Fred-Olsen Energy

SELL

2Q15 Results Preview 8 July 2015 Results date 10 July 2015

Share data Sector:

07/07/2015 Offshore

Reuters/Bloomberg

FOE.OL/FOE Medium

Risk Rating Outstanding shares

66

Market cap (USDm)

439

Net interest bearing debt (USDm)

1,277

Enterprise value (USDm)

1,716 48%

Free float Average volume ('000)

363

High/low 52w

170 / 53

Weight OSEBX

0.19%

Rel. Perf 3/6/12 Abs. Perf. 3/6/12

-16 / -19 / -72 -11 / -11 / -69

Estimate changes ESTIMATE CHANGES Revenues EBITDA Operating profit Pre-tax profit EPS, rep. EPS, adj. DPS

2015E 2016E Change % Curr. Prev. Curr. Prev. 2015 2016 1,081 1,103 1,076 1,100 -2% -2% 551 558 525 528 -1% -1% 177 184 138 141 -3% -2% 146 153 79 83 -4% -4% 2.07 2.16 1.14 1.18 -4% -4% 1.63 1.72 1.14 1.18 -5% -4% 0.00 0.00 0.00 0.00 n.a n.a.

Share price (NOK) vs OSEBX 200

Share Price: NOK 53 Target Price: NOK 25

Yard stays continuing in 2Q15! The 2Q15 figures for Fred. Olsen Energy (FOE) will be negatively impacted by one rig undergoing 5-year SPS (Special Periodic Survey). We expect 2Q15e EBIT of USD 58m, down from USD 66m in 1Q15 due to higher opex. While the rig market is vastly oversupplied and scrapping is long overdue, FOE has spent USD 2.2bn (NOK 250/share) in capex during 2014 & 2015 by taking five of its old rigs through the 5-year SPS and on the delivery of the two newbuilds. We believe several of the old rigs are at risk of being idle. In addition, we believe the contract for the newbuild Bollsta Dolphin is at risk of being re-negotiated or cancelled altogether. Combined, this could lead to the equity being wiped out altogether. We therefore reiterate our SELL rating and a NOK 25/share target price . There is still considerable risk related to SPS. The costs of the SPS for Byford Dolphin were recently raised to USD 190m, up 50%, while the SPS for Belford Dolphin is set to commence 3Q15 with an estimated cost of USD 130m. With a wave of relatively new rigs rolling off contracts in the floater market, with most of them having little hope of finding new work in the near term, there is even less hope for the very old assets of FOE to find employment. Scrapping in our view may have been the best alternative, but FOE is rather spending USD 800m (NOK 90/share) in capex on five of its rigs in 2014 & 2015 with an average age of 35 years in order to make sure they can continue to operate in a market where additional employment is hard to find. FOE has/is also taking delivery of two newbuilds during 2014 & 2015, with a capex of USD 1.4bn (NOK 160/share). The newbuild Bollsta Dolphin, scheduled for delivery in 3Q15, may be at risk of being further delayed which may put the 5-year contract with Chevron at risk of being cancelled altogether, or re-negotiated to a lower day-rate.

180

The combination of spending USD 800m on old rigs that may be idle and worthless soon, and the risk of a possible cancellation/re-negotiation of the Bollsta Dolphin contract, may potentially be lethal for FOE and wipe out the entire equity value. We have cut our estimates slightly due to the contract amendment for Borgsten Dolphin. We reiterate our SELL rating with a NOK 25/share target price.

160 140 120 100 80 60 40 20 0 Jul-14

Sep-14

Nov-14

Jan-15 FOE

OSEBX

Mar-15

May-15

Jul-15

Key figures (USDm) Revenues

2016E 1,076

2017E 1,023

Q214 273

Q215E 300

585

516

551

525

393

107

150

343

187

177

138

33

19

58

PTP

330

191

146

79

-20

16

47

EPS, rep

4.52

1.77

2.07

1.14

-0.31

0.10

0.67

Dividend per share

Håkon Johansen Fondsfinans AS TEL: +47 23 11 30 18 [email protected]

2015E 1,081

EBITDA

CFPS

Knut Erik Løvstad Fondsfinans AS TEL: +47 23 11 30 40 [email protected]

2014 1,184

EBIT

EPS, adj.

