Pareto World Wide Shipping II AS 2011 Kvartal 3

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1 Pareto World Wide Shipping II AS 2011 Kvartal 3 Lenke: Avdelinger/Forvaltning/Shippingfond

2 Forvaltningsteamet Per-Christian Nicolaisen Richard Jansen Johan Anker-Rasch Patrick Kartevoll Ansvarlig Forvalter Ansvarlig Forvalter Forvalter Forvalter/Forretningsfører Eiendom Shipping/Offshore Eiendom/Shipping/Offshore Shipping/Offshore Tlf: Tlf: Tlf: Tlf: E-post: nico@pareto.no E-post: richard.jansen@pareto.no E-post: jar@pareto.no E-post: patrick@pareto.no Jonathan Andreas Barfod Hans Gunnar Martinsen Fredrik Jansen Sommernes Forvalter Forretningsfører Forretningsfører Eiendom/Shipping/Offshore Eiendom Eiendom Tlf: Tlf: Tlf: E-post: jab@pareto.no E-post: hgm@pareto.no E-post: fjs@pareto.no Dronning Mauds Gate 3, P.O. Box 1396 Vika, NO-0114 Oslo, Norway, Tlf: ,

3 Pareto er en uavhengig og ledende aktør i det norske markedet for finansielle tjenester. Selskapet har kontorer i Oslo, Stavanger, Bergen, Trondheim, Kristiansand, Bryne, Singapore og New York. Pareto ble stiftet i 1986, og har utviklet seg til å bli et konsern med et omfattende produktspekter. Selskapet har cirka 450 ansatte. Den sterke utviklingen er muliggjort gjennom dedikerte og dyktige medarbeidere, skarpt fokus på å utvikle gode produkter, kontrollert vekst og ikke minst ved at våre kunder og forretningsforbindelser har vist oss tillit. Pareto Project Finance AS Pareto Business Management AS Pareto Securities AS Pareto Forvaltning AS Pareto Bassøe Shipbrokers AS Pareto Bank ASA Pareto Wealth Management AS Pareto Offshore AS Pareto Dry Cargo AS Pareto PPN AS JGO Shipbrokers AS Pareto Forsikringsmegling AS

4 Forvalters kommentar Utviklingen innen shipping og offshore fortsetter å gå i hver sin retning, også i de siste måneders finansuro. Aktiviteten innen offshore har fortsatt opp det siste kvartalet, og vi har sett nye nivåer både på rater og transaksjonspriser. Oljeprisen fortsetter å holde seg på et høyt nivå og gir støtte til oljeselskapenes planlagte investeringsvekst. Allikevel truer den finansielle uroen utsiktene på kort til mellomlang sikt. Globale aksjemarkeder er ned ca 17 % siden siste kvartalsrapport og signaliserer vidtrekkende effekter av gjeldskrisen i PIGS-landene og i USA. Så langt har det ikke hatt effekt på aktivitetsnivået og hvis aktørene får fortsette som planlagt vil utsiktene fortsatt være bra. Imidlertid har vi sett at bankene allerede har begynt å stramme inn og tar lavere risiko, låner ut mindre og tar seg bedre betalt. Lavere tilgang på fremmedkapital til å finansiere aktiviteten ser ut til å bli den første, umiddelbare effekten av de volatile finansmarkedene. Dersom markedene normaliserer seg relativt rask vil ikke virkningene være store, men antakelig vil veksten kunne stoppe noe opp på mellomlang sikt (1 2 år), noe som vil ta litt av piffen ut av offshoremarkedet og redusere mulighetene for å gjøre gode forretninger hva gjelder salg, så vel som kontrakter. Forvalter er derfor mer forsiktig med å ta risiko innen offshore, på tross av positivt langsiktig syn. I shipping fortsetter de dårlige markedene å forverres, mens de gode markedene flater ut. Lavere global økonomisk vekst vil begrense veksten i verdenshandelen og behovet for shipping. De markedene som er satt opp med dårligst forhold mellom vekst i etterspørsel og kapasitet, som tank og bulk, vil bruke enda lenger tid på å snu, mens markeder i noenlunde balanse vil bevege seg sidelengs. Det synes som konsensus at de fleste markeder ikke vil bedres før i 2014, mens noen ligger noe bedre an. Forvalter fortsetter å ha en forsiktig holdning innenfor shipping og vil fokusere på prosjekter som gir løpende inntjening. Fallende skipsverdier gir både utfordringer og muligheter. Utfordringene ligger i hovedsak på pantesikkerhet i forhold til lån, og betyr at man i enkelte prosjekter må skyte inn mer penger for å tilfredsstille bankene. Mulighetene ligger i at det kan dukke opp investeringsmuligheter til sterkt rabatterte priser i forhold til historiske verdier. Forvalter vil posisjonere seg i forhold til slike muligheter og holder således kruttet tørt. I tråd med de ulike markedsutsiktene er PWWS II fortsatt godt posisjonert med 60 % av porteføljen innenfor offshore. Posisjoneringen innenfor shipping er i hovedsak industriell shipping, hvor markedene er i noenlunde balanse og man har langsiktige kontrakter. Kun ca. 7 % er i tank og bulk. Forvalter vil opprettholde denne posisjoneringen under rådende markedsforhold. Selv om avkastningsmulighetene ser ut til å bli noe lavere fremover, er det fremdeles mulig å oppnå god avkastning på offshore prosjekter og definitivt bedre enn penger i banken til lav rente. Samtidig vil Forvalter ha et opportunistisk syn på shipping og primært søke tonnasje som er kraftig rabattert i forhold til historiske verdier.

