Dolphin Group ASA

Strong Buy (Repeated)

Initiation of Coverage
Note that First Securities AS was engaged by Dolphin as a Joint-Lead-Manager in
connection with private placements of shares in December 2010.
Equity Research

Seismic bargain

Date of publication: 14/12/2010

Date for prices: 13/12/2010
Date for input-data: 13/12/2010

We initiate coverage on Dolphin Group (DOLP) with a Strong Buy rating and a target
price of NOK 5.50. DOLP is a start-up, full-range marine geophysical company with attractive time-charters for high-end seismic vessels and an experienced management
team in place. A low cost base makes DOLP profitable in the current market while offering full exposure (and considerable earnings growth potential) to a market recovery.

Oil Service
Rating: Strong Buy
Target price: 5.50 NOK

Experienced management team. DOLP was founded and managed by the former management of Wavefield Inseis and Veritas DGC. The core team has an impressive trackrecord including the creation of Wavefield Inseis, which went from scratch to operating six
vessels working for BP, Statoil, Petrobras, ONGC etc. in just 3 years, before the company
was acquired by CGG Veritas for NOK 2.1bn in 2008.

Combined with attractive vessel charters. DOLP has secured a fleet of three cost efficient vessels on flexible time-charters from RISH. The companys two high-end vessels
(delivery in April 2011 and March 2012) are among the top 7 vessels in the industry with
14 streamer capacity and 200 tons bollard-pull. Their ability to operate on heavy fuel provides a cost advantage only matched by PGS. The company has also chartered a 2D vessel which will commence a larger MC project during 2q 2011.

The seismic market is set for a rebound. We expect that the seismic dayrates will improve by 5% in 2011 and 10% in both 2012 and 2013. We estimate EBITDA of USD 57m
in 2012 and USD 104m in 2013 and derive a mid-2011 DCF value of NOK 8.3. A sharper
than expected rebound in GoM and Brazil could lead to a tighter than expected market.

Compelling valuation. Our target price of NOK 5.50 equals a 33% discount to our DCF,
and implies lease-adjusted EV/EBIT of 4.5x for 2012 and 1.5x for 2013, PE of 5.3x for
2012 and 2.2x for 2013, and a vessel value of USD 178m. Our implied target multiples in
DOLP equals a 25-33% discount to our comparable target price assessment in PLCS.

Price: 3.4 NOK

Ticker: DOLP.OL
Market capitalisation: 89 MUSD
Fully diluted no. of shares: 160
1

Share price development

new

2012E
prev

diff

new

2013E
prev

diff

new

2014E
prev

diff

147
35
30.5
0.17

na
na
na
na

na
na
na
na

203
76
72.9
0.41

na
na
na
na

na
na
na
na

179
52
49.6
0.28

na
na
na
na

na
na
na
na

4.0
3.5

Changes to forecast

3.0

Sales
EBIT
Pretax profit
EPS recurring

2.5
2.0
1.5

Key figures (MUSD)

1.0
Dec-09

Feb-10

Apr-10

Jun-10

Aug-10

Oct-10

Dolphin Group ASA

-1m

-3m

-12m

36.2%
33.7%
na

67.5%
50.2%
na

16.6%
0.2%
na

Price High

3.85

3.85

3.85

Price Low

2.12

1.69

1.25

Absolute
Rel. O SEBX
Rel. peers

Analyst
Pl Hold Dahl
+47 2323 8198
phd@first.no
Henrik Lund Wibe
+47 2323 8233
hlw@first.no

2009

2010E

2011E

2012 E

2013E

2014E

0
0

0
0

53
13

1 47
57

203
104

179
77

0
0
0.00
0.00
0.00

0
0
0.00
0.00
0.00

3
1
0.01
0.01
0.00

35
31
0. 17
0. 17
0. 00

76
73
0.41
0.41
0.00

52
50
0.28
0.28
0.00

na
na
na
nm
nm
nm

na
na
na
nm
nm
nm

nm
nm
nm
25.2%
6.6%
35.9%

179.0 %
nm
nm
38.6 %
23.6 %
34.7 %

37.8%
119.3%
238.9%
51.3%
37.6%
-23.0%

-11.5%
-31.6%
68.0%
43.0%
29.1%
-49.2%

na

na

2.09

0. 82

0.27

na

na
na
nm
nm
nm
0.0%

na
na
nm
nm
nm
0.0%

na
31.9
83.9
83.9
-90.9%
0.0%

8 .4
3 .4
3 .3
3 .3
-9.8 %
0.0 %

2.1
0.8
1.4
1.4
73.4%
0.0%

5.6
0.2
2.0
2.0
69.1%
0.0%

Sales
EBITDA

OSEBX

EBIT
Reported pretax profit
EPS recurring
EPS reported fully diluted
DPS
Sales growth
EBIT growth
EPS recurring growth
EBITDA margin
EBIT margin
Debt/Equity ratio
EV/Sales
EV/EBITDA
EV/EBIT
P/E recurring
P/E
FCF-yield
Dividend yield
BV/share

2010E

na

P/BV
Equity ratio

2010E
2010E

na
nm

CA GR sales

2009-12E

nm

RO E

2010E

nm

CA GR EBT
CA GR rec EPS

2009-12E
2009-12E

nm
nm

RO CE 2010E
RO IC 2010E

nm
nm

Please note that analyst certification, important disclosures pertaining estimates, recommendation structure,
investment banking relationships and limitation of liabilities are in the back of this report.
The material in the report should not be copied and/or distributed without the consent of First Securities AS.

Equity Research
Dolphin Group ASA - 14 December 2010

Executive summary
A full-range marine geophysical company
Dolphin Geophysical is full-range marine geophysical company, offering a competitive fleet
with an experienced management team in place.

High-end, cost efficient fleet secured. The company has secured a fleet of two
high-end, cost-efficient 3D vessels and one 2D vessel on time-charter from Rieber
Shipping. Its 3D vessels are chartered for five and three years firm with one six years
and two four years options to extend. Its 2D vessel is chartered for one year firm with
three one year options. The company will offer its 12-14 streamer 3D vessels in the
contract seismic market with operational commencement expected in April 2011 and
March 2012 respectively.

About to launch a large MC 2D project. We expect that Dolphin will launch a large,
multi-client survey in the Americas in 2q11, shortly after time-charter commencement
on its 2D vessel in 1q11. Management guides pre-funding at 100% by completion.

Data processing agreement in place. Dolphin has entered into an agreement with
Geotrace for on-board data processing (identical to the set-up with Wavefield Inseis).

Strong management has done this before

Dolphin Geophysical was founded and managed by the team behind Wavefield Inseis, with
added multi-client experience from Veritas DGC. CEO Atle Jacobsen and CFO Erik Hokholt held the exact same positions in Wavefield Inseis from 2006 until the integration with
CGG Veritas in 2009. In addition to Peter Hooper (VP Operations) and Phil Suter (VP
Sales & Marketing), Dolphin has recruited Mr. Tim Wells as president of Western Hemisphere. Mr. Wells has previously held the same position at CGG Veritas and was COO at
Veritas DGC from 1999-2007.
In our view, Dolphin has a very strong management team, which has a documented ability
to:

Launch a seismic company from scratch. The management team grew Wavefield
Inseis from scratch in 2006 to a nearly 10% market share in 2008, when it boosted
four 3D vessels and two 2D vessels in operation with one 3D vessel under construction. Due to an in-depth industry experience; Wavefield managed to launch its vessel
conversions more or less on time and costs, despite an extremely tight supply-chain.

Build a world-class MC organisation. During his time as COO at Veritas DGC, Mr.
Tim Wells built a world-class MC operation in both GoM and Brazil. From 2002-2006,
Veritas DGC was the second-largest MC operator worldwide (only Western Geco was
larger).

Generate substantial share-holder value. Wavefield Inseis was sold to CGG Veritas
for NOK 2.1bn in 2008, equalling nearly twice the NOK 1.1bn equity amount raised
between 3q06 and 1q07.

