In International Shipping News 11/05/2015
In 1Q2015, NAT benefitted from both a strong Suezmax tanker market and the top quality of its fleet (24 vessels including two newbuildings), as underscored by NAT’s excellent vetting statistics (inspections of the ships by clients). The significant drop in the oil price has affected the tanker industry positively. Cashflow from operations1 was $51.0m, compared with $24.5m in 4Q2014. For all of 2014, cashflow from operations was $77.7m compared with -$11.1m in 2013. The strong level in 1Q2015 is reflected in an average TCE rate of about $37,000 per vessel per day. The size of its fleet allows NAT to reap immediate and sizeable profits when spot market rates rise. Even with its inherent volatility, the tanker market remains strong. So far, the 2Q2015 tanker market is encouraging.
On April 14, 2015, NAT declared a cash dividend of $0.38 per share payable to shareholders of record as of May 7, 2015. The dividend is expected to be paid on or about May 21, 2015. Since NAT commenced operations in the fall of 1997, the Company has paid a dividend 71 times, with total dividend payments over the period amounting to $45.76 per share, including the dividend to be paid May 21, 2015.
Our purchase of two Suezmax newbuildings, due to be delivered in 2016 and 2017, will not require the additional raising of equity from the capital markets. 1Q2015 shows that the NAT fleet has significant earnings capacity.
In recent months the price of oil fell to the lowest levels seen in recent years. This has positively affected the tanker market through increased transportation requirements and lower fuel costs.
Key points to consider:
Tanker rates achieved on average for 1Q2015 were about $37,000 per day per vessel for our trading fleet, as against $24,000 per day per vessel achieved in 4Q2014 and $26,300 in 1Q2014.
Earnings per share in 1Q2015 was$0.34, compared with -$0.02 in 4Q2014, and $0.05 for 1Q2014.
The undrawn part of our credit facility plus net working capital stood at about $322m at the end of 1Q2015.
On December 19, 2014 the Company entered into an agreement for the construction of two Suezmax vessels for delivery in August 2016 and January 2017, bringing the fleet to 24 vessels.
The balance sheet was strengthened in 1Q2015 as we retained about $17m of cashflow from operations during the quarter. The net operating cash flow itself would have allowed for $0.57 per share in dividend based on a full payout of cash flow. However, in view of the cash costs of the two newbuildings on order, it was decided to declare $0.38 per share.
We continue to focus on cost efficiency – both in administration and onboard our vessels.
14 vessels were vetted (inspected by clients) during 1Q2015. NAT came out with 2.3 observations on average,an extraordinarily good result, reflecting the top quality of our fleet.
Nordic American Tankers is very different from other tanker companies.
Nordic American Tankers has an operating model that is sustainable in both a weak and a strong tanker market. Accretive fleet growth, low net debt per vessel and quarterly dividend payments are central elements of the strategy. NAT has one type of vessel — the Suezmax vessel that can carry one million barrels of oil. A homogenous fleet is reducing our operating costs, which is helping to keep our cash-breakeven for NAT below $12,000 per day per vessel. Net asset value (NAV) is a measure that is linked to the steel value of each individual ship, which has no relevance when it comes to the valuation of the Nordic American Tankers as an ongoing business.
Financial Information
The Company declared a cash dividend of $0.38 on April 14, 2015, which is expected to be paid on or about May 21, 2015 to shareholders of record as of May 7, 2015. The number of NAT shares outstanding at the time of this report is 89,182,001. At the same time the market capitalization of NAT is about $1.1 billion. Quarterly dividend payments will continue to be a central part of our strategy.
Earnings per share in 1Q2015 was$0.34, compared with -$0.02 in 4Q2014, and $0.05 for 1Q2014.
The Company’s operating cash flow in 1Q2015 was $51m, compared with $24.5m in 4Q2014, and $27.1m in 1Q2014.
The appreciation of USD vs NOK had a positive impact on NAT’s G&A cost, of which a substantial part is in Norwegian Kroner.
We had a total of 98 days offhire during the quarter, of which 76 were related to drydockings. In 2015 we expect a total of six vessels to be drydocked; ie. four more vessels are scheduled to enter drydock later this year.
As a matter of policy, NAT is keeping a strong balance sheet with low net debt and is focusing on keeping a low financial risk. At the end of 1Q2015 the Company had net debt of about $120m or about $5.0m per vessel.
It is a prerequisite for any expansion of the fleet that our dividend and earnings capacity per share are expected to increase following such a transaction.
Our primary objective is to enhance total return for our shareholders, including paying a quarterly dividend.