5 Viktige hendelser i PWWS II i løpet av tredje kvartal Fusjon med PWWS og feederselskapene Det er igangsatt en prosess for å fusjonere Pareto World Wide Shipping AS («PWWS») og PWWS II, samt de underliggende feederselskapene Pareto Shippingkapital AS, PPN Shippinginvest I AS, Optimum Skipsinvest I AS og Pareto Shippingkapital II ASA. Formålet med fusjonen er å skape en større og mer slagkraftig enhet med en enklere struktur og færre forvaltnings- og selskapsnivåer. Dette vil gjøre forvaltningen av underliggende portefølje enklere og bedre, redusere kostnader for investorene, samt bedre likviditeten i annenhåndsmarkedet. Samlet vil det nye selskapet ha en verdijustert egenkapital på i underkant av NOK 1,3 mrd fordelt på èn aksjeklasse. Dagens struktur med seks ulike selskaper og aksjeklasser anses som uhensiktsmessig utfra forvaltningsmessige, kostnadsmessige og likviditetsmessige hensyn. Dette gjelder spesielt ettersom anslagsvis 70 % av investeringene i PWWS II er felles med PWWS. Det vil følgelig bli mer konsentrert eierskap i investeringene, noe som kan være positivt med tanke på exit verdier. Samtidig vil en bredere portefølje innebære lavere risiko. Bytteforholdet i fusjonen vil være basert på VEK i de ulike selskapene. Planen er å gjennomføre fusjonen med regnskapsmessig virkning fra Den er betinget av styreog generalforsamlingsgodkjennelse i de ulike selskapene, noe som planlegges i løpet av november. Havila PSV IS PWWS II solgte sine andeler i Havila PSV IS til Havila Shipping ASA med delvis oppgjør i børsnoterte aksjer i sistnevnte selskap og delvis kontantoppgjør. Aksjene har ikke bindingstid og ble utstedt basis en aksjekurs på NOK 52,50. I skrivende stund er siste omsetningskurs NOK 42 på Oslo Børs, slik at man har et urealisert tap her. Forvalter har et langsiktig perspektiv på investeringen og er optimistisk på å oppnå god avkastning. Verdiene av flåten til selskapet har ikke endret seg negativt i løpet av kvartalet. Deep Sea Bergen Invest AS Driften av riggen går som planlagt og det er budsjettert ytterligere utdeling fra det riggeiende selskap senere i år etter hvert som man akkumulerer kontantstrøm fra drift. Man har satt i gang en prosess for å refinansiere obligasjonslånet til Deep Sea Bergen Invest, som forfaller i desember i år. Dette kan åpne for utbytte fra selskapet i kommende år. Neptune Subsea IS Man har besluttet å ta levering av begge skipene til rabatterte priser. De leveres i oktober og november. Det jobbes med befraktningsmuligheter, både korte og lange, og interessen har vokst betydelig etter at det ble klart at skipene blir levert. Selskapet er kapitalisert godt nok opp til at skipene kan være uten inntjening i nesten ett år uten at man behøver ytterligere tilførsel av kapital. Brøvig Stainless II DIS Begge skipene er nå levert og vil gå inn på 5-års bareboat kontrakter med Stolt Nielsen, som også har kjøpsopsjoner ved slutten av certepartiene. Dette vil gi positiv avkastning på investert kapital, noe som er betraktelig bedre enn å selge skipene i dagens marked med et stort tap av egenkapital som resultat. Parbarge IS Barge virksomheten til Marine Subsea blir flyttet over i et nytt selskap som heter African Offshore Services, som drives av den tidligere ledelsen i Marine Subsea. Våre sluttbrukere og kontraktsbetingelser forblir de samme. Totalt sett er dette en god løsning for prosjektet ettersom motpartssikkerheten anses som å være bedre, samtidig som lønnsomheten blir den samme. Middle East Jack-up Ltd Riggen blir levert i oktober. Det foreligger konkret kjøpsinteresse for riggen fra flere hold og på nivåer som er vesentlig opp i forhold til tidligere i år. Samtidig er det gode muligheter for befraktning på akseptable nivåer. PWWS II har satt av midler for å ta levering uten ytterligere opptak av gjeld. Forvalter venter en avklaring på dette prosjektet før jul. Vestland Seismic IS Motpartssikkerheten er vesentlig bedret ettersom befrakter RXT har inngått en avtale med en industriell partner som har skutt inn USD 10 millioner i morselskapet og USD 30 millioner i et felles eiet datterselskap. Markedsutsiktene har også bedret seg og seismikk skipet som Vestland eier har sluttet ut året. Volatil US dollar Som presisert i prospektet (og Informasjonsmemorandum) er investeringer som gjøres i valuta utsatt for svingninger mellom den underliggende valutaen og NOK. PWWS II foretar ingen valutasikring, og dette innebærer at endringer i valutakurser påvirker den verdijusterte egenkapitalen i de underliggende investeringene. Ca. 54 % av verdijustert egenkapital i PWWS II er eksponert mot USD og ca. 3 % mot EUR. Lavere USD hadde per hatt en negativ effekt på rapportert VEK i norske kroner på ca 4 %. Siden da har USD/NOK steget med ca 3 %. For øvrige prosjekter er det ingen vesentlige hendelser som påvirker de underliggende verdier å melde om.

