Press release from Nordic American Offshore Ltd. (NYSE:NAO) -- Letter to Shareholders from the Chairman

HAMILTON, Bermuda, Dec. 12, 2014 (GLOBE NEWSWIRE) -- Dear Shareholder, As the year draws to a close, I would like to share with you some reflections on the state of our business and in particular how Nordic American Offshore (NAO) differentiates itself from the competition.

NAO is essentially based on the same business model as Nordic American Tankers Limited (NYSE:NAT) in its industry, with a modern and cost effective homogenous fleet, a strong balance sheet and a quarterly dividend pay-out policy. We at NAO have a cash break-even level of about $12,000 per day per ship, which is considered low. NAT owns 19.2% of the shares in NAO which became stocklisted on NYSE June 12, 2014.

The last few months have seen significant changes in the price of oil, spurring confusion among some investors who have fled from oil-related securities. By doing so, many of them have, in my opinion, "thrown out the baby with the bath water."

Most industry observers were surprised by the rapid decline of the price of oil - but it is important for investors to understand why such a shift happend. Our view is that there is no systemic problem in the oil market. Demand remains healthy and is growing. Oversupply of oil is one important issue, but supply can be controlled. Therefore, we must consider the situation in the context of geopolitics. Who gains and who loses from a low oil price? Why would OPEC choose to maintain high production?

The low price of oil brings with it severe economic pressure for countries like Russia, Iran and Venezuela, all of whom have sensitive relations with the United States. I do not wish to speculate, but it seems clear that the current situation is a geopolitical issue. It is also a fair assumption that political accords may indirectly trigger or encourage production cuts, thus bringing up the price of oil. After all, the price of oil stayed high for several years until the last few months, suggesting a market generally in balance.

NAO as a company is not directly exposed to the price of oil to a significant extent. We are not an oil company. We do not own oil fields or sell oil. We are a Platform Supply Vessel (PSV) company. We service offshore oil installations including oil rigs as necessary parts of their operations. In our main market, the North Sea, existing production accounts for about 80% or so of the work handled by our type of vessel. Existing production in the North Sea is by and large unaffected by movements in the oil price.

Startup costs are sunk costs and production breakeven costs are still below the current oil price. The area that is affected is exploration work. With a low oil price the motivation to seek and develop new fields is reduced. This impacts the remaining 20% of the work typically carried out by our type of vessel. Not all the work will be stopped, and the first vessels to become idle in this market should be the older, smaller and lower specification vessels. NAO has an advanced fleet of top quality vessels in particular from a specification and fuel consumption viewpoint, which keeps NAO competitive in a challenging market.

I believe a useful analogy is to the car servicing and repair business. An economic downturn often slows new car sales. However, the automobile service departments still remain busy keeping existing cars running. The situation must be truly dire before people stop maintaining their vehicles. Just as cars are a necessity for moving around, our PSVs are a necessity for oil production, and in our case that existing production is not going away.

NAO has no debt. Next year, we will take delivery of four newbuildings, boosting earnings and dividend capacity by 67%. This growth is already built in - the proceeds from our June 2014 IPO along with our credit facility make this growth possible using very modest leverage. Compared with some of our competitors, NAO is resistant to volatile markets because of our low cash break-even costs. We are able to generate more cashflow from our vessels in any given scenario because we have minimal interest costs.

Of our current six vessel fleet - three are on long term charters with an average duration of two years before options. The income from these three vessels alone can cover all the costs of the six vessel fleet, thereby safeguarding the company's financial position.

As a rule, I do not comment on the stock price, but I feel it is important to say, both as a NAO shareholder directly and indirectly as the largest shareholder of NAT, which in turn, has a substantial stake in NAO, that I am not worried about NAO's long-term prospects. Investors should rest assured that the management team is working hard to safeguard our ability to pay quarterly dividends - we are better positioned than our competitors. This may seem a bold claim, but we have the strongest balance sheet and the most modern PSV fleet in the industry.

I would like to close by saying that even if rates remain low well into next year, we still expect to be able to pay a dividend. NAO is in this business for the long haul and I am hopeful that by this time next year, the global issues raised in this letter may have been resolved, setting the stage for a strong performance by NAO. It is clear that oil will remain the main energy form for many decades to come.

I wish you all the best for the Holiday Season, and as always can be reached at Herbjorn.hansson@scandicamerican.com. Please also visit our web-site: www.nao.bm

Herbjorn Hansson
Nordic American Offshore Ltd.
Executive Chairman

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Matters discussed in this press release may constitute forward-looking statements.  The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.

The Company desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. The words "believe," "anticipate," "intend," "estimate," "forecast," "project," "plan," "potential," "may," "should," "expect," "pending" and similar expressions identify forward-looking statements.

The forward-looking statements in this press release are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, our management's examination of historical operating trends, data contained in our records and other data available from third parties.  Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.  We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

Important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of world economies and currencies, general market conditions, including fluctuations in charter rates and vessel values, changes in demand in the PSV market, as a result of changes in the general market conditions of the oil and natural gas industry which influence charter hire rates and vessel values, demand in platform supply vessels, our operating expenses, including bunker prices, dry docking and insurance costs, governmental rules and regulations or actions taken by regulatory authorities as well as potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents or political events, the availability of financing and refinancing, vessel breakdowns and instances of off-hire and other important factors described from time to time in the reports filed by the Company with the Securities and Exchange Commission.

Contacts:

Web-site:   www.nao.bm