 30% 7 jan. 11 feb. 11 mar. 11 apr. 11 mai. 11 jun. 11 jul. 11 aug. 11 sep. 11 okt. 11 nov. 11 des. 11 jan. 12 feb. 12 mar. 12 apr. 12 mai. 12 jun. 12 jul. 12 aug. 12 sep. 12 okt. 12 Rolling 4-week utilization AHTS PSV Fondsfinans Research, Hagland Offshore, Westshore
..and for those who are still in doubt: Yes there is a link between utilization and dayrates SPOT MARKET OVERVIEW UTILIZATION & DAYRATES Rolling 4-week utilization 85% AHTS utilization 140000 AHTS Spot Rate 80% 120000 75% 100000 70% 65% 80000 60% 60000 55% 40000 50% 45% 20000 40% 0 8 jan. 11 feb. 11 mar. 11 apr. 11 mai. 11 jun. 11 jul. 11 aug. 11 sep. 11 okt. 11 nov. 11 des. 11 jan. 12 feb. 12 mar. 12 apr. 12 mai. 12 jun. 12 jul. 12 aug. 12 sep. 12 okt. 12 Fondsfinans Research, Hagland Offshore, Westshore
Fundamentals point to improved market conditions despite 2012 spot weakness SUPPLY MARKET OVERVIEW A clear mismatch between AHTS and number of new drilling units coming to market, FPSOs and other installations - Rig newbuilding fleet (jack-ups & semis) at 22% of existing fleet - PSV fleet growth on the other hand may seem excessive, but in demand from the new ultra-deepwater units working only on DP International absorption of vessels remain key for North Sea spot balance - Brazil is back in tendering mode after long break - Covers all vessel sizes - Deepwater West Africa activity increasing & East Africa emerging - Drilling in US GoM is back at pre Macondo levels and vessels leaving after the spill is returning back Norwegian shelf activity rising - New large discoveries such as Johan Sverdrup, Skrugard & Havis - Promotes more exploration and development drilling - Opens up more Barents Sea acreage - Will drive demand for large AHTS and large PSVs 9
We see stable EBITDA in 3Q12 vs. 2Q12 2Q12 ESTIMATES Estimates & consensus 3Q11 2Q12 3Q12E Revenues 93.4 90.9 90.8 87.3 EBITDA 35.7 32.8 32.0 29.0 EBIT incl associated 14.9 11.6 10.9 9.0 Net interest -8.4-11.7-7.5 EOI and currency -24.8-17.3-1.8 Pre-tax profit -18.4-17.5 3.4 2.0 Net profit -20.1-17.6 3.4 1.0 Source: Fondsfinans Research, Siem Offshore BBG consensus EPS reported -0.05-0.04 0.01 0.01 EPS adjusted 0.01 0.00 0.01 0.00 Estimate changes 2012E 2013E Revenues 366 452 Change (%) 0 % 0 % EBITDA 129 180 Change -1 % 0 % EBIT 58 87 Change -2 % 0 % Pre-tax profit 19 66 Change -5 % 0 % Net profit 19 69 Change -5 % 0 % EPS adjusted 0.03 0.17 Change -8 % 0 % Avg. dayrates USD 1000 2012E 2013E Mid-size PSV 22 24 Change 0 % 0 % Large PSV 25 27 Change 0 % 0 % MPSV/PSV w ith crane 42 49 Change 0 % 0 % AHTS average 47 55 Change -1 % 0 % 10
Target maintained at NOK 12.5 Buy reiterated VALUATION NAV model USDm Current USD/share Value of medium sized PSVs MV 155 0.39 Value large PSVs MV 206 0.52 Value MPSVs MV 294 0.74 New building instalments BV 50 0.13 AHTS MV 1016 2.57 Joides Resolution DCF 37 0.09 Big Orange MV 5 0.01 Well Intervention Servises (WIS) PSV vessels in Brazil BV 42 0.10 ModFrag 0 0.00 Total asset values 1804 4.56 Cash 101 0.25 Other current assets 95 0.24 Current liabuilities -69-0.17 Other long-term assets/liabilities -22-0.06 Interest bearing debt -861-2.18 Net asset value 1047.2 2.64 NAV USD per share 2.64 NAV NOK per share USD/NOK 5.60 15.2 We assume unchanged vessel values No value put on Siem WIS Vessel NAV at NOK 15 share We apply 15% discount to NAV in target Source: Fondsfinans research 11
