a brief overview of the me offshore market time to invest?

A brief Overview of the ME Offshore Market

Time to invest?

Dubai 7 March 2012

Geir Sjurseth, Managing Director, DVB Bank SE

DVB Global Offshore Support Group

Introducing DVB

DVB Overview

• European Company (SE), listed on the Frankfurt Stock Exchange

• 95% owned by DZ Group (largest co-operative banking group in Germany)

• Over 500 professionals, all specialising in transport finance

• Over 500 clients worldwide, all active in the transport sector

Global Presence Through 13 Offices Market Approach

AviationShipping Land Transport

Structured Asset Financing

Advisory and M&A

Asset Management

Risk Distribution

Loan Participations

Asset & Market Research

EUR 1.16bn

Market Capitalisation

$ 27.3bn / EUR 20.7bn

Total Loan Book

EUR 84.6m / 98.0m

Net Profit Sep. 2011 / Sep. 2010

19.3%

Basel II Core Capital Ratio

A+

Long Term Debt (Standard & Poor’s)

A-1

Short Term Debt (Standard & Poor’s)

Key Facts

AMERICA EUROPE ASIA / PACIFIC

New York

Curaçao Singapore

Tokyo

HamburgFrankfurt/MainZurich

Bergen/Oslo

Piraeus

RotterdamCardiff London


11 Offshore Support Group (AHTS, PSV, subsea, diving and heavy lift vessels, others)

DVB Shipping Finance Division - Seven Global Sector Groups

Crude Oil & LNG Tanker Group (crude oil and Liquefied Natural Gas tankers)33

Chemical, LPG and Product Tanker Group(chemical, specialist, Liquefied Petroleum Gas, product and asphalt/bitumen tankers)44

Dry Bulk Group(barges, dry cargo, combination and bulk carriers)55

22 Offshore Drilling and Production Group (jack-ups, drill ships, semi-subs, FPSO, FSO, FPU)

Container Business Group(container vessels, container boxes, car carriers, reefers)66

Cruise & Ferry Group (ferries, yachts, ocean/river cruise, RoRo’s)77


Overview of the Offshore Support Sector

Offshore Support Segments

Crew Accommodation

• Jack-up Platforms

• Semisubmersible Platforms

• Mono-hull Vessels

• Accommodation Barges

• Hybrids

Accommodation

Transport

• Float on / Float off (Flo / Flo)

• Lift on / Lift off (Lo / Lo)

• Roll on / Roll off (Ro / Ro)

• Semi-submersible Heavy Lift Barge

Heavy Lift

Seabed Installation

• Diving Support Vessel (DSV)

• Lay Support Vessel

• ROV Support Vessel

• Lay Barge

• Reel Lay Vessel

• Well Intervention Vessels

• Derrick Barge

• Pipe Carrier

Subsea & Construction

Hydrocarbon Exploration

• Seismic Survey Vessel (SSV)

• Electro Magnetic Survey Vessel

Seismic

Supply & Anchor Handling

Supply

• Anchor Handling Tug (AHT)

• Anchor Handling, Tug & Supply (AHTS)

• Platform Supply Vessel (PSV)

• Crew Boat

• Stand-by Vessel

• Emergency Response Rescue Vessel (ERRV)

• Utility Vessel


Restructuring

Financing

Ability to finance Mexican and Brazilian flag vessels

S&P and Newbuild Finance

Sale & Leasebacks, Acquisition Finance and Mezzanine Finance

Advisory and M&A

Ship Sale & Purchase

Mergers & Acquisitions (M&A)

Debt & Equity Capital Raisings

Shipping / Offshore Investment Fund

Structured Equity and Mezzanine Finance

Equity Investments

Sale & Leasebacks

DVB’s Offshore Support Group

Offshore Support Group


Agenda

1 A Brief Overview of the OSV Market

2 Time to Invest?


215

273

349

454

395

467

544595

637

2005 2006 2007 2008 2009 2010 2011E 2012E 2013E

16%

9%7%

Global Offshore Market Overview

Oil Prices & Energy Demand

E&P Capex Rig Market OSV Demand

Crude Oil Prices Global E&P Capital Expenditure

OSV Market Demand Chain:

Key demand drivers remain in place ...

