Magnora ASA

SEVAN MARINE ASA - First Quarter 2016 Results

Main events and developments, First Quarter 2016

- Continued work on UK sector FPSO prospect

After the positive selection of the Sevan Marine

cylindrical hull concept in late 2015, Sevan Marine

has continued to provide engineering support for the

UK sector FPSO prospect during the quarter. Payments

under the License Agreement remain subject to the

field developers' final investment decision and start

of construction of the unit, which is not expected

before the second half of 2016. Sevan Marine expects

to continue to provide engineering support through the

end of 2016.

- Focus on existing projects

During the quarter, Sevan Marine continued to provide

engineering and site support services for the Goliat,

Logitel Offshore and Dana Western Isles projects.

Sevan Marine remains entitled to a variable license

fee linked to production with respect to the Dana

Western Isles project. Dana has announced that the

FPSO will not commence production before the second

half of 2017.

- Continuing work on HiLoad LNG

During the quarter, HiLoad LNG continued the

development of both the HiLoad offloading system for

FLNG and the Floating Regas Dock ("FRD") for small

scale regasification projects. For offloading, HiLoad

provided information and held meetings with several

oil majors regarding the concept. Technip also

continued to market the use of HiLoad LNG together

with their cryogenic flexible aerial pipes for LNG

offloading to standard LNG carries. The accreditation

of the first cryogenic floating hose by Trelleborg is

also a very positive development and opens up yet

further alternatives for using HiLoad LNG for LNG

offloading.

With respect to the FRD, initial Pre-FEED work was

starting during the quarter for the Vires Energy

Corporation project in the Philippines.

- Cost Reduction and Organizational Changes

Further cost reduction measures were taken during the

quarter including headcount reductions. Other cost

measures were also taken including, the integration of

KANFA Mator into KANFA, the further consolidation of

offices and voluntary reductions in management

salaries of between 10 and 50 percent. The number of

employees in the Sevan Marine group has been reduced

from over 200 to less than 140 in the past 15 months,

a 30 percent reduction. The recurring cost base in the

core Floating Production segment has been reduced by

over USD 8m or over 40 percent since the end of 2014.

The management was also re-organized in the past

months to both reduce cost and establish greater focus

within the core segment of Floating Production. Two

senior managers, Mr. Morten Martens Breivik (former

Chief of Staff) and Mr. Lars Ødeskaug (former COO)

have left Sevan Marine. Mr. Alf-Roger Skikstein

assumed the role of Managing Director for Sevan Marine

reporting directly to the CEO, Mr. Carl Lieungh.

- Improved Performance of KANFA and KANFA Aragon

The KANFA group saw improved results in the quarter

driven by the initial recognition of margin on the USD

50 million OCTP project from Yinson Production. KANFA

was also awarded hourly based engineering work for a

Norwegian sector development in the quarter which

helped to keep utilization high.

KANFA Aragon improved its performance substantially

with a positive settlement of a historical project and

the winning of new work with a Singaporean based

client which is expected to fully utilize KANFA

Aragon's resources through Q2 2016. Sevan Marine

continued its strategic review with respect to its

shareholding in KANFA Aragon during the quarter, and

this may result in either a disposal or greater

integration of KANFA Aragon's activities into Sevan

Marine during Q2 2016.

- Logitel Offshore

With reference to the press release from May 23, 2016,

Sevan Marine initiated in January 2016 a review of the

circumstances surrounding and the legality of the

Logitel Offshore agreements. In February 2016, Sevan

Marine, through a special Board committee, initiated a

dialogue in an attempt to resolve the issues raised in

an amicable manner and within the framework of

applicable law. Until lately the special Board

committee was very optimistic that a settlement would

be reached. Unfortunately, the dialogue has recently

been paused. Sevan Marine regrets the situation and is

dedicated to seeking the best outcome for all its

shareholders.

