FPSO: Perspectives from the equity market

September 2010

Erik Tnne
erik.tonne@arcticsec.no
+47 21 01 32 26
+47 48 40 32 26

Agenda/key topics highlighted in this presentation

Market development: Is the situation in the market picking up?

How do investors and analysts look at the FPSO-sector? What are their
evaluation criteria?
Is the market willing to finance new developments? Is the financing
situation on the road to recovery?
What are the main concerns for investors in financing FPSO-projects and
how can you achieve a win-win deal with project financiers?

Underlying market development: Growth has been good and steady, and will
likely continue to be so
FPS (installed
base)
280
260

SPARs

CAGR, number of
units 1999-2009

240
220

TLPs

200

Production Semis

18 0

+9%
176
166 13
149 12
18
18
137
9
127
6 15
37
3 13
112 117
14
36
3
2 11
36
11
93
35
34
2
8
33
32

FPSOs

16 0
14 0
12 0
10 0
80
60
40
20
0

80
7 1
65
25
30
57
6 1 26
50
0
0
43 0 4 0 5
34
22
2
37 0
21
31 0
0
3 18
0
0
0
0
0
0
0
0 19 0 20 0 21 0 10
2 12 3 16
11
53
2
10
46
0
0
0
0
0
0 11 1 13 1
1
1
1
36
31
28
1 0 2 0 5 1 6 1 7 1 9 3
24
22
21
4
4 12 6 13 6 13 7 13
19
8
6
6
6
5
4
2
1
78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

67

70

76

83

89

99

00

01

02

03

190
14
20

05

22

40

222 225
18
16
22

22

40

41

40

116
100 108

04

214
15

06

137 144 144

07

08

09

CAGR of 9% last 10 years

Underlying rationale for floating production solutions is strong deeper, further from shore, more marginal
fields etc. FPSOs are cost-efficient and versatile solutions (for the oil companies at least)
FPSOs continue to dominate as the most widely used floating production solution

We
We expect
expect floating
floating production
production to
to continue
continue to
to see
see
healthy
healthy // strong
strong growth
growth rates
rates for
for the
the foreseeable
foreseeable future
future

3
Source: IMA; Arctic Securities

Recent market development: A strong upswing in FPSO contract-awards

19 Projects awarded so far
in 2010:

6 Projects awarded H2/09

Order intake, new Floating Production Units (FPUs) ordered

1. Aseng to SBM
2. Papa Terra to BWO/Quip
3. Chim Sao to EOC
4. TGT to Bumi Armada
5. Aquila to Saipem
6. Baleia Azul to SBM
(redeployment)

18
16
16
14

12
11

11 11

11

11
10

10

10

9
8

7
6

6
5

4
4

4
3

4
3

2
0

Jan - Apr 09

Apr - Jul 09

Jul - Aug 10

Jan 10 - Jun 10

Aug 09 - Dec 09

Aug - Dec 08

Apr - Jul 08

Aug - Nov 07

Dec 07 - Mar 08

Apr - Jul 07

Aug - Nov 06

Dec 06 - Mar 07

Apr - Jul 06

Nov 05 - Mar 06

Apr - Jul 05

Aug - Oct 05

Dec 04 - Mar 05

Apr - Jul 04

Aug - Nov 04

Nov 03 - Mar 04

Jul - Oct 03

Feb - Jun 03

Apr - Jul 02

Aug 02 - Jan 03

Nov 01 - Mar 02

Jul - Oct 01

Feb - Jun 01

Oct 00 - Jan 01

Apr - Sep 00

Dec 99 - Mar 00

Aug - Nov 99

Mar - Jul 99

Nov 98 - Feb 99

Jul - Oct 98

Mar - Jun 98

Oct 97 - Feb 98

0
Jun-Sep 97

Nr of FPU orders

12

1. Kitan to Bluewater
(redeployment)
2. Guara to MODEC
3. OSX-1 to OSX (old Nexus)
4. Goliath EPC-contract to
Hyundai
5. Athena LoI to BWO
6. Huntington LoI to SEVAN
(redeployment)
7. Tupi Nordeste to SBMconsortium
8. Sidon/Tiro to Teekay
9. TSB to BWO
10. Aruana to Teekay
(redeployment)
11. Pagerungan Utara to
BLT (redeployment)
12.-19. Eight pre-salt FPSOhulls (LoI to Engevix/GVA/
Cosco)

