ENERGY - Oil Services

High Yield Research

Northern Offshore Ltd. (NOF NO)
March 30, 2004

Greg Imbruce
800/937-5333
gimbruce@jefco.com

Value in the Galley Field
!
!
!
!
!
!
Company Description:!
Northern Offshore Ltd. (NOF NO: NOK0.75) is a Bermuda-based, Oslo-exchange listed company
with operations in offshore drilling and floating production. The Company's main asset is the
Northern Producer, a Floating Production Facility (FPF) currently operating in the Galley Field of
the UK North Sea under contract to Talisman Energy nc. (TLM) through January 2005 - TLM
acquired its 67.4% interest in the Galley Field as operator from ChevronTexaco Corp. (CVX) in
January 2003. n addition, Northern Offshore owns the Energy Searcher, a drillship (acquired in
June 2001 for $37 mm) capable of drilling in up to 2,500 ft. water. n January 2004, the Company
sold a cold-stacked drillship, the Northern Explorer II, for $2.1 mm. Northern Offshore's remaining
three rigs are also cold-stacked and include two drillships (the Northern Explorer III and the
Discover I) and a 2nd generation semi-submersible drilling rig, the Galaxy Driller.!
!
Recommendation:!
We recommend Northern Offshore Ltd.'s 10% Sr. Notes '05 ("Sr. Notes or "10s) as a Strong
Buy at 40 and have a 59 price target (PV20 of 80% future recovery) based on the expectation
that TLM and Northern Offshore will negotiate a win-win contract for the Northern Producer that
will extend to 2009, in parallel with the Galley Field's economic life. n fact, a February 8, 2004
news article referring to the Northern Producer's contract entitled "Talisman bags Galley nterest
stated that, A well informed source said a two-year or five-year extension is in the cards. The
same article went on to say that "Talisman is also expected to install a water injection line between
its Tartan platform and Galley to maintain reservoir pressure as well as a control umbilical. The
tie-in of the water injection line is significant since it solidifies TLM's commitment to utilize the most
economical, lowest-risk solution for its Galley Field - the Northern Producer.

As a result of a new contract and the Company's inability to meet the $20 mm Floating Sr. Notes
maturity in October 2004, we expect the Company to restructure. And although NOF's advisors
have indicated to the Board that the value for the Company's Unsecured creditors can be best
preserved through a conversion of all unsecured debt into equity, we believe the Unsecured
HoIders wiII receive the foIIowing: (i) $100 mm in New 11% Sr. Secured Notes due 12/31/09;
and (ii) 70% of the restructured company's equity (Recommended Restructuring). This
restructuring concept provides Unsecured HoIders an 80%-92% recovery based on the
stock's current market price and NAV, respectiveIy. Additionally, we anticipate that the New
Secured Notes will amortize $21 mm over its 5-year term (based on a cash sweep of any quarter-
end balance exceeding $12 mm) to a $79 mm balance at maturity in 2009.

We would ignore the Company's attempt to influence its position by means of the uncertainty
surrounding the Northern Producer's employment - this is a poker game where investors must look
to the attractive economics of the Galley Field for the ace. n doing so, we estimate investors wiII
attain a 20.7%-26.3% IRR based on our Recommended Restructuring as detaiIed herein.
Additionally, buying the Unsecured Debt (includes the Floating Sr. Notes) at 40, creates the
Company at $75.6 mm or 2.8x LTM EBTDA, a deep discount to the public comparables which
trade at an average 17.8x LTM EBTDA.

Amt. O/S Coupon Jefco
Seniority Coupon Maturity $MM Rating Date Price Price CY YTW STW Yrs. Pmts. Rec.
Sr. Nts. (1) 10.000% 5/15/05 $143.2 C/NR 5/15/04 100.00 40.00 25.0% 119.5% 11,827 1.1 11/15,5/15 Strong Buy
(1) Original issue amount was $340.0 mm; the Company repurchased the balance of 10% Sr. Notes in the open market from 1998 through 2001 at a weighted
average price of 57.7% (average prices range from 49.4% to 71.8%).
YieId to Worst Next CaII
March 30, 2004! [Page 2 of 16]
We believe the 10s are trading at a depressed level for several reasons, among them there is the
$166 mm of 10% Sr. Notes securing the Avalon Loan ($4.3 mm outstanding) that were
repurchased in the open market. As such, some investors account for $309.5 mm of 10s
outstanding in their liquidation recovery analysis instead of the $143.2 mm that we consider
outstanding. Our analysis is based on the expectation that the Avalon Loan would be fully repaid
in a liquidation, which would release the Notes as collateral. n liquidation, the recovery on these
Notes becomes an asset of the Company and ultimately, an asset of the Unsecured Holders.
Effectively, therefore, these Sr. Notes securing the Avalon Notes would be cancelled and should
not be accounted for in a liquidation analysis. n order to successfully execute a restructuring, we
expect Noteholders will require that the Company cancel these Sr. Notes that secure the Avalon
debt in addition to the New Secured Notes containing strong covenants that, among other items,
restrict the Company from making equity investments as well as incurring corporate debt.

Even if we are wrong and the Company does Iiquidate, we beIieve the Sr. Notes' future
recovery is 44%, which provides a 10% return based on the 10s current trading IeveI. We
find it of interest that as we are about to publish this report, NOF filed its 2002 20-F it just doesn't
seem logical that a company would suddenly issue its 2002 report if it planned to liquidate.
!
Quarterly Highlights:!
FinanciaI Performance: Northern Offshore reported $6.8 mm in 4Q03 EBTDA, which was down
slightly from the prior year's $7.0 mm, but represented a 22% sequential improvement compared to
the $5.6 mm reported in the 3Q03. Last quarter annualized (LQA) EBTDA was $27.2 mm based
on 4Q03, and the $26.6 mm of LTM EBTDA was essentially flat vs. $26.8 mm in the prior quarter.
The Company repaid $3.5 mm of debt in the quarter, reducing total debt to $173.6 mm. Cash and
working capital at year-end were $6.4 mm and $10.8 mm, respectively. Applying working capital to
total debt defines net debt of $162.8 mm. Proforma for the January 2004 sale of the Northern
Explorer II for $2.1 mm ($2.0 mm after fees), cash and working capital increases to $8.4 mm and
$12.9 mm, respectively, and as a result, net debt declines to $160.8 mm. Due to the Company's
non-existent CapEx, Northern Offshore generated approximately $2.3 mm in free cash flow before
working capital changes in 4Q03 and $8.3 mm on an LTM basis.!
!
!
!
!
!
!
!
!
!
!
!
!
Credit Statistics: The Company's 4Q03 EBTDA covered cash interest expense 1.5x (1.5x
LTM), while total debt to LQA EBTDA was 6.4x (6.6x LTM) and net debt leverage was 6.0x (6.1x
LTM).

GaIIey FieId Production: The Northern Producer's 4Q03 production averaged 11,936 Barrels of
Oil Equivalent per day (BOEpd) from the Galley Field in the UK North Sea. Production was down
6% and 21% sequentially and year-over-year, respectively, when compared to the 12,661 BOEpd
and 15,036 BOEpd production rates.

Coupon Payment: The Company paid the $7.2 mm November 15, 2003 coupon payment on the
10% Sr. Notes '05 in December 2003, during the 30-day grace period. !
!
Capital Structure:!
Northern Offshore's total debt was $173.6 mm at 12/31/03, consisting of $10.3 mm in secured
debt and $163.3 mm in Unsecured Notes (Floating Sr. Notes and Sr. Notes).

