Pareto Offshoreinvest AS

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1 Pareto Offshoreinvest AS 2nd quarter report 2014 Link:

2 Executive Summary NAV NOK 100/share (as of 30 June 2014) The portfolio continue to look strong with good contract coverage at healthy rates for both owners and charterers. The markets are either stable or improving, with the flattish oil price as a rather uneventful backdrop. Three project realizations have been done this year at prices well above NAV, which is up by 7.1% for the year and 15.4% for the past 12 months (adjusted for repayments). Market Development Offshore oil services demand has been mixed this year, with cost saving initiatives among the oil companies affecting activity levels in many areas. It remains to be seen whether this is a one-time event or represents the early phase of a long term trend. In the North Sea, the absence of large development projects has resulted in this impact being felt more sharply than in other areas, where development spending is still growing. The rig markets generally appear to have peaked for now, although the Fund has limited exposure here. The offshore support vessel market in the North Sea has disappointed this year and while demand may appear to be flat for the next year or so, it is positive that newbuilding ordering is at a low ebb. An agreement to sell the three barges in Offshore Accommodation was concluded in June with the transaction scheduled for completion in July. This will result in proceeds for POI amounting to roughly NOK 14 per share. The contract coverage is 89% with a weighted contract length of 3.6 years. The NAV as of 30 Jun 14 was NOK 100 per share, implying an increase of 7.1% YTD, adjusted for repayments of NOK 20 per share in the period. POI has distributed NOK 20 per share to its shareholders so far this year, taking total distributions since inception to NOK 38 per share (38% of par). Subject to the transaction in Offshore Accommodation closing as planned, POI may be in a position to distribute roughly another NOK 14 per share in Q3 14. Portfolio The portfolio consist of shares in 11 projects with a total of 21 vessels. The final vessel in Asian Offshore V was sold in May, resulting in proceeds of NOK 3.8m to POI.

3 Portfolio News POI is invested in 11 offshore projects, which implies a good diversification across different market segments. This section provides an update on the quarter s most important newsflow related to the underlying investments. Master and Commander IS Both vessels are now on long term charters and the project made a USD 1.5m dividend payment during Q2 14. Asian Offshore IS The average day rate for the four vessels was USD 8,600/d during Q2 14, down 40% on the preceding quarter as all vessels have completed their drydockings. The demand pipeline looks very promising. The integration process together with AO I and partner ACS has been formalized and a term sheet has been signed with an international shipping bank to finance the new, integrated company. It is expected that the integration process will be finalized in early Q4 14. Vestland Seismic IS The vessel is still idle, and there have been no material developments regarding a new charter or a sale. Offshore Accommodation was concluded in Jun 14, with expected transaction completion in Jul 14. This is expected to result in realization proceeds around 25% above the last reported NAV for the project, totalling roughly NOK 14 per share in POI. Payments from projects During Q2 14, POI received dividend payments of NOK 1.8m. In addition, realization proceeds totalling NOK 7.4m was paid to POI in Q2 14. New investments POI has not made any new investments during Q1 14 and will refrain from doing so for the remainder of its lifetime, save for follow-up investments in existing projects, if required. Asian Offshore V IS The second vessel was sold during May 14, resulting in a distribution of NOK 3.8m to POI. The profit of this project was around 32% during a period of 16 months. Azur Offshore IS One of the three vessels was sold back to the charterer in March 2014, which resulted in approximately 66% of the paid in capital being repaid to the shareholders. The remaining two vessels continue on long term charters to the same counterpart. PSV Invest II IS The vessel continues on a 4-month contract with ConocoPhillips at a day rate which is well above the current market level in the North Sea. It remains to be seen what employment opportunities emerge towards the winter. The current contract expires in September. 3B Offshore IS, Norseman Offshore IS, Far East Offshore IS. These projects are all developing according to schedule with charterers performing (hire paid punctually), debt serviced according to plan and free cash distributed to owners. Payments from projects An agreement to sell the three barges owned by