Even
Even if
if excluding
excluding the
the eight
eight pre-salt
pre-salt hulls
hulls for
for Petrobras,
Petrobras, we
we are
are at
at 11
11 contracts
contracts YTD,
YTD, representing
representing aa decent
decent
level.
More
to
come
with
e.g.
CLOV,
OSX-2
and
Fry
so
far
not
announced
level. More to come with e.g. CLOV, OSX-2 and Fry so far not announced

4
Source: IMA; Arctic Securities

Resulting in the order backlog (nr. of units under construction) at yards

turning again
Floating Production Systems on order/under construction, Quarterly since Q3/96
80
67

70
57

60
50
37 36

40
31
30
20

32

35

37 37
33

30

38 39

41

43
38 37 37

34 34 35 34

46 46

60

If excluding the 8 pre-salt

hulls, order backlog would
have been at 41 units, still
confirming the turn (though
more modestly)

65
60
56
49

49
41 40

37

39

Average = 39

27
23

21 22

21
17

10

Q3/96
Q1/97
Q2/97
Q3/97
Q1/98
Q3/98
Q4/98
Q1/99
Q3/99
Q4/99
Q2/00
Q3/00
Q1/01
Q3/01
Q4/01
Q2/02
Q3/02
Q1/03
Q2/03
Q4/03
Q1/04
Q3/04
Q4/04
Q2/05
Q3/05
Q4/05
Q1/06
Q3/06
Q4/06
Q1/07
Q3/07
Q4/07
Q1/08
Q3/08
Q4/08
Q1/09
Q3/09
Q4/09
Q1/10
Q3/10

During Q1/10, order backlog increased again for the first time in eight quarters, following a steady
drop
We expect order backlog to come up further: Demand is pent-up, and backlog should continue to
build as FIDs (Final Investment Decisions) gain momentum

5
Note: Excludes storage-only units, MOPUs and LNG RVs (shuttle/regas vessels)
Source: IMA; Arctic Securities

Demand-side remains strong! In spite of many awards since Aug-09, number of projects
in the Bid/final design phase remains steady
Implying oil companies continue to move on projects, gradually progressing them to FID and contract-award

Number of FPSO-projects in the bid/

final design phase (see next two slides for details)
Nr of units
35

33

33

32

30
25

Number of projects in the Bid/Final Design phase

describes projects that are close to FID and contractaward
31

This implies the number of projects progressing from

Planning to Bid/Final design remains high; i.e.
demand-side remains strong

25

We also believe its positive that this number

remained fairly steady through the financial turmoil,
demonstrating oil companies continued to mature
projects

20
15

In short, we believe the demand-side is pent-up, and

that conditions are now increasingly in place for
more contract awards again

10

The oil price is steady (enabling planning) on

back of healthy demand

5
0

Oct-08
Of which
FLNG units

In spite of 25 awards since Aug-09, this number

remains fairly steady

Dec-08

Sep-09
1

Nov-09
1

Current
2

Input-costs (steel, yard-capacity etc) have come

down
Access to financing for smaller E&Ps and FPSOoperators has improved

6
Source: IMA; Press; Arctic Securities

Industry majors are increasingly positive both amongst oil companies and
major contractors

Were
Were noticing
noticing more
more positive
positive signals
signals from
from most
most (all)
(all) of
of the
the companies,
companies,
especially
especially within
within subsea,
subsea, field
field development
development and
and floating
floating production
production

7
Source: Technip (Mar/Apr-10); Arctic Securities

Industry survey: Industry-players are more optimistic, reflecting higher

tendering-levels and improved market-conditions
Industry sees on average 12 contracts in 2010 and 15 contracts in 2011
On average, the players expect a further
increase in number of awards during 2011

Industry-players significantly more

optimistic compared to last years survey
30
25

30

How many FPSO-lease contracts do you expect will

be awarded across the industry by year-end?

25

2010-results

20

25

How many FPSO-lease contracts do you expect

will be awarded across the industry next year?
2010-results

20

2009-results

2009-results

15
12
10
5

11

5
0

Low

Average

High

Low

30

Average

High

Major input costs have dropped further since last year.

Companies answers for 2010 vary significantly

Competitive pressure reduced. Some players even

comment being in single-source discussions for projects
0
-1

How many bidders are there on average

involved in projects you are tendering for?