Prepared by analyst:

2013 1,194

4.71

2.41

1.63

1.14

-0.31

0.10

0.67

-0.41

-0.65

-1.42

0.80

3.74

-2.52

-0.05

0.00

0.00

3.30

0.00

0.00

0.00

0.00

8.9 %

0.0 %

0.0 %

0.0 %

0.0 %

EV/EBITDA

73% 5.3

0% 4.0

0% 3.1

0% 3.3

0% 4.4

EV/EBIT P/E P/B ROE ROCE NIBD/EBITDA

9.1 7.9 1.7 22% 17% 1.0

11.0 4.9 0.6 12% 8% 2.4

9.7 3.2 0.3 8% 6% 3.5

12.4 5.8 0.3 5% 4% 2.9

52.4 -21.6 0.3 -1% 1% 3.3

Dividend yield (%) Payout ratio

Source: Fondsfinans Research, Fred-Olsen Energy

FONDSFINANS AS, HAAKON VII’S GATE 2, P.O. BOX 1782 VIKA, NO-0122 OSLO, TEL: +47 23 11 30 00, FAX: +47 23 11 30 03, [email protected] This report was prepared by an analyst engaged by Fondsfinans AS, the Norwegian affiliate of Fondsfinans Inc., who is not registered as a research analyst with FINRA or subject to FINRA rules governing research. This report is not a product of Fondsfinans Inc. See page 7 of this report for Important Disclosure Information.

Backlog Drilling RIG

2015 2016 2017 2018 2019 2020 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Norway Bideford Dolphin

Statoil @ USD 432k per day

Borgland Dolphin

Consortium @ USD 480k per day

Bredford Dolphin

Consortium @ USD 402k per day

UK Byford Dolphin

BP @ USD 345.5k per day

Borgsten Dolphin (tender support)

Total @ USD 165k per day

Borgholm Dolphin (flotel)

BG @ USD 240k per day

Bollsta Dolphin

Chevron @ USD 560k per day

Borgny Dolphin

Idle @ USD 0k per day

Blackford Dolphin

Nexen @ USD 428k per day

Africa Belford Dolphin

Anadarko @ USD 495k per day

Bolette Dolphin

Anadarko @ USD 488k per day

On contract

Option

Free

SPS / Yard stay

Construction

NAV- and NPV based valuation VALUATION

We find limited support from earnings to back up asset values

Built/ upgraded

Water Depth

NPV SOTP

NPV Contract

Impl. Val.

2000 1975/99 1976/99 1977 1976 1973/98 1975/00 1974/08 1975/02 2014 2015

10,000ft 1,500ft 1,500ft 2,300ft 1,500ft 1,500ft Ten.sup. 7,000ft Flotel 12,000ft 10,000ft

72 173 271 0 121 156 131 172 2 587 636 2,322

14 109 197 0 28 77 27 145 12 198 372 1,179

124 199 298 0 124 174 174 199 50 572 572 2,486

-510 -260 -1,277

-510 -260 -1,277

-510 -260 -1,277

Net Asset Value No shares

274 66

-868 66

439 66

NAV per share (USD) NAV per share (NOK) Current share price (NOK)

4.1 33

-13.1 -105

6.6

Belford Dolphin Bideford Dolphin Borgland Dolphin Borgny Dolphin Bredford Dolphin Byford Dolphin Borgsten Dolphin Blackford Dolphin Borgholm Dolphin Bolette Dolphin Bollsta Dolphin Total Value of Fixed Assets Newbuild CAPEX SPS yard-stay CAPEX Net interest bearing debt

53.0

Source: Fondsfinans Research, Fred-Olsen Energy

Page 2

7 July 2015

Fondsfinans Research

Fred-Olsen Energy - 2Q15 Results Preview

Credit Information Credit Metrics Credit Metrics (x) Gross debt / EBITDA 12m Net debt / EBITDA 12m EBITDA / Net Interest expense EBIT / Net Interest expense Debt / Equity Equity / Total Assets Net debt / Market Cap. Market Cap. / EV Current ratio Quick Ratio

2012 1.48 1.06 17.75 10.85 1.09 0.48 0.26 0.79 0.87 0.74

2013 1.36 0.98 15.59 9.13 1.13 0.47 0.23 0.81 0.65 0.53

2014 2.82 2.43 10.28 3.72 1.65 0.38 1.60 0.38 0.79 0.62

2015E 3.66 3.46 10.62 3.42 1.73 0.37 4.35 0.19 0.67 0.54

2016E 3.24 2.94 8.82 2.32 1.46 0.41 3.51 0.22 0.80 0.65

Q214 3.00 2.54 11.08 4.99 1.74 0.37 0.11 0.90 0.74 0.59

Q314 3.16 2.80 10.14 2.78 1.73 0.37 0.14 0.88 0.89 0.70

Q414 2.82 2.43 10.28 2.87 1.65 0.38 0.23 0.81 0.79 0.62

Q115 2.50 2.23 11.27 3.37 1.55 0.39 0.29 0.77 0.63 0.48

Q215E 2.61 2.37 12.99 4.44 1.54 0.39 0.41 0.71 0.73 0.59

Debt overview

Type

Crncy

Princ.

