New York,
27 February 2015
DNB Group: Oil-related portfolio update by Berit L. Henriksen Global head of Energy
1
DNB Markets’: Long Term Oil Price Forecast Stabilising at $65/bbl for 2015 and $80/bbl for 2016, $90/bbl long term
2
Historical Historical
Nominal $/b Real (2015) $/b
2001 24.4 32.2
2002 25.0 32.4
2003 28.8 36.5
2004 38.3 47.2
2005 54.5 65.0
2006 65.1 75.3
2007 72.4 81.3
2008 97.3 105.2
2009 61.7 67.0
2010 79.5 84.9
2011 111.3 115.2
2012 111.7 113.3
2013 108.7 108.7
2014 99.5 99.5
Forecast Forecast
Nominal $/b Real (2015) $/b
Q1-15 55 55
Q2-15 63 63
Q3-15 69 69
Q4-15 74 74
2015 65 65
2016 80 79
2017 84 81
2018 88 84
2019 90 84
2020 90 82
0
20
40
60
80
100
120
140
160
1995 1998 2001 2004 2007 2010 2013 2016 2019
$/b
Spot Brent History & FWD looking
FWD (nominal) Forecast nominal
Historical Forecast real (2014 USD)Source: Reuters, DNB Markets
Forecast by DNB Markets. (The forecast is for the average of the rolling 1st month ICE Brent future contract)
Credit strategy for the DNB Group
3
• We are a long term relationship oriented bank
• Focus on quality of management
• We have a low-risk portfolio strategy
• We finance corporate risk based on debt service ability (cash flow), not assets alone
• Exposure to non-investment grade companies is secured and followed up by covenants
• We finance industry sectors where we have institutional industry sector competence,
and we have been in the oil related industries since oil was discovered on the Norwegian
Continental Shelf
Other corporate43%
Oil & Gas3.9%
Offshore2.8%
Oilfield services1.8%
Households48%
DNB has a well diversified oil-related portfolio - 8% of total Group EaD to oil related portfolios
4
EaD: Exposure at Default, IG: Investment Grade, NOCs: National Oil Companies, RBL: Reserved Based Lending, E&P: Exploration &
Production, F(P)SO: Floating (Production) Storage Offloading, LBO: Leverage Buyout, OSV: Offshore Supply Vessel, LNG: Liquid Natural Gas
Refining & petchem 6.0%
Midstream incl LNG 10.3%
Upstream / integrated large-
caps and NOCs (IG) 17.2%
Upstream mid-caps (sub IG)
3.7%
RBL and other structured E&P
6.1%
Exploration Financing Facilities
2.5% Other Oil & Gas
1.6%
OSV 15.7%
Rig 10.5%
FPSO/FSO 2.8%
Subsea construction 2.6%
Other Offshore 1.5%
Large cap oilfield services co
11.5% LBO-portfolio 4.9%
Seismic 0.7%
Other Oilfieldservices
2.4%
Total DNB Group loan exposures
EaD of NOK 1909n as of 31 Dec 14 In per cent of total
Total oil-related portfolios
EaD of NOK161bn as of 31 Dec 14 (FX adj NOK144bn) In per cent of NOK 161bn
Oil & Gas, Offshore and Oilfield Services – An overview
DNB Group as of 31 Dec 2014 Oil & Gas Offshore
Oilfield
Services
Total portfolio, EaD, NOK billion 74 53 33
Total portfolio, drawn amount, NOK billion 31 31 11
Average grade* 3.5 4.9 4.7
Expected loss 0.07% 0.19% 0.15%
Number of client groups 85 63 75
Number of employees in sector 24 23 17
No. of clients in grade 8-10 (PD > 3%) 3 4 2
EaD of clients in grade 8-10, NOK billion 0.2 0.3 0.3
10 largest client groups in % of total segment 36% 42% 51%
20 largest client groups in % of total segment 56% 64% 74%
5 * DNB’s risk grade system: 1 represents the lowest risk and 10 the highest risk. EaD: Exposure at default, PD: Probability of default
Proactively handling the uncertainty & market turbulence
• Monitoring of our portfolio is given top priority in the current situation with oil price
turbulence
• We have reviewed our oil, gas, offshore and oilfield service portfolios
• We actively manage our credits/clients
• Those who are performing, but not in accordance with their business plans require
additional attention, and are placed on (the so-called) «Watch-list»,
it’s our early warning tool!