Equity Research
Dolphin Group ASA -14 December 2010

High-end, cost efficient vessels on T/C

Dolphin has entered into time-charters with Rieber Shipping for a fleet of three costefficient vessels. Its two high-end 3D newbuild vessels are for delivery in April 2011 (Polar
Duke) and March 2012 (NB 533) and are chartered for a firm period of five years with one
six years option and three years firm with two four years options respectively. Its 2D vessel
will commence operation from February 2011 and is chartered for a firm period of one year
with three one year options.
Only the newbuild 533 remains under construction and activity at the yard is good. We find
construction risk related to Newbuild 533 mitigated by Rieber Shippings long experience
as a seismic vessel provider, its in-depth know-how of these vessels and the Spanish yard,
and strong financial incentives for the yard and its creditors (Spanish tax lease subsidies at
delivery and a back-end loaded payment structure in general).
Fleet

Polar Duke (3D)

NB 533 (3D)

12-14 streamers,
delivery in Apr/11.
T/C: 5Y firm with 1x
6Y options

12-14 streamers,
delivery in Mar/12. T/C:
3Y firm with 2x 4Y
options

Polar Explorer (2D)

T/C from Feb/12. T/C:

1Y firm with 3x 1Y
options

Source: First Securities, Dolphin

Time-charter structure gives flexibility

The seismic market has seen a trend towards ever larger vessels over the last 15 years.
15 years ago, 6 streamer vessels were the high-end of the market whereas 10-12
streamer vessels are the current market standard. With its time-charters, Dolphin Geophysical has secured what we expect will be an ideal fleet for the next five years, with the
flexibility to either extend time-charters for another four, six or eight years or adapt to new
market trends.
Seismic market requiring ever larger vessels

Source: Dolphin

Equity Research
Dolphin Group ASA - 14 December 2010

Higher streamer count offers efficiency gain

Although offering a smaller fleet than its peers, we expect that Dolphin will benefit from one
of the most cost efficient fleets in the seismic industry. With an average practical streamer
count of 12 streamers, Dolphin boasts one of the most capable fleets in the industry, well
exceeding the average streamer count of CGG (at an average of 9.1 streamers per vessel)
and Polarcus (at an average of 9.7 streamers per vessel). We highlight that, theoretically,
a 12 streamer vessel should obtain a 20% higher dayrate than a 10 streamer vessel as it is
20% more efficient in acquiring data.
Average streamer count per ship
DOLP

PGS

Western Geco

Fugro

PLCS

CGG
6,0

7,0

8,0

9,0

10,0

11,0

12,0

13,0

average no of stream ers (practical)

Source: First Securities, companies

Cost advantage from bunker (heavy) fuel

Together with PGS high-end vessels, Dolphins fleet is the only fleet capable of running on
heavy (bunker) fuel. Assuming a daily fuel consumption of 40-45 tonnes/day, we note that
the current cost difference between bunker fuel and marine gas fuel is USD ~10,000 per
day (and that it peaked above USD 20,000 per day in 2008). We estimate potential cost
savings of 4-5% from the use of bunker fuel compared with peers, which to a large extent
relies on marine gas fuel.
Daily fuel cost (10-12 streamer vessel)

60000

Marine Gas Fuel

Bunker Fuel

50000

40000

30000

20000

10000

0
May-02

May-03

May-04

May-05

Source: Bloomberg, Dolphin, First Securities

May-06

May-07

May-08

May-09

May-10

Equity Research
Dolphin Group ASA -14 December 2010

Seismic market set to rebound

We expect that the trough in the seismic market was in 2010, and that seismic dayrates
and margins will gradually improve towards a peak in 2013. Although we currently do not
expect this cycle to offer profitability in line with the peak in 2008, we note that a quicker
than expected rebound in activity in GoM and Brazil (which are both expected to see
lease-sales re-start in 2011) or an oil price above USD 100/bl, could tighten the market
faster than expected.
Seismic market profitability
CGV - Marine Contract EBITDA (before SG&A, transit, mob)

100 %

Our estimates
may be too low, if
GoM and Brazil
rebounds or oil
price rally past
USD 100/bl

PGS - Marine Contract EBIT margins

We are here

Contract seismic margins

75 %

50 %

25 %

0%

Source: First Securities, companies

2015E

2014E

2013E

2012E

2011E

2010E

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996E

1995E

1994E

-25 %

Equity Research
Dolphin Group ASA - 14 December 2010

Strong earnings growth expected

We expect Dolphin to generate an EBITDA of USD 57m in 2012 and USD 104m in 2013,
of which its high-end 3D vessels should contribute with USD 34m in 2012 and USD 75m in
2013 (its first full year in operation) and MC operations with USD 23m in 2012 and USD
29m in 2013 (benefitting from the completion of its planned MC survey in the Americas).
P&L and key assumptions
P&L USDm
Contract revenues
MC revenues
Net operating revenues
Revenue growth
Opex
G&A
EBITDA
Amortization MC
Depreciation
Impairments
EBIT
EBIT margin
Interest expese (net)
Unrealised foreign exchange gain
Other net finance
Pretax profit
Taxes expense, net
Net profit
Mill. outs. shares
EPS
CEPS

Vessel assumptions
Utilisation
Polar Duke
NB 533

2010E

0
nm.
0
0
0
0
0
0
0
0%
0
0
0
0
0
0

2011E
41
12
53
0%
-33
-6
13
-5
-4
0
3
7%
-2
0
0
1
0
1

2012E
123
25
147
179%
-84
-6
57
-11
-11
0
35
24%
-4
0
0
31
-3
27

2013E
172
31
203
38%
-92
-6
104
-14
-14
0
76
38%
-3
0
0
73
-7
66

2014E
154
25
179
-12%
-96
-7
77
-11
-14
0
52
29%
-3
0
0
50
-5
45

2015E
128
17
145
-19%
-98
-7
41
-8
-14
0
20
13%
-2
0
0
18
-2
16

160
0.00
0.00

160
0.01
0.07

160
0.17
0.31

160
0.41
0.58

160
0.28
0.44

160
0.10
0.23

2010E

2011E

2012E

2013E

2014E

2015E

80%
0%

83%
81%

85%
85%

85%
85%

85%
85%

Dayrates
Polar Duke
NB 533

197 100

240 462
224 431

276 531
276 531

248 878
248 878

206 569
206 569

Opex/d
Polar Duke
NB 533

114 900

119 673
120 673

123 489
123 989

129 352
127 352

130 809
130 852

2011E
24
12
2
5
5
0.5x
45%

2012E
12
25
2
11
12
0.9x
45%

2013E
12
31
2
14
15
1.3x
45%

2014E
12
25
2
11
12
1.4x
45%

2015E
12
17
2
8
7
1.3x
45%

Multi-client assumptions
MC capex
MC sales - total
MC cash opex
MC amortisation
MC EBIT
MC sales/cash cost (capex/opex)
Amortisation rate
Source: First Securities

Positive newsflow expected over the next 2-3 months

We expect positive newsflow over the next two to three months. We expect that Dolphin
will announce the first contract for Polar Duke in February 2011. We expect more information around its multi-client project in the Americas in January/February 2011 and that its
first pre-funding commitment will be booked around project start-up in 2q11.

Equity Research
Dolphin Group ASA -14 December 2010

End-2015 net cash is 2.2x the USD ~60m raised in 2010

We estimate net cash flow of USD 7m in 2012 followed by USD 54m in 2013 and USD
50m in 2014. Our earnings and cash flow estimates imply an end-2015 net cash position of
USD 130m, equal to 220% the equity amount raised in 2010.
Cash flow statement and balance sheet
Cashflow statement
From operation
Net interest
Net investment multi-client
Net investments
Gross cash flow
Net current assets
Net current liabilities
Net debt/sale leaseback fund
Net equity / dividend payment
Other
Net cashflow

2010E
0
0
0
0
0
0
0
0
60
0
60

2011E
13
-2
-24
-63
-76
-16
10
46
0
0
-36

2012E
54
-4
-12
-38
0
-18
9
16
0
0
7

2013E
97
-3
-12
-10
71
-6
1
-12
0
0
54

2014E
72
-3
-12
0
58
4
1
-12
0
0
50

2015E
39
-2
-12
0
25
7
0
-12
0
0
21

Balance sheet
Cash
Current assets
MC data library
Total Current assets
PP&E (incl vessels under const.)
Other assets
Goodwill
Total non-current assets
TOTAL ASSETS

2010E
60
0
0
60
0
0
0
0
60

2011E
24
16
19
59
58
0
0
58
117

2012E
31
34
20
85
85
0
0
85
169

2013E
85
40
17
142
81
0
0
81
223

2014E
135
36
18
189
67
0
0
67
257

2015E
156
29
23
208
53
0
0
53
261

0
0
0
0
0
60
60
60

10
10
46
0
0
61
107
117

19
19
61
0
0
89
150
169

20
20
49
0
0
154
203
223

20
20
37
0
0
199
236
257

21
21
25
0
0
215
240
261

-60
75
15

22
68
90

31
50
81

-35
31
-5

-98
10
-87

-130
0
-130

Other Current liabilities

Total current liabilities
Long term interest bearing debt
Sales Lease-back Fund
Other liabilities
Share capital
Total Equity and lt liabilities
TOTAL LIABILITIES AND EQUITY
NIBD
Off-B/S debt
Total debt
Source: First Securities, companies

