Oil Offshore 4 FPSO Market Report PDF

Sector Research Report
11 Jun 2010
Oil Offshore
4
FPSO Market Report Sector Oil & Offshore
The supply demand fundamentals in the FPSO sector are Relative Valuation
favourable, enabling attractive returns on selective projects. Company EV/EBITDA P/E
10e 11e 12e 10e 11e 12e
However, valuation does not discount growth, rather the sector SBM Offshore 6.6x 5.9x 6.0x 13.0x 9.2x 9.1x
continues to trade at a significant discount to current units NAV. Sevan Marine 16.6x 10.7x 7.0x N/A N/A 6.9x
Although the sector continues to be out of favour and liquidity BW Offshore 7.3x 4.6x 3.7x 6.7x 6.2x 5.4x
has halved over the past couple of years, valuation is too Prosafe Production 5.3x 4.5x 3.7x 10.7x 8.4x 7.0x
Fred. Olsen Production 5.8x 5.1x 4.3x N/A N/A N/A
attractive to ignore. Contract coverage and cash flows are solid. FPSO Sector 8.3x 6.1x 4.9x 10.1x 7.9x 7.1x
Down, but not beaten Oil Service Sector 7.1x 5.6x 4.8x 14.6x 9.7x 7.9x
The FPSO sector continues to be out of favor with liquidity drying up.
With valuation, risk profile and outlook in our view very attractive the NAV of existing units
question is if the sector will always be cheap. Net Asset Value (% of Shareprice) - Existing Units Only
` The large FPSO players are on average trading at 0.6x NAV. 300%
` Free cash flow yield assuming no new projects, in the 12-20% range 250%
` Average fixed contract length of 6 years, average option period of 5 200%

8%
13%
years 150% 177%
103% 31%
47%
` Business environment for taking on new projects is attractive as the 100% 123% 50% 30%
supply chain capacity is good 50%
62% 75% 74% 72%
` Very limited impact from the GoM spill at this stage 0%
35%
-43%
-50%
Brazil push continues, North Sea becoming more active -100%
Sevan FOP PROD BWO SBM
So far this year there has been 8 awards, compared to 7 in 2009. We
Firm Options Residual *P ROD includes turret sale
expect 14 awards in 2010, and 15-20 annually going forward given the
current market outlook and our long term oil price estimate of USD 80.
` Petrobras continues to be the main demand driver with its pre-salt Supply/Demand
FPSOs, as well as other projects in more mature areas FPSO - Supply/Demand
` The North Sea is emerging as an active region going forward with a 250 250
P ro ducing FP SOs Idle Units re-emplo yed
number of projects in the planning and tendering stage both on the Demand Lo w Case Demand High Case
UK side and on the Norwegian continental shelf 200
Demand B ase Case
200
` West Africa continues to be dominated by large scale projects that

150 150
use Oil Company owned newbuild FPSOs, but several smaller scale
projects with leased FPSOs are expected to come to market 100 100
` Asia also prospective, but more competition from local players
50 50
Contained supply side opens for attractive returns
0 0
The number of idle units is down considerable from Q4 and poses a
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010e
2012e
2014e
2016e
limited threat to returns on new contracts. Current idle count of
competitive units is three.
` Several units have been scrapped, sold or contracted in 2010
` On selected projects, competition is limited to 1-2 companies
` Long duration, high capex contracts in Brazil are more competitive
` Latest contracts at 14-15% IRR, long term contracts with Petrobras
yields 10-12% IRR Analysts
Equity Research Credit Research
Core recommendations Kristian Diesen Øyvind Hamre
kristian@pareto.no oyvind.hamre@pareto.no
` PROD and BWO both offer attractive NAV and multiple valuation +47 2287 8736 +47 2413 2140
with solid contract backlogs. M&A could materialize in 2010. Steffen Rødsjø Lars Erik Sandgrind
` SEVAN does in our view have the best ever market outlook, but steffen@pareto.no Lars.erik.sandgrind@pareto.no
short term operational and funding issues dominate. With the driller +47 2287 8838 +47 2287 8825
on stream and more contracts in 2010, sentiment should turn. Magne M. Øy
` SBM offers size and liquidity, but valuation and risk profile is higher. mmo@pareto.no
` On the high yield bond side our top picks are Bluewater and Sevan. +65 6408 9820
The recommendation was not presented to the issuer before dissemination.
Pareto Securities AS Bloomberg: PASE (go) P.O. Box 1411 Vika Tel: +47 22 87 87 00 Video Conf.: +47 22 87 88 45
www.pareto.no Reuters: PARETO N-0115 Oslo, Norway Fax: +47 22 87 87 10 Trading desk: +47 22 87 87 50
11 Jun 2010 Please refer to important disclosures at the end of this document 1(77)
Oil & Offshore Sector Research Report
EXECUTIVE SUMMARY ................................................................................................................................................. 3

INVESTMENT HIGHLIGHTS........................................................................................................................................... 4
SOFT PERFORMANCE & OUT OF FAVOUR, BUT ATTRACTIVE VALUATION WILL PAY OFF.............................. 5
FPSO SPACE TRADING AT 0.6X NAV OF EXISTING UNITS ONLY ......................................................................................... 5
VALUE PROTECTION THROUGH SOLID BACKLOGS .............................................................................................................. 6
SHARE PRICE PERFORMANCE .......................................................................................................................................... 8
VALUATION METHODOLOGY............................................................................................................................................. 8
FPSO COMPANIES, OVERVIEW ................................................................................................................................... 9
ACTIVITY DOMINATED BY LARGER PLAYERS ...................................................................................................................... 9
A CAPITAL INTENSIVE INDUSTRY, EXPANDING BALANCE SHEETS ...................................................................................... 11
CURRENT SUPPLY/DEMAND PICTURE .................................................................................................................... 12
UTILIZATION INCREASING WITH RE-EMPLOYMENTS AND SCRAPPING ................................................................................. 13
NEWBUILDING ACTIVITY: VAST MAJORITY CONTRACTED .................................................................................................. 15
SUPPLY – FPSOS COMING OFF CONTRACT BEFORE 2014 .............................................................................................. 17
20 UNITS SCRAPPED TO DATE ....................................................................................................................................... 18
FINANCING IS THE KEY TO NEW UNITS ............................................................................................................................ 20
TREND TOWARDS LARGER FPSOS AND DEEPER WATERS ............................................................................................... 20
BRAZIL IS THE DOMINANT FPSO REGION ....................................................................................................................... 22
CONVERSIONS ARE THE PREFERRED CONSTRUCTION METHOD ........................................................................................ 22
RE-DEPLOYMENT RISK .................................................................................................................................................. 23
COLLAPSE IN HULL VALUES ALSO IMPROVES PROJECT ECONOMICS ............................................................ 24
FUTURE IRRS EXPECTED IN THE 10-14% RANGE .................................................................................................. 25
DEMAND – PACE OF AWARDS PICKING UP ............................................................................................................ 26
E&P SPENDING THE DRIVER FOR ACTIVITY ..................................................................................................................... 26
DEEPWATER RIGS AS A LEADING INDICATOR, LIMITED GOM IMPACT ................................................................................ 27
VERY LIMITED DIRECT EFFECT OF GOM OIL SPILL ON THE SECTOR .................................................................................. 27
FIELD DEVELOPMENT SANCTIONS PICKING UP ................................................................................................................ 28
REGIONAL DEMAND ...................................................................................................................................................... 29
Brazil continues to be the dominant FPSO region, more local content................................................................. 29
An increasingly favourable development solution in the North Sea...................................................................... 30
COMPANIES.................................................................................................................................................................. 33
SEVAN MARINE (BUY, TP NOK 13).............................................................................................................................. 34
SEVAN – BOND CASE .................................................................................................................................................... 38
PROSAFE PRODUCTION (BUY, TP NOK 18) ................................................................................................................. 40
BW OFFSHORE – (BUY, TP NOK 13) .......................................................................................................................... 42
SBM OFFSHORE – (BUY, TP EUR 18)......................................................................................................................... 45
FRED. OLSEN PRODUCTION (BUY TP NOK 15) ............................................................................................................ 48
EOC – FOCUSED ON GROWTH ...................................................................................................................................... 50
BLUEWATER – BOND CASE ........................................................................................................................................... 52
SEA PRODUCTION – BOND CASE ................................................................................................................................... 56
RUBICON OFFSHORE INTERNATIONAL – BOND CASE ....................................................................................................... 58
AKER FLOATING PRODUCTION – BALANCE SHEET WORRIES ........................................................................................... 60
SONGA FP – FILED FOR BANKRUPTCY MARCH 2010 ...................................................................................................... 60
FPSOCEAN – BANKRUPT FEBRUARY 2009 ................................................................................................................... 60
PETROPROD – BANKRUPT APRIL 2009.......................................................................................................................... 61
NEXUS – FIRESALE TO BRAZILIAN OSX ......................................................................................................................... 62
PARETO RELATIVE VALUATION TABLE .................................................................................................................. 63
ESTIMATES................................................................................................................................................................... 64
GLOSSARY................................................................................................................................................................... 71
DEFINITIONS OF FLOATING PRODUCTION SYSTEMS ......................................................................................................... 71
APPLICATION, ADVANTAGES AND DISADVANTAGES ........................................................................................................ 72
11 Jun 2010 2(77)

Executive Summary
The FPSO sector continues to be out of favor with liquidity drying up, but
valuation, risk profile and outlook is very attractive for the patient. Current
valuations are seeing the large FPSO players on average trading at 0.6x NAV.
Free cash flow yield, assuming no new projects, for these companies are at 12-
20%. Solid contract coverage provides a low risk profile for these companies
with the average fixed contract length being 6 years and the average option
period being 5 years. Impact from the GoM spill is at this stage very limited.
On the demand side we are seeing activity back to more normalized levels after
a dismal 2009. So far this year there has been 8 awards, compared to 7 in
2009. We expect 14 awards this year, and 15-20 annually given the current
market outlook. Petrobras continues to be the main demand driver with its pre-
salt FPSOs, as well as other projects in more mature areas.
The North Sea is emerging as an active region going forward with a number of
projects in planning and tendering stage both on the UK side and the Norwegian
continental shelf. Elsewhere, West Africa continues to be dominated by large
scale projects that use Oil Company owned newbuild FPSOs, but several
smaller scale projects with leased FPSOs are expected to market. The Asian
region is also prospective, but more competition from local players is emerging.
Hence the majority of incremental units will come from new conversions from
the FPSO players. Capacity is filling up for certain players like Modec and SBM
Offshore having taken on large scale projects in Brazil. The capex on these
units are USD 1bn+, putting high requirements to the balance sheets.
The number of idle units is down considerable from year end 2009 and poses a
limited threat to returns on new contracts. The current idle count of competitive
units stands at 3 units with several units having been scrapped, sold or
contracted in 2010. On selected projects, competition is limited to 1-2
companies, while long term, high capex projects in Brazil are more competitive.
Latest contracts at 14-15% IRR, long term contracts with Petrobras 10-12%
IRR.
In the companies section we cover the main listed FPSO companies and the
most traded FPSO bonds. See next page for investment considerations.
11 Jun 2010 3(77)

Investment highlights
Sevan Marine (SEVAN) – A very attractive market position and outlook is
overshadowed by funding and legacy issues. Tightening the grip on current
operations, creating confidence in the funding situation and capitalizing on
market opportunities should unlock significant value for Sevan shareholders.
The Huntington contract was solid and the project activity in the North Sea is
likely to see Sevan getting contracts for FPSO # 4 & 5 in 2010. We expect the
company to continue the shift towards a license model requiring limited new
capital on new projects. BUY TP NOK 13.
Fred. Olsen Production (FOP) – FOP has 3 FPSOs on long term contracts
and the financial flexibility to add another unit. A mid-sized project is targeted,
however the company has so far been left unsuccessful in the bidding phase.
With strong share price performance (+34% YTD) and low liquidity we prefer
other FPSO names on a relative basis, but keep our BUY rating on 40%
discount to NAV. BUY TP NOK 15.
Prosafe Production (PROD) – Prosafe Production has all its units on contract,
with run-rate EBITDA proposing an 18% FCF yield. The main short term trigger
is the closing of the Turret sale to National Oilwell, however we see this
potentially slipping from the current guided timeline of a closing by end Q2.
Management now expects to start active tendering in H2’10 enabled by the cash
injection from the turret sale. A new project coupled with debt amortizations will
absorb free cash flow going forward, hence a dividend is unlikely over the next
few years. There is a NOK 4/share upside to our target on a concluded turret
sale. BUY TP NOK 18.
BW Offshore (BWO) – BW Offshore is delivering steady operations and

EBITDA, have a solid contract backlog and in a good position to secure new
attractive contracts. Short term uncertainty regarding start-up of the BW
Pioneer, currently located in the GoM. Stand-by day-rate is expected from end
July, with production start-up in late 2010. With a 50% upside to target and
moderate risk, this is a clearcut buy. Patience will pay off. BUY TP NOK 13.
SBM Offshore (SBMO) – SBM has won several contracts over the recent year,
increasing the utilization of its large organization. The company has a strong
balance sheet and is well positioned in the growing Brazilian market. The risk in
the Turnkey business is phasing out with the drilling rigs and Yme nearing
completion, however still more risky than main peers. SBM represents solid long
term value and is by far the largest and most liquid FPSO stock in the sector,
currently trading well below the historical multiples. BUY TP EUR 18.
EOC Ltd. (EOC) – EOC is an Asia Pacific focused offshore service provider
with three offshore support barges and two FPSOs. With the FPSO Lewek
Arunothai now on-stream, EOC turns its attention to growth. BUY, TP NOK 13.
BEST BOND IDEAS
Sevan Bonds - Sevan bonds currently yield 10-15% and have traded up since
year end 2009, following positive newsflow related to funding on the second
driller, LOI award for FPSO Voyageur, several study contract awards and the
first Driller being accepted by Petrobras. We prefer the solid 1. lien bonds and
the Driller bond as secure investments while we see the 2. lien Voyageur bond
as an interesting event-driven investment.
Bluewater - The USDm 360 senior unsecured bond with maturity in July 2014
and a coupon of 3mL+3% is indicated in the high 50ies at an IRR to maturity
around 20%. The financial situation of Bluewater has been significantly
improved following the sales of Hanne Knudsen and Jotun and the contract
awards for the two FPSOs Munin and Glas Dowr. Main focus going forward is
start up of modification project on Glas Dowr and ongoing negotiations with
banks to amend amortization schedule and to extend maturity on the revolving
credit facility.
Please refer to the companies section for more companies and further details.
11 Jun 2010 4(77)

Soft performance & out of favour, but

attractive valuation will pay off
It is no secret that the FPSO sector continues to be out of favour with liquidity in
Cost overruns and delays sunk the largest names (SBM Offshore, BW Offshore and Prosafe Production) down
the shares, but the risk of this is 50% over the past couple of years, stocks trading at in our view continued
now significantly reduced. unchartered territory compared to existing fleets and risk profiles. This is by no
means unjustified given the poor project execution in 2008 and 2009, but
represents an opportunity as the reasons for the underperformance should be
behind us. Cost overruns and delays sunk the shares, but the risk of this is now
significantly reduced.
Whereas taking on new projects have been a negative thing over the past
couple of years, this should now increasingly be a positive. The FPSO
companies are currently in a position to take on new projects at attractive terms
FPSO players has now the upper with competition on many projects being limited, overall capex risk reduced
hand in contract negotiations through improved contract terms with sub-suppliers and a supply chain that has
significantly lower pressure than in the 2006 – 2008 period. Current valuation
does however not put any value on future growth, instead the FPSO sector
continues to trade at a discount to NAV.
FPSO space trading at 0.6x NAV of existing units only

The FPSO sector currently offers solid upside to NAV on contracted cash flows,
with low operational risk and generally limited capex risk. After taking on a
number of projects in the previous cycle with consequent cost overruns and
delays, these units are now on contract generating cash flow with new or
potential new projects likely to have a lower risk profile. The latter comes as a
result of a significantly improved supply chain situation with a lot of spare
capacity and lessons learned among the FPSO companies especially when it
comes to contracting, mainly with the suppliers, but also to a certain extent the
oil companies.
The graph below measures the NPV from firm contracts, contract extension
options, and the residual from the remaining lifespan of the FPSO. These
estimates are presented in percent of the current share price (the line indicates
the current share price). Please note that net debt and remaining capital
expenditure on contracted units are subtracted from the value of NPV of the firm
contract value.
Valuation comparison
Net Asset Value (% of Shareprice) - Existing Units Only
300%
250%
200%
8%
13%
150% 177% 31%
Sector trading at a 40% discount 103% 47%
100% 123% 50%
to NAV of existing units 30%
50% 75%
62% 74% 72%
35%
0%
-43%
-50%
-100%
Sevan FOP PROD BWO SBM
Firm Options Residual *PROD includes turret sale
Source: Pareto Research
As seen, the FPSO sector is trading at a significant discount to our NAV, with
P/NAV of only 0.6x for our companies. Highest upside is found within Sevan
Marine, but as also seen through the distribution of value (high share of residual
value) the risk profile is higher. Also, short term funding issues overshadows
underlying valuation potential. Prosafe Production completed its troublesome
11 Jun 2010 5(77)

newbuild programme in January 2010, with the Ningaloo Vision commencing

dayrates on the Van Gogh field off Australia. The company now has all its units
on long term contracts, which will give a stable cash flow going forward. Also,
with the sale of the turret and swivel business, expected to close in Q3, the
company is in a position to take on a new project, however an attractive
risk/reward profile is highly emphasized by management. BW Offshore is taking
advantage of the current favourable supply/demand picture in the FPSO market,
as evidenced by taking on two new contracts recently, both of which is expected
to be firm within a couple of months at attractive terms.
Higher likelihood of contract
extension and exercise of options The likelihood of contract extensions for a unit in the FPSO market is far larger
in the FPSO segment vs. other than for instance in the rig market, as the units are tailor made for each specific
offshore segments field. Hence, we view the risk on the optional period as low for most contracts,
so long as the field continues to produce at economical levels.
The alternative cost for the oil company in contracting another unit is generally
high with a significant lead time. Also, the lifting cost is on average very low
once the field is on stream and the majority of costs are sunk. The main risk to
option periods is that the reservoir is not performing, i.e. production is too low to
justify further commencement. We therefore believe that it is fair to include
options in the assessment of potential downside in FPSO stocks.
Value protection through solid backlogs

FPSO companies generally have a long term contract portfolio with a fixed term
and option periods usually at the operators discretion (in some instances it can
be a mutually agreeable option). The options are in most instances called as
long as the field that it produces from is still economical.
Fred. Olsen Production has the best value protection on the enterprise value
looking at the contracted EBITDA. Sevan scores lowest in the peer group on
FOPN and PROD have solid this measure, mainly due to the short term contracts on Hummingbird and the
EBITDA Backlog relative to EV relatively short term contracts on the drilling units relative to common FPSO
contracts. Additionally, Sevan has a going concern technology business, which
is not included in the EBITDA backlog.
Backlog analysis
Nominal EBITDA Backlog/Funded Enterprise Value Contract duration FPSOs
350% 16
14
300%
12
250%
10 7.0 4.6
200% 172%
6.3 3.6
8 5.2
129% 43%
150%
57% 6
100% 4 8.1
147% 6.7 6.6
123% 106% 5.5 5.3
50% 103% 49% 2
0% 17% 0
Fred. Olsen Prosafe SBM BW Offshore Sevan Fred. Olsen SBM Offshore Prosafe Sevan Marine BW Offshore
Production Production Offshore Marine Production Production
Firm Backlog Optional Backlog *SBM & BWO adj for Turnkey business Firm Years Optional Years *Sevan includes drilling rigs
Source: Pareto research
Prosafe Production and BW Offshore is favourably priced compared to their

NAV. Prosafe Production is a long term value case, with all units on contract
and a free cash flow yield of 18% on exiting units only. BW Offshore is also
attractive, having a high potential equipment division (APL), and set for growth
with new attractive FPSO contracts, namely Atena and TSB FPSOs. It has
commercialised its technology through 3 working FPSOs, and has a high
potential technology/licensing business which offers a significant upside to the
investment case, although potential financing need is expected to continue to
weigh on the stock in the short term picture.
11 Jun 2010 6(77)

Weak share price performance, limited exposure to oil spill

The oil service stock performance chart depicts that the FPSO sector has
underperformed all sectors the last 12 month period, and being among the worst
The FPSO Sector has performing sectors also the last 6 month period. An interesting observation is
underperformed oil services in that most other segments, especially seismic and drilling, have seen share
general prices lower due to the USGoM oil spill, of which the FPSO players have very
limited exposure.
Relative Performance
Shareprice performance
-3%
FPSO
-8%
-10%
Offshore Drilling
2%
-5%
Offshore Equipment
10%
1%
Seismic
11%
14%
OSV
13%
2%
Subsea/Services
19%
-15% -10% -5% 0% 5% 10% 15% 20% 25%

-12m -6m
Source: Pareto Research, DataStream
The poor performance of the FPSO sector in 2008 and 2009 has been
warranted with delays, cost overruns and financing experienced by the industry,
however the troublesome projects taken on in the previous cycle have now been
completed. Another issue for the sector has been that as a capital intensive
industry, it creates higher dependence on a well functioning credit market. With
a historical 70-80% leverage on the projects, equity values are sensitive to
capex overruns.
Sector Relative Valuation

Segments O EV/EBITDA EV/EBIT P/E
u 10e 11e 12e 10e 11e 12e 10e 11e 12e
Subsea/Services r 6.4x 5.6x 4.5x 9.1x 8.0x 6.1x 13.3x 11.8x 9.6x
Offshore Equipment 8.5x 7.0x 5.5x 10.9x 8.5x 6.2x 16.4x 13.5x 10.9x
Offshore Drilling F 5.0x 3.9x 5.0x 5.0x 3.9x 5.0x 7.1x 5.9x 6.2x
OSV P 9.0x 6.8x 5.9x 15.8x 10.5x 9.3x 15.2x 7.8x 7.1x
FPSO S 8.3x 6.1x 4.9x 14.5x 13.1x 9.6x 10.1x 7.9x 7.1x
Seismic O 4.9x 4.1x 2.8x 12.9x 8.2x 4.6x 25.6x 11.5x 6.6x
Average 7.0x 5.6x 4.8x 11.4x 8.7x 6.8x 14.6x 9.7x 7.9x
O
Source: Pareto Research,
u DataStream
The FPSO universe is currently trading at EV/EBITDA11e 6-7x, only lower than
Offshore Equipment companies and OSV.
As most of the capital expenditure is already taken for the existing fleets in the
respective companies, D&A will be significantly higher than capex for many
companies going forward. Taking this into account, we will argue that EBITDA
multiples is the most applicable multiple.
11 Jun 2010 7(77)

FPSO Relative Valuation

Company EV/EBITDA P/E
10e 11e 12e 10e 11e 12e
SBM Offshore 6.6x 5.9x 6.0x 13.0x 9.2x 9.1x
Sevan Marine 16.6x 10.7x 7.0x N/A N/A 6.9x
BW Offshore 7.3x 4.6x 3.7x 6.7x 6.2x 5.4x
Prosafe Production 5.3x 4.5x 3.7x 10.7x 8.4x 7.0x
Fred. Olsen Production 5.8x 5.1x 4.3x N/A N/A N/A
FPSO Sector 8.3x 6.1x 4.9x 10.1x 7.9x 7.1x
Oil Service Sector 7.1x 5.6x 4.8x 14.6x 9.7x 7.9x

Share price performance

Within the FPSO sector, Fred. Olsen Produciton has been the best performer
over the past 12 months. BW Offshore, SBM Offshore and Prosafe Production
have also been decent performers, with Sevan and Modec underperforming.
FPSO Performance chart