QuarterIy EBITDA
$0
$2
$4
$6
$8
$10
1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03
March 30, 2004! [Page 3 of 16]
AvaIon Loan: The $4.3 mm outstanding under the Avalon Loan is collateralized by approximately
$166.3 mm of the 10% Sr. Notes '05 (noted in 1Q03 press release). The repurchases of 10s in
2000 were partly financed by the Avalon Loan, which has been paid down from an original $30
mm balance. The lender, Avalon Holding Ltd. is an affiliate of Osprey Maritime Ltd, which owned
53.8 mm or 51.4% (at 12/31/03) of the Company's outstanding common shares and is 99.3%
owned by World Shipholding Ltd., a subsidiary of! Greenwich Holdings, Ltd. (indirectly controlled
by John Fredriksen). Of interest, World Shipholding Ltd. relinquished its majority ownership
position by selling 5.2 mm shares of NOF NO on 3/4/04 at NOK 1.35 per share. The question is,
why would an investor pay almost $1mm (NOK 7 mm) for stock after the Company stated in its
4Q03 press release (issued 3/1/04) that ".equity holders would be expected to receive no value
in a liquidation.

Post the share sale, World Shipholding holds 52.2 mm shares or 49.97% of shares outstanding.
We believe this sale opens the door to a restructuring as we expect Unsecured Holders will, as
part of the expected restructuring, receive a majority equity interest in the Company and as such,
require a shareholders' vote.

BNP Loan: The BNP Loan is secured by the Energy Searcher, a drillship (acquired in June 2001
for $37 mm) capable of drilling in up to 2,500 ft. water this loan was paid down from its $11 m
issue amount to the $6.0 mm balance at year-end 2003.

Maturities: The Company has $30.4 mm of maturities in 2004 ($10.3 mm in June and $20.1 mm in
October) and the $143.2 mm of 10% Sr. Notes maturing in 2005.!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
Restructuring
Sources & Uses: Due to the Company's 2004 maturities totaling over $30 mm, we expect
Northern Offshore will restructure its $163.3 mm of Unsecured Notes. Our 2004 EBTDA estimate
is $24.2 mm-$27.9 mm; the upper-end of the range representing the scenario in which the Energy
Searcher receives a 4Q04 contract at $50,000 per day, while the low-end assumes the rig sits idle
during that three-month period. ncluding the $8.4 mm in proforma cash, we expect the
Company's 2004 sources total $32.6 mm-$36.3 mm. Since CapEx is almost non-existent ($0.1
mm in 2003 and $1.1 mm 2004E), we calculate that during 2004, the Company would be able to
fund its $16.2 mm in cash interest (on all currently outstanding debt) and $10.3 mm in secured
maturities. Northern Offshore, however, will need to restructure since it faces a shortfall in
meeting its $20.1 mm (NOK 139.7 mm) Floating Sr. Notes (Floating Notes) maturity on 10/6/04
our model shows an $11.3 mm-$15.0 mm deficiency based on the expected $5.0 mm-$8.7 mm
cash balance at year-end prior to the Floating Notes maturity.



CAPITAL STRUCTURE
12/31/03 Adj. Proforma
Avalon Loan (LBOR+650) (1) 7.548% 6/1/04 $4.3 -- $4.3
BNP Loan (LBOR+200) (2,3) 7.048% 6/1/04 $6.0 -- $6.0
Secured Debt 7.256% $10.3 -- $10.3
Sr. Nts. 10.000% 5/15/05 $143.2 -- $143.2
Sr. Nts. NOK139.7 mm (NBOR+550) (4) 7.400% 10/6/04 $20.1 -- $20.1
Unsecured Debt 9.680% $163.3 -- $163.3
TotaI Debt 9.537% $173.6 -- $173.6
Preferred Stock -- -- --
Debt & Preferred $173.6 -- $173.6
Shareholders' Equity ($38.3) $2.0 ($36.3)
TotaI CapitaIization $135.3 $2.0 $137.3
Cash $6.4 $2.0 $8.4
Working CapitaI $10.8 $2.0 $12.9
(1) Secured by Energy Searcher.
(2) Secured by USD$166.3 mm of outstanding 10% Sr. Nts. '05.
(3) Coupon includes 400 bps for the guarantee provided by Avalon.
(4) Assumes exchange rate of NOK 6.96/USD.
March 30, 2004! [Page 4 of 16]
Restructuring: One restructuring concept is to simply extend the maturity of the Unsecured
Notes to be determined by a new Northern Producer contract we expect the Company and
Talisman to finalize this summer or earlier. f the Unsecured Notes remained outstanding and the
maturity date was extended to 12/31/09, for instance, we estimate the Company could meet its
financial commitments based solely on the Northern Producer's operations the weak credit
statistics (interest coverage below 1.0x and total debt leverage above 11.0x), however, are
unacceptable and would continue to hinder the Northern Offshore story going forward. As more
fully described below, our Recommended Restructuring for the Unsecured HoIders incIudes
the foIIowing: (i) $100 mm in New 11% Sr. Secured Notes due 12/31/09; and (ii) 70% of the
restructured company's equity (243.2 mm shares) - the New Secured Debt alone represents a
61% recovery based on the $163 mm of Unsecured Notes outstanding. We also believe this is
positive for existing shareholders and would be well received noting this group would retain a 30%
equity interest in the restructured company, a dramatic improvement from the Company's recent
press release that stated, ".equity holders would be expected to receive no value in a
liquidation.

We effectively assume new stock is issued to Unsecured holders at NOK 1.45 or $0.21 per share,
which is equal to our Upside Case NAV (based 347.9 mm common shares outstanding post
restructuring) this is a 94% premium to the current NOK 0.75 stock price (equal to our Base
Case NAV post restructuring).
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
Advisors: The Company's advisors have indicated to the Board that the value for the Company's
unsecured creditors can be best preserved through a conversion of all unsecured debt into equity.
The Board has had informal discussions with several of the Company's main creditors, including
certain US bondholders, regarding the potential restructuring of the Company's existing debt
obligations. The Board intends to initiate formal discussions regarding such a debt-for-equity
exchange with the Company's unsecured creditors during 2Q04. A Norwegian newspaper
(Aftenposten) reported on 3/3/04 that Norwegian investor, Kristian Siem, may convert his Notes
into equity.

A Poker Game: Although Northern Offshore seeks to exchange all unsecured debt into equity, we
believe the Company is using the uncertainty surrounding the Northern Producer employment
beyond 2004 to negotiate the most favorable restructuring and/or repurchase a portion or all of the
10s outstanding at the lowest price possible. We contend that the Company is purely playing a
formidable poker game. n fact, market rumors were that the Company or one of its affiliates
recently bid for all the 10s in and around the 30-price level. !
RESTRUCTURING CALCULATION
EBITDA METHOD:
LTM EBTDA $26.6
EV/LTM EBTDA 40% 6.0x
EV $159.6
-Secured Debt --
-New Sec. Debt to Unsec. Holders $100.0
+WorkCap (Proforma) $12.9
Net Asset VaIue (NAV) $72.5
Debt-for-Equity Exchange
Unsecured Debt O/S $163.3
New Sec. Debt to Unsec. Holders $100.0
Remaining Unsecured Debt VaIue $63.3
% of Equity Value Assigned to Unsecured 80%
Equity VaIue Assigned to Unsecured $50.6
% of NAV Assigned to Unsecured 70%
Shares & Share Price
Existing NOF NO Share O/S 104.7
New NOF NO Shares ssued in Exchange 242.3
NOF NO Shares O/S Post Restructure 347.0
NAV per Share - USD $0.21
Exchange Rate (NOK/USD) NOK 6.96
NAV per Share - NOK NOK 1.45
March 30, 2004! [Page 5 of 16]
!
New Contract Expected: We are confident Talisman will negotiate a new contract for the
Northern Producer since there is only downside risk to replacing the FPF that has been in place
since the Field's startup in March 1998. There is no real incentive to replace the Northern
Producer with a similar FPF due to the associated costs to outfit the facility with equipment already
in place plus any mobilization costs a replacement would most likely require the five-year
remaining field life makes such a switch even more inhibitive as these costs would dramatically
alter the Galley Field's economics if such costs were allocated over this relatively short time
period. Most importantly, replacing the Northern Producer would pose a risk to the reservoir in
addition to the time value of money related to shutting-in production for the transition period it is
simply illogical for TLM not to employ the Northern Producer beyond its 2004 contract expiration.
Additionally, the Company is willing to negotiate a reduced dayrate on a long-term basis, which will
enhance the Field's economics and life. TLM will also most likely mitigate the Field's oil price
sensitivity by locking-in historically high oil prices via production hedges ($31.80/Bbl. NYMEX 2-
year forward curve average and $35.45/Bbl NYMEX spot price), further ensuring the Northern
Producer will remain employed through 2009.