Equity Research
Dolphin Group ASA - 14 December 2010

Dolphin is attractively valued on all measures

1) Compelling on earnings
Including lease commitments, Dolphin is trading at EV/EBITDA of 2.2x for 2012 and 0.7x
for 2013 (its first full year in operation) and EV/EBIT of 3.4x for 2012 and 0.9x for 2013,
well below seismic peers trading at EV/EBIT of 8.1-17.7x for 2012 and 5.1-6.4x for 2013.
Valuation seismic peers
2011
83,0x

PE
2012
3,3x

2013
1,4x

2011
31,9x
15,9x

EV/EBIT
2012
3,4x
3,4x

2013
0,7x
0,9x

2011
8,4x
7,4x

(34,9)x
19,3x
(4,0)x

8,3x
11,3x
(15,2)x

3,0x
7,4x
8,8x

20,6x
13,5x
(45,8)x

10,5x
8,1x
17,7x

5,6x
5,1x
6,4x

10,4x
5,6x
6,8x

DOLP
DOLP - lease-adj
PLCS
PGS
SBX

EV/EBITDA
2012
2013
2,1x
0,5x
2,2x
0,7x
6,5x
4,3x
4,1x

4,0x
3,1x
2,6x

Source: First Securities

2) Vessel price is 21-26% below peers

Dolphins vessel fleet is currently priced at USD 151m per vessel, representing a 21-26%
discount to PGS (at USD 205m) and PLCS (at USD 192m) and a 12% discount to current
newbuild costs (at USD 170m).
Our calculation assumes a 20 years time-charter less maintenance capex (to be covered
by RISH).
Implied value per 12 streamer vessel (USDm)

DOLP discount to peers

220
New build cost
0%

200

-10 %

160

Discount to peers

12 streamer vessel (USDm)

-5 %

180

140

-15 %

-20 %

120

100

-25 %

DOLP today
(NOK 3.35)

New build
cost

DOLP at
target (NOK
5.50)

PLCS today
(NOK 5.25)

PGS today
(NOK 80.7,
age
adjusted)

-30 %

Source: First Securities

PLCS today (NOK 5.25)

PGS today (NOK 80.7, age

adjusted)

Equity Research
Dolphin Group ASA -14 December 2010

3) Our mid-2011 DCF is NOK 8.30 per share

Our mid-2011 DCF value is NOK 8.30 per share, of which NOK 6.60 relates to contract
seismic and NOK 1.60 relates to MC seismic. Our target price of NOK 5.50 equals a 33%
discount to our mid-2011 DCF value (and 17% discount to our valuation of contract seismic) to factor in start-up and execution risk.
DCF value
DCF valuation, USDm
Contract seismic
MC seismic
GAV
NIBD and future capex commitments
Equity value
Assumptions
USD/NOK
WACC - contract seismic
WACC - MC seismic
Inflation

End 2010
232
38
270
73
197

End 2011
250
55
305
59
246

Mid-2011
241
47
287
66
221

159,9
1,5
9,2

159,9
1,4
8,3

6,00
9,0%
10,0%
2,5%

Terminal values
Dayrate
Opex/d
Utilization
Number of vessels

212 766
134 764
85 %
2

Shares outstanding (m)

Equity per share (USD)
Equity per share (NOK)

159,9
1,2
7,4

Source: First Securities

Key risk factors

Oil price

Seismic market

Ability to secure contracts

Operational execution

Construction of newbuild 533

Please note that our initiation of coverage assumes shareholder approval of the equity issue at the EGM due 20 December 2010.

Equity Research
Dolphin Group ASA - 14 December 2010

Dolphin Group ASA

Dolphin Geophysical was founded in 2010, and will be organised under the Dolphin Group,
a holding company that will take over the listing of Dolphin Interconnect Solutions (ticker
DOLP) on the Oslo Stock Exchange. Dolphin Interconnect Solutions is a small IT company,
with some seven employees selling software and hardware, which was acquired by Mr. Atle
Jacobsen and Mr. Erik Hokholt, now CEO and CFO of Dolphin, earlier in 2010. We have
not yet included Dolphin Interconnect Solutions to our estimates, but note that this is a
break-even business with approximately USD 1m in sales and boosting a limited balance
sheet.
In December 2010, Dolphin Geophysical raised USD ~60m in net equity to partly fund a
USD 133m expansion in marine seismic. The company had prior to this issue entered into
time-charter arrangements with Rieber Shipping for two high-end 3D newbuild vessels and
one 2D vessel.
The company will spend USD 100m to purchase seismic equipment, where as the remaining USD 33m will be used as working capital for its seismic vessels and MC projects. Out of
a total funding requirement of USD 133m, USD ~60m will stem from equity with the remaining USD 73m to be funded by debt (DOLP has already seen USD 30m in debt committed
by DnB and USD 6.5m in convertible debt (at NOK 2.5 per share) ifrom Armada Seismic).
Dolphin organisational chart

DOLP (listed on OSE)

DOLP Group ASA

Dolphin Interconnect
Solutions

Dolphin Geophysical

(7 employes)
Streamer Company 1
Source: First Securities, Bloomberg

Strong management has done this before

Dolphin Geophysical was founded and managed by the team behind Wavefield Inseis, with
added multi-client experience from Veritas DGC. CEO Atle Jacobsen and CFO Erik Hokholt held the exact same positions in Wavefield Inseis from 2006 until the integration with
CGG Veritas in 2009. In addition to Peter Hooper (VP Operations) and Phil Suter (VP
Sales & Marketing), Dolphin has recruited Mr. Tim Wells as president of Western Hemisphere. Mr. Wells has previously held the same position at CGG Veritas and was COO at
Veritas DGC from 1999-2007.
In our view, Dolphin has a very strong management team, which has a documented ability
to:

Launch a seismic company from scratch. The management team grew Wavefield
Inseis from scratch in 2006 to a nearly 10% market share in 2008, when it boosted
four 3D vessels and two 2D vessels in operation with one 3D vessel under construction. Due to an in-depth industry experience; Wavefield managed to launch its vessel
conversions more or less on time and costs, despite an extremely tight supply-chain.

Build a world-class MC organisation. During his time as COO at Veritas DGC, Mr.
Tim Wells built a world-class MC operation in both GoM and Brazil. From 2002-2006,
Veritas DGC was the second-largest MC operator worldwide (only Western Geco was
larger).

Generate substantial share-holder value. Wavefield Inseis was sold to CGG Veritas
for NOK 2.1bn in 2008, equalling nearly twice the NOK 1.1bn equity amount raised
between 3q06 and 1q07.

10

Equity Research
Dolphin Group ASA -14 December 2010

Management team
Management team

Experience

Atle Jakobsen
(CEO)

Jacobsen has 17 years of experience in the offshore E&P industry with several contractors including PGS and Stolt
Offshore, Multiwave and Wavefield Inseis. Before taking the position as CEO in Wavefield Geophysical in 2006, he
was VP Operations in Multiwave Geophysical Company. Jacobsen holds a Master of Science in Nautical Engineering
from NTH in Trondheim. Jacobsen has served on boards in several offshore and service companies.

Erik Hokholt
(CFO)

Hokholt has more than 20 years experience from the Marine Seismic industry and 5 years experience from the audit
and banking industry. He joined PGS in 1991, where he held senior Financial Director positions for 10 years. Hokholt
was one of the co-founders of Wavefield Geophysical in 2006 and filled the CFO position of Wavefield Inseis ASA until
2009. He was CFO of InSeis from 2002 to 2004 and CEO from 2004 to 2006. He is educated at the Norwegian School
of Management (BI) and Norwegian School of Economics and Business Administration (NHH).

Peter A. Hooper
(VP Operations)

Hooper has more than ten years experience in offshore seismic, sub-sea survey, and marine operations. One of the
founders of the seismic service company Wavefield AS and Global VP Operations at Wavefield Inseis. SVP Marine
Operations at CGGVeritas following Wavefield purchase. Hooper has also held senior positions with Geoconsult and
Multiwave Geophysical; Combining many years offshore experience with several years working in senior Project
Manager roles onshore. Hooper holds a BSc (Hons) from the University of Aberdeen and a post Graduate Diploma in
Hydrographic Surveying from the University of Plymouth.

Phil Suter
(VP Sales &
Marketing)

Suter commenced his career as a geophysicist with Seiscom Delta in 1973. In 1978 he joined Geco, and held several
senior processing and marketing positions until the company was acquired by Schlumberger in 1990. Following the
acquisition, Suter was Exploration Services Director for EMEA for 10 years, before he joined Paradigm Geophysical as
Geoscience Director. In 2006, he joined Wavefield as Marketing Director until the company was acquired by
CGGVeritas in 2009.