Total Return
160
FOP, BWO and SBM the best

performers last 12 months 140
120
100
80
60
40
Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10
PROD Sevan BWO FOP Modec SBMO
Source: Pareto research, DataStream
Valuation methodology
We value FPSO companies using a Sum-Of-The-Parts (SOTP) approach,
taking the sum of the DCF value per unit in the fleet. The DCF takes into
FPSO companies are valued account the estimated lifetime of the respective unit. This cash flow is based on
based on a SOPT approach, with the value of the fixed and optional contract period, as well as a residual value
a DCF value per unit (including scrap value), when a unit is expected to be redeployed after its
current contract. We estimate the expected useful life of a converted FPSO at
15 years, while a newbuild has an expected life of 25 years. For FPSO
companies with subsidiaries or other elements of value apart from the FPSOs, a
market value estimate is used.
The second hand market for FPSOs is virtually non-existent, and there have
been very few transactions over the past 10 years, with none worth mentioning
as a particular benchmark. There are obvious reasons for this, as FPSOs are
not generic units like e.g. drilling rigs, but field specific. Therefore, other metrics
will be more applicable to value any particular unit. The age, quality, processing
and storage capacity etc. are important factors to take into account, but usually
a unit will get an IRR in the range of 10 to 15% on contracts (using the
depreciated value at contract end as the residual value). This will vary on a
number of factors such as the length of the contract, counterparty risk and
reservoir risk.
11 Jun 2010 8(77)

FPSO companies, overview

Activity dominated by larger players
Oil companies prefer The FPSO industry remains fragmented, with SBM Offshore, Modec, Prosafe
experienced FPSO operators Production, BW Offshore and Bluewater constituting the major players. In
addition, there are a number of medium to small sized players with 1-3 units.
Companies with one or two units that were built on speculation are struggling
with several having filed for bankruptcy over the past year. The speculative
angle to the FPSO industry is proved unsuccessful with no new units to enter
the market. Remaining units from these players is limited (see supply segment).
The inability to obtain contracts proves to a certain extent that the barriers of
New entrants with one or two entry are significant also in the FPSO business, and that they not only relate to
vessels have experienced limited the access to capital but also to the ability to manage construction risk and
success having an operational track record that the oil companies favour.
FPSOs are either leased from the FPSO operator or owned by the oil company.
The chart below includes both currently working FPSOs, units under
construction, and idle units for lease companies. SBM Offshore and Modec
have the largest fleets of all the FPSO players.
FPSO lease companies
Lease FPSOs by owner

18
16
14
12
10
8
6
4
2
0
SBM
Modec
Prosafe
Bluewater
BW
Sevan
Maersk
Teekay
Bumi
Saipem
Aker
EOC Ltd.
Fred Olsen
MISC
PT Mitra
Rubicon
Sea
Tanker
Other
Working Idle In yard Construction
Source: Pareto research, ODS
97 units are owned by the lease operators, while 79 belong to the E&P
companies. The trend over the past five years has been towards leased units,
The trend has been towards as this approach enables the oil companies to finance a large part of their
more leased FPSOs projects off balance sheet and reduces their funding requirement. Some
companies, like Petrobras, prefer to own a significant share of the FPSOs, as
this makes sense on certain types of projects and is a necessity to match its
requirement with industry capacity.
As the ability of the FPSO companies to take on new projects has become more
limited due to a massive expansion in the past cycle and difficulties obtaining
satisfactory funding for new projects, there will be a reversal of this trend in our
opinion. This development will see the oil companies having to carry more of the
projects on their own balance sheet, with more EPC/turnkey FPSO projects. For
instance BW Offshore has recently been awarded contracts for the Papa Terra
FPSO and OGX FPSO I on a turnkey basis (although BWO’s scope is
somewhat limited).
Please refer to the companies section for a detailed analysis of the individual
FPSO companies.
11 Jun 2010 9(77)

FPSO owning companies

Owned FPSOs by owner
18
16
14
12
10
8
6
4
2
0
Petrobras
CNOOC
Exxonmobil
Total
Shell
BP
Chevron
Woodside
Brasoil
Conocophillips
Hess
Maersk Olie
Coogee
Statoil
Anadarko
BHP Billiton
Premier
Husky oil
Other
Working Idle In yard Construction
FPSOs are by far the preferred The graphs below illustrates that FPSOs are by far the preferred choice among
FPU choice. the different floating production concepts. 143 FPSOs are currently working or in
yard, preparing for re-deployment. (A definition of the other floating production
concepts is presented in the appendix.)
FPSO - a preferred choice for floating production solutions
Distribution producing FPUs
FSO
FPSO
Spar
TLP
Semi
Source: Pareto Research, ODS Petrodata
11 Jun 2010 10(77)

A capital intensive industry, expanding balance sheets

A clear tendency emerging over the past ten years is that the capital
investments of FPSO projects have increased significantly along with the
number of barrels produced per day, water depths and complexity of the
reservoir and hence the unit.
FPSO projects increasing in size
USDm Capex Oil bbls'/day

1,400 140
1,200 120
1,000 100
800 80
600 1,200 60
400 40
550
200 400 20
300
110
0 0
Espoir Marlim Sul Kikeh Chinook Tupi
(2000) (2004) (2005) Cascade (2009)
Capex BBls/day (2007)
As mentioned above, this development represents a challenge for FPSO

companies, as their capacity to take on new projects becomes more limited.
This is also true for the oil companies, which need to fund more of the FPSOs
on their own books.
Total assets and leverage ratio

USDm
12,000 60%
10,000 50%
8,000 40%
6,000 30%
11242
10189 10828
8969
4,000 20%
7075
4324 4707 4902
2,000 10%
0 0%
2003 2004 2005 2006 2007 2008 2009 2010E
Total Assets Leverage Ratio
Source: Pareto Research, SBM Offshore, Modec, Prosafe Production, BW Offshore
The asset side for the largest FPSO companies has expanded by ~2.5x from
2003 to 2010e. Even though the leverage ratio is in line with the historical
average, the ability to take on new, large scale projects has decreased. Also
contributing to the limited ability to take on new projects are delayed cash flows
and cost overruns on these projects.
11 Jun 2010 11(77)

Current supply/demand picture

The current fleet comprise 137 producing units (143 inclusive in yard for short
term upgrade). We see 28 newbuilds, of which 24 have a contract in place.
137 vessels currently working However, by 2016 we see ~50 of the working vessels coming off their firm
contracts (32 if options are called). Some of these need further commitments on
the current field (options called or extension to contract) or redeployment to
another field. A number of vessels will also be scrapped or unsuitable for longer
redeployments up until 2016. The expected useful life of a converted FPSO is
15 years, although this can be extended and 25 years for a newbuild.
FPSO fleet by status
FPSOs by status Other (Yard,

Maintenance
Idle, 5 etc), 6
Construction,
28
Production,
137
The graph below summarizes the current supply and demand picture. The
supply side consists of all producing and ordered units, while the demand side is
calculated on the basis of outstanding projects, i.e. firm tenders, planned and
possible. In the different scenarios, we have weighted the outstanding projects
by our estimation of the probability that they materialize. Options are assumed
called for current contracts.
FPSO Supply and Demand, Based on existing projects only

FPSO - Supply/Demand
250 250
Producing FPSOs Idle Units re-employed
Demand Low Case Demand High Case
200 200
Demand Base Case
Idle units coming off contracts 150 150

could be absorbed by demand by
end 2010 and beginning 2011
100 100
50 50
0 0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010e
2012e
2014e
2016e
11 Jun 2010 12(77)

Since our last update in December 2009, we have increased our low case
somewhat with higher confidence in the oil price and some projects maturing
and hence increasing in probability.
Based on these assumptions, we believe that the high fleet growth will continue
the next five years, as higher drilling activity in the deepwater segment leads to
new discoveries. As mentioned above, we do not foresee that the GoM situation
will materially impact this thesis. The main risk factor to this is low oil prices
(below USD 50-60 per barrel). Our base case estimates indicate demand for
more than 190 FPSOs within 2014e (including already producing units).
Utilization increasing with re-employments and scrapping

The 80s and early 90s was a pioneering period for the FPSO industry. The
technology was proven viable, and the path for exploring new and more remote
offshore areas was laid. The figure below presents the historical fleet
development and utilization level in the FPSO market.
FPSO supply and utilization

FPSO - Utilization of fleet
160 Idle Units 100%
140 Producing fleet 98%
Utillization
120 96%
94%
100
92%
80
90%
60
88%
40 86%
20 84%
0 82%
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Current
The fleet utilization has improved from our December update, with several of the
idle units being re-deployed (BW Carmen, Glas Dowr), sold (Nexus 1,
PetroProd I) and scrapped (Ocean Producer).
Number of idle vessels coming down from record highs

FPSO - Idle Vessels
15
12
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Current
11 Jun 2010 13(77)

We see 5 units idle at present, down from 11 at year end. However, the
competitiveness of many of these vessels is very limited, hence it is not a fair
representation of actual supply.
Currently Idle Units

Name Owner Status Prod. Capacity Hull Converted
FPSO Falcon SBM Idle 165000 2200000 1975 2002
FPSO Jamestown Trafigura Idle 20000 200000 1957 1995
Front Puffin Sea Production Idle 40000 650000 1990 2007
Seillean Frontier Drilling Idle 25000 300000 1989 1990
Uisge Gorm FPSO Bluewater Idle 57000 594000 1983 1995
Add. Q4'09 Idle Vessels Conv. Comment

BW Carmen 1999 Awarded LOI at the Athena field
Glas Dowr 1997 Awarded LOA for the Kitan field
Ocean Producer 1991 Scrapped in Q4'09
Nexus 1 2009/10 Bought by OSX, leased to OGX (EWT unit)
Berge Okoloba LPG FPSO 1979 Sold, continuing at site
FPSO Rang Dong I 1998 SBM scrapped the unit in Q4'09
The Jamestown FPSO is highly likely to be scrapped as it should be close to

However, several of the idle retirement age and would need extensive upgrades to commence a new
FPSOs are not competitive contract. Another vessel that is likely to be retired is the Uisge Gorm, which has
been working for more than a decade in the harsh environment North Sea. If
anything, the unit would need to be deployed in benign waters and have a
significant upgrade. Given the current financial position of Bluewater, the
competitiveness of this vessel is somewhat limited.
The Seillean has been working successfully for Petrobras in Brazil for a long
time, and we believe the unit is very likely to continue there in the not too distant
future. This is a DP unit, built for extended well testing from a rigid riser system.
The BW Carmen is a small FPSO that was awarded an LOI for the Athena field
in Q1 2010. This contract is likely to become firm over the summer. See BWO
under companies section for further details.
Berge Okoloba LPG FPSO is continuing to operate in the Niger Delta with new
owners and Ocean Producer was retired and sold for scrap by Oceaneering in
Q4 2009.
In sum, out of the 5 “idle” vessels, only three (FPSO Falcon, Seillean and Front
Puffin) are likely to be competing for new projects, with two being scrapping
candidates (Uisge Gorm, Jamestown).
11 Jun 2010 14(77)

Newbuilding activity: Vast majority contracted

The list below outlines the units under construction or undergoing upgrading.
28 FPSOs to be delivered the next couple of years

Unit Status Start Date End Date
Construction
Aquila Phase II FPSO Construction 25 Nov 2009 28 Oct 2011
Aseng FPSO Construction 26 Aug 2009 1 Jun 2012
BW Pioneer Construction 22 Aug 2007 1 Jun 2010
Cendor Ph 2 Construction 7 Aug 2010 6 Aug 2013
Cidade de Angra dos Reis MV22 Construction 26 Aug 2008 1 Dec 2010
Dua/Chim Sao FPSO Construction 20 Oct 2009 10 Jun 2011
Dynamic Producer Construction 27 Apr 2007 1 Aug 2010
Goliat FPSO Construction 7 Feb 2010 27 Nov 2013
Guara Pilot FPSO Construction 26 Jan 2010 29 Nov 2012
Kwame Nkumrah MV21 Construction 11 Aug 2008 24 Nov 2010
Montara Venture Construction 26 Dec 2006 30 Jun 2011
Okha FPSO Construction 30 May 2008 9 Mar 2011
P-57 Construction 8 Jan 2008 19 Jul 2011
P-62 Construction 11 Mar 2010 17 Jun 2013
P-63 FPSO Construction 8 Oct 2009 1 May 2013
Pazflor FPSO Construction 4 Jan 2008 1 Jul 2011
Peregrino FPSO Construction 27 Feb 2007 14 Jan 2011
PSVM FPSO Construction 29 Jul 2008 15 Feb 2011
PUO FPSO Brotojoyo Construction 11 May 2010 15 Dec 2011
Ruby II Construction 24 Aug 2007 25 Jun 2010
Skarv FPSO Construction 19 Feb 2007 15 Aug 2011
TGT FPSO Construction 25 Nov 2009 29 Jul 2011
Tupi Nordeste Pilot FPSO Construction 24 Mar 2010 1 Feb 2013
Usan FPSO Construction 27 Feb 2008 5 Apr 2012
Speculative units
Deep Producer 1 Construction 15 Jan 2007 31 Dec 2013
PetroProd 1 Construction 12 Jan 2007 31 Dec 2011
Sevan 300 No. 04 Construction 2 Jun 2006 31 Dec 2013
Sevan 300 No. 05 Construction 1 Jun 2010 17 Jun 2013
Other, Installation & Redevelopments etc.
Cidade de Santos MV20 Installation 18 Feb 2010 31 May 2010
FPSO Capixaba Installation 30 Mar 2010 31 May 2010
Nan Hai Fa Xian FPSO Maintenance/Repair, Yard 14 Sep 2009 29 Jul 2011
Glas Dowr FPSO Major upgrade, Yard 26 Jan 2010 30 Aug 2011
OSX-1 (Nexus 1) Major upgrade, Yard 27 Jan 2010 1 Apr 2011

28 vessels are under
construction (including recent The figure indicates that 28 converted/newbuild FPSOs are estimated to be
contract awards). delivered between now and 2014. 24 of these units have secured contracts,
while there are 4 speculative units at current.
Available vessels – Speculative units
FPS Name Oil Processing Oil Storage bbl
Sevan 300 No 4 30,000 300,000

Sevan 300 No 5 30,000 300,000
Deep Producer 1 40,000 400,000
Petroprod 1 80,000 700,000
Source: Pareto Research and ODS Petrodata
Sevan has two FPSO hulls under construction at the Hantong Shipyard in
China. In total, Sevan has invested USD 140m in the two units and further
progress is uncommitted in anticipation of a firm contract and financing. Delivery
time of these units is approximately 18 months after definitive contracts. With
the tight supply/demand balance in the North Sea we believe that Sevan will be
successful in contracting these FPSOs, with Det norske’s Frøy development
emerging as the most likely candidate for FPSO #5 and potentially the Western
Isles development suitable for FPSO #4 (see North Sea market chapter for
more details)
11 Jun 2010 15(77)

Petroprod 1 has been acquired by Jurong Shipyard after the parent company
has been under liquidation which has been managed by KPMG. The shipyard
has decided to complete the unit, and has as we understand already found a
buyer. The unit is 65% complete, and further work will be subject to
specifications from the buyer. This buyer is Teekay that will use the unit on
Petrobras’ Tiro Sidon field. Teekay recently placed the low bid in competition
with SBM Offshore (bidding the FPSO Falcon) and Modec. Purchase price from
Jurong is in the USD 150m range, with remaining capital expenditure estimate
of some USD 250-300m. The bid from Teekay is likely to generate an IRR of
only 10-11% on our calculations, depending on final capex figure.
Deep Producer 1’s future is uncertain, with the owner FPSOcean in bankruptcy,
leaving completion of the vessel uncertain. The unit remains at the yard in Dubai
that is marketing the unit to potential buyers.
Nexus Floating Production has sold their unit to the Brazilian player OSX, and
the counterparty have chartered the unit to OGX as an early production unit.
Nexus does have an option for a second unit that is due in September 2010.
The option also gives Nexus right to terminate the agreement with an exposure
limited to USD 67m, which is already paid on the unit. We doubt that Nexus will
be in a position to take on this construction contract, and the going concern in
the company is very dependent on reaching an agreement with bondholders to
waive the residual claim of USD 67m.
11 Jun 2010 16(77)

Supply – FPSOs coming off contract before 2014

The below figure shows the units coming off contract in the short to medium
term (until 2014). Many of these are likely to stay on their respective fields for an
extended period of time, while others are likely to enter the market place over
the next 5 year period.
Vessels coming off contract
Vessels coming off contract by YE'13
Song Doc Ocean Pride MV 19

FPSO Perintis
Seagood 101
Rubicon Vantage
Petrojarl Varg
Armada Perkasa FPSO
LPG FPSO Sanha
Four Rainbow
Berge Helene
FPSO Cuulong MV9
North Sea Producer
FPSO Brasil
FPSO Marlim Sul
Lewek Arunothai
Espoir Ivoirien FPSO
Brotojoyo
Cidade de Rio das Ostras
Munin FPSO
Bleo Holm FPSO
Modec Venture 11
Sevan Hummingbird
Sendje Berge
ABO FPSO
Crystal Ocean
MV8 Langsa Venture FPSO
FPSO Kuito
FPSO Xikomba
East Fortune FPSO (Nortechs)
Petrojarl 1
Haewene Brim FPSO
Cossack Pioneer
Ruby Princess
FPSO Jasmine Venture
May-10 May-11 May-12 May-13

Production Options
11 Jun 2010 17(77)

20 units scrapped to date

At present, 20 units have been scrapped since the first FPSO was employed. In
our estimate of future scrapping, we assume that demolition of converted hulls
on average takes place after 15 years of operation, while newbuilds have an
estimated lifetime of 25 years. A total of 37 units, including the current 15
scrapped units, are estimated to be scrapped by year end 2016.
15 units have been scrapped at present

FPSO - Accumulated Scrapping
15
12
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Current
11 Jun 2010 18(77)

The FPSO industry is filling up capacity post slow-down

With the number of FPSO awards seen since August 2009, the FPSO industry
is once again filling up the spare capacity. Most of the newbuilds awarded
during the previous cycle are delivered, and new projects are now entering the
construction phase, although still at a significantly lower level. Given the cost
overruns experienced, the industry seems much more aware of the risk/reward
perspective on new contracts. The most conservative company seems to be
Prosafe Production, which does not come as a surprise given the major cost
overruns on the 3 latest newbuilds, although balance sheet constraints is the
main reason for not taking on new projects. However, with a closing of the LOI
to sell the turret business, the company is in a position to look for a new project.
Industry capacity for new projects increasing as projects awarded during the last cycle are delivered
Company Rig Name 2007 2008 2009 2010 2011
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
SBM Offshore Tupi Nordeste
SBM Offshore Baleia Azul (Prev. Espadarte)
SBM Offshore FPSO Aseng
SBM Offshore FPSO P-57
SBM Offshore MOPU Deep Panuke
SBM Offshore FPSO Woodside CWLH
SBM Offshore SEMI-SUB (Turnkey to Delba)
SBM Offshore SEMI-SUB (Turnkey to Odebrecht Drilling Services)
SBM Offshore SEMI-SUB Thunder Hawk
SBM Offshore FPSO Frade
SBM Offshore MOPUstor Yme
SBM Offshore FPSO Espirito Santo
SBM Offshore SEMI-SUB (Turnkey to QGP)
SBM Offshore FPSO Saxi
SBM Offshore FPSO Mondo
Modec Inc. FPSO Guara
Modec Inc. FPSO Cidade de Angra dos Reis MV22
Modec Inc. FPSO Tullow Jubilee
Modec Inc. FPSO BP Angola PSVM
Modec Inc. FPSO Cidade de Santos MV20
Modec Inc. BHP Pyrenees FPSO
Modec Inc. FPSO Cidade de Niteroi MV18
Modec Inc. FPSO Song Doc Pride MV19
Modec Inc. FSO Rang Dong MV17
Modec Inc. TLP Shenzi
Modec Inc. FPSO Stybarrow Venture MV16
Modec Inc. FSO Cidade de Macae MV15
Modec Inc. FPSO Cidade do Rio de Janeiro MV14
Prosafe Production FPSO Ningaloo Vision
Prosafe Production FPSO Cidade de Sao Mateus
Prosafe Production FPSO Azurite
Prosafe Production FPSO Umuroa
Prosafe Production FPSO Polvo
BW Offshore FPSO TSB
BW Offshore FPSO BW Athena (Prev. Carmen)
BW Offshore FPSO Oil - BW Pioneer
BW Offshore FPSO Oil - BW Cidade De São Vicente
The fixed cost base varies significantly among the large FPSO companies, with
SBM having the largest installed base of permanent staff, as can be seen in the
diagram below.
11 Jun 2010 19(77)

Number of employees
# of employees
6,000
5,000
1534
4,000
SBM has the largest number of

3,000
permanent employees
2,000
3617
1,000 2100 627

1200
591
0
SBM MODEC BWO PROD
Permanent Temporary Total
In our view, the need to fix contracts to maintain the internal activity level (but
also to a certain degree for strategic reasons) and to keep key engineers busy,
was well illustrated by the H2’09 Aseng award to SBM Offshore from Noble
Energy, where IRR is expected to be in the low end of the normal return interval.
With the major players now having filled the orderbooks, this effect is easing.
Financing is the key to new units

While the FPSO industry has had the luxury of willing banks and readily
available financing for years, this changed from H2’08 as credit became scarcer
and risk aversion has increased among banks. Projects have historically been
financed on average with 70-80% debt, and even more for certain contracts.
This has certainly changed and to a much larger degree is contingent upon a
contract and the quality of it.
Funding without contract is
virtually impossible. Funding units without contracts is not feasible in the current market, however
this is not an issue as speculative building is not going to happen any time soon.
The leverage ratio on contracted units depends on factors such as contract
length, counterparty risk, economics, residual risk and reservoir risk.
Amortization profiles are more aggressive, with banks unwilling to take any
material residual risk after the fixed contract term. Recent examples of debt
financing have seen leverage ratios in the 60% to 75% range. Leading project
financing banks have funded good quality projects for the leading operators at
200 – 300 basis points above Libor, which is down some 100bp over the past 6
months. Although financing is available for the right projects, the time to arrange
the facility is still significantly longer than what has been the norm historically.
Trend towards larger FPSOs and deeper waters

The largest FPSO in terms of dead weight tons (dwt) is the Agbami FPSO
(400,000 dwt) owned and operated by Chevron in Nigeria, West Africa. The
FPSO has a storage capacity 2,300,000 barrels of oil and is equipped with 35
risers. Total oil production capacity is ~250,000 barrels per day.
The average FPSO size for the current fleet is ~180,000 dwt. A 150,000 dwt unit
has about 1,000,000 barrels of storage capacity, while a 200,000 dwt unit has
about 1,300,000 barrels of storage. In tanker market terms, this approximate
size is referred to as a Suezmax.
As seen below, the water depth trend is clear, and we believe the future lies in
The trend is clear – average deeper waters. The world record when it comes to water depth is held by the
water depth is increasing BW Cidade de Sâo Vincente FPSO, owned by BW Offshore, currently
producing at a depth of 7,103 feet.
However, the Pioneer FPSO (Chinook/ Cascade field), owned by BW offshore

as well, will raise the bar in 2010, with planned production at 8,200 feet water
11 Jun 2010 20(77)

depth. Advances in technology are considered some of the most important

drivers for this development, and in our view this also increases the barriers to
entry.
The most common FPSO size is between 100’ and 200’ DWT & water depth is increasing
45 % 10000
40 %
8000
35 %
30 %
6000
25 %
20 % 38 % 4000
15 %
26 %
23 %
10 % 2000
13 %
5%
0% 0
>300' 200'-300' 100'-200' 0-100' 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
When all the FPSOs in the current order book are delivered, the entire FPSO
fleet will be able to process ~15 million barrels of oil per day. This is around 17%
of the total oil production in the world. However, the actual production is well
below the capacity level.
The age distribution numbers in the figure above are estimated from the time of
conversion into FPSO. Some of the FPSOs from the early 80s are close to
retirement. However, the trend in expected newbuild activity will outpace
scrapping by over the next couple of years.
Oil processing capacity & FPSO Age profile
1500000
70
60
50
1000000
40
30
500000 20
10
0
0 0-5 6-10 11-15 16-20 21-25 26-30
1982 1992 1997 2002 2007 2012 Years
11 Jun 2010 21(77)

