Thursday, February 5, 2009

Oil Stored at Sea Washes Out Rallies

Oil Stored at Sea Washes Out Rallies
Firms Sell Cargoes at Any Hint of Rebound, Flooding Market With Supply
Feb. 5th, 2009


NEW YORK -- Every time the oil market attempts to ignite a rally, an upsurge from the sea of crude stored on waterborne tankers snuffs it out.

The accumulation of oil held in "floating storage" gained speed in December, as available space in traditional onshore storage hubs dwindled due to excess supplies. This floating storage is now among the biggest impediments to oil prices recovering any of the ground lost over the past six months. Companies are quick to sell cargoes at the hint of a turnaround, unleashing a flood of oil onto the market.

More oil is being produced than recession-stricken economies need, and prices have fallen as the extra crude fills storage terminals world-wide. Crude-futures prices are down 72% from the record hit in July. Wednesday, light, sweet crude oil for March delivery settled 46 cents lower, or 1.1%, at $40.32 a barrel on the New York Mercantile Exchange.

The oil sitting at sea adds an extra layer of uncertainty about the supply overhang, which traders said must be whittled down for oil prices to rebound.

Tankers carrying up to two million barrels each aren't counted in official statistics. Ship trackers estimate that as many as 80 million barrels may be on the water, or more than twice the amount kept in the largest commercial storage center in the U.S., in Cushing, Okla.

"There's no database of ships sitting on storage right now. It makes it very, very difficult to speculate" on what is on the water, said one tanker broker.

The flexibility that comes with holding oil on a vessel is important for companies looking to quickly take advantage of a market where oil to be sold next month costs significantly less than a contract to deliver later in the year. The sheer amount of crude floating around prevents any permanent narrowing of that discount.

"You can almost describe it as an accordion effect," said Andy Lebow, senior vice president for energy at brokerage MF Global in New York. "For floating storage to come out you want to see these spreads tighten up. When the oil comes out ... [the spreads] widen."

Members of the Organization of Petroleum Exporting Countries are the only producers capable of and willing to quickly slow the flow of oil. The group has cut output by 3.1 million barrels a day since September, according to a Dow Jones Newswires survey.

OPEC's cuts haven't resulted in lower inventories. U.S. onshore oil stocks rose by 7.1 million barrels in the week ended Jan. 30, one of the largest single-week gains ever, according to the Energy Department.

Several OPEC members have raised the possibility of cutting production quotas again at the group's meeting in March if inventories remain elevated and prices stay depressed.

"OPEC will eventually win the battle, but what floating storage does is it delays the victory," said Michael Wittner, global head of oil research at Société Générale SA.

Wednesday, January 7, 2009

Oil Traders Seek Tankers For Storage

Oil Traders Seek Another 10 Tankers, Frontline Says
By Alaric Nightingale
Jan. 7

Frontline Ltd., the world’s biggest owner of supertankers, said oil traders want to charter as many as 10 vessels to stockpile crude to take advantage of higher prices later in the year.

About 25 supertankers were already hired for storage and there are enquiries for 5 to 10 more, Jens Martin Jensen, Singapore-based interim chief executive officer of the company’s management unit, said by phone today.

The traders would buy crude now and sell it for delivery later, profiting from a futures market situation called contango where prices are higher as the year progresses. The vessels could handle as much as 20 million barrels, or about what is produced by OPEC member Algeria in 15 days. They would add to as much as 50 million barrels already hoarded at sea, for a combined amount equal to almost five days of European Union demand.

“I’ve never before seen storage demand on this scale,” said Didier Labat, a Paris-based shipbroker at Barry Rogliano Salles who has worked in tanker markets for about 20 years.

Commodities prices fell the most in five decades last year, with crude dropping more than $100 from the peak of $147.27 a barrel in July, as simultaneous recessions hit the U.S., Europe and Japan. Oil demand in 2008 fell for the first time since 1983, according to the Paris-based International Energy Agency.

Thirty-five supertankers represent about 7 percent of the global fleet of very large crude carriers, according to data from London-based Drewry Shipping Consultants Ltd. Storing oil in tankers may buoy rental rates that fell by a record 78 percent last year as slower economic growth sapped demand for energy.