Tim Wells
(President
Western
Hemisphere)

Tim Wells began his career in the industry in 1977, and joined Digicon Geophysical in Houston in 1981 as a
Processing Geophysicist. In 1988, he was promoted to manage North and South American Processing, before he
moved to Singapore, where he became Manager of Regional Processing and later President for the APAC Region. Tim
served as President and COO of VeritasDGC after the merger with Veritas in 1999. He held this position until the
company was acquired by CGG in 2007. Post acquisition he held the position of President of the Western Hemisphere
for CGGVeritas

Source: Dolphin Geophysical, First Securities

Wavefield Inseis a success story

Creation of shareholder value: Wavefield shareholders booked nearly a 100% equity return between 2006-2008. Wavefield Inseis raised NOK 1.1bn in the period from 3q061q07, and was acquired by CGG for NOK 2.1bn in 2008.
Successful expansion: Wavefield grew its organisation from 0 to 360 employees in 3
years by expanding to a fleet to four 3D vessels (with one vessel under construction) and
two 2D vessels between 2006-2008.
Landmark contracts: Wavefield secured landmark contracts for BP (USD 100m contract
for the acquisition of 27,000 sqkm 3D data in 2008), ONGC (USD 170m, multi-year contract for the acquisition of 3D data) and Statoil (seasonal work totalling USD 150m between 2006-2008) during its few years in operation
Other key achievements/events:

December 2006: Wavefield, Weatherford (WFT US) and Optoplan agrees to

jointly commercialise the next generation optical 4C OBT. A contract with ConocoPhillips for Ekofisk, Norway was later won in competition with PGS and others
(the technology was successfully installed on ConocoPhillips Ekofisk field in
2010).

August 2006: Wavefield Inseis was formed following the merger between Wavefield Geophysical (seismic vessel company) and Inseis AS (MC company).

March 2007: IPO on Oslo Stock Exchange raised NOK 500m in new equity with
existing shareholders selling 36.8m shares for NOK 1.621bn (heavily oversubscribed).

2008: M/V Geowave Champion sets world-record in seismic data acquisition

11

Equity Research
Dolphin Group ASA - 14 December 2010

Wavefield team has been strengthened with added

multi-client experience from Veritas DGC
The multiclient market offers significant opportunities. MC sales have risen in 2010 and are
likely to increase in the coming years as activity in Gulf of Mexico and Brazil picks up and
as E&P spending reaches new highs. In order to capitalize on this momentum, experienced and dedicated people are key. We find Dolphin well positioned to take advantage of
this market, and note that Mr. Tim Wells led the worlds second largest MC operator during
his time as COO of Veritas DGC.
MC capex (USDm) by company and quarter
CGG

Veritas DGC

PGS

MC sales (USDm) by company and quarter

TGS

CGG

Western Geco

200

Veritas DGC

PGS

TGS

Western Geco

350

180

300

250

140

MC sales (USDm)

MC Investments (USDm)

160

120
100
80

200

150

100

60
40

50

20

0
1q02
2q02
3q02
4q02
1q03
2q03
3q03
4q03
1q04
2q04
3q04
4q04
1q05
2q05
3q05
4q05
1q06
2q06
3q06
4q06
1q07
2q07
3q07
4q07
1q08
2q08
3q08
4q08
1q09
2q09
3q09
4q09
1q10
2q10
3q10
4q10

1q02
2q02
3q02
4q02
1q03
2q03
3q03
4q03
1q04
2q04
3q04
4q04
1q05
2q05
3q05
4q05
1q06
2q06
3q06
4q06
1q07
2q07
3q07
4q07
1q08
2q08
3q08
4q08
1q09
2q09
3q09
4q09
1q10
2q10
3q10
4q10

Source: companies, First Securities

High-end, cost efficient vessels

Dolphin has secured time-charter contracts on favourable terms by GC Rieber Shipping.
Firm contracts are short, with option structures enabling flexibility to quickly adjust the fleet
to demand and industry trends. The structure also removes steel risk, an important factor,
as vessels are getting ever larger.
We find construction risk limited. The Polar Duke has already been delivered and will undergo some modifications before launch in April 2011. NB 533 is on track for delivery in
March 2012, as the yard has recently obtained EUR 21m in financing to complete the vessel. Also risk mitigating is RISH extensive knowledgeable about the seismic industry and
these vessels (which were ordered in 2h05 by RISH) and strong financial incentives to the
yard (payment of Spanish tax lease subsidies and final instalments at delivery).
Vessel fleet

Polar Duke
April
2011

April
2016

5y firm

April
2022

6y option

NB 533 (opt.)
March
2012

Polar Explorer

1y contract
Feb
11

NB 535 (opt.)

3y firm

1y opt. 1y opt.

Feb
12

Feb
13

March
2015

1y opt.

Feb
14

Feb
15

Potential delivery
Nov
2012

Source: Dolphin Geophysical, First Securities

12

4y option

March
2019

4y option

Equity Research
Dolphin Group ASA -14 December 2010

Trend towards ever larger vessels

The seismic market has seen a trend towards ever larger vessels. Whereas a 6 streamer
vessel was market standard in 1995, several tenders require a 10 streamer vessel or larger today. We expect a continued high-grading of the market leading 3D fleet, and find
Dolphin, with its 14 winches and 200 tons bollard-pull well positioned to benefit from the
upcoming cycle.
Although many vessels boost a theoretical towing capacity of 10-14 streamers, very few
vessels can actually tow such a large spread. In fact only 7 vessels worldwide (top 12%)
are capable of towing a 1,300m wide spread (14 streamers at 100m separation). In addition to Polar Duke and Newbuild 533, PGS two Ramform S-class, CGGs two Eidesvik
newbuilds and sister vessel PGS Apollo are the other vessels capable of towing this many
streamers. The attractiveness of these vessels was demonstrated by PGS 2007 acquisition and time-charter agreements signed by Western Geco and attempted time-charter
agreement with CGG in 2006-2007.
Average number of streamers/vessel required

Source: Dolphin Geophysical

13

Equity Research
Dolphin Group ASA - 14 December 2010

Cost advantage from bunker fuel

Together with PGS high-end vessels, Dolphins fleet is the only fleet capable of running on
heavy (bunker) fuel. Assuming a daily fuel consumption of 40-45 tonnes/day, we note that
the current cost difference between bunker fuel and marine gas fuel is USD ~10,000 per
day (and that it peaked above USD 20,000 per day in 2008). We estimate potential cost
savings of 4-5% from the use of bunker fuel compared with peers, which to a large extent
relies on marine gas fuel.
We expect this cost advantage to be applicable in many (most) geographical regions
worldwide.Note that heavy fuel vessels can run on marine gas oil (MGO) also, but this is
not the case the other way round and MGO vessels cannot run on heavy fuel.

Fuel costs (USD/Day)*

60000

Marine Gas Fuel

Bunker Fuel

50000

40000

30000

20000

10000

0
May-02

May-03

May-04

May-05

May-06

May-07

May-08

May-09

May-10

Daily opex savings with use of Bunker fuel instead of Marine gas oil (USD/day)*

2003

2004

2005

2006

2007

3,107

6,450

9,018

9,462

9,072

2008
15,435

*Based on a consumption of 40 tonnes per day. In a 14 streamer operation fuel

consumption rises to 50-55 tons per day creating even larger cost advantages

Source: Dolphin Geophysical, Bloornberg, First Securities

14

2009

2010

5,902

8,893

Equity Research
Dolphin Group ASA -14 December 2010

Regional focus, vessel specification and management

track-record provides comfort in utilisation levels
Dolphin expects to operate in the North Sea during the summer months and in West Africa
and Brazil during the winter months. GoM will rebound at some stage and Dolphin could
pursue work in this region as well. In our view, this regional focus together with high
steaming speed (18 knots, above other newbuilds at 15-16 knots) and a competent and
experienced management, should facilitate decent utilisation levels and offsets the risk
from managing a smaller fleet.
Geographic target areas

Source: Dolphin Geophysical

15

Equity Research
Dolphin Group ASA - 14 December 2010

First Securities expects all-time high E&P spending in

2011 and in 2012
A higher than expected average oil price in 2010 has contributed to solid cash flows for the
worlds large oil companies. We expect capital expenditures related to exploration and production to rise by 11% and 9% in 2011 and 2012 respectively.
Change YOY E&P spending
60 %

Supply, demand and oil price

2010
2011
2012

50 %

+12%
+11%*
+9%

100

500,0

90

450,0

80

400,0

70

350,0

60

300,0

50

250,0

40

200,0

30

150,0

*GoM reduces spending by 3% in 2011,

with an expected catch up in 2012

40 %

30 %

20 %

10 %

0%

-10 %

-20 %

20

-30 %

10
0

-40 %
1971

1976

1981

1986

1991

1996

2001

2006

1970

2011E

100,0

Excess capacity mbpd

Wo rld Demand mbpd (l.a)
Wo rld Capacity mbpd (l.a)
Oil P rice $ /bbl (infl. adj) (l.a)
E&P Expenditures $ billion (infl. adj) (r.a)
1975

1980

1985

1990

1995

2000

50,0
0,0

2005 2010E

Source: Schlumberger, First Securities, BP, IEA, Citigroup

The number of active deepwater rigs is set to increase

Number of active deepwater rigs is usually a leading indicator of seismic demand.

