Pareto World Wide Shipping II AS - Pareto Project Finance

Pareto WorldWide Shipping II AS2011 Kvartal 3Lenke: www.paretoprojectfinance.no/Avdelinger/Forvaltning/Shippingfond

ForvaltningsteametPer-Christian Nicolaisen Richard Jansen Johan Anker-Rasch Patrick KartevollAnsvarlig Forvalter Ansvarlig Forvalter Forvalter Forvalter/ForretningsførerEiendom Shipping/Offshore Eiendom/Shipping/Offshore Shipping/OffshoreTlf: + 47 22 01 58 08 Tlf: + 47 22 01 58 96 Tlf: + 47 22 01 58 73 Tlf: + 47 22 01 58 79E-post: nico@pareto.no E-post: richard.jansen@pareto.no E-post: jar@pareto.no E-post: patrick@pareto.noJonathan Andreas Barfod Hans Gunnar Martinsen Fredrik Jansen SommernesForvalter Forretningsfører ForretningsførerEiendom/Shipping/Offshore Eiendom EiendomTlf: + 47 22 01 58 46 Tlf: + 47 22 01 58 88 Tlf: + 47 22 01 58 06E-post: jab@pareto.no E-post: hgm@pareto.no E-post: fjs@pareto.noDronning Mauds Gate 3, P.O. Box 1396 Vika, NO-0114 Oslo, Norway, Tlf: 22 87 87 00, www.pareto.no

Pareto er en uavhengig og ledende aktør idet norske markedet for finansielle tjenester.Selskapet har kontorer i Oslo, Stavanger, Bergen,Trondheim, Kristiansand, Bryne, Singaporeog New York. Pareto ble stiftet i 1986, og harutviklet seg til å bli et konsern med et omfattendeproduktspekter. Selskapet har cirka 450 ansatte.Den sterke utviklingen er muliggjort gjennomdedikerte og dyktige medarbeidere, skarptfokus på å utvikle gode produkter, kontrollertvekst og ikke minst ved at våre kunder ogforretningsforbindelser har vist oss tillit.Pareto Project Finance ASPareto Business Management ASPareto Securities ASPareto Forvaltning ASPareto Bassøe Shipbrokers ASPareto Bank ASAPareto Wealth Management ASPareto Offshore ASPareto Dry Cargo ASPareto PPN ASJGO Shipbrokers ASPareto Forsikringsmegling AS

Forvalters kommentarUtviklingen innen shipping og offshore fortsetter å gå ihver sin retning, også i de siste måneders finansuro. Aktiviteteninnen 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 girstøtte til oljeselskapenes planlagte investeringsvekst.Allikevel truer den finansielle uroen utsiktene på korttil mellomlang sikt. Globale aksjemarkeder er ned ca17 % siden siste kvartalsrapport og signaliserer vidtrekkendeeffekter av gjeldskrisen i PIGS-landene og i USA.Så langt har det ikke hatt effekt på aktivitetsnivået og hvisaktørene får fortsette som planlagt vil utsiktene fortsattvære bra. Imidlertid har vi sett at bankene allerede harbegynt å stramme inn og tar lavere risiko, låner ut mindreog tar seg bedre betalt. Lavere tilgang på fremmedkapitaltil å finansiere aktiviteten ser ut til å bli den første, umiddelbareeffekten av de volatile finansmarkedene. Dersommarkedene normaliserer seg relativt rask vil ikke virkningenevære store, men antakelig vil veksten kunne stoppenoe opp på mellomlang sikt (1–2 år), noe som vil ta litt avpiffen ut av offshoremarkedet og redusere mulighetene forå gjøre gode forretninger hva gjelder salg, så vel som kontrakter.Forvalter er derfor mer forsiktig med å ta risikoinnen offshore, på tross av positivt langsiktig syn.I shipping fortsetter de dårlige markedene å forverres,mens de gode markedene flater ut. Lavere global økonomiskvekst vil begrense veksten i verdenshandelen ogbehovet for shipping. De markedene som er satt opp meddårligst forhold mellom vekst i etterspørsel og kapasitet,som tank og bulk, vil bruke enda lenger tid på å snu, mensmarkeder i noenlunde balanse vil bevege seg sidelengs.Det synes som konsensus at de fleste markeder ikke vilbedres før i 2014, mens noen ligger noe bedre an. Forvalterfortsetter å ha en forsiktig holdning innenfor shippingog vil fokusere på prosjekter som gir løpende inntjening.Fallende skipsverdier gir både utfordringer og muligheter.Utfordringene ligger i hovedsak på pantesikkerhet i forholdtil lån, og betyr at man i enkelte prosjekter må skyteinn mer penger for å tilfredsstille bankene. Muligheteneligger i at det kan dukke opp investeringsmuligheter tilsterkt rabatterte priser i forhold til historiske verdier. Forvaltervil posisjonere seg i forhold til slike muligheter ogholder således kruttet tørt.I tråd med de ulike markedsutsiktene er PWWS II fortsattgodt posisjonert med 60 % av porteføljen innenforoffshore. Posisjoneringen innenfor shipping er i hovedsakindustriell shipping, hvor markedene er i noenlundebalanse og man har langsiktige kontrakter. Kun ca. 7 % eri tank og bulk. Forvalter vil opprettholde denne posisjoneringenunder rådende markedsforhold. Selv om avkastningsmuligheteneser ut til å bli noe lavere fremover, erdet fremdeles mulig å oppnå god avkastning på offshoreprosjekter og definitivt bedre enn penger i banken til lavrente. Samtidig vil Forvalter ha et opportunistisk syn påshipping og primært søke tonnasje som er kraftig rabatterti forhold til historiske verdier.