Outst.

amount

amount

Maturity Covenants

Group debt FOE04 NOK1,400m SR Unsecured Bond

USD

181

181

May-16

Yes

FOE05 NOK 1,100m SR Unsecured Bond

USD

142

142

Feb-19

Yes

"New" credit facility USD 2Bn

USD

2,000

1,133

~Jul-20

Total Debt

USD

2,323

1,455

Covenants Covenants* Free cash Interest coverage ratio Leverage

Requirement ≥ USD 30m > 2.5 < 4.5

Description USD 65m for bank loans and USD 30m for bonds EBIT / Interest expense (12m rolling) NIBD / EBITDA (12m rolling)

Free cash ≥ USD 30m

Interest coverage ratio ˃2.5

500

10.0

400

8.0

300

6.0

200

4.0

100

2.0 0.0

0 Q213

Q114

Q414

Q315E

Q213

Q216E

Leverage < 4.5

Q114

Q414

Q315E

Q216E

Equity Ratio

5.0

60%

4.0

50% 40%

3.0

30%

2.0

20%

1.0

10%

0.0 Q213

Q114

Fondsfinans Research

Q414

Q315E

Q216E

0% Q213

7 July 2015

Q114

Q414

Q315E

Q216E

Page 3

Financials Income Statement 2013

2014

2015E

2016E

2017E

Q413

Q114

Q214

Q314

Q414

Q115

Q215E

Q315E

Q415E

Q116E

Q216E

Figures in USDm 1,149

1,112

1,036

1,032

981

288

259

257

310

286

272

288

254

223

241

260

Reimbursables

Operating revenues

46

72

45

44

42

10

19

17

25

11

12

12

11

10

10

11

Other revenues

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

Total revenues

1,194

1,184

1,081

1,076

1,023

298

278

273

335

298

284

300

265

233

251

272

-566

-597

-485

-507

-588

-172

-158

-151

-160

-130

-115

-138

-125

-108

-115

-123

-44

-71

-45

-44

-42

-9

-18

-16

-25

-11

-12

-12

-11

-10

-10

-11

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

-609

-668

-530

-551

-630

-181

-176

-167

-185

-141

-127

-150

-136

-117

-126

-134

Opex Reimbursables Other opex Total OPEX (ex. DA) EBITDA Depreciations and amortization Impairment Operating profit Interest income

585

516

551

525

393

117

102

107

151

157

157

150

129

116

126

137

-242

-329

-374

-387

-360

-60

-63

-88

-92

-87

-91

-92

-92

-99

-99

-99

0

0

0

0

0

0

0

0

-43

0

0

0

0

0

0

0

343

187

177

138

33

57

39

19

15

71

66

58

37

17

27

38

2

3

1

1

2

1

1

1

1

0

0

0

0

0

0

0

-38

-50

-52

-60

-55

-9

-11

-15

-12

-12

-12

-11

-13

-16

-16

-15

22

52

20

0

0

4

-5

11

0

46

20

0

0

0

0

0

Net finance

-13

5

-31

-59

-53

-5

-15

-3

-12

34

9

-11

-13

-16

-16

-15

Pre-tax profit

330

191

146

79

-20

52

25

16

4

104

75

47

24

1

11

23

Taxes

-6

-1

-9

-11

-9

-5

-2

-1

0

-1

Interest expenses Other

-18

-30

-8

-3

1

Minorities

1

-1

-1

-1

-1

1

0

0

0

0

0

0

0

0

0

0

Discontinued operations

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

312

160

137

75

-20

46

23

7

-8

96

70

45

23

0

10

22

2013

2014

2015E

2016E

2017E

Q413

Q114

Q214

Q314

Q414

Q115

Q215E

Q315E

Q415E

Q116E

Q216E

103 190 32 222 546

115 177 27 203 522

71 151 29 109 361

82 185 29 162 458

79 178 29 410 696

103 190 32 222 546

109 179 38 399 724

110 164 36 226 535

113 211 37 175 535

115 177 27 203 522

120 182 29 152 484

92 195 29 149 466

81 172 29 48 331

71 151 29 109 361

77 163 29 81 350

83 188 29 104 405

Rigs, machinery and equipment Goodwill Other LT assets Total non-current assets

2,476 16 27 2,519

2,902 13 31 2,946

3,543 12 31 3,586

3,244 12 31 3,287

2,972 12 31 3,015

2,476 16 27 2,519

2,596 17 27 2,640

2,823 16 27 2,866

2,796 15 28 2,839

2,902 13 31 2,946

2,990 12 31 3,033

3,100 12 31 3,143

3,620 12 31 3,663

3,543 12 31 3,586

3,466 12 31 3,509

3,389 12 31 3,432

Total assets

3,066

3,469

3,947

3,745

3,711

3,066

3,364

3,401

3,374

3,469

3,516

3,608

3,994

3,947

3,859

3,836

Equity and debt: Shareholders' equity Non-controlling interests (Minorities) Total equity

