#1HHUNTER GROUP Investor Presentation IMO 2020 Lunch Seminar June 2018 HHUNTER GROUP#2Agenda H HUNTER GROUP 1. IMO 2020 2. Investment case 3. Conclusion 2#3IMO 2020 - What is it? 2005 IMO 1997 IMO adopts MARPOL Annex VI MARPOL Annex VI takes effect. Global maximum sulfur content for all marine fuel 4.5 wt.% 2008 announces timeline for marine fuel sulfur content reductions 2010 Max sulfur content for Marine fuel consumed in ECAS reduced to 1.5 wt.% 2020 2012 2015 Max sulfur content for Marine fuel consumed in ECAS reduced to 0.1 wt.% Max sulfur content for Marine fuel consumed in ECAS reduced to 0.5 wt.% Max sulfur content for Marine fuel consumed in ECAs reduced to 3.5 wt.% Shipping's "Paris Agreement" / "MiFID 400" • • • Comments On October 27, 2016, IMO decided to move forward with the implementation of IMO 2020 (MARPOL Annex VI) from January 2020 as scheduled. Basically IMO 2020 has set a global limit for Sulphur in fuel oil used on board ships of 0,5% mm (mass by mass) from 1 January 2020. Average fuel used today has 2.45% sulfur (2015) Shipping is responsible for 4-9% of sulfur emissions, which can be linked to pulmonary diseases. H HUNTER GROUP • Worldwide mortality cases attributable to ship pollution is estimated to 60,000/yr (Corbett et al. 2007) 3#4IMO 2020 - Alternatives Install a scrubber • Can continue to run on 3,5%S HFO bunker fuel • Possible to retrofit • • Price/Availability (lead time for delivery) Uncertainty about quality Run on compliant fuels (MGO or LSFO) • 0,5% sulfur fuels on open seas and 0,1% in Emission Control Areas (ECA) Invest in Dual Fuel Engines (LNG or liquid fuels) Expensive and LNG bunker is not commonly available • • LNG makes up around 2.5% of marine fuel consumption, and is not meaningful in a 2020 perspective. Scrap the "thirsty old ladies"/ find alternative use Comments 3 (4) types of Scrubber solutions • Open Loop - in the ocean Closed Loop - stored on board Hybrid Can do both "Scrubber ready" Sulphate is a naturally occurring constituent of seawater. The large amount of sulphate in seawater is derived from volcanic activities and degassing at the seafloor. Further, sulphates reach the oceans via river flows, but the concentration in open seawater remains constant at around 2.65 g/l [8] or about 20kg of Sulphur per ton of seawater. Studies [1] and in field testing [4] confirm that the sulphate increase from exhaust gas scrubbing will be insignificant when compared with the quantity already in the oceans. An analogy that has been used is if all the Sulphur in the world's oceans were to be removed, it would form a layer around the earth about 1.7M thick. All the Sulphur in all the known oil reserves would add only another 10 micron to this layer. (10 microns = 0,01 millimeters) - EGCSA H HUNTER GROUP 4#5IMO 2020 - Vessels on the water with scrubber installed Supply/Service: 2 Tankers and Bulkers: 85 Passenger ships: 162 • What about LNG: LNG propulsion (existing/on order): Tankers/Bulkers: 24/43 Container: 12/28 Passenger: 41/42 Supply: 44/19 In total 253 vessels out of 70,000 or 0,4% Container/Cargo ships: 121 Source: LNG World Shipping As of June '18: 370 ships of a fleet of 70,000 merchant ships (or 0,5%) Source: Fearnleys H HUNTER GROUP 5#6H USD spread/ mt IMO 2020 - What about the fuel spread? 600 500 400 300 200 100 Source: Fearnleys 0 Jan-04 Jan-05 Jan-06 HUNTER GROUP MGO/HFO spread Rotterdam 2020 MGO/HFO spread Rotterdam Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 6#7IMO 2020 - Where are we? Shipowners . . • Have done little to prepare Relies on the refinery industry Do not see it as their responsibility Believe they can pass the cost on to the end users Refineries . Unprepared • Long lead time (3-5 yrs.) • Huge investments $B- not supported by fwd. curve Uncertainty regarding available crude qualities Lack of standardization could lead to "contamination" during blending • Comments Oil