Key figures ESTIMATES, MULTIPLES & PEERS Company overview Key figures (USDm) 2005 2006 2007 2008 2009 2010 2011 2012E 2013E Revenues 31 82 159 193 191 238 343 369 455 EBITDA 2 20 80 88 58 75 123 129 180 Operating profit -1 21 61 56 22 22 42 58 87 Net interest and other -8 28 53-80 74-16 -48-28 -24 Pre-tax profit -4 46 122-24 102 10-4 19 66 Net profit -5 45 115-26 102 10-7 19 69 EPS reported -0.04 0.28 0.59-0.10 0.35 0.03-0.02 0.05 0.18 EPS, adj. diluted 0.02 0.08 0.22 0.19 0.08 0.02 0.02 0.03 0.18 EBITDA grow th (Y/Y) 912 % 290 % 10 % -34 % 29 % 65 % 5 % 39 % EBITDA margin 7 % 25 % 50 % 45 % 30 % 31 % 36 % 35 % 40 % EV 72 446 982 505 908 1448 1374 1374 1374 Marketcap 74 304 901 299 553 753 753 753 753 EV/EBITDA 35.8 21.8 12.3 5.8 15.7 19.4 11.2 9.8 7.6 P/E, adj 25.0 23.3 15.9 6.3 19.3 115.7 58.6 43.2 7.8 P/BV 1.35 2.31 1.86 0.73 0.81 0.99 0.75 0.72 0.66 ROE 6 % 13 % 14 % 11 % 4 % 1 % 1 % 2 % 9 % ROCE -2 % 13 % 14 % 9 % 3 % 2 % 3 % 4 % 6 % EV/EBITDA at target 12.4 9.4 P/E, adj at target 69.7 12.5 EV/EBITDA - Full peer group Median 8.3 6.0 P/E full peer group median 14.8 7.3 Average dayrates USD AHTS 47.4 55.2 MRSV 38.1 41.8 PSV 23.8 25.3 ORSV Average OPEX USD AHTS -22.9-24.4 MRSV -20.8-21.0 PSV -11.9-12.2 ORSV Source: Fondsfinans Research, Siem Offshore 12
Multiples overview PEER PRICING Peer table FUNDAMENTALS EV/EBITDA P/E adj. Company Ticker Crncy M. cap. Net. debt EV Price 2010 2011 2012E 2013E 2010 2011 2012E 2013E Siem Offshore (FF Est) USD 540 814 1 390 7.75 19.4 11.2 9.8 7.6 115.7 58.6 43.2 7.8 Deep Sea Supply (FF Est) USD 207 453 660 9.24 16.2 21.6 13.5 8.0 na na 62.4 6.3 Siem Offshore (Cons) SIOFF NO USD 540 850 1 390 7.75 17.0 11.6 11.1 8.2 45.5 high high 9.7 DeepSea Supply (Cons) DESSC NO USD 207 453 660 9.24 13.2 14.9 10.9 6.2 neg. neg. 30.7 4.2 Dof Asa DOF NO USD 469 3 947 4 416 24.00 14.2 12.0 8.3 na neg. 27.6 7.3 4.7 Farstad Shipping FAR NO USD 858 946 1 805 125.00 7.5 6.9 7.0 5.6 9.9 9.4 9.3 6.4 Havila Shipping Asa HAVI NO USD 110 876 986 29.10 11.3 11.8 9.0 7.6 neg. neg. 7.9 2.7 Eidesvik Offshore Asa EIOF NO USD 181 452 633 34.10 6.8 7.8 6.6 5.8 10.4 9.2 12.3 4.6 Solstad Offshore Asa SOFF NO USD 565 1 712 2 277 83.00 11.0 10.8 8.7 7.4 high neg. 6.2 4.1 BOURBON SA GBB FP USD 1 827 2 626 4 453 20.66 11.4 11.0 8.7 7.0 35.9 high 20.5 10.4 Gulfmark Offshore Inc-Cl A GLF US USD 870 200 1 070 32.28 8.7 7.9 7.9 5.3 19.1 17.6 18.2 8.3 Tidew ater Inc TDW US USD 2 349 709 3 058 47.14 7.6 10.3 9.9 7.6 9.4 19.4 24.6 13.8 Hornbeck Offshore Services HOS US USD 1 226 461 1 687 34.65 9.3 14.0 7.8 5.7 27.5 neg. 25.4 13.0 Seacor Holdings Inc CKH US USD 1 767 667 2 434 84.33 n.a. 10.1 8.7 5.9 6.9 26.6 26.6 12.2 Average 9.8 10.3 8.3 6.4 17.0 18.3 15.8 8.0 Median 9.3 10.5 8.5 5.9 10.4 18.5 15.2 7.3 Source: Fondsfinans Research, Bloomberg 13
Market favors share liquidity & dividends FUNDAMENTAL PRICING Historical P/NAV Source: Fondsfinans Research, Company reports 14