Although we concur that Talisman will most likely negotiate a new contract that is more favorable
from its perspective than the one-year option periods from 2004-2008 in place (!56,500 dayrate
plus a $1.25 tariff - the British Pound denominated rate translates to nearly $103,000 at today's
$1.82/! exchange rate), we do expect that the new dayrate schedule will be a win-win. We expect
the dayrate component under a new contract will most likely be negotiated down to an initial
$80,000 level for the years 2005 through 2007 and then decline to $70,000 per day in 2008 and
$60,000 in 2009 in order to enhance the Galley Field's life. These dayrates provide TLM with
positive cash flow at varying oil prices through 2009, and at the same time allow Northern Offshore
to comfortably fund its operations under the Recommended Restructuring.
!
Asset Value
We provide the basis for our asset valuations at 12/31/04 in a Low, Base, and High Cases as
presented below. The Company's main asset in terms of cash flow and asset value is the
Northern Producer. The FPF's asset value is derived in two parts; first we determined the residual
value at 2x-4x the market EBTDA ([$80,000 dayrate - $35,000 Opex - $1,500 management
fee]*98% utilization rate), estimated to be $15.3 mm annually or $31 mm- $61 mm. On top of that,
we layered the PV10 of the expected new Talisman contract and arrived at a total value for the
Northern Producer ranging from $92 mm-$124 mm based on the Field expiring in 2007 and 2009,
respectively. The valuation of the Energy Searcher utilizes a market EBTDA ([$50,000 dayrate -
$30,000 Opex]*80% utilization rate) at multiples ranging from 5x-8x and resulting in asset values
of $18.3 mm - $29.2 mm. We believe this analysis to be conservative relative to the public
comparables trading at an average 17.8x LTM EBTDA.
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
ASSET VALUE @ 12/31/04
Low Base High
Contract Term Expiration 12/31/04 12/31/07 12/31/09
Northern Producer - Contract Value (2005+) -- $47.0 $62.8
Northern Producer - Est. Mkt. EBTDA $15.3 $15.3 $15.3
EBTDA Mult. 2.0x 3.0x 4.0x
Norther Producer ResiduaI VaIue $30.6 $45.9 $61.2
Northern Producer - TotaI VaIue $30.6 $92.9 $124.0
Energy Searcher - Est. Mkt. EBTDA $3.7 $3.7 $3.7
EBTDA Mult. 5.0x 6.5x 8.0x
Energy Searcher - TotaI VaIue $18.3 $23.7 $29.2
Active Rig VaIue (N. Producer & E. Searcher) $48.8 $116.6 $153.2
Northern Explorer $0.5 $1.5 $2.0
Galaxy Driller $0.5 $1.5 $2.0
Discover $0.5 $1.5 $2.0
TotaI Rig VaIue $50.3 $121.1 $159.2
Working Capital (12/31/04E) $13.3 $13.3 $13.3
TotaI Asset VaIue $63.6 $134.4 $172.4
March 30, 2004! [Page 6 of 16]
!
ComparabIes: The below table highlights the nine comparables, which are obviously much
larger, more diversified companies as well as better capitalized. The one standout, however, that
we believe is most appropriate is Ocean Rig ASA (OCR NO), which trades at almost 15x LTM
EBTDA and is similar to NOF NO on numerous levels including: concentration risk of two rig fleet
(both 5
th
Generation Semi-Submersible rigs), market risk with both rigs effectively operating in the
spot market, and fragile credit statistics (1x LTM nterest coverage and 11x Total Debt/LTM
EBTDA).
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
Recovery Analysis
f NOF executes an attractive contract with Talisman and restructures the Company along the
lines of our Recommended Restructuring, we believe NOF's equity will trade above the $0.12 or
NOK 0.87 NAV per share noted in our Base Case of the Restructuring Recovery analysis -
represents a 80% future recovery to Unsecured holders. As that same analysis indicates, the
Upside case provides a $0.21 or NOK 1.45 NAV per share, which equates to an 92% future
recovery assuming the Recommended Restructuring. The one component that this recovery does
not consider is the trading value of the New 11% Sr. Secured Notes '09 that we propose, which we
expect would trade up to 107.6 (9% YTM) assuming the Note is secured, a new Northern
Producer contract is in place, and there exist acceptable credit statistics. Accounting for the
estimated trading level of the New Notes adds over 4-points to the future recovery.

The upside from there is significant based on the comparables noted above as well as NOF's
historical stock price, which was as high as NOK 7.75 in January 2002 and since that date has
averaged NOK 2.71. The possibility for stock price appreciation is there for a Northern Offshore
remake that could be fueled by rig acquisitions funded by project debt and financial partners,
which in no way dilutes the New Secured Noteholders' position.
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
COMPARABLES
Northern Offshore Atwood Diamond Ensco GIobaI Ocean Pride Rowan Trans-
PROFORMA Offshore Oceanics Offshore IntI. SantaFe NobIe Rig IntI. Cos. Ocean
@ Mkt. @ NAV Inc. DriIIing Inc. Corp. Corp. ASA Inc. Inc. Inc.
NOF NO NOF NO ATW DO ESV GSF NE OCR NO PDE RDC RIG
Shares O/S 347.0 347.0 13.9 129.3 151.0 234.6 134.3 80.4 135.8 105.7 320.8
Stock Px NOK 0.75 NOK 1.45 $34.91 $24.50 $28.38 $27.49 $38.16 NOK 18.50 $16.71 $21.33 $28.23
MCap $260.2 $504.5 $483.6 $3,168.4 $4,285.3 $6,448.3 $5,123.7 NOK 1,488 $2,268.7 $2,255.1 $9,054.8
Exchange Rate (Currency/USD) NOK 6.96 NOK 6.96 NA NA NA NA NA NOK 6.96 NA NA NA
MCap (USD) $37.4 $72.5 $483.6 $3,168.4 $4,285.3 $6,448.3 $5,123.7 $213.8 $2,268.7 $2,255.1 $9,054.8
Debt $100.0 $100.0 $199.0 $940.0 $572.9 $1,240.7 $589.6 $542.0 $2,034.1 $624.3 $3,658.1
Pref. -- -- -- -- -- -- -- -- -- -- --
WorkCap $12.9 $12.9 $29.5 $687.0 $339.0 $816.1 $190.8 $6.1 $16.8 $110.2 $489.0
EV $124.5 $159.6 $653.1 $3,421.4 $4,519.2 $6,872.9 $5,522.5 $749.7 $4,286.0 $2,769.3 $12,223.9
LTM EBTDA $26.6 $26.6 $34.4 $138.2 $321.5 $418.8 $365.8 $50.3 $370.6 $89.0 $758.6
EV/LTM EBITDA 4.7x 6.0x 19.0x 24.8x 14.1x 16.4x 15.1x 14.9x 11.6x 31.1x 16.1x
Debt / LTM EBITDA 3.8x 3.8x 5.8x 6.8x 1.8x 3.0x 1.6x 10.8x 5.5x 7.0x 4.8x
LTM EBITDA / Interest Exp. 2.7x 2.7x 6.9x 5.8x 8.8x 12.8x 9.1x 1.0x 2.8x 5.6x 3.8x
All dollar figures are in millions and in USD unless noted otherwise.
RESTRUCTURING RECOVERY
Low Base High
New Secured Debt $100.0 $100.0 $100.0
Market Price 72.4 100.0 100.0
New Sec. Debt VaIue $72.4 $100.0 $100.0
Restructured Equity VaIue -- $43.2 $72.1
New Shares O/S 347.0 347.0 347.0
USD$/Share -- $0.12 $0.21
NOK/Share NOK 0.00 NOK 0.87 NOK 1.45
Shares Owned by Old Unsec. Holders 242.3 242.3 242.3
Equity VaIue to OId Unsec. HoIders -- $30.2 $50.4
TotaI VaIue to OId Unsec. HoIders $72.4 $130.2 $150.4
Old Unsec. Debt originally O/S $163.3 $163.3 $163.3
Future Recovery 44% 80% 92%
PV20 74% 33% 59% 68%
PV25 69% 31% 55% 64%
March 30, 2004! [Page 7 of 16]
Liquidation: Of course, we recognize that liquidation, albeit an unlikely event (10% probability) in
our view, is still possible and as such, provide the below analysis. Our liquidation assumptions
include the following: (i) NOF operates through year-end 2004 (N. Producer contract expires
1/6/05), (ii) the Secured Debt is repaid out of operating cash flow and cash-on-hand, (iii) interest
payments on all outstanding debt are ultimately paid or recovered, and (iv) the estimated $9.6 mm
- $13.3 mm working capital balance is distributed to Unsecured Holders. The 44% future recovery
indicated in the Low Case assumes that the Northern Producer fails to secure a new contract. If,
however, NOF enters into a new contract for the Northern Producer and the assets were
then soId, we beIieve the future recovery for Unsecured NotehoIders wouId be 88%-105%,
which indicates a 65%-78% present vaIue assuming a 20% return is reaIized over an 18-
month recovery period.
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
Galley Field:
Understanding the economics driving the Galley Field's reserve life is by far the most vital
component to Northern Offshore in the medium term.

