MMA Offshore : Preliminary Final Report

The Directors of MMA Offshore Ltd ("MMA" or "the Company") (ASX: MRM) submit herewith the Preliminary Financial Report for the Company for the year ended 30 June 2017.

During the 2017 financial year, MMA completed a major restructuring of its business, disposing of its Dampier and Broome Supply Bases and its Slipway assets to focus on its core offshore vessels business. The Supply Bases and Slipway have been classified as "Discontinued Operations" in the Financial Report with the ongoing vessel operations classified as "Continuing Operations".

MMA reported a Loss for the Year of $(378.0) million after booking a non-cash impairment charge of

$312.2 million against the carrying value of the Company's Vessel, Supply Base and Slipway businesses. Excluding the impact of the impairment charge, the Company recorded a Loss for the Year of $(65.8) million and a Loss for the Year from continuing operations of $(66.7) million reflecting the ongoing challenging market conditions being experienced in the offshore vessel industry.

EBITDA for continuing and discontinuing operations was $21.7 million, in line with market guidance.

1 The Company recorded a post-tax impairment charge for the 2017 Financial Year of $287.5 million for Continuing Operations and $24.7 million for Discontinued Operations (FY2016: $96.5m for Continuing Operations and $27.3m for Discontinued Operations).

Commenting on the result, MMA Chairman, Mr Tony Howarth said:

"MMA continued to face challenging market conditions through FY2017, although market sentiment is improving.

"The oil market appears to be rebalancing and we have seen global inventories begin to reduce in recent months. However, we expect ongoing volatility for some time.

"Global Exploration and Production ("E&P") spending, which has been drastically cut over the past three years is insufficient to offset reserve depletion and meet future demand growth. The International Energy Agency ("IEA") recently forecasted a global supply shortage by 2020 if underinvestment continues.

"Whilst it will take some time for the vessel market to come into balance, the early signs are encouraging for a market recovery.

"During the year, MMA made the strategic decision to dispose of its Supply Base assets to focus on the core offshore vessel business. The net proceeds from the sale, which amounted to $49.5 million, were used to reduce debt. MMA is also in the process of disposing of a number of non-core vessels from the fleet, streamlining the business to focus on the segments where MMA can extract the most value going forward.

"MMA's banking syndicate remain supportive, notwithstanding the challenging market conditions being faced by the offshore vessel industry. In February 2017, MMA agreed a number of amendments to its Banking Facility including a reduced amortisation profile and an extension of the term of the facility to enable MMA to trade through the current market downturn. Following the sale of the supply bases, there are no further amortisation payments required until the expiry of the facility in September 2019."

MMA Managing Director, Mr Jeffrey Weber said:

"Overall vessel utilisation averaged 52% for the year including the laid up vessels, down from 59% in FY2016, however utilisation of our core fleet was significantly higher due to a number of ongoing long term contracts and demand for our newbuild IMR vessels.

"Rates remain depressed across all regions and vessel segments.

"Second half performance was better than the first half as newbuild vessels contributed to earnings and project scopes extended, utilisation improved slightly and the sale of underutilised non-core vessels reduced holding costs.

"MMA continues to focus on streamlining its business to position itself for a return to more positive market conditions. The sale of the Supply Bases, non-core vessel sales and cost reduction programmes are core to that strategy.

"The offshore vessel market has been through one of the biggest downturns in living memory, however general market sentiment is that we are at the bottom of the cycle. It will take some time for the vessel market to come back to balance, however we are seeing early signs of increased activity at the front end of the value chain which should translate to increased vessel demand over time."

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The offshore oil and gas support industry continued to face enormous challenges during FY2017. Unprecedented low levels of investment by oil companies continued to impact demand for offshore vessels with utilisation and day rates remaining at historic lows.

Global E&P spend has reduced by 50% or US$1 trillion since 2013. The impact on the offshore vessel market has been severe with global fleet utilisation of just over 50%, low day rates and over 30% of the global fleet laid up.

On a positive note, sentiment has improved and the general consensus is now that the market has bottomed. We are starting to see signs of a recovery with seismic and jack up rig activity beginning to increase, which should translate to increased demand for offshore vessels. It will however, take some time to absorb the current overcapacity in the market before we will see any improvement in rates.

