Dolphin Drilling AS — Interim / Quarterly Report 2016

Oct 26, 2016

Financial results 3Q 2016

Oslo, 26 October 2016

AGENDA

FINANCIAL RESULTS 3Q 2016

• MARKET
• OPERATIONS
• SUMMARY

Income Statement – Key Figures

(USD mill)	3Q 2016	2Q 2016	Change
Operating revenues	210,4	215,3	(4,9)
Recharged income	3,2	4,0	(0,8)
Total revenues	213,6	219,3	(5,7)
Operating costs	(91,4)	(72,6)	(18,8)
Recharged expenses	(3,1)	(3,9)	0,8
Total operating expenses	(94,5)	(76,5)	(18,0)
Oper. result before depr. (EBITDA)	119,1	142,8	(23,7)
Depreciation	(70,2)	(79,6)	9,4
Impairment	(61,3)	(159,0)	97,7
Operating result (EBIT)	(12,4)	(95,8)	83,4
Net financial items	(17,3)	(11,1)	(6,2)
Result before tax	(29,7)	(106,9)	77,2
Estimated tax	(4,2)	(7,1)	2,9
Net result	(33,9)	(114,0)	80,1

EBITDA Comparison 3Q 2016 vs. 2Q 2016

Financial Items Breakdown

(USD mill)	3Q 2016	2Q 2016	Change
Interest income Other financial income	0,4 0,6	0,5 -	(0,1) 0,6
Gains on financial instruments Financial income	2,8 3,8	9,3 9,8	(6,5) (6,0)
Interest expenses Losses on financial instruments Other financial expenses Financial expenses	(8,3) (3,5) (2,2) (14,0)	(9,7) (11,1) (1,9) (22,7)	1,4 7,6 (0,3) 8,7
Net foreign currency gain	(7,1)	1,8	(8,9)
Net financial items	(17,3)	(11,1)	(6,2)

Offshore Drilling Segment

(USD mill)	3Q 2016	2Q 2016	Change
Operating revenues	209,4	214,3	(4,9)
Recharged income	3,2	4,0	(0,8)
Total revenues	212,6	218,3	(5,7)
Operating costs	(88,8)	(68,7)	(20,1)
Recharged expenses	(3,1)	(3,9)	0,8
Total operating expenses	(91,9)	(72,6)	(19,3)
Oper. result before depr. (EBITDA)	120,7	145,7	(25,0)
Depreciation	(69,7)	(79,0)	9,3
Impairment	(61,3)	(159,0)	97,7
Operating result (EBIT)	(10,3)	(92,3)	82,0

Engineering & Fabrication Segment

(USD mill)	3Q 2016	2Q 2016	Change
Operating revenues (external) Inter-segment revenues Total operating revenues	1,0 0,6 1,6	1,0 0,2 1,2	- 0,4 0,4
Operating costs Oper. result before depr. (EBITDA)	(3,2) (1,6)	(4,1) (2,9)	0,9 1,3
Depreciation	(0,5)	(0,6)	0,1
Operating result (EBIT)	(2,1)	(3,5)	1,4

Consolidated Balance Sheet

(USD mill)	30 Sep 2016	30 Jun 2016	Change
Intangible assets	-	11,8	(11,8)
Property, plant & equipment	1 435,3	1 553,7	(118,4)
Other non-current assets	20,2	19,9	0,3
Total non-current assets	1 455,5	1 585,4	(129,9)
Other current assets	266,1	467,2	(201,1)
Cash and cash equivalents	391,0	132,9	258,1
Total current assets	657,1	600,1	57,0
Total assets	2 112,6	2 185,5	(72,9)
Equity	853,5	885,3	(31,8)
Non-current interest bearing debt	887,0	910,9	(23,9)
Other non-current liabilities	101,3	102,2	(0,9)
Total non-current liabilities	988,3	1 013,1	(24,8)
Current interest bearing debt	190,9	190,9	-
Other current liabilities	79,9	96,2	(16,3)
Total current liabilities	270,8	287,1	(16,3)
Total equity and liabilities	2 112,6	2 185,5	(72,9)

Consolidated Cash Flow

(USD mill)	3Q 2016	2Q 2016	Change
Profit before income taxes	(29,7)	(106,9)	77,2
Depreciation and impairment	131,5	238,6	(107,1)
Interest expense	9,6	11,1	(1,5)
Changes in working capital	15,5	(42,3)	57,8
Unrealized loss/(gain) financial instruments	2,0	(10,3)	12,3
Cash generated from operations	128,9	90,2	38,7
Interest paid	(8,5)	(10,5)	2,0
Taxes paid	(7,7)	(8,0)	0,3
Net cash flow from operating activities	112,7	71,7	41,0
Net investment in fixed assets	(1,9)	(6,0)	4,1
Bollsta settlement	176,4	-	176,4
Cash flow used in investment activities	174,5	(6,0)	176,4
Proceeds from interest bearing loans	65,0	90,0	(25,0)
Repayments of interest bearing loans	(95,5)	(217,1)	121,6
Cash flow used in financing activities	(30,5)	(127,1)	96,6
Foreign currency	1,4	(2,8)	4,2
Net change in cash and cash equivalents	256,7	(61,4)	314,0
Cash at beginning of period	132,9	197,1	(64,2)
Cash at end of period	391,0	132,9	254,0

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	Ivory Coast	Anadarko	May 2014 - July 2018	419 000/ 488 000	1Q 2019
Blackford Dolphin	SS / Aker H-3	7 000	UK	Chevron	July '15 - January '17	428 000	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	January '14 - January '17	NOK 1048' + USD 301'	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	UK	BP	April '13 - October '16	345 500	2Q 2020
Borgsten Dolphin	Tender support / AH-3		UK		Idle		1Q 2018
Borgholm Dolphin	Accomodation / AH-3		UK		Idle		4Q 2017