350

100%

300

95%
90%

250

80%
150
75%
100

70%

Source: First Securities, Quest Offshore

16

2009

2007

2005

2003

2001

1999

1997

Af rica/Medit
S. America
Marketed Utilisation

Asia/Pacif ic
Worldw ide

2011E

N. America
NW.Europe
Not contracted

1995

1993

60%
1991

0
1989

65%

1987

50

Utilization

85%
200

1985

No. of floating drillers

Total contracted floating drillers

Equity Research
Dolphin Group ASA -14 December 2010

Long-term, todays RRR is insufficient, providing an attractive long-term market outlook for seismic
As the Reserve Replacement Ratio (RRR) has decreased significantly over the last decade, the need for increased exploration is key. The long term market outlook for oil services in general and seismic in particular looks very strong.
Reserve replacement ratio
250 %

200 %

150 %

100 %

50 %
European Union
OECD excl. Canada
TOTAL WORLD excl Canada & Venezuella

19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09

0%

Source: BP, IEA

Post 2011, we forecast limited supply growth

We estimate a net supply increase of 10% in 2010 and 18% in 2011. However from 2012,
we estimate a net supply increase of 2-6% for 2012-14, well below our expected trend
growth at 10% per year, which should help facilitate rate improvements.
Net supply (in streamers)

25 %

15 %

Annual growth*
10 %

5%

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

0%
1997

Net supply increase (streamers)

20 %

-5 %

DOLP in full
operation

-10 %

Source: First Securities

17

Equity Research
Dolphin Group ASA - 14 December 2010

Seismic market set to rebound

We expect that the trough in the seismic market was in 2010, and that seismic dayrates
and margins will gradually improve towards a peak in 2013. Although we currently do not
expect this cycle to offer profitability in line with the peak in 2008, we note that a quicker
than expected rebound in activity in GoM and Brazil (which are both expected to see
lease-sales re-start in 2011) or an oil price above USD 100/bl, could tighten the market
faster than expected.
Seismic market profitability
CGV - Marine Contract EBITDA (before SG&A, transit, mob)
PGS - Marine Contract EBIT margins

100 %

Our estimates
may be too low, if
GoM and Brazil
rebounds or oil
price rally past
USD 100/bl

We are here

Contract seismic margins

75 %

50 %

25 %

0%

2015E

2014E

2013E

2012E

2011E

2010E

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996E

1995E

1994E

-25 %

Source: First Securities, companies

A sharper than expected rebound could be triggered by

activity increases in GoM and Brazil
The number of vessels in the Gulf of Mexico is down from 12 vessels in 1q10 to 2 vessels
today following the Macondo incident. We estimate an activity increase to 4 vessels from
3q11. Assuming a sharper rebound in GoM to 6-8 vessels (in line with the last few years
average) and growth in Brazil (from the last couple of years 4-5 vessel averge), we could
see dayrates improve more and faster than expected.
Number of vessels in GoM

Petrobras 5 year investment plan

250

14
No vessels in GoM

12

200

8
6

USDbn

10

150

100

50
2

0
1q10

2q10

3q10

4q10

1q11E

2q11E 3q11E 4q11E

Source: Petrobras, First Securities

18

2006

2007

2008

2009

2010

Equity Research
Dolphin Group ASA -14 December 2010

Dolphin will have a 4% market share in 2012 with options in place for additional growth
We estimate that Dolphin will obtain a market share of roughly 4% in just two years. Given
an exclusive opportunity for growth through option vessels, we estimate that its market
share could reach 8% end-2012.
Market shares YE10

Dolphin
0%

Market shares YE12

Others
10 %

Others
9%

Polarcus
5%

Western Geco
22 %

Dolphin
4%

Western Geco
27 %

Polarcus
12 %

Fugro
14 %

Fugro
12 %
PGS
18 %

CGG Veritas
27 %

CGG Veritas
25 %

PGS
15 %

Source: First Securities

19

Equity Research
Dolphin Group ASA - 14 December 2010

Strong earnings growth expected

We expect Dolphin to generate an EBITDA of USD 57m in 2012 and USD 104m in 2013,
of which its high-end 3D vessels should contribute with USD 34m in 2012 and USD 75m in
2013 (its first full year in operation) and MC operations with USD 23m in 2012 and USD
29m in 2013 (benefitting from the completion of its planned MC survey in the Americas).
P&L and key assumptions
P&L USDm
Contract revenues
MC revenues
Net operating revenues
Revenue growth
Opex
G&A
EBITDA
Amortization MC
Depreciation
Impairments
EBIT
EBIT margin
Interest expese (net)
Unrealised foreign exchange gain
Other net finance
Pretax profit
Taxes expense, net
Net profit
Mill. outs. shares
EPS
CEPS

Vessel assumptions
Utilisation
Polar Duke
NB 533

2010E

0
nm.
0
0
0
0
0
0
0
0%
0
0
0
0
0
0

2011E
41
12
53
0%
-33
-6
13
-5
-4
0
3
7%
-2
0
0
1
0
1

2012E
123
25
147
179%
-84
-6
57
-11
-11
0
35
24%
-4
0
0
31
-3
27

2013E
172
31
203
38%
-92
-6
104
-14
-14
0
76
38%
-3
0
0
73
-7
66

2014E
154
25
179
-12%
-96
-7
77
-11
-14
0
52
29%
-3
0
0
50
-5
45

2015E
128
17
145
-19%
-98
-7
41
-8
-14
0
20
13%
-2
0
0
18
-2
16

160
0.00
0.00

160
0.01
0.07

160
0.17
0.31

160
0.41
0.58

160
0.28
0.44

160
0.10
0.23

2010E

2011E

2012E

2013E

2014E

2015E

80%
0%

83%
81%

85%
85%

85%
85%

85%
85%

Dayrates
Polar Duke
NB 533

197 100

240 462
224 431

276 531
276 531

248 878
248 878

206 569
206 569

Opex/d
Polar Duke
NB 533

114 900

119 673
120 673

123 489
123 989

129 352
127 352

130 809
130 852

2011E
24
12
2
5
5
0.5x
45%

2012E
12
25
2
11
12
0.9x
45%

2013E
12
31
2
14
15
1.3x
45%

2014E
12
25
2
11
12
1.4x
45%

2015E
12
17
2
8
7
1.3x
45%

Multi-client assumptions
MC capex
MC sales - total
MC cash opex
MC amortisation
MC EBIT
MC sales/cash cost (capex/opex)
Amortisation rate
Source: First Securities

Positive newsflow expected over the next 2-3 months

We expect positive newsflow over the next two to three months. We expect that Dolphin
will announce the first contract for Polar Duke in February 2011. We expect more information around its multi-client project in the Americas in January/February 2011 and that its
first pre-funding commitment will be booked around project start-up in 2q11.