Spot spikes normally drives share prices SHARE PRICE VS: SPOT RATES 15
12-month relative performance PEER PERFORMANCE Source: Fondsfinans Research, Bloomberg Farstad DOF Siem Solstad DeepSea Havila Eidesvik -14 % -7 % -12 % 4 % 12 % -31 % 12 % 16
Solid demand outlook for 2H12 and 2013 SPOT MARKET OVERVIEW THE DEMAND SIDE OF THE EQUATION Exploration drilling Solid pick-up in exploration drilling Exploration and production drilling Adding estimate for production and injection wells the picture improves further Source: Fondsfinans Research, NPD, ODS Petrodata Remember Subsea activity also peaks in 2H and generates additional OSV demand 17
UK still licking post financial crisis wounds but represent huge OSV demand potential SPOT MARKET OVERVIEW THE DEMAND SIDE OF THE EQUATION UK offshore drilling UK exploration drilling fell to a 8- year low of 49 wells in 2011 - Was 105 wells in 2008 60 exploration and appraisal Wells expected in 2012 Development drilling stable YoY at 130 wells - Down from 170 in 2008 Source: Fondsfinans Research, UK Drilling Authority, Upstream online 18
Growth in rig fleet points to OSV demand growth SPOT MARKET OVERVIEW RIG SUPPLY NCS rig fleet The number of rigs drilling on NCS set to grow by 8 units during 2012 These will be used for drilling as soon as they arrive Provides high confidence to expectations of shift in demand for AHTS and PSV services Source: Fondsfinans Research, NPD, ODS Petrodata 19
Tight AHTS supply ahead Worrisome PSV backlog SUPPLY MARKET OVERVIEW OSV order book PSV orders at 39% of existing fleet AHTS orders 14% of existing fleet - Only 4 vessels seen coming into the North Sea basin PSV>4000dwt PSV<4000 dwt AHTS >20k BHP Source: Fondsfinans Research, Farstad Shipping, ODS Petrodata AHTS 12-20k BHP AHTS small Subsea On order 182 110 16 26 26 47 PSV total AHTS total Existing fleet 740 480 Orderbook in % 39 % 14 % 20
Main types of high-end OSVs SUPPLY MARKET OVERVIEW 21
Disclosures and risk factors Risk factors Risk assessment Volatile supply market Large order book Oil price setback Currency Cancelled contract for Joides Resolution Siem Offshore is exposed to the very volatile supply market. Historical dayrates have been significantly different from what is currently available. The order book for supply vessels is high and could prolong low dayrates if demand fails to meet our expectations. The supply market is dependent on the volatile oil price where oil companies can cut investment plans overnight if the oil price falls significantly. We believe the oil price will remain strong in the next few years and expect no further negative effect on activities unless the price falls below USD 80/barrel for a sustained period. Siem Offshore reports earnings in USD. Its operations are exposed to a number of currencies including NOK, GBP and EUR. Changes currency values may impact significantly on earnings and valuations. The contract for Joides Resolution has a cancellation clause (3 months notice) with a limited fee of USD 3m. The unit is expected to generate a net profit of USD 5-6m to Siem Offshore and a cancellation