Brazil is the dominant FPSO region

The dominant regions in both terms of producing vessels and newbuilds are
Brazil and West Africa, respectively. Brazil will take the largest share of FPSOs
going forward with the pre-salt development, however for the short to medium
term most lease contracts have been awarded over the past six months. The
next step will be the award of 8 newbuild FPSOs, to be constructed in Brazil.
Asia is in a position to increase their share of the market with a lot of FPSO
demand on smaller developments seen. We are seeing local players and yards
pursuing these opportunities quite aggressively. The USGoM is currently
installing the first ever FPSO, with the BW Pioneer expected to start producing
on Petrobras’ Cascade and Chinook field later this summer (although timing is
somewhat uncertain given the oil spill). Irrespective of the oil spill, we do not
expect this area to be a major demand driver going forward as the traditional
TLP, SPAR and semi development solutions are likely to dominate.
Geographical distribution of the FPSO fleet

Geographical distribution of FPSOs
Other West Africa
Northwest
South
Europe
America
Australia/Ne
w Zealand Far East
Source: Pareto research, ODS Petrodata
Conversions are the preferred construction method

The majority of FPSOs have historically been constructed as a conversion of old
tankers, while the large scale West African FPSOs in particular has tended to be
newbuilds. All units have historically been based on the ship shaped design with
Sevan Marine the only player introducing a new concept, building circular
shaped FPSOs. Of the FPSO fleet, 64% are conversions and the residual 36%
are newbuilds.
Conversion is the preferred construction method

Construction method FPSOs
Newbuild
Conversion
Source: Pareto research and ODS Petrodata
11 Jun 2010 22(77)

Re-deployment risk
FPSOs are usually tailor made for a specific field, with a contract at hand before
construction. A contract is on average around 5 – 7 years fixed with typically a
similar period of options, however very dependent on the size of the field and
capital expenditure on the unit (higher capex, higher residual risk, longer
duration).
FPSOs are generally viewed as having risk on the residual value, with the
optional period also at risk pending good production from the reservoir of the
specific field. We do however see that most options are called, as the capex on
the field is sunk and hence the breakeven cost per barrel is generally low. The
residual value theme is more difficult to assess, but units with the major FPSO
companies that are still competitive after coming off contract have historically
been redeployed.
The Petrojarl 1 example (owned by Teekay Petrojarl) is the most extreme

example of re-deployments. After having been on a number of fields post start-
up in 1986, Petrojarl 1 is still working on the Glitne field in the North Sea. The
official contract is running out this summer, but as Statoil (operator) has
communicated that they will drill an additional production well on the field, the
unit is expected to stay on the field for a longer period of time.
Interestingly, the 24 year old unit is now linked to BG Group’s Bream

development, and hence the unit may run for more than 30 years.
Petrojarl 1 redevelopments
Petrojarl 1 Re-employment track record
Field Country Operator Start End

Oseberg Norway Hydro 31/08/86 6/6/1988
Lyell UK Conoco 7/6/1988 28/08/88
1)
Fulmar UK Shell 15/02/89 9/11/1989
Troll Norway Hydro 24/12/89 6/5/1991
Balder Norway Esso 7/5/1991 7/10/1991
Angus UK Hess 31/12/91 4/7/1993
Hudson UK Hess 5/7/1993 26/01/95
Blenheim UK Talisman 15/03/95 1/5/2000
Kyle UK Ranger 24/05/00 6/11/2000
Glitne Norway Statoil 6/15/2001 1/7/2010
1)
Used as storage and loading unit
Source: Pareto Research, ODS-Petrodata
11 Jun 2010 23(77)

Costs are now at attractive levels for new developments

With the escalating oil price up until mid 2008, the upstream cost inflation was
massive. From the 2003 levels, industry costs increased by some 130% to its
peak in 2008. This represented huge challenges for the service industry, as well
as the oil companies, with many projects being postponed on cost issues.
At current prices are down
The current costs are down approximately 15-20% from peak. We believe that
approximately 15% according to
costs have flatten out at this level, and with increasing commodity prices and the
data provided by CERA.
increase in activity, the direction of costs are likely upwards going forward.
Upstream cost inflation
Upstream costs (rebased to 2003) Targeted Cost Deflation
250 60%
225
200 40%
175
150 20% 41%

32%
27%
125
100 0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 <10% 10-20% 20-30%
Source: CERA/IHS, Pareto E&P Survey 2009
The mismatch between what E&Ps and contractors are demanding in cost
reductions has been wide, and this was one of the main reasons for the low
frequency of contract awards in 2009. However, this is now less of an issue in
our view.
Collapse in hull values also improves project economics

Steel is an integrated part in the FPSO cost structure, and on average
constituting some 15-20% of the overall capex on a unit. Over the recent year,
we have seen a strong run in the iron ore prices (used to make steel), with Steel
prices lagging but still trending upwards. In our opinion, this coupled with higher
activity and utilization in general, should limit further cost reduction in the
industry.
As previously mentioned, FPSOs are generally converted VLCC tankers. The

values in the second hand market collapsed during late 08/early 09 with driven
by the weak macro environment. This has led to cheaper access to hulls for the
FPSO players, which in turn enables better economics.
Steel/Iron Ore and second hand VLCC prices

VLCC Second hand prices (USDm) China steel rebar price (USD/ton) China iron ore price (USD/ton)
175 2000 200
VLCC D/H 300K DWT 10 Year Old Seco ndhand P rices
150 VLCC S/H 265K DWT 15 Year Old Seco ndhand P rices 1800 180
125 1600 160
100 1400 140

1200 120
75
1000 100
50
800 80
25
600 60
0
400 40
2001-11
2002-11
2003-11
2004-11
2005-11
2006-11
2007-11
2008-11
2009-11
Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11

China steel rebar price China iron ore spot price
Source: Pareto Research, Clarkson, Bloomberg
11 Jun 2010 24(77)

Future IRRs expected in the 10-14% range

The FPSO industry has on average generated an IRR of some 11.5% on
historical projects. However, projects in the 06-09 period saw significant cost
overruns, delayed start-ups and operational problems, which adversely
impacted the returns.
With the supply chain easing, operators addressing the issues experienced in
the previous cycle, and no new speculative companies, in combination with an
attractive demand side, new projects are expected to be more robust.
We are still likely to see projects at the 10% IRR level (as seen with Guara and
Tupi Nordeste in Brazil), however that is expected on large sized projects with
long duration contracts (typically in line with the life of the FPSO or 15 – 20
years) and subject to very attractive gearing ratios and cheap financing backed
by government export agencies enhancing the return on equity.
Estimated IRRs on FPSO projects
Source: Pareto Research, BWO
11 Jun 2010 25(77)

Demand – pace of awards picking up

E&P spending the driver for activity
Oil and Gas companies represent the demand side for FPSOs, and their
spending levels determine the activity level in the industry. After 9 years of
consecutive growth in overall E&P spending, the level was reduced in 2009 with
around 10 to 12%. This hence reduced the activity in the oil services industry,
and chartering activity in the capital intensive FPSO industry in particular.
With the oil price stabilizing in the USD 70 to 80/bbl band and oil companies
generally challenging with production growth and reserve replacement, we are
confident that the spending figures will increase over the coming years. We
have increased our 2010e spending estimate steadily from August 2010, from
flat development to our current estimate of 9% increase.
E&P Spending and Reserve-Replacement-Ratio (RRR)

Delta E&P USD/bbl Organic RRR (3 year rolling)
40% 120 160%
30% 100 140%
20%
80 120%
10%
60 100%
0%
40 80%
-10%
-20% 20 60%
Nominal spending grow th (lhs) Average Brent (rhs)
-30% 0 40%
1997 1999 2001 2003 2005 2007 2009 2011e 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Pareto Research, Company accounts
For 2010e, NOCs are continuing their upwards spending pattern and we expect
that this segment will increase the spending level by 10% this year, driven by
the Brazilian giant Petrobras. Majors are also increasing their spending,
however the large deltas are seen within Independents and Onshore players.
Independents are returning to the market with the higher oil price than seen in
2009 and perhaps more importantly the access to funding.
E&P Spending by segment

E&P Spending - Pareto Sample
2008 2009e 2010e Delta 09 Delta 10
NOCs USDbn 86 89 98 3% 10%
Majors ¨ 135 129 135 -4% 4%
Independents ¨ 43 34 41 -21% 21%
Onshore ¨ 51 35 40 -30% 12%
Total ¨ 315 288 313 -9% 8.8%

* Sample comprising 50 E&Ps, size approximately 70% of total 2008
Source: Pareto research, Company reports
With new field investment decisions being postponed in the challenging

economic climate we saw in the beginning of last year, we are now seeing that
oil companies have started to award contracts again. NOCs are an important
driver in the less mature regions as in Brazil, West Africa and Asia, where a lot
of the future FPSO incremental demand is expected to emerge (deeper waters
makes FPSO solution very competitive). Smaller independents constitute the
marginal demand for FPSOs. With the improving credit market, and better cash
flow contribution from existing production (higher oil price), we think that they
will be the marginal driver for FPSO demand, especially in the North Sea.
11 Jun 2010 26(77)

Deepwater Rigs as a leading indicator, limited GoM impact

The majority of new large scale offshore oil fields lie in deeper waters. We
believe that the development in the ultra deepwater rig fleet (UDW) should be
Offshore oil production is an important explanatory variable in a demand equation for FPSOs going
trending towards deeper waters forward.
where FPSOs have a competitive
advantage The fleet has grown from 29 to 70 rigs during the last couple of years. By the
end of 2012 some 60 more rigs are set to be delivered. Currently 2/3 out of
these have already secured contracts, which bodes well for the future demand
for FPSO units.
Subsea tree awards and ultra deepwater drilling fleet

# rigs # subsea tree awards
140 800
120 700
100 600
500
80
400
60
300
40
200
20 100
0 0
2002 2003 2004 2005 2006 2007 2008 2009 2010e 2011e 2012e
UDW fleet
Subsea tree aw ards* (right axis) *Quest Offshore projections
Source: Pareto Securities, Quest
Number of subsea tree awards coincides very well with the activity in the FPSO
space. The number of awards has been stable the recent years, with a decline
Number of subsea trees and seen in 2009 with the standstill in contract awards.
hence subsea infrastructure
spending is expected to increase With the increase in ultra deepwater drilling rigs, the number of subsea wells
significantly in 2010 an onwards and hence subsea infrastructure spending is expected to increase significantly
boding well for FPSO demand going into 2010 and onwards. This should also imply a strong demand for
FPSOs.
Very limited direct effect of GoM oil spill on the sector

The US GoM spill has no material impact at this stage on the FPSO industry as
a whole. The first FPSO that has been allowed for operations in the US is BW
GoM production units by type: Offshore’s BW Pioneer that is due to come on stream this year (see BWO
# of units segment). Besides a small converted FPSO that will be working for Helix, no
2
other FPSOs are planned for the region. Looking at the prospect list, the GoM is
8
not an important growth region, as most new field developments are assumed
SPAR developed with the traditional solution for this region, namely semi
16
TLP
submersibles, SPARs and TLPs.
SEMI
The main threat is a long term impact on deepwater activity internationally as a
FPSO
spill over effect from the GoM. At this stage there are no such indications and
we find it unlikely that this will materially impact the sector at this stage. It could
however lead to a longer decision making process and hence slow the pace of
15 new awards.
Source: Pareto, ODS Petrodata Another factor is that increased regulation will lead to higher costs. For the
operating costs, FPSO operators are in general compensated for inflation
related to new regulation. On the capex side, the result will be higher unit cost,
however this will be reflected in contract terms as “other” cost inflation,
obviously assuming this is set prior to fixing the contract.
11 Jun 2010 27(77)

Field development sanctions picking up

Contract news flow was, as expected, slow in H1’09, with delayed investment
decisions and projects being put on hold. However, very few projects have been
Healty underlying demand in the cancelled entirely, leading to material growth in the prospect base through 2009.
FPSO industry. This emphasizes a very healthy underlying demand for FPSOs, as it remains a
highly competitive solution for field developments. Contracts started to move
again in the second half of 2009 and the momentum has continued through the
first half of 2010.
FPSO awards recent 12 months

Awards past 12 months
Type Company Field Operator Country Type Award
FPSO SBM Aseng Total Eq. Guinea Leased 2009
FPSO Petrobras Papa-Terra Petrobras Brazil Owned 2009
FPSO Bumi Armada TGT Hoang Long JOVietnam Leased 2009
FPSO EOC Chim Sao Premier Oil Vietnam Leased 2009
FPSO Saipem Aquila ENI Italy Leased 2009
FPSO Bluewater Nan Hai CNOOC China Leased 2009
FPSO SBM Baleia Azul Petrobras Brazil Leased 2009
FPSO Bluewater Kitan ENI Timor Leased 2010
FPSO Modec Guara Petrobras Brazil Leased 2010
FPSO BWO Athena Ithaca UK Leased 2010
FPSO SBM Tupi NE Petrobras Brazil Leased 2010
FPSO Hyundai Goliat ENI Norway Owned 2010
FPSO Sevan Huntington E.ON UK Leased 2010
FPSO BLT Pagerungan Kangean Ener Indonesia Leased 2010
FPSO MMHE/MISC Cendor Ph.2 Petrofac Malaysia Owned 2010
15 contracts have been awarded or are to be signed over the next couple of
months. With the current prospect list, we estimate that 6 additional FPSO
contracts will be awarded through H2’10 and our base case sees annual award
of 15-20 units per year going forward.
Lease, sale & re-deployment contracts

30
20
26
6
10 19 20
18 17
15
7 8
0
2005 2006 2007 2008 2009 2010e 2011e 2012e
Source: Pareto research and ODS Petrodata
Our award estimate is partly linked to our oil price assumption of USD 75/bbl in
2010 and USD 90/bbl in 2011/12, and the re-emergence of smaller E&P
companies. There are a number of marginal field developments operated by
E&P companies with a limited portfolio and production. Cash flows from existing
production will generally be fully invested and with easing credit markets, the
11 Jun 2010 28(77)

sources of funding for these types of developments should improve significantly

in 2010e.
Regional demand
Brazil is the largest FPSO region both in terms of current FPSOs and future
estimated demand. However the other regions are also seeing a lot of
prospects, which to a greater extent is seeing Independent oil companies as
operators (hence greater risk).
Prospect list distribution by oil company type and phase

FPSO demand by operator segment
FPSO demand by region
50
50
40 40 5
9 1
30 30 23
30 9
20 21 20
27 18 35 21
7 5
11 20
10 10 4
6 7 11
8 4 8
5 5 4
2 3 2 0 2 3
0
South Asia West Africa Northwest Other South Asia West Africa Northwest Other
America Europe America Europe
Tendering Planned Possible NOC Major IOC
Source: Pareto research, ODS-Petrodata
Brazil continues to be the dominant FPSO region, more local content

The FPSO consept has proven to be a very competitive development solution in
the Brazilian region, and with Petrobras eying FPSO solutions for the gigantic
pre-salt build out, the demand in the region has escalated. The Tupi field is
alone estimated to hold 5-8bn boe of oil equivalent, with the nearby Iara and
Guara fields estimated to hold on agreegate a similar size. The Tupi field is
expected to employ 8-10 FPSOs excluding early well tests. The first early well
test (EWT) FPSO came on stream on the Tupi field in 2009 chartered from BW
Offshore on a 10 year lease. Modec is supplying the FPSO pilot, with first
production expected in December 2010. Furthermore, Modec and SBM
Offshore have been awarded LOIs for the Pilot FPSOs on Guara and Tupi
Nordeste, respectively.
Tupi Overview
Source: Pareto research, BG Group
The Tupi FPSOs will predominantly be EPC contracts with a high degree of
local content and standardization, however there are several lease possibilities
11 Jun 2010 29(77)

as seen with the recent Tupi Nordeste LOI to SBM Offshore and Tiro-Sidon
FPSO due for award shortly (Teekay with low bid).
Petrobras and its partners are targeting as much as 39 FPSOs in the deepwater
pre-salt area in the Sanotos basin by 2027. The FPSOs are standardised units,
with an expected production capacity of some 120,000-150,000 boe/day. Total
Standardised FPSOs with capex capex for the units are in the region of USD 1.1-1.2bn, and IRR on the leased
in the region of USD 1.1-1.2bn contracts estimated to around 10%. Although a low figure in an historical
perspective, one should bear in mind the low counterparty risk, high potential
gearing and low financing cost, generating a solid return on equity. Petrobras
has also signed an agreement with Engevix-GVA to commence the
procurement services for the construction of 8 FPSO hulls targeted the Tupi
development. A tender for the FEED for topside production modules for the 8
FPSOs was issued less than 2 months ago. The FPSOs are likely to go to both
BM-S-09 (Guara) and BM-S-11 (Tupi), with the majority expected to go the
latter.
An increasingly favourable development solution in the North Sea

FPSOs is becoming an increasingly favourable development solution in the
North Sea, with many discoveries being too small for a stand-alone platform
development and but suitable for an FPSO solution. Also, with a significant
share of independents operating in the region, a lease structure (capex taken by
FPSO company) is beneficial.
Potential FPSO projects in the North Sea

Potential projects in the North Sea
Field Country Operator Est. first oil
Beechnut/Acorn UK Venture 2012
Bream Norway BG Group 2013
Draupne Norway Det norske 2013
Fyne/Dandy UK Antrim Energy 2011
Frøy Norway Det norske 2013
Golden Eagle UK Nexen 2012
A lot of FPSO prospects in the Grevling Norway Talisman 2015
North Sea Hood UK BP 2013
Huntington UK E.ON 2012
Jackdaw UK OMV 2013
Jordbær Norway BG Group 2012
Kelpie UK Nautical 2015
Kerloch UK Dana 2011
Kraken UK Nautical 2012
Luno Norway Lundin 2013
Luva Norway StatoilHydro 2015
Grosbeak Norway Wintershall 2015
Mariner UK Statoil Hydro 2014
Nucula Norway StatoilHydro 2014
Pilot UK Venture Production 2012
Rinnes UK Dana Petroleum 2013
Rosebank UK Chevron 2014
Schiehallion UK BP 2014
Selkirk UK Nexen 2012
Torphins UK Lundin 2012
Western Isles UK Dana 2012
Alder UK Chevron 2014
There are several projects with likely near term award, with the Frøy consortium
expected to contract either SKDP (Production Jack-up) or Sevan (FPSO#5) in
Q3’10. The recently awarded Huntington LOI (Sevan) illustrates the tight
supply/demand balance in the North Sea, given the attractive economics.
11 Jun 2010 30(77)

North Sea projects with potential near term award

Frøy (redevelopment) - Sevan awarded FEED Bream - Sevan Awarded Study Contract
Partners: Detnor (Op;50%), Premier Oil (50%) Partners: BG(Op;40%),Spring(20%),Skeie(20%),Premier(20%)
Location: Norway Location: Norway
First Oil: 2013e First Oil: 2013/14e
Prod: 30,000 Prod: 30,000
Resources: 56m Resources: 38-63mbbl
Status: Status:
Concept screening and Study contract awarded
pre-FEED ongoing; in October.BG has
Revised PDO in 2010; decided to move forward
Sevan and SKPD with a development;
competitors; Decision FPSO most likely, and
likely in Q3'10 capex is estimated to
between NOK 4-6bn.
Potential contract structure: License/Lease Potential contract structure: License
Western Isles - Potential Lease Opportunity Jordbaer - Potential Study Award
Partners: Dana(Op; 65%),Cieco(35%) Partners: BG(Op;45%),Idemitsu(25%),Revus(20%),RWE(10%)
Location: UK Location: Norway
First Oil: 2012e First Oil: 2012/13e
Prod: 45,000 Prod: 40,000
Resources: 65mboe Resources: 60-110mboe
Status: Status:
Dana targeting an FPSO BG is in planning mode
development due to the with regards to a
development of the
size of the field. Project
Jordbaer field.;Regarded
sanction planned for Q3
as a potential play
2010 and first oil by Q4 opener, several nearby
2012. prospects.
Potential contract structure: License/Lease
Source: Pareto Research, Company data
11 Jun 2010 31(77)

World wide FPSO Projects with potential award over the next 24 months
Projects with potential award next 24 months
Type Field Country Operator First oil Comment on FPSO provider
FPSO Baleias/Chachalote Phase 2 Brazil Petrobras 2012 Tendering
FPSO Tiro-Sidon Brazil Petrobras 2012 Tender out, 9 year lease, Teekay with low bid
FPSO Pipa 3 (Guanambi) Brazil Petrobras 2014 Two DP FPSOs, tender delayed
FPSO Tupi (BMS-11) Brazil Petrobras 2010-2017 1x EWT & 2x pilot (awarded), 8 FPSO producers
FPSO Carioca (BMS-9) Brazil Petrobras 2012-2020 1x EWT, 1x pilot, 8 FPSO producers
FPSO Parati (BMS-10) Brazil Petrobras 2012-2020 1x EWT, 1x pilot, 4-8 FPSO producers
FPSO Caramba (BMS-21) Brazil Petrobras 2012-2020 1x EWT, 1x pilot, 4-8 FPSO producers
FPSO Bem-Te-Vi (BMS-8) Brazil Petrobras 2012-2020 1x EWT, 1x pilot, 4-8 FPSO producers
FPSO Iara (BMS-11) Brazil Petrobras 2012-2020 1x pilot (awarded), 4-8 FPSO producers
FPSO Guara (BMS-9) Brazil Petrobras 2012-2020 1x pilot (awarded), 4-8 FPSO producers
FPSO P-62 Brazil Petrobras 2013 Jurong awarded hull
FPSO Aruana Brazil Petrobras 2012 1xEWT + FPSO
FPSO Waimea Brazil OGX 2011-2012 1x EWT , 1x FPSO+
FPSO Vesuvio Brazil OGX 2011-2012 1x EWT , 1x FPSO+
FPSO Western Isles North Sea Dana 2012 Currently tendering
FPSO Frøy North Sea Det Norske 2013 Sevan, SKDP competing; Selection mid 2010
FPSO Rosebank North Sea Chevron 2015 Development studies underway, FEED in 2011
FPSO Mariner North Sea Statoil 2014 Sevan awarded study contract
FPSO Bream North Sea BG Group 2013 Tendering, Petrojarl I chasing
FPSO Luno North Sea Lundin 2013 Sevan with study contract
FPSO Jordbaer North Sea BG Group 2013 Bids submitted early June
FPSO Grevling North Sea Talisman 2015 Development studies likely in 2011
FPSO Draupne North Sea Det norske 2014 Successful appraisal, likely FPSO
FPSO Huntington North Sea E.ON 2012 Sevan with LOI
FPSO Fyne/Dandy North Sea Antrim 2012 Tendering
FPSO Golden Eagle North Sea Nexen 2013 Nexen exploring development options
FPSO Luva North Sea Statoil 2015 Gas development, FEED in 2011
FPSO Hai Su Trang & Hai Su Den Vietnam Talisman 2011 All major names chasing
FPSO Ketapang PSC Indonesia PC Ketapang 2013 Songa Floating, M3nergy,Tanker Pacific
FPSO Terang Sirasun Batur (TSB) Indonesia Kangean Energy 2012 BWO likely to be awarded firm contract soon
FPSO Bukit Tua Indonesia Petronas 2013 Songa Floating, T.Pacific, BLT,M3nergy
FPSO Gehem Indonesia Chevron 2014 Barge FPSO
FPSO Gendalo Indonesia Chevron 2014 Barge FPSO
FPSO KG-D6 phase II India Reliance 2012 Possible phase II of current development
FPSO D-1 India ONGC 2013 Leased FPSO targeted
FPSO Nang Nuan (B6/27) Thailand PTTEP 2013 Small FPSO required
FPSO Lady Nora Australia Woodside 2013 At feasibility study level
FPSO CLOV Angola Total 2014 EPC, newbuild, award imminent
FPSO PAJD (Southeast Block 31) Angola BP 2014 SBM with LOI
FPSO Ceres & Hebe (Block 31 MID) Angola BP 2014 SBM/Modec with frameagreement
FPSO Block 32 (GCG) Angola Total 2012 Modec awarded study contract in 2008
FPSO Block 15/6 Angola ENI 2012 Possible SBM redeployment
FPSO Lucapa Angola Chevron 2014 At FEED stage, TLP/FPSO solution likely
FPSO Negage (Block 14) Angola Chevron 2013 Pending FID, project delayed for years
FPSO Platina/Chumbo/Cesio Block 18 Angola BP 2012 Pending FID
FPSO Nsiko Nigeria Chevron 2013 Pending FID, gov't approval
FPSO Egina Nigeria Total 2014 Newbuild FPSO, tendering
11 Jun 2010 32(77)