Viktige hendelser i PWWS IIi løpet av tredje kvartalFusjon med PWWS og feederselskapeneDet er igangsatt en prosess for å fusjonere Pareto WorldWide Shipping AS («PWWS») og PWWS II, samt deunderliggende feederselskapene Pareto Shippingkapital AS,PPN Shippinginvest I AS, Optimum Skipsinvest I AS ogPareto Shippingkapital II ASA. Formålet med fusjonen erå skape en større og mer slagkraftig enhet med en enklerestruktur og færre forvaltnings- og selskapsnivåer. Dette vilgjøre forvaltningen av underliggende portefølje enklere ogbedre, redusere kostnader for investorene, samt bedre likviditeteni annenhåndsmarkedet. Samlet vil det nye selskapetha en verdijustert egenkapital på i underkant av NOK 1,3mrd fordelt på èn aksjeklasse. Dagens struktur med seksulike selskaper og aksjeklasser anses som uhensiktsmessigutfra forvaltningsmessige, kostnadsmessige og likviditetsmessigehensyn. Dette gjelder spesielt ettersom anslagsvis70 % 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 ulikeselskapene. Planen er å gjennomføre fusjonen med regnskapsmessigvirkning fra 31.12.11. Den er betinget av styreoggeneralforsamlingsgodkjennelse i de ulike selskapene,noe som planlegges i løpet av november.Havila PSV ISPWWS II solgte sine andeler i Havila PSV IS til HavilaShipping ASA med delvis oppgjør i børsnoterte aksjer isistnevnte selskap og delvis kontantoppgjør. Aksjene harikke bindingstid og ble utstedt basis en aksjekurs på NOK52,50. I skrivende stund er siste omsetningskurs NOK 42på Oslo Børs, slik at man har et urealisert tap her. Forvalterhar et langsiktig perspektiv på investeringen og er optimistiskpå å oppnå god avkastning. Verdiene av flåten tilselskapet har ikke endret seg negativt i løpet av kvartalet.Deep Sea Bergen Invest ASDriften av riggen går som planlagt og det er budsjettertytterligere utdeling fra det riggeiende selskap senere i åretter hvert som man akkumulerer kontantstrøm fra drift.Man har satt i gang en prosess for å refinansiere obligasjonslånettil Deep Sea Bergen Invest, som forfaller idesember i år. Dette kan åpne for utbytte fra selskapet ikommende år.Neptune Subsea ISMan har besluttet å ta levering av begge skipene til rabattertepriser. De leveres i oktober og november. Det jobbesmed befraktningsmuligheter, både korte og lange, oginteressen har vokst betydelig etter at det ble klart at skipeneblir levert. Selskapet er kapitalisert godt nok opp tilat skipene kan være uten inntjening i nesten ett år uten atman behøver ytterligere tilførsel av kapital.Brøvig Stainless II DISBegge skipene er nå levert og vil gå inn på 5-års bareboatkontrakter med Stolt Nielsen, som også har kjøpsopsjonerved slutten av certepartiene. Dette vil gi positiv avkastningpå investert kapital, noe som er betraktelig bedre enn åselge skipene i dagens marked med et stort tap av egenkapitalsom resultat.Parbarge ISBarge virksomheten til Marine Subsea blir flyttet over iet nytt selskap som heter African Offshore Services, somdrives av den tidligere ledelsen i Marine Subsea. Våre sluttbrukereog kontraktsbetingelser forblir de samme. Totaltsett er dette en god løsning for prosjektet ettersom motpartssikkerhetenanses som å være bedre, samtidig somlønnsomheten blir den samme.Middle East Jack-up LtdRiggen blir levert i oktober. Det foreligger konkret kjøpsinteressefor riggen fra flere hold og på nivåer som ervesentlig opp i forhold til tidligere i år. Samtidig er detgode muligheter for befraktning på akseptable nivåer.PWWS II har satt av midler for å ta levering uten ytterligereopptak av gjeld. Forvalter venter en avklaring på detteprosjektet før jul.Vestland Seismic ISMotpartssikkerheten er vesentlig bedret ettersom befrakterRXT har inngått en avtale med en industriell partner somhar skutt inn USD 10 millioner i morselskapet og USD30 millioner i et felles eiet datterselskap. Markedsutsiktenehar også bedret seg og seismikk skipet som Vestland eierhar sluttet ut året.Volatil US dollarSom presisert i prospektet (og Informasjonsmemorandum)er investeringer som gjøres i valuta utsatt for svingningermellom den underliggende valutaen og NOK. PWWS IIforetar ingen valutasikring, og dette innebærer at endringeri valutakurser påvirker den verdijusterte egenkapitaleni de underliggende investeringene. Ca. 54 % av verdijustertegenkapital i PWWS II er eksponert mot USD ogca. 3 % mot EUR. Lavere USD hadde per 30.6.11 hatten negativ effekt på rapportert VEK i norske kroner på ca4 %. Siden da har USD/NOK steget med ca 3 %.For øvrige prosjekter er det ingen vesentlige hendelsersom påvirker de underliggende verdier å melde om.