6 «Siste verdijusterte egenkapital var NOK 155 per aksje» Verdi- og kapitalutvikling Kursutvikling Kursutviklingen som rapporteres for Pareto World Wide Shipping II AS («PWWS II») er basert på verdijustert egenkapital («VEK»). Verdivurderingen av PWWS II sine investeringer er basert på innhentede markedsverdier fra megler(e)/tilrettelegger(e) hvor anerkjente verdivurderingsprinsipper og bransjemessige standarder blir lagt til grunn. Siste kurs basert på verdijustert egenkapital ble fastsatt 30. juni, og er NOK 155 per aksje (valutakurs USD/NOK på rapporteringstidspunktet var 5,3882). Dette er justert for utbytte på NOK 8 per aksje for PWWS II gjør halvårlige verdivurderinger av de underliggende prosjektene, og rapporterer således VEK to ganger per år. Følgelig vil neste offisielle VEK foreligge per og rapporteres til investorene i kvartalsrapport for fjerde kvartal Annenhåndsomsetning Per utgang av tredje kvartal 2011 er det utstedt totalt aksjer i PWWS II. Pareto Project Finance AS («PPF») legger til rette for aktiv annenhåndsomsetning av aksjer. Siste omsetningskurs er NOK 150 per aksje (omsatt ). De siste omsetninger i selskapets underliggende feederselskap (Pareto Shippingkapital II) har vært til kurser som tilsvarer ca. NOK 80 per aksje for PWWS II. Investorer som ønsker å kjøpe eller selge sine aksjer kan ta kontakt med sin rådgiver. Direkteavkastning Utbetaling av kapital til investorene skjer innenfor aksjelovens regler. PWWS II vil tilstrebe en årlig utbetaling til aksjonærene på 5 12 % av innbetalt kapital fra det tidspunkt PWWS II er tilnærmet fullt investert. Utbetaling til aksjonærene kan skje i form av utdeling av utbytte eller ved nedsettelse av aksjekapitalen. I tråd med dette gjennomførte PWWS II en utbetaling på NOK 8 per aksje til aksjonærene i andre kvartal Det er forventet at de årlige utbetalingene fra de underliggende investeringene vil øke og følgelig at PWWS IIs utbetalinger til aksjonærene vil følge denne utviklingen fremover. Samlet har PWWS II betalt ut NOK 27 millioner til sine aksjonærer, totalt NOK 14 per aksje, siden oppstart. Dette tilsvarer en direkteavkastning på 7 %. Investeringstakt og kapitalutvikling Kommittert kapital i PWWS II var opprinnelig NOK 388 millioner. PWWS II har en portefølje bestående av andeler i totalt 36 enheter, og har en kontantbeholdning per 30. september på ca. NOK 96 millioner. Av dette er NOK 15 millioner planlagte innbetalinger på allerede kommitterte investeringer, mens resterende NOK 81 millioner er kapital som vil brukes til en kombinasjon av nye investeringer, oppfølging av eksisterende prosjekter og utbetalinger til aksjonærene. Porteføljen til PWWS II gjennomgås jevnlig av forvalter med tanke på å evaluere risikoen for ytterligere kapitalbehov i prosjektene. Styret og forvalter er av den oppfatning at PWWS IIs avsetninger for mulige innkallinger av egenkapital sannsynligvis har passert et toppnivå, og at disse vil reduseres i takt med en eventuell bedring i markedet. Dagens markedssituasjon tilsier at PWWS II på nåværende tidspunkt har rundt NOK 45 millioner i fri investeringskapital. Levetiden utløper 1. oktober 2014.

7 NOK Kursutvikling Pareto World Wide Shipping II AS* 120 Emisjon I (USD/NOK 5,65) Emisjon II (USD/NOK 5,47) Emisjon III (USD/NOK 5,09) Emisjon IV (USD/NOK 5,10) VEK (USD/NOK 5,95) VEK (USD/NOK 7,01) VEK (USD/NOK 6,60) VEK (USD/NOK 5,74) VEK (USD/NOK 6,50) VEK (USD/NOK 5,86) VEK (USD/NOK 5,39) * Omfatter ikke omsetning i annenhåndsmarkedet. justert for utbytte ordinær kurs MNOK 450 Kapitalutvikling Kommitert kapital VEK Fond Utbetalt Fri kapital Gjenstående innbetalinger VEK prosjekter* * korrigert for latent skatt/skattefordel

8 PWWS IIs prosjekter Kjøpsdato Prosjekt / selskap Antall skip Segment Byggeår Certeparti slutt Type kontrakt Parbulk II IS 0 Bulk 1996 N/A Vestland Seismic IS 1 Seismikk Bareboat Neptune Subsea IS 2 Subsea 2010 Spot/Asset play Brøvig Stainless Steel II IS 2 Kjemikalie Bareboat Partankers IV IS 1 Tank Bareboat ParBarge IS 2 Accomodation Bareboat Middle East Jackup Ltd 1 Rigg 2010 Spot/Asset play Bukit Timah Offshore DIS 3 Supply Bareboat Pareefers II KS 2 Reefer Bareboat Partankers VI IS 1 Kjemikalie Bareboat ParChem IS 2 Kjemikalie Bareboat Parchem II IS 1 Kjemikalie Bareboat River Cruise KS 2 Cruise 2001/ Bareboat PSV Invest IS 2 Supply Bareboat Deep Sea Bergen Invest AS 1 Rigg Oppgradert ' Timecharter Berthea IS 1 Kjemikalie 2008 Spot/Asset play PSV Invest II IS 1 Supply 2012 Spot/Asset play NorthSea PSV IS 1 Supply 2012 Spot/Asset play B-Gas IS 9 LPG Timecharter Havila Shipping ASA 1 Supply Timecharter Total 36 3,3 *VEK på de underliggende prosjektene er presentert før eventuell latent skatt. Shippingporteføljen PWWS II vurderer porteføljen til å være solid, der hovedtyngden av prosjektene løper med bareboat certepartikontrakter i henhold til PWWS IIs investeringsmandat. Gjennomsnittlig vektet certepartilengde er 3,3 år. Porteføljen inneholder andeler i totalt 36 enheter, fordelt på segmentene forsyningsskip, rigg, subsea, seismikk, flotell, tank, bulk, kjemikalie, reefer, LPG og cruise. Finansiering PWWS IIs finansieringssituasjon er gunstig gitt rådende markedsbetingelser. Hovedvekten av lånene i underliggende investeringer er inngått da utlånsmarkedet fungerte vesentlig bedre, slik at marginer og gjeldsgrad i prosjektene i PWWS II er betydelig bedre enn hva man kan forvente å oppnå i dagens marked. Utfordringene på finansieringen knytter seg imidlertid til å opprettholde denne strukturen. Dersom prosjektene kommer i brudd med betingelser i låneavtalene, kan man risikere at banken vil kreve et betydelig marginpåslag på lånet. Som ledd i at markedsverdier på skip har hatt en positiv utvikling siste halvår og at underliggende lån nedbetales med avdrag, anser Styret og forvalter at risikoen for å komme i brudd med lånebetingelser i enkeltprosjekter er redusert. PWWS IIs transaksjoner i løpet av tredje kvartal Kjøp Styret og forvalter tror fortsatt timingen for å gjøre nye investeringer er gunstig, og har således vært aktive med å se på nye investeringsmuligheter gjennom tredje kvartal. Grunnet rådende markedsforhold ser man at store deler