• Watch-listed companies are reviewed quarterly, as a minimum
• We allocate additional expertise and resources to clients and
sub-portfolios with higher risk
• We are continuously evaluating which clients to put on “Watch-list”,
and what actions to be taken
6
No negative migration by year-end 2014 - 65% of portfolio is low risk and 33% is medium risk
7 EaD: Exposure at Default, PD: Probability of default. Risk grade system, please see back up slide for details.
DNB's risk classification system, where 1 represents the lowest risk and 10 the highest risk.
DNB’s oil-related portfolio split by sub-segment in exposure (EaD) and by risk grade
NOK 161bn (FX adj. NOK 144bn) as of 31 Dec 2014 (and NOK 144bn as of 30 Sep 2014)
NOK billion
54 64
14 10 0.20 0.20 0.00 0.00
17
18
29 33
1.47 0.31 0.00 1.17
19
23
8 10
0.61 0.30 0.20 0.30
0
20
40
60
80
100
120
Sep-14 Dec-14 Sep-14 Dec-14 Sep-14 Dec-14 Sep-14 Dec-14
Grade 1-4 "Low risk" Grade 5-7 "Medium" Grade 8-10 "High" Grade 11-12 "Doubtful & NPL"
Oilfield Services Offshore Oil & Gas
Outstanding loans to oil, offshore and oil service are 46% of EaD - Large part of remaining exposure is guarantees and revolving facilities to IG
8
DNB’s oil-related portfolio: Drawn loans split by sub-segment and risk grade, total exposure by risk grade (EaD)
NOK 74bn (FX adj. NOK 65bn) and exposure (EaD) NOK 161bn (FX adj. NOK 144bn) as of 31 Dec 2014
NOK billion
19 25
6 6 0.14 0.20 0.00 0.00
6
9
19 21
1.45 0.31 0.00 1.17
4
4
6 7
0.47 0.20 0.19 0.20
91
105
51 53
2.28 0.81 0.20 1.47
0
20
40
60
80
100
120
Sep-14 Dec-14 Sep-14 Dec-14 Sep-14 Dec-14 Sep-14 Dec-14
Grade 1-4 "Low risk" Grade 5-7 "Medium" Grade 8-10 "High" Grade 11-12 "Doubtful & NPL"
Oilfield Services (34% drawn loans)
Offshore (59% drawn loans)
Oil & Gas (42% drawn loans)
Exposure (EaD)
EaD: Exposure at Default, PD: Probability of default. Risk grade system, please see back up slide for details. DNB's risk classification system, where
1 represents the lowest risk and 10 the highest risk. Doubtful & NPL = Non performing loans, IG = investment grade companies
Highly profitable portfolio - within DNB’s Oil & Gas, Offshore and Oilfield Service sectors
9 * Oil, offshore and oilfield services units are all part of the business unit Large Corporate & International in DNB.
DNB’s oil-related portfolios - profit before impairments and tax for financial years 2011 till 2014 NOK billion
1.52
2.00 1.86 1.86
2011 2012 2013 2014
Historical low impairments in absolute levels - Oil & Gas, Offshore and Oilfield Services sectors
159 155 108 126 132
18 6 0
200
400
600
800
1000
1200
1400
1600
1800
2000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
NOK million
10
Oil & Gas - It‘s a well diversified portfolio – robust to oil price movements, 60% of lending to investment grade
11
RBL: Reserve Based Lending, IG: Investment grade, E&P: Exploration & Production, NOC: National Oil Companies, EFF: Exploration financing facilities.