«Siste verdijusterte egenkapitalvar NOK 155 per aksje»Verdi- og kapitalutviklingKursutviklingKursutviklingen som rapporteres for Pareto World WideShipping II AS («PWWS II») er basert på verdijustertegenkapital («VEK»). Verdivurderingen av PWWS II sineinvesteringer er basert på innhentede markedsverdier framegler(e)/tilrettelegger(e) hvor anerkjente verdivurderingsprinsipperog 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 pårapporteringstidspunktet var 5,3882). Dette er justert forutbytte på NOK 8 per aksje for 2011.PWWS II gjør halvårlige verdivurderinger av de underliggendeprosjektene, og rapporterer således VEK to gangerper år. Følgelig vil neste offisielle VEK foreligge per31.12.2011 og rapporteres til investorene i kvartalsrapportfor fjerde kvartal 2011.AnnenhåndsomsetningPer utgang av tredje kvartal 2011 er det utstedt totalt1.924.818 aksjer i PWWS II. Pareto Project Finance AS(«PPF») legger til rette for aktiv annenhåndsomsetning avaksjer. Siste omsetningskurs er NOK 150 per aksje (omsatt04.12.2008). De siste omsetninger i selskapets underliggendefeederselskap (Pareto Shippingkapital II) har vært tilkurser som tilsvarer ca. NOK 80 per aksje for PWWS II.Investorer som ønsker å kjøpe eller selge sine aksjer kan takontakt med sin rådgiver.DirekteavkastningUtbetaling av kapital til investorene skjer innenfor aksjelovensregler. PWWS II vil tilstrebe en årlig utbetaling tilaksjonærene på 5–12 % av innbetalt kapital fra det tidspunktPWWS II er tilnærmet fullt investert. Utbetalingtil aksjonærene kan skje i form av utdeling av utbytte ellerved nedsettelse av aksjekapitalen.I tråd med dette gjennomførte PWWS II en utbetalingpå NOK 8 per aksje til aksjonærene i andre kvartal 2011.Det er forventet at de årlige utbetalingene fra de underliggendeinvesteringene vil øke og følgelig at PWWS IIsutbetalinger til aksjonærene vil følge denne utviklingenfremover. Samlet har PWWS II betalt ut NOK 27 millionertil sine aksjonærer, totalt NOK 14 per aksje, sidenoppstart. Dette tilsvarer en direkteavkastning på 7 %.Investeringstakt og kapitalutviklingKommittert kapital i PWWS II var opprinnelig NOK 388millioner. PWWS II har en portefølje bestående av andeleri totalt 36 enheter, og har en kontantbeholdning per 30.september på ca. NOK 96 millioner. Av dette er NOK 15millioner planlagte innbetalinger på allerede kommitterteinvesteringer, mens resterende NOK 81 millioner er kapitalsom vil brukes til en kombinasjon av nye investeringer,oppfølging av eksisterende prosjekter og utbetalinger tilaksjonærene.Porteføljen til PWWS II gjennomgås jevnlig av forvaltermed tanke på å evaluere risikoen for ytterligerekapitalbehov i prosjektene. Styret og forvalter er av denoppfatning at PWWS IIs avsetninger for mulige innkallingerav egenkapital sannsynligvis har passert et toppnivå,og at disse vil reduseres i takt med en eventuell bedring imarkedet. Dagens markedssituasjon tilsier at PWWS IIpå nåværende tidspunkt har rundt NOK 45 millioner i friinvesteringskapital.Levetiden utløper 1. oktober 2014.

Befrakter Disponent Eierandel VEK'N/A Skips AS Tudor 20 % 5 630 669Albatross Shipping Ltd. Klaveness Corporate Services AS 15 % 11 587 351N/A Neptune Offshore AS 11 % 26 817 071Stolt Tankers B.V. Brøvigtank AS 25 % 8 677 222Lavin Ltd. / BW Shipping Ltd. Bergshav Management AS 10 % 9 795 370Marine Subsea AS Bergshav Management AS 10 % 13 207 664N/A Swicorp 4 % 19 912 913Swiber Offshore Marine Pte. Seabulk AS 8 % 11 865 247Lavinia Corporation P. D. Gram & Co AS 14 % 6 841 936STX Europe Camillo Eitzen & Co ASA 40 % 14 525 941Heung-A Shipping Ltd Brøvigtank AS 50 % 14 733 225Eitzen Chemical ASA J B Ugland Shipping AS 19 % 6 122 482Viking River Cruises S.A. Lorentzens Skibs AS 10 % 4 855 576ConocoPhillips DOF PSV Invest IS 3 % 3 810 000Statoil Odfjell Rig AS 2,8 % 7 823 77217 % 6 182 960DOF ASA 4 % 1 680 000Sartor Offshore AS 4 % 1 660 000Total / Vitol / Statoil Bergshav Management AS 7 % 7 199 6532 % 17 464 073200 393 125Certeparti- 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 innenforoffshore, dog dukker det opp flere muligheter innenforshipping hvor enheter tilbys for salg til svært lave priser aveiere som er i finansielle problemer.B-Gas ASPWWS II har økt sin investering til NOK 10 millioneri B-Gas AS, hvilket gir 7 % eierandel. NOK7 millioner ble betalt inn i løpet av tredje kvartalmens resten skal betales inn i fjerde kvartal. I tillegghar PWWS II kommittert seg for NOK 2 millioner iuinnkalt kapital i prosjektet.Innbetaling av uinnkalt kapitalPWWS II har ikke måttet innbetale noe uinnkalt kapitali løpet av tredje kvartal 2011.