35.8 49.9 55.7 67.9 58.3 70.2 77.3 84.7

-

30

60

90

120

150

2005 2006 2007 2008 2009 2010 2011 2012

US

D/b

arre

l

Oil companies' average oil price forecast Oil price


41

76

14

2

10

38

6 2

7 13

1 1

Bal.2011 2012 2013 2014

5 - 9,999 bhp 10 - 17,999 bhp > 18,000 bhp

Delivery Schedule

PSV Delivery Schedule (December 2011) AHTS Delivery Schedule (December 2011)

• The orderbook for PSVs represents 30% of the existing fleet in dwt term

• Most PSV orders are placed for vessels greater than 2,000 dwt (85%)

• Delivery of 26 PSVs >4,000 dwt of total 56 in 2011, compared to 14 of total 82 in 2010

• The orderbook for AHTS represents 13% of the existing fleet in bhp terms

• Particularly in the small size categories the orderbook seems too large

• Delivery of 23 AHTSs >10,000bhp of total 176 in 2011, compared to 17 of total 261 in 2010

… but recent deliveries and remaining orderbook will continue to put pressure on utilisation

4

26

9 13

48

22

5

17

58 57

12

Bal.2011 2012 2013 2014

< 1,999 dwt 2 - 3,999 dwt > 4,000 dwt


Source: DVB Research and Strategic Planning

Global Outlook 2012+

Prospects By Region and Vessel Type

PSV (dwt) AHTS (bhp)

< 2,000 2-2,999 3-3,999 4-4,999 >5,000 < 2,000 2-3,999 4-5,999 6-7,999 8-9,999 10-14,999 15-19,999 >20,0000

Asia Pacific Poor Average Average Good Good Poor Poor Low Low Average Good Good Good

South America Poor Poor Good High High Poor Poor Low Low Average Good High High

West Africa Poor Poor Good High High Poor Poor Low Low Average High High High

Middle East Low Average Good Low Low Poor Poor Average Average Good Good Low Low

Australasia Poor Low Good High High Poor Poor Low Low Average Good High High

NW Europe Poor Poor Average Good High Poor Poor Poor Poor Low Average Good Good

Med / Black Sea Poor Average Good Average Average Poor Poor Average Average Average Average Low Low

US GoM Poor Poor Average Good High Poor Poor Low Low Average Good High High

Mexico Poor Poor Good Good Good Poor Poor Average Average Average Good Good Good

Current market expectations favor sophisticated vessels


Agenda

1 Brief Outlook & Why Sector is Attractive for Investors & Consolidation

2 Time to invest?


What we’re seeing in the BANK market

Operator/corporate - 2nd hand/NB contracting

KSs - On the road again PIs – PE/equity raise

• Strategic purchases of specialised vessels

• Rush to contract large PSV NBs – is next thing AHTSs again?

• Attractive yard terms with limited equity up front

• Many new OSV players popping up going for 5150 AHTS and mid sized PSVs

• Driven by perceived good investment returns, PSVs asset play

• In many cases no industry sponsor

• Look for 50-60% debt, good yard terms

• Clearly speculative – to the detriment of industry operators

• May not get financing

• Driven by perceived good investment returns – low point in cycle, no employment.

• Some time new entrants with colourful business plans

• Can document large NB haircuts v market..

• Look for post del fin and sometimes also LC for pre del.

• May not get financing


Company cash flow/vessel mortgage capacity

Options and availability of funding to OSV owners

Bank debt

Capital markets

Private equity

ECAs

Chinese banks..