Financing Costs

Traders are seeking to lease ships for three to nine months, Jensen said. Crude oil for December delivery settled at $58.74 a barrel on the New York Mercantile Exchange today, $16.11 more than the February contract. Oil companies and traders may be able to profit from storing the oil, assuming shipping, insurance and financing costs are covered.

A supertanker would cost about 90 cents a barrel a month for storage depending on the length of the rental, according to data last month from shipbroker Galbraith’s Ltd.

Iran, the second-largest member of the Organization of Petroleum Exporting Countries after Saudi Arabia, idled as many as 15 of its biggest ships in May to store crude oil. That contributed to three consecutive months of higher rental rates for ships.

The cost of delivering Middle East oil to Asia, the world’s busiest route for supertankers, rose yesterday for the first time since Dec. 5, according to the Baltic Exchange in London.

Forward freight agreements advanced. The derivatives are used by traders to bet on the future price of hauling Saudi Arabian cargoes to Japan, an industry benchmark.

Derivatives Advance

The contracts traded at about 46 Worldscale points for the fourth quarter, according to prices from Oslo-based broker Imarex ASA as of 10:34 a.m. London time. They closed at 45 yesterday.

Worldscale points are a percentage of a nominal rate for more than 320,000 specific routes. They give owners and oil companies a starting point for negotiating hire rates without having to calculate the value of each deal from scratch.

Frontline, based in Bermuda, has advanced 13 percent in Oslo trading this year. The five-member Bloomberg Tanker Index has gained 12 percent.

Tuesday, October 14, 2008

Liquefied Gas Floating Higher in the Water

Liquefied Gas Floating Higher in the Water
By David Wood
Oct. 13, 2008

Floating liquefied natural gas FLNG facilities are coming of age. In June, Flex LNG, based in the Virgin Islands, announced an agreement with Japan’s Mitsubishi Corp. and Nigeria’s Peak Petroleum to develop and market the world’s first floating liquefaction project offshore Nigeria. A few days later, Flex LNG announced another agreement with Britain’s Rift Oil for an FLNG project offshore Papua New Guinea.

The concept of FLNG has been around since the 1980s, with technology research mainly promoted by Shell and Mobil for projects with largescale capacities that is, some 3 million tons per year. Despite a number of attempts, over the past two decades the majors have been unsuccessful in getting this technology off the drawing board. Over the past two years momentum has moved towards smaller technology companies partnering with marine engineering companies for ship design and fabrication, who then partner with independent upstream companies holding stranded gas reserves.

In addition to the Flex LNG projects each of which have a 1.7 Mt per year capacity, other groups are announcing progress with their own technologies. Last September, Hoegh LNG, Aker, and ABB Lummus announced an FLNG ship with a 1.6 Mt per year capacity. That same month, SBM and Linde said they were developing an FLNG ship with a 2.5 Mt per year capacity. In May, Teekay, Mustang, and Samsung announced that the American Bureau of Shipping would class their FLNG ship, to be used in the gasrich West Africa region. Each group has its own proprietary technologies geared to a project scale generally too small to interest the majors. They are instead targeting small stranded gas fields.

Undaunted by this smallscale competition, in July Shell issued a tender offer for contractors to build its own FLNG design. Weighing 3.5 million tons with a deck area of 450 meters by 75 meters, it will deploy Shell’s proprietary new but tried and tested liquefaction process the Shell Automated CoolDown. Shell continues to focus on largescale potential deployments with its FLNG technology, and its current target project is thought to be its Prelude gas discovery in Australia’s North West Shelf Browse Basin.

Floating Lighter

An innovative solution that liquefies natural gas, but not LNG as we know it, is SeaOne’s LNG LiteTM concept utilizing Compressed Gas Liquids™ CGL™ technology. [For more on SeaOne and compressed natural gas, see ET, October 2007.] In the CGL process, a hydrocarbon solvent is added to the natural gas stream after it is cleaned of impurities, causing the gas to liquefy when subjected to 40° C and 1,400 psi. This first phase of the LNG Lite system occurs on a loading barge moored at an offshore wellhead. The conditioned natural gas stream is then piped aboard the CGL carrier in liquid form and stored in a bundled pipeline 42inch carbon steel containment system with a gas cargo volume of some 1.5 billion cubic feet, contained in 102 miles of coiled and bundled pipe. The CGL carrier offloads its cargo to a transmission barge, which simply expands and separates the gases.