SalgSom nevnt i forrige kvartalsrapport kvartalsrapportenhar PWWS solgt sine andeler i Havila PSV IS til HavilaShipping ASA med delvis oppgjør i børsnoterte aksjer idet sistnevnte selskap. Transaksjonen fant sted i juli 2011.PWWS har tro på at supply markedet vil utvikle seg positivtfremover og vil se en eventuell realisasjon av aksjene iHavila Shipping ASA i forhold til dette. Så langt har volatileaksjemarkeder redusert verdien av investeringen.Utbetalinger fra underliggendeinvesteringerDet er ikke mottatt utbytte fra underliggende investeringeri tredje kvartal. Hittil i år har PWWS II mottatt NOK3,2 millioner i utbytte.DefinisjonerI denne kvartalsrapporten har nedenstående utrykk følgendebetydning, med mindre annet er direkte uttalteller fremgår av sammenheng. De nedenstående definisjonenegjelder også for de foregående sidene i dennekvartalsrapporten.Definisjoner:PWWS II Pareto World Wide Shipping II ASVEK Verdijustert egenkapitalPPF Pareto Project Finance ASMEJU Middle East Jack-up Ltd.

fig1Markedskommentar Shipping Kilde:Pareto Project Finance ASShippingThe markets continue to be very challenging for certainsegments in the shipping industry with overall earningssliding back towards the bottom seen in 2009. Averageearnings YTD measured by the Clarksea Index isUSD 12,000/day, compared with a 2010 average of USD15,200/day and a 2009 average of USD 11,300/day. Theten year average is USD 21,200/day. As has been the caseduring the past two years, it is the bulk shipping segmentsthat are faring the worst. The slight uptick in average earningsin the past month is, on the other hand, a result ofimproving conditions in the drybulk market.Source: ClarksonsThe world orderbook for new vessels continues to contractand now stands at roughly 6,550 vessels with a combineddeadweight tonnage of around 430 million tons. This equatesto a 15 % decline in volume of vessels on order sincethe turn of the New Year, as a result of deliveries and slippagebeing higher than the rate of new orders.Secondhand activity has slowed down again after abuoyant 2010, where activity doubled from the previousyear. The run rate so far in 2011 is down just in excessof 20 % from last year’s levels. Values depreciated about5 % last year and have held firm during 2011, althoughwith clear differences between segments. These differencesmimic the fortunes in the freight markets.Into 2011, the rate of new vessel deliveries have outstrippedthe increase in demand, particularly for tankerand dry bulk segments, resulting in weakening dayratesand values. Looking forward, vessel demand growth isnow subject to more uncertainty due to the global financialunrest, with the large orderbook for new vessels likelyto add further pressure on earnings for a longer period oftime than what was assumed earlier this year. Some segmentslook more favourable than others and shippinginvestors may secure many attractive deals in the time tocome, particularly as more distressed owners now reallystart feeling the pinch.(Clarksons, Pareto)Dry Bulk marketThis year has been weak with average earnings more than40 % lower than the average for 2010, despite a pick-up inearnings during the past month.