Means of CAPEX Outlook Comment

Applies only to a few

Very selective

Under utilised but peak is passed

If local content

Still under pressure

Still under pressure


Oslo Stock Exchange Indicators

Indexes Since 2006 – the trough is behind us but..

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

02.01.06 14.08.06 20.03.07 29.10.07 12.06.08 20.01.09 31.08.09 12.04.10 16.11.10 29.06.11 31.01.12

OBX Energy Equipment & Services Marine


Some regional companies

C.S. Offshore DMC

Conventional & local/regional

Specialised &regional/ global


The Middle East OSV industry

Key headlines or headaches?

World wide oversupply still a problem – more than 430 OSV NBs to be delivered by 2015

Middle East - 314 AHTSs and very few AHTS NB orders (5-7000bhp)

74 vessels >30 years, the world’s 2nd largest old vintage fraction..

Still downward pressure on utilisation and rates – contrary to rest of world

IRAN – a big headache Many players and no

consolidation Recourse and vessel

employment is critical to banks

# Utilisation

RIGs 120 84%

AHTSs 396 72%

PSVs 133 68%IHS/Maersk Jan 2012


Consolidation Prospects

Fragmented OSV Universe

OSV Growth Private EquityInterest &

Pricing

• NBs & resales only

• Sales of older vessels at profits

• Relatively & surprisingly few M&A deals to spur scale

• Growing number of investors attracted to an energy sustainable industry

• But are they prepared?

• >150 companies - 25% listed – Market Cap of [$30m - $2.5bn]

• Many are controlled by founding families

• CAPEX needs, positive energy market outlook

• US companies’ interest in high tech Norwegian companies

• Driven by cash flow multiple pricing in rising markets

• Attractive returns are achievable

Growth New Markets Scale Bargaining Power

• Access to employment in cabotage markets

• Reduced OPEX / Crew costs though operational mobility

• Reduced cost of funds

• Access to right tonnage • Impact on rates

Offshore Support Industry Characteristics

Traditional Consolidation Drivers

Unlikely


Some Response to Consolidation Drivers...

Drivers Examples Prospects

Fleet Growth / New Tonnage

Strengthen Regional Position

Enter Offshore

Private Equity

• Fleet acquisitions or newbuilds often a cleaner way to grow

than corporate acquisitions. Acquisition to get access to

new/young fleet

• Jones Act /modern fleet

Restis Group

• Makes sense in regions with regulatory barriers such as

Brazil

• Also a way of acquiring people in target regions

• Increasingly seen as a good diversification from

conventional shipping sectors which are experiencing tough

times

• Typically do not like asset heavy companies

• Liquid assets with contracts / listable companies are of

interest


And further fragmentation of the OSV industry

New kids on the block ...

Winning contracts with oil majors

• 10+ new OSV players entered the market during

2011, most with limited or no track record

• Long term contracts with oil majors such as

Petrobras

Lack of Barriers to Entry

• Little age limitation on vessels imposed by charterers

• Oil majors encouraging more competition by awarding contract to new entrants

• Is industry, or part of, getting commoditized?

Newbuild over Acquisition

• Owners prefer newbuildings over corporate

acquisitions

Ignore Benefits of Consolidation

• How will next downturn impact the

industry?


Summary

MARKET - While the cycle trough is behind us – it’s a fragile recovery

STRATEGY - ME seems to be for the ME – less prone to regionalisation/globalisation

OPERATORS – many and fragmented, easy rate target for the charterers

RISK – vulnerable to weaker prospects

Local industry needs equity to secure current operations and CAPEX

More “dynamic” strategy/consolidation discussions need to take place

ME owners need to find ways to better integrate, take advantage of the greater market

Recovery is on – timing is now!


Thank you for your [email protected]

a brief overview of the me offshore market time to invest?

Documents

offshore market time

dwt of total

global sector groupspage

dvb bank sepage

bhp of total

acquisition finance

ahts delivery schedule

existing fleet