20

Equity Research
Dolphin Group ASA -14 December 2010

End-2015 net cash is 2.2x the USD 60m raised in 2010

We estimate net cash flow of USD 7m in 2012 followed by USD 54m in 2013 and USD
50m in 2014. Our earnings and cash flow estimates imply an end-2015 net cash position of
USD 130m, equal to 220% the equity amount raised in 2010.
Cash flow statement and balance sheet
Cashflow statement
From operation
Net interest
Net investment multi-client
Net investments
Gross cash flow
Net current assets
Net current liabilities
Net debt/sale leaseback fund
Net equity / dividend payment
Other
Net cashflow

2010E
0
0
0
0
0
0
0
0
60
0
60

2011E
13
-2
-24
-63
-76
-16
10
46
0
0
-36

2012E
54
-4
-12
-38
0
-18
9
16
0
0
7

2013E
97
-3
-12
-10
71
-6
1
-12
0
0
54

2014E
72
-3
-12
0
58
4
1
-12
0
0
50

2015E
39
-2
-12
0
25
7
0
-12
0
0
21

Balance sheet
Cash
Current assets
MC data library
Total Current assets
PP&E (incl vessels under const.)
Other assets
Goodwill
Total non-current assets
TOTAL ASSETS

2010E
60
0
0
60
0
0
0
0
60

2011E
24
16
19
59
58
0
0
58
117

2012E
31
34
20
85
85
0
0
85
169

2013E
85
40
17
142
81
0
0
81
223

2014E
135
36
18
189
67
0
0
67
257

2015E
156
29
23
208
53
0
0
53
261

0
0
0
0
0
60
60
60

10
10
46
0
0
61
107
117

19
19
61
0
0
89
150
169

20
20
49
0
0
154
203
223

20
20
37
0
0
199
236
257

21
21
25
0
0
215
240
261

-60
75
15

22
68
90

31
50
81

-35
31
-5

-98
10
-87

-130
0
-130

Other Current liabilities

Total current liabilities
Long term interest bearing debt
Sales Lease-back Fund
Other liabilities
Share capital
Total Equity and lt liabilities
TOTAL LIABILITIES AND EQUITY
NIBD
Off-B/S debt
Total debt
Source: First Securities, companies

21

Equity Research
Dolphin Group ASA - 14 December 2010

Dolphin is attractively valued on all measures

1) Compelling on earnings
Including lease commitments, Dolphin is trading at EV/EBITDA of 2.2x for 2012 and 0.7x
for 2013 (its first full year in operation) and EV/EBIT of 3.4x for 2012 and 0.9x for 2013,
well below seismic peers trading at EV/EBIT of 8.1-17.7x for 2012 and 5.1-6.4x for 2013.
Valuation seismic peers
2011
83,0x

PE
2012
3,3x

2013
1,4x

2011
31,9x
15,9x

EV/EBIT
2012
3,4x
3,4x

2013
0,7x
0,9x

2011
8,4x
7,4x

(34,9)x
19,3x
(4,0)x

8,3x
11,3x
(15,2)x

3,0x
7,4x
8,8x

20,6x
13,5x
(45,8)x

10,5x
8,1x
17,7x

5,6x
5,1x
6,4x

10,4x
5,6x
6,8x

DOLP
DOLP - lease-adj
PLCS
PGS
SBX

EV/EBITDA
2012
2013
2,1x
0,5x
2,2x
0,7x
6,5x
4,3x
4,1x

4,0x
3,1x
2,6x

Source: First Securities

Robust at current market conditions

Leveraged for the up-cycle
The chart below illustrates earnings from Dolphins two high-end 3D vessels only assuming different dayrates scenarios. The top chart illustrates a P&L and implied multiples as
reported under the T/C arrangements. The chart below illustrates how the P&L and the implied multiples would have looked if Dolphin owned the vessels themselves.
Our calculations assume current EV and are based on 85% utilisation. We have assumed
daily opex of USD 115k/d (of which USD 30k/d relates to vessel element of T/C). We estimate an off-balance sheet debt of USD 75m and assume a depreciation of vessels of USD
6m.
Sensitivity - Dayrates and multiples (contract seismic only)

-53 %
-18 %

-49 %
-10 %

Market trough
-43 %
0%

3D rates (USD/day)
Revenues
Opex
EBITDA
Depreciation
EBIT

165 000
102
90
12
13
0

180 000
112
90
22
13
9

200 000
124
90
34
13
22

220 000
137
90
47
13
34

240 000
149
90
59
13
46

260 000
161
90
71
13
59

Market cap at NOK 3.35

Fully-funded debt
EV today
EV/EBITDA
EV/EBIT

89
73
162
13,1x
(2403,8)x

89
73
162
7,5x
17,6x

89
73
162
4,8x
7,5x

89
73
162
3,5x
4,8x

89
73
162
2,8x
3,5x

Including off-balance sheet items

Revenues
Opex
EBITDA
Depreciation
EBIT

165 000
102
68
34
19
16

180 000
112
68
44
19
25

200 000
124
68
56
19
37

220 000
137
68
68
19
50

Market cap at NOK 3.35

Fully-funded debt
EV today
Off-B/S debt
Depreciation of vessels (if owned)
EV/EBITDA
EV/EBIT

89
73
162
75
6
6,9x
15,3x

89
73
162
75
6
5,4x
9,5x

89
73
162
75
6
4,2x
6,4x

89
73
162
75
6
3,5x
4,8x

Price vs. 2007/08 peak

Change in price from 2010 trough

2011E (10-12 str) 2012E (10-12 str) 2013E (10-12 str) 2013E (12-14 str)
-37 %
-31 %
-26 %
-21 %
10 %
20 %
30 %
38 %

Source: First Securities

22

-14 %
50 %

0%
75 %

275 000
171
90
81
13
68

300 000
186
90
96
13
84

350 000
217
90
127
13
115

89
73
162
2,3x
2,8x

89
73
162
2,0x
2,4x

89
73
162
1,7x
1,9x

89
73
162
1,3x
1,4x

240 000
149
68
81
19
62

260 000
161
68
93
19
74

275 000
171
68
103
19
84

300 000
186
68
118
19
99

350 000
217
68
149
19
130

89
73
162
75
6
2,9x
3,8x

89
73
162
75
6
2,5x
3,2x

89
73
162
75
6
2,3x
2,8x

89
73
162
75
6
2,0x
2,4x

89
73
162
75
6
1,6x
1,8x

Equity Research
Dolphin Group ASA -14 December 2010

2) Vessel price is 21-26% below peers

Dolphins vessel fleet is currently priced at USD 151m per vessel, representing a 21-26%
discount to PGS (at USD 205m) and PLCS (at USD 192m) and a 12% discount to current
newbuild costs (at USD 170m).
Our calculation assumes a 20 years time-charter less maintenance capex (to be covered
by RISH).
Implied value per 12 streamer vessel (USDm)

DOLP discount to peers

220
New build cost

PLCS today (NOK 5.25)

PGS today (NOK 80.7, age

adjusted)

0%

200

-10 %

160

Discount to peers

12 streamer vessel (USDm)

-5 %

180

140

-15 %

-20 %

120

100

-25 %

DOLP today
(NOK 3.35)

New build
cost

DOLP at
target (NOK
5.50)

PLCS today
(NOK 5.25)

PGS today
(NOK 80.7,
age
adjusted)

-30 %

Source: First Securities

3) Our mid-2011 DCF is NOK 8.30 per share

Our mid-2011 DCF value is NOK 8.30 per share, of which NOK 6.60 relates to contract
seismic and NOK 1.60 relates to MC seismic. Our target price of NOK 5.50 equals a 33%
discount to our mid-2011 DCF value (and 17% discount to our valuation of contract seismic) to factor in start-up and execution risk.
DCF value
DCF valuation, USDm
Contract seismic
MC seismic
GAV
NIBD and future capex commitments
Equity value
Assumptions
USD/NOK
WACC - contract seismic
WACC - MC seismic
Inflation

End 2010
232
38
270
73
197

End 2011
250
55
305
59
246

Mid-2011
241
47
287
66
221

159,9
1,5
9,2

159,9
1,4
8,3

6,00
9,0%
10,0%
2,5%

Terminal values
Dayrate
Opex/d
Utilization
Number of vessels

212 766
134 764
85 %
2

Shares outstanding (m)

Equity per share (USD)
Equity per share (NOK)

159,9
1,2
7,4

Source: First Securities

23

Equity Research
Dolphin Group ASA - 14 December 2010

Company Information
ROE vs. P/BV

Net debt/total equity vs. Total equity/total assets

1.6

60

1.4

50

1.2

40

1.0

30

0.8

20

0.6

10

0.4

40
30
20
10
0
-10
-20
-30
-40
-50

0
2007

2008

2009 2010E 2011E 2012E 2013E 2014E

P / BV

2
2
1
1
1
1
1
0
0
0
2007

ROE (%)

Atle Jakobsen

CFO

Erik Hokholt

IR

na
http://www.dolphingeo.com/

Tel

na

Address

na
00 January 0000

Dividend paid date

00 January 0000

Total equity/total assets (%)

Shareholders

Website

Annual meeting

2009 2010E 2011E 2012E 2013E 2014E

Net debt/total equity (%)

Other company information

CEO

2008

Votes

Capital

International investors

na

na

Free float

na

na

A/B-v otes

na

na

Quarterly P&L estimates

Quarterly P&L estimates (MUSD)

Q1 2009

Q2 2009

Q3 2009

Q4 2009

Q1 2010

0
0

0
0

0
0

0
0

0
0

0
0

0
0

0
0

EBITA
EBIT
Non-recurring items
Operating profit
Income from associated companies
Net financial items
Reported pre-tax profit
Rec urring pre-tax profit

0
0
na
0
0
0
0
0

0
0
na
0
0
0
0
0

0
0
na
0
0
0
0
0

0
0
na
0
0
0
0
0

0
0
na
0
0
0
0
0

0
0
na
0
0
0
0
0

0
0
na
0
0
0
0
0

0
0
na
0
0
0
0
0

Total tax
Minority interest
Reported net profit
Rec urring net profit

0
na
0
0

0
na
0
0

0
na
0
0

0
na
0
0

0
na
0
0

0
na
0
0

0
na
0
0

0
na
0
0

EPS reported fully diluted

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

EPS recurring

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

na

na

na

na

na

na

na

na

Net Sales
EBITDA

Tax rate

Q2 2010 Q3 2010E Q4 2010E

Recurring EPS excludes or normalises gains/losses on equity investments, asset sales/writedowns and currency positions and is based on long-term tax rates.
Other valuation measures are based on such recurring earnings.

