4th Quarter Financial Report

Island Offshore Shipholding LP

9th of March 2015

The businessThe Island Offshore group has 28 vessels in operation within the vessel segments PSV, AHTS, Well Stimulation, Subsea Construction and Light Well Intervention. The vessel Island Champion was sold and leased back in December 2014.

The fleet operates in Norway, UK, Holland, West Africa, Brazil and Gulf of Mexico. The fleet is modern and versatile and Island Offshore has taken a leading position in attractive market segments.

The Group is privately owned.

Vessel Type/Design Yard Original Delivery

Island Clipper PSV, UT 776 CD Vard Brevik 02.04.2015

Island Defender PSV, UT 717 CDX Vard Brevik 09.07.2015

Island Discoverer PSV, UT 717 CDX Vard Brevik 29.10.2015

Island Diligence PSV, UT 717 CDX Vard Brevik 28.01.2016

Island Victory DWIV, UT 797 CX Vard Brevik 15.06.2016

Island Navigator THDV, UT 777 Kawasaki H.I. 31.03.2017

Type Vessels in operation

Vessels under construction

TOTAL

PSV 15 4 19

AHTS 2 1 3

SCV 4 0 4

RLWI 4 0 4

STIM 3 0 3

THD 0 1 1

TOTAL 28 6 34

Main events 2014

Contract awards

Island Dragon, Lundin Norway

Island Duke, Kosmos Energy

Island Duchess, Anadarko

Island Dawn, Anadarko

Island Commander, ConocoPhillips

Island Endeavour, Peterson Supplylink

Island Performer, FTO

Island Pride, Oceaneering Inc

Island Crown, Siem Industries, MOUK

Financing

Take-out financing, Island Dawn

Tap issue bond, IOSH LP

Take-out financing, Island Pride

Take-out financing, Island Dragon

Refinancing, Island Vanguard/Island Valiant

Take-out financing, Island Performer

Take-out financing, Island Condor

Fleet changes

Sale of Island Pioneer

Delivery of Island Dawn

Delivery of Island Pride

Delivery of Island Dragon

Delivery of Island Performer

Delivery of Island Condor

SBC Island Defender

SBC Island Discoverer

SBC Island Navigator

SBC Island Victory

SBC Island Diligence

Fleet The fleet comprises 28 vessels in operation during Q4 including the Island Condor which

was added to the fleet in November. The vessel Island Champion was sold and leased

back in December 2014 and is still operated by Island Offshore. The remaining new

building program includes an additional 6 vessels to be delivered.

Island Offshore has agreed with Vard Brevik to delay delivery of all the new building

vessels with an average delay of six months, except for Island Clipper which will be

delivered 9. April 2015. Together with the sale leaseback transaction, this agreement is

important to mitigate the negative implications of a weaker market and will improve the

short term cash flow for the Group.

In addition to this program, an SBC has been signed with Kawasaki Heavy Industries for

delivery of the Top Hole Drilling vessel Island Navigator in March 2017. The contract is

subject to firm financing and these negotiations are progressing according to plan.

1

Cash Flow Statement

NOK mill 31.12.2014

Profit before tax 406

Taxes paid -14

Profit (-) /Loss (+) by sale of fixed asset -279

Depreciation 300

Change in stock 3

Change in AR -278

Change in AP 184

Change in other working capital -321

Cash flow from operations 1

Drawdown of long term loans 2.946

Repayment of long term liabilities -939

Purchase of minority interest -111

Equity contribution 24

Cash flow from financing activities 1.920

Investments -2.693

Net sales consideration 730

Cash flow from investment activities -1.962

Net cash flow -42

4th 2014 Quarter Financial Report

Quarterly Financial Report - Comments

Income Statement

Revenue totals NOK 696 mill in Q4 2014 including a sales gain of NOK

115 mill; YTD revenue as of December 31, 2014 is NOK 2.732 mill

including a sales gain of NOK 277 mill. Fleet utilization was 85% in Q4

thus lower than previous quarters due to mobilization of two vessels

starting new contracts and an overall weaker spot market.

We still consider the spot market for PSV and AHTS vessels to be

imbalanced and expect average lower day rates going forward,

especially for the PSVs. Accordingly, Island Offshore has resolved

to temporary lay up two PSV vessels pending an improved market.

The current spot market day rates do not provide satisfactory vessel

profitability.

EBITDA totals NOK 315 mill in Q4 2014 including a sales gain of NOK 115 mill compared to NOK 228 mill in Q4 2013.