1,437 0 1,437

1,308 0 1,308

1,444 1 1,445

1,520 2 1,521

1,499 2 1,502

1,437 0 1,437

1,460 0 1,460

1,242 0 1,243

1,234 1 1,234

1,308 0 1,308

1,377 0 1,377

1,421 0 1,421

1,444 1 1,444

1,444 1 1,445

1,454 1 1,455

1,476 1 1,477

Short term interest bearing libilities Other current liabilities Total current liabilities

131 711 842

96 566 662

191 347 538

191 384 575

191 370 560

131 711 842

176 406 582

176 548 725

96 504 599

96 566 662

191 575 766

191 447 638

191 395 586

191 347 538

191 369 560

191 399 590

Long-term interest bearing debt Other non-current liabilities Total non-current liabilities

662 125 787

1,360 139 1,499

1,829 135 1,964

1,514 135 1,649

1,514 135 1,649

662 125 787

1,191 131 1,322

1,300 134 1,434

1,410 131 1,541

1,360 139 1,499

1,239 135 1,374

1,414 135 1,549

1,829 135 1,964

1,829 135 1,964

1,709 135 1,844

1,634 135 1,769

3,066

3,469

3,947

3,745

3,711

3,066

3,364

3,401

3,374

3,469

3,516

3,608

3,994

3,947

3,859

3,836

2013

2014

2015E

2016E

2017E

Q413

Q114

Q214

Q314

Q414

Q115

Q215E

Q315E

Q415E

Q116E

Q216E

299 242 -60 16 497

118 372 85 -205 370

138 374 -249 48 311

76 387 -7 0 456

-19 360 -4 0 336

46 60 -13 45 137

24 63 5 11 102

7 88 41 -17 118

-8 135 14 -126 15

96 87 26 -73 135

70 91 -100 48 108

45 92 -113 0 24

23 92 -19 0 96

1 99 -17 0 83

10 99 4 0 114

22 99 -1 0 120

Rig capex Rigs sold Other investments CF from investments

-212 1 0 -211

-941 0 0 -941

-995 2 0 -993

-88 0 0 -88

-88 0 0 -88

-63 1 0 -62

-495 0 0 -495

-181 0 0 -181

-134 0 0 -134

-131 0 0 -131

-159 2 0 -157

-202 0 0 -202

-612 0 0 -612

-22 0 0 -22

-22 0 0 -22

-22 0 0 -22

Debt raised Debt repayed Issuance of equity Dividend paid Other CF from financing

115 -191 0 -226 0 -302

1,934 -1,183 0 -223 0 528

685 -95 0 0 0 590

100 -415 0 0 0 -315

0 0 0 0 0 0

0 -50 0 0 0 -50

632 -63 0 0 0 569

152 -32 0 -223 0 -102

1,150 -1,089 0 0 0 61

0 0 0 0 0 0

0 0 0 0 0 0

175 0 0 0 0 175

510 -95 0 0 0 415

0 0 0 0 0 0

0 -120 0 0 0 -120

100 -175 0 0 0 -75

Net profit

0

Balance Sheet Assets: Inventories Account receivables Other current assets Cash and short-term deposits Total current assets

Equity and liabilities

Cash Flow Cash earnings Depreciation & amortization ∆ Working capital Other items CF from operations

Currency effects on cash

-11

-1

-2

0

0

-7

0

-1

0

0

-2

0

0

0

0

0

Net cash flow

-27

-43

-94

53

248

17

177

-167

-58

5

-51

-3

-101

61

-28

23

Source: Fondsfinans Research, Fred-Olsen Energy

Page 4

7 July 2015

Fondsfinans Research

Fred-Olsen Energy - 2Q15 Results Preview

Segments REVENUES PER SEGMENT Offshore Drilling Engineering & Fabrication Eliminations Total revenues

2013 1,153 51 -9 1,194

2014 1,158 92 -66 1,184

2015E 1,060 55 -34 1,081

2016E 1,054 23 0 1,076

2017E 999 24 0 1,023

Q413 281 25 -8 298

Q114 267 48 -38 278

Q214 266 24 -16 273

Q314 331 14 -9 335

Q414 295 6 -3 298

Q115 280 38 -34 284

Q215E 291 9 0 300

Q315E 260 5 0 265

Q415E 230 3 0 233

Q116E 247 4 0 251

Q216E 262 9 0 272

OPEX PER SEGMENT* Offshore Drilling Engineering & Fabrication Eliminations Total opex

2013 -560 -58 9 -609

2014 -638 -77 47 -668

2015E -511 -51 32 -530

2016E -530 -21 0 -551

2017E -608 -22 0 -630

Q413 -158 -31 8 -181

Q114 -163 -44 32 -176

Q214 -157 -19 9 -167

Q314 -178 -10 3 -185

Q414 -139 -4 3 -141

Q115 -124 -35 32 -127

Q215E -142 -8 0 -150

Q315E -132 -4 0 -136

Q415E -114 -3 0 -117

Q116E -122 -4 0 -126

Q216E -125 -9 0 -134

*Operating expenses excluding depreciation and amortization

EBITDA PER SEGMENT Offshore Drilling Engineering & Fabrication Eliminations Total EBITDA