Continued high focus on cash discipline

• Prepared for a challenging 2017
• A high focus on cost reduction since 2014
• Main focus on preserving cash through
• Reducing operational cost for rigs in operation
• Reducing capex on rigs in operation and idle rigs
• Reducing lay up cost for idle rigs
• Adjusting the organization to the market reality
• Limited investment commitments for the company in the near to medium term

FINANCIAL RESULTS

• MARKET
• OPERATIONS
• SUMMARY

Global market – floating units

• A rebalancing of the oil market is emerging
• Continued cold stacking and some scrapping due to overcapacity expected
• E&P companies diverting 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

• There has been a considerable reduction in the utilization of the rig fleet in Norway during the last year and this is expected to continue into 2017, resulting in an increased number of stacked units
• Few new visible contract opportunities in the near term
• However, several new projects and infield projects are being prepared for sanctioning in 2017 and beyond

			2016			2017				2018
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
Island Innovator
West Hercules
West Alpha
Songa Dee
Borgland Dolphin
Songa Delta
Bideford Dolphin
Stena Don
Transocean Spitsbergen
Leiv Eiriksson
Transocean Arctic
Scarabeo 5
Deepsea Bergen
Deepsea Stavanger
Scarabeo 8
COSLPromoter
Deepsea Atlantic
Songa Equinox
Songa Endurance
Songa Encourage
Song Enabler
		Contract			Option						Yard/under construction

Average dayrates Norway

UK floater market

• The utilization in the UK market is approaching a historical low
• Requests and tender activity has increased during the last quarters for work with start up in 2017, with some contracts already awarded
• A moderate improvement in drilling activity is expected
• The low project and maintenance activity in general is affecting the accommodation segment, with limited short- term visibility

			2016			2017			2018
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
West Phoenix
Paragon MSS1
Stena Spey
Byford Dolphin
Blackford Dolphin
Ocean Guardian
Paul B. Loyd, Jr.
Ocean Valiant
Sedco 712
Ocean Patriot
WilPhoenix
Transocean Leader
Deepsea Aberdeen
		Contract			Option				Yard/under construction

As per October 2016 Source: DNB and the Company

Average dayrates UK

Deepwater dayrates - worldwide

FINANCIAL RESULTS

• MARKET
• OPERATIONS
• SUMMARY

Fred. Olsen Energy – Operating worldwide

Contract overview

Unit	2016	2017	2018
Bolette	Anadarko
Belford	1)
Blackford	Chevron
Bideford	Statoil 2)
Borgland	RMN Cons.
Bredford
Byford	BP
Borgsten	Total 3)
Borgholm
	1) Terminated for convenience 2) Suspended 3) Termination right exercised with a termination fee of USD 22 million

Contract backlog

Ultra deepwater

Bolette Dolphin

• Operates under a four-year contract with Anadarko presently offshore the Ivory Coast
• A reduced dayrate for approximately 240 days is agreed and will be compensated with an extension of approximately 2.5 months at original contract rate
• The corresponding contract expires in July 2018

Belford Dolphin

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

Midwater - Norway

Borgland Dolphin

• Completed the 18 well drilling contract, with a Rig Management Norway AS (RMN) managed consortium of four oil companies, in September 2016
• The unit will be preserved and maintained in Lyngdal Norway, ready for new contracts
• The unit completed its class renewal survey February 2015

Bideford Dolphin

• Operates under a three-year contract with Statoil, estimated to be completed end of January 2017
• In June 2016, the Company received a notice of suspension from Statoil for three months with a suspension rate of 80%. The suspension ceased mid September
• Completed its class renewal survey July 2014

Midwater - Norway / United Kingdom

Bredford Dolphin

• Completed the 12-well contract with an AGR consortium early January 2016
• The unit is cold stacked at Kvinesdal, Norway
• The class renewal survey was completed August 2012

Borgholm Dolphin

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

Midwater - United Kingdom (cont.)

Byford Dolphin

• Continued under the contract with BP Exploration in the UK during the quarter. The contract will expire end of October 2016
• The unit will be preserved and maintained in Lyngdal, Norway, ready for new contracts
• The unit completed its class renewal survey July 2015

Borgsten Dolphin

• Continued under the tender support services contract with Total E&P UK until early October
• Total has exercised their right to terminate the contract from October 2016 and the company will receive a termination fee of USD 22.1 million which will be booked in 4th quarter 2016
• The unit will be cold stacked in Invergordon, Scotland

Deepwater – United Kingdom

Blackford Dolphin

• Continued the 572 days contract with Chevron offshore UK
• The unit had 17 days off-hire in the quarter and an additional 15 days in the beginning of 4th quarter due to subsea downtime
• The contract is estimated to expire around January 2017
• Completed its class renewal survey in June 2014

Harland & Wolff

• Focus on ship repair, ship building, steel fabrication and engineering services
• The activity at the yard has been limited during the third quarter and the outlook for the fourth quarter of 2016 is still expected to be challenging
• The yard will continue to explore all opportunities and maintain focus on reducing cost
• Borgholm Dolphin remained cold-stacked at the yard

Summary

Financial

• Revenues were USD 214 million
• EBITDA was USD 119 million
• Profit before tax was negative USD 30 million
• Impairments amounted to USD 61 million
• Contract backlog amounting to approximately USD 390 million
• Received the settlement with HHI of USD 176.4 million
• Strong cash discipline and continued focus on cost reductions

Operational

• Bideford Dolphin back in operation mid September after the suspension
• Borgland Dolphin in lay up from end of September
• For drilling units coming off contract; preservation of the equipment and the units in order to minimize reactivation time and cost