fig2fig3Source: ClarksonsDemand for dry bulk transportation continues to grow,with robust Chinese iron ore imports and high activity andprices in the coal industry supporting vessel demand. Whatcontinues to kill the market is the orderbook for new vessels,which stands at 40 % of the existing fleet overall, thehighest number of all shipping markets. This is particularlyinfluenced by orders for large vessels (Panamax and larger),where the order book is 44 % of the current fleet. Thesmaller segments (Handymax, Handysize) have an orderbook which is 33 % of the fleet. We therefore favour thesmaller vessels in the dry segment going forward.Despite the favourable medium- and long-termdemand characteristics in the dry bulk market, thelarge number of new vessels coming to the market islikely to maintain the market balance in favour of thecharterers, although the current situation is a bit betterthan is the case for the tankers.(DryShips, Pareto, Clarksons)Tanker marketThe tanker market is under heavy pressure following atough 2010. Rates are down about 22 % from last year’slevels. As expected, global oil demand growth has declinedsomewhat, and although Saudi Arabia is producing asnear record levels to compensate for the loss of crude fromLibya, there are simply too many vessels around.Source: ClarksonsCrude tankers are having a particularly hard time, withrates below operating cost now becoming a rather regularfeature. With an orderbook representing 23 % of theexisting fleet, the current demand growth of roughly 3 %p.a. means that it will take a long time before the marketrebalances. Floating storage levels are still low andunable to make much of a difference. Supply side managementappears the only way for the owners to restoreearnings. We are now seeing more vessels being scrappedat a younger age than before, both as a result of low fuelefficiency and due to scrap values of VLCCs being close tosecond hand prices for vessels older than 15 years. Thereare also a rising number of vessels being converted toother uses, so owners now have a clear incentive to removecapacity from the market. Slow steaming and lay-ups arealso cards the owners can play to instigate a turnaround ofthe current depressed rate picture.The financial state of the tanker industry is also of concern.Many owners are highly leveraged and fast becomingunable to service debt as cash levels are drawn to theminimum and fixtures make zero profits. A big refinancingbattle is looming, with the equity holders looking to bethe big losers, but also posing the question of which of thecreditors that will have to take a haircut. The banks willprobably want to avoid taking control of ships, as a massiveselling of bank controlled ships will only depress values andrepresent a vicious circle, and thus will probably want tobe constructive. On the other hand, the current financialturmoil is putting pressure on banks in general, and mayresult in more stringent measures being taken than whatwould appear rational from a pure shipping perspective.The financial problems in shipping will also have animpact on the deliveries of new vessels from the currentorder book. The average VLCC has been ordered foraround USD 130m and is now worth around USD 90mfresh from the yard. A typical 80 % take-out paymenton delivery will be in excess of USD 100m. Who’d wantto lend USD 100m to a loss-making owner against collateralthat is worth only USD 90m? The answer is noone in today’s markets. Hence, yards will probably struggleto deliver vessels as the financing simply won’t bethere. This will be ugly for shipyards and owners alike,but as it will result is less new capacity coming into themarket, it may also sow the seeds for a more rapid turnaroundin tanker earnings.Product tankers are better placed at present, with amodest fleet growth and an attractive demand and supplybalance, in particular in the long range product segment.In this segment, we have seen some uptick in values andan increasing appetite for newbuilds.(Pareto, Clarksons, International EnergyAgency, Lorentzen & Stemoco)

fig4fig5fig6Chemical marketThe charter market for chemical carriers is still relativelysoft, but there has been an overall improvement in activityand dayrates during the year, compared to 2010. On theother hand, some of this improvement is being absorbedby increased bunker prices, so the net earnings are still atlow levels.The LPG market is enjoying better times due toincreased refinery output as global refinery capacity isbeing expanded, offering more cargo availability. Moreover,the new capacity is generally more remote from the mainconsuming areas, thus offering longer trade routes, whichrestricts the effective transportation capacity. Industrialdemand for petroleum gases is also increasing, while thereis limited fleet growth. The overall picture is that of a tighteningmarket, with rates increasing across all segments.Source: Eitzen ChemicalThe overall demand picture is mixed, with Europe, Mediterraneanand West African markets improving. MiddleEast, trans-Atlantic and trans-Pacific markets are stable,while Far East markets as slowing. The outlook for thecoming years looks somewhat more negative than beforeas it appears likely that the European debt crisis willreduce overall economic growth and industrial activitygrowth, the latter being the most important driver forchemical transportation demand.In that respect, it is positive that few new orders havebeen placed in this segment in the past two years. Thestrong Japanes yen effectively curbs fleet growth out ofthat region, and the current charter rates do not justifynewbuildings. The orderbook now stands at about 12 %of the fleet according to Etizen Chemical. The order bookequals the number of vessels older than 20 years and thenumber of single hull ships. Therefore, it seems reasonableto expect low fleet growth in the coming years, probablyaround 2 % p.a., while trading volumes are expected togrow by a higher number. Therefore, the chemical marketslook to be treading the water in the coming years, withsome scope for improvement.(Eitzen Chemical, Lorentzen & Stemoco, Pareto)Gas marketThe market for gas transport, both LPG and LNG hassurged this year and stands out as by far the strongest segmentin shipping. For LNG, it is the emergence of naturalgas as the fastest growing source of energy, coupled withuncertainty about the future for nuclear power that generatesthe growth. The segment has grown by 6.5 % p.a. inthe past 25 years and that growth rate looks to accelerategoing forward.Container marketAfter growing by 12 % in 2010, global container tradehas experienced a softening 2011 with volume growth ofaround 6 %, which so far has been outpaced by new fleetdeliveries. The weakening is a result of slowing imports towestern economies, meaning that both the all-importantFar East – Europe and Transpacific trades are slowingdown at the same time.Source: ClarksonsAs a result, the upward trend in dayrates has reversed withliner operators and owners reacting swiftly in laying up themore inefficient vessels and introducing slow steaming toreduce effective capacity.On the other hand, newbuild activity has continued athigh levels, with a clear preference for large vessels. A totalof 211 vessels have been ordered YTD, compared to 125for the whole of 2010. The average size of vessels orderedthis year has been 7,600 TEU, compared to 5,400 TEU