LNG: Liquid Natural Gas. All figures as of 31 Dec 2014. FX NOK/USD as of 31 Dec 2014: 7.39 and as of 30 Sept 2014: 6.43, hence FX adjusted volume per
31 Dec 2014 was NOK67bn, if we used 30 Sept 2014 FX rates by 31 Dec 2014.
Large IG E&P /
Integrated oil co's and NOCs 23.9 32%
Midstream incl LNG
23.9 32%
E&P midcaps
4.0 6%
RBL and other
structured E&P 8.4
11%
Refining & pet.chem
11.0 15%
EFFs 3.2 4%
• Large IG E&P/ integrated and national oil companies:
In general large, diversified companies with robust balance sheets and
ample liquidity that can sustain a significant drop in oil price.
• Midstream incl. LNG:
Mainly companies with infrastructure (pipelines, terminals, etc.) assets.
58% of EaD is IG. Limited sensitivity to commodity price movements.
• Exploration & Production (E&P) mid-caps:
Typically more robust than RBL.
• Reserved based lending (RBL) :
Bank debt is based on certain assumptions (reserves/ production
volumes, commodity prices, capex, etc). Well structured, i.e. “very early”
covenants and collateral-based. Semi-annual re-determinations of
borrowing base and revision of price decks used for lending purposes.
• Refining & Petrochemical:
Cyclical, but primarily margin based business. 51% of EaD is IG.
Less sensitive to commodity price movements.
• Exploration financing facilities (EFFs):
Secured financing of tax refund (related to exploration) from
the Norwegian State. No direct oil-price risk.
Oil & Gas exposure - NOK74bn (3.9% of total Group EaD)
NOK bn and per cent of NOK74bn
Offshore - solid companies and high contract coverage - The direct risk factor is not oil price, but the activity level and day-rates
12 OSV: Offshore Service Vessels, F(P)SO: Floating (Production) Storage Offloading. All figures as of 31 Dec 2014. FX NOK/USD as of 31 Dec 2014:
7.39 and as of 30 Sept 2014: 6.43, hence FX adjusted volume per 31 Dec 2014 was NOK46bn, if we used 30 Sept 2014 FX rates by 31 Dec 2014.
OSV 22.7
42.7%
Rig 17.6
33.0%
FPSO/FSO 5.2
9.8%
Subsea construction
4.2 7.9%
Other 3.5
6.6%
Offshore exposure - NOK53bn (2.8% of total Group EaD)
NOK bn and per cent of NOK53bn
• Offshore service vessels (OSV):
Mainly corporates with modern fleets (6-8 years) and good
contract coverage (60% for 2015)
Substantial part of the fleet supports existing infrastructure
as well as activities related to inspection, maintenance &
repair (IRM)
• Rig:
More than 40% of EaD are either investment grade (IG)
companies or have full contract coverage. Primarily latest
generation rigs. 75% weighted average contract coverage
for 2015 (61% for 2016 and 43% for 2017).
• FPSO/FSO:
Primarily full contract coverage to strong counterparties
Mainly full amortisation during contract period
• Subsea constructions:
Low short term oil price dependency, as it’s linked to
approved field development projects
Oilfield Services exposure - Mainly low risk exposure
13 IG: Investment grade, LBO: Leverage Buyouts, All figures as of 31 Dec 2014. FX NOK/USD as of 31 Dec 2014: 7.39 and as of 30 Sept 2014: 6.43,
hence FX adjusted volume per 31 Dec 2014 was NOK31bn, if we used 30 Sept 2014 FX rates by 31 Dec 2014.
Large-caps, investment
grade companies
19.1 58%
Non IG / Other mid-
cap 5.3
16%
Seismic 1.2 4%
LBO-portfolio 7.4
22%
Other 0.1 0%
• Large caps investment grade companies:
~60% of EaD in large cap, global investment grade
companies. Primarily US based.
• Non-investment grade oilfield services/other
midcaps:
Wide range of companies through the oil and gas service
value chain. Medium/small caps only close to home.
• Seismic:
Limited exposure and dominant part is short-term
working capital financing.
• Leveraged buyout (LBO):
Mainly related to development and production. LBO
financing only close to home. Careful selection of
sponsors in the LBO space. Acceptance of higher financial
risk only if coupled with low operational risk. Prefer clients
with less dependence on oil companies’ CAPEX budgets.
