Dolphin Drilling AS — Earnings Release 2016

Feb 15, 2017

Financial results 4Q 2016

Oslo, 15 February 2017

AGENDA

FINANCIAL RESULTS 4Q 2016

• MARKET
• OPERATIONS
• SUMMARY

Income Statement – Key Figures

(USD mill)	4Q 2016	3Q 2016	Change
Operating revenues	152,5	210,4	(57,9)
Recharged income	4,3	3,2	1,1
Total revenues	156,8	213,6	(56,8)
Operating costs	(55,5)	(91,4)	35,9
Recharged expenses	(4,1)	(3,1)	(1,0)
Total operating expenses	(59,6)	(94,5)	34,9
Oper. result before depr. (EBITDA)	97,2	119,1	(21,9)
Depreciation	(65,2)	(70,2)	5,0
Impairment	(10,5)	(61,3)	50,8
Operating result (EBIT)	21,5	(12,4)	33,9
Net financial items	(2,9)	(17,3)	14,4
Result before tax	18,6	(29,7)	48,3
Estimated tax	(8,9)	(4,2)	(4,7)
Net result	9,7	(33,9)	43,6

EBITDA Comparison 4Q 2016 vs. 3Q 2016

Financial Items Breakdown

(USD mill)	4Q 2016	3Q 2016	Change
Interest income	0,8	0,4	0,4
Gains on financial instruments	1,2	3,4	(2,2)
Financial income	2,0	3,8	(1,8)
Interest expenses	(8,8)	(8,3)	(0,5)
Losses on financial instruments	(1,9)	(3,5)	1,6
Other financial expenses	(4,0)	(2,2)	(1,8)
Financial expenses	(14,7)	(14,0)	(0,7)
Net foreign currency gain	9,8	(7,1)	16,9
Net financial items	(2,9)	(17,3)	14,4

Offshore Drilling Segment

(USD mill)	4Q 2016	3Q 2016	Change
Operating revenues	149,9	209,4	(59,5)
Recharged income	4,3	3,2	1,1
Total revenues	154,2	212,6	(58,4)
Operating costs	(51,9)	(88,8)	36,9
Recharged expenses	(4,1)	(3,1)	(1,0)
Total operating expenses	(56,0)	(91,9)	35,9
Oper. result before depr. (EBITDA)	98,2	120,7	(22,5)
Depreciation	(64,8)	(69,7)	4,9
Impairment	(10,5)	(61,3)	50,8
Operating result (EBIT)	22,9	(10,3)	33,2

Engineering & Fabrication Segment

(USD mill)	4Q 2016	3Q 2016	Change
Operating revenues (external) Inter-segment revenues Total operating revenues	2,6 0,2 2,8	1,0 0,6 1,6	1,6 (0,4) 1,2
Operating costs Oper. result before depr. (EBITDA)	(3,8) (1,0)	(3,2) (1,6)	(0,6) 0,6
Depreciation	(0,4)	(0,5)	0,1
Operating result (EBIT)	(1,4)	(2,1)	0,7

Consolidated Balance Sheet

(USD mill)	31 Dec 2016	30 Sep 2016	Change
Property, plant & equipment	1 361,0	1 435,3	(74,3)
Other non-current assets Total non-current assets	17,3 1 378,3	20,2 1 455,5	(2,9) (77,2)
Other current assets Cash and cash equivalents	227,8 290,4	266,1 391,0	(38,3) (100,6)
Total current assets	518,2	657,1	(138,9)
Total assets	1 896,5	2 112,6	(216,1)
Equity	853,2	853,5	(0,3)
Non-current interest bearing debt	879,6	887,0	(7,4)
Other non-current liabilities	90,9	101,3	(10,4)
Total non-current liabilities	970,5	988,3	(17,8)
Current interest bearing debt	-	190,9	(190,9)
Other current liabilities Total current liabilities	72,8 72,8	79,9 270,8	(7,1) (198,0)
Total equity and liabilities	1 896,5	2 112,6	(216,1)