FieId Description: The Galley Field (the "Field) in block 15/23a of the UK North Sea, comprises
a series of accumulations located approximately 100 miles northeast of Aberdeen, Scotland. To
date, there has been production from two discoveries in the field, the Galley South and the Galley
North. ChevronTexaco (Texaco North Sea Company) was the original operator and owned a
67.42% interest as operator with Summit Oil UK Ltd. (17.42%) and Agip Petroli (15.17%), a
subsidiary of Eni SPA. n January 2004, Texaco sold its interests in the Galley Field to the
Canadian company, Talisman Energy nc. (TLM), which had been expected by some North Sea
sources because oil production from Galley is already tied back to TLM's Tartan platform, a key
facility in Talisman's Tartan/Claymore core area. Oil is exported via a pipeline to the
Tartan/Claymore network for transmission on to the Flotta oil terminal on the Orkney slands.
Gas is piped via the Tartan pipeline to the Frigg gas gathering system. The Northern Producer
agreement with the Company was assigned accordingly. The Field produces from three
production wells, two on Phase and one on Phase .

OiI & Gas Reserves: Production under Phase of the Texaco contract began on 3/25/98. n a
press release on that same day, ChevronTexaco highlighted the estimated reserves in place at
70.9 MMBOE (81% oiI). Through 12/31/03, the GaIIey FieId's accumuIated production
totaIed 50.1 MMBOE (71% of the originaI estimated reserves in pIace) or 20.8 MMBOE
remaining in pIace. Our reserve analysis indicates that the Field's gross production will reach
63.7 MMBOE by 12/31/09 or 90% of the original estimated reserves in place. Northern Offshore
provided the average daily production rate in each of its quarterly press releases, from which we
are able to estimate the Galley Field's accumulated production.
LIQUIDATION RECOVERY
Low Base High
TotaI Asset VaIue $63.6 $134.4 $172.4
Less: Secured Debt (Proforma) -- -- --
Net VaIue AvaiI. To Unsecured Notes $63.6 $134.4 $172.4
Unsec. Notes O/S $163.3 $163.3 $163.3
VaIue to Common Equity -$99.7 -$28.9 $9.2
Shares O/S 104.7 104.7 104.7
NAV per Share - USD -$0.95 -$0.28 $0.09
Exchange Rate (NOK/USD) NOK 6.96 NOK 6.96 NOK 6.96
NAV per Share - NOK -NOK 6.63 -NOK 1.92 NOK 0.61
Shares Owned by Unsec. Notes -- -- --
TotaI Equity VaIue to Unsec. HoIders -- -- --
Value provided to Unsec. Notes $63.6 $134.4 $163.3
Coupon Payments Received (5/15/04,11/15/04)(1) $8.8 $8.8 $8.8
TotaI VaIue Received by Unsec. Notes $72.4 $143.2 $172.1
Old Unsec. Debt originally O/S $163.3 $163.3 $163.3
Future Recovery 44% 88% 105%
PV20 74% 33% 65% 78%
PV25 69% 31% 61% 73%
(1) 5/15/04 coupon pmt. assumes 3/30/04 purchase of Notes and deducts accrued interest.
March 30, 2004! [Page 8 of 16]
Production: The Northern Producer's 4Q03 production averaged 11,936 BOEpd from the Galley
Field in the UK North Sea. Production was down 6% and 21% sequentially and year-over-year,
respectively, when compared to the 12,661 BOEpd and 15,036 BOEpd production rates. We
indicate in the below graph that the production breakeven for the Field is 2,100-2,900 BOEpd
using a NYMEX price of $30/Bbl and $24/Bbl, respectively. We estimate that the Galley Field wil
average 2,700 BOEpd in 1Q10, which is the point at which we believe the Field terminates
assuming there are no additional discoveries.
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
FieId's VaIue: We estimate the average annual decline rate for the Galley Field is 21%,
consistent with the annualized 4Q03 decline rate of 5.7%. We expect that due to the attractive
economics, as highlighted in the below table, the Galley Field represents nearly $191 mm of
future value (FV) and more than $152 mm of PV10 (assumes $30/Bbl NYMEX oil price and a
$2.00 price discount for oil quality) through 2009. Utilizing the $31.80/Bbl two-year forward curve
average, the FV increases over $24 mm to $215 mm and to $171 mm on a PV10 basis. Of note,
we are conservative in the price differential in that the Field's oil is a higher-grade oil (44 AP
gravity) when compared to NYMEX's 40 AP gravity and should, therefore, command a premium
price. The Field's valuation assumes TLM agrees to the existing $1.25/Bbl tariff and a dayrate
that has an initial $80,000 dayrate that adjusts downward in 2008 and 2009 as production
declines in line with the Field's economics. We refer to these dayrates as the "Dayrate Schedule
going forward, which are as follows:
2005 2007: $80,000
2008: $70,000
2009: $60,000
The below table shows the Field valuation. Of note, using a $30.00/Bbl NYMEX price, the
analysis indicates that the Field's life could potentially be extended to the end of 2012 in the case
that NOF agrees to the following dayrates for the years 2010-2012:
2010: $60,000
2011: $50,000!
2012: $40,000!
!
!
!
!
!
!
!
!
!
!
!
!
GALLEY FIELD ANALYSIS
Tariff Exp.
Yr. NYMEX ReaIized BbIs O&G Contract Assumed Effec. Operating $/BbI @ CumItve. PV @
Ended OiI Px OiI Px per Day Revenue Dayrate Dayrate Dayrate Cost $1.250 $MM $/BbI FV 10%
2004 $30.00 $28.00 10,347 $105.7 $0.103 -- $0.103 -$37.6 -$4.7 $63.5 $16.80 $63.5 $57.7
2005 $30.00 $28.00 8,149 $83.3 -- $0.080 $0.080 -$29.2 -$3.7 $50.4 $16.93 $113.8 $99.3
2006 $30.00 $28.00 6,437 $65.8 -- $0.080 $0.080 -$29.2 -$2.9 $33.6 $14.32 $147.5 $124.6
2007 $30.00 $28.00 5,084 $52.0 -- $0.080 $0.080 -$29.2 -$2.3 $20.4 $11.01 $167.9 $138.6
2008 $30.00 $28.00 4,028 $41.2 -- $0.070 $0.070 -$25.6 -$1.8 $13.8 $9.37 $181.7 $147.1
2009 $30.00 $28.00 3,172 $32.4 -- $0.060 $0.060 -$21.9 -$1.4 $9.1 $7.84 $190.8 $152.2
2010 $30.00 $28.00 2,506 $25.6 -- $0.060 $0.060 -$21.9 -$1.1 $2.6 $2.80 $193.3 $153.5
2011 $30.00 $28.00 1,979 $20.2 -- $0.050 $0.050 -$18.3 -$0.9 $1.1 $1.49 $194.4 $154.0
2012 $30.00 $28.00 1,568 $16.0 -- $0.040 $0.040 -$14.6 -$0.7 $0.7 $1.24 $195.1 $154.3
TotaI $30.00 $28.00 4,808 $442.2 -$0.069 -$227.4 -$19.7 $195.1 $12.35 $195.1 $154.3
Cash FIow
GaIIey FieId Production
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
J
u
n
-
9
8
J
u
n
-
9
9
J
u
n
-
0
0
J
u
n
-
0
1
J
u
n
-
0
2
J
u
n
-
0
3
J
u
n
-
0
4
J
u
n
-
0
5
J
u
n
-
0
6
J
u
n
-
0
7
J
u
n
-
0
8
J
u
n
-
0
9
J
u
n
-
1
0
J
u
n
-
1
1
J
u
n
-
1
2
A
v
g
.

