Pareto World Wide Offshore AS - Pareto Project Finance

Portfolio NewsPWWO is invested in a broad range of offshore projects, which implies a significant diversificationacross different asset types and market segments. This section provides an update on the quarter’smost important news flow related to the underlying investments.Songa EclipsePWWO sold its 13% stake in the rig to Songa Offshorein Q2’11 at an implicit rig value of around USD 660mincluding capitalized expenses. Songa has now signed aHeads of Agreement to sell the rig to Seadrill at pricewhich is rumoured to be between USD 600m-650m. Inconnection with the sale last year, PWWO secured apotential bonus payment through February 2013dependent on the development of the rig’s value andthe cash flow in the project up that time. Theoperational problems on the rig since delivery haveresulted in a substantial negative cash flow instead.With the rig value now seemingly set below the initialtransaction price, it seems highly unlikely that therewill be any bonus payment.While this looks to have a negative impact on PWWONAV of around NOK 9 per share, there will be noimpact on current cash holdings. In agreeing to thebonus payment, we placed a bet that global UDWmarkets would improve significantly. That was a correctassumption, but we were simply stuck on the back ofthe wrong horse. While this is unfortunate for ourshareholders, we at least managed to get out beforethings really turned bad in Songa. Last year, werealised NOK 96m from selling to Songa (NOK 22 pershare). Had we retained our stake, the sale to Seadrillwould have given us something close to zero (!).built vessels straight from shipyard to the North Seahas not gone undisturbed, but as they’ve now beenthrough the major teething troubles, we believe thevessels will be able to compete well with similarNorwegian built vessels at significantly higher buildingcost.Neptune Offshore ASIn addition to Neptune Offshore AS’ 29% share inNeptune Subsea IS, it also holds a 50% share inNeptune Seismic DIS. Neptune Seismic has entered anew 12+12+6+6 months time charter with CGG Veritasat slightly higher rates. This is a very attractivecontract which offer great return to the equity. On thenegative side, the docking of the vessel in Q3’12 endedup significantly higher than budget - thus cancellingnext quarter’s planned dividend.Parbarge ISThe charterer recently declared the option to extendthe contract length by 5 years, meaning that the twobarges will be employed until July 2023. This indicatesthat the barges are working satisfactory and that thedayrates in West Africa are strong enough to provide aprofitable and healthy business for the charterer.Another positive effect from the extension is that theassets’ residual risk is significantly reduced.BassDrill AlphaThe tender rig is currently employed by Total in Congoon a contract that will run towards the end of 2013.The rig has received a letter of award from the sameclient for an extension of up to 3 years at a dayratewhich is up more than 15% from current levels. Theoperations have improved significantly in the past yearwith lower costs and increased commercial uptime. Therig is fully financed with a rapid deleveraging that willleave the owners with an attractive position when itcomes to an exit or re-financing in the coming years.Neptune Subsea ISBoth vessels are chartered out on 5-year bareboatcontracts to Reef Subsea who are trading them in theNorth Sea. Subcontractors such as Statoil and Talismanare pleased with how the vessels are operating andReef express confidence that the vessels will have along and solid future in both the North Sea and otherharsh environments. The process of bringing Chinese