The Company has in place a non-amortizing credit facility of $430m maturing in November 2017, of which $250m has been drawn. Cash on hand is about $82m. Net working capital and undrawn amounts of the credit facility amount to $322m.
For further details on our financial position for 1Q2015, 4Q2014 and 1Q2014, please see later in this release.
We believe that Nordic American Offshore Ltd. (NAO) over time will add value to Nordic American Tankers. We see cost synergies for both NAT and NAO, in particular as regards general and administrative costs. The G&A costs of NAT benefit from resource sharing with NAO which is a completely independent company. As our respective fleets grow both companies benefit. Further growth should result in lower costs on a per vessel basis. Our investment in NAO is valued on a market adjusted basis on our balance sheet and fluctuations in the share price do not impact earnings. NAO took delivery of two newbuildings in January 2015. As the vessels were ordered in Norwegian Kroner, NAO realized a currency exchange gain of about $8m per ship because of the strong dollar. The reduced level of the oil price has impacted the operations of NAO negatively.
The Fleet
In June 2014, the Company agreed to buy two secondhand vessels. The vessels were delivered to us July 16, 2014 and August 4, 2014. Following our December 2014 order of two Suezmax vessels to be built in Korea, the Company has a fleet of 24 vessels. By way of comparison, in the autumn of 2004, the Company had three vessels. Our vessels are in excellent technical condition.
The arbitration hearings involving the Suezmax vessel Gulf Scandic (now named Nordic Harrier) have been concluded. Gulf Navigation Holding PJSC (GulfNav) was the other party in the arbitration. NAT was awarded $10.2m in the arbitration, plus interest and costs. At this time, the claim has not been received. We are continuing our efforts to collect the award.
NAT is focused on maintaining a top technical quality of the fleet. Our operational performance remains at the forefront of the industry. The chart below shows our development in observations per inspection for the year. 1Q2015 inspections had an average of 2.3 observations which is an excellent result. NAT’s performance can be considered industry best practice.
World Economy and the Tanker Market
The development of the world economy affects the tanker industry. Seaborne imports of crude oil into the US have decreased over the recent past. Going forward, shale oil and tar sand oil projects are expected to affect the US and Canadian oil sector. Some of these projects are vulnerable to reduced oil prices as we see at the time of this report. In terms of transportation work (ton miles), the reduced imports to the US are more than outweighed by the increased imports to the Far East. European economies continue to run significant fiscal deficits. However, European crude imports have recently shown a rising trend. The economies of the Far East generally show continuing growth, although at a slower pace than before.
Tanker market rates are also affected by newbuildings that enter the markets, increasing the supply of vessels. Scrapping impacts supply in the other direction.
The Suezmax fleet (excl. shuttle tankers) counts 448 vessels at the end of 1Q2015, meaning the fleet has increased by three vessels this year.
Following a number of orders made in recent months, the current orderbook stands at 68 vessels from now to mid-2017. This represents about 15% of the Suezmax fleet. In 2009, the orderbook was at over 50% of the existing fleet. At the time of this report, the orderbook for 2015 counts six Suezmax vessels. However, we expect the real number of deliveries for the rest of this year to be lower.
So far in 2015 one vessel has been scrapped. In 2014 eight vessels were scrapped, compared with six in 2013and 21 in 2012.
In the last six months bunker prices have fallen by more than 50%, impacting our results positively.
Corporate Governance/Conflict of Interests
It is vital for NAT to ensure that there is no conflict of interests among shareholders, management, affiliates and related parties. Interests must be aligned. We continue our work to ensure that transactions with affiliates and/or related parties are transparent.
Strategy going forward
Our objective is to have a strategy that is flexible and has benefits in both a strong tanker market and a weak one. When the market improves, higher earnings and dividends can be expected. If rates do remain low, the Company is in a position to buy secondhand vessels or newbuildings, which are inexpensive by historical standards. Therefore, the Company is able to improve its relative position in a weak market and will be able to reap the benefits of stronger markets thereafter. Over the recent past the Company has improved its relative position. In an opportunistic way NAT is now assessing investments that further build up the position of the Company.
After an acquisition of vessels or other forms of expansion, our objective is for the Company to pay a higher dividend per share and produce higher earnings per share than had such an acquisition not taken place.
Our dividend policy will continue to enable us to achieve a competitive, risk adjusted cash yield over time compared with that of other tanker companies.
NAT is firmly committed to protecting its underlying earnings and dividend potential.We shall endeavor to safeguard and further strengthen this position for our shareholders in a deliberate, predictable and transparent way.
We encourage prospective investors interested in the crude tanker sector to consider buying shares in NAT.