4 Net Asset Value Development Net asset value was up 7.1% during H1 14. Of this, 6%-points come from an appreciation of the value of the portfolio, primarily due to completed or agreed project realizations, while 1%-points came from a strengthened USD. NAV development NAV as of 30 Jun 14 was NOK 100 per share, up 7.1% from the previous NAV as of 31 Dec 13, adjusted for the NOK 20 per share distributions this year. POI makes semi-annual NAV calculations. Accordingly, the next NAV will be published as of 31 Dec 14 and will be reported to investors in the report for the fourth quarter NAV is up 38% since inception in 2009 (adjusted for repayments of capital). This is a solid return considering the fact that the first investment was made as late as Q2 10 due to a lack of deal flow during the financial crisis. The estimated values of the charters, charter free values and cash in the projects constitute NOK 252 per share in POI. The debt in the projects make up NOK 158 per share, leaving a net position in the projects of NOK 94 per share. Cash, tax positions and cost provisions at the holding company net a positive NOK 6 and consequently an NAV per share of NOK 100. Direct yield POI has an ambition to make annual payments to its shareholders. Such payments are made within the relevant laws, and may come in the form of ordinary dividends, as well as repayment of capital. POI distributed NOK 10 per share to its shareholders this summer, following its AGM, following a distribution of NOK 10 per share in January. The total distributions to shareholders since inception amounts to NOK 38 per share. As mentioned, a material additional distribution is expected in Q3 14 following completion of the Offshore Accommodation transaction. The increased distribution in 2014 is a reflection of the fund getting closer to the exit date (1 Jul 16) and thus distributing cash rather than recycling into new investments. Future distributions is mainly expected to follow realisations of projects. POI - NAV Composition per share (NOK) 250 Value of charters Cash in SPVs 8 Debt in SPVs NOK per share in POI Charter free values Sellers' credit 20 Cash in POI 8 Tax position Other costs 1 1 NAV POI POI - NAV development NAV per share 120 NAV per share (dividend adjusted)

5 Portfolio Project / company Segment Contract Charterparty Charterer Proportion of NAV 3B Offshore IS PSV/AHTS (Europe) Nov-17 Bareboat Bourbon 17.2 % Offshore Accommodation IS Accommodation Dec-21 Bareboat African Offshore Services 15.1 % Master and Commander IS Seismic Aug-18 Bareboat CGG/Fairfield Nodal 14.9 % PSV Invest II IS PSV/AHTS (Europe) Sep-14 Timecharter Conoco 9.7 % Carlisle Subsea IS Subsea Oct-15 Bareboat Hallin Marine Subsea 9.4 % Songa Offshore SE 2011/2016 FRN Semi Submersible Rig May-18 High yield bond Songa Offshore SE 6.3 % Asian Offshore IS PSV/AHTS (Asia) Spot/Asset play 5.9 % Azur Offshore IS PSV/AHTS (Asia) Jun-23 Bareboat Ezra Holdings 5.3 % Vestland Seismic IS Seismic Spot/Asset play Albatross Shipping 4.2 % Norseman Offshore IS PSV/AHTS (Europe) Dec-20 Bareboat Viking Supply Ships AS 4.2 % Far East Offshore IS PSV/AHTS (Asia) Feb-17 Bareboat Sanko Steamship Ltd 3.8 % PSV Invest II IS shareholder loan PSV/AHTS (Europe) Nov-14 Timecharter Maersk Oil 3.5 % Asian Offshore V IS PSV/AHTS (Asia) Spot/Asset play 0.5 % Charterparty Distribution based on NAV Segment Distribution based on NAV Subsea 9% Bareboat 70 % Accommodation 15 % Seismic 19 % Semi Submersible Rig 6 % Timecharter 13 % PSV/AHTS (Europe) 35 % PSV/AHTS (Asia) 15 % Spot/Asset Play 11 % High yield bond 6 %

6 Second Hand Market and Liquidity As of POI had 851,877 shares outstanding. Pareto Project Finance AS ( PPF ) aims to facilitate an active second hand market for shares. The last trading price was NOK 78 per share. This transaction was concluded following the latest distribution of NOK 10 per share in early June implying a NOK 13 per share increase from the latest transaction when accounting for the distribution. Investors who wish to buy or sell shares should contact their advisors or alternatively PPF directly. Last 5 trades in second hand market Date Share price No. of shares Volume (NOK) Number of trades since establishment 37 Volume traded since establishment (NOK) Average volume per trade (NOK) Pareto Offshoreinvest AS - Second Hand Trades Volume (Thousand NOK) NAV per share NAV per share (dividend adjusted) Second hand price per share Price per share Volume (Thousand NOK) Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Date