B
O
E
p
d
4Q04 Avg.
Production=
11,936
Production
Breakeven
=2,143-2,857
March 30, 2004! [Page 9 of 16]
!
!
OiI Price Sensitivity: The below chart shows that the Field is free cash flow positive through the
end of 2009, at which point the free cash flow range is $2.1 - $9.1 based on NYMEX prices of
$24-$30/Bbl, respectively. n 2009, the Field's oil price breakeven is $22/Bbl NYMEX. Using
$24/Bbl NYMEX and $30/Bbl NYMEX, the production breakeven is 2,700 BOEpd and 2,100
BOEpd, respectively, which is below our estimated average 4Q09 production rate of 2,900
BOEpd. The purpose of the chart is to demonstrate the Field's economics at points in time
assuming the Dayrate Schedule. The graph also establishes NOF's year-end cash balances are
adequate to accommodate the reduced dayrates in the outer years and simultaneously support
the $100 mm of 11% New Secured notes assumed the in our Recommended Restructuring. Of
course, this analysis assumes that TLM makes no additional discoveries, which is a possibility.
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
Rig Descriptions:
!
!
!
!
!
!
!
!
!
!
Northern Producer: The Northern Producer is a technologically advanced Floating Production
Facility (FPF), specifically constructed to operate in harsh water and weather conditions such as
those in the North Sea. The rig is equipped with a versatile process package, which enables it to
produce in a wide range of offshore fields. t is capable of maximum oil production and export of
approximately 55,000 barrels per day, gas production and export of approximately 60 mmcf per
day and water injection of 45,000 Bblspd. t has accommodations for up to 75 people. The
design and capabilities make the rig suitable for employment in floating production markets
worldwide, including the Canadian continental shelf, the US GOM and offshore West Africa,
South America (Brazil) and Southeast Asia.

Northern Producer VaIuation: The below asset valuation utilizes the Dayrate Schedule as noted
above, which assumes the Company executes a new contract for the Northern Producer with
TLM. Assuming the Dayrate Schedule, which incorporates the contracted $103,000 dayrate for
all of 2004, we value the new contract at $83.5 mm (PV10 for 2004-2009). f however, we
assume the Company operates until year-end 2004 and restructures in January 2005, the
contract beginning year for valuation purposes is 2005 with the expiration to be determined by the
Galley Field's economic life. As such, we believe the more conservative contract value (PV10)
ranges from $47.0 mm (2005-2007) - $62.8 mm (2005-2009) and are represented in our Base
Case and High Case, respectively.
Max
Water Cost Current Current Contract
Rig Name Rig Type Depth (Ft) $MM Location Status Operator Exp.
Northern Producer Floating Production Facility NA $226 North Sea Working Talisman Jan-05
Energy Searcher Drillship 2,500 $37 Singapore Working Rims Energy Aug-04E
Northern Explorer Drillship (ce Class), DP 1,000 $100 Singapore Stacked NA NA
Galaxy Driller Semisubmersible 2nd Gen. 600 $50 Singapore Stacked NA NA
Discover Drillship 1,500 $12 Mexico Stacked NA NA
$425
Northern Producer Dayrate vs.
GaIIey FieId Cash FIow (NYMEX @ $24/BbI)
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
2004 2005 2006 2007 2008 2009
D
a
y
r
a
t
e
$0
$10
$20
$30
$40
$50
$60
$70
F
i
e
I
d