Companies
11 Jun 2010 33(77)

Sevan Marine (BUY, TP NOK 13)

A very attractive market position and outlook is overshadowed by
funding and legacy issues. Tightening the grip on current operations,
creating confidence in the funding situation and capitalizing on market
opportunities should unlock significant value for Sevan shareholders.
The Huntington contract was solid and the project activity in the North
Sea is likely to see Sevan getting contracts for FPSO #4&5 in 2010. We
expect the company to continue the shift towards a license model
requiring limited new capital on new projects.
Current status
The Sevan Driller #1 acceptance testing has taken longer than expected, but
management announced on Friday 11th of June that is has been accepted by
Petrobras. The unit will now be on standby rate (90% of full dayrate) before
commencing full operations shortly.
Driller 1 start-up imminently
According to the Petrobras contract, Sevan is entitled to a mobilization fee that
is payable once the unit is on the field totalling some USD 20m, hence freeing
up some cash in the short term picture (payable in 30 days post start-up). Sevan
has drawn the residual USD 43m of the Driller#1 bank debt during Q2, which
can be used for general corporate purposes with all instalments paid.
Sevan has reached an agreement with banks regarding financing of Driller #2

Driller#2 fully funded at attractive
(Sevan Brasil, contracted to Petrobras, delivery in Q1’12). The facility totals
terms, Sevan Voyageur awarded
USD 525m at libor + 3.4/3.1% pre/post delivery, which in our opinion is very
term sheet for upgrade capex
attractive. In addition, the unit has vendor financing of some USD 80m that can
be drawn upon (all debt is earmarked payments on this unit). At Q1, some USD
170m was invested in the unit (USD ~105m at Q4), meaning that the residual
capital expenditure is fully funded. Furthermore, Sevan was this week awarded
a term sheet by ING Bank for a replacement of the current 1st priority facility on
the Voyageur FPSO. The new facility to be increased by USD 80m to USD
230m and covers the upgrade of the Voyageur FPSO, given approval from
bondholders. Positive development that should be attractive for both
shareholders and bondholders in our view
Contract situation – Voyageur with strong contract in the North Sea

The main concern on the contract side has over the last year been the Sevan
USD 80m in annual Voyageur Voyageur currently employed on the Shelley field in the North Sea. The field is
EBITDA vs. USD 60-75m expected to be decommissioned in July 2010 leaving the unit without
expected – Contract covers costs employment. However, the FPSO was recently awarded an LOI for the EO.N
from the unit leaves Shelley operated Huntington field also in the North Sea. The LOI is for a 5 year contract
with perpetual options commencing in Q3’11. The contract economics are very
attractive supporting an annual EBITDA of some USD 80m (above the USD 60-
75m expectation), and covers costs on the unit from it leaves the Shelley field.
Contract Overview
2010 2011 2012 2013
Unit Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Piranema - Petrobras, Brasil Contract to 2018 + 11 years optional
Hummingbird - Venture, N. Sea (UK) Contract to 2011 + 2 years optional
Voyageur - Premier Oil, N. Sea (UK) LOI contract to 2016 + perpetual options
FPSO # 4/5 Uncontracted hulls
Sevan Driller I - Petrobras, Brazil Contract to 2015
Sevan Brazil - Petrobras, Brazil Contract to 2018
Sevan Driller II - ONGC, India Pending renegotiation or termination
Goliat - ENI, Barents Sea, Norway Technology license agreement
Construction Idle
Contract Option
In our opinion, there is low risk of the Voyageur LOI not materalising. Hence, the
company has firmed up a decent backlog, and although the Hummingbird is
Hummingbird to be extended and coming off its fixed contract in Q2’11, we believe that options will be called by
potentially refinanced the client Centrica, which also owns 20% of the unit. The Chestnut field, where
the Hummingbird is operating, is producing well (~8,000 boe/day) and Centrica
11 Jun 2010 34(77)

has communicated that they are also likely to use the FPSO on another field
post Chestnut close down.
The ONGC contract on the third driller is very likely to be cancelled, and
maximum liability is set to USD 25m in such a scenario.
Debt restructuring targeted to enhance financial flexibility

Despite firming up the Voyageur facility, the financial position of Sevan is tight,
with the cash position taking a hit in Q1’10. In order to address the situation, the
company expects to refinance parts of the bond debt. In our opinion, the
Hummingbird is the most obvious candidate, given the unit’s low loan-to-value
and improved residual value based on the solid Voyager contract. A new
convertible is also a potential source for funding. At the 2010 AGM, the proposal
of allowance of issuing 10% in new equity and a convertible bond was
approved.
Debt Overview (before Voyageur refinancing)

Debt Amortization Overview
Undrawn 2010 2011 2012 2013 >2013
Piranema Bond 270 20 23 25 202 0
Hummingbird Bond 132 8 125
Voyager Bank 1 45 1 1 1 42
Voyager Bank 2 105 3 2 2 2 96
Voyager Bond 133.8 20 20 93.8
Driller #1 Bank(3) 206 44 7 28 30 32 109
Driller #1 Bond 154 154
Driller #2 Bank(1) 0 525 31 62 432
Vendor financing 80 80 26 53
Convertible (2) 48
Total 1174 649 84 252 336 298 679
(1)
Mandate for financing, expected to be finalised in Q1'10
(2)
Convertible bonds towards Luxor Capital Group, Strike USD 1.05/share, due 13
(3)
Predelivery Facility of USD 250m, increasing to USD 400m (not firm) post delivery
NOK/USD 6.5
Given the successful start-up of Driller #1 and improved Piranema economics,

the company should be able to manage without an equity issue through
increasing the debt side in a scenario with existing units only.
Focused on asset light growth

Sevan’s technology has been proven commercially, with all three FPSOs
showing high utilization figures and Driller #1 commencing its contract with
Petrobras. Over the past year, the company has been awarded several study
contracts in order test the viability of the Sevan design on different fields in the
North Sea. This, coupled with the recent Voyageur contract, proves Sevan’s
strong standing in the region.
Study contracts
Potential
Project Operator Size First oil FEED Award Contract type
Study
Rosebank Chevron UK Large 2017 2011 2012/13 License
Luva Statoil Norway Large 2015 2011 2011 License
Extensive list of study Mariner Statoil UK Medium 2014 2010 2011 License
contracts/FEED and prospects in Bream BG Group Norway Small 2013 2010 2010 License
the North Sea is likely to see Alder Chevron UK Small 2013 2010 2010 Lease/License
Luno Lundin Norway Medium 2013 2010 2010 License
FPSO#4/#5 contracted
FEED
Frøy Det norske Norway Small 2013 2010 2010 License/lease
Potential
Jordbaer BG Group Norway Medium 2013 2010 2010 License/lease
Grevling Talisman Norway Small 2014 2010 2011 License/lease
Draupne Det norske Norway Small 2014 2010 2011 License/lease
Western Isles Dana UK Medium 2012 2010 2010 Lease
Golden Eagle Nexen UK Large 2014 2010 2011 License
Huntington E.ON Medium 2012 2010 Voyager reemployment
11 Jun 2010 35(77)

Sevan is turning from a lease provider into being more license focused, as seen
with the Goliat award last year. We believe that this is the future for the
company, reducing capital expenditure and financing risk on new projects.
Given the extensive prospect list and the number of study contracts awarded to
the company over the recent year, we expect that FPSO #4 and #5 will be
contracted this year. In our opinion, a likely development scenario would be a
pure license contract (with Sevan taking limited capex risk) or alternatively a
mix, where the licensees take joint ownership in the unit. The latter scenario
could see Sevan using the invested equity in the units (USD 85m on FPSO#4
and USD 50m on FPSO#5), with the clients investing a similar amount and
utilizing joint project financing of the residual capital expenditure requirement.
An issue that needs to be resolved in connection with the contracting of these
units is the first priority security that the USD 48m convertible issued in April last
year has. In addition, this CB has a pledge on the license fee payments from
ENI related to Goliat that goes into escrow, which is a challenge for Sevan given
the current situation. Calling the bond will have a cost to Sevan of approximately
USD 19m.
The Frøy development, operated by Det norske (50%) together with licensee
Premier Oil (50%), is in our opinion likely to end up with Sevan, and a contract
Sevan front-runner for the Frøy structure as outlined above could very well materialize. The licensees are
development currently in the process of getting bids for the steel jacket with AKSO and
Chinese yards as the main competitors. Frøy is however not the only option,
with also BG Group’s Bream and Jordbaer developments likely to move this
year. Given the current market position, we find it unlikely that Sevan will trigger
an equity need on a new contract at this point in time.
Of other study contracts, we would highlight the Statoil contract for the Luva
field awarded last year. This could potentially become a large scale contract,
with the Luva field expected to become a new hub in the Norwegian Sea, with
several satellite deposits already discovered. Statoil has also been working with
Aker Solutions and Technip regarding development solutions. If Sevan is to be
awarded this contract, the contract terms will likely be similar to the Goliat
award, implying limited capex risk and no funding requirement for Sevan.
Concept selection is likely to take place in late 2010 or 2011, with first
production targeted around 2016.
Competing in the Petrobras 28
rig tender, license contract i.e. no In Brazil, Sevan is also positioned to secure license contracts for its driller
capex risk design. Having teamed up with its Brazilian partner, the company is positioned
for the newbuild UDW drilling rig program that Petrobras has ongoing for a
planned 28 rigs. The tender is changing structure rapidly, however at current it
looks like Sevan is participating in a bid for two units to be owned by Petrobras.
Petrobras has now received bids for the first two parts of the tender. Bidding for
Part 1 were KeppelFELS, Jurong, Andrade Gutierrez, Engevix, EISA, Atlantico
Sul, Odebrecht Construction, STX and Alusa Galvao. For part 2, Petrobras
received 7 proposals. Bids were submitted by Keppel FELS, Jurong, Andrade
Gutierrez, Engevix, EISA, Atlantico Sul, and Odebrecht Construction. Andrade
Gutierrez is bidding the Sevan design.
Valuation
The funding position is likely to continue to weigh on the stock going forward,
with several issues that needs to be addressed by the company in order to give
a comforting situation. This primarily relates to start up on Driller #1, which has
now been achieved, refinancing and securing new debt and an improved
contribution from Piranema.
Funding position is likely to
continue to weigh on the stock In the longer run, the underlying fundamentals for Sevan are very attractive.
going forward Their study contracts and tight supply/demand picture in the North Sea bodes
well for future growth, and given a more license focused model (low
capex/financing risk), the long term value potential is in our opinion attractive.
11 Jun 2010 36(77)

Sum of the parts (SOTP)

SOTP SEVAN USDm
DCF committed units*
Piranema 217
Hummingbird (80%) 293
Voyageur 454
Sevan Driller (Q2'10) 852
Sevan Brazil (Q2'12) 409
Goliat 75
Additional potential contracts
FPSO #4 (Invested USDm 85 to date) 149
FPSO #5 (Invested USDm 50 to date) 149
Additional license contracts (x2) 200
Value all units (committed & new) 2,798
Value Kanfa 100

Value of Technology 100
Net debt YE'10e (1,231)
SG&A and tax (200)
Equity value 1,568 1,231
USD NOK
NPV per share committed & new 3.0 19.4
NPV per share committed fleet 2.0 13.3
WACC 10.5%, USDNOK 6.5 © Pareto Securities AS
* Includes post-contract residual value
11 Jun 2010 37(77)

Sevan – Bond case

Sevan bonds currently yield 10-15% and have traded up since year end
2009, following positive newsflow related to funding on the second
driller, LOI award for FPSO Voyageur, several study contract awards
and the first Driller being accepted by Petrobras. We prefer the solid 1.
lien bonds and the Driller bond as secure investments while we see
the 2. lien Voyageur bond as an interesting event-driven investment.
1. pri. USD 250m Piranema bond

Price 81, yield 13.7% - maturity 14.05.2013
The bond has a strong security package through the 1 pri. security in Sevan
Marine’s first FPSO (Piranema), which is currently on an 11 years firm contract
with Petrobras until 2018 + 11 years options. The FPSO has had a good uptime
since contract start-up in October 2007. The FPSO Piranema is currently the
only FPSO in Sevan Marine with firm contract duration longer than the pledged
debt against the unit – upon bond maturity in 2013 the remaining firm contract
length is 5.5 years. Outstanding bond amount upon maturity is USD 202.5 –
NPV of remaining firm contract is then USD ~110m. The current contract on
FPSO Piranema does not fully reflect the potential of the FPSO as this was the
first circular shaped FPSO ever built. This is highlighted by the recent LOI award
for sister FPSO Voyageur, with an estimated annual EBITDA of ~USD 80m.
High opex and low revenue utilization has caused the EBITDA contribution from
the FPSO Piranema to be lower than expected, with estimated EBITDA of USD
14m in 2010E (USD 28m expected in 2011E). We think refinancing of the bond
in 2013E should be achievable; 5.5 years of remaining firm contract upon
maturity of the bond + 11 years option and Petrobras has indicated that they are
interested in keeping the FPSO for the rest of its life. Further, leverage in the
Group is expected to come down significantly towards 2013, driven by lower
capex and higher earnings.
1. pri. USD 135m Hummingbird bond

Price 98.5, yield 10.5% - maturity 20.12.2011
The bond has 1. pri. security in the FPSO Hummingbird which is on a 2.5 years
firm contract with Centrica until March-11 plus 7 years options. The FPSO
Hummingbird is the unit with the lowest leverage in Sevan Marine. With only
USD 120m of debt outstanding on the unit upon maturity in 2011, the asset
coverage on this bond is considered to be solid – construction cost was USD
360m. The main challenge will be to secure a new contract for the unit in 2011 if
Centrica decides not to exercise any of its options. Centrica has 7 years options
in total after the firm contract period expires and the counterparty’s 20% stake in
the unit increases the possibility of options being exercised. However, should
the contract not be extended the FPSO should be well positioned to get a new
contract with a significant higher dayrate (ref. strong LOI on sister FPSO
Voyageur awarded recently).
2. pri. NOK 870m Voyageur bond

Price 91.5, yield 14.6% - maturity 24.10.2012
1. lien debt on the unit is currently USD 150m, made up by a USD 105m bank
loan and a USD 45m bond from Deutsche bank. When including the NOK 870m
2. lien bond, total leverage on the FPSO is currently USD ~285m. The FPSO
originally had a 5 year firm contract with Oilexco, but following the bankruptcy of
Oilexco in early 2009 the new owner of the field, Premier Oil, decided to
decommission the FPSO in 3Q10. However, in May-10, the FPSO was awarded
a 5+10 year LOI with E.ON for the Huntington development. Estimated upgrade
capex in relation to the contract is USD 80 – 90m. Sevan has received a term
sheet for a new 1. lien bank facility of up to USD 230m which will cover the
upgrade capex in relation to the contract and take out the existing 1. lien debt.
Hence, the company has proposed to increase the 1. lien carve-out from USD
150m to USD 230m. Sevan is currently in discussions with 2. lien bondholders
regarding this amendment and potential compensation. The new 1. lien facility
will amortize with USD 12.1m quarterly, starting 6 months after first oil on
Huntington, expected in 4Q11. Estimated annual EBITDA from the new contract
is ~USD 80m. If the current proposal is completed and the contract materializes,
11 Jun 2010 38(77)

total leverage on the unit will be USD 365m. With a fully funded unit and a very
strong 5 year contract, the protection on the downside for the 2. lien bond
should be good. Further, we see the refinancing risk upon maturity of the 2. lien
bond (Oct-12) as limited, if the contract materializes.
2. pri. NOK 1,000m Driller bond

Price 98, YTM 9.8%, YTC June ’11 @ 104 14.5% - 07.12.2012
The bond has 2. pri. security in the first Driller, behind USD 250m of bank debt.
The unit has a firm 6 year contract with Petrobras and was accepted by
Petrobras on 11 June 2010. The company has secured a post-delivery bank
facility of USD 400m, originally to be used for refinancing of the pre-delivery
bank facility and the bond. Terms on the post delivery facility is Libor + 4.5%,
maturity is 6 years and the facility is available 6 – 12 months after acceptance
date. Total leverage on the unit is currently USD ~404m (second Drilling unit
has secured USD 525m in financing). We think the company will refinance the
bond in order to increase leverage on the unit and / or align the debt repayment
schedule with cash flow. Call price on the bond is 104% 6 to 12 months post
acceptance date and NPV of the firm contract is estimated to ~USD 450m.
11 Jun 2010 39(77)

Prosafe Production (BUY, TP NOK 18)

Prosafe Production has all its units on contract, with run-rate EBITDA
proposing an 19% FCF yield. The main short term trigger is the closing
of the Turret sale to National Oilwell, however we see this potentially
slipping from the current guided timeline of a closing by end Q2.
Management now expects to start active tendering in H2’10 enabled by
the cash injection from the turret sale. A new project coupled with debt
amortizations will absorb free cash flow going forward, hence a
dividend is unlikely over the next few years. There is a NOK 4/share
upside to our target on a concluded turret sale.
Current status – Steady cash flow, new project expected in 2010e

Prosafe Production has completed its troublesome newbuild program with the
delivery of the Ningaloo Vision in early January. Hence all 8 FPSOs are on
contract, with a long term backlog and great visibility on cash flow.
Troublesome newbuild program
completed, all units on long term Q1 figures showed an EBITDA of some USD 56m, and with somewhat delayed
contracts start-up of the Ningaloo Vision in the quarter, we expect the EBITDA to
approach USD 60m on a quarterly basis going forward.
Earlier this year, PROD signed an LOI with National Oilwell Varco for sale of the
Turret and Swivel business for a total cash consideration of USD 165m. In
addition, PROD is entitled to a royalty of 10% on NOVs sale from the business
unit for 7 years. Assuming NOV is successful in selling one such system per
year, the value of the total transaction could reach USD 200m. The transaction
is subject to due diligence and board approval in both companies and is
according to management expected to close in Q2’10. The business unit has
historically only conducted internal projects with a relatively small cost base, and
no value has been attributed in our valuation of the company. A closure of the
transaction would enhance our valuation of the company by NOK ~4/share,
from the current level of NOK 16.5/share.
Importantly, this transaction will improve the balance-sheet significantly and

Expects to start active tendering enable the company to take on a new mid-sized project in late 2010/2011. The
this year pipeline of projects is significant, and PROD has communicated that it will start
to bid on tenders this year, although an attractive risk/reward profile is required
(typically 12-14% IRR and reasonable risk profile especially from a construction
point of view).
Solid backlog coverage and contract length

Prosafe Production has a solid backlog with on average 5.5 years of fixed
Solid contract backlog with 5.5 contracts and further 6.5 years of optional contracts. The only FPSO that is
years fixed and further 6.5 years seeing its fixed period ending in the short term is FPSO Abo, however with the
of optional years operator on the field, Agip, drilling further production wells, the unit is expected
to stay on the field even post the optional period. The upside in valuation of a
potential extension is limited, however, with the counterparty having a purchase
option on the unit.
Contract overview
Unit 2010 2011 2012 2013
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FPSO Umuroa - AWE, Australia Contract to 2015 + 7 years optional
FPSO Polvo - Devon Energy, Brazil Contract to 2014 + 8 years optional
FPSO Abo - Nigerian Agip, W.Africa Contract to 2011 + 2 years optional
FPSO Espoir Ivoirien - CNR, W. Africa Contract to 2011 + 10 years optional
FPSO Petróleo Nautipa - Vaalco Enrgy, W.A. Contract to 2015 + 2 years optional
FPSO Cidade de São Mateus - Petrobras, Brazil Contract to 2018 + 6 years optional
FPSO Ningaloo Vision - Apache, Australia Contract to 2016 + 8 years optional
FDPSO Azurite - Murphy, W. Africa Contract to 2016 + 8 years optional
FSO Endeavour - Aban Offshore, India Contract to end 2010e
FSO Madura Jaya - Kodeco Energy, Indonesia Contract to Nov 2010
Option Construction Idle
11 Jun 2010 40(77)

Fixed value case, solid cash flow generation

With closure of the sale of the turret business and consequent reduction of the
enterprise value, the company trades on a free cash flow yield to the enterprise
Solid free cash flow yield value of some 14% in 2010e escalating to 29% by 2013e. The risk to our
estimates are considered to be low, with Q1 generating an EBITDA of some
USD 56m vs. USD 240m expected for the full year. Also with the long duration
of contracts, the cash flow also post 2010 is very much fixed.
Dividends however are not expected in the short term, with the current debt
We expect PROD to grow the situation requiring instalments of USD 150m on an annual basis, which
fleet rather than paying dividends compares to the operating cash flow of around USD 200m. The targeted net
in the short term picture debt to EBITDA ratio is communicated to be 3-3.5x, and hence the company
should be in a position to be paying dividends in 2011 on an existing units only
scenario, but we expect that the company is more interested in growing their
fleet rather than paying dividends at this point in time.
Free cash flow yield & leverage ratio
EV/FCF and FCF Yield
29% Leverage ratio
8.0x 30%
3.5x
7.0x 24% 3.0x
25%
3.0x
6.0x
19%
20% 2.5x 2.2x
5.0x
15%
15% 2.0x
4.0x
1.5x
6.9x
3.0x 1.5x
5.4x 10%
4.2x 0.7x
2.0x 1.0x
3.4x
5%
1.0x 0.5x
0.0x 0% 0.0x
2010E 2011E 2012E 2013E 2010E 2011E 2012E 2013E
EV/FCF FCF Yield to EV Net Debt/EBITDA
Valuation – significant upside on turret sale and new project

In our opinion, Prosafe Production is an attractive company with significant cash
flow yield and support from long term contracts. With the favourable
BUY TP NOK 17, NOK 4/share supply/demand picture seen in the FPSO industry going forward, combined with
upside with concluded turret sale PROD’s more prudent approach to new projects, they are well position to
enhance the value of the company with some USD 100-150m by taking on a
new mid sized project (USD ~500m) in the short term. We reiterate our BUY
recommendation, but increase target price to NOK 18/share (17) on stronger
dollar, with NOK 4/share upside on finalization of the turret transaction. Further
NOK 3/share upside with new unit.
Sum of the parts (SOTP)

SOTP PROD including Turret Sale USDm
FPSO Espoir Ivoirien 151
FPSO Abo 79
FPSO Petrolia Nautipa (50%) 32
FSO Madura Jaya (50%) 4
FPSO Polvo 209
FPSO Umuroa 113
FPDSO Azurite 343
FPSO Cidade de São Mateus 510
FPSO Ningaloo Vision 300
VLCC hull, variation orders 40
FSO Endeavor 7
Additional units
Value of one additional FPSO 125
LOI Sale of Turret Business to NOV 200
Value all units (committed, idle & new) 2,112

Net debt end YE'10e (ex. Turret sale) (877)
SG&A and tax (185)
Equity Value 1,050
USD NOK
NPV per share committed, idle & new 4.1 26.7
NPV per share committed & idle fleet 3.6 23.6
WACC 9%, USD/NOK 6.5 © Pareto Securities AS
*Includes post-contract residual value
11 Jun 2010 41(77)

BW Offshore – (BUY, TP NOK 13)

BW Offshore is delivering steady operations and EBITDA, have a solid
contract backlog and in a good position to secure new attractive
contracts. Short term uncertainty regarding start-up of the BW
Pioneer, currently located in the GoM. Stand-by day-rate is expected
from end July, with production start-up in late 2010. With a 50% upside
to target and moderate risk, this is a clearcut buy. Patience will pay off.
Current status
Two new projects joining the BW Offshore is well positioned in the FPSO segment, with an organization and
fleet, 3rd newbuild likely balance sheet to take on new projects. Two new FPSO projects have joined the
fleet this year, with the BW Carmen set for the Athena field on the UK side of
the North Sea and a new unit highly likely to be signed at the TSB field in
Indonesia. We believe that the company is in shape for a third newbuild, with
the North Sea as the likely destination in our view.
Overview of Athena and TSB