Oilfield Services - NOK 33bn (1.8% of total Group EaD)
NOK bn and per cent of NOK33bn
Q & A
Appendix
15
• The offshore and oilfield service value chain
• Macro economy forecast by DNB Markets for • Norwegian economy
• Oil price outlook
• Economic scenarios if the oil price would stay at $50/bbl..
• DNB Grading vs external ratings
The offshore and oilfield service value chain
16 AHTS: Anchor Handling Tug Supply, PSV: Platform Supply Vessel, MMO: Maintenance and modifications, MPU: Multi Purpose Unit
Indication of operational volatility Low High
Exploration Field development
Operation Decommissioning
Seismic
Exploration drilling
Appraisal drilling
AHTS + PSV
Engineering
Construction
Installation Heavy lift, subsea
Production drilling
MMO
PSV, AHTS
MPU
Engineering
Construction, heavy lift
Higher risk: Marginal fields, frontier areas
Lower risk: Large fields, benign areas
Activities within the early
phase of value chain are
the first to be cut in a time
of low oil prices.
Norway: Soft landing - Consumption and non-oil exports up, as oil and housing investment pull down
17 Forecast by DNB Markets
-2
-1
0
1
2
3
4
5
6
7
1990 1995 2000 2005 2010
Norway: Key indicatorsPer cent
Mainl.-GDP y/y CPI, y/y Unemploym.
Source: Statistics Norway/DNB Markets
70
80
90
100
110
120
130
140
150
160
Q1 2008 Q3 2010 Q1 2013 Q3 2015 Q1 2018
Norway: Demand components2008Q1=100. 3 quarter moving average
Private cons. Public cons. Oil inv.Business inv. Housing inv. Trad. exports
Source: Thomson Datastream/DNB Markets
Norway: A robust economy - Oil investments 7% of GDP. Ample fiscal leeway.
18 Forecast by DNB Markets. GPFG: Government Pension Fund Global (The Norwegian Petroleum Fund)
0
20
40
60
80
100
1995 1998 2001 2004 2007 2010 2013
Norway: Shares of GDP1995-2014, per cent
Private consumption Public consumptionNon-oil investments Oil investmentsTrade surplus
Source: Statistics Norway/DNB Markets
-100
-50
0
50
100
150
200
250
1985 1990 1995 2000 2005 2010 2015
Public Net AssetsPercent of GDP
Norway GPFG EMU OECDSource: Ministry of Finance, NB2015/DNB Markets
Oil: Trend Line Growth Favors Supply – Not Demand
19
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Mill
ion
b/d
YoY Non-OPEC Supply vs Global Oil Demand- 12 month mavg
Non-OPEC supply growth Global demand growthSource: IEA, DNB Markets
Forecast by DNB Markets
Oil: How can anyone doubt that the market is over supplied? - Global oil stocks (excl. Chinese strategic stocks) are building massively. This is a function of supply being larger than demand.