Consolidated Cash Flow

(USD mill)	4Q 2016	3Q 2016	Change
Profit before income taxes	18,6	(29,7)	48,3
Depreciation and impairment	75,7	131,5	(55,8)
Interest expense	10,4	9,6	0,8
Changes in working capital	18,2	15,5	2,7
Unrealized loss/(gain) financial instruments	(10,2)	2,0	(12,2)
Cash generated from operations	112,7	128,9	(16,2)
Interest paid	(8,5)	(8,5)	-
Taxes paid	(6,7)	(7,7)	1,0
Net cash flow from operating activities	97,5	112,7	(15,2)
Net investment in fixed assets	(3,3)	(1,9)	(1,4)
Bollsta settlement	-	176,4	(176,4)
Cash flow used in investment activities	(3,3)	174,5	(176,4)
Proceeds from interest bearing loans	-	65,0	(65,0)
Repayments of interest bearing loans	(190,9)	(95,5)	(95,4)
Cash flow used in financing activities	(190,9)	(30,5)	(160,4)
Foreign currency	(3,9)	1,4	(5,3)
Net change in cash and cash equivalents	(96,7)	256,7	(352,0)
Cash at beginning of period	391,0	132,9	258,1
Cash at end of period	290,4	391,0	(99,2)

Offshore drilling EBITDA and margin

Fleet status

RIG	DESIGN	W DEPTH	LOCATION	CLIENT	CONTRACT STATUS	DAY RATE (USD)	NEXT CRS
ULTRA- / DEEPWATER UNITS
Bolette Dolphin	DS/ Gusto P10'	12 000	Colombia	Anadarko	May 2014 - July 2018	419 000/ 488 000	1Q 2019
Blackford Dolphin	SS / Aker H-3	7 000	UK	Chevron	February 2017	118 500	2Q 2019
Belford Dolphin	DS / LMG Marin	10 000	Malaysia		Idle
MID WATER FLOATERS NORWAY
Bideford Dolphin	SS / Aker H-3	1 500	Norway	Statoil	February-March 2017	175 000	2Q 2019
Borgland Dolphin	SS / Aker H-3	1 500	Norway		Idle		1Q 2020
Bredford Dolphin	SS / Aker H-3	1 500	Norway		Idle		2Q 2017
MID WATER FLOATERS UK
Byford Dolphin	SS / Aker H-3	1 500	Norway		Idle		2Q 2020
Borgsten Dolphin	Tender support / AH-3		UK		Idle		1Q 2018
Borgholm Dolphin	Accomodation / AH-3		UK		Idle		4Q 2017

Preparing and acting in the challenging market

Waiver request approved from lenders	Minimum market value covenant waiver obtained from banks in December 2016 Net debt/EBITDA and EBITDA/net interest expenses covenant waiver obtained from banks and bondholders in FOE05 Waiver duration until 30 June 2018
Rationale	Market values of the fleet decreased sharply during 2016 Potential breach of the two EBITDA related covenants during 2017 The waiver provides the company operational and financial flexibility and preserves optionality for all stakeholders
Repayments completed	Prepayment of two instalments of USD 95.5 million each paid in December 2016 No instalments during 2017 Partial redemption of FOE05 of NOK 75 million completed early February 2017
High focus on cost-cutting and cash discipline	Fred. Olsen Energy has prepared its organisation for a market downturn since 2014 Successful cost reductions both onshore and offshore Lay-up costs significantly reduced Limited committed investments

FINANCIAL RESULTS

• MARKET
• OPERATIONS
• SUMMARY

Global market – floating units

• Overall, there has been an increase in requests and tender activity
• Main indicators point to improved market conditions, however the strength and the pace of recovery still remains uncertain
• Cold stacking and some scrapping due to overcapacity continue to take place
• The decrease in E&P spending seems to level off and E&P companies directing spending to short cycle, higher return activity
• Earlier recovery of the mid-water is expected to materialize as compared to the ultra-deepwater

Norwegian floater market

• The utilization of the rig fleet in Norway is currently approaching an all time low
• Increased number of requests and tenders for 2017 and 2018, although predominantly for shorter term work
• The number of awarded contracts has increased
• Several new projects and in-field projects are being prepared for sanctioning in 2017 /18 and beyond

	2017					2018			2019
Name	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
West Navigator
COSLPioneer
Transocean Searcher
Songa Trym
Bredford Dolphin
Polar Pioneer
COSLInnovator
West Venture
West Hercules
West Alpha
Deepsea Metro II
Songa Dee
Borgland Dolphin
Songa Delta
Stena Don
Bideford Dolphin
Transocean Spitsbergen
Island Innovator
Deepsea Bergen
Transocean Arctic
Scarabeo 5
Leiv Eiriksson
Deepsea Stavanger
Scarabeo 8
COSLPromoter
Deepsea Atlantic
Songa Equinox
Songa Endurance
Songa Encourage
Songa Enabler
		Contract			Option					Yard/under construction