K
e
y
f
o
c
u
s
a
t
c
u
r
Source: BW Offshore r
e
The current focus is however on the BW Pioneer, which is located in the US
GoM ready for hook-up to commence production at Petrobras’ Chinook and
Cascade field. The FPSO has still not received the technical approval from
Petrobras, and is according to management now expected on standby day-rate
from end July (95%). Production at the field is now expected to start in late
2010, but due to the current situation in the USGoM a prolonged delay should
not be ruled out at this stage in time.
APL Backlog Development (USDm)
450 BW Offshore’s equipment division APL has had a challenging 2009, with
400 revenues and backlog declining steeply. However, the outlook is increasingly
350
attractive with the number of new projects in the FPSO segment gaining pace.
300
250
The company recently received an authorization to proceed with the completion
200 of the FPSO OSX-1 (previously awarded to BW from Nexus). The scope
150 includes among other delivery of a submerged turret production system (STP)
100
and topside modifications with a total value of USD 150m. We estimate that
50
0
USD ~50m of this is attributed to the APL backlog (a significant contribution),
1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 with the residual being booked on the FPSO segment (USD 100m).
APL backlog development Source: BW Offshore
Contract situation
BWO has 5 FPSOs working on long term contracts. In April 2009, FPSO Cidade
de Sâo Vicente commenced on a 10 year contract with Petrobras on the high
profile Tupi field. Sendje Berge is contracted with Addax until 2011 in Nigeria,
with two optional years. Berge Helene is contracted with Petronas in Mauritania
until 2013, with options for 8 more years. In Mexico, the company has an FPSO
working for Pemex until 2022, with options for 3 more years.
As mentioned above, the company has entered into an LOI with Itacha Energy
for employment of the BW Carmen on the Athena field. A firm agreement is
expected to be signed in due course, enabling the company to commence on an
upgrade for first production in Q3’11. The company is also the only bidder on
11 Jun 2010 42(77)

the TSB project, and a contract is very likely to be signed shortly at attractive
terms (IRR likely 14-15%, and 10 years fixed and further 4 years in options).
BWO owns 25% in Prosafe Production and 49% in Nexus Floating Production.
Nexus’ only asset (1 new FPSO completed at Samsung), was last year sold to
OSX. The total consideration of USD ~400m included remaining yard
instalments (sales price of USD 350m and USD ~50m in remaining capex).
Equity value of Nexus is close to zero.
Contract overview
2010 2011 2012 2013
Sendje Berge - Addax, Nigeria Contract to 2011 + 2 years optional
Berge Helene - Petronas, W. Africa Contract to 2013 + 8 years optional
Belokamenka - Rosneft, Russia Contract to 2019
YÙUM K’AK’NÁAB - Pemex, GoM Contract to 2022 + 3 years optional
BW Pioneer - Petrobras, GoM Contract to 2015 + 3 years optional
BW Cidade de São Vicente - PBR, Brazil Contract to 2019 + 5 years optional
BW Carmen - LOI Construction, Contract to 2014 + life of field options
TSB - Likely contract Construction, Contract to 2022 + 4 years optional
BW Nisa, Papa Terra JV Construction, EPC (turnkey) contract
BW Ara (VLCC) Idle
Contract Option Construction Idle
Source: Pareto research, BW Offshore
Merger with PROD makes sense strategically

BW Offshore has good financial flexibility with the credit facility established with
BW Group. However, in order to compete with the two major players, SBM and
Modec, a stronger balance sheet would be favourable. As previously mentioned,
Proposal of BWO board the Company owns a large stake in Prosafe Production, and a merger between
members not supported by the entities makes sense strategically. It is also worth noting that BWO wanted
PROD shareholder base to appoint directors to the board in Prosafe Production at the AGM in May, but
this proposal was not supported by the shareholder base. We do not believe
that this is a situation that BWO is comfortable with, and hence expect it to lead
to M&A or divestment. (With M&A most likely in our view).
Valuation – BUY NOK 13/share

BW Offshore is in growth mode, with two projects expected to be signed shortly
and potential of taking on another conversion. Their APL segment is expected to
see a more favourable market, with the activity in the general FPSO market
gathering pace (value also supported by PROD’s LOI). The company is guiding
on a run-rate EBITDA of USD 250-300m, going into 2011 and 2012 (Excluding
BW Carmen and TSB).
Our NAV of existing units (including BW Carmen) is NOK 13.2/share, with

BUY TP NOK 13/share further NOK 1.5/share upside on TSB. We reiterate our BUY recommendation
and NOK 13/share target price.
11 Jun 2010 43(77)

SOTP
SOTP BWO USDm
Current Fleet
Sendje Berge (Addax to 2011, opt. to 2013) 82
Berge Helene (Petronas to 2013) 178
Belokamenka (Rosneft to 2019) 40
YÙUM K’AK’NÁAB (Pemex to 2022) 225
BW Pioneer (Petrobras to 2015) 481
BW Cidade de São Vicente (Petrobras to 2019 220
BW Carmen 165
BW Nisa, Papa Terra EPC 25
OSX - FPSO Segment 8
BW Ara (scrap value) 12
PROD ownership (23.9%) 129
Sum exsisting fleet 1,564

APL - Technology 350
New unit (TSB) 100
Net debt YE'10e (778)
SG&A and tax (210)
Equity value existing fleet 926
USD NOK
Per share existing fleet 2.0 13.2
Per share including new FPSO 2.2 14.6
WACC 9%, USD/NOK 6.5 © Pareto Securities AS
11 Jun 2010 44(77)

SBM Offshore – (BUY, TP EUR 18)

SBM has won several contracts over the recent year, increasing the
utilization of its large organization. The company has a strong balance
sheet and is well positioned in the growing Brazilian market. The risk
in the Turnkey business is phasing out with the drilling rigs and Yme
nearing completion, however still more risky than main peers. SBM
represents solid long term value and is by far the largest and most
liquid FPSO stock in the sector, currently trading well below the
historical multiples.
FPSO segment, growing in deepwater Brazil

The company is growing in the Brazilian deepwater play, with the recently
awarded Baleia Azul and Tupi Nordeste LOIs. The Baleia Azul LOI was
Baleia Azul contract with awarded in December 2009, and will see re-development of the FPSO
estimated capex of USD ~500m Espardarte. The FPSO will be disconnected from its current location at the
and IRR of 13% Espadarte field offshore Brazil for upgrade and modification. The planned
disconnection of the FPSO is expected to commence in April 2011, with first oil
from the Baleia Azul field expected in July 2012. The upgrade requires a
significant capital expenditure figure, estimated to around USD 500m. IRR on
the 18 year lease is estimated to a relatively attractive 13%.
After announcing a letter of pre-commitment in April, SBM announced an LOI for

Enters the Tupi field, 20 year the Tupi Nordeste development in early June. The lease is for a 20 year period
lease. IRR in line with SBM’s with expected start-up in early 2013. SBM will not solely own the unit, with a
target of 12% on their share consortium of other companies expected to take 50-55% ownership (local
content requirements). We estimate that the capital expenditure requirement on
10% IRR on the total unit the unit totals USD 1.1-1.2bn, and the IRR is projected to 10%. However, as
SBM will have a large scope (installation etc.) the net IRR is estimated to
11.5%-12%. The 10% IRR on the unit is low in an historical perspective,
however with favourable gearing and financing costs, together with low
counterparty risk, the return on equity is seen as attractive.
In August ’09 a contract was signed with Noble Energy for the provision of an
FPSO for the development of the Aseng field located in ~1,000 meters offshore
Aseng USD 1.2bn FPSO lease Equatorial Guinea. The FPSO, which will be based on the conversion of a VLCC
contract with IRR of 10-11% hull from SBM Offshore’s inventory, will serve not only the Aseng field, but will
also establish a liquids hub for Noble Energy’s future developments in the area.
The processing capacity is for 120,000 bbls of liquids per day, including 80,000
bbls of oil. The unit will have storage capacity for 1.6 million barrels of oil,
including up to 500,000 barrels of condensate. The Aseng FPSO will be SBM’s
second unit in Equatorial Guinea and its ninth in West Africa. The initial contract
is for 15 years, commencing in 2012, with options for 5 years. The total contract
value to SBM is ~USDbn 1.2. IRR on the contract is calculated to 10-11%.
Late October the company received a termination from Exxon for the lease
contract of the FPSO Falcon from 3rd of December. The unit was completed and
Falcon idle, Rang Dong 1 commenced operations in 2002 for an initial 6 year lease, which was
scrapped subsequently extended twice. The Company will actively market the FPSO
Falcon for redeployment globally (most recently on the Tiro Sidon tender,
Teekay with low bid). Until a new contract has been obtained the unit will remain
in lay up conditions in the Far East.
FPSO Rang Dong 1, which has been idle post termination of charter in 2008,
was sold for scrap in Q4’09, giving a gain on sale of some USD 2m.
The order backlog was USD 10bn in February, split 80/20 between the FPSO
Order back-log USD 10 bn and turnkey business.
The company has also signed a framework arrangement with Shell for the
supply of turrets for Shell’s FLNG projects for a period of up to 15 years. So far
the workscope is limited to a FEED contract, but the potential is significant
related to future deliveries. Furthermore, the company was in late 2009 awarded
a FEED by Petrobras, studying the FLNG concept as one means to handle the
associated gas that will be produced by the series of FPSOs planned for the
pre-salt development.
11 Jun 2010 45(77)

Contract overview
2009 2010 2011 2012 2013
Unit Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FPSO Kuito - Chevron, Angola
FPSO Espadarte - Petrobras, Brazil Contract to 2030 Belaya Azul field, 18 years
FPSO Falcon
FPSO Roncador - Petrobras Brazil Contract to 2012
FPSO Xikomba, ExxonMobil, Angola Contract to 2011 + 6 years optional (likely to be re-allocated)
FPSO Marlim Sul - Petrobras, Brazil Contract to 2012 + 2 years optional
FPSO Sanha -Chevron, Angola Contract to 2013
FPSO Capixaba (Golphinio/Cachalotte) Contract to 2022
FPSO Kikeh - Murphy Oil, Malaysia Contract to 2016 + 15 years optional
FPSO Mondo - ExxonMobil, Angola Contract to 2022
FPSO Saxi-Batuque - ExxonMobil, Angola Contract to 2023
FPSO BC-10 - Shell, Brazil Contract to 2024 + 5 years optional
FPSO Aseng Contract to 2027 + 5 years optional
Thunder Hawk Semi - Murphy, USA Contract to 2014 + undisclosed optional period
YME - Talisman, Norway Contract to 2015 + 10 year optional period
Deep Panuke - EnCana, Canada Contract to 2018 + 12 year optional period
FSO Nkossa - Total, Congo Contract to 2011
FSO Yetagun - Petronas, Myanmar Contract to 2015
13 Contract Option Construction Idle
Source: Pareto research and SBM Offshore
Turnkey risk phasing out, although new major projects need to be booked
The turnkey business has seen some troublesome projects, with the 3 drilling
Orderbacklog (USDm) rigs currently being constructed in Abu Dhabi seeing delays and cost overruns.
12000 The construction of the rigs is now moving in line with expectations according to
10000 management, with the three units due for delivery in Q2/Q3/Q4’10.
2,198
8000 2,969
6000
2,304 The order-backlog also includes other large projects, namely the P-57 (offshore
2,585
installation in Q4’10) and FPSO Okha (completion in Q4’10), however SBM
4000 839 7,834
5,651 6,278 needs to start booking new larger items in the short term to keep the utilization
2000 4,407
3,220 of the turnkey business at a high level when entering 2011.
0
2005 2006 2007 2008 2009
Valuation and Sum-Of-The-Parts (SOTP)
FPSO Turnkey
The valuation of SBM has become increasingly attractive with the slide of the
overall market. The company should be relatively immune to the oil spill in the
GoM and hence the FPSO player is in our opinion attractive especially
compared to stocks within drilling and seismic, where uncertainty is likely to
persist for quite some time still. The stock currently trades below 10x P/E’11e,
significantly below the historical average of some 15x.
Trades significantly below historical averages

One year forward trading multiples
25x
SBM currently trades below 10x
P/E’11e, compared to the 20x
historical average of 15x
15x
10x
5x
0x
Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun-
01 02 03 04 05 06 07 08 09 10
EV/EBITDA P/E Avg. EV/EBITDA Avg. P/E
Source: Pareto Research, DataStream
11 Jun 2010 46(77)

Our SOTP of existing units only, excluding Tupi Nordeste, is EUR 18.5/share,
up form 17 in our December FPSO report, mainly due to stronger dollar vs.
Euro. We reiterate BUY, but increase the target price to EUR 18/share (17).
Target is inline with the historical P/E of 15x.
Our SOTP value of SBM currently stands at EUR ~19/share (17)

Total Firm
SOTP SBMO USDm USDm
Current Fleet
FPSO Kuito - Chevron, Angola 192 -
FPSO Espadarte - Petrobras, Brazil 606 606
FPSO Roncador - Petrobras Brazil 95 22
FPSO Xikomba, ExxonMobil, Angola 148 21
FPSO Marlim Sul - Petrobras, Brazil 281 58
FPSO Sanha -Chevron, Angola 186 63
FPSO Capixaba (Golphinio/Cachalotte) 399 352
FPSO Kikeh - Murphy Oil, Malaysia 310 156
FPSO Mondo - ExxonMobil, Angola 129 115
FPSO Saxi-Batuque - ExxonMobil, Angola 132 117
FPSO BC-10 - Shell, Brazil 465 412
FPSO Aseng 355 309
FPSO Tupi Nordeste 582 551
Thunder Hawk Semi - Murphy, USA 669 286
YME - Talisman, Norway 485 239
Deep Panuke - EnCana, Canada 628 378
FSO Nkossa - Total, Congo 10 2
FSO Yetagun - Petronas, Myanmar 39 22
Value Lease assets* 5,709 3,711
FPSO Falcon 150 -

Turn Key 1,000 1,000
Total value 6,859 4,711
Net debt YE 10E (1,726) (1,726)
Remaining capex (1,100) (1,100)
SG&A + tax (257) (257)
Value equity 3777 1628
NAV per share USD 23.0 9.9

NAV per share EUR 19.2 8.3
WACC 9.0%, EUR/USD 1.20 © Pareto Securities AS

* Contract value lease assets right hand column
Guidance for 2010

The company guides 2010 sales in the same range as 2009. Turnkey systems’
EBIT margin is expected in the 5-10% range and the Turnkey services are
expected at 15-20%. The EBIT contribution of the FPSO segment is expected to
be below 2009 due to end of certain lease contracts and lower expected
bonuses.
Company description
Pioneered the FPSO industry in SBM was founded in 1965, and pioneered the offering of Floating Production,
1979 Storage and Offloading (FPSO) systems in 1979. Present activities include the
engineering, supply and installation of all types of Floating Production and/or
Storage and Offloading systems as well as FPUs of all types including semi-
submersibles, TLPs and self elevating MOPUs. Construction and installation of
all hardware components and services are outsourced, while SBM provides all
the engineering and project management expertise. The group owns and
operates FPSO/FSO systems (lease division), in addition to supplying systems
on a turnkey basis to third parties.
18 units in operations The leased units are contracted on long-term charters, including their
operations, to oil companies world-wide. SBM has 18 units in their portfolio (fully
and partly owned), of which 13 FPSOs. The group is the largest player in this
market, followed by Modec and Prosafe Production. Historically, the lease
division has had 80% of earnings vs. turnkey at 20%.
Turnkey supply contracts include large production systems, mooring systems

and terminals, deepwater export systems, supply of drilling units etc. SBM has
been struggling with three drilling rigs being built in the Middle East. In terms of
technology, SBM has a broad portfolio of innovative solutions within FLNG,
regasification, drilling, production, renewables and more.
11 Jun 2010 47(77)

Fred. Olsen Production (BUY TP NOK 15)

FOP has 3 FPSOs on long term contracts and the financial flexibility to
add another unit. A mid-sized project is targeted, however the
company has so far been left unsuccessful in the bidding phase. With
strong share price performance (+34% YTD) and low liquidity we prefer
other FPSO names on a relative basis, but keep our BUY rating on 40%
discount to NAV.
Current status
Fred. Olsen Production (FOP) has 3 FPSOs on long term contracts, with great
visibility on cash flows. The company has good financial flexibility, and further
growth of the FPSO portfolio is targeted with a medium sized project (USD 300-
Good financial flexibility 450m). The company has been actively bidding on projects, with the latest likely
to be signed by BW Offshore (TSB). In addition to the FPSO contracts, the
company has a management agreement on MOPU Marc Lorenceau, which is
currently on a 30 days termination period. The company has also invested in a
tanker conversion candidate, currently operating in the short term tanker market.
The company had a cash balance of some USD 62m at the end of Q1’10, with
an undrawn credit facility of some USD 300m.
Contract overview
2009 2010 2011 2012 2013
Unit Client Country Field Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FPSO Knock Adoon Sinopec Nigeria Antan Contract to 2014 + 8 year optional
FPSO Knock Allan CNR Gabon Olowi Contract to 2019 + 10 year optional
FPSO Petóleo Nautipa Vaalco Gabon Etame Contract to 2015 + 2 year optional
FSO Knock Dee* Laid up Fujairah Pinauna Provisional Contract to 2021 (El Paso, Brazil) + 5 year optional
MOPU Marc Lorenceau (mngt) Sinopec Nigeria Contract with 30 days termination period
Knock Muir Short term tanker T/C / Spot market
Contract Option Construction Idle
*Option may be declared un until 30 June '10
Source: Pareto research, Fred. Olsen Production
New growth opportunities vs. dividends

FOP is perusing a new project predominantly in Asia or Brazil. However, the
company has so far been left unsuccessful in the bidding phase, likely due to
both more aggressive bidding from competitors and local content issues.
Persuing new projects, so far
unsuccessful In April, Geveran Trading Ltd., controlled by the major owner in Seadrill and
Frontline, John Fredriksen, acquired 5.69% of FOP. The dividend focused
investor proposed at the annual general meeting in May that FOP should vote
on a NOK 3/share in dividends, as new growth opportunities in their view was
limited. The proposal was declined by the shareholder base at the AGM.
Valuation – BUY TP NOK 15/share

FOP has very attractive backlog coverage and valuation is undemanding at
EV/EBITDA 11e of 5.3x and EV/FCF 11e of 6x. However, due to strong share
price performance YTD (+34%) and low liquidity in the stock, we prefer
PROD/BWO and SBM Offshore on a relative basis. With still significant
discount to our NOK 16/share NAV, we reiterate our BUY TP NOK 15/share
recommendation.
11 Jun 2010 48(77)

Sum-Of-The-Parts (SOTP)
SOTP FOP USDm
FPSO Petrolia Nautipa 32
FPSO Knock Adoon 159
Knock Allan 213
Marc Lorenceau 9
Aframax tanker 10
Idle units
Knock Dee (assumed scrapped) 5
Additional contracts
New FPSO 50
Value all units (committed, idle & new) 478
Value EOC shares (4.9% @ NOK 7.5) 6
(1)
Net debt YE'10e (124)
SG&A and tax (50)
Equity value 310
USD NOK
NPV per share committed, idle & new 2.9 19.0
NPV per share committed & idle fleet 2.5 16.0
WACC 9.5%, USD/NOK 6.5 © Pareto Securities AS
(1)
Adjusted for potential Dee Scrapping
11 Jun 2010 49(77)

EOC – Focused on growth

EOC is an Asia Pacific focused offshore service provider with three
offshore support barges and two FPSOs. With the FPSO Lewek
Arunothai now on-stream, EOC turns its attention to growth through
the new FPSO contract for Chim Sao in Vietnam. BUY, TP NOK 13. TP
equals EV/EBITDA 4.3x ‘11e.
Background
EOC is a 48.5% owned subsidiary of Ezra, a leading offshore services provider
in the Asia Pacific region, based in Singapore. The Company owns two
accommodation barges, one heavy lift and pipe lay barge, and one FPSO. In
addition, the Company also owns an equity stake (26.6-43.3%) in a new FPSO
(Chim Sao FPSO) that is expected to see first oil in mid 2011.
Current fleet update

Following a full quarter contribution in Q2’10, FPSO Lewek Arunothai had to
Aronothai undergoes undergo maintenance for the upkeep and modification of equipment onboard in
maintenance
Q3’10. This lowers utilisation by ~40 days, and impacted full year estimates, but
was necessary to maintain long term operating efficiency.
According to a corporate announcement in April ’10, EOC has been allocated

43.33% share in the Chim Sao FPSO joint venture. To our understanding, this
includes PetroVietnam’s potential share of 16.7%, which is subjected to
regulatory approval by the end of the calendar year. Currently, EOC has paid
~USD 30-33m in equity into the joint venture. Separately, asset loan details are
expected to be finalised soon.
The Lewek Conqueror is on a long-term contract with Brunei Shell, and is

expected to continue contributing positively to the Company. Contract
negotiations are currently still ongoing for Lewek Champion and Lewek
Chancellor, and although this will affect utilisation in Q3’10, we expect contract
wins to come soon, which should see higher fleet utilisation. We expect both
vessels to work in South East Asia.
Contract Overview
2010 2011 2012
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FPSO Lew ek Arunothai - PTTEP, Thailand Contract to 2012 + 2 years optional
Lew ek Champion Contract to March 2010
Lew ek Conqueror Contract to Mar 2014 + 5 years optional
Lew ek Chancellor Contract to June 2010
FPSO Chim Sao - Premier, Vietnam Contract to 2017 + 6 years optional
Option Construction Idle
Source: Pareto Research, EOC
Focused on fleet expansion and upgrades

EOC is currently looking at FPSO opportunities in the Mediterranean and
Indonesia that could see an award in 2010. Although these are comparatively
smaller FPSO projects (USD 100-150m total capex), the assets are likely to be
taken off balance sheet should the opportunities materialise.
In search for growth opportunities
On the Construction front, EOC has previously communicated their interest in
upgrading the existing fleet, including upgrading the crane size, in an effort to
push the current assets into a more sophisticated front.
11 Jun 2010 50(77)

Valuation and financials

EOC is expected to generate EBITDA (adj.) of ~USD 62m and ~USD 90m in
‘10e and ‘11e, respectively, as the assets secure higher utilisation. At current
price, valuation multiples are attractive with P/E 2.7x ‘11e and EV/EBITDA 4.2x
‘11e. BUY, TP NOK 13.
Sum-of-the-parts valuation
SOTP EOC USDm
DCF committed fleet*
FPSO Lewek Arunothai 313
Lewek Conqueror 40
Lewek Chancellor 35
Lewek Champion 180
FPSO Chim Sao (30% owned JV) 63
New offshore support unit 30
Value all units (committed & new) 661

Net debt end 10 (323)
SG&A tax (70)
Equity value 268
USD NOK
NPV per share commited & new 2.4 15.7
NPV per share committed fleet 2.1 13.9
WACC 9.5%, USD/NOK 6.5 © Pareto Securities AS
11 Jun 2010 51(77)