would reduce earnings. Share 23.10.2012 Sector Offshore Reuters SIOFF NO Risk High Outstan 395.8m Market $ 538m Net $ 761m Enterpri $ 1 299m Free 66.3% Averag 175 High/lo 11.0 / 7.7 Weight 19.74 % Rel. -24/ -34/ -28 Abs. -18/ -28/ -09 Key disclosures Definitions of ratings Buy Low risk: with a potential of min 5%. Medium risk: with a potential of min 10%. High risk: with a potential of min 15%. Neutral Low risk: -5% to +5%. Medium risk: -10% to +10%. High risk: -15% to +15%. Sell Low risk: min 5%. Medium risk: min 10%. High risk: min 15%. Risk ratings are based on price volatility, fundamental criteria and perceived risk. Ratings are: Low (L), Medium (M) and High (H). Target: Our valuation as of today. Time frame of target: Target is what we value the share as of today. Recommendation distribution as of 22.10.12: Recommendation No Percent Recommendation No Percent Buy 32 65 % Buy 3 9 % Neutral 15 31 % Neutral 1 7 % Sell 2 4 % Sell 0 0 % Total 49 100 % Total 4 Our intention is to issue preview and update research on a quarterly basis. Our investment recommendation is elaborated in accordance with The Norwegian Securities Dealers Associations standards. This report has not been sent to the company for correction of any factual errors. Fondsfinans is organized with Chinese walls between the Corporate Department and the Research/Broking Department. In addition, Fondsfinans has internal instructions and guidelines for handling sensitive information. The analyst receives compensation that is impacted by overall firm profitability, including investment banking activities. The analyst is partner in DIS Fondsfinans. Fondsfinans is under supervision of The Financial Supervisory Authority of Norway. The recommendation has not been changed. The previous recommendation was issued 05.09.12. Ownership per 23.10.12 in Siem Offshore: Analyst (including his/her closely related persons or companies): 0, corresponding to 0% of the company share capital Employees (including their respective closely related persons or companies): 871 500, corresponding to 0.22% of the company share capital Group Fondsfinans (including the holdings of its Chairman, his spouse and their closely related companies, Erik Must AS and its 100% controlled subsidiaries): 3 879 797, corresponding to 0.96% of the company share capital Fondsfinans may hold shares in Siem Offshore as a result of daily trading/market making. Information on such holdings is not given when of non-significant value. This report was issued and distributed 23.10.12. Companies in each recommendation category that have been investment banking clients over the past 12 months: 22
Key figures 23 Siem Offshore Analyst: Petter Narvestad Tel. +47 23 11 30 40 Sector: Supply Price (NOK): 7.75 Shares outs. (incl. convertible): 395.8 Date: 23.okt.12 Book equity per share (NOK): 10.7 Market cap (USDm): 538 Next result: 25.okt.12 Equity ratio: 41.4% Net int.