2014 accounts include a provision for loss on receivables of NOK 11 mill related to the vessel operating in Brazil.

Q4 profit before tax of NOK -40 mill includes unrealized disagio of NOK 158 mill related to conversion of ship

mortgages in USD. YTD profit before tax of NOK 406 mill includes unrealized disagio NOK 210 mill.

Q4 2013 Q4 2014 YTD 2013 YTD 2014

NOK mill

Revenue 570 696 2.189 2.732

Net subcontractors -75 -82 -329 -376

Total operating revenue 495 614 1.861 2.356

Operating expenses 267 298 976 1.086

EBITDA 228 315 885 1.270

Depreciation 64 87 251 300

EBIT 164 229 635 970

Net financial items -77 -269 -275 -564Profit before tax 87 -40 360 406

2

The PSV vessel Island Condor was delivered from Vard

Brevik in November 2014. The vessel was financed by

Export Credit Norway with a guarantee from GIEK and a

commercial Norwegian bank.

Other asset additions include yard installments for

vessels to be delivered and planned maintenance and

modifications program.

The cash position was strengthened in April 2014

following completion of a NOK 200 mill tap bond issue.

The proceeds will be used to finance the investment

program and strengthen the overall financial position of

the Group.

Net interest bearing debt totals NOK 7.830 mill at

December 31, 2014, which equals a gearing ratio of 6.2

(NIBD/12M rolling EBITDA). The financing program for

vessels under construction is progressing as planned.

The book value of the equity is NOK 2.952 mill, which

equals a ratio of 25%, adjusted for CIRR loans/deposits.

VAE is estimated to NOK 4.676 mill equal to a ratio of

34%, at December 31, 2014 based on broker’s value

appraisal of the fleet. Vessel values are 5% lower as of

December 2014 compared to December 2013.

Net cash flow in 2014 is negative with NOK - 42 mill

due to the investment program and delivery of four

new vessels in 2014. Net working capital has increased

significantly in 2014 due to pending settlement of the

sale consideration for Island Champion (received January

2015), a seller’s credit related to the sale of Island

Pioneer, funding of yard installments and an overall

increase in accounts receivable. The AR balance has

been reduced and normalized post balance sheet date.

Balance Sheet and Cash Flow

3

NOK mill 31.12.2013 31.12.2014Ships 7.871 9.839New building contracts 114 28Other financial assets 1.201 1.126Deferred tax asset 34 29Total Fixed Assets 9.219 11.021

Inventory, stock 27 23Debtors 711 1.484Bank, cash 432 390Total Current Assets 1.170 1.898Total Assets 10.388 12.920

Total paid-in equity 596 596Other equity 2.044 2.356Total Equity 2.640 2.952

Deferred tax 122 119Total Provisions 122 119

Liabilities to financial institutions 5.961 7.828Other long term liabilities 1.335 1.340

Total Long Term Liabilities 7.296 9.169Trade creditors 224 408Other Short Term Liabilities 106 273Total Short Term Liabilities 330 681

Total Liabilities 7.748 9.968Total Equity and Liabilities 10.388 12.920

Balance Sheet

4

Cash Flow Statement

NOK mill 31.12.2014Profit before tax 406Taxes paid -14Profit (-)/Loss (+) by sale of fixed asset -279Depreciation 300Change in stock 3Change in AR -278Change in AP 184Change in other working capital -321Cash flow from operations 1

Drawdown of long term loans 2.946Repayment of long term liabilities -939Purchase of minority interest -111Equity contribution 24 Cash flow from financing activities 1.920

Investments -2.693Net sales consideration 730Cash flow from investment activities -1.962

Net cash flow -42

5

Island Offshore has secured additional

term contracts for the PSV and SCV fleet

in Q4 thus adding to the strong contract

coverage and order backlog.

We expect the spot market for PSV

and AHTS to remain volatile in coming

months. Our strategy remains firm with

focus on securing long term commitment

with strategically preferred clients. The

flow of tenders is however reduced

and tenders are frequently cancelled

or delayed. Price competition is intense

both for term and spot work.

The order backlog excluding charterer’s

options totals NOK 6.4 billion at

31.12.2014. Contract coverage for 2015

is approximately 80%.

Market Outlook & Order Backlog

6

Investor relations:

Mr. Henning Sundet, Chief Financial Officer: hsundet@borgstein.no, +47 913 65 735

*This financial report represents the consolidated financial statements for the Island Offshore Shipholding LP Group. The report is prepared on the basis of Generally Accepted Accounting Principles in Norway and has not been audited.