7 The offshore oil services market The activity growth in the oil services markets continued last year, albeit with some slowness emerging in the seismic markets towards the end of the year. In the absence of a rising oil price, the oil industry is trimming its upstream investment plans to be able to preserve shareholder dividends, which is resulting in a slower growth outlook near term. The longer term, however, looks promising. Capex budgets 10 largest integrated, USDm The large oil companies are trimming capex As highlighted towards the end of 2013, the large, integrated oil companies are trimming their capex levels. This is primarily due to the sticky oil prices combined with rising costs, which in turn hurts profitability on both new projects as well as from existing fields. This combination resulted in weak share price performances among oil companies and needed to be adressed. to make way for dividend payments Source: Bloomberg, SP1 Markets Break even oil prices, 10 largest integrated (Brent $/b) As evidenced by the graph to the left, there is not enough profit margin with current oil prices to support both sustained capex levels and the dividends required to secure good share price performance. Something has had to give, and this time around, it has been capex. So far, it has had a positive impact on share prices, with the most aggressive cost-cutters achieving the best performance. Source: Bloomberg, SP1 Markets The offset of this is a continued decline in production levels. Oil production from the 10 largest integrated oil companies has declined for 16 quarters in a row, and has accelerated in the last three. While the portfolios may be high-graded through a focus on the more profitable projects, it will nevertheless end up having an impact on the supply of oil, which at some point should have a positive impact on oil prices and restore a sense of normality. Therefore, our main thesis is still that we are experiencing a temporary lull in oil service markets. North Sea AHTS market disappoints big time Most observers were extremely bullish on the North Sea AHTS spot market this year, citing rising demand from an influx of drilling rigs, coupled with a reduction in the number of available vessels due to high, project-related requirements in Arctic Russia. They have all been wrong. The market has been very weak during the spring and summer. The main reason appears to be reduced demand from Statoil, one of the more vocal «cost-cutters» in the oil industry, and by far the biggest client in the North Sea AHTS market. In addition, the weather has been benign, which normally improves vessel efficiency. The remainder of the year looks bleak, but if there s one thing we know about this market, then it is to expect the unexpected!

8 Fund Management Team Richard Jansen Head of Fund Management Shipping/Offshore Phone: E- richard.jansen@pareto.no Patrick Kartevoll Fund Manager Shipping/Offshore Phone: patrick@pareto.no Dronning Mauds Gate 3, P.O. Box 1396 Vika, NO-0114 Oslo, Norway, Tlf: ,

9 Disclaimer This Quarterly Report has been prepared in order to provide information about Pareto Offshoreinvest AS ( POI or the Company ) and must not be considered an offer to trade in the shares of the Company. development. All investors must verify these assumptions themselves. The company cannot give any assurance as to the correctness of such information and statements. Information contained in this Quarterly Report is obtained by Pareto Project Finance AS ( Pareto Project Finance, Pareto, or PPF ). Information is presented to the best of our efforts and knowledge, but Pareto Project Finance AS cannot guarantee that the information is correct or all inclusive. Pareto Project Finance AS takes no responsibility for any loss caused by information given being misleading, wrongful or incomplete nor for any other loss suffered as a consequence of investments made in the Company. Historic returns and return forecasts do not constitute any guarantee for future returns. Returns may vary as a consequence of fluctuations in currency exchange rates. Investors should be aware that there is significant uncertainty related to valuations in the current volatile market. The valuation process is described in PPF s market report as per April Risks and costs are further described in the prospectus (information memorandum) produced in relation to share issues in the Company. This Quarterly Report includes and is based on, among other things, forward-looking information and statements. Such forward-looking information and statements are based on the current expectations, estimates and projection of the company or assumptions based on information available to the company and Pareto Project Finance AS. Such forwardlooking information and statements reflect current views with respect to future events and are subject to risks, uncertainties and assumptions that may cause actual events to differ materially from any anticipated The contents of this presentation are not to be construed as legal, business, investment or tax advice. Each recipient should consult with its legal-, business-, investment-, and tax advisors as to legal, business, investment and tax advice. Specifically, Pareto Project Finance AS has been engaged as the company s financial advisor and does not render and shall not be deemed to render any advice or recommendations as to a transaction.