2013 592 -7 0 585

2014 521 15 -19 516

2015E 549 4 -1 551

2016E 524 2 0 525

2017E 391 2 0 393

Q413 123 -6 0 117

Q114 104 4 -6 102

Q214 108 5 -7 107

Q314 153 4 -6 151

Q414 156 2 0 157

Q115 156 2 -1 157

Q215E 149 1 0 150

Q315E 128 0 0 129

Q415E 115 0 0 116

Q116E 125 0 0 126

Q216E 137 1 0 137

EBITDA PER RIG Belford Dolphin Bideford Dolphin Borgland Dolphin Borgny Dolphin Bredford Dolphin Byford Dolphin Borgsten Dolphin Bolette Dolphin Blackford Dolphin Borgholm Dolphin Bollsta Dolphin EBITDA rigs Net reimbursables EBITDA (Offshore Drilling)

2013 110 70 119 43 66 86 33 -31 16 35 0 548 2 550

2014 89 52 69 -4 76 63 40 59 31 36 -3 509 1 510

2015E 44 80 76 -5 48 36 37 89 103 28 -18 518 0 519

2016E -14 81 95 -6 -1 56 27 87 102 -2 98 524 0 524

2017E 10 10 90 -6 18 19 29 85 13 -2 125 391 0 391

Q413 27 17 30 11 21 22 10 -13 -24 16 0 117 1 118

Q114 22 22 27 11 19 0 10 -14 -10 10 0 96 1 97

Q214 22 1 27 -3 20 21 10 24 -11 2 0 114 0 114

Q314 22 7 26 -11 20 21 10 26 26 9 0 158 0 158

Q414 22 21 -11 -1 17 21 10 22 26 15 -3 140 0 141

Q115 22 19 4 -1 17 -4 10 22 25 14 -3 126 0 126

Q215E 22 19 24 -1 17 -2 10 22 26 15 -3 149 0 149

Q315E -7 19 24 -1 17 21 10 22 26 0 -3 128 0 128

Q415E 6 22 25 -1 -3 21 7 22 26 0 -9 115 0 115

Q116E 6 20 24 -1 -3 21 7 22 25 0 5 125 0 125

Q216E -7 19 23 -1 -3 21 7 22 25 0 31 137 0 137

AVG DAYRATES ($'000) Belford Dolphin Bideford Dolphin Borgland Dolphin Borgny Dolphin Bredford Dolphin Byford Dolphin Borgsten Dolphin Bolette Dolphin Blackford Dolphin Borgholm Dolphin Bollsta Dolphin Average dayrates

2013 480 387 533 244 385 340 202 0 270 229 0 341

2014 489 459 507 123 425 346 202 366 436 242 0 359

2015E 441 436 482 0 302 346 193 488 428 120 140 337

2016E 242 442 489 0 124 300 165 488 428 0 560 360

2017E 237 246 496 0 259 172 172 488 172 0 560 311

Q413 480 383 528 247 434 346 202 0 0 242 0 358

Q114 489 463 522 247 433 346 202 0 419 242 0 374

Q214 489 466 518 247 436 346 202 488 467 242 0 390

Q314 489 459 506 0 429 346 202 488 428 242 0 399

Q414 489 448 480 0 402 346 202 488 428 240 0 391

Q115 489 432 480 0 402 346 202 488 428 240 0 390

Q215E 489 428 480 0 402 346 202 488 428 240 0 389

Q315E 496 428 480 0 402 346 202 488 428 0 0 409

Q415E 288 455 487 0 0 346 165 488 428 0 560 402

Q116E 288 438 487 0 0 346 165 488 428 0 560 400

Q216E 227 434 487 0 0 346 165 488 428 0 560 392

AVG OPEX PER DAY ($'000) Belford Dolphin Bideford Dolphin Borgland Dolphin Borgny Dolphin Bredford Dolphin Byford Dolphin Borgsten Dolphin Bolette Dolphin Blackford Dolphin Borgholm Dolphin Bollsta Dolphin Total