C
a
s
h

F
I
o
w

(
$
M
M
)
Dayrate
FieId Cash FIow
@ $24
FieId Cash FIow
@ $30
NOF's YE
Cash BaI.
March 30, 2004! [Page 10 of 16]
!
!
!
!
!
!
!
!
!
!
!
!
!
!
Energy Searcher: The drillship completed its contract with Daewoo in January 2004 at a dayrate
of $57,000. The rig then went into drydock for 13-days and is now employed at a $50,000
dayrate under a contract offshore ndia through April 2004 with Hardy Oil & Gas. Northern
Offshore indicated in its 4Q03 press release that the Company received a Letter of ntent from
Rims Energy for drilling in ndonesia that will commence immediately after the current contract
with Hardy we estimate this contract will most likely extend into August 2004 at a $50,000
dayrate. The Energy Searcher is a conventionally moored drilling vessel, which can drill in water
depths up to 2,500 ft. The drillship is self-propelled, which means that there are no costly tugs
and heavy lift vessels required for mobilization to another market. Our asset values for the
Energy Searcher are $18.3 mm, $23.7 mm, and $29.2 mm in the Low, Base, and High Cases,
respectively, which is in line with the PV10 values per below that utilize today's spot dayrates for
this type of vessel.
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
NORTHERN PRODUCER
Contract
Yr. Dayrate Tariff TotaI DaiIy AnnuaI Mgmt. TotaI Cash CumItve. PV @
Ended Dayrate Revenue Revenue Revenue Opex Opex Fee Expenses FIow FV 10%
2004 $0.103 $37.6 $4.7 $42.3 $0.035 -$12.8 -$0.6 -$13.3 $29.0 $29.0 $26.3
2005 $0.080 $29.2 $3.7 $32.9 $0.035 -$12.8 -$0.6 -$13.3 $19.6 $48.6 $42.5
2006 $0.080 $29.2 $2.9 $32.1 $0.035 -$12.8 -$0.6 -$13.3 $18.8 $67.4 $56.6
2007 $0.080 $29.2 $2.3 $31.5 $0.035 -$12.8 -$0.6 -$13.3 $18.2 $85.6 $69.1
2008 $0.070 $25.6 $1.8 $27.4 $0.035 -$12.8 -$0.6 -$13.3 $14.1 $99.6 $77.8
2009 $0.060 $21.9 $1.4 $23.3 $0.035 -$12.8 -$0.6 -$13.3 $10.0 $109.6 $83.5
2010 $0.060 $21.9 $1.1 $23.0 $0.035 -$12.8 -$0.6 -$13.3 $9.7 $119.3 $88.4
2011 $0.050 $18.3 $0.9 $19.2 $0.035 -$12.8 -$0.6 -$13.3 $5.8 $125.2 $91.2
2012 $0.040 $14.6 $0.7 $15.3 $0.035 -$12.8 -$0.6 -$13.3 $2.0 $127.2 $92.0
TotaI $0.6 $227.4 $19.7 $247.1 -$115.0 -$5.0 -$119.9 $127.2 $127.2
ENERGY SEARCHER
Yr. DaiIy DaiIy UtiI. Cash CumItve. PV @
Ended Dayrate Opex Margin Rate Revenue Opex FIow FV 10%
2004 $0.050 $0.035 $0.015 80% $14.6 $10.2 $4.4 $4.4 $4.0
2005 $0.050 $0.035 $0.015 80% $14.6 $10.2 $4.4 $8.8 $7.6
2006 $0.050 $0.035 $0.015 80% $14.6 $10.2 $4.4 $13.1 $10.9
2007 $0.050 $0.035 $0.015 80% $14.6 $10.2 $4.4 $17.5 $13.9
2008 $0.050 $0.035 $0.015 80% $14.6 $10.2 $4.4 $21.9 $16.6
2009 $0.050 $0.035 $0.015 80% $14.6 $10.2 $4.4 $26.3 $19.1
2010 $0.050 $0.035 $0.015 80% $14.6 $10.2 $4.4 $30.7 $21.3
2011 $0.050 $0.035 $0.015 80% $14.6 $10.2 $4.4 $35.0 $23.4
2012 $0.050 $0.035 $0.015 80% $14.6 $10.2 $4.4 $39.4 $25.2
TotaI $131.4 $92.0 $39.4 $39.4 $25.2
Assumptions
March 30, 2004! [Page 11 of 16]