As per February 2017 Source: DNB and the Company

Average dayrates Norway

UK floater market

• Similar picture as Norway with a high number of inactive rigs
• However, requests and tender activity has continued to increase during the last quarters
• A moderate improvement in drilling activity is expected due to increased number of new requests for 2017 and 2018
• The low project and maintenance activity continues to dominate the accommodation segment

			2017		2018				2019
Name	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Ocean Vanguard
Ocean Nomad
Ocean Princess
Transocean Prospect
WilHunter
Sertao
Sedco 711
Sedco 714
Paragon MSS1
Byford Dolphin
Blackford Dolphin
Ocean Guardian
Paul B. Loyd, Jr.
Stena Spey
West Phoenix
Stena IceMAX
Sedco 712
Ocean Valiant
Ocean Patriot
WilPhoenix
Transocean Leader
Deepsea Aberdeen
		Contract			Option				Yard/under construction

As per February 2017 Source: DNB and the Company

Average dayrates UK

Dayrates- worldwide

FINANCIAL RESULTS

• MARKET
• OPERATIONS
• SUMMARY

Our approach to the market

Aggressively pursuing new contract opportunities

Alternatively preservation of the equipment and the units

Class certificates prolonged survey arrangement

• Keeping rigs warm ready for operation
• Commercial potential/value
• Risk profile

• Strategic fit for each unit

• Protect the asset value

• Minimize reactivation time and cost
• Keeping competence in the lay-up teams

• Function and system testing

• Approved regime for preservation of class certificates

• Delay main class renewal survey and associated CAPEX

Fred. Olsen Energy – Operating worldwide

Contract overview

Total backlog approx. USD 260 million

Ultra deepwater

Bolette Dolphin

• Ultra deepwater drillship delivered in 2014
• Operates under a four-year contract with Anadarko estimated to expire in July 2018
• Is currently operating offshore Colombia after completing the drilling program offshore the Ivory Coast

Belford Dolphin

• The unit is preserved and maintained, located outside Labuan, Malaysia
• Belford Dolphin Marketed for contract possibilities worldwide
• Completed the five-year class renewal survey at the Keppel yard in October 2015

Deepwater / midwater- UK

Blackford Dolphin

• Continued the 572 days contract with Chevron offshore UK during the quarter
• The contract was extended with approximately one month until end of February 2017
• The unit had 15 days downtime in October
• Completed its class renewal survey in June 2014

Byford Dolphin

• Completed the contract with BP Exploration UK end of October 2016
• The unit is preserved and maintained in Lyngdal, Norway, ready for operations
• The unit completed its class renewal survey July 2015

Midwater - Norway

Bideford Dolphin

• Completed the three-year contract with Statoil early February
• A contract extension of approximately one month was entered into, with estimated completion by mid March
• Completed its class renewal survey July 2014

Borgland Dolphin

• Completed the 18 well drilling contract with RMN in September 2016
• Belford Dolphin The unit is preserved and maintained in Lyngdal, Norway, ready for operations
• The unit completed its class renewal survey February 2015

Midwater – Norway / UK

Bredford Dolphin

• The unit is cold stacked at Kvinesdal, Norway
• The class renewal survey was completed August 2012
• A renewal of the class certificates will not be carried out in 2017 in the current market conditions

Borgholm Dolphin

• Accommodation unit compliant with UK regulations
• The unit is cold stacked and located at the quay side of Harland & Wolff
• Class renewal survey was completed March 2013

Borgsten Dolphin

• The unit was converted to Tender Support Vessel in 2013
• Total exercised its right to terminate the contract from October 2016, a termination fee of USD 22.1 million was booked in the quarter
• The unit is cold stacked in Invergordon, Scotland

Harland & Wolff

• The activity at the yard has been limited during the fourth quarter and low for the year 2016 in general
• Secured a jacket contract as subcontractor to Lamprell for deliveries in 2017/2018. This will be an important contribution for the 2017 revenue
• It is expected that 2017 will be a challenging year overall for the shipyard

Summary

Financial	Revenues were USD 157 million EBITDA was USD 97 million Profit before tax was USD 10 million Impairment of Borgsten Dolphin amounted to USD 11 million
	Contract backlog amounting to approximately USD 260 million
Market	Bideford Dolphin extension of one month Blackford Dolphin extension of current contract of approximately one month
Operational	Byford Dolphin in lay-up in Lyngdal, Norway, from end of October 2016 Borgsten Dolphin cold stacked in Invergordon, Scotland, from October 2016