2013 154 175 180 114 184 87 80 84 185 51 0 129

2014 220 195 195 90 195 97 81 189 119 55 8 131

2015E 166 195 195 15 154 100 81 220 120 30 49 120

2016E 75 200 200 15 108 102 82 226 123 5 191 121

2017E 195 197 206 16 195 103 83 231 126 5 194 141

Q413 158 175 180 118 188 91 80 140 260 55 0 145

Q114 220 195 195 115 195 86 81 160 115 55 0 142

Q214 220 195 195 115 195 100 81 195 120 55 0 147

Q314 220 195 195 115 195 100 81 180 120 55 0 146

Q414 220 195 195 15 195 100 81 220 120 55 30 130

Q115 220 195 195 15 195 100 81 220 120 55 30 130

Q215E 220 195 195 15 195 100 81 220 120 55 30 130

Q315E 150 195 195 15 195 100 81 220 120 5 35 119

Q415E 75 195 195 15 30 100 81 220 120 5 100 103

Q116E 75 200 200 15 30 102 82 226 123 5 165 111

Q216E 75 200 200 15 30 102 82 226 123 5 200 114

AVERAGE UTILIZATION (%) Belford Dolphin Bideford Dolphin Borgland Dolphin Borgny Dolphin Bredford Dolphin Byford Dolphin Borgsten Dolphin Bolette Dolphin Blackford Dolphin Borgholm Dolphin Bollsta Dolphin Total

2013 95% 95% 95% 95% 95% 95% 84% 0% 64% 62% 0% 87%

2014 95% 74% 75% 32% 95% 78% 95% 71% 47% 64% 0% 73%

2015E 64% 95% 84% 0% 71% 57% 95% 95% 94% 45% 0% 78%

2016E 13% 95% 94% 0% 42% 78% 95% 95% 94% 0% 82% 76%

2017E 94% 91% 91% 0% 94% 90% 94% 95% 94% 0% 96% 93%

Q413 95% 95% 95% 95% 95% 95% 95% 0% 0% 95% 0% 95%

Q114 95% 95% 95% 95% 95% 25% 95% 0% 0% 67% 0% 83%

Q214 95% 45% 95% 33% 95% 95% 95% 95% 0% 33% 0% 76%

Q314 95% 60% 95% 0% 95% 95% 95% 95% 94% 65% 0% 88%

Q414 95% 95% 15% 0% 95% 95% 95% 95% 95% 90% 0% 86%

Q115 95% 95% 50% 0% 95% 15% 95% 95% 94% 90% 0% 80%

Q215E 95% 95% 95% 0% 95% 24% 95% 95% 94% 90% 0% 86%

Q315E 15% 95% 95% 0% 95% 95% 95% 95% 94% 0% 0% 85%

Q415E 50% 95% 95% 0% 0% 95% 95% 95% 94% 0% 0% 88%

Q116E 50% 95% 95% 0% 0% 95% 95% 95% 94% 0% 40% 82%

Q216E 0% 95% 94% 0% 0% 95% 95% 95% 94% 0% 96% 95%

Source: Fondsfinans Research, Fred-Olsen Energy

Fondsfinans Research

7 July 2015

Page 5

Analyst: Knut Erik Løvstad, Tel. + 47 23 11 30 40 Håkon Johansen, Tel. + 47 23 11 30 18

Fred.Olsen Energy Date: Next result: Recommendation: Target (NOK): Target (USD)

Price (NOK): Price (USD): Book equity per share: Equity ratio: 12 month high/low:

07 Jul 2015 SELL 25 3.1

53.00 6.63 21 39% 170 / 53

Sector: Shares outstanding: Market cap (USDm): Net int.-bearing debt (USDm): Enterprise value (USDm):

Offshore 66.3 439 1,277 1,716

Income statement (USDm)

2012

2013

2014

2015E

2016E

2017E

Q214

Q314

Q414

Q115

Q215E

Contract revenues Other revenues Total revenues

1,140 41 1,181

1,149 46 1,194

1,112 72 1,184

1,036 45 1,081

1,032 44 1,076

981 42 1,023

257 17 273

310 25 335

286 11 298

272 12 284

288 12 300

Operating expenses EBITDA

-583 598

-609 585

-668 516

-530 551

-551 525

-630 393

-167 107

-185 151

-141 157

-127 157

-150 150

Depreciation & Amortization Operating profit

-233 366

-242 343

-329 187

-374 177

-387 138

-360 33

-88 19

-92 15

-87 71

-91 66

-92 58

Net financial items Pre-tax profit

-48 318

-13 330

5 191

-31 146

-59 79

-53 -20

-3 16

-12 4

34 104

9 75

-11 47

Taxes Minorities Discontinued operations Net profit (reported)