Appendix A: Quarterly SnapShot
Northern Offshore Ltd. (NOF NO)
QuarterIy Snapshot: December 31, 2003
12/31/02 3/31/03 6/30/03 9/30/03 12/31/03 LTM QoQ YoY
Revenue $18.1 $15.3 $13.1 $14.4 $14.7 $57.5 2% -19%
Operating Expenses $11.1 $7.6 $6.6 $8.9 $7.9 $30.9 -11% -29%
Gross Margin $7.0 $7.6 $6.6 $5.6 $6.8 $26.6 22% -3%
Gross Margin % 38.7% 50.0% 50.0% 38.7% 46.4% 46.2% NA NA
EBITDA $7.0 $7.6 $6.6 $5.6 $6.8 $26.6 22% -3%
EBITDA Margin 38.7% 50.0% 50.0% 38.7% 46.4% 46.2% NA NA
LQA EBITDA $28.0 $30.6 $26.3 $22.3 $27.2 $27.2 22% -3%
LTM EBITDA $33.1 $32.6 $30.1 $26.8 $26.6 $26.6 -1% -20%
Credit Statistics:
EBTDA / Cash nterest Exp. LQA 1.6x 1.7x 1.4x 1.2x 1.5x 1.5x 26% -1%
LTM 1.8x 1.8x 1.6x 1.5x 1.5x 0.4x 2% -18%
Total Debt / EBTDA LQA 6.7x 6.1x 6.8x 7.9x 6.4x 6.4x -19% -5%
LTM 5.7x 5.7x 5.9x 6.6x 6.5x 6.5x -1% 15%
Net Debt / EBTDA LQA 6.2x 5.4x 6.4x 7.2x 6.0x 6.0x -17% -4%
LTM 5.2x 5.0x 5.6x 6.0x 6.1x 6.1x 2% 17%
FFO / Total Debt LQA 5% 7% 4% 2% 5% 19% 136% 1%
LTM 8% 7% 6% 5% 5% 5% 0% -37%
Total Debt / Capitalization (Book) 117% 118% 120% 122% 128% 128% 5% 10%
BaIance Sheet:
Total Debt $187.6 $186.5 $177.3 $176.8 $173.6 $173.6 -2% -7%
Net Debt* $173.8 $164.8 $168.9 $161.0 $162.8 $162.8 1% -6%
Cash $3.3 $10.4 $3.3 $10.6 $6.4 $6.4 -40% 94%
Working Capital $13.9 $21.7 $8.4 $15.8 $10.8 $10.8 -31% -22%
Cash FIow AnaIysis
EBITDA $7.0 $7.6 $6.6 $5.6 $6.8 $26.6 22% -3%
-Cash nterest Expense $4.5 $4.4 $4.8 $4.6 $4.4 $18.2 -3% -2%
Funds from Operations (FFO) $2.5 $3.2 $1.8 $1.0 $2.4 $8.4 137% -5%
-CapEx $0.0 $0.0 $0.0 -- $0.0 $0.1 NA 650%
Free Cash FIow (FCF) $2.5 $3.2 $1.8 $1.0 $2.3 $8.3 132% -7%
LTM FCF $14.2 $13.9 $11.2 $8.5 $8.3 $8.3 -2% -42%
CapitaIization
Total Debt $187.6 $186.5 $177.3 $176.8 $173.6 $173.6 -2% -7%
Preferred Stock (Liq.) -- -- -- -- -- -- NA NA
Shareholders' Equity ($27.1) ($28.9) ($29.0) ($32.1) ($38.3) ($38.3) 19% 41%
TotaI CapitaIization $160.5 $157.6 $148.3 $144.7 $135.3 $135.3 -6% -16%
Other Data:
Galley Field Production (Bbls/Day) 15,036 13,476 11,767 12,661 11,936 12,460 -6% -21%
YoY % Change -34% -39% -39% -4% -21%
QoQ % Change 14% -10% -13% 8% -6%
*Net Debt represents Total Debt less working capital.
Quarter Ended % Change
March 30, 2004! [Page 12 of 16]
!
Appendix B: Financial Model
Northern Offshore Ltd.
FinanciaI ModeI
Amt. 9/30/03 3/31/04 6/30/04 9/30/04 12/31/04 3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 3/31/07 6/30/07
O/S Cpn. 91 91 92 92 90 91 92 92 90 91 92 92 90 91
EBITDA 6.563 5.583 $7.1 $7.0 $7.2 $6.7 $4.5 $4.5 $4.5 $4.5 $4.3 $4.3 $4.4 $4.3 $4.2 $4.2
LTM EBITDA $26.2 $26.6 $28.2 $27.9 $25.4 $23.0 $20.3 $18.1 $17.9 $17.7 $17.5 $17.3 $17.2 $17.0
Cash nterest - New Sr. Sec. Notes $100.0 11.00% -- -- -- -- -- ($5.5) -- ($5.3) -- ($5.1) -- ($4.9) -- ($4.8)
Cash nterest - Avalon Debt $4.3 7.55% ($0.1) ($0.1) -- -- -- -- -- -- -- -- -- -- -- --
Cash nterest - BNP Loan $6.0 7.05% ($0.1) ($0.1) -- -- -- -- -- -- -- -- -- -- -- --
Cash nterest - Sr. Notes $143.2 10.00% -- ($7.2) -- ($7.2) -- -- -- -- -- -- -- -- -- --
Cash nterest - Floating Sr. Notes $20.1 7.39% ($0.4) ($0.4) ($0.4) ($0.4) ($0.4) -- -- -- -- -- -- -- -- --
TotaI Cash Interest ($0.6) ($7.7) ($0.4) ($7.5) ($0.4) ($5.5) -- ($5.3) -- ($5.1) -- ($4.9) -- ($4.8)
Funds from Operations (FFO) $6.5 ($0.8) $6.8 ($0.8) $4.2 ($0.9) $4.5 ($0.8) $4.3 ($0.8) $4.4 ($0.6) $4.2 ($0.6)
CapEx ($0.5) ($0.2) ($0.2) ($0.2) ($0.2) ($0.2) ($0.2) ($0.2) ($0.2) ($0.2) ($0.2) ($0.2) ($0.2) ($0.2)
Operating Free Cash FIow $6.0 ($1.0) $6.6 ($1.0) $4.0 ($1.1) $4.3 ($1.0) $4.1 ($1.0) $4.2 ($0.8) $4.0 ($0.8)
Debt Amortizations -- ($10.3) -- -- -- ($0.8) -- ($3.2) -- ($3.1) -- ($3.2) -- ($3.1)
Net Cash Change bfr. Asset SaIes $6.0 ($11.3) $6.6 ($1.0) $4.0 ($1.9) $4.3 ($4.2) $4.1 ($4.1) $4.2 ($4.0) $4.0 ($3.9)
Asset Sales $2.1 -- -- -- -- -- -- -- -- -- -- -- -- --
Asset Sale Commissions ($0.1) -- -- -- -- -- -- -- -- -- -- -- -- --
Net Cash Change $8.1 ($11.3) $6.6 ($1.0) $4.0 ($1.9) $4.3 ($4.2) $4.1 ($4.1) $4.2 ($4.0) $4.0 ($3.9)
Cash at Begin of Period $6.4 $14.5 $3.2 $9.8 $8.8 $12.8 $10.9 $15.2 $11.0 $15.1 $11.0 $15.2 $11.2 $15.1
Cash at End of Period $14.5 $3.2 $9.8 $8.8 $12.8 $10.9 $15.2 $11.0 $15.1 $11.0 $15.2 $11.2 $15.1 $11.2
WorkCap at End of Period $18.9 $7.7 $14.3 $13.3 $17.2 $15.4 $19.7 $15.5 $19.6 $15.5 $19.7 $15.7 $19.6 $15.7
LTM EBITDA / Cash Interest 1.6x 1.6x 1.7x 1.8x 1.6x 2.0x 1.9x 1.7x 1.7x 1.7x 1.7x 1.8x 1.7x 1.8x
TotaI Debt / LTM EBITDA 6.6x 6.1x 5.8x 5.8x 3.9x 4.3x 4.9x 5.3x 5.4x 5.2x 5.3x 5.2x 5.2x 5.1x
EBITDA
Revenue:
Northern Producer $10.4 $10.3 $10.3 $10.3 $8.1 $8.1 $8.1 $8.1 $7.8 $7.9 $7.9 $7.9 $7.7 $7.7
Energy Searcher $3.9 $3.9 $4.1 $3.7 $3.6 $3.6 $3.7 $3.7 $3.6 $3.6 $3.7 $3.7 $3.6 $3.6
TotaI Revenue $14.3 $14.2 $14.5 $13.9 $11.7 $11.7 $11.8 $11.7 $11.4 $11.5 $11.6 $11.6 $11.3 $11.4
Operating Costs:
Northern Producer $3.6 $3.6 $3.7 $3.7 $3.6 $3.6 $3.7 $3.7 $3.6 $3.6 $3.7 $3.7 $3.6 $3.6
Energy Searcher $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2
TotaI Operating Costs $6.8 $6.8 $6.9 $6.9 $6.8 $6.8 $6.9 $6.9 $6.8 $6.8 $6.9 $6.9 $6.8 $6.8
Gross Margin:
Northern Producer $6.7 $6.6 $6.6 $6.6 $4.5 $4.4 $4.4 $4.4 $4.2 $4.2 $4.3 $4.2 $4.1 $4.1
Energy Searcher $0.7 $0.7 $0.9 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5
TotaI Gross Margin $7.4 $7.3 $7.6 $7.0 $4.9 $4.9 $4.9 $4.8 $4.7 $4.7 $4.7 $4.7 $4.5 $4.5
G&A $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4
Cold Stack Costs $0.5 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3
EBITDA $7.1 $7.0 $7.2 $6.7 $4.5 $4.5 $4.5 $4.5 $4.3 $4.3 $4.4 $4.3 $4.2 $4.2
NORTHERN PRODUCER
Assumptions:
Galley Field Production BOEpd 11,253 10,608 10,001 9,428 8,888 8,379 7,899 7,447 7,021 6,619 6,240 5,882 5,545 5,228
Galley Field Production MMBOE 1.0 1.0 0.9 0.9 0.8 0.8 0.7 0.7 0.6 0.6 0.6 0.5 0.5 0.5
Tariff ($/Bbl) $1.25 $1.25 $1.25 $1.25 $1.25 $1.25 $1.25 $1.25 $1.25 $1.25 $1.25 $1.25 $1.25 $1.25
Tariff Revenue $1.3 $1.2 $1.2 $1.1 $1.0 $1.0 $0.9 $0.9 $0.8 $0.8 $0.7 $0.7 $0.6 $0.6
Dayrate GBP 56,552 56,552 56,552 56,552 -- -- -- -- -- -- -- -- -- --
USD/GBP $1.80 $1.80 $1.80 $1.80 -- -- -- -- -- -- -- -- -- --
Dayrate Equiv. USD $101,794 $101,794 $101,794 $101,794 $80,000 $80,000 $80,000 $80,000 $80,000 $80,000 $80,000 $80,000 $80,000 $80,000
UtiIization Rate 98.0% 98.0% 98.0% 98.0% 98.0% 98.0% 98.0% 98.0% 98.0% 98.0% 98.0% 98.0% 98.0% 98.0%
TotaI Dayrate Revenue $9.1 $9.1 $9.2 $9.2 $7.1 $7.1 $7.2 $7.2 $7.1 $7.1 $7.2 $7.2 $7.1 $7.1
Tariff Revenue $1.3 $1.2 $1.2 $1.1 $1.0 $1.0 $0.9 $0.9 $0.8 $0.8 $0.7 $0.7 $0.6 $0.6
TotaI Revenue $10.4 $10.3 $10.3 $10.3 $8.1 $8.1 $8.1 $8.1 $7.8 $7.9 $7.9 $7.9 $7.7 $7.7
Daily Operating Costs $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000
TotaI Operating Costs $3.6 $3.6 $3.7 $3.7 $3.6 $3.6 $3.7 $3.7 $3.6 $3.6 $3.7 $3.7 $3.6 $3.6
Gross Margin Contribution $6.7 $6.6 $6.6 $6.6 $4.5 $4.4 $4.4 $4.4 $4.2 $4.2 $4.3 $4.2 $4.1 $4.1
ENERGY SEARCHER
Assumptions:
Dayrate USD $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000
Utilization Rate 85.7% 85.0% 90.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0%
Dayrate Revenue $3.9 $3.9 $4.1 $3.7 $3.6 $3.6 $3.7 $3.7 $3.6 $3.6 $3.7 $3.7 $3.6 $3.6
Daily Operating Costs $35,000 $35,000 $35,000 $35,000 $35,000 $35,000 $35,000 $35,000 $35,000 $35,000 $35,000 $35,000 $35,000 $35,000
TotaI Operating Costs $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2 $3.2
Gross Margin Contribution $0.7 $0.7 $0.9 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5
COLD STACK COSTS
Rigs Stacked 4 3 3 3 3 3 3 3 3 3 3 3 3 3
Daily Cold Stack Cost per Rig ($/Day) $1,250 $1,250 $1,250 $1,250 $1,250 $1,250 $1,250 $1,250 $1,250 $1,250 $1,250 $1,250 $1,250 $1,250
Total Daily Cold Stack Costs ($/Day) $5,000 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750 $3,750
TotaI CoId Stack Costs ($MM) $0.5 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3
DEBT
End BaIances:
New Secured Debt 11.0% 12/31/08 $100.0 -- -- -- -- $100.0 $99.2 $99.2 $96.0 $96.0 $92.9 $92.9 $89.7 $89.7 $86.5
Avalon Debt $4.3 $4.3 -- -- -- -- -- -- -- -- -- -- -- -- --
BNP Loan $6.0 $6.0 -- -- -- -- -- -- -- -- -- -- -- -- --
10% Sr. Notes $143.2 $143.2 $143.2 $143.2 $143.2 -- -- -- -- -- -- -- -- -- --
NOK Floating Sr. Notes $20.1 $20.1 $20.1 $20.1 $20.1 -- -- -- -- -- -- -- -- -- --
TotaI $173.6 $173.6 $163.3 $163.3 $163.3 $100.0 $99.2 $99.2 $96.0 $96.0 $92.9 $92.9 $89.7 $89.7 $86.5
March 30, 2004! [Page 13 of 16]
!
Appendix C: IRR Analysis
!
We estimate the New Secured Notes will amortize $21 mm over its 5-year term (based on a cash
sweep of any quarter-end balance exceeding $12 mm) to a $79 mm balance at maturity in 2009.
ncluding this amortization and buying the 10% Sr. Notes at 40, results in an RR (calculation
included below) ranging from 21% to over 26% in various cases as follows:
Low Case: 20.7%
Base Case: 24.1%
High Case: 26.3%