-bearing debt: 761 Target 12.5 Enterprise Value (USDm): 1 299 Recommendation BUY 12 month high/low (NOK): 11.0 / 7.7 Figures in USD 2009 2010 2011 2012E 2013E 3Q11 4Q11 1Q12 2Q12 3Q12E Operating revenues 183.6 228.3 340.6 366.4 452.3 93.4 99.7 90.9 90.9 90.9 Operating expenses -125.6-153.7-217.7-237.2-272.3-57.8-59.1-61.6-58.1-58.9 EBITDA 57.9 74.6 123.0 129.3 179.9 35.7 40.6 29.3 32.8 32.0 Ordinary depreciation -37.2-59.3-81.3-84.8-93.0-21.3-21.1-21.1-20.5-21.8 Gain on sale of assets 1.0 6.3 0.1 13.7 0.0 0.0 0.0 15.5 0.0-1.8 Operating profit (EBIT) 21.8 21.6 41.7 58.3 86.9 14.3 19.5 23.7 12.3 8.4 Assosiated companies 7.7 10.0 2.4 2.3 2.6 0.5 0.1 0.1-0.7 2.5 Net interest expenses -5.5-20.5-39.1-35.4-23.7-8.4-8.0-9.8-11.7-7.5 Currency gain/loss and other 71.9-1.8-9.2-6.2 0.0-18.2-1.3 11.3-17.4 0.0 Pre tax & one-offs 95.9 9.3-4.2 19.0 65.8-11.7 10.4 25.2-17.5 3.4 EOI 6.1 0.4 0.4 0.2 0.0-6.6 0.1 0.1 0.1 0.0 Pre tax profit 102.0 9.7-3.8 19.2 65.8-18.4 10.5 25.3-17.5 3.4 Minorities -1.4 0.5-0.8 1.2 3.5-0.3-1.0 1.1 0.1 0.0 Taxes 1.8-0.6-2.7-1.5 0.0-1.4 0.4-1.2-0.3 0.0 Reported profit/loss 102.4 9.5-7.3 18.9 69.3-20.1 9.8 25.2-17.6 3.4 Adjustments -79.1-3.3 17.1-6.5 0.0 24.8 1.2-26.9 18.6 1.8 Tax effect of adjustments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Adjusted profit 23.3 6.2 9.8 12.5 69.3 4.7 11.0-1.7 1.0 5.2 Cashflow adjusted 60.5 65.5 91.2 97.2 162.3 26.0 32.1 19.5 21.5 27.0 Average dayrate assumptions in USD 1000 Medium PSVs 16 17 21 22 26 Large PSVs 21 25 25 25 25 AHTS 23 34 47 47 55 Data per share No. of shares (average, diluted) 292.5m 377.4m 396.0m 396.0m 396.0m 396.0m 396.0m 396.0m 396.0m 396.0m Price 8.90 10.85 8.30 7.75 7.75 Dividend 0.0 0.0 0.0 0.0 0.0 EPS reported 0.35 0.03-0.02 0.05 0.18-0.05 0.02 0.06-0.04 0.01 EPS adjusted 0.08 0.02 0.02 0.03 0.18 0.01 0.03 0.00 0.00 0.01 CFPS adjusted 0.21 0.17 0.23 0.25 0.41 0.07 0.08 0.05 0.05 0.07 P/E adjusted 19.3 115.7 58.6 43.2 7.8 P/CF adjusted 7.4 11.0 6.3 5.5 3.3 EV/EBIT 41.7 66.9 33.0 21.8 15.7 EV/EBITDA 15.7 19.4 11.2 9.8 7.6 P/BOOK 0.8 1.0 0.7 0.7 0.7 Return on equity (adj.) 4.3 % 0.9 % 1.3 % 1.7 % 8.8 % Return on capital employed (adj 2.6 % 1.7 % 2.8 % 3.9 % 5.6 % Balance Sheet Data 2009 2010 2011 2012E 2013E 10 largest shareholders as of End 2Q12 Current assets 192 200 222 200 219 Name Shares % Fixed assets 1 092 1 512 1 637 1 576 1 733 Siem Industries Inc 133 279 421 33.7 % Total assets 1 284 1 711 1 859 1 776 1 952 Ace Crown Int. Ltd. 76 780 808 19.4 % Current liabilities 97 120 160 147 147 MP Pensjon 9 096 313 2.3 % Long-term liabilities 507 846 965 877 987 Handelsbanken 8 700 000 2.2 % Shareholders' equity 680 745 735 752 818 Skagen Vekst 8 219 313 2.1 % Ojada AS 5 213 000 1.3 % Book equity per share 1.9 1.9 1.9 1.9 2.1 Rovdefrakt AS 5 000 000 1.3 % Equity ratio 52.9% 43.5% 39.5% 42.4% 41.9% Odin Offshore 5 000 000 1.3 % Net interest bearing debt 355 695 798 732 823 DnB SMB 4 650 000 1.2 % Net. int.b.debt/equity 0.5 0.9 1.1 1.0 1.0 Holberg Norge 4 544 148 1.1 % Cashflow statement 10 largest 260 483 003 65.8 % Cashflow from operations 76 50 81 82 159 Other shareholders 135 268 997 34.2 % Net change in working capital 3-11 6-7 0 Total outstanding (not dil.) 395 752 000 100.0 % Net investments -352-441 -219-22 -250 Free cashflow -272-402 -133 54-91
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