last year. The main reason for many new orders is a shift inthe industry’s preference towards high TEU capacity combinedwith lower speeds and higher fuel efficiency over theprevious singular focus on high speeds. At current prices,bunker costs completely dwarf ordinary operating costsand financial costs, so higher fuel efficiency is a sure wayfor the liner operators to improve margins.Second hand transactions are slowing down as a resultof the weakening markets. This is primarily a feature of thesmaller vessel types, where prices have come off a bit.According to Clarkson’s, containership capacity is currentlyprojected to grow by around 9 % this year. Thegrowth in containership supply is expected to be somewhatmoderated by ‘non-delivery’, while the demolitionof capacity is not expected to be as significant as last year.Total capacity growth is expected at 8 % this year. Thetotal orderbook is 29 % of the existing fleet, which seemsto indicate that owners believe in the long term story,despite short to medium term risks. Financing of deliveriescould also become an issue here, so the effective capacitygrowth could become less.(Clarksons, Pareto)Reefer market2011 has continued at lower levels than last year, withlimited cargo requirements and a spot market in charterersfavour. The low rates can be explained by a combinationof several factors; reduced banana harvest,import ban from Russia for US poultry, financial challengesin the Euro-zone and in Russia, and less fishingactivities in both South Atlantic and South Pacific.The fortunes of the specialized reefer market have beenclosely linked to the slow and faltering economic recoveryand exchange rate movements in Europe and Russia.With the anticipated slow recovery in Western andEastern Europe, it is likely that consumer demand willremain muted. This could quite possibly result in themarket for specialized reefers suffering, with the lessefficient vessels suffering most.The rates for specialized reefers vessels are highly seasonal,with February to April usually seeing the highestrates of the year. That happened this year also, but ratesfell off sooner than normal and has continued at very lowlevels during the slow season.The current orderbook is almost non-existing, and thefleet is ageing, leading to the global fleet shrinking by 6 %last year. As a result of the weak charter rates, scrappinghas increased and looks set to eclipse the levels seen lastyear. Therefore, an increase in demand could give a verypositive effect to the specialized reefer market. Overall,however, the outlook appears to be weak.(Reefer Trends, Green Reefers, Star Reefer, Pareto)

Markedskommentar Offshore Kilde:The upturn in oil service markets that we predicted a yearago appears well underway and according to expectations.The rising oil price and E&P budgets with 15 % growththis year have set the tone, and we now see the underlyingmarkets responding accordingly. Last year was characterizedby utilization and day rate stabilization, with reallyonly one segment showing upwards movement (modernjack-ups). This year, there is upwards movement in the utilizationand dayrates in nearly all segments with asset valuesfollowing suit. In short, the upturn is both broadeningand strengthening.The question is how long this will continue, as it is instark contrast to the past quarter’s unrest in global financialmarkets. These markets are now telling us that we’relikely to face significantly lower economic growth in thecoming years. This will surely have a dampening effecton the growth pace in the oil industry and in oil servicemarkets. On an absolute basis, therefore, things are lookingless positive than some months ago and in the short tomedium term, we are less convinced that we will continueto see large upticks in dayrates and valuations. The mostimmediate effect is already there, through debt financingbecoming less available and more expensive. For a capitalintensive industry like oil & gas, this has significant negativeimpact.Pareto Project Finance ASOn a relative basis, though, the oil & gas industrystands out as a winner. There can be no clearer evidencethan the difference between the performance of the oilprice and the world’s stock markets (as measured byMSCI World Index) this year. The oil price is up 19 %YTD, while the stock markets are down 9 %. This outperformanceof 28 %-points is even more intriguing given the“risk-off” sentiment that has characterized global financialmarkets in recent months, something that typically has avery negative impact on commodity prices. If the oil pricehad followed global stock markets south, it would havetraded at USD 87/b, and in a risk-averse environment likenow, probably even lower. Why is this not the case now?The oil price vs MSCI World IndexSource: Bloomberg, Digital Look