Bluewater – Bond case

The USDm 360 senior unsecured bond with maturity in July 2014 and a
coupon of 3mL+3% is indicated in the high 50ies at an IRR to maturity
around 20%. The financial situation of Bluewater has been
significantly improved following the sales of Hanne Knudsen and
Jotun and the contract awards for the two FPSOs Munin and Glas
Dowr. Main focus going forward is start up of modification project on
Glas Dowr and ongoing negotiations with banks to amend
amortization schedule and to extend maturity on the revolving credit
facility.
The Bluewater bond has come down some points the last weeks from the mid
The Bluewater bond has come 60ies due to recent market turmoil. This is natural given the relative long
down a few points the last weeks duration and the bonds position in the capital structure being subordinated to
due to market turmoil USD 630m of bank debt. However, financial situation and outlook has been
significantly improved after the contract award from ENI for the FPSO Glas
Dowr, a 5-10 year contract for work at the Kitan Field in the Timor Sea, start up
on the 12-18 month contract with CNOOC for the FPSO Munin and the asset
sales of Hanne Knudsen and Jotun reducing debt levels.
The two new contracts for Munin and Glas Dowr combined with the long term
The Glas Dowr and Munin contracts for most of the remaining FPSO fleet including Aoka Mizu (firm until
contracts coupled with asset August 2015, expected beyond that), Haewene Brim (expected on current
sales have improved the contract until 2018 or beyond) and Bleo Holm (expected on current contract until
financial situation of the 2018 or beyond) has improved the cash flow outlook for many years going
Company significantly and forward. Main uncertainty is commercial terms of the Glas Dowr contract which
cash flow visibility is good for hasn’t been disclosed to market yet. We expect the contract to contribute with
many years going forward. USD 60m in annual EBITDA. Before start up on the contract, expected in
2H2011, the unit needs to undergo a modification and upgrade project to meet
specific requirements at the Kitan field. The project is expected to start in 2010
and will most likely be at a Singapore yard; either Sembawang, Keppel Shipyard
or Jurong. Budgeted CAPEX for the project has not been disclosed but is
expected to be around USDm 130. Bluewater has secured project financing for
the modification project covering expected cost plus a significant contingency.
This financing indicates that the Glas Dowr contract is strong and that the lead
syndicate banks continue to support the Company.
2009 was a challenging year due 2009 was a very challenging year for Bluewater, due to significant delays and
to cost overruns and delays on cost overruns on the conversion project on Aoka Mizu, and three FPSO
Aoka Mizu and contracts expiring contracts expiring in a muted FPSO market. During the summer of 2009
and bank debt was successfully Bluewater restructured its USD 850m revolving credit facility and reached an
restructured. agreement with banks for a USD 50m super senior tranche maturing in
December 10 and a temporary deferral of amortizations due in 2009. In
November 09, Bluewater sold the shuttle tanker Hanne Knudsen for USD 55m
and in January they sold their 55% stake in the FPSO Jotun. This was done to
repay debt and most likely according to requirements set by the banks in the
restructuring in 2009. Amortizations on the bank facility are aggressive from
2010 and onwards, and the facility amortizes from its YE09 level of USD 630m
(after sale of Jotun) down to USD 375m at maturity in December 2011.
Bluewater will not generate cash flow from operations to meet the scheduled
amortizations from late 2010 and for 2011 before Glas Dowr has started on its
new contract and has therefore initiated discussions with the bank syndicate to
amend the amortization schedule and maturity to match conservative cash flow
estimates going forward. Given the positive development since restructuring
We think the outlook for finding a
of the RCF concluded in a very difficult environment in 2009 we think the
viable long term solution with the
outlook for finding a viable long term solution with the banks is good.
banks is good.
Furthermore, we believe some of the banks under the RCF also are
involved in the project financing for Glas Dowr which we see as an
indication that banks will be constructive in the negotiations. However, the
process is time consuming due to the large number of banks in the
syndicate, all of them with veto rights in negotiations. Conclusion on the
discussions is expected within the next few months, but is not expected
before after the summer.
11 Jun 2010 52(77)

Bluewater has initiated a company wide restructuring plan to significantly reduce

costs and to improve profitability, as a first step it has been decided that
engineering activities in Kuala Lumpur will be ceased. This expected to reduce
overhead costs significantly going forward.
Currently, 4 out of 6 FPSOs are contracted, while Glas Dowr will start on the
modification for the ENI contract in 2010 and Usige Gorm is cold stacked. Uisge
Gorm is expected either to be contracted in benign waters or to be sold.
Bleo Holm and Haewene Brim is expected to stay on its current contracts until
2018 or beyond according to third party field life studies and indications from
clients.
Munin is currently on a 12 - 18 months contract with CNOOC starting 1 March

2010, but we expect the vessel will continue with CNOOC due to earlier interest
from CNOOC to buy a 50% stake in the vessel.
Fleet overview
2010 2011 2012 2013
Haewene Brim - Shell, UK Expected until 2018 or beyond
Bleo Holm - Talisman, UK Expected until 2018 or beyond
Aoka Mizu - Nexen, UK Contract to 2014 + 2 years optional
Munin - CNOOC 12-18 months contract
Glas Dowr - ENI Modification 5-10 year contract
Uisge Dorm Idle
Minimum duration Expected duration Idle
Source: Pareto Research, Bluewater
EBITDA per FPSO

EBITDA 2008 2009 2010E 2011E 2012E 2013E 2014E
Uisge Gorm USDm 19 (4) -5.5 - - - -
Glas Dowr " 35 (3) -4.6 16 61 61 61
Bleo Holm " 42 43 42.5 43 43 43 43
Haewene Brim " 21 17 24.7 22 23 25 22
Munin " 14 5 19.9 25 25 25 25
Aoka Mizu " - 25 72.4 64 61 56 52
Jotun A (55%) " 34 33 1.7 - - - -
Hanne Knutsen " 10 6 0.0 - - - -
Gandria " - (0) -0.9 - - - -
Other " - - 0.0 - - - -
FPSO EBITDA " 169 121 150 168 212 210 202
SPM EBITDA " (8) 7 - - - - -
SG&A " (27) (64) (34) (28) (25) (26) (28)
Other operating income " - - - - - - -
EBITDA " 135 64 116 140 187 183 175
Source: Pareto Research, Bluewater
EBITDA increases from 2009 to 2010E due to full year contribution from Aoka
Mizu and Munin which started on the new contract with CNOOC in Q1’10. Glas
Dowr is expected to start on the ENI contract in 2H’11 contributing to EBITDA
from 11E and onwards.
11 Jun 2010 53(77)

Cash flow projections

Cash flow projections 2007 2008 2009 2010E 2011E 2012E 2013E 2014E
FPSO EBITDA USDm 172 169 121 150 168 212 210 202
SPM EBITDA " (1) (8) 7 - - - - -
SG&A " (24) (27) (64) (34) (28) (25) (26) (28)
=Total EBITDA " 147 135 64 116 140 187 183 175
Net interest cost " (108) (48) (74) (63) (67) (66) (60) (57)
Asset sales " - - 55 130 30 - - -
Other non cash items and working capita " (2) (28) 105 (17) (13) (11) (10) (9)
CAPEX " (198) (206) (125) (90) (64) (10) (10) (10)
=Free Cash Flow " (161) (147) 25 77 26 101 104 99
Net change current RCF USDm 12 (159) (534) - - -
Net change current Jotun " (28) (48) - - - -
Net change debt Glas Dowr (51%) " - 80 50 (30) (25) (75)
Refinancing RCF and Jotun debt " - - 450 (100) (50) (50)
Net change on bond debt " - - - - - (360)
Assumed refinancing of bond debt " - - - - - 350
PIK on Marenco Loan " 12 14 14 15 16 18
Other / adjustments " (23) - - - - -
Sum change in indebtedness " 173 (28) (113) (20) (115) (59) (117)
Net change in cash " (3) (36) 6 (14) 46 (18)
=Cash at Year End " 40 66 63 27 33 20 65 47
Pareto Research, Bluewater
Debt Overview
DEBT OVERVIEW 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E
Secured Debt
Revolving Credit facility 5.0 % 364 492 681 693 534 - - - -
Super Senior Tranche 6.0 % - - - - - - - - -
Glas Dowr Financing 7.0 % - - - - 80 130 100 75 -
Refinancing USDm 850 RCF 6.5 % - - - - - 450 350 300 250
Jotun debt 4.0 % 131 104 76 48 - - - - -
Long term loan 5.0 % 11 11 11 11 11 11 11
Unsecured Debt
10,25% Sen. Uns. Notes 10.3 % 310 - - - - - - - -
Senior Unsecured Bond 4.5 % - 360 360 360 360 360 360 360 -
Refinancing Senior Unsecured Bond 6.5 % - - - - - - - - 350
Subordinated debt from affiliate (Marenc 7.2 % 154 162 173 186 199 214 229 245 263
Other (Adjustments including derivatives - 3 (15) 46 27 27 27 27 27 27
Total 962 1 103 1 348 1 324 1 211 1 165 1 077 1 018 901
The capital structure consists of a 1. lien revolving credit facility (RCF) with
security over all vessels, the senior unsecured bond and a subordinated PIK
note from the affiliate company Marenco. It has been agreed that Glas Dowr can
be removed from the security package under the RCF to be pledged in favour of
the new project facility which will be issued by the vessel owning entity. The
subordinated debt, provided by the shareholder of Bluewater Hugo Heerema, is
contractually subordinated to the senior unsecured bonds and carries a PIK
coupon of 7.2%.
Credit Metrics
CREDIT METRICS 2006 2007 2008 2 009 2010E 2011E 2012E 2013E 2014E
EBITDA USDm 151 146 134 64 116 140 187 183 175
FFO " 31 37 64 -19 54 73 122 124 118
IBD/EBITDA x 5.3x 6.4x 8.8x 17.8x 8.7x 7.0x 4.5x 4.2x 3.7x
NIBD/EBITDA x 5.0x 6.2x 8.3x 16.8x 8.5x 6.7x 4.4x 3.9x 3.4x
NIBD bonds @ 60% / EBITDA x 5.0x 5.2x 7.2x 14.6x 7.2x 5.7x 3.7x 3.1x 2.6x
EBITDA/Net interest x 2.1x 1.4x 2.8x 0.9x 1.9x 2.1x 2.9x 3.1x 3.1x
Equity/Assets % 32 % 27 % 26 % 11 % 13 % 14 % 20 % 25 % 31 %
Trade levels on bonds: 60 % © Pareto Securities ASA

Net debt to EBITDA at 8.5x for 2010E is high, but levels are expected to come
down as the Company is expected to de-lever through 2010E and 2011E and
particularly in 2012E, first year Glas Dowr will have full year contribution to cash
flow. Net debt to EBITDA expected below 3.4x in 2014 should support
refinancing, but is dependent on contract backlog at maturity in 2014. We
expect that both bank debt and senior unsecured bonds have to be refinanced
in 2014.
11 Jun 2010 54(77)

Bond Cash Flow

USDm 360 Frn bond @ 60% 13.06.2010 2010 2011 2012 2013 2014
Cash flow:
Interest rate payments 1.5 4.6 4.6 3.4 3.4
Amortization 100
Cash flow: -60.0 1.5 4.6 4.6 3.4 103.4
% of investment paid back @ 60% 2% 10 % 18 % 23 % 196 %
IRR: 19.7 %
Bond cash flow above is based on a Libor assumption for remaining life of the
bond at 1.5%. 4 year dollar swap is currently at 1.97%.
11 Jun 2010 55(77)

Sea Production – Bond case

Sea Production main challenge in the short to medium term will be to
redeploy FPSO front Puffin on a new contract and to finish the
arbitration with AED. The USD 130m senior secured bond is currently
quoted in the mid 50’s, yielding some 44%.
Sea Production acquired the FPSO Front Puffin, FPSO Crystal Ocean and two
Aframaxes for USD 336m in 2007 and listed on the OTC in Norway the same
year. Rubicon Offshore International Holding is currently the largest owner in
SEAP with a 76% ownership.
FPSO front Puffin – Available for new contract

FPSO Front Puffin started work on the Puffin field of the North West coast of
Australia after conversion at Keppel in 2007. AED is a 40% Joint venture partner
in the oilfield while the remaining 60% is owned by Sinopec. Sea Production’s
charter contract was supposed to terminate on 15 June ’10. However, in June
’09 the operator of the Puffin field filed a notice of termination for default to
Puffin FPSO ltd on behalf of the contracting client, AED, claiming that SEAP
was in breach of certain material obligations. SEAP is now pursuing legal action,
claiming that AED terminated the contract without proper ground. The value of
the foregone dayrate is estimated to USD 60m and cost and losses of
approximately USD 25m. We believe the contract was terminated by AED
because the Puffin field was performing below expectations, and recent drilling
results have been mixed. However, the cash situation in SEAP is relatively tight,
providing AED with incentives to delay the arbitration process.
Crystal Ocean – Performs satisfactory

Crystal Ocean is on a bareboat charter with Anzon Australia at USD 20’/day +
profit split until mid-Jan 2012. Crystal Ocean has so far received the minimum
bareboat dayrate of USD 20’/day (Annual EBITDA of USDm 7) plus a tariff
payment of USDm 1.1. The unit has experienced some problems with the
disconnectable turret and mooring system in May this year, but this is not
expected to impact revenues to SEAP (because the unit is on a bareboat out
contract). The unit is currently producing as normal.
Sea Cat and Jaguar – In lay up

The Aframax vessels Sea Cat and Sea Jaguar are laid up in Malaysia. Both of
the Aframaxes are suitable for FPSO conversions, but the company does not
intend to initiate a conversion before the arbitration with AED is solved, and the
FPSO Front Puffin has secured further employment.
Estimates
Cash Flow 2 009 2010E 2011E 2012E
EBITDA - Front Puffin USDm 61 3 36 33
EBITDA - Crystal Ocean " 7 7 7 7
EBITDA - Sea Cat " 1 (1) (1) (1)
EBITDA - Sea Jaguar " (1) (1) (1) (1)
SG&A " (7) (10) (8) (5)
EBITDA " 61 (2) 33 33
Interest cost " (8.4) (10) (11) (8)
Tax: " (11) - - -
Changes in w orking capital " (25) (0) 4 0
CAPEX " (5.1) (52) (2) (2)
Free cash flow " 12 (65) 24 23
Debt amortization " (35) 50 (15) (39)
Dividend Payments " (5) - - -
Net change in cash holdings " (28) (15) 9 (16)
Cash Balance " 23 8 17 1
Source: Pareto Credit Research
The bond – Trading at a significant discount

SEAP issued a USD 130m bond in Feb 2007 with maturity in Feb 2012. The
bond has a 2. pri mortage in the vessels and the agreement allows for a USD
65m carve out of 1. priority debt (to be reduced to USD 35m in Feb-11).
Currently there is no 1. pri. debt in the company. The bond coupon is
3mL+4.25%. Despite the original investment cost for the assets in the company
of USD 336m, asset coverage on the bond is currently uncertain as only one of
the units is on contract. In addition, this contract only generates USD 7m of
EBITDA per year. We think the upside potential in the bond is interesting and
11 Jun 2010 56(77)

dependent on the outcome of the arbitration process with AED and the
company’s ability to secure a new contract for the FPSO Front Puffin.
Financial status – Relatively tight

The cash balance was USD 18.2m as of end Q1’10. This should be sufficient to
follow up on the dispute with AED. However, the redeployment will most likely
involve some further capex outlay (we assume USD 50m).
Overview of assets
Front Puffin Crystal Ocean Sea Cat Sea Jaguar
Built: 1990 Built: 1999 Built: 1985 Built: 1985

Converted: 2007 Converted:n.a. Converted:n.a. Converted:n.a.
Length: 246m Length: 101m Length: 244m Length: 244m
Storage:743,868 bbl Storage:45,145 bbl Storage:652,269 bbl Storage:652,269 bbl
11 Jun 2010 57(77)

Rubicon Offshore International – bond case
At current bond prices we consider the asset backing to be solid for

the USD 180m 1. lien bond. The main challenges for the company in
the short to medium term are to secure higher utilization for the MSV
Maverick and more stable operation from FPSO Rubicon Intrepid.
Bond is currently quoted at price 62.5, yielding 41% to maturity.
Rubicon was founded in 2005, and operates three assets in Asia today. The two
FPSOs are operating satisfactory, while the multi functional support vessels
(MFSV) has been idle large parts of Q1’10e. The company is private held with
Ashmore Investment as the largest shareholder.
Rubicon Intrepid – Currently performing satisfactory

Rubicon Intrepid started on a 10-year contract with Vitol Marine on the Gallock
field in the Philippines in Sept 2008. The rate is USD 78’/day + USD 2/bbl tariff.
However, the unit has experienced long period of operational downtime since
startup (three times in 2009), reducing revenue. However, only two weeks of
downtime has been reported so far in Q1’10. Uptime has improved to 78% in
4Q09 and 83% in 1Q10. The current production is ~9 - 11,000 barrels per day
and the expected lifespan of the oilfield is 5 - 10 years.
Rubicon Vantage – Steady performance

Rubicon Vantage is working for Salamander Energy on a 5-yr contract in Gulf of
Thailand at USD 50,000/day + 5% of net oil proceeds. The unit has been
operating as planned and current production is around 6,000 bopd, and
expected to increase significantly following phase II drilling in 2010. The FPSO
is expected to continue on the current contract for 6 - 7 years according to
Salamander Energy.
MSV Maverick – Varying degree of utilization in the spot market

The MSV Maverick performs repair works and dive support operations. The
vessels was idle for the first part of Q1’10. The contracts have so far been in the
spot market, with a varying degree of utilization.
Contract overview
2010 2011 2012 2013
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Rubicon Intreprid Vitol Marine (10 yr contract w ith 6 month termination clause)
Rubicon Vantage Salamander Energy until August 2013
MSV Maverick spot
The Bond – Solid asset backing at current levels

The USD 180m bond has first lien security in the three assets and has maturity
in April 2012. The coupon is 3mL+5% and the bond has a USD 30m
amortization in 2011 while the remaining is paid at maturity. At bond price 62.5,
exposure towards the underlying asset values is USD 113m. We see good
protection on the downside from FPSO Vantage and the MSV, with potential
upside related to FPSO Intrepid and MSV valuation. Estimated value of FPSO
Vantage (USD 75m) and MSV (USD 40m) is USD 115m and this does not
include any value to FPSO Intrepid. We think there is substantial refinancing risk
in the bond, but we believe long term contracts and 1. lien structure is
supportive to bond.
11 Jun 2010 58(77)

Asset backing
USD million
350
300
60
250
60
200
123
150
110
100 180
50 110 113
80
0
Appraisal from Construction cost Bond debt at Face Bond @ 0.625
2007 Value
Rubicon Intrepid Rubicon Vantage Rubicon Maverick* 1. Lien Bond
11 Jun 2010 59(77)

Aker Floating Production – Balance sheet worries

Aker Floating Production currently has one FPSO in operation and a further one
conversion candidate is laid up in Indonesia in anticipation of a new contract
award and financing.
Their concept, based on the
design of the Aker SMART The company’s first FPSO, the Dhirubhai 1, was awarded a ten year contract
FPSO, is to minimise the amount with Reliance Industries in Q2’07 and Aker Borgestad Operations, a subsidiary,
of time needed from project- was awarded a contract for operations and maintenance. The conversion of the
award until delivery and first oil FPSO was completed in 16 months, although the company experienced major
cost overruns. The Dhirubhai 1 initially showed excellent performance following
first gas in September ’08, however, on December 8th the same year, the unit
was shut down, due to an incident onboard. The necessary repairs were time
consuming and the FPSO was down for a total of three months. Since activity
resumed, there have been no new problems and Final Acceptance Certification,
and thus full dayrate, was achieved in Q2’09. The unit has shown strong
utilization the recent quarters.
The company is assessing the possibility of another conversion, and currently

owns one additional hull. Their third hull was sold for USD 7.5m in December
2009 in an effort to free up some cash.
The company delivered Q1’10 EBITDA of some USD 24m, on good operations
by Dhirubhai-1. The Q1 cash position of the company was USD 23m, with USD
58m in short term interest bearing liabilities, of which the Secured hull loan of
USD 12m falls due in July ’10. The residual short term liabilities is due to a
syndicate of banks. The equity ratio was at a very low 4%, although they were
not in breach with covenant as the loan from Aker ASA is calculated as part of
the equity. With around USD 750m in debt, the outlook for the company looks
challenging and limited margin for error. The value of the assets is most likely
lower than the outstanding liabilities.
AKFP is not rated by Pareto Research.
Songa FP – Filed for bankruptcy March 2010

Songa Floating production’s FPSO East Fortune was last year awarded a 270
day contract with an Indonesian company, Pulau Kencana (working as FSO).
The newly converted FPSO is working at the Kakap Field, while the FPSO
currently working at the field, FPSO Kakap Natuna is in drydock. The current
contract runs to September 2010.
Songa Floating Production negotiated a contract with Peak Petroleum in Nigeria

in 2008, but Peak was unable to provide the necessary financing for the project.
A new contract has been perused since, but the unit has remained without long
term employment.
During March 2010, the company filed for bankruptcy, as their current contract
was insufficient to pay contractual obligations on the convertible bond and bank
loan.
To our knowledge, the company is now perusing PC Ketapang’s Bukit Tua

project in the Java Sea. An FPSO award for the project is likely in late 2010 or
early 2011, however the Songa’s involvement is uncertain after the bankruptcy.
The spread moored FPSO, which is a 1983 converted tanker, has a storage
capacity of 360,000 barrels and a production capacity of 30,000 barrels per day.
FPSOcean – Bankrupt February 2009

The restructuring process for FPSOcean failed in February 2009, and the
company filed for bankruptcy the same month. FPSOcean faced cost overruns
when they failed to secure employment contracts for the DP 1 FPSO they had
under construction at Drydocks World Dubai. Remaining funding to finish the
vessel is likely USD 150-200m depending on where the unit will be deployed.
Overall cost for the Deep Producer 1 (DP 1) FPSO was USD ~335m. USD
~199m in pre-instalments was paid in to the yard as of Jan 2009. The company
11 Jun 2010 60(77)

was seeking to raise USD ~136m in funding, through debt and equity, to finance
the remaining instalments. When the contemplated USD 70m equity issue failed
in February 2009, the company was forced to liquidate.
The FPSO was purpose built for ultra deep water extended well testing, early
production and marginal field development. The vessel was a converted 1981
built tanker (68,000 dwt) with storage capacity of 400,000 barrels of oil. The
vessel was supposed to stay on site using a dynamic positioning system (DP 2),
and planned “sail away” from the yard was in July 2009.
Deep Producer 1’s future is uncertain, with the owner FPSOcean in bankruptcy,
leaving completion of the vessel uncertain.
Petroprod – Bankrupt April 2009

Petroprod filed for bankruptcy in April 2009 due to the magnitude of the
remaining investments required to complete the conversion. The FPSO was
scheduled to be delivered in Q4’09, and the CJ 70 jack-up was scheduled to be
delivered in Sept 2010.
The budget for the Aframax size FPSO was USD ~290m as of March 2009.
The company reached an agreement with an undisclosed client to sell the
vessel for USD ~216m, of which USD 181m was to cover remaining instalments
and USD 35 was retained by the borrower. However, the transaction with the
buyer failed at a later stage.
The jack-up rig (CJ 70) was acquired by Seadrill, and subsequently charted to
Statoil on long term charter in 2010.
Petroprod 1 has been acquired by Jurong Shipyard after the parent company
has been under liquidation which has been managed by KPMG. The shipyard
has decided to complete the unit, and has as we understand already found a
buyer. The unit is 65% complete, and further work will be subject to
specifications from the buyer. The buyer is most likely Teekay, which is currently
the low bidder on the Tiro-Sidon field off Brazil.
11 Jun 2010 61(77)

Nexus – Firesale to Brazilian OSX

The company was set up as a pure-play FPSO company. However, being
plagued by the low activity in the FPSO market, the company found itself in
economical difficulties.
Nexus Floating Production has sold their first unit to the Brazilian player OSX,
and the counterparty have chartered the unit to OGX as an early well test unit.
The sale realised proceeds of USD 350m, which gave a full recovery to 1st
priority lenders, 50% to second lien and 10% to the convertible bond holders. In
addition USD 38.1m was used to pay outstanding balance to Samsung Heavy
Industries Ltd.
Nexus does have an option for a second unit that is due in September 2010.
The option also gives Nexus right to terminate the agreement with an exposure
limited to USD 67m, which is already paid on the unit. We doubt that Nexus will
be in a position to take on this construction contract, and the going concern in
the company is very dependent on reaching an agreement with bondholders to
waive the residual claim of USD 67m.
Former Nexus 1, now OSX 1
Source: OSX
11 Jun 2010 62(77)

