February 9, 2014 Maritime Industries Dry Bulk Stocks Rise As Grain Season Kicks Off Dry bulk spot rates showed signs of bottoming out, as Capesize moved up after a 5-week slide, while Panamaxes have started picking up grain cargoes from South American. Dry Bulk: The BDI continue to decline by 2% WoW to 1,091 points (Ex. 140). Capesize rates rose marginally by 5% WoW to $9kpd ending a 5-week decline while iron ore trade is still seasonally slow (Ex. 30). Panamax rates fell by another 2% WoW, but held above $10kpd (Ex. 31). Despite the weak rates, dry bulk stocks rose 3.2% vs S Morgan Stanley Research. Exhibit 2 Tanker Rates Last Week | $ thousand per day -5 5 15 25 35 45 55 65 75 85 1/271/281/291/301/312/12/22/32/42/52/62/7 $kpd Suezmax | SM BNY-PHIL Spot VLCC | AG-JPN Spot Aframax | UK-Germany Spot MR | Caribben-US Atlantic Spot Source: Poten Morgan Stanley Research Investment trends House Energy and Commerce Committee report finds advantage in LNG exports. The white paper argues for all the LNG export applications to be approved and for the application process to be streamlined. It concludes that a quick move by the DoE is necessary in order not to miss export opportunities that would benefit the US economy and its allies. Future US crude exports become more likely. An article by Reuters reported that the US Commerce Department was already making decision of whether to allow exports of crude to Europe. Although these were exports of imported Canadian crude, they show that these are possible and how such a process could look. Exports of US crude might happen as early as this year or more likely next with as a form of export relief for crude producers in periods of low prices. However, volumes are likely to be relatively small. ASC secured loan to finance newbuild program. The company has secured a $172m credit facility with a final maturity in 2021 to finance up to 65% of the purchase price of the newbuilds it currently has on order. FRO issued 9m shares in January. The company issued 9m shares through its market equity distribution program during January, bringing the total to 95m ordinary shares. TNP raised additional $11m from greenshoe option. TNP issued 2m extra shares at a price of $6.65 per share, raising gross proceeds from the offering to $86m. Keystone XL pipeline unlikely to start up before 2016. A decision on the pipeline that would supply the US with imports from Canadian oil sand producers will not occur before 2Q14 and is more likely to be made after the election. Our Commodity team also sees potential legal challenges, which paired with other delays might make the project irrelevant in light of competing Eastern Gulf Crude Access. (The Commodity Manual: Keystone XL EIS a Step Forward, But Delays Likely) Exhibit 3 Dry Bulk Rates Last Week | $ thousand per day 5 10 15 1/271/281/291/301/312/12/22/32/42/52/62/7 $kpd Panamax | 4TC Index Capesize | 4TC IndexSupramax | 6TC Handysize | 6TC Source: Baltic Exchange; Morgan Stanley Research 3 M O R G A N S T A N L E Y R E S E A R C H February 9, 2014 Maritime Industries Snapshot 4Q13 Earnings TDW F3Q14 short of estimates. The company reported operating EPS of $0.95 (excl. a goodwill impairment, gains on forex and profit from vessel sales), which was below our estimate of $1.14 and consensus $1.11. Revenue of $365m was lower than our $377m estimate and consensus $374m, having declined 1% QoQ (+18% YoY) partially due to fewer OSV earning mobilization and demobilization fees than in F2Q14. Sub-Saharan Africa and Europe saw revenue fall 9% QoQ to $163m, because of North Sea seasonality with rates dropping 7% QoQ to 16kpd. Yet, Americas revenue beat estimates as it grew 8% QoQ because of higher utilization and dayrates. (Tidewater Inc: Focus on Future Strength but temper near-term Expectation) VLCCF reported strong 4Q result. EPS of $0.12 came in above our expected $0.07 and consensus $0.11. This was driven by net revenue increasing 37% QoQ to $11m, which was well above our expected $9m, due to a higher average TCE rate of $29kpd. EBITDA of $7m beat our $6m and was in line with consensus $7m. 4 M O R G A N S T A N L E Y R E S E A R C H February 9, 2014 Maritime Industries Assumptions Peter Doehle, and FIS; Morgan Stanley blended rates forecast for daily vessel earrings for open days. 5 M O R G A N S T A N L E Y R E S E A R C H February 9, 2014 Maritime Industries Change in Tanker and Dry Bulk Rate Forward Sentiment Lines Represent: Most Recent Week One Week Prior Exhibit 5 Tankers: VLCC | Arabian Gulf to Japan 0 10 20 30 40 SPOT1Q142Q143Q144Q141Q152Q1520142015 $kpd lower Exhibit 6 Tankers: Suezmax | West Africa to US Atlantic Coast 3 8 13 18 23 28 33 38 43 SPOT1Q142Q143Q144Q141Q152Q1520142015 $kpd lower Exhibit 7 Tankers: Aframax | North Sea to Continent 0 15 30 45 60 75 90 SPOT1Q142Q143Q144Q141Q152Q1520142015 $kpd stable Exhibit 8 Tankers: MR | Continental Europe to US Atlantic Co