9 Befrakter Disponent Eierandel VEK' N/A Skips AS Tudor 20 % Albatross Shipping Ltd. Klaveness Corporate Services AS 15 % N/A Neptune Offshore AS 11 % Stolt Tankers B.V. Brøvigtank AS 25 % Lavin Ltd. / BW Shipping Ltd. Bergshav Management AS 10 % Marine Subsea AS Bergshav Management AS 10 % N/A Swicorp 4 % Swiber Offshore Marine Pte. Seabulk AS 8 % Lavinia Corporation P. D. Gram & Co AS 14 % STX Europe Camillo Eitzen & Co ASA 40 % Heung-A Shipping Ltd Brøvigtank AS 50 % Eitzen Chemical ASA J B Ugland Shipping AS 19 % Viking River Cruises S.A. Lorentzens Skibs AS 10 % ConocoPhillips DOF PSV Invest IS 3 % Statoil Odfjell Rig AS 2,8 % % DOF ASA 4 % Sartor Offshore AS 4 % Total / Vitol / Statoil Bergshav Management AS 7 % % Certeparti- og segmentfordeling (basert på VEK) Rigg 14 % Subsea 18 % Bareboat 51 % Spot/Asset Play 33 % Supply 19 % Seismikk 6 % Accomodation 6 % Timecharter 16 % Tank 5 % Kjemikalie 24 % Bulk 3 % Cruise 2 % Reefer 3 % av investeringsmulighetene foreløpig kommer innenfor offshore, dog dukker det opp flere muligheter innenfor shipping hvor enheter tilbys for salg til svært lave priser av eiere som er i finansielle problemer. B-Gas AS PWWS II har økt sin investering til NOK 10 millioner i B-Gas AS, hvilket gir 7 % eierandel. NOK 7 millioner ble betalt inn i løpet av tredje kvartal mens resten skal betales inn i fjerde kvartal. I tillegg har PWWS II kommittert seg for NOK 2 millioner i uinnkalt kapital i prosjektet. Innbetaling av uinnkalt kapital PWWS II har ikke måttet innbetale noe uinnkalt kapital i løpet av tredje kvartal 2011.

10 Salg Som nevnt i forrige kvartalsrapport kvartalsrapporten har PWWS solgt sine andeler i Havila PSV IS til Havila Shipping ASA med delvis oppgjør i børsnoterte aksjer i det sistnevnte selskap. Transaksjonen fant sted i juli PWWS har tro på at supply markedet vil utvikle seg positivt fremover og vil se en eventuell realisasjon av aksjene i Havila Shipping ASA i forhold til dette. Så langt har volatile aksjemarkeder redusert verdien av investeringen. Utbetalinger fra underliggende investeringer Det er ikke mottatt utbytte fra underliggende investeringer i tredje kvartal. Hittil i år har PWWS II mottatt NOK 3,2 millioner i utbytte. Definisjoner I denne kvartalsrapporten har nedenstående utrykk følgende betydning, med mindre annet er direkte uttalt eller fremgår av sammenheng. De nedenstående definisjonene gjelder også for de foregående sidene i denne kvartalsrapporten. Definisjoner: PWWS II Pareto World Wide Shipping II AS VEK Verdijustert egenkapital PPF Pareto Project Finance AS MEJU Middle East Jack-up Ltd.

11 fig1 Markedskommentar Shipping Kilde: Pareto Project Finance AS Shipping The markets continue to be very challenging for certain segments in the shipping industry with overall earnings sliding back towards the bottom seen in Average earnings YTD measured by the Clarksea Index is USD 12,000/day, compared with a 2010 average of USD 15,200/day and a 2009 average of USD 11,300/day. The ten year average is USD 21,200/day. As has been the case during the past two years, it is the bulk shipping segments that are faring the worst. The slight uptick in average earnings in the past month is, on the other hand, a result of improving conditions in the drybulk market. Source: Clarksons The world orderbook for new vessels continues to contract and now stands at roughly 6,550 vessels with a combined deadweight tonnage of around 430 million tons. This equates to a 15 % decline in volume of vessels on order since the turn of the New Year, as a result of deliveries and slippage being higher than the rate of new orders. Secondhand activity has slowed down again after a buoyant 2010, where activity doubled from the previous year. The run rate so far in 2011 is down just in excess of 20 % from last year s levels. Values depreciated about 5 % last year and have held firm during 2011, although with clear differences between segments. These differences mimic the fortunes in the freight markets. Into 2011, the rate of new vessel deliveries have outstripped the increase in demand, particularly for tanker and dry bulk segments, resulting in weakening dayrates and values. Looking forward, vessel demand growth is now subject to more uncertainty due to the global financial unrest, with the large orderbook for new vessels likely to add further pressure on earnings for a longer period of time than what was assumed earlier this year. Some segments look more favourable than others and shipping investors may secure many attractive deals in the time to come, particularly as more distressed owners now really start feeling the pinch. (Clarksons, Pareto) Dry Bulk market This year has been weak with average earnings more than 40 % lower than the average for 2010, despite a pick-up in earnings during the past month.