-14 0 0 303

-18 1 0 312

-30 -1 0 160

-8 -1 0 137

-3 -1 0 75

1 -1 0 -20

-9 0 0 7

-11 0 0 -8

-9 0 0 96

-5 0 0 70

-2 0 0 45

2012

2013

2014

2015E

2016E

2017E

Q214

Q314

Q414

Q115

Q215E

480 396 531 242 361 326 222

489 459 507 123 425 346 202 366 436 242 364

441 436 482 0 302 346 193 488 428 120 366

242 442 489 0 124 300 165 488 428 0 294

237 246 496

489 466 518 247 436 346 202 488 467 242 386

489 459 506

489 448 480

489 432 480

489 428 480

353 204 365

480 387 533 244 385 340 202 0 361 229 367

429 346 202 488 428 242 405

402 346 202 488 428 240 394

402 346 202 488 428 240 392

402 346 202 488 428 240 391

96% 94% 96% 95% 88% 96% 62%

95% 95% 95% 95% 95% 95% 84%

64% 95% 84%

13% 95% 94%

94% 91% 91%

95% 60% 95%

95% 95% 15%

95% 95% 50%

95% 95% 95%

64% 62% 93%

71% 57% 95% 95% 94% 45% 78%

42% 78% 95% 95% 94%

94% 90% 94% 95% 94%

95% 45% 95% 33% 95% 95% 95% 95%

94% 90% 89%

95% 74% 75% 32% 95% 78% 95% 71% 47% 64% 78%

69%

92%

33% 79%

95% 95% 95% 95% 94% 65% 89%

95% 95% 95% 95% 95% 90% 82%

95% 15% 95% 95% 94% 90% 74%

95% 24% 95% 95% 94% 90% 83%

2012 66.3 211.3

2013 66.3 225.4

2014 66.3 81.2

2015E 66.3 53.0

2016E 66.3 53.0

2017E 66.3 53.0

Q214 66.3 170.4

Q314 66.3 143.6

Q414 66.3 81.2

Q115 66.3 65.4

Q215E 66.3 53.0

EPS reported EPS adjusted Op. CF - net capex per share CFPS

4.70 4.58 0.00 0.00

4.52 4.71 4.30 -0.41

1.77 2.41 -8.61 -0.65

2.07 1.63 -10.31 -1.42

1.14 1.14 5.55 0.80

-0.31 -0.31 3.74 3.74

0.10 0.10 -0.96 -2.52

-0.12 -0.12 -1.80 -0.87

1.44 1.44 0.07 0.07

1.05 0.61 -0.76 -0.77

0.67 0.67 -2.69 -0.05

EV/EBITDA EV/EBIT P/E, rep. P/E, adj. P/B ROE ROCE

5.2 8.5 8.1 8.1 1.8 44% 37%

5.3 9.1 7.9 7.9 1.7 22% 17%

4.0 11.0 4.9 4.9 0.6 12% 8%

3.1 9.7 3.2 4.1 0.3 8% 6%

3.3 12.4 5.8 5.8 0.3 5% 4%

4.4 52.4 -21.6 -21.6 0.3 -1% 1%

Sensitivity EPS, adj.

2016E

2017E

BASE ESTIMATE + 5% Revenue growth + 1% EBITDA margin

1.14 0.29 0.11

-0.31 0.21 0.11

2012 2,325 534 2,859 1,366 878 614

2013 2,519 546 3,066 1,437 787 842

2014 2,946 522 3,469 1,308 1,499 662

2015E 3,586 361 3,947 1,444 1,964 538

2016E 3,287 458 3,745 1,520 1,649 575

2017E 3,015 696 3,711 1,499 1,649 560

Book equity / share Equity ratio Net interest bearing debt Net int. bear. debt / EBITDA

20.6 47.8 % 636 1.1

21.7 46.9 % 571 1.0

19.7 37.7 % 1,252 2.4

21.8 36.6 % 1,911 3.5

22.9 40.6 % 1,543 2.9

22.6 40.5 % 1,294 3.3

Cash flow statement Cash flow from operations Cash flow from investments Cash flow from financing Free cash flow

2012 0 0 0 0

2013 497 -211 -302 -27

2014 370 -941 528 -43

2015E 311 -993 590 -94

2016E 456 -88 -315 53

2017E 336 -88 0 248

Segment information Contracted Day Rates Belford Dolphin Bideford Dolphin Borgland Dolphin Borgny Dolphin Bredford Dolphin Byford Dolphin Borgsten Dolphin Bolette Dolphin Blackford Dolphin Borgholm Dolphin Average dayrates Utilization rates (%) Belford Dolphin Bideford Dolphin Borgland Dolphin Borgny Dolphin Bredford Dolphin Byford Dolphin Borgsten Dolphin Bolette Dolphin Blackford Dolphin Borgholm Dolphin Average utilization Key figures and valuation No. of shares, avg m Price (NOK)

Balance Sheet Data Non-current assets Current assets Total assets Equity Non-current liabilities Current liabilities

Page 6

7 July 2015

259 172 172 488 172 0 264

2015-05-18 10 largest shareholders Name No. shares % 17.314 26.1 % Bonheur Asa Ganger Rolf Asa 17.314 26.1 % 2.170 3.3 % Clearstream Banking S.A. Folketrygdfondet 2.447 3.7 % Euroclear Bank S.A./N.V. ('Ba') 1.474 2.2 % Schroder International Selec Tion 1.159 1.7 % J.P. Morgan Chase Bank N.A. Londo 1.060 1.6 % Bnp Paribas Sec. Services S.C.A 0.929 1.4 % Nordnet Bank Ab 0.913 1.4 % J.P. Morgan Chase Bank N.A. Londo 0.857 1.3 % 45.637 68.8 % Total 10 largest 20.663 31.2 % Others Total 66.300 100.0 %

Fondsfinans Research

Fred-Olsen Energy - 2Q15 Results Preview

Definitions of ratings Buy Neutral

Low risk: with a potential of min 5%. Medium risk: with a potential of min 10%. High risk: with a potential of min 20%. Low risk: -5% to +5%. Medium risk: -10% to +10%. High risk: -20% to + 20%.