24

Equity Research
Dolphin Group ASA -14 December 2010

Annual P&L estimates & Balance sheet

Annual P&L estimates (MUSD)
Net Sales
Other revenues
Operating costs

2007

2008

2009

2010E

2011E

2012E

2013E

2014E

0
na

0
na

0
0

0
0

53
na

147
na

203
na

179
na

- 39

- 90

- 99

- 102

Cos t of Goods Sold

R&D
Selling expenses
Administrative costs
Other operating costs
Write backs

na
na
na
na
na
na

na
na
na
na
na
na

0
0
0
0
0
0

0
0
0
0
0
0

- 33
na
na
- 6
na
na

- 84
na
na
- 6
na
na

- 92
na
na
- 6
na
na

- 96
na
na
- 7
na
na

EBITDA
Depreciation of property, plant & equipment

0
na

0
na

0
0

0
0

13
- 4

57
- 11

104
- 14

77
- 14

EBITA
Goodwill amortisation

0
na

0
na

0
0

0
0

9
na

46
na

90
na

63
na

Dev elopment and amortisation

na

na

- 5

- 11

- 14

- 11

EBIT
Write-downs
Capital gains
Res tructuring charges and provisions
Other non-recurring items

0
na
na
na
na

0
na
na
na
na

0
0
0
0
0

0
0
0
0
0

3
na
na
na
na

35
na
na
na
na

76
na
na
na
na

52
na
na
na
na

0
0

0
0

0
0

0
0

3
0

35
0

76
0

52
0

Net interest
Interest Income
Interest expenses

0
na
0

0
na
0

0
0
0

0
0
0

- 2
na
0

- 4
na
0

- 3
na
0

- 3
na
0

Other financial items

Extra ordinary items

0
na

0
na

0
0

0
0

0
na

0
na

0
na

0
na

Operating pr ofit
Income from associated companies

Reported pre-tax profit

Total tax
Minority interest
Reported net pr ofit
Rec urring net profit
EPS reported fully diluted
EPS recurring

Balance sheet, annual (MUSD)

31

73

50

na
na

na
na

0
0

0
0

0
na

- 3
na

- 7
na

- 5
na

0
0

0
0

0
0

0
0

1
1

27
27

66
66

45
45

0.00
0.00

0.00
0.00

0.00
0.00

0.00
0.00

0.01
0.01

0.17
0.17

0.00
0.00

0.00
0.00

2007

2008

2009

2010E

2011E

2012E

2013E

2014E

Goodwill
Other Intangible assets

na
na

na
na

na
na

na
na

0
na

0
na

0
na

0
na

Tangible assets
Shares and participations
Other fixed financial assets
Other fixed assets
Fixed assets
Inventories
Rec eivables
Cas h and liquid assets

na
na
na
na
0
na
na
na

na
na
na
na
0
na
na
na

na
na
na
na
0
na
na
na

na
na
na
na
0
na
na
na

58
0
na
0
58
na
na
24

85
0
na
0
85
na
na
31

81
na
na
0
81
na
na
85

67
na
na
0
67
na
na
135

Other current assets

Current assets

na
0

na
0

na
0

na
0

35
59

54
85

58
142

54
189

117

169

223

257

Shareholders Equity
Minority interest
Convertible debt
Other long-term liabilities
Long-term interest bearing debt

0
na
na
na
na

0
na
na
na
na

0
na
na
na
na

0
na
na
na
na

61
na
na
0
46

89
na
na
0
61

154
na
na
0
49

199
na
na
0
37

Provisions for pensions

Deferred tax liability
Other provisions
Short-term interest bearing debt
Accounts and notes payable
Other short-term liabilities

na
na
na
na
na
na

na
na
na
na
na
na

na
na
na
na
na
na

0
0
0
na
na
na

0
0
0
na
na
10

0
0
0
na
na
19

na
na
na
na
na
20

na
na
na
na
na
20

117

169

223

257

Total Assets

Total Liabilities & Equity

25

Equity Research
Dolphin Group ASA - 14 December 2010

Cash Flow & Key figures

Cashflow analysis, annual (MUSD)

2007

2008

2009

2010E

2011E

2012E

2013E

2014E

Operating profit
Depreciation & amortisation

0
na

0
na

0
na

0
na

3
10

35
22

76
28

52
25

Other non-cash adjustments

Net financial items
Paid tax es
Cash earnings in operations
Change in working capital
Operating cash flow
Capex
Other investments (including leasing)

na
na
na
0
na
0
na
na

na
na
na
0
na
0
na
na

na
na
na
0
na
0
na
na

na
na
na
0
na
0
0
na

na
- 2
0
11
- 6
5
- 63
- 24

na
- 4
- 3
49
- 9
41
- 38
- 12

na
- 3
- 7
93
- 5
88
- 10
- 12

na
- 3
- 5
70
5
74
0
- 12

Divestments of fixed assets

Free cash flow
Other investments in fixed financial assets
Acquisitions/divestments
Free cash flow after Div & Acq
Dividend paid
Share issues & buy-backs
Change in interest-bearing liabilities
Others

na
0
na
na
0
na
na
na
na

na
0
na
na
0
na
na
na
na

na
0
na
na
0
na
na
na
na

na
0
na
na
0
na
60
na
na

na
- 82
na
na
- 82
na
0
46
0

na
- 9
na
na
- 9
na
0
16
na

na
66
na
na
66
na
0
- 12
na

na
62
na
na
62
na
0
- 12
na

Change in liquid capital / (debt)

60

- 36

54

50

FCF, excluding interest charges

- 82

- 9

66

62

Per share data (USD)

2007

2008

2009

2010E

2011E

2012E

2013E

2014E

EPS reported fully diluted

EPS recurring

0.00
0.00

0.00
0.00

0.00
0.00

0.00
0.00

0.01
0.01

0.17
0.17

0.00
0.00

0.00
0.00

Cas h earnings
Cas h earnings recurring
Free cash flow
Free cash flow recurring
Book value
Book Value (ex Goodwill)
Dividend
Dividend yield

0.0
0.0
na
nm
na
na
0.00
0.0%

0.0
0.0
na
nm
na
na
0.00
0.0%

0.0
0.0
na
nm
na
na
0.00
0.0%

0.0
0.0
na
nm
na
na
0.00
0.0%

0.0
0.0
0.0
-0.5
0.4
0.4
0.00
0.0%

0.2
0.3
0.3
-0.1
0.6
0.6
0.00
0.0%

0.0
0.0
0.6
0.4
1.0
1.0
0.00
0.0%

0.0
0.0
0.5
0.4
1.2
1.2
0.00
0.0%

Valuation

2007

2008

2009

2010E

2011E

2012E

2013E

2014E

EV/Sales
EV/EBITDA
EV/EBIT
P/FCF
P/E recurring (Year End)
P/E recurring (High)
P/E recurring (Low)
P/E
P/BV

na
na
na
nm
nm
nm
nm
nm
na

na
na
na
nm
nm
nm
nm
nm
na

na
na
na
nm
nm
nm
nm
nm
na

na
na
na
nm
nm
nm
nm
nm
na

na
na
na
nm
83.9
na
na
83.9
1.48

na
na
na
nm
3.3
na
na
3.3
1.02

na
na
na
1.4
nm
na
na
nm
0.59

na
na
na
1.4
nm
na
na
nm
0.45

P/BV (ex goodwill)