The outcome of this situation and any potential

recovery of value is now considered uncertain. As

such, there remains material uncertainty regarding

both the amount and timing of any payments in relation

to both the Logitel loan and variable payments due

from Logitel. Accordingly, non-cash, accounting

impairments and provisions of USD 8 million in

relation to the convertible loan and expected variable

fee amounts have been recorded as per March 31, 2016.

- Strategic Review Process

Sevan Marine appointed Pareto Securities in April 2015

to explore potential strategic options for the

Company. The corporate investigation carried out

between June and October 2015 resulted in delays to

the strategic review. The Company continues the work

to explore strategic options for Sevan Marine.

- Dividend policy

The Board has communicated an intention to pay a

dividend depending upon developments. Given the

uncertain market outlook, the Board has decided not to

pay an ordinary dividend for 2015. An extraordinary

dividend in 2016 may be considered depending upon

developments during the year.

Main Figures, First Quarter 2016

(Previous quarter figures in brackets)

Operating revenue for the first quarter 2016 was USD

21.0 million (USD 27.2 million). EBITDA was negative

USD 7.0 million (negative USD 3.0 million), and

operating loss was USD 7.1 million (loss of USD 3.1

million). Net loss was USD 8.1 million (loss of USD

8.4 million). The net loss is negatively impacted by

the further impairment of the Logitel Loan.

As of Q1 2016, cash and cash equivalents amounted to

USD 41.3 million (USD 36.6 million). The change in

cash and cash equivalents is largely attributable to

operating losses, working capital changes in the

Topside and Process segment and a payment of USD 3.5m

related to the 2012 tax reassessment. It is expected

that the positive working capital change in the

Topside and Process segment will reverse during Q2 and

Q3 2016.

Sevan Marine has approximately NOK 3.4 billion in

total Norwegian tax losses which are not reflected on

the balance sheet. Sevan Marine believes that these

losses could generate substantial value in the future.

The equity ratio was 44.9 per cent as of March 31,

2016 (49.7 per cent).

Outlook

- Sevan Marine works to achieve a good

utilization of its staff with ongoing and new FEED /

study work during 2016 and to secure license income by

late 2016 or early 2017.

- Sevan Marine continues to face a difficult

market with many of its key prospects continuing to be

delayed. 2016 will remain a difficult year. Even more

cost reduction measures are being implemented to

reduce operating losses and cash burn. These measures

include voluntary salary cuts by staff and senior

management, reduced working time, simplification of

the group structure as well as continued stringent

cost control.

- Sevan Marine's FLNG concept has been well

received. A continuation of the initial feasibility

study completed in 2015 has been agreed with a US Oil

Major for a specific FLNG field development.

Additional interest has also been expressed by other

global Oil majors despite many FLNG projects having

recently been delayed or postponed. In the longer

term, Sevan Marine is optimistic that it can also

secure license revenue in the FLNG segment.

- Sevan Marine is pursuing opportunities to use

the HiLoad both as an FLNG offloading solution as well

as an LNG regasification unit or Floating Regas Dock

("FRD"). The HiLoad LNG offloading solution has

attracted substantial market interest in past months.

Sevan Marine is optimistic that additional paid study

work related to HiLoad LNG can be generated in 2016.

- In KANFA AS, a high workload on the OCTP

project will continue during the first half of 2016

with further margin recognition expected. KANFA does

not expect to be awarded any substantial process

package awards in 2016 given the low market activity.

They have however recently secured more hourly

engineering support work and hope to maintain a high

utilization of their staff through 2016. Cost

reduction measures continue to be taken.

- KANFA Aragon has secured workload through a

study contract with a Singapore based client which is

expected to provide backlog and provide solid results

through Q2 2016. Sevan Marine continues to consider

its strategic options with respect to its shareholding

in KANFA Aragon which may result in either a disposal

or greater integration of KANFA Aragon's activities

into Sevan Marine during Q2 2016.

- Sevan Marine has recently 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 both the

changing market place, increased willingness of oil

majors to consider new technologies and Sevan Marine's

own business development efforts over the past years.

- Sevan Marine is confident given 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 2017.

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SEVAN MARINE ASA - First Quarter 2016 Results

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