12 fig2 fig3 Source: Clarksons Demand for dry bulk transportation continues to grow, with robust Chinese iron ore imports and high activity and prices in the coal industry supporting vessel demand. What continues to kill the market is the orderbook for new vessels, which stands at 40 % of the existing fleet overall, the highest number of all shipping markets. This is particularly influenced by orders for large vessels (Panamax and larger), where the order book is 44 % of the current fleet. The smaller segments (Handymax, Handysize) have an order book which is 33 % of the fleet. We therefore favour the smaller vessels in the dry segment going forward. Despite the favourable medium- and long-term demand characteristics in the dry bulk market, the large number of new vessels coming to the market is likely to maintain the market balance in favour of the charterers, although the current situation is a bit better than is the case for the tankers. (DryShips, Pareto, Clarksons) Tanker market The tanker market is under heavy pressure following a tough Rates are down about 22 % from last year s levels. As expected, global oil demand growth has declined somewhat, and although Saudi Arabia is producing as near record levels to compensate for the loss of crude from Libya, there are simply too many vessels around. Source: Clarksons Crude tankers are having a particularly hard time, with rates below operating cost now becoming a rather regular feature. With an orderbook representing 23 % of the existing fleet, the current demand growth of roughly 3 % p.a. means that it will take a long time before the market rebalances. Floating storage levels are still low and unable to make much of a difference. Supply side management appears the only way for the owners to restore earnings. We are now seeing more vessels being scrapped at a younger age than before, both as a result of low fuel efficiency and due to scrap values of VLCCs being close to second hand prices for vessels older than 15 years. There are also a rising number of vessels being converted to other uses, so owners now have a clear incentive to remove capacity from the market. Slow steaming and lay-ups are also cards the owners can play to instigate a turnaround of the current depressed rate picture. The financial state of the tanker industry is also of concern. Many owners are highly leveraged and fast becoming unable to service debt as cash levels are drawn to the minimum and fixtures make zero profits. A big refinancing battle is looming, with the equity holders looking to be the big losers, but also posing the question of which of the creditors that will have to take a haircut. The banks will probably want to avoid taking control of ships, as a massive selling of bank controlled ships will only depress values and represent a vicious circle, and thus will probably want to be constructive. On the other hand, the current financial turmoil is putting pressure on banks in general, and may result in more stringent measures being taken than what would appear rational from a pure shipping perspective. The financial problems in shipping will also have an impact on the deliveries of new vessels from the current order book. The average VLCC has been ordered for around USD 130m and is now worth around USD 90m fresh from the yard. A typical 80 % take-out payment on delivery will be in excess of USD 100m. Who d want to lend USD 100m to a loss-making owner against collateral that is worth only USD 90m? The answer is no one in today s markets. Hence, yards will probably struggle to deliver vessels as the financing simply won t be there. This will be ugly for shipyards and owners alike, but as it will result is less new capacity coming into the market, it may also sow the seeds for a more rapid turnaround in tanker earnings. Product tankers are better placed at present, with a modest fleet growth and an attractive demand and supply balance, in particular in the long range product segment. In this segment, we have seen some uptick in values and an increasing appetite for newbuilds. (Pareto, Clarksons, International Energy Agency, Lorentzen & Stemoco)

13 fig4 fig5 fig6 Chemical market The charter market for chemical carriers is still relatively soft, but there has been an overall improvement in activity and dayrates during the year, compared to On the other hand, some of this improvement is being absorbed by increased bunker prices, so the net earnings are still at low levels. The LPG market is enjoying better times due to increased refinery output as global refinery capacity is being expanded, offering more cargo availability. Moreover, the new capacity is generally more remote from the main consuming areas, thus offering longer trade routes, which restricts the effective transportation capacity. Industrial demand for petroleum gases is also increasing, while there is limited fleet growth. The overall picture is that of a tightening market, with rates increasing across all segments. Source: Eitzen Chemical The overall demand picture is mixed, with Europe, Mediterranean and West African markets improving. Middle East, trans-atlantic and trans-pacific markets are stable, while Far East markets as slowing. The outlook for the coming years looks somewhat more negative than before as it appears likely that the European debt crisis will reduce overall economic growth and industrial activity growth, the latter being the most important driver for chemical transportation demand. In that respect, it is positive that few new orders have been placed in this segment in the past two years. The strong Japanes yen effectively curbs fleet growth out of that region, and the current charter rates do not justify newbuildings. The orderbook now stands at about 12 % of the fleet according to Etizen Chemical. The order book equals the number of vessels older than 20 years and the number of single hull ships. Therefore, it seems reasonable to expect low fleet growth in the coming years, probably around 2 % p.a., while trading volumes are expected to grow by a higher number. Therefore, the chemical markets look to be treading the water in the coming years, with some scope for improvement. (Eitzen Chemical, Lorentzen & Stemoco, Pareto) Gas market The market for gas transport, both LPG and LNG has surged this year and stands out as by far the strongest segment in shipping. For LNG, it is the emergence of natural gas as the fastest growing source of energy, coupled with uncertainty about the future for nuclear power that generates the growth. The segment has grown by 6.5 % p.a. in the past 25 years and that growth rate looks to accelerate going forward. Container market After growing by 12 % in 2010, global container trade has experienced a softening 2011 with volume growth of around 6 %, which so far has been outpaced by new fleet deliveries. The weakening is a result of slowing imports to western economies, meaning that both the all-important Far East Europe and Transpacific trades are slowing down at the same time. Source: Clarksons As a result, the upward trend in dayrates has reversed with liner operators and owners reacting swiftly in laying up the more inefficient vessels and introducing slow steaming to reduce effective capacity. On the other hand, newbuild activity has continued at high levels, with a clear preference for large vessels. A total of 211 vessels have been ordered YTD, compared to 125 for the whole of The average size of vessels ordered this year has been 7,600 TEU, compared to 5,400 TEU

14 last year. The main reason for many new orders is a shift in the industry s preference towards high TEU capacity combined with lower speeds and higher fuel efficiency over the previous singular focus on high speeds. At current prices, bunker costs completely dwarf ordinary operating costs and financial costs, so higher fuel efficiency is a sure way for the liner operators to improve margins. Second hand transactions are slowing down as a result of the weakening markets. This is primarily a feature of the smaller vessel types, where prices have come off a bit. According to Clarkson s, containership capacity is currently projected to grow by around 9 % this year. The growth in containership supply is expected to be somewhat moderated by non-delivery, while the demolition of capacity is not expected to be as significant as last year. Total capacity growth is expected at 8 % this year. The total orderbook is 29 % of the existing fleet, which seems to indicate that owners believe in the long term story, despite short to medium term risks. Financing of deliveries could also become an issue here, so the effective capacity growth could become less. (Clarksons, Pareto) Reefer market 2011 has continued at lower levels than last year, with limited cargo requirements and a spot market in charterers favour. The low rates can be explained by a combination of several factors; reduced banana harvest, import ban from Russia for US poultry, financial challenges in the Euro-zone and in Russia, and less fishing activities in both South Atlantic and South Pacific. The fortunes of the specialized reefer market have been closely linked to the slow and faltering economic recovery and exchange rate movements in Europe and Russia. With the anticipated slow recovery in Western and Eastern Europe, it is likely that consumer demand will remain muted. This could quite possibly result in the market for specialized reefers suffering, with the less efficient vessels suffering most. The rates for specialized reefers vessels are highly seasonal, with February to April usually seeing the highest rates of the year. That happened this year also, but rates fell off sooner than normal and has continued at very low levels during the slow season. The current orderbook is almost non-existing, and the fleet is ageing, leading to the global fleet shrinking by 6 % last year. As a result of the weak charter rates, scrapping has increased and looks set to eclipse the levels seen last year. Therefore, an increase in demand could give a very positive effect to the specialized reefer market. Overall, however, the outlook appears to be weak. (Reefer Trends, Green Reefers, Star Reefer, Pareto)

15 Markedskommentar Offshore Kilde: The upturn in oil service markets that we predicted a year ago appears well underway and according to expectations. The rising oil price and E&P budgets with 15 % growth this year have set the tone, and we now see the underlying markets responding accordingly. Last year was characterized by utilization and day rate stabilization, with really only one segment showing upwards movement (modern jack-ups). This year, there is upwards movement in the utilization and dayrates in nearly all segments with asset values following suit. In short, the upturn is both broadening and strengthening. The question is how long this will continue, as it is in stark contrast to the past quarter s unrest in global financial markets. These markets are now telling us that we re likely to face significantly lower economic growth in the coming years. This will surely have a dampening effect on the growth pace in the oil industry and in oil service markets. On an absolute basis, therefore, things are looking less positive than some months ago and in the short to medium term, we are less convinced that we will continue to see large upticks in dayrates and valuations. The most immediate effect is already there, through debt financing becoming less available and more expensive. For a capital intensive industry like oil & gas, this has significant negative impact. Pareto Project Finance AS On a relative basis, though, the oil & gas industry stands out as a winner. There can be no clearer evidence than the difference between the performance of the oil price and the world s stock markets (as measured by MSCI World Index) this year. The oil price is up 19 % YTD, while the stock markets are down 9 %. This outperformance of 28 %-points is even more intriguing given the risk-off sentiment that has characterized global financial markets in recent months, something that typically has a very negative impact on commodity prices. If the oil price had followed global stock markets south, it would have traded at USD 87/b, and in a risk-averse environment like now, probably even lower. Why is this not the case now? The oil price vs MSCI World Index Source: Bloomberg, Digital Look

16 fig fig3 fig4 Our answer is that the oil price is fundamentally driven and primarily so by the long term energy challenges that the world is facing. Oil is simply a scarce resource, with growing demand. Going forward, it will become scarcer and demand will continue to grow. Perhaps slower in the coming few years, but the supply / demand equation for oil will continue to worsen (seen from the consumer s perspective), driving a rising need to discover and develop new resources. That is why the oil price is as robust as it is, and that is why the activity levels in the oil & gas industry are continuing to rise, particularly offshore. Hence, we are still convinced that offshore oil services is the place to be for the long term investor. Slower growth is better than no growth and positive returns are better than no returns, which is what risk free interest rates are yielding now. We believe the real upward driver of the oil price will be rising finding and developing costs. In turn, this will be driven by an accelerating need to replace the existing reserve base, which has been shrinking for more than 30 years. The future reserves will be hard and costly to find, develop and produce. And much more so than the reserves we re currently producing from. We beg investors to consider some staggering numbers: During the 1990s, the global oil industry spent USD 1.1 trillion and managed to find approximately 137 bn barrels of new oil reserves. In the period , the oil industry spent USD 2.8 trillion (2.5 times more) and only managed to discover 143 bn barrels of oil a mere 4 % increase over the previous decade. The gap between consumed oil and new discoveries widened from 112 bn barrels to 137 bn barrels an increase of 22 %. global production will have to come from new and more expensive oil. For this production to come into the market, oil prices must rise. It is really as simple as that. Of equal interest is the global expansion of natural gas demand, which is the world s fastest growing source of energy. Nearly all of the demand growth is outside of the OECD, and is following the early demand patterns seen for oil in the main emerging economies of the world. What adds to the demand growth is increased use of electricity. Bear in mind that ¼ of the world s households still has no access to electricity. Natural gas is an abundant and cheap source of electricity and this is now showing up in demand numbers in key economies across the globe. Chinese natural gas demand and relative pricing Source: Pareto Securities, BP, IEA Overall, offshore production of oil and gas is forecast to grow by 74 % in the coming 20 years. This will constitute 100 % of the total growth in global oil and gas production. In short, the oil industry will be spending an awful lot of money in the coming decades and the bulk of it will be spent offshore. That is excellent news for the offshore oil services industry. Global oil & gas production What will happen during the coming decade? Firstly, oil consumption looks set to be 10 % higher than the previous decade, adding further pressure. For new discoveries to keep pace with demand, the global discovery rate would need to double. That seems an impossible feat. Most likely, the world will struggle even maintaining the past decade s discovery rate, meaning that the decline in existing reserves will accelerate. A steadily increasing proportion of Source: Rystad Energy The new discoveries in Norway are also relevant for our outlook, as they rank as the most significant discovery of new resources globally this year. This has spurred renewed optimism in Norway, particularly in the Arctic north. We have already seen seismic acquisition activity respond almost immediately and additional drilling efforts are sure

17 fig5 to follow in the coming years. In turn, this will enhance the need to support services from supply vessels and, when the fields are finally developed, from offshore construction vessels. Given the harsh environments in these areas, this will be yet another example of how larger and more complex units need to be built and the general need to modernize the offshore fleets to cope with new demands. Source: Teknisk Ukeblad, Rystad Energy Drilling The drilling industry continues to be brimming with optimism, as evidenced by the USD 25bn of newbuild orders that have been placed so far in the cycle. This has been a response to clients needs for modern and more capable units, as well as to the general, fundamental outlook for the oil markets. Established rig yards now have full order books well into 2014 and are quoting higher prices. As a result, rig owners are sourcing yard slots from more inexperienced yards at high prices, but with potentially earlier delivery. Are there too many rigs on order? Investors should take comfort from the fact that 40 % of the global drilling fleet is 30 years or older. There is a lot of replacement need in addition to the demand growth mentioned above. Therefore, a global orderbook that constitutes approximately 20 % of the current fleet is likely to be insufficient, meaning that the market looks set to tighten significantly in the coming 2 3 years. On the other hand, a lot of rigs are coming out of yards at the same time (2013), which could result in a temporarily overcrowded buyers market. This potential threat, however, lies some years down the road. Jack-ups Global jack-up utilization and dayrates have recovered and have spread to the market for standard jack-ups. Although utilization in the premium jack-up market has

18 fig6 fig7 fig8 stabilized above 95 %, rates are moving upwards more slowly. On the other hand, utilization and rates for standard jack-ups have risen substantially with such units commanding rates that are only 10 % 15 % below premium units. This is a bullish sign. Roughly 40 new jack-ups have been ordered for a total of more than USD 9bn. There are options for another 23 units. Yard prices have risen about 15 % during this period. In the past quarter, however, ordering activity has subsided as access to funding has become more limited and the various players appetite for risk has come down. We are now seeing that some of the yard options are left undeclared. There is an awful lot of take-out financing to secure to take delivery of the speculatively ordered rigs, and right now, risk capital is hard to come by. This may present larger players with M&A opportunities. In this respect, the latest transaction of a premium jack-up newbuild at around USD 220m demonstrates that buyers are willing to pay top dollars for a modern rig. Global utilization standard jack-ups Dayrates floaters Source: Pareto Securities, ODS-Petrodata Supply market The North Sea spot market has been very tight during the summer season and is enjoying a stronger end to the year than what was the case 12 months ago. This goes both for PSVs and for AHTS. Norwegian clients have secured several vessels on long term contracts and a substantial amount of new tenders are out in the market for additional tonnage, primarily for large PSVs. North Sea Spot Rates PSV (> 4,000 dwt) Source: Pareto Securities, ODS-Petrodata Floaters Leading edge floater dayrates have topped USD 500k/d for the first time in the cycle, with the majority of ultra deepwater fixtures being in the USD k/d range. Rig availability is very tight in the near term and is unlikely to ease off until the rigs from the current newbuilding cycle starts getting delivered from 2013 and onwards. Norway is a bright spot in the industry with the abovementioned fixture of USD 500k/d and Statoil s award of 8-year contracts for the use of 2 category D rigs, with expected delivery during the second half of The two large discoveries offshore Norway is likely to add more fuel to a very tight Norwegian market. Transocean s acquisition of Aker Drilling this summer at an implied rig price of USD 930m/rig is a perfect example of this. Source: Pareto Research, JGO Offshore, Westshore A cooling factor is the newbuilding ordering activity, which has risen substantially in line with improving conditions. A lot of vessels are being ordered, primarily large PSVs, and the debate is whether there are too many such vessels on order. We don t think so, as roughly two thirds of the order book is targeted markets in the Gulf of Mexico and Asia Pacific. We also note that ordering activity has subsided in line with worsening financial and macro conditions, which will help the market balance going forward. Broadly speaking the global PSV fleet looks to grow by an average of 7 % p.a. in the next two years, which is not very high considering that demand for such vessels has grown by an average of 10 % per year since For AHTS, the order book is smaller, and with an average fleet growth of 3 % in the next two years, this market looks likely to tighten. Many now see the AHTS market as the next in line for substantial newbuilding activity.

19 fig9 Subsea The subsea vessel market appears to be set for a more buoyant 2012 than what has been the case this year. The order books for the larger subsea construction companies are record high, promising significant activity growth in coming years. There is also substantial growth in smaller tenders for a variety of subsea work across the globe as the oil companies try to catch up with low maintenance levels in the past two years, continue to work on enhanced oil recovery plans and prepare for new fields to come on stream. Judging by the field development plans in key regions such as Brazil, West Africa, GoM and Australia, the subsea industry looks set to enjoy a strong run in the next 5 10 years. Technip, the second largest subsea construction company, recently said that the Norwegian subsea market would double in size in the next 3 years. A recovering Gulf of Mexico is also adding to the picture. Analysts expect as much as USD 18 bn of large subsea contracts to be awarded in the next 15 months globally, of which roughly 40 % will for work in West Africa, 20 % in Australia and 20 % in Brazil. Overall, the demand for subsea vessel services looks set to increase more than 40 % in the next two years. This means that vessel shortage could remerge as an important factor in the not too distant future. Technip has already said that it is fully booked for 2012 and is looking to add more vessels. As with most other segments, owners of modern high quality assets will be well positioned. Moreover, it is likely that the recently completed merger between Subsea7 and Acergy will provide space in the market for new entrants. In turn, these will likely be scouting for quality assets as a means to gain market share. We have already seen several new, private equity backed players emerge, who plan to eat into the big guns market shares. Seismic market The seismic market has seen a steady rise in demand, which is now at all time high measured in terms of acquisition activity. However, the influx of new vessels into the market has kept a lid on utilization levels and on dayrates. On the other hand, multi-client demand has boomed. There are signs that things are about to improve for the vessel owners. The oil industry appears to be back in the market with large programs, both for traditional exploration seismic and for more specialized surveys like wide azimuth surveys, ocean bottom seismic surveys and EM surveys. The multi-client market in the Gulf of Mexico, which is of significant importance for global vessel utilization, has restarted with four large multi-client surveys haven been approved. Some 7 % 9 % of the global seismic fleet will be moving to the Gulf in the next six months, according to analysts. Tenders for the Norwegian have come out earlier than last year, a sign that oil companies in this area expect a tighter market next year. With rig rates now starting to rise again and the mounting challenge to discover more oil & gas reserves, there is reason to expect seismic to experience a solid recovery. The oil industry still only manages to strike a discovery in one out of every four exploration wells. It is estimated that dry well costs amount to USD 15 20bn per year, so any technology such as seismic that can help improve the success ratios will have tremendous value for the oil industry. The rising trend in dry well costs Source: Pareto Securities Kvartalsrapporten er utelukkende ment for informasjonsformål, og må ikke under noen omstendighet betraktes som et tilbud om eller en oppfordring til å handle aksjer i Selskapet. Det gis ingen garantier og det aksepteres intet ansvar for tap, direkte eller indirekte, som oppstår som følge av at leseren agerer på bakgrunn av informasjon, meninger eller estimater som finnes i dette dokumentet. Informasjonen i dette dokumentet, herunder uttrykte oppfatninger eller prognoser, er innhentet fra eller basert på kilder som vi har vurdert som pålitelige. Vi kan imidlertid ikke garantere for informasjonens nøyaktighet, tilstrekkelighet eller fullstendighet. Noe av informasjonen i dokumentet kan inneholde prognoser eller fremoverskuende uttalelser vedrørende fremtidige hendelser eller fremtidige resultater i markeder eller selskaper. Faktiske hendelser og resultater kan avvike substansielt fra dette. Pareto Project Finance AS aksepterer ikke ansvar for tap som oppstår som følge av bruk av slik informasjon. Det understrekes at den historiske kursutviklingen og de avkastningsmål det er referert til ikke innebærer noen garanti for framtidig avkastning. Det understrekes også at avkastningen / kursutviklingen kan variere som følge av svingninger i valutakursene. Vi gjør oppmerksom på at i dagens urolige marked er det stor usikkerhet knyttet til verdivurderingene da det er ingen eller veldig få transaksjoner som er gjennomført. Fremgangsmåten ved beregning av VEK er nærmere beskrevet i Pareto Project Finance AS markedsrapport av september Risikofaktorer og kostnadsstruktur er nærmere beskrevet i prospektet (Informasjonsmemorandum) utarbeidet i forbindelse med emisjoner i Selskapet.

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21 Til aksjonærene i Pareto Shippingkapital II AS PARETO SHIPPINGKAPITAL II AS - 3. KVARTAL 2011: Pareto Shippingkapital II AS sitt eneste formål er å investere i Pareto World Wide Shipping II AS og eier p.t. 79 % i fondet. Pareto World Wide Shipping II AS investerer i shippingprosjekter tilrettelagt av blant annet Pareto Project Finance AS. Kvartalsrapport for Pareto World Wide Shipping II AS ligger vedlagt. Verdijustert egenkapital per 30. juni 2011: Siste omsatte kurs (23. september 2011): Utbetaling siden oppstart: Ligningsverdi 31. desember 2010: 70,00 kr 37,00 kr 9,90 kr 57,14 kr