FCF-yield

na
nm

na
nm

na
nm

na
nm

1.48
-90.9%

1.02
-9.8%

0.59
73.4%

0.45
69.1%

2007

2008

2009

2010E

2011E

2012E

2013E

2014E

na
nm
nm
nm
nm
nm

na
nm
nm
nm
nm
nm

nm
nm
nm
nm
nm
nm

nm
nm
nm
nm
nm
nm

36.6%
25.2%
6.6%
2.3%
2.0%
2.3%

42.8%
38.6%
23.6%
20.7%
18.7%
20.7%

54.5%
51.3%
37.6%
35.9%
32.3%
35.9%

46.7%
43.0%
29.1%
27.6%
24.9%
27.6%

Profitability

2007

2008

2009

2010E

2011E

2012E

2013E

2014E

FCF/Sales
ROA
ROCE
ROIC
ROE
ROE recurring

nm
na
na
nm
nm
nm

nm
na
na
nm
nm
nm

nm
nm
nm
nm
nm
nm

nm
nm
nm
nm
nm
nm

nm
na
na
12.8%
3.5%
3.9%

-6.0%
na
na
51.6%
36.7%
40.8%

32.6%
na
na
94.3%
54.1%
60.1%

34.7%
na
na
72.6%
25.3%
28.1%

Margins
Gross margin
EBITDA margin
EBIT margin
PTP margin
Net margin
Rec urring net margin

26

Equity Research
Dolphin Group ASA -14 December 2010

Company specific disclaimer

Price target methodology and risks;

Critical assumptions;

Planned updates;
First Securities AS plans to update the recommendation on the company when;

The price target is achieved or

When new accounting figures are released or

If any material news on the company or on the industry is released

Share price, rating history and target price 12 m fwd (NOK)*

8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Sep 08

Dec 08

Mar 09

Jun 09

Sep 09

Dec 09

Mar 10

Jun 10

Sep 10

Dec 10

Target price 12 m fwd

*Note: Change in recommendation structure Jan 1 2008

Sources of information;
The sources have been;

Annual reports from the company

Quarterly reports from the comy
Presentation from the company
Prospectuses from the company
Reuters
Bloomberg

Presentations from other seismic companies

Share ownership
First Securities AS may have holdings in the companies described herein as a result of market making operations and/or underlying shares
as a result of derivatives trading. First Securities AS may buy or sell such shares both for own account, and as a principal agent. Due to internal professional secrecy such holdings are not known to others outside the department which carries out the operations.

Analyst Pl Hold Dahl owns 0 Shares in Dolphin Group ASA.

Employees in First Securities AS own 0 Shares in Dolphin Group ASA.
Details of stock holdings are updated once a week.
Employees in First Securities AS may have indirect ownership in the companies described herein as a result of investments in securities
funds or similar. First Securities ASs tied agents (hereunder employees of tied agents) may have holdings in the companies described herein.
Furthermore, First Securities AS/First Investment Management is appointed by LSAM as investment manager to the funds First Norway Alpha, First Norway Delta, First Active and First Active Protector. These funds may have holdings in the companies described herein and employees of First Securities AS have holdings in the funds.

27

Equity Research
Dolphin Group ASA - 14 December 2010

General disclaimer
Recommendation structure and definitions
First Securities AS Research department operates with 5 recommendation categories based on expected absolute return for the security 12
months forward. The absolute return includes share appreciation and dividend yield combined.
Strong Buy:
Buy:
Neutral:
Reduce:
Sell:
Share price target:

The absolute return is estimated to be in excess of 15%

The absolute return is estimated between 5% and 25%
The absolute return is estimated between 0% and 10%
The absolute return is estimated between 5% and -10%
The absolute return is estimated to be less than -5%
All share price targets are based on a 12 month horizon

Model for value evaluation

First Securities AS Research department bases the recommendations on a variety of standard valuation models. Shares are commonly valued on a DCF-basis, except financial companies. Price-to-book value relative to long term historical empirical averages and/or relative to
Return on equity are commonly deployed as are Net Asset Value models for companies with liquid markets for their assets.
Shorter-term considerations are often included in the form of relative Price-to-Earnings ratios and Enterprise Value-to-Earnings before amortization, depreciation, interest and taxes.

Distribution of recommendation as of 13 December 2010

Strong Buy
Buy
Neutral
Reduce
Sell

No of Stocks
23
55
34
4
0

% of total Mcap -weighted rating

20%
56%
47%
25%
29%
14%
3%
6%
0%
0%

Total distribution of recommendations

Sell
Reduce 0%
3%

Strong
Buy
20%

Neutral
29%

Distribution of recommendations for Companies that

First Securities has delivered investment services:
Sell
Reduce 0%
5%

Strong
Buy
25%

Neutral
33%

Buy
48%

Buy
37%

Information barriers
First Securities AS relies on information barriers ("Chinese walls") to control the flow of information contained in one or more areas within
First Securities AS, into other areas or units within First Securities AS. First Securities AS is organised in accordance with relevant legislation
and in accordance with the guidelines given by the Norwegian Securities Dealers Association. The analyst(s) involved in the preparation of
this report has not at the same time been involved in corporate assignments for companies described by him or her.

Analyst certification
I/we hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and
issuers. I/we also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or
views expressed in this research report. Analyst compensation may relate to the revenues of First Securities AS as a whole.

Disclosures
This document has been prepared by First Securities AS, an investment banking firm domiciled in Norway, under the supervision of The
Financial Supervisory Authority of Norway (Finanstilsynet), and member of The Oslo Stock Exchange. This document has been prepared in
accordance with the guidelines from the Norwegian Securities Dealers Association. Swedbank AB disseminates this document produced by
First Securities AS. Swedbank AB has not altered the document. Swedbank AB is under the supervision of The Swedish Financial Supervisory Authority (Finansinspektionen). This document is being distributed in the United States by Swedbank First Securities LLC. ('Swedbank
First'), which accepts responsibility for its contents - any United States institutional investor receiving the report, who wishes to obtain further
information or to effect a transaction in any security discussed in the report, should do so only through Swedbank First. Swedbank First is a
U.S. broker-dealer, registered with the Securities and Exchange Commission, and is a member of the Financial Industry Regulatory Authority. Swedbank AS disseminates this report in Estonia. Swedbank AS is under the supervision of the Estonian Financial Supervisory Authority
(Finantsinspektsioon). Swedbank AB disseminates the report in Lithuania. Swedbank AB is under the supervision of the Lithuanian Financial Supervisory Authority (Lietuvos Respublikos vertybini popieri komisija) in Lithuania. Swedbank AS disseminates this report in Latvia.
Swedbank AS is under the supervision of the Latvian Financial Supervisory Authority (Finanu un kapitla tirgus komisija). In no instances is
the report altered before dissemination.

Additional disclaimer
This document is intended for use only by those investors to whom it is made available by First Securities AS and no part of this report may
be reproduced in any manner, or used other than as intended, without the prior written permission of First Securities AS. The information
contained in this document has been taken from sources deemed to be reliable. First Securities AS makes every effort to use reliable, comprehensive information but we do not represent that such information is accurate or complete and it should not be relied on as such. Any
opinions expressed herein reflect our judgement at this date and are subject to change. First Securities AS has no obligation to notice
changes of judgements or opinions expressed herein. The opinions contained herein are based on numerous assumptions as described in
the document. Different assumptions could result in materially different results. Furthermore, the assumptions may not be realized. This
document does not provide individually tailored investment advice and all recipients of this document are advised to seek the advice of a
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28

Equity Research
Dolphin Group ASA - Error! Style not defined.

Key data summary

P&L (MUSD)

2007

2008

2009

2010E

2011E

2012E

2013E

2014E

Sales
Sales growth

0
na

0
na

0
na

0
na

53
nm

147
179.0%

203
37.8%

179
-11.5%

EBITDA
EBITDA margin

0
na

0
na

0
na

0
na

13
25.2%

57
38.6%

104
51.3%

77
43.0%

EBIT
EBIT margin

0
nm

0
nm

0
nm

0
nm

3
6.6%

35
23.6%

76
37.6%

52
29.1%

Non-recurring items
Income from associated companies
Net financial items

na
0
0

na
0
0

0
0
0

0
0
0

na
0
-2

na
0
-4

na
0
-3

na
0
-3

0
0
0

0
0
0

0
0
0

0
0
0

1
1
1

31
27
27

73
66
66

50
45
45

Reported pre-tax profit

Reported net profit
Rec urring net profit

Cash flow

2007

2008

2009

2010E

2011E

2012E

2013E

2014E

Operating cash flow

Capex
Other net investments in fixed assets
Free cash flow
Other investments/divestments

0
na
na
0
0

0
na
na
0
0

0
na
na
0
0

0
0
na
0
0

5
- 63
na
- 82
0

41
- 38
na
- 9
0

88
- 10
na
66
0

74
0
na
62
0

Free cash flow after Div & Acq

Financing activities
Change in liquid capital

0
na
0

0
na
0

0
na
0

0
na
60

- 82
na
- 36

- 9
na
7

66
na
54

62
na
50

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