20
5300
5350
5400
5450
5500
5550
5600
5650
5700
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Mill
ion
barr
els
Global Crude & Product Stocks - JODI-dataJODI-data are adjusted for countries w ith irregular reporting - and China is added w ith Xinhua New s Agency Data
2011 2012 2013 2014Source: JODI, DNB Markets
Forecast by DNB Markets
DNB Markets’: Long Term Oil Price Forecast Stabilising at $65/bbl for 2015 and $80/bbl for 2016, $90/bbl long term
21
Historical Historical
Nominal $/b Real (2015) $/b
2001 24.4 32.2
2002 25.0 32.4
2003 28.8 36.5
2004 38.3 47.2
2005 54.5 65.0
2006 65.1 75.3
2007 72.4 81.3
2008 97.3 105.2
2009 61.7 67.0
2010 79.5 84.9
2011 111.3 115.2
2012 111.7 113.3
2013 108.7 108.7
2014 99.5 99.5
Forecast Forecast
Nominal $/b Real (2015) $/b
Q1-15 55 55
Q2-15 63 63
Q3-15 69 69
Q4-15 74 74
2015 65 65
2016 80 79
2017 84 81
2018 88 84
2019 90 84
2020 90 82
0
20
40
60
80
100
120
140
160
1995 1998 2001 2004 2007 2010 2013 2016 2019
$/b
Spot Brent History & FWD looking
FWD (nominal) Forecast nominal
Historical Forecast real (2014 USD)Source: Reuters, DNB Markets
Forecast by DNB Markets. (The forecast is for the average of the rolling 1st month ICE Brent future contract)
What if the oil price would stay a $50/bbl? (i) - Scenarios by DNB Markets’ economists
22
Oil price development USD per barrel. Main assumptions and
a downside $50/bbl.-scenario by DNB Markets
Oil investments in Norway 2013 prices, NOK billion. Main assumptions and
a downside $50/bbl.-scenario by DNB Markets
112
47
65
80
90
50
1995 1999 2003 2007 2011 2015e 2019e
Oil price
DNB Markets' forecast
$50/bbl-scenario
98
205
155
123
1997 2000 2003 2006 2009 2012 2015e 2018e
Oil investments
DNB Markets' forecast
$50/bbl-scenario
Source: Statistic Norway, forecast by DNB Markets
What if the oil price would stay a $50/bbl? (ii) - Slower economic growth in Norway is expected, however exports, private and public consumption will ensure a soft landing
23
98
205
155
1997 2000 2003 2006 2009 2012 2015e 2018e
Oljeinvesteringer Prognose
98
205
155
1997 2000 2003 2006 2009 2012 2015e 2018e
Oljeinvesteringer Prognose
2.5 2.5
0.6
4.3
5.2
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
20
04
20
05
20
06
20
07
20
08
20
10
20
11
20
12
20
13
20
14
20
15
e
20
16
e
20
17
e
20
18
e
Mainland GDP GDP 50$/bbl-scenario Unemployment Unempl. $50/bbl-scen.
Mainland Norway GDP growth and unemployment Year-on-year, per cent
Main assumptions and a downside $50/bbl.-scenario by DNB Markets
Sources: Statistics Norway, Norges Bank, Forecast and scenarios by DNB Markets as of January 2015.
.
DNB Grading vs external ratings
24
DNB Grade Pd S&P Moody's
1.a 0,015 % Investment grade AAA - AA+ Aaa - Aa1
1.b 0,035 % ↓ AA - AA- Aa2 - Aa3
1.c 0,050 % ↓ A+ A1
1.d 0,070 % ↓ A A2
1.e 0,090 % ↓ A- A3
2.a 0,130 % ↓ BBB+ Baa1
2.b 0,220 % ↓ BBB Baa2
3 0,390 % ↓ BBB- Baa3
4 0,670 % ↓ BB+ Ba1
5 1,170 % High yield BB Ba2
6 1,630 % ↓
7 2,030 % ↓ BB- Ba3
8 3,510 % ↓ B+ B1
9 6,080 % ↓ B B2
10.a 10,540 % ↓ B- B3
10.b 18,270 % ↓ CCC+ Caa1
10.C 25,000 % ↓ CCC og lavere Caa2 og lavere
10.D 40,000 % ↓
11 Doubtful
12 Non-performing
25
The statements contained in this presentation may include forward-looking statements such as statements of future
expectations. These statements are based on the management’s current views and assumptions and involve both
known and unknown risks and uncertainties.
Although DNB believes that the expectations reflected in any such forward-looking statements are reasonable, no
assurance can be given that such expectations will prove to have been correct.
Actual results, performance or events may differ materially from those set out or implied in the forward-looking
statements. Important factors that may cause such a difference include, but are not limited to: (i) general economic
conditions, (ii) performance of financial markets, including market volatility and liquidity (iii) the extent of credit
defaults, (iv) interest rate levels, (v) currency exchange rates, (vi) changes in the competitive climate, (vii) changes in
laws and regulations, (viii) changes in the policies of central banks and/ or foreign governments, or supra-national
entities.
DNB assumes no obligation to update any forward-looking statement.
DISCLAIMER
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS