Magnora ASA

SEVAN MARINE ASA - Third Quarter 2016 Results

Main events and developments, Third Quarter 2016

- Focus on UK sector FPSO prospect and FLNG

study with oil major

Sevan Marine has continued to provide engineering

support for the UK sector FPSO prospect during the

quarter. Sevan Marine will continue to support the

project through 2016 and 2017. Payments under the

License Agreement remain subject to the field

developers' final investment decision and start of

construction of the unit, which is now expected late

The FLNG feasibility study for a specific FLNG field

development with a US oil major continued during the

quarter and is expected to run through the end of

2016. Sevan Marine expects that the project will

continue through 2017.

- Continued work on existing projects

Sevan Marine continued to provide engineering and site

support services for the Goliat, Logitel Offshore and

Dana Western Isles projects. Work on the Logitel

Offshore project ended in Q3 2016 as the construction

contracts with the yard in China have been cancelled.

The work for Sevan Marine on the Goliat project is

declining and expected to finish in the coming months

with the vessel now successfully producing in the

Barents Sea.

Sevan Marine is entitled to a variable license fee

linked to production with respect to the Dana Western

Isles project. Sevan Marine continues to support the

construction of the vessel at the COSCO yard in China,

and Dana has announced that the FPSO will not commence

production before the second half of 2017.

- Progress on new developments

Sevan Marine continued to work on new applications for

its cylindrical technology, including participating in

the Clean Electricity Production from Offshore Natural

Gas (CEPONG) study being supported by the Scandinavian

research institute SINTEF and other industrial

partners. The CEPONG study includes evaluating the use

of a cylindrical hull as an offshore natural gas power

plant with CO2 capture and reinjection.

Sevan Marine also continued development work on its

ultra-deepwater application using steel catenary

risers (SCRs). Sevan Marine hopes to obtain approval

to use its unique cylindrical design with steel

catenary risers as a non-disconnectable FPSO with the

ability to retain cargo during a Hurricane. This would

be a first in the US Gulf of Mexico and Sevan Marine

believes it will provide a substantially cheaper

solution compared to the disconnectable, turret based

solutions used today.

- Increased study activity

The industry focus on cost-effective solutions and

increased acceptance of the Sevan Marine cylindrical

design is leading to increased early phase study work.

During the quarter, Sevan Marine was awarded a study

from OMV Norge AS to evaluate the Sevan Marine

cylindrical hull design for application on the Wisting

field development in the Barents Sea. In addition,

Sevan Marine completed a study for an oil major

regarding the use of the Sevan Marine design for a gas

development in the Caribbean.

The Sevan Marine cylindrical design is widely seen by

oil majors around the world as a credible and proven

alternative to other floating installation designs.

The inherent advantages are well understood. Amongst

these are excellent motion characteristics, lower

operating costs, high deck load capacity, large

storage space and substantial lower construction cost

compared with alternatives when a turret is needed.

Sevan Marine remains optimistic that the increased

industry focus on cost-effective solutions will

continue to lead to increased study work for the

Company as the market improves.

- Further cost reductions

In order to align the organization with the expected

lower activity in the industry in 2017, further cost

reduction initiatives were started in Q3. An

additional headcount reduction of 10 to 15 people will

be carried out in Q4 2016. A change in leadership was

announced in October 2016 which will take effect from

January 01, 2017 with the CEO Carl Lieungh stepping

down and the current CFO Reese McNeel assuming the

role as CEO and CFO. As a result of these

restructuring measures, the Company will take a one-

off restructuring charge in Q4 2016 in the range of

USD 1.0 to 1.5 million. The Company has taken

substantial cost reduction measures over the past 24

months including reductions in staff and overhead cost

of more than 50 percent.

- HiLoad

HiLoad LNG continued the marketing and development of

both the HiLoad LNG offloading system for FLNG and the

Floating Regas Dock ("FRD") for small scale

regasification projects. With respect to the FRD,

initial Pre-FEED work for the Vires Energy Corporation

project in the Philippines was completed in Q2 2016.

HiLoad LNG is currently in discussions with Vires

regarding future cooperation. The FRD has attracted

substantial interest. The FRD is a cost effective

alternative to standard FSRU solutions, particularly

for small scale regasification projects.

- Positive Performance of KANFA

The KANFA group saw improved results in the quarter

driven by further recognition of margin on the USD 50

million OCTP project from Yinson Production. Workload

across the KANFA group declined during the quarter

with projects now completed and limited new work

coming in.

- Logitel Offshore

We refer to the Q2 2016 earnings release and comments

made regarding the circumstances surrounding the

legality and potential claims in relation to the

Logitel Offshore Agreements. Sevan Marine is dedicated

to seeking the best outcome for the Company and its

shareholders.

In this regard, Sevan Marine has commenced legal

action against Logitel Offshore Pte Ltd claiming

payment of approximately USD 60 million in relation to

the Logitel loan, and in parallel has commenced

arbitration against both Logitel Offshore Pte Ltd and

Teekay Offshore Partners LP claiming payment of an

amount of approximately USD 10 million in relation to

the Fourpartite Agreement. Sevan Marine reserves the

right to, at any time, pursue other involved parties.

Agreements suspending time-bar limitations have been

entered into with such involved parties.

The outcome of this situation, any potential recovery

of value and the timing of such recover remains

uncertain. As such, there remains material uncertainty

regarding both the amount and timing of any payments

in relation to the Logitel agreements.

- Dividend policy

The Board has communicated an intention to pay a

dividend depending upon developments. Given the

uncertain market outlook, and the unresolved situation

with regard to Logitel, no extraordinary dividend is

planned for 2016.

Main Figures, Third Quarter 2016

(Previous quarter figures in brackets)

Operating revenue for the third quarter 2016 was USD

5.1 million (USD 16.9 million). EBITDA was negative

USD 0.8 million (negative USD 0.3 million), and

operating loss was USD 0.8 million (loss of USD 0.4

million). Net profit was USD 0.4 million (loss of USD

11.6 million). EBITDA is positively impacted by

results in the Topside and Process segment where

further margin on the OCTP project has been recognized

in the quarter. The net profit in the quarter is

positively impacted by book gains on currency holdings

and the reversal of a historical tax provision related

to the completion of the Goliat project.

As of Q3 2016, cash and cash equivalents amounted to

USD 27.0 million (USD 31.7 million). The change in

cash and cash equivalents is largely attributable to

working capital changes in the Topside and Process

segment as well as continuing operating losses. It is

expected that the working capital change in the

Topside and Process segment will improve in Q4 2016

when further project milestone payments are expected

to be received. Floating Production cash flow is

expected to remain negative for the coming quarters

due to ongoing operating losses and further

restructuring charges driven by a lack of sufficient

work load and license fees.

The equity ratio was 57.4 percent as of September 30,

2016 (51.3 percent).

Outlook

- Sevan Marine continues to face a difficult

market with many of its key prospects being further

delayed in Q3. 2016 and 2017 will be challenging

years. The Board is of the opinion though that the

increased focus on cost effective solutions in the

petroleum industry will be favourable for the Company

in the medium to longer term. Floating units based on

Sevan Marine's technology represent inherent

advantages. Amongst these are excellent motion

characteristics, lower operating costs, high deck load

capacity, large storage space and substantial lower

cost compared with alternatives when a turret is

needed.

- In the Floating Production Segment, work on

the Dana Western Isles and UK sector FPSO projects is

expected to continue through 2016 and 2017. Sevan

Marine is expecting the variable license fee related

to the Dana Western Isles project to start generating

revenue from late 2017 while any license fee on the UK

sector FPSO opportunity is also now expected late

2017. Sevan Marine expects that it can secure further

feasibility study work in 2017 particularly in

relation to the FLNG project with the U.S. oil major

and Barents Sea opportunities.

- Sevan Marine is hopeful that the Vires Energy

Corporation Project in the Philippines will proceed

with further FEED and follow-up work related to the

FRD provided by HiLoad during 2017 and that the high

interest in the FRD will materialize into further

revenue in 2017.

- In the Topside and Process segment, KANFA AS

does not expect to be awarded any substantial process

package awards in 2016 given the low market activity.

KANFA is tendering on several projects which may lead

to additional work from 2017. Cost reduction measures

are being taken as workload is insufficient. Sevan

Marine is considering its strategic options with

respect to its investment in KANFA AS.

- Sevan Marine has received substantially

increased interest in its unique design from many,

high quality, global oil and gas majors. Sevan Marine

believes this is a reflection of the changing market

place, increased willingness of oil majors to consider

different technologies and Sevan Marine's own business

development efforts.

- Sevan Marine is confident given its unique

cost effective solutions, the increased market

interest, its solid cash position and cost reduction

plans that it has the resources and ability to

successfully weather the current slowdown in activity

and to regain profitability in years to come.

- Sevan Marine is focussing its efforts on

independently developing, marketing and supporting the

execution of projects based on its unique designs and

engineering competence. In doing such, the Company is

seeking to work with industry leading partners to

further promote and develop its designs and concepts.

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SEVAN MARINE ASA - Third Quarter 2016 Results

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