20

-1
-2

2010-results

-3

2009-results

-4

-3

-3
-3
-4

15

-5

2010-results

-6

10
5

16

25

10

10

7
5

15

15

10

23

8
5
3

6
4

-7
-8

-9

Low

Average

2009-results

-7

High

How have input prices developed over the past

12 months? (%-change)

- 10

Yard costs

Note: Survey conducted in Q2/09 and Q2/10 respectively. Participants: MODEC, PROD, Maersk, FOP, SEVAN, BWO (10 only), SBM (09 only)
Source: Companies; Arctic Securities

Major topside
equipment costs

Other costs

High-end of the lease segment consolidates with BWO-PROD combining.

Competitive pressure should be further reduced, boding well for returns
Company

Number of lease FPSOs in operation or under construction

1

10

11

12

13

14

15

16

17

SBM
MODEC
Prosafe Production

Limited
financial
bidding capacity
Mainly N.Sea

Combining to
one entity

BW Offshore
Bluewater
Maersk
Petrojarl (Teekay)
Sevan FPSO

Financial
capacity?

Saipem
Bumi Armada
Fred. Olsen Production

Likely to take
one more
project only?

Rubicon
Sea Production
Tanker Pacific (TPOT)
Single unit owners
Contracted FPSOs in operation
Contracted FPSOs in operation (operations only)
Contracted units under construction/conversion
Construction on speculation
Idle

To
To conclude,
conclude, we
we believe
believe its
its fair
fair to
to say
say the
the market
market is
is picking
picking up
up and
and that
that bargaining
bargaining position
position for
for
the
the remaining
remaining players
players has
has improved
improved and
and continues
continues to
to do
do so!
so!
Note: Does not include turnkey FPSOs, i.e. only includes FPSOs owned and operated by the FPSO-companies
Source: Companies; IMA; Arctic Securities

Agenda/key topics highlighted in this presentation

Market development: Is the situation in the market picking up?

How do investors and analysts look at the FPSO-sector? What are their
evaluation criteria?
Is the market willing to finance new developments? Is the financing
situation on the road to recovery?
What are the main concerns for investors in financing FPSO-projects and
how can you achieve a win-win deal with project financiers?

10

Few (equity) investors have a detailed understanding of the FPSO-segment

Hard to place all in one group. Many are generalists. Investment strategies and
exposures vary - across industries, geographies and asset classes
Some are oil services specialists even these sometimes have detailed knowledge of
the floating production business
Available time to dedicate to detailed analysis of selected companies is limited
Valuation approaches are usually simple: Valuation metrics (multiples), relative to
other segments, look at potential for earnings-upgrades/re-valuation. Some do
modeling/DCF-analyses/more detailed work
History matters
Opinions and momentum can turn rapidly from loved by everyone to hated by
everyone (usually infectious)

11
Source: Arctic Securities

The floating production segment has spooked investors for obvious reasons
A string of disappointments
Shares have been a disaster even in companies perceived to be solid and steady-performing
businesses
BWO listed at NOK 25 May-06, currently at NOK 8.0
PROD listed at NOK 36 Feb-08, currently at NOK 13.0
Add to this; Aker Floating Production, Sevan - not a joyride for shareholders
Leading established players e.g. SBM have also disappointed with significant delays to EPCcontracts (rigs, Yme, Deep Panuke), and are trading at historically low P/B-levels
Speculative entrants (mainly originated out of Norway) didnt help the situation
Very hard to point to any success-stories. Massive value destruction
Nexus, Petroprod, FPSOcean, MPF, Nortechs/Songa Floating Production
The financial community helped fuel the hype
Floating Production is the new deepwater drilling
If we assume two new contracts won per year at 15% IRR
and failed to recognize fundamental aspects of the business
No upside through e.g. rate-fluctuations i.e. rate locked once capex is agreed upon/contract signed
AA lot
lot went
went wrong
wrong operationally
operationally (poor
(poor contracts,
contracts, too
too low
low contingencies,
contingencies, supply-chain
supply-chain tightness
tightness

delays
delays &
& overruns
overruns etc.),
etc.), and
and aa lot
lot of
of investors
investors got
got burned
burned

12
Source: Arctic Securities

Norwegian FPSO-peers: By far the worst segment during the recent meltdown

140

120

100

80

60

40

20

0
May-08 Jul-08

Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09

Drillers NOR

Subsea NOR

Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10

Supply NOR

FPSO NOR

Sep-10

Seismic NOR

13
Source: Factset; Arctic Securities

and clearly the laggard since the market started improving again
370

320

270

220

170

120

70
Mar09

Apr- May- Jun09

09
09

Jul09

Aug- Sep09
09

Drillers NOR

Oct09

Nov- Dec09
09

Subsea NOR

Jan10

Supply NOR

Feb- Mar10
10

Apr- May- Jun10

10
10

FPSO NOR

Jul10

Aug- Sep10
10

Seismic NOR

Hard
Hard to
to get
get investors
investors enthusiasm
enthusiasm up
up when
when the
the segment
segment
has
underperformed
all
other
oil
services
segments
has underperformed all other oil services segments

14
Source: Factset; Arctic Securities

Adjusting for worst performers (AKFP & SEVAN), some of the FPSO-peers have performed
more in line with other oil services segments since the market started coming up again
BWO up strongly
lately on back of
APL-sale

370
350
330
310
290
270
250
230

FOP in line with

drillers and supply

210
190
170
150

PROD, SBM and

MODEC underperforming

130
110
90
70
50
Mar09

Apr- May- Jun09

09
09

Drillers NOR

Jul09

Aug09

Subsea NOR

Sep- Oct09
09

Supply NOR

Nov- Dec09
09

Jan10

Seismic NOR

Feb- Mar10
10

BWO

Apr- May- Jun10

10
10

PROD

FOP

Jul10

SBMO

Aug- Sep10
10

MODEC

AA key
key question
question investors
investors are
are asking
asking themselves
themselves is:
is: Why
Why should
should II invest
invest in
in this,
this, when
when there
there are
are so
so
many
many other
other alternatives
alternatives

15
Source: Factset; Arctic Securities

Creating value for shareholders?

Shareholders
Shareholders care
care about
about this
this its
its more
more or
or less
less the
the only
only thing
thing they
they care
care about!
about!

16
Source: Vitae Energy; Arctic Securities

Sector shake-out: A lot of players have disappeared. Speculative newcomers

likely gone for quite some time
Norwegian FPSO-segment March-09

Norwegian FPSO-segment Today

1. AKFP

1. AKFP

2. BWO

2. BWO

3. FLNG

3. FLNG

4. FPSO (FPSOcean)

4. FPSO (FPSOcean) - bankrupt

5. FOP

5. FOP

6. MPF bankrupt

6. MPF bankrupt

7. NEXUS

7. NEXUS NEXUS I sold to OSX

8. PetroProd

8. PetroProd - bankrupt

9. PROD

9. PROD

10.SEAP (Sea Production)

10.SEAP (Sea Production) OTC/Rubicon/Ashmore

11.SEVAN

11.SEVAN

12.SFLO (Songa Floating Production,

ex. Nortechs FPSO)

12.SFLO (Songa Floating Production, ex. Nortechs

FPSO) Bankrupt

Of
Of the
the remaining
remaining players,
players, equity
equity more
more or
or less
less wiped
wiped out
out in
in AKFP
AKFP and
and the
the company
company lacks
lacks funding
funding for
for additional
additional
projects.
projects. FLNG
FLNG needs
needs significant
significant further
further funding.
funding. PROD
PROD will
will not
not bid
bid actively
actively before
before year-end
year-end 2010
2010 and
and SEVAN
SEVAN likely
likely
lacks
lacks equity
equity to
to take
take on
on new
new significant
significant capex
capex commitments
commitments for
for some
some time
time

17
Source: Vitae Energy; Arctic Securities

Analysts and investors have moved from euphoric to sober. Maybe a bit too
sober
From

To

Trusting companies input on capex, time,

targeted IRR in contracts

Strongly fearing capex overruns running

sensitivity analyses, incorporating cost
overruns and delays in estimates

Assuming all contracts will be fully utilized,

including options, and potentially beyond
that
High residual values / redeployment
opportunities
Including a high system value / value of
expected further growth (2 new contracts
per year)
Believing in potential super-returns due
to the strong and appealing deepwater story
(after DW drilling comes production)

NPV-analysis of firm contracts alone

options viewed as potential upside only
Modest residual values
Assigning no value to growth / system value,
not even for large players
Assuming super-returns will never
materialize
Increasing WACCs

Low WACCs (abundant cheap financing)

Note: Does not necessarily apply to all analysts, but expresses our view on the perceived shift in attitude
Source: Arctic Securities

18

So, with a bad track-record, but a positive market-outlook, what are the
investors telling us?
The FPSO-sector is
still un-investable

Im stuck with
stocks in the worst
segment in all of oil
services

The segment has

been a disaster

How is it possible that

everything else in oil
services rallies and this
segment is lagging so
significantly?

We need to be able to believe in

stronger IRRs to invest in this sector
how is the industry going to be
credible on this when they werent
capable of extracting stronger margins
in the last super-cycle?

On
On aa more
more positive
positive note:
note: We
We are
are starting
starting to
to notice
notice increased
increased interest
interest again
again from
from investors.
investors. Partially
Partially as
as aa
result
result of
of the
the segment
segment having
having lagged
lagged so
so significantly
significantly and
and partially
partially as
as aa result
result of
of the
the BWO-PROD
BWO-PROD situation
situation
potentially
creating
a
larger
and
significantly
more
interesting
entity
for
investors
potentially creating a larger and significantly more interesting entity for investors

19
Source: Arctic Securities

Established players have heard the message and started to increasingly

address investors concerns
It remains to be seen whether this will result in tangible, profitable projects

Target good return

FPSO projects
Will not agree to
undue contractual risk

Our
Our take:
take: Credibility
Credibility needs
needs to
to be
be restored
restored (also
(also for
for industry
industry majors).
majors). We
We are
are however
however more
more
positive
than
we
have
been
for
quite
some
time
and
believe
this
is
about
to
happen!
Investor
positive than we have been for quite some time and believe this is about to happen! Investor
interest
interest is
is increasing
increasing

20
Source: BW Offshore; Arctic Securities

Agenda/key topics highlighted in this presentation

Market development: Is the situation in the market picking up?

How do investors and analysts look at the FPSO-sector? What are their
evaluation criteria?
Is the market willing to finance new developments? Is the financing
situation on the road to recovery?
What are the main concerns for investors in financing FPSO-projects and
how can you achieve a win-win deal with project financiers?

21

Oil Services/Equity markets have started improving again

Philadelphia OSX since Sept-00, indexed
300

Global financial
turmoil & steep
oil price drop

250

Macondo

200

150

100
Markets bottom
out and start
recovering

50

0
Sep-00

Sep-01

Sep-02

Sep-03

Sep-04

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Improving
Improving equity
equity markets
markets indicated
indicated increased
increased risk
risk appetite
appetite again.
again. However;
However; At
At this
this stage
stage of
of the
the
recovery,
recovery, its
its our
our perception
perception that
that investors
investors are
are looking
looking more
more for
for rebound
rebound opportunities
opportunities in
in established
established
names
names (less
(less risky),
risky), rather
rather than
than being
being willing
willing to
to venture
venture into
into financing
financing new
new developments
developments

22
Source: Factset; Arctic Securities

Debt markets are also improving

Low default rates and high liquidity

Credit crunch, increased

Strong

secured record low spreads

volatility and low liquidity

recovery

PIIGS

1400

250

1200

IG Spreads (basis points)

1000
150

800

600

100

400

HY Spreads (basis points)

200

50
200

0
aug. 05

feb. 06

jul. 06

jan. 07

jul. 07

des. 07

High-Yield (RHS)

jun. 08

nov. 08

mai. 09

okt. 09

apr. 10

sep. 10

Investment Grade (LHS)

23
Source: Bloomberg; Arctic Securities Credit Research

US High-Yield issue volumes YTD already above full-year 2009-level and

significant increase from the low level seen in 2008
US High-Yield
Volume issued (in USDbn)
180
160
140

100
80

USDbn

120

60
40
20
0
2005

2006

2007

2008

2009

YTD
2010

1H 2005 1H 2006 1H 2007

1H 2008 1H 2009 1H 2010

Companies issued about USD 120 billion of junk bonds in the first half of the year, up from
USD 63 billion over the same period in 2009, according to data compiled by Bloomberg.

24
Source: Bloomberg; Arctic Securities Credit Research

Risk aversion is decreasing / price of insurance coming down

90
80
70

1400

VIX reflects a market-estimate

of future volatility (fear
index), based on the weighted
average of the implied
volatilities for a wide range of
strikes

1200

1000
60
50

800

40

600

30
400
20
200

10
0

0
aug. 05

feb. 06

jul. 06

jan. 07

jul. 07

des. 07

High-Yield (RHS)

jun. 08

nov. 08

mai. 09

okt. 09

apr. 10

sep. 10

VIX (LHS)

25
Source: Bloomberg; Arctic Securities Credit Research

At USD 70/bbl, fundamentals still look strong. Oil companies increase E&Pspending again Should ease financing-burden somewhat
E&P spending 1998-2010e per
barrel produced, split by company type

E&P spending 1998-2010e (top 23 companies)

200,000

30

E&P spending (USDm)

150,000
20

125,000
100,000

15

75,000

10

50,000
5

25,000
-

0
1998

1999

2000

2001

Supermajors

2002
Majors

2003

2004

2005

Independents

2006

2007

2008

2009 2010E

Total production same co's

Aggregated production (mboepd)

25

E&P capex per barrel produced (USD)

175,000

14,000
12,000
10,000
8,000
6,000
4,000
2,000
1998

1999

2000

Average supermajors

2001

2002

2003

2004

Average majors (ex STL)

2005

2006

2007

Average Independents

2008
STL

2009

2010E

Petrobras

Strong rebound in E&P-spending in 2010 (provided oil cos use budgets)

First indications for 2011 point to +5-10% further increase from 2010-level

AA sharp
sharp decline
decline in
in oil
oil price
price (down
(down another
another 10-15
10-15 USD/bbl)
USD/bbl) likely
likely required
required
to
to de-rail
de-rail the
the current
current upswing.
upswing. Our
Our oil
oil analysts
analysts do
do not
not believe
believe this
this is
is aa likely
likely scenario
scenario

26
Source: Companies; Arctic Securities

Is the (equity) market willing to fund new developments?

Top tier
players (SBM,
MODEC, BWO,
PROD)

Established players with track-record and firm contracts/existing operations can still raise
equity funding at acceptable terms. SBM e.g. successfully raised EUR 181m Nov-09 through a
book building process (price set at/near closing price for the day). MODEC recently raised
more equity, but directed at main shareholders
Increasing equity requirements pose challenges (for all players)
BWO able to raise debt-funding for PROD-deal at decent terms

More challenging. Few players can raise equity unless at (significant) discount

Mid segment

Needs to be backed by main owners + likely commitments from banks on the debt-side
Track-record must be in place, so should a plan for tangible return on capital to investors
High-yield market potentially becoming increasingly possible again

Impossible?

Newcomers /
speculative
projects

At least extremely challenging. Speculative projects are likely gone for a long time
In addition to equity markets reluctance, banks are not willing to commit. Though not FPSO,
Master Marine is a good example: Construction project on track (time and cost), 3Y firm
contract in place with ConocoPhillips, still unable to raise remaining bank-funding

More
More advanced
advanced and
and structured
structured financing
financing required.
required. Up-front
Up-front payments/milestones
payments/milestones from
from oil
oil companies
companies
likely
likely aa way
way to
to go.
go. More
More EPC-contracts.
EPC-contracts. It
It makes
makes more
more sense
sense for
for the
the oil
oil companies
companies to
to come
come up
up with
with the
the
funding
funding than
than for
for the
the FPSO-companies
FPSO-companies (lower
(lower funding
funding cost)
cost)

27
Source: Arctic Securities

Agenda/key topics highlighted in this presentation

Market development: Is the situation in the market picking up?

How do investors and analysts look at the FPSO-sector? What are their
evaluation criteria?
Is the market willing to finance new developments? Is the financing
situation on the road to recovery?
What are the main concerns for investors in financing FPSO-projects and
how can you achieve a win-win deal with project financiers?

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What are the main concerns for (equity) investors and how can you achieve a
win-win situation with financiers?
Main concern: Receive decent return on invested capital
Both categories of investors: Secure decent yield on invested capital
Debt side: Avoid downside risk
Equity side: Focused on upside potential. This relates to 1) valuation/pricing and 2)
shareholder return policy
Companies need to:
Define a credible strategy for how investors shall receive a satisfactory ROI
Vs. debt-investors: Convincing risk mitigation (contract coverage/backlog, strong
contract-counterparties, guarantees, debt/value etc.)
Vs. equity-investors: Focus on shareholder (cash) return policy. Investors want to avoid
value traps. Look to Fredriksen. Why is implicit value per DW rig in SDRL USD 1bn+, vs.
USD ~470m in RIG, USD ~580m in PDE etc.?
In general, FPSO-sector is likely more debt-friendly than equity-friendly (capped upside)
29
Source: Arctic Securities

Disclaimer
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