Ongoing poor market conditions continued to impact the performance of our Vessels division during FY2017.

Vessel operations revenue for the year was $221.8 million, down from $414.7 million in FY2017 and EBITDA was $24.8 million, down from $64.8 million.

Second half performance was better than first half as newbuild vessels began to contribute to earnings, a number of project scopes were extended and holding costs on underutilised vessels reduced as vessels were sold.

During the year, MMA made a strategic decision to aggressively dispose of approximately 20 non-core vessels from the fleet. These vessels are of an age and class that is outside of MMA's core strategic focus going forward and whilst asset values are currently depressed, the savings in holding costs and associated overheads on these underutilised vessels made a compelling case for disposal. The vessels have been classified as held for sale in the accounts and an impairment charge of $129.5 million was recorded against the value of these assets reflective of the expected selling price to be achieved. MMA has completed 50% of the targeted sales achieving values in line with the impaired value. MMA's longer term strategic focus is on a core owned fleet of approximately 30 high quality, non-commoditised vessels with a current average age profile of five years.

Australian operations contributed revenue of $149.3 million during FY2017, down from $323.6 million in FY2016 and international operations contributed revenue of $72.5 million, down from $91.1 million.

Activity in Australia was sound with a number of key long term production support contracts continuing through the downturn as well as some commissioning and decommissioning project work being undertaken during the year. The international offshore vessel market continued to be extremely challenging with intense competition for available work and historically low rates and utilisation.

Average utilisation for the fleet across the year was 52%, down from 59% in FY2016. Utilisation was higher in Australia at 56% as compared to 43% in our International fleet, however this is reflective of our

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fleet management policy where underutilised vessels are transferred to South East Asia where necessary to reduce holding costs.

Australia

Production support is a key focus of MMA's Australian business now that the major LNG projects have moved beyond the main construction phase. MMA continues to service the majority of the oil production facilities on the North West Shelf on term contracts and vessel sharing arrangements.

MMA also has three vessels operating out of Darwin including the MMA Plover and MMA Brewster which are on a five year plus options contract supporting INPEX's Ichthys LNG Project. In addition, the MMA Inscription is on a five year contract supporting ConocoPhillips' Bayu-Undan Project in the Timor Sea. These are key contracts for MMA providing full utilisation for the vessels for the term of the contracts.

In terms of project work, MMA managed a fleet of 13 vessels for Technip Oceania for the Shell Prelude Subsea Installation Project during the first half of FY2017. Five tugs (three owned by MMA) and five barges were mobilised in South East Asia and prepared for arrival in Australia. Upon arrival in Australia, the barges were loaded with subsea pipeline spools which were delivered to the Prelude site North West of Broome. Two MMA tugs acted as infield support vessels to berth the barges alongside the construction vessel and one MMA PSV conducted supply operations from Broome to the Prelude site. This was the third campaign in which MMA had provided vessel support to Technip Oceania for the Prelude Project.

MMA also had three vessels engaged in supporting Chevron's Thevenard Island Abandonment Project during the second half of the year with activity continuing into the first quarter of FY2018.

The vessel sharing arrangements that MMA implemented in FY2016 have been working well with three vessels currently being shared by six clients. The arrangement is mutually beneficial for all parties, reducing operating costs for the oil companies whilst increasing utilisation of MMA's fleet.

Exploration activity in Australia continues to be subdued with the rig count in Australia at historically low levels. We did however, see an increase in seismic activity during the year with the Mermaid Searcher supporting two seismic scopes during the second half. This is a positive sign for future exploration activity in the region.

MMA currently has 15 vessels working in Australia with six on term contracts and the remainder positioned for spot work in the region.

MMA continues to have a layup strategy in place to minimise operating costs in between contracts for vessels which are not working. The vessels are either shutdown in safe anchorage and monitored, kept on the Slipway or transferred to our facilities in South East Asia.

During the year we concluded the negotiations for new four year Enterprise Bargaining Agreements for our marine personnel. A sustainable outcome was achieved for MMA's employees, the Company and the industry and the agreement was reached without experiencing any lost time due to protected industrial action.

Looking ahead, Australia will remain a key market for MMA. MMA will focus on servicing its existing production support contracts in Australia and we continue to tender for new opportunities for both short and long term contracts as they arise. A number of scopes are currently being tendered for construction

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