figfig3fig4Our answer is that the oil price is fundamentally drivenand primarily so by the long term energy challenges thatthe world is facing. Oil is simply a scarce resource, withgrowing demand. Going forward, it will become scarcerand demand will continue to grow. Perhaps slower in thecoming few years, but the supply / demand equation foroil will continue to worsen (seen from the consumer’sperspective), driving a rising need to discover and developnew resources. That is why the oil price is as robust as it is,and that is why the activity levels in the oil & gas industryare continuing to rise, particularly offshore. Hence, we arestill convinced that offshore oil services is the place to befor the long term investor. Slower growth is better thanno 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 willbe rising finding and developing costs. In turn, this willbe driven by an accelerating need to replace the existingreserve base, which has been shrinking for more than 30years. The future reserves will be hard and costly to find,develop and produce. And much more so than the reserveswe’re currently producing from.We beg investors to consider some staggering numbers:During the 1990s, the global oil industry spent USD 1.1trillion and managed to find approximately 137 bn barrelsof new oil reserves. In the period 2000–09, the oilindustry spent USD 2.8 trillion (2.5 times more) and onlymanaged to discover 143 bn barrels of oil – a mere 4 %increase over the previous decade. The gap between consumedoil and new discoveries widened from 112 bn barrelsto 137 bn barrels – an increase of 22 %.global production will have to come from new and moreexpensive 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 gasdemand, which is the world’s fastest growing source ofenergy. Nearly all of the demand growth is outside of theOECD, and is following the early demand patterns seenfor 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 stillhas no access to electricity. Natural gas is an abundant andcheap source of electricity and this is now showing up indemand numbers in key economies across the globe.Chinese natural gas demand andrelative pricingSource: Pareto Securities, BP, IEAOverall, offshore production of oil and gas is forecast togrow by 74 % in the coming 20 years. This will constitute100 % of the total growth in global oil and gas production.In short, the oil industry will be spending an awfullot of money in the coming decades and the bulk of it willbe spent offshore. That is excellent news for the offshoreoil services industry.Global oil & gas production 2010–30What will happen during the coming decade? Firstly, oilconsumption looks set to be 10 % higher than the previousdecade, adding further pressure. For new discoveriesto keep pace with demand, the global discovery rate wouldneed to double. That seems an impossible feat. Most likely,the world will struggle even maintaining the past decade’sdiscovery rate, meaning that the decline in existing reserveswill accelerate. A steadily increasing proportion ofSource: Rystad EnergyThe new discoveries in Norway are also relevant for ouroutlook, as they rank as the most significant discovery ofnew resources globally this year. This has spurred renewedoptimism in Norway, particularly in the Arctic north.We have already seen seismic acquisition activity respondalmost immediately and additional drilling efforts are sure

fig5to follow in the coming years. In turn, this will enhancethe need to support services from supply vessels and, whenthe fields are finally developed, from offshore constructionvessels. Given the harsh environments in these areas, thiswill be yet another example of how larger and more complexunits need to be built and the general need to modernizethe offshore fleets to cope with new demands.Source: Teknisk Ukeblad, Rystad EnergyDrillingThe drilling industry continues to be brimming withoptimism, as evidenced by the USD 25bn of newbuildorders that have been placed so far in the cycle. This hasbeen a response to clients’ needs for modern and morecapable units, as well as to the general, fundamental outlookfor the oil markets. Established rig yards now havefull order books well into 2014 and are quoting higherprices. As a result, rig owners are sourcing yard slots frommore inexperienced yards at high prices, but with potentiallyearlier delivery.Are there too many rigs on order? Investors should takecomfort from the fact that 40 % of the global drilling fleetis 30 years or older. There is a lot of replacement need inaddition to the demand growth mentioned above. Therefore,a global orderbook that constitutes approximately20 % of the current fleet is likely to be insufficient, meaningthat the market looks set to tighten significantly inthe coming 2–3 years. On the other hand, a lot of rigs arecoming out of yards at the same time (2013), which couldresult in a temporarily overcrowded buyers’ market. Thispotential threat, however, lies some years down the road.Jack-upsGlobal jack-up utilization and dayrates have recoveredand have spread to the market for standard jack-ups.Although utilization in the premium jack-up market has

fig6fig7fig8stabilized above 95 %, rates are moving upwards moreslowly. On the other hand, utilization and rates for standardjack-ups have risen substantially with such units commandingrates that are only 10 %–15 % below premiumunits. This is a bullish sign.Roughly 40 new jack-ups have been ordered for atotal of more than USD 9bn. There are options foranother 23 units. Yard prices have risen about 15 % duringthis period. In the past quarter, however, orderingactivity has subsided as access to funding has becomemore limited and the various players’ appetite for riskhas come down. We are now seeing that some of theyard options are left undeclared. There is an awful lot oftake-out financing to secure to take delivery of the speculativelyordered rigs, and right now, risk capital is hardto come by. This may present larger players with M&Aopportunities. In this respect, the latest transaction of apremium jack-up newbuild at around USD 220m demonstratesthat buyers are willing to pay top dollars for amodern rig.Global utilization standard jack-upsDayrates floatersSource: Pareto Securities, ODS-PetrodataSupply marketThe North Sea spot market has been very tight duringthe summer season and is enjoying a stronger end to theyear than what was the case 12 months ago. This goesboth for PSVs and for AHTS. Norwegian clients havesecured several vessels on long term contracts and a substantialamount of new tenders are out in the market foradditional tonnage, primarily for large PSVs.North Sea Spot Rates PSV (> 4,000 dwt)Source: Pareto Securities, ODS-PetrodataFloatersLeading edge floater dayrates have topped USD 500k/dfor the first time in the cycle, with the majority of ultradeepwater fixtures being in the USD 450–500k/drange. Rig availability is very tight in the near term andis unlikely to ease off until the rigs from the currentnewbuilding cycle starts getting delivered from 2013and onwards.Norway is a bright spot in the industry with the abovementionedfixture of USD 500k/d and Statoil’s awardof 8-year contracts for the use of 2 category D rigs, withexpected delivery during the second half of 2014. The twolarge discoveries offshore Norway is likely to add more fuelto a very tight Norwegian market. Transocean’s acquisitionof Aker Drilling this summer at an implied rig price ofUSD 930m/rig is a perfect example of this.Source: Pareto Research, JGO Offshore, WestshoreA cooling factor is the newbuilding ordering activity,which has risen substantially in line with improving conditions.A lot of vessels are being ordered, primarily largePSVs, and the debate is whether there are too many suchvessels on order. We don’t think so, as roughly two thirdsof the order book is targeted markets in the Gulf of Mexicoand Asia Pacific. We also note that ordering activity hassubsided in line with worsening financial and macro conditions,which will help the market balance going forward.Broadly speaking the global PSV fleet looks to growby an average of 7 % p.a. in the next two years, which isnot very high considering that demand for such vesselshas grown by an average of 10 % per year since 2000. ForAHTS, the order book is smaller, and with an average fleetgrowth of 3 % in the next two years, this market lookslikely to tighten. Many now see the AHTS market as thenext in line for substantial newbuilding activity.