Pareto Relative Valuation Table

Relative valuation oil services
Relative Valuation Table - Oil Services Share price
Local Mcap EV10e/ EV11e/ EV12e/ EV10e/ EV11e/ EV12e/ P/E10e P/E11e P/E12e -12m -6m
Company Market Price (USDm) EBITDA EBIT % %
Subsea/Services
Aker Solutions NO 89.1 3756 7.1x 6.8x 5.5x 9.4x 9.2x 7.4x 12.1x 11.4x 9.7x 55% 23%
Acergy NO 94.6 2838 4.6x 5.1x 3.7x 6.3x 7.5x 5.0x 11.7x 13.0x 9.0x 35% 7%
Subsea 7 NO 94.8 2147 4.8x 4.1x 2.9x 7.0x 6.0x 4.0x 13.8x 11.8x 8.9x 29% 1%
Prosafe SE NO 29.2 1034 5.5x 4.9x 4.4x 6.9x 6.0x 5.4x 5.0x 4.7x 4.5x -16% -16%
Schlumberger* US 59.2 70578 10.3x 7.7x 6.4x 16.1x 11.8x 8.9x 20.5x 15.4x 12.1x 0% -4%
Saipem* IT 25.2 13479 8.5x 7.2x 6.1x 12.3x 10.9x 9.2x 15.3x 13.7x 11.9x 32% 14%
Technip* FR 48.7 6442 5.0x 4.3x 3.4x 6.6x 5.6x 4.4x 13.8x 12.4x 10.5x 33% 4%
Oceaneering* US 45.7 2518 5.7x 4.8x 3.4x 8.1x 6.7x 4.7x 14.4x 11.8x 10.0x -14% -15%
Average Subsea/Services Sector 6.4x 5.6x 4.5x 9.1x 8.0x 6.1x 13.3x 11.8x 9.6x 19% 2%
Offshore Equipment
National Oil Well* US 37.4 15680 4.7x 4.7x 4.0x 5.7x 5.8x 4.2x 10.1x 11.6x 10.2x -1% -15%
Cameron* US 36.4 8886 8.2x 6.8x 5.4x 10.2x 8.1x 6.4x 16.0x 13.0x 10.6x 16% -3%
FMC Technologies* US 52.1 6330 9.7x 8.7x 7.1x 12.1x 10.6x 8.1x 18.0x 16.3x 13.4x 26% -4%
Wellstream* UK 511.0 752 11.6x 7.7x 5.4x 15.3x 9.4x 6.3x 21.4x 13.1x 9.5x -3% 2%
Average Equipment Sector 8.5x 7.0x 5.5x 10.9x 8.5x 6.2x 16.4x 13.5x 10.9x 10% -5%
Offshore Drilling
Transocean US 44.3 14163 3.6x 3.1x 3.6x 5.1x 4.4x 3.5x 4.8x 4.1x 4.8x -0.5x -45%
Diamond Offshore US 61.4 8529 3.9x 3.3x 3.9x 5.0x 4.2x 3.9x 5.2x 5.3x 5.1x -0.3x -36%
Noble Drilling US 29.5 7534 3.2x 2.9x 3.2x 4.2x 4.1x 3.8x 5.5x 6.2x 7.1x -0.2x -27%
Seadrill NO 133.5 8198 7.2x 5.5x 7.2x 9.2x 7.0x 6.2x 6.3x 4.3x 3.7x 0.4x -6%
Pride International US 24.1 4236 8.3x 4.6x 8.3x 11.7x 5.9x 4.0x 12.7x 6.5x 5.4x 0.0x -25%
Ensco International US 38.2 5440 5.5x 5.1x 5.5x 7.8x 7.4x 5.0x 10.7x 9.6x 6.8x -0.1x -9%
Fred. Olsen Energy NO 184.5 1893 4.4x 3.0x 4.4x 5.9x 3.9x 3.1x 4.5x 3.1x 2.6x -0.2x -12%
Songa Offshore NO 18.4 387 3.6x 3.6x 3.6x 5.2x 5.6x 3.7x 3.4x 4.3x 3.0x -0.2x -37%
Scorpion Offshore NO 40.2 555 7.7x 6.0x 7.7x 10.9x 8.2x 8.5x 13.3x 8.5x 10.0x 0.6x 61%
Northern Offshore NO 12.0 283 2.1x 1.9x 2.1x 3.8x 4.5x 6.9x 4.4x 6.9x 13.9x 0.6x 36%
Average Drilling Sector 5.0x 3.9x 5.0x 5.0x 3.9x 5.0x 7.1x 5.9x 6.2x 2% -10%
Offshore Supply Vessels
Ezra holding Sing. 1.8 837 11.9x 8.2x 5.9x 20.4x 14.2x 11.0x 13.2x 8.6x 6.8x 34% -19%
Tidewater US 41.7 2162 5.4x 4.6x 4.3x 8.3x 6.6x 6.2x 9.4x 7.7x 7.6x -17% -6%
Bourbon Offshore FR 33.3 2470 11.0x 8.3x 6.7x 18.6x 12.2x 9.3x 25.1x 12.8x 8.9x 15% 32%
Farstad Shipping NO 154.0 924 7.2x 6.9x 6.8x 10.9x 11.3x 11.5x 8.7x 10.0x 10.7x 27% 24%
Solstad Offshore NO 124.0 721 7.0x 5.8x 5.1x 11.7x 8.9x 8.1x 7.5x 5.1x 5.4x 28% 19%
Gulfmark Offshore US 26.0 679 6.5x 5.1x 4.2x 11.1x 8.6x 7.2x 11.6x 8.9x 8.3x -17% 0%
DOF NO 42.4 594 10.8x 8.5x 7.6x 19.2x 12.3x 10.7x 15.8x 6.3x 5.4x 13% 13%
Siem Offshore NO 11.1 614 10.9x 6.9x 5.7x 21.5x 10.9x 8.9x 16.9x 7.2x 6.0x 21% 26%
Deep Sea Supply NO 11.6 232 9.4x 5.8x 6.0x 19.3x 9.0x 9.4x N/A 6.2x 6.4x 1% 37%
Havila Shipping NO 63.0 155 10.0x 7.4x 7.1x 17.3x 11.0x 10.8x 29.1x 5.0x 5.5x 25% 13%
Average Supply Sector 9.0x 6.8x 5.9x 15.8x 10.5x 9.3x 15.2x 7.8x 7.1x 13% 14%
FPSO
SBM Offshore NL 13.0 2647 6.6x 5.9x 6.0x 15.1x 12.1x 12.7x 13.0x 9.2x 9.1x 6% 1%
Sevan Marine NO 6.9 558 16.6x 10.7x 7.0x N/A 21.2x 10.8x N/A N/A 6.9x -42% -24%
BW Offshore NO 8.6 604 7.3x 4.6x 3.7x 16.4x 9.5x 7.6x 6.7x 6.2x 5.4x 4% -3%
Prosafe Production NO 14.0 550 5.3x 4.5x 3.7x 12.1x 9.5x 7.5x 10.7x 8.4x 7.0x 2% 16%
Fred. Olsen Production NO 9.0 144 5.8x 5.1x 4.3x 40.6x 40.9x 34.6x N/A N/A N/A
Average FPSO Sector 8.3x 6.1x 4.9x 14.5x 13.1x 9.6x 10.1x 7.9x 7.1x -8% -3%
Seismic
CGG Veritas FR 16.0 2933 5.8x 4.4x 2.9x 22.6x 12.4x 6.4x 64.9x 21.4x 10.2x 19% 10%
PGS NO 61.8 1883 5.1x 3.7x 2.3x 13.8x 7.7x 3.9x 16.0x 9.5x 5.3x 49% -7%
TGS-Nopec NO 79.1 1270 2.1x 1.6x 1.1x 4.4x 3.1x 2.0x 8.4x 6.6x 5.2x 11% -19%
Fugro* NL 40.6 3946 6.8x 5.8x 5.3x 10.6x 8.7x 7.5x 12.9x 11.1x 9.9x 33% 6%
Polarcus* NO 4.7 190 N/A 5.0x 2.4x N/A 9.0x 3.4x N/A 9.1x 2.4x #NA 42%
Average Seismic Sector 4.9x 4.1x 2.8x 12.9x 8.2x 4.6x 25.6x 11.5x 6.6x 28% 6%
Average Oil Services 7.0x 5.6x 4.8x 11.4x 8.7x 6.8x 14.6x 9.7x 7.9x 11% 1%
Source: Pareto Securities, Datastream, *Consensus estimates
11 Jun 2010 63(77)

Estimates
11 Jun 2010 64(77)

Sevan estimates
Sevan M arine (SEVAN) 2008 2009 2010E 2011E 2012E 2013E
Operating revenues USDm 121 195 335 425 577 597
Operating costs " (219) (212) (225) (238) (277) (273)
EBITDA* " (99) (18) 110 187 300 324
Depreciation & amortisation " (32) (65) (93) (93) (104) (115)
Ope r ating pr ofit " (130) (83) 17 94 196 209
A ssociated companies " 1 0 1 1 1 1
Net interest " (39) (62) (86) (100) (101) (99)
Other f inancial items " 55 (36) - - - -
Pr ofit be for e taxe s " (113) (180) (68) (5) 96 110
Minority interest " 13 - (6) (6) (1) (2)
Taxes " 5 37 6 0 (9) (10)
Ne t pr ofit " (95) (143) (68) (11) 86 98
EPS USD (0.75) (0.28) (0.12) (0.02) 0.15 0.17

*)Including associated companies
CAPITALIZATION
Share price USD 1.0 1.8 1.0 1.0 1.0 1.0
Market cap. USDm 201 1,004 593 593 593 593
Net interest bearing debt " 900 1,026 1,231 1,408 1,518 1,280
Enterprise value " 1,101 2,030 1,824 2,001 2,111 1,873
V ALUATION
P/E - - - - 6.9 6.0
EV /EBITDA - - 16.6 10.7 7.0 5.8
CASH FLOW
Operating cash f low USDm (164) (110) (25) 68 190 215
Net cash used in investing activities " (538) (345) (180) (245) (300) (25)
Net cash f rom f inancing activities " 522 568 93 179 136 (201)
Ne t cas h flow " (179) 113 (111) 2 26 (12)
Unit EBITDA 2008 2009 2010E 2011E 2012E 2013E

Piranema USDm 13 16 14 28 27 31
Hummingbird (80%) " (2) 21 24 25 25 29
V oyageur " - (6) 4 - 79 78
Sevan Driller " - - - - 57 107
Sevan Brazil " - (10) 47 108 108 108
Goliat " - 4 50 54 32 -
SG&A , start up costs etc. " (44) (51) (29) (28) (28) (28)
Total EBITDA " (32) (26) 110 187 300 324
BALANCE SHEET 2008 2009 2010E 2011E 2012E 2013E

Tangible f ixed assets USDm 1,732 1,953 2,041 2,193 2,389 2,299
Other non-current assets & goodw ill " 99 157 158 159 160 160
Interest bearing long-term receivables " - - - - - -
Other current assets " 48 76 98 98 103 108
Cash and liquid assets " 50 163 52 54 80 68
Total as s e ts " 1,930 2,349 2,348 2,503 2,731 2,635
Shareholders' equity USDm 703 974 906 895 981 1,127

Minority interests " 38 38 44 50 52 53
Other long-term debt " 18 4 4 4 4 4
Interest bearing long-term debt " 951 1,101 1,167 1,361 1,497 1,248
Other current liabilities " 220 143 111 92 97 102
Interest bearing current liabilities " - 88 115 100 100 100
Total liabilite s & e quity " 1,930 2,349 2,348 2,503 2,731 2,635
11 Jun 2010 65(77)

Prosafe Production estimates

P&L Prosafe Production (PROD) 2007 2008 2009 2010E 2011E 2012E 2013E
Operating revenues USDm 150 265 315 423 414 411 408
Operating costs " (58) (122) (130) (184) (169) (164) (164)
EBITDA* " 94 148 185 238 244 246 244
Depreciation & amortisation " (34) (254) (130) (135) (130) (125) (120)
Operating profit " 59 (112) 55 103 114 121 124
Net interest " 3 (25) (44) (41) (38) (32) (25)
Other financial items " - (56) (1) 100 - - -
Profit before taxes " 62 (193) 10 162 76 89 99
Taxes " (9) (10) (20) (12) (12) (12) (12)
Net profit " 53 (204) (10) 150 64 77 87
EPS USD 0.2 0.2 0.1 0.2 0.3 0.3 0.3
CAPITALIZATION
Share price USD 10.7 1.5 2.1 2.1 2.1 2.1 2.1
Market cap. USDm 2,719 395 548 539 539 539 539
Net interest bearing debt " 67 822 1,018 712 548 366 179
Enterprise value " 2,786 1,216 1,566 1,251 1,087 905 718
VALUATION
P/E 47.1 7.3 14.8 10.7 8.4 7.0 6.2
EV/EBITA 46.0 13.5 15.5 12.1 9.5 7.5 5.8
EV/EBITDA 29.6 8.2 8.5 5.3 4.5 3.7 2.9
CASH FLOW
Operating cash flow USDm 46 131 152 266 184 202 207
Net cash used in investing activities " (424) (955) (317) 40 (20) (20) (20)
Net cash from financing activities " 380 983 88 (150) (150) (150) (150)
INTEREST COVERAGE AND LEVERAGE
Interest bearing debt / EBITDA 1.3 7.2 6.2 4.2 3.5 2.8 2.3
EBITDA / Net interest (34.4) 5.6 4.2 5.8 6.4 7.7 9.7
Market Cap / EV 1.0 0.3 0.3 0.4 0.5 0.6 0.8
EBITDA
FPSO Espoir Ivoirien USDm 26 26 26 25 25 25 25
FPSO Abo " 18 18 18 18 15 12 9
FPSO Polvo " 16 31 31 30 30 30 30
FPSO Umuroa " 22 58 31 23 17 17 17
FPSO Petrolia Nautipa (50%) " 6 6 6 6 6 6 6
FSO Endeavor " 7 7 5 5 5 5 5
FSO Madura Jaya (50%) " 1 1 1 1 1 1 1
FPSO Azurite " - - 45 48 48 48 48
FPSO Cidade de São Mateus " - - 28 66 66 66 66
FPSO Ningaloo Vision " - - - 37 37 37 37
Other items (incl. aem.) " (4) (12) (5) (22) (7) (2) (2)
Total EBITDA " 93 136 186 238 244 246 244
BALANCE SHEET 2007 2008 2009 2010E 2011E 2012E 2013E
Tangible fixed assets USDm 933 1,567 1,756 1,641 1,531 1,426 1,326
Other non-current assets & goodwill " 128 144 135 75 75 75 75
Interest bearing long-term receivables " - - - - - - -
Other current assets " 59 59 71 95 93 93 92
Cash and liquid assets " 53 211 134 290 304 336 373
Total assets " 1,173 1,981 2,096 2,101 2,003 1,930 1,866
Shareholders' equity " 990 806 814 964 1,028 1,105 1,192
Minority interests " - - - - - - -
Other long-term debt " 1 2 38 48 48 48 48
Interest bearing long-term debt " 66 1,014 1,001 851 701 551 401
Other current liabilities " 62 141 93 88 76 75 75
Interest bearing current liabilities " 54 19 151 151 151 151 151
Total liabilites & equity " 1,173 1,981 2,096 2,101 2,003 1,930 1,866
Debt ratio 0.7 5.8 5.5 3.0 2.2 1.5 0.7

Equity ratio 0.8 0.4 0.4 0.5 0.5 0.6 0.6
11 Jun 2010 66(77)

SBM Offshore estimates

SBM Offshore (SBMO) 2007 2008 2009 2010E 2011E 2012E 2013E
Operating revenues USDm 2,871 3,060 2,957 2,783 2,861 2,962 3,051
Operating costs " (2,323) (2,530) (2,343) (2,143) (2,109) (2,165) (2,184)
Depreciation & amortisation " (246) (255) (320) (360) (381) (421) (461)
Operating profit " 302 275 293 279 371 376 406
Net interest " (22) (40) (60) (75) (85) (85) (85)
Other financial items " - - - - - - -
Profit before taxes " 280 237 234 204 286 291 321
Taxes " (15) (9) (4) (12) (16) (16) (18)
Net profit " 267 228 230 192 270 275 304
EPS USD 1.9 1.6 1.6 1.2 1.6 1.7 1.8
CAPITALIZATION
Share price USD 30.9 13.1 20.2 15.2 15.2 15.2 15.2
Market cap. USDm 4,427 1,872 3,313 2,494 2,494 2,494 2,494
Net interest bearing debt " 875 1,464 1,464 1,726 1,977 2,295 1,888
Enterprise value " 5,301 3,336 4,777 4,219 4,471 4,789 4,382
VALUATION
P/E 16.6 8.2 12.9 13.0 9.2 9.1 8.2
EV/EBITA 17.6 12.1 16.3 15.1 12.1 12.7 10.8
EV/EBITDA 9.7 6.3 7.8 6.6 5.9 6.0 5.1
CASH FLOW
Operating cash flow USDm 331 577 459 555 650 694 763
Net cash used in investing activities " (570) (1,029) (708) (706) (819) (930) (274)
Net cash from financing activities " 169 409 156 190 268 218 (482)
BALANCE SHEET 2007 2008 2009 2010E 2011E 2012E 2013E

Tangible fixed assets USDm 1,962 2,565 2,830 3,176 3,615 4,124 3,937
Other non-current assets & goodwill " 137 480 452 452 452 452 452
Interest bearing long-term receivables " - - - - - - -
Other current assets " 1,255 1,069 1,230 1,157 1,190 1,232 1,269
Cash and liquid assets " 281 230 147 185 284 266 273
Total assets " 3,635 4,345 4,658 4,971 5,540 6,073 5,930
Shareholders' equity " 1,333 1,235 1,803 1,912 2,100 2,293 2,514
Minority interests " 4 6 14 14 14 14 14
Other long-term debt " 45 36 45 17 17 17 17
Interest bearing long-term debt " 922 1,430 1,282 1,582 1,932 2,232 1,832
Other current liabilities " 1,097 1,374 1,186 1,116 1,148 1,188 1,224
Interest bearing current liabilities " 234 264 328 328 328 328 328
Total liabilites & equity " 3,635 4,345 4,658 4,971 5,540 6,073 5,930
11 Jun 2010 67(77)

BW Offshore estimates
P&L BW Offshore (BWO) 2007 2008 2009 2010E 2011E 2012E
Operating costs " (562) (307) (276) (470) (607) (402)
EBITDA* " 123 (171) 89 224 282 292
Operating profit " 59 (218) 69 84 127 135
Net interest " (33) (34) (15) (21) (36) (33)
Other financial items " 22 (54) (6) - - -
Profit before taxes " 70 (517) 3 98 107 121
Taxes " (14) (15) (11) (10) (11) (12)
Net profit " 53 (533) (9) 89 96 109
EPS USD 0.1 (0.2) (0.0) 0.2 0.2 0.2
CAPITALIZATION
Share price USD 4.2 0.6 1.5 1.3 1.3 1.3
Market cap. USDm 1,922 282 669 592 592 592
Net interest bearing debt " 901 585 849 778 620 428
Enterprise value " 2,824 867 1,518 1,371 1,213 1,020
VALUATION
P/E 47.8 - - 6.7 6.2 5.4
EV/EBITA 44.3 - 21.6 16.4 9.5 7.6
EV/EBITDA 26.9 21.4 11.3 7.3 4.6 3.7
CASH FLOW
Operating cash flow USDm 179 65 187 186 223 207
Net cash used in investing activities " (1,125) 288 (368) (115) (65) (15)
Net cash from financing activities " 945 (322) 181 50 - -
Interest bearing debt / EBITDA nmf 322.8 10.8 6.5 4.5 4.4
EBITDA / Net interest nmf 0.1 6.7 8.1 7.0 7.8
Market Cap / EV 0.7 0.3 0.4 0.4 0.5 0.6
EBITDA
Sendje Berge (Addax to 2011, opt. to 2013) USDm (5,000) (5,000) (5,000) (5,000) (5,000) (5,000)
Berge Helene (Petronas to 2013) " - - - - - -
Belokamenka (Rosneft to 2019) " - - - - - -
Berge Okoloba Toru (Global to 2009) " - 1 1 1 1 1
YÙUM K’AK’NÁAB (Pemex to 2022) " - 1 1 1 1 1
BW Pioneer (Petrobras to 2015) " - 1 1 1 1 1
BW Cidade de São Vicente (Petrobras to 2019) " - 0 - - - -
BW Carmen " - 1 1 1 1 1
BW Nisa, Papa Terra EPC " - 0 - - 0 1
BALANCE SHEET 2007 2008 2009 2010E 2011E 2012E
Tangible fixed assets USDm 629 870 1,228 1,246 1,182 1,068
Other non-current assets & goodwill " 1,773 809 744 780 795 813
Interest bearing long-term receivables " 320 284 163 163 163 163
Total assets " 3,010 2,301 2,394 2,585 2,762 2,797
Shareholders' equity " 1,508 923 921 1,009 1,106 1,214
Minority interests " - - - - - -
Interest bearing long-term debt " 845 936 1,080 1,130 1,130 1,130
Interest bearing current liabilities " 413 0.4 0.3 0.3 0.3 0.3
Total liabilites & equity " 3,010 2,301 2,394 2,585 2,762 2,797
11 Jun 2010 68(77)

Fred. Olsen Production estimates

P&L Fred. Olsen Production (FOP) 2008 2009 2010E 2011E 2012E 2013E
Operating costs " (50) (64) (63) (63) (63) (63)
EBITDA* " 30 51 45 45 45 45
Operating profit " (9) 11 6 6 6 6
Net interest " (6) (6) (7) (6) (4) (2)
Other financial items " (24) (1) - - - -
Profit before taxes " (39) 4 (1) (0) 2 4
Taxes " (0) (6) (5) (5) (5) (5)
Net profit " (39) (2) (6) (5) (3) (1)
EPS USD (0.1) (0.0) (0.1) (0.1) (0.0) (0.0)
CAPITALIZATION
Share price USD 0.6 1.2 1.4 1.4 1.4 1.4
Market cap. USDm 65 130 144 144 144 144
Enterprise value " 192 257 263 230 194 157
VALUATION
P/E - - - - - -
EV/EBITA 14.5 23.5 40.6 40.9 34.6 27.9
EV/EBITDA 6.5 5.1 5.8 5.1 4.3 3.5
CASH FLOW
Net cash from financing activities " 7 9 (41) - (50) (50)
Interest bearing debt / EBITDA 7.8 4.7 4.4 4.4 3.3 2.2
EBITDA / Net interest 5.1 8.4 6.1 7.6 11.3 22.7
Market Cap / EV 0.3 0.5 0.5 0.6 0.7 0.9
EBITDA
FPSO Petrolia Nautipa (50%) USDm 4.7 6.2 6.2 6.2 6.2 6.2
FPSO Knock Adoon " 18.1 21.9 21.9 21.9 21.9 21.9
Marc Lorenceau (Ex. Borgen Dolphin) " 2.8 2.9 2.9 2.9 2.9 2.9
Knock Dee " (1.8) (1.8) - - - -
Knock Nevis " 3.8 (2.7) - - - -
Knock Allan " (3.1) 17.3 24.0 24.0 24.0 24.0
Total EBITDA " 24.5 50.6 45.3 45.3 45.3 45.3
BALANCE SHEET
Tangible fixed assets USDm 395 414 383 344 306 267
Other non-current assets & goodwill " 9 11 11 11 11 11
Total assets " 522 555 493 492 439 388
Shareholders' equity " 263 265 260 254 251 249

Interest bearing long-term debt " 230 237 196 196 146 96
Interest bearing current liabilities " - 2 2 2 2 2
Total liabilites & equity " 522 555 493 492 439 388
11 Jun 2010 69(77)