companies and Traders have recently been in the market to secure long term TC's or ordered newbuildings with Scrubbers . BP • Exxon . Koch • Total Shell Vitol Trafigura • S-oil H Scrubbers • • Short payback for the larger vessels (0,6 yrs) Positive reputational effect (green) Charterers now securing vessels on long TC's (Maran Tankers recently fixed 5 yrs at 35K/d with Exxon) HUNTER GROUP 7#8Agenda H HUNTER GROUP 1. IMO 2020 2. Investment case 3. Conclusion 8#9Investment Case H Thesis: • Demand for MGO will go up • • Demand for HFO should consequently go down, i.e. • Higher MGO prices Lower HFO prices Options: • Go long MGO and short HFO • Not very liquid, difficult to do Get direct exposure and buy eco scrubber fitted VLCC's HUNTER GROUP 9#10Investment Case - VLCC's/day Fuel cost savings at various MGO/HFO spreads/day USD savings/day 70,000 Eco Eco w/scrubber 64,100 59,900 60,000 50,000 53,500 47,100 40,700 40,000 34,300 27,900 30,000 26,400 26,400 24,000 21,600 19,200 20,000 16,800 14,400 10,000 Spread 0 350 HFO 250 450 HFO 250 MGO 600 MGO 700 550 HFO 250 MGO 800 650 HFO 250 MGO 900 750 HFO 250 MGO 1000 850 HFO 250 MGO 1100 Laden Assumptions: Ballast 50/50 Oper. Days Eco 48 32 40 260 ECO w/scrubber 50 34 42 260 Avg. VLCC Non Eco (WS) 75 53 64 260 H HUNTER GROUP 950 HFO 150 MGO 1100 10#11Investment Case - VLCC's/yr Fuel cost savings at various MGO/HFO spreads/vessel/yr. USD savings/yr 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 7,254,000 6,000,000 4,000,000 2,000,000 Eco w/scrubber 16,666,000 15,574,000 13,910,000 12,246,000 10,582,000 8,918,000 0 350 450 550 650 750 850 Spread MGO-HFO Assumptions: 260 Trading days 13 kts. ECO w/scrubber (HFO) Avg. VLCC Non Eco (MGO) Laden Ballast 50/50 50 34 42 75 53 64 H HUNTER GROUP 0 950 11#12Investment Case - Hunter Group ASA Attractive price and delivery times Delivery schedule Yard 2018 2019 2020 2021 Ship Price (USDM) Delivery Status Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 No. 1 82.5 Oct/Nov'19 On order No. 2 82.5 Oct/Nov'19 On order No. 3 82.5 Dec'19 On order No. 4 82.8 Dec'19 On order No. 5 82.8 Q2'20 On order No. 6 82.8 Q2'20 On order No. 7 82.8 Q2'20 On order No. 8 89.3 H1’21 Option No. 9 89.3 H1’21 Option No. 10 89.3 H1’21 Option USDM 250 200 580 150 100 50 34 26 0 Capex program 28 60 60 34 Firm Options (indicative) 28 205 154 85 28 28 • • Comments Norwegian company with no "hidden fees" Focused on generating shareholder value Incentivized through shares, not high salaries Pure play: Uniform fleet consisting of 7x firm VLCC newbuilding contracts with options for 3x additional VLCC newbuilds all built at DSME in Korea at USD 82.7m All vessels will be equipped with Wartsila scrubbers at an additional cost of ~USD 2.7m Vessels on firm order are expected to be delivered between Q3 2019 and Q2 2020, in time for the new IMO II regime where ship-owners either must equip vessels with scrubbers or use marine gas oil (MGO) All option vessels to be delivered in H1 2021 166 • 2Q 18 3Q 18 4Q 18 1Q 19 2Q 19 3Q 19 4Q 19 1Q 20 2Q 20 2Q 20 3Q 20 4Q 20 1Q 20 2Q 20 Source: Company Filings, Clarkson Research Services Limited, Pareto Securities AS H HUNTER GROUP DSME WÄRTSILÄ 12#13Investment case: Lowest yard price since 2004 260 240 220 200 180 160 140 120 100 80 60 40 20 0 Historical VLCC NB prices Clarksons Platou Real newbuilding price for VLCC Historical newbuilding prices adjusted for US CPI Real newbuilding price In 2002 price assessment was for 300,000 dwt, current ships is 320,000 dwt i.e. higher steel cost (abt 2900 mt extra steel) Current ship price included: CSR, PSPC, BWT (about $1.5 mill), Tier III engine VLCC Single Hull Data source: Clarksons Platou January 2018 Source: Clarkson Research Services Limited, Shipping Intelligence Network H HUNTER GROUP 1976 1977 1978 1979- 1980 1981 1982 1983 1984 1985- 1987 1988 1990 1991- 1992 1993 1994- 1995 1996 1997- 1998 VLCC 315-320K DWT VLCC SH $2016 Newbuilding market update | for internal use 1999 2000 2001 2002 2003- 2004 2005 2006 2007 2008 2009- 2010 2011 2012 2013 2014 2015 2016 2017 -VLCC 315-320K $2016 www.clarksons.com Newbuilding contracts already 8% "in the money" 13#14Investment Case - The V's Main particulars Builder LOA LBP Builder D Td Ts DWT at Td DWT at TS DSME 24,510kW x 66.4 rpm 17,160 kW x 59.0 rpm ~62.9MT/day Cargo and ballast system Cargo pump Cargo stripping pump Cargo stripping eductor Inert gas system Tank cleaning heater Water ballast pump LPSCR SCR Tank cleaning heater 3 x 5,500 m3/h x 150 mTH 1 x 400 m3/h x 150 mTH 2 x 750m3/h 1 x Flue gassystem None 2 x 3,000 m3/h x 40 mTH (1 x Elec. Motor driven, 1 x Steam turbine driven) 2 x 3,000 m3/h, Electrolysis Main engine DSME Type B&W 7G80ME-C9.5 x1 set (Derated) 336.0m MCR 330.0m NCR 60.0m DFOC 29.5m 20.5m IMO Nox tier III application 21.6m Main engine 279,850 299,550 Diesel G.E 14.8 knots Hull structure Service speed Cruising range Energy saving device Class ~31,700 Nmiles DSME duct LR, +100A1, Double Hull Oil Tanker, CSR, ESP, ShipRight (ACS(B, C), CM), *IWS, LI, DSPM4, +LMC, IGS, UMS, NAV1, with the descriptive notes COW(LR), ShipRight (BWMP(T), VECS, Steel material Flag Crew Tank capacity Cargo tanks incl. slop tanks Water ballast tanks Heavy fuel oil tanks Diesel oil tanks Fresh water tanks Source: DSME H ENGINE ROOM HUNTER GROUP Normal strength steel and higher strength steel portion of ~62% 25 years for longitudinal stiffener's connections to transverse webs/bulkheads in cargo area Deck machinery Steering Deck machinery Provision crane Design fatigue life SCM, IHM) Marshall Islands Painting 30 persons + 6 Suezcrew W.B. tanks 2 x Epoxy anti corrosive, 320 mic. (IMO PSPC-WBT) ~340,000m3 ~92,000m3 ~6,500m3 ~700m3 ~600 m3 Cargo Tanks Underwater 2x Epoxy anti corrosive, 320 mic. (deckhead & tank bottom as per IMO PSPC-COT) Tin free self-polishing anti-fouling paint (Lifetime 60 months) Steam generation Aux. boiler Donkey boiler Exh. gas economizer Electric power generation Diesel generator Em'cy generator LOWER 1 x El.-hyd., 2 ram-4 cyl.type El.-hyd. high pressure type 2 x El.-hyd., luffing jib type, 10.0 tons(SWL) for port side 3.0 tons (SWL) for stbd. side 2 x 45,000 kg/h x 20 barg. 1 x 3,000 kg/h x 6bar g. 1 x 1,400 kg/h x 6bar g. 3 x 1,460 kW, AC 450 V, 60 Hz 1 x 350 kW, AC 450 V, 60 Hz 14#15USD per day Breakeven vs. historical VLCC rates 30,000 Breakeven assumption 25,000 60% final installment assumed debt financed at 5%, 18-year repayment profile 7,800 24,200 20,000 15,000 10,000 100 1,300 9,400 8,000 5,000 7,000 0 Opex Scrubber opex G&A (NOK 2m p.a) EBITDA breakeven Interest (5%) Amortization Cash breakeven Source: Clarkson Research Services Limited H HUNTER GROUP Comment If owners get full benefit from scrubber at current prices, historical rates have always been above cash b/e 15#16Agenda H HUNTER GROUP 1. IMO 2020 2. Investment case 3. Conclusion 16#17Conclusion - "The Perfect Storm" ● • Fleet is old (75 vessels turn 20 years in 2019 and 2020) Orderbook is relatively thin, but growing • NB prices are on the rise • Steel prices are now around USD 430/t, i.e. scrap value is around USD 16.5 million • Rates are significantly below CBE which is good for scrapping • Costs of installing scrubbers are going up and taking longer than before. . • • Owners have not made money for quite some time, which means maintenance may have been suffering and banks may not be as willing to fund 5th SS, which may be costly with BWTS and perhaps a scrubber Oil stock piles are below average Oil prices are going up, which should lead to increased US production • OPEC may be opening up production again Source: Company Filings H HUNTER GROUP 17#18Thank you... Source: Company Filings H HUNTER GROUP H 18#19H HUNTER GROUP Hunter Group ASA Org. nr. 985 955 107 Munkedamsveien 45, 5th floor 0250 Oslo, Norway +47 975 31 227 [email protected]