Sell

Low risk: min -5%. Medium risk: min -10%. High risk: min -20%.

Risk ratings are based on price volatility, fundamental criteria and perceived risk. Ratings are: Low (L), Medium (M) and High (H). Target: Our valuation as of today. Time frame of target: Target is what we value the share as of today.

Recommendation distribution as of 30.06.15:

Companies in each recommendation category that have been investment banking clients over the past 12 months:

Recommendation Buy Neutral Sell Total

Recommendation Buy Neutral Sell Total

No 40 10 12 62

Percent 65 % 16 % 19 % 100 %

No 1 1 0 2

Percent 3% 10 % 0%

Our intention is to issue preview and update research on a quarterly basis. Our investment recommendation is elaborated in accordance with “The Norwegian Securities Dealers Associations” standards. This report has not been sent to the companies for correction of any factual errors. Fondsfinans is organized with Chinese walls between the Corporate Department and the Research/Broking Department. In addition, Fondsfinans has internal instructions and guidelines for handling sensitive information. The analyst receives compensation that is impacted by overall firm profitability, including investment banking activities. Fondsfinans is under supervision of The Financial Supervisory Authority of Norway. The recommendation has not been changed from SELL. The previous recommendation was issued 21.05.15

Ownership per 01.07.15 in Fred-Olsen Energy ASA: Analyst (including his/her closely related persons or companies): 0, corresponding to 0% of the company share capital Employees (including their respective closely related persons or companies): 0, corresponding to 0% of the company share capital Group Fondsfinans (including the holdings of its Chairman, his spouse and their closely related companies, Erik Must AS and its 100% controlled subsidiaries): 0, corresponding to 0% of the company share capital. Fondsfinans may hold shares in Fred-Olsen Energy ASA as a result of daily trading/market making. Information on such holdings is not given when of non-significant value. Fondsfinans does not act as market maker in Fred-Olsen Energy ASA. Fondsfinans has not acted as corporate adviser, lead manager in IPO etc. during the past 12 months. This report was issued and distributed 07.07.15.

DISCLAIMER This report is provided for information purposes only. It should not be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Any opinions expressed are subject to change without prior notice. This report is based on information from various sources believed to be reliable. Although all reasonable care has been taken to ensure that the information herein is not misleading, Fondsfinans AS makes no representation or warranty expressed or implied as to its accuracy or completeness. Neither Fondsfinans AS, its partners and employees, nor any other person connected with it, accepts any liability whatsoever for any direct or consequential loss of any kind arising out of the use or reliance on the information in this report. This report is prepared for general circulation and general information. It does not take into account the specific investment objectives and financial situation of any recipient. Investors seeking to buy or sell any securities discussed or recommended in this report, should seek independent financial advice relating thereto. This report may not be distributed, quoted from or reproduced for any purpose without written approval by Fondsfinans AS. DISCLOSURE OF INTERESTS Fondsfinans AS is constantly seeking investment-banking mandates, and may at any time perform investment banking or other services or solicit investment banking or other mandates from the company or companies covered in this report. Fondsfinans AS may from time to time as part of its investment services hold positions in securities covered in this report. Under our internal regulations, our analysts are not permitted to purchase new securities in the companies they cover. Holdings are specified as part of shareholder information in each report. DISTRIBUTION IN THE US Research reports are prepared by Fondsfinans AS for information purposes only. Fondsfinans AS and its employees are not subject to the Rules of the Financial Industry Regulatory Authority (FINRA) governing research analyst conflicts. The research reports are intended for distribution in the United States solely to “major U.S. institutional investors” as defined in Rule 15a-6 under the United States Securities Exchange Act of 1934, as amended and may not be furnished to any other person in the United States. Each major U.S. institutional investor that receives a copy of a Fondsfinans AS research report by its acceptance thereof represents and agrees that it shall not distribute or provide copies to any other person. Reports are prepared by Fondsfinans AS and distributed to major U.S. institutional investors under Rule 15a-6(a)(2). These research reports are prepared by Fondsfinans ASA and distributed in the United States by Fondsfinans Inc. under Rule 15a-6(a)(2). Any U.S. Person receiving these reports that desires to effect transactions in any securities discussed within the report should call or write Fondsfinans Inc., a member of FINRA.

Fondsfinans Research

7 July 2015

Page 7