EOC estimates
P&L EOC (EOC) 2007 2008 2009 2010E 2011E 2012E
Operating costs " (14) (67) (37) (54) (61) (63)
EBITDA* " 18 43 35 62 90 95
Operating profit " 16 36 27 37 59 63
Net interest " (3) (7) (5) (16) (15) (11)
Other financial items " - - - (0) - -
Profit before taxes " 13 28 21 21 48 57
Taxes " (2) (3) (0) (2) (2) (2)
Net profit " 11 25 21 19 46 55
EPS USD 0.1 0.2 0.2 0.2 0.4 0.5
*) Including associated companies
CAPITALIZATION
Share price USD 3.3 2.6 1.2 1.1 1.1 1.1
Market cap. USDm 369 287 129 121 121 121
Enterprise value " 526 553 464 444 376 303
VALUATION
P/E 32.5 11.3 6.1 6.4 2.6 2.2
EV/EBITA 32.9 15.4 17.2 11.9 6.0 4.4
EV/EBITDA 29.3 12.8 13.3 7.2 4.2 3.2
CASH FLOW
Net cash from financing activities " 32 123 69 (6) (45) (45)
Interest bearing debt / EBITDA 9.6 6.7 11.8 6.2 3.9 3.3
EBITDA / Net interest 6.2 5.9 6.5 3.8 5.7 8.1
Market Cap / EV 0.7 0.5 0.3 0.3 0.3 0.4
EBITDA
Lewek Conqueror (Support barge) USDm - - - - - -
FPSO Lewek Arunothai " - - - - - -
Lewek Champion (Heavy lift/pipelay) " 6 6 7 8 7 7
Lewek Chancellor (Support barge) " - - (2) 43 59 59
Chim Sao FPSO " 6 10 9 4 5 5
BALANCE SHEET
Tangible fixed assets USDm 230 369 450 432 409 387
Other non-current assets & goodwill " - - 19 49 53 58
Total assets " 288 440 599 616 640 654
Shareholders' equity " 88 110 131 150 195 251
Other long-term debt " 1 0 0 - - -
Interest bearing long-term debt " 149 274 363 312 267 222
Interest bearing current liabilities " 24 17 48 71 71 71
Total liabilites & equity " 288 440 599 616 640 654
11 Jun 2010 70(77)

Glossary
Definitions of Floating production systems
FPSO
A Floating Production, Storage and Offloading (FPSO) system is contained on
large, tanker-type vessels that are moored to the sea floor. A FPSO is designed
to process and stow production from nearby subsea wells and to periodically
offload the stored oil to smaller shuttle tankers, which transports the oil to
onshore facilities for further processing. While the system may be relocated, it
generally resides on the same location for a prolonged period of time.
Floating production unit designs
FPSO Semi-submersible TLP Spar Sevan design
Semi-submersible
A semi-submersible is a mobile offshore drilling, or production, unit floating on
the water surface above the subsea wellhead, and is kept in position by either
anchors or dynamic positioning. The semi-submersible name steams from the
base pontoons that are empty when the unit is towed to a location and partially
filled with water to stabilize the unit above the well.
TLP
A Tension Leg Platform (TLP) is an offshore drilling platform, vertically moored
to the sea floor by means of tethers, or tendons, grouped at each of the
structure’s corners. A group of tethers are called a tension leg. The TLP is
particularly suited for water depths greater than 300 meters. The buoyancy of
the platform applies tension to the tubes. TLP exhibit good motion due to the
low elasticity offered with the use of tethers.
SPAR
There are four different versions of a spar platform: Classic, Truss, Cell, and
Wet Tree. A Classic Spar platform is used as buoys in shipping and is moored
in place vertically. The Classic Spar consists of a large-diameter, single vertical
cylinder supporting a deck. A Truss Spar platform is a modified version of the
Classic Spar and features an open truss in the lower hull, which significantly
reduces the weight and lowers overall cost. The Cell Spar platform features a
deck supported by a long, buoyant and cylindrical tank hull section moored to
the seabed. The Wet Tree Spar platform has located the Christmas tree1 at the
sea bed and the Spar is connected to the well through a low pressure riser. A
Dry Tree Spar platform, on the other hand, uses a high pressure riser and the
Christmas tree is located dry on the topside.
SEVAN Design
Sevan offers a cylindrical FPSO design. The turret system and the circular
design provide cost advantages compared to other FPSO solutions working in
harsh environments and the motion characteristics of the FPSO has proved to
be very favourable. The oil is stored in tanks in the hull, and the topside
provides the processing facilities, living quarter etc.
1
Christmas Tree – an assembly of control valves, gauges and chokes that control oil and gas flow in a completed well. Christmas trees installed on
the ocean floor are referred to as subsea, or “wet”, trees. Christmas trees installed on land or platforms are referred to as “dry” trees (FMC
Technology)
11 Jun 2010 71(77)

Application, Advantages and Disadvantages

The following chapter focuses on the applicability of the FPSOs, and also the
advantages and disadvantages of such technology.
The increased development of oil reserves in shallow water and the increased
demand for oil and energy, world-wide, calls for the need of production in
marginally profitable fields and in deep water. Production in deeper water gives
rise to challenges less relevant for production systems in shallow water, such as
heavy mooring systems and an increased need for thermally insulated pipelines.
Furthermore, the cost and complexity of installing fixed structure, such as fixed
platforms and sub-sea pipelines, also rise as a consequence of increasing
depths.
Floating production units holds the potential of being less expensive and more
environmentally sound due to the fairly short time frame in which the unit can be
located and the possibility of relocating the unit to other fields in situations
where wells are dry or contracts have expired. However, when fields are large
and close to existing infrastructure, the total cost of connecting these fields to
the pipelines may lie at levels that outweigh the advantages of floating
production units.
Advantages
The FPSO is the most commonly installed floating production system and offers
several advantages, some in which are presented next.
Field storage
FPSOs being self-contained and offering offshore segregated storage make
these systems independent of existing infrastructure. The FPSOs can therefore
be situated in fields that are distant from existing pipelines, while shuttle tankers
regularly transport the oil/gas to onshore facilities. The segregated storage
allows the FPSOs to store oil from different wells in different tanks, as quality
and price may differ among wells. Furthermore, fields holding oil with high
viscosity and low API makes it costly to pump the oil through pipelines.
Short time to disconnect

Depending on the specifications, the time frame necessary to disconnect the
FPSO may be very short. A planned disconnection can be executed within 24
hours and an unplanned safe disconnection in only 10 hours.
Movable
FPSOs are often built with a ship-shaped hull, and are therefore movable. In
general, they are also self-propelled, and hence independent of tugboats. As a
result, FPSOs can easily be relocated in the event of an upcoming severe
storm, expiration of a contract or when the FPSO are required on another field.
The latter event might involve some modifications to the FPSO and a dry-dock
overhaul. The flexibility of the FPSO has increased the profitability of smaller
fields.
Adaptability for water depths

An FPSO can be used on several water depths. FPSOs operate on depths
ranging from 20 to 2000 meters. The increase in cost for mooring an FPSO
system in ultra deep water is less than that of conventional fixed structures or
tension leg platforms (TLPs).
11 Jun 2010 72(77)

Early deployment
A FPSO can be deployed while the field is being developed. The allows the
wells start to producing immediately after being drilled. This contributes to a
shorter time to cash flow.
Variable combinations with other facilities

The possibility of using the FPSO in combination with other offshore facilities,
allows the FPSO to be used for various field developments. The extensive deck
area furthermore offers flexibility with respect to the process plant layout.
Leased up front
The FPSO can be leased up front, which may lead to lower up-front costs.
Extended well testing

FPSOs allow well testing to span across longer than normal time periods and
thereby enhance reservoir information. In effect, the economical soundness of
the field and decisions concerning pipelines and fixed infrastructure can be
founded on a more extensive knowledge base.
Less weight sensitive

FPSOs being less weight sensitive allow FPSOs to be used on different fields
with different production capacities. FPSOs have been used on different plants
with an interval of the production volume from 20,000 to 250,000 Barrels of oil
per day.
Expanded market
FPSO provides oil companies with the possibility of transporting oil to different
locations. The price per barrel of crude oil may become lower as the use of
pipelines implies that locations are predetermined.
Possibility to exploit ageing tank and bulk vessels

The price of a converted FPSO will decrease, compared to a newbuilding, as
the FPSO can be converted from aging tankers and bulk vessels. This may lead
to a better utilization of ecologically and economically resources.
Disadvantages
FPSOs also bring about several disadvantages compared to other floating
production units and fixed structures.
High cost of risers

The price of the riser system usually connected to the FPSO is generally higher
than the Steel Catenary risers used in conjunction with SPARs and TLPs.
Limited number of risers

As all risers on a turret-moored FPSO must pass through the inside of the turret
bearing, the bearing opening is considered to be the governing factor on the
number of risers that can fit within the turret. This limiting factor therefore
controls the production rate that can be obtained at fields.
No well access
The FPSO lacks both access to wells and drilling equipment. With such a
device, the unit would be classified as a floating drilling production storage and
offloading unit (FDPSO).
High well maintenance costs

The subsea tiebacks associated with FPSOs generally bring about higher well
maintenance costs.
11 Jun 2010 73(77)

Disclaimers and disclosures

This document provides additional disclosures and disclaimers relevant to research reports and other investment
recommendations (“Recommendations”) issued by Pareto Securities AS (“Pareto”), cf. the Securities Trading Act Section
3-10 with further regulations.
Basis and methods for assessment

Recommendation for shares and share related instruments are based on price targets fixed with different valuation
methods that may include analysis of earnings multiples (absolute and relative), valuation of a company using DCF
calculations (discounted cash flow) and by carrying out net asset value (NAV) assessments. Price targets are changed
when earnings and cash flow forecasts are changed. They may also be changed when the underlying value of the issuer’s
assets changes or when factors impacting the required rate of return change.
Pareto credit analysts provide credit ratings which is a framework for comparing the credit quality of rated debt securities.
The ratings are based on the same rating scale as international rating agencies and represent the opinion of Pareto as to
the relative creditworthiness of securities. A credit rating on a stand alone basis should not be used as a basis for
investment operations. Pareto Securities may also provide credit research with more specific price targets. These price
targets are based on different valuation methods. These methods may include analysis of key credit ratios and other
factors describing the securities creditworthiness, peer group analysis of securities with similar creditworthiness and
different DCF-valuations.
Definitions of key terms

Buy: Pareto expect this financial instruments’ total return to exceed 10% over the next six months.
Hold: Pareto expect this financial instruments’ total return to be 0-10% over the next six months.
Sell: Pareto expect this financial instruments’ total return to be negative over the next six months.
Trading Buy: Pareto expect this financial instruments’ total return to exceed 10% over the next month.
Trading Sell: Pareto expect this financial instruments’ total return to be negative over the next month.
Risks related to investments and Recommendations

There is risk attached to all investments in financial instruments. The analyst’s assessment of the risk is identified by the
terms High, Medium or Low Risk in the relevant Recommendation. There may be uncertainties with respect to the
accurateness and reliability of any information, interpretation and assessment. There are uncertainties and risks attached
to the correctness of any Recommendation by Pareto and with respect to forward looking statements and expectations.
Standards and supervision

Pareto complies with the standards for recommendations issued by the Norwegian Securities Dealers Association and the
Norwegian Society of Financial Analysts. Pareto is under the supervision of the Financial Supervisory Authority of Norway.
No agreement with the issuer concerning Recommendations

Pareto has no agreements with issuers with respect to dissemination of Recommendations. Generally Pareto will however
present the Recommendation for the issuer prior to dissemination to assure a correct factual basis.
Organisation and duty of confidentiality

All employees of Pareto are subject to duty of confidentiality towards clients and with respect to handling inside
information. Pareto has established “Chinese walls” and other organisational procedures for the purpose of minimizing
conflicts of interest within Pareto and in the Pareto group and between clients.
Compensation schemes for analysts

No part of analysts’ salaries or compensations relates directly to investment banking services or other services provided by
Pareto or related companies to issuers. Analysts are however part of the general bonus scheme.
Updating of Recommendations
Pareto has no fixed schedule for updating.
Disclosure of positions in financial instruments

Please see Appendix A for an overview of positions in financial instruments held by Pareto and related companies and
persons.
Disclosure of assignments and mandates

Please see Appendix B for an overview of (a) all financial instruments in which Pareto or related companies are market
makers or liquidity providers, (b) all financial instruments where Pareto or related companies have been lead managers or
co-lead managers over the previous 12 months and (c) all issuers of financial instruments to whom Pareto or related
companies have rendered investment banking services over the previous 12 months. Please be aware that agreements
and services that are still subject to confidentiality are excluded.
11 Jun 2010 74(77)

Previous Recommendations
For an overview of Pareto’s Recommendations in the financial instruments of the issuing company the last 12 months,
including data on changes in Recommendations. Log on to www.pareto.no, type in company name or symbol in the search
field and click search. Under Reports you will find previous Recommendations. Please be aware that certain informal
Recommendations may be excluded.
Statistics on Recommendations
Please see Appendix C for quarterly statistics on the overall ratio of “Strong Buy”, “Buy”, “Hold” and “Reduce” in Pareto’s
Recommendations in financial instruments, including a split with respect to issuers where Pareto have provided
investment banking services the previous 12 months.
Additional provisions on Recommendations distributed in the United States

This research reports is prepared by Pareto Securities AS and distributed in the United States by Pareto Securities Inc.
The research report is intended for distribution in the United States to institutional investors only. Pareto Securities Inc. is a
broker-dealer registered with the U.S. Securities and Exchange Commission and is a member of FINRA & SIPC. U.S.
persons seeking more information about any of the securities discussed in this report, or wishing to execute a transaction
in these securities, should contact Pareto Securities Inc. at 150 East 52nd Street, NY 10022, Tel. 212 829 4200. To the
extent required by applicable U.S. laws and regulations, Pareto Securities Inc. accepts responsibility for the contents of
this publication. Investment products provided by or through Pareto Securities Inc. or Pareto Securities AS are not FDIC
insured, may lose value and are not guaranteed by Pareto Securities Inc. or Pareto Securities AS. Investing in non-U.S.
securities may entail certain risks. This document does not constitute or form part of any offer for sale or subscription, nor
shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. The
securities of non-U.S. issuers may not be registered with or subject to SEC reporting and other requirements. The
information available about non-U.S. companies may be limited, and non-U.S. companies are generally not subject to the
same uniform auditing and reporting standards as U.S. companies. Market rules, conventions and practices may differ
from U.S. markets, adding to transaction costs or causing delays in the purchase or sale of securities. Securities of some
non-U.S. companies may not be as liquid as securities of comparable U.S. companies.
Pareto Securities Inc. and/or Pareto Securities AS may have material conflicts of interest related to the production or
distribution of this research report which are disclosed on the following Appendix A and Appendix B.
Additional information for recipients in Singapore

This research reports is prepared by Pareto Securities AS and distributed in Singapore by Pareto Securities Asia Pte Ltd
(“Pareto Securities Asia”). Pareto Securities AS is a company established under the laws of Norway being licensed and
supervised by Norwegian regulators. Pareto Securities Asia is an exempt financial advisor under the Singapore Financial
Advisers Act and a subsidiary of Pareto Securities AS.
This report is directed only to "accredited investors", "expert investors" and "institutional investors" as defined in the
Singapore Securities and Futures Act. This report is intended for general circulation amongst such investors and does not
take into account the specific investment objectives, financial situation or particular needs of any particular person. You
should seek advice from a financial adviser regarding the suitability of any product referred to in this report, taking into
account your specific financial objectives, financial situation or particular needs before making a commitment to purchase
any such product. Please contact Pareto Securities Asia, 16 Collyer Quay, # 27-02 Hitachi Tower, Singapore 049318, at
+65 6408 9800 in respect of any matters arising from or in connection with this report.
This report does not provide individually tailored investment advice or offer tax, regulatory, accounting or legal advice. The
securities or other financial instruments discussed in this report may not be suitable for all investors. This report has been
prepared and issued for distribution to professional investors only and all recipients should seek independent investment
advice prior to making any investment decision based on any information contained in this report. Prior to entering into any
proposed transaction, recipients should determine, in consultation with their own investment, legal, tax, regulatory and
accounting advisors, the economic risks and merits, as well as the legal, tax, regulatory and accounting characteristics and
consequences, of the transaction.
Disclaimer
Pareto and the analyst accept no responsibility and expressively disclaim any and all liabilities for any and all losses
related to investments caused by or motivated by Recommendations from Pareto. Any person receiving a
Recommendation from Pareto is deemed to have accepted this disclaimer. The disclaimer shall apply even if an
Investment Recommendation is shown to be erroneous or incomplete or based upon incorrect or incomplete facts,
interpretations or assessments or assumptions by Pareto, and irrespective of whether Pareto or any person related to
Pareto can be blamed for the incident.
11 Jun 2010 75(77)

Appendix A
Disclosure requirements pursuant to the Securities Trading ST Regulations § 3-10 (2) and § 3-11, letter a-b
Pareto Securities AS does not alone or together with related companies or persons – own a portion of the shares
exceeding 5 % of the total share capital – in any companies where a recommendation has been produced or distributed by
Pareto Securities AS.
Pareto Securities AS may hold financial instruments in companies where a recommendation has been produced or
distributed by Pareto Securities AS in connection with rendering investment services, including Market Making.
Please find below an overview of material interests in financial instruments held by employees in Pareto Securities AS, in
companies where a recommendation has been produced or distributed by Pareto Securities AS.
By material interest is meant holdings exceeding a value of NOK 50,000.
Analyst Total Analyst Total

Company name: holding holding Company name: holding holding
ACERGY S.A. 0 75 101 NORWEGIAN AIR SHUTTLE 0 1 300
AKER ASA A-AKSJER 0 1 504 NORWEGIAN ENERGY COMPANY 0 81 680
ATEA 0 2 070 OLAV THON 0 681
BONHEUR ASA 0 2 804 ORKLA ASA A-AKSJER 0 17 546
CAMILLO EITZEN 0 6 500 PROSAFE PRODUCTION 0 150 815
CERMAQ ASA 0 3 000 PROSAFE SE 0 815
CREW GOLD NYE 0 6 894 672 PROTECTOR FORSIKRING 0 499 100
DNB NOR ASA 0 44 197 QUESTERRE ENERGY CORP 0 20 777
DNO INTERNATIONAL ASA 0 60 000 RENEWABLE ENERGY CORP 0 30 580
DOCKWISE 0 400 SANDNES SPAREBANK GR.FOND 0 9 877
EMGS 0 13 385 SCORPION OFFSHORE 0 20 000
EOC Ltd 0 25 000 SEADRILL LTD 0 7 700
FARSTAD SHIPPING ASA 0 2 401 SEAWELL 0 10 000
FRED OLSEN ENERGY 0 300 SEVAN 0 16 876
FRONTLINE LTD 0 4 895 SHIP FINANCE 0 2 923
GANGER ROLF ASA 0 12 724 SKEIE DRILLING & PRODUCTION 0 4 024 000
GLOBAL RIG COMPANY 0 714 100 SONGA OFFSHORE SE 0 6 500
GOLAR LNG ENERGY LIM 0 27 000 SPAREB. NORD-NORGE GR.FOND 0 5 733
HAVILA SHIPPING ASA ORD. 0 16 050 SPAREBANK 1 SR-BANK 0 57 648
IMAREX 0 1 150 SPAREBANKEN ØST GR.F 0 157 290
INTEROIL 0 13 600 STATOILHYDRO ASA 0 6 954
KONGSBERG AUTOMOTIVE 0 16 000 STOREBRAND ASA 0 4 161
ERØY SEAFOOD GROUP 0 13 000 TELENOR ASA 2 000 12 604
NORSE ENERGY CORP. A 0 83 021 TGS NOPEC GEOPHYSIC. 0 7 204
NORSK HYDRO ASA 0 22 015 WILH. WILHELMSEN ASA 0 20 008
NORSKE SKOGINDUSTRIER ASA 0 46 002 YARA INTERNATIONAL 0 9 796
NORTHLAND RESOURCES 0 688 500
This overview is updated monthly (last updated 30.04.2010).
11 Jun 2010 76(77)

Appendix B
Disclosure requirements pursuant to the Securities Trading ST Regulation § 3-11, letter d-f, ref the Securities Trading Act
Section 3-10
Overview over issuers of financial instruments where Pareto Securities AS have prepared or distributed investment
recommendation, where Pareto Securities AS or related companies have been lead manager/co-lead manager or have
rendered publicly known not immaterial investment banking services over the previous 12 months:
- Aker Drilling - Hansa Property - Prosafe

- Austevoll Seafood - Havila Shipping - Questerre
- Bergen Group - InterOil - Rocksource
- Bjørge - Kongsberg Automotive - RXT
- Blom - Lighthouse Caledonia - Saga Tankers
- BN Bank - Marine Accurate Well - Seadrill
- Cecon - Marine Subsea - Sevan Marine
- Color Group - Mosvold Supply - Skeie Drilling & Production
- Crew - Nexus Floating Production - Solstad Offshore
- Davie Yards - Noreco - Songa Offshore
- DOF - Norse Energy - Sparebank 1 SMN
- DOF Installer - Norske Skog - Sparebanken Sogn & Fjord.
- DOF Subsea - North Energy - Sparebanken Vest
- Eltek - Norwegian Air Shuttle - Sparebanken Øst
- Equinox Offshore - Norwegian Property - Spectrum
- Faktor Eiendom - Nutripharma - STX Europe
- Flex LNG - Oceanteam - Vantage Drilling
- Golar LNG Energy - PA Resources - Wega Mining
- Green Reefers - Petroleum Geo-Services - Wilh. Wilhelmsen
- Grenland Group - Petromena
This overview is updated monthly (this overview is for the period 01.05.2009 – 30.04.2010).
Appendix C
Disclosure requirements pursuant to the Securities Trading ST Regulation § 3-11 (4)
Column I shows the overall ratio of “Strong Buy”, “Buy”, “Hold” and “Reduce” in Pareto’s
Recommendations in financial instruments.
Column II shows the ratio of “Strong Buy”, “Buy”, “Hold” and “Reduce” in Pareto’s
Recommendations in financial instruments, where Pareto have provided investment banking
services to the issuer the previous 12 months.
Column I Column II
Strong Buy 0,6% 2,9%
Buy 63,8% 70,6%
Hold 24,4% 26,5%
Reduce 11,3% 0,0%
This overview is updated quarterly (last updated 24.03.2010).
11 Jun 2010 77(77)

Oil Offshore 4 FPSO Market Report PDF

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Oil Offshore 4 FPSO Market Report PDF

Загружено:

Авторское право:

Доступные форматы

Sector Research Report

FPSO Market Report Sector Oil & Offshore

` Average fixed contract length of 6 years, average option period of 5 200%

` West Africa continues to be dominated by large scale projects that

The recommendation was not presented to the issuer before dissemination.

EXECUTIVE SUMMARY ................................................................................................................................................. 3

11 Jun 2010 2(77)

11 Jun 2010 3(77)

BW Offshore (BWO) – BW Offshore is delivering steady operations and

BEST BOND IDEAS

11 Jun 2010 4(77)

Soft performance & out of favour, but

FPSO space trading at 0.6x NAV of existing units only

Source: Pareto Research

11 Jun 2010 5(77)

newbuild programme in January 2010, with the Ningaloo Vision commencing

Value protection through solid backlogs

Source: Pareto research

Prosafe Production and BW Offshore is favourably priced compared to their

11 Jun 2010 6(77)

Weak share price performance, limited exposure to oil spill

-15% -10% -5% 0% 5% 10% 15% 20% 25%

Source: Pareto Research, DataStream

Sector Relative Valuation

11 Jun 2010 7(77)

FPSO Relative Valuation

Oil Service Sector 7.1x 5.6x 4.8x 14.6x 9.7x 7.9x

Share price performance

FPSO Performance chart

FOP, BWO and SBM the best

Source: Pareto research, DataStream

11 Jun 2010 8(77)

FPSO companies, overview

FPSO lease companies

Lease FPSOs by owner

Source: Pareto research, ODS

11 Jun 2010 9(77)

FPSO owning companies

FPSO - a preferred choice for floating production solutions

Distribution producing FPUs

11 Jun 2010 10(77)

A capital intensive industry, expanding balance sheets

FPSO projects increasing in size

USDm Capex Oil bbls'/day

Source: Pareto Research

As mentioned above, this development represents a challenge for FPSO

Total assets and leverage ratio

Source: Pareto Research, SBM Offshore, Modec, Prosafe Production, BW Offshore

11 Jun 2010 11(77)

Current supply/demand picture

FPSO fleet by status

FPSOs by status Other (Yard,

Source: Pareto Research, ODS Petrodata

FPSO Supply and Demand, Based on existing projects only

Idle units coming off contracts 150 150

Source: Pareto Research, ODS Petrodata

11 Jun 2010 12(77)

Utilization increasing with re-employments and scrapping

FPSO supply and utilization

Number of idle vessels coming down from record highs

Source: Pareto Research, ODS Petrodata

11 Jun 2010 13(77)

Currently Idle Units