!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
IRR ANALYSIS ASSUMING RECOMMENDED RESTRUCTURING
Purch. & Purch. & Purch. &
Asset Debt Asset Debt Asset Debt
Recovery Interest Amo. TotaI Recovery Interest Amo. TotaI Recovery Interest Amo. TotaI
20.7% 24.1% 26.3%
4/3/04 -$65.3 -- -- -$65.3 -$65.3 -- -- -$65.3 -$65.3 -- -- -$65.3
5/15/04 -- $1.7 -- $1.7 -- $1.7 -- $1.7 -- $1.7 -- $1.7
11/15/04 -- $7.2 -- $7.2 -- $7.2 -- $7.2 -- $7.2 -- $7.2
12/31/04 -- -- -- -- -- -- -- -- -- -- -- --
3/31/05 -- -- -- -- -- -- -- -- -- -- -- --
6/30/05 -- $4.4 $0.8 $5.1 -- $4.4 $0.8 $5.1 -- $4.4 $0.8 $5.1
9/30/05 -- -- -- -- -- -- -- -- -- -- -- --
12/31/05 -- $4.4 $3.2 $7.6 -- $4.4 $3.2 $7.6 -- $4.4 $3.2 $7.6
3/31/06 -- -- -- -- -- -- -- -- -- -- -- --
6/30/06 -- $4.4 $3.1 $7.5 -- $4.4 $3.1 $7.5 -- $4.4 $3.1 $7.5
9/30/06 -- -- -- -- -- -- -- -- -- -- -- --
12/31/06 -- $4.4 $3.2 $7.6 -- $4.4 $3.2 $7.6 -- $4.4 $3.2 $7.6
3/31/07 -- -- -- -- -- -- -- -- -- -- -- --
6/30/07 -- $4.4 $3.1 $7.5 -- $4.4 $3.1 $7.5 -- $4.4 $3.1 $7.5
9/30/07 -- -- -- -- -- -- -- -- -- -- -- --
12/31/07 -- $4.4 $3.2 $7.6 -- $4.4 $3.2 $7.6 -- $4.4 $3.2 $7.6
3/31/08 -- -- -- -- -- -- -- -- -- -- -- --
6/30/08 -- $4.4 $2.4 $6.7 -- $4.4 $2.4 $6.7 -- $4.4 $2.4 $6.7
9/30/08 -- -- -- -- -- -- -- -- -- -- -- --
12/31/08 -- $4.4 $1.5 $5.9 -- $4.4 $1.5 $5.9 -- $4.4 $1.5 $5.9
3/31/09 -- -- -- -- -- -- -- -- -- -- -- --
6/30/09 -- $4.4 $0.6 $4.9 -- $4.4 $0.6 $4.9 -- $4.4 $0.6 $4.9
9/30/09 -- -- -- -- -- -- -- -- -- -- -- --
12/31/09 $64.1 $4.4 -- $68.4 $85.3 $4.4 -- $89.7 $100.8 $4.4 -- $105.2
TotaI -$1.3 $52.5 $21.1 $72.4 $20.0 $52.5 $21.1 $93.6 $35.5 $52.5 $21.1 $109.2
HIGH BASE LOW
March 30, 2004! [Page 14 of 16]
!
Appendix D: Floating Production Vessels
!
Exploration and production companies use two basic types of facilities to produce oil and gas
from offshore fields: fixed platforms and floating production vessels. Floating production vessels
provide the capability for use in deep waters beyond the limitations of fixed platforms. Fixed
platforms are generally restricted to water depths of 1,300 feet or less. Additionally, floating
production vessels are mobile and can therefore be reused. They are sometimes used in water
depths that could accommodate fixed platforms, particularly in circumstances when the oil or gas
reservoir has a relatively short production life. Floating production vessels offer a cost-effective
approach to offshore oil and gas production and, combined with sub-sea completion technology,
reduce the threshold at which offshore production becomes economically viable. Floating
production was developed as an alternative to fixed platforms in order to reduce overall costs and
the financial exposure associated with developing small to medium-sized offshore fields. These
units are generally capable of conducting the same operations as fixed platforms, with the
exception of drilling and heavy well maintenance, which only a few converted semi-submersible
drilling units are equipped for. Demand for floating production has increased due to the lack of
infrastructure in deep water development areas, improvements in sub-sea technology and the
growing number of small to medium-sized offshore fields, particularly in mature producing regions
such as the North Sea. There are three basic types of floating production vessels: tension-leg
platforms (TLPs), spar platforms and floating production facilities (FPFs).
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
March 30, 2004! [Page 15 of 16]
Notes:



















































March 30, 2004! [Page 16 of 16]
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
2004 Jefferies & Company, nc. All rights reserved
!
I, Greg Imbruce, certify that aII of the views expressed in this research report accurateIy refIect my personaI
views about the subject security(ies) and subject company(ies). I aIso certify that no part of my compensation
was, is, or wiII be, directIy or indirectIy, reIated to the specific recommendations or views expressed in this
research report.
This material has been prepared by Jefferies & Company, nc. ("Jefferies") a U.S.-registered broker-dealer, employing
appropriate expertise, and in the belief that it is fair and not misleading. t is approved for distribution in the United Kingdom
by Jefferies nternational Limited ("JL") regulated by the Financial Services Authority ("FSA"). The information upon which
this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore
except for any obligations under the rules of the FSA, we do not guarantee its accuracy. Additional and supporting
information is available upon request. This is not an offer or solicitation of an offer to buy or sell any security or investment.
Any opinion or estimates constitute our best judgment as of this date, and are subject to change without notice. Jefferies and
JL and their affiliates and their respective directors, officers and employees may buy or sell securities mentioned herein as
agent or principal for their own account. This material is intended for use only by professional or institutional investors falling
within articles 19 or 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001and not the general
investing public. None of the investments or investment services mentioned or described herein are available to other
persons in the U.K. and in particular are not available to "private customers" as defined by the rules of the FSA or to anyone
in Canada who is not a "Designated nstitution" as defined by the Securities Act (Ontario)."