fig9SubseaThe subsea vessel market appears to be set for a more buoyant2012 than what has been the case this year. The orderbooks for the larger subsea construction companies arerecord high, promising significant activity growth in comingyears. There is also substantial growth in smaller tendersfor a variety of subsea work across the globe as the oil companiestry to catch up with low maintenance levels in thepast two years, continue to work on enhanced oil recoveryplans and prepare for new fields to come on stream.Judging by the field development plans in key regionssuch as Brazil, West Africa, GoM and Australia, the subseaindustry looks set to enjoy a strong run in the next 5–10years. Technip, the second largest subsea constructioncompany, recently said that the Norwegian subsea marketwould double in size in the next 3 years. A recovering Gulfof Mexico is also adding to the picture. Analysts expectas much as USD 18 bn of large subsea contracts to beawarded in the next 15 months globally, of which roughly40 % will for work in West Africa, 20 % in Australia and20 % in Brazil.Overall, the demand for subsea vessel services looks setto increase more than 40 % in the next two years. Thismeans that vessel shortage could remerge as an importantfactor in the not too distant future. Technip has alreadysaid that it is fully booked for 2012 and is looking to addmore vessels. As with most other segments, owners ofmodern high quality assets will be well positioned. Moreover,it is likely that the recently completed merger betweenSubsea7 and Acergy will provide space in the market fornew entrants. In turn, these will likely be scouting forquality assets as a means to gain market share. We havealready seen several new, private equity backed playersemerge, who plan to eat into the big guns’ market shares.Seismic marketThe seismic market has seen a steady rise in demand,which is now at all time high measured in terms of acquisitionactivity. However, the influx of new vessels into themarket 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 thevessel owners. The oil industry appears to be back in themarket with large programs, both for traditional explorationseismic and for more specialized surveys like wideazimuth surveys, ocean bottom seismic surveys and EMsurveys. 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 surveyshaven been approved. Some 7 %–9 % of the globalseismic fleet will be moving to the Gulf in the next sixmonths, according to analysts. Tenders for the Norwegianhave come out earlier than last year, a sign that oil companiesin this area expect a tighter market next year.With rig rates now starting to rise again and the mountingchallenge to discover more oil & gas reserves, there isreason to expect seismic to experience a solid recovery. Theoil industry still only manages to strike a discovery in oneout of every four exploration wells. It is estimated that drywell costs amount to USD 15–20bn per year, so any technology– such as seismic – that can help improve the successratios will have tremendous value for the oil industry.The rising trend in dry well costsSource: Pareto SecuritiesKvartalsrapporten er utelukkende ment for informasjonsformål, og må ikke under noen omstendighet betraktes som et tilbud om eller en oppfordring til åhandle aksjer i Selskapet. Det gis ingen garantier og det aksepteres intet ansvar for tap, direkte eller indirekte, som oppstår som følge av at leseren agererpå 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 sompålitelige. 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 fremtidigeresultater i markeder eller selskaper. Faktiske hendelser og resultater kan avvike substansielt fra dette. Pareto Project Finance AS aksepterer ikke ansvar fortap 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. Detunderstrekes også at avkastningen / kursutviklingen kan variere som følge av svingninger i valutakursene. Vi gjør oppmerksom på at i dagens uroligemarked er det stor usikkerhet knyttet til verdivurderingene da det er ingen eller veldig få transaksjoner som er gjennomført. Fremgangsmåten vedberegning av VEK er nærmere beskrevet i Pareto Project Finance AS’ markedsrapport av september 2011. Risikofaktorer og kostnadsstruktur er nærmerebeskrevet i prospektet (Informasjonsmemorandum) utarbeidet i forbindelse med emisjoner i Selskapet.

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Til aksjonærene i Pareto Shippingkapital II ASPARETO SHIPPINGKAPITAL II AS - 3. KVARTAL 2011:Pareto Shippingkapital II AS sitt eneste formål er å investere i Pareto World Wide Shipping II ASog eier p.t. 79 % i fondet. Pareto World Wide Shipping II AS investerer i shippingprosjektertilrettelagt av blant annet Pareto Project Finance AS. Kvartalsrapport for Pareto World WideShipping 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 kr37,00 kr9,90 kr57,14 kr