SeaOne says its technology’s economics are favorable when applied to a gas field with 3 trillion cubic feet of reserves, delivering 3 Mt per year for 10 to 15 years using LNG Lite. For a 2,000mile supply chain employing 1.5 bcf CGL carriers about half a standardsize LNG carrier’s capacity, supported by one loading and one offloading barge, SeaOne estimates a total cost of $1.5 billion to $2 billion $0.75 to $1.00 per Mcf. Compare this to an LNG solution of $3.5 billion to $4 billion $1.75 to $2.00 per Mcf. SeaOne also claims that LNG Lite uses less than 60 percent of the energy needed by conventional LNG. Last year, the American Bureau of Shipping awarded ApprovalInPrinciple AIP to the LNG Lite concept vessel, but projects utilizing it are yet to be announced.

It is interesting to review how Flex LNG, only formed in 2006, has managed to jump ahead of its competitors. It placed orders for vessels more than a year ago and is now announcing partnerships along two supply chains. Its LNG Producer LNGP concept is a selfpropelled floating production storage and offloading vessel that combines several existing technologies, including the following.

• sloshingresistant SPB containment systems, retaining maximum deck space

• dual nitrogen turboexpander liquefaction technology

• proven LNG transfer technology

• marine loading arms

• proven shiptoship mooring system

Four LNG Producer hulls each with 170,000 cubic meters of capacity are on order with Samsung Heavy Industries in South Korea. The orders were placed from March 2007 to April 2008 and call for deliveries from December 2010 to March 2012. Each hull includes storage tanks, power generation, offloading equipment, accommodations, shipboard turret systems, and all utilities necessary to support installation of the 1.7 Mt per year topside. Flex LNG reports each will cost some $460 million.

The topside orders for the hulls have yet to be placed, but the design cost is expected to be from $550 to $700 per ton of liquefaction capacity. The topsides will consist of a generic liquefaction module and a fieldspecific feedgas processing module.

The vessels are designed to process some 230 million cubic feet of gas per day. When compared to onshore LNG facilities, FLNG vessels have several advantages.

• modularized

• easy startup and shutdown

• single phase, single component refrigerant

• low equipment count, with a small footprint

• no hydrocarbon refrigerants thus, improved safety

These benefits are well established, but come at the price of lower efficiency than mixed refrigerant processes. The SPB containment system, out of favor for many years in conventional LNG carriers, avoids both the sloshing issues posed by membrane storage tanks and the shortage of available deck space for processing equipment posed by spherical Mosstype tanks.

Mitsubishi’s involvement as an integrated equity partner with Flex LNG in its upstream projects which reportedly include robust longterm LNG offtake terms for 1.5 Mt per year, with prices indexed to oil and gas benchmarks should facilitate the equity and debt financing required for the Nigeria project to deliver its first cargo in 2011. Gas reserves from Nigeria’s Peak Oil project are expected to provide the required feed gas for some 15 years.

Suez: the supertanker super highway

Suez: the supertanker super highway

Monday, July 14, 2008

Frontline Says Fuel Costs May Spur Tankers to Slow

Frontline Says Fuel Costs May Spur Tankers to Slow
By Alaric Nightingale
July 14 (Bloomberg)

Frontline Ltd., the world's largest owner of supertankers, said a jump in fuel costs may spur owners to sail vessels more slowly to conserve energy, shrinking fleet supply and bolstering ship-rental rates.

The shipper and ``several major owners'' sailed 20 percent slower than normal toward the end of last year after ``low'' demand and record fuel costs hurt margins, according to a May 2 regulatory filing from the company. That cut fleet capacity by about 10 percent and was followed by the biggest two-month gain in freight rates in November and December for at least 16 years.

The possibility of slowing is ``soon again emerging,'' Jens Martin Jensen, Oslo-based interim chief executive officer of Frontline's management unit, said in an e-mail July 10. ``I believe all owners, including ourselves, are monitoring this on a daily basis.''

Supertankers, ships bigger than the Chrysler Building and designed to haul 2 million-barrel cargoes of crude, burn about 100 metric tons of marine fuel a day when sailing at full speed, according to Riverlake Shipping SA, Switzerland's biggest shipbroker. Marine fuel, or bunkers, advanced to a record $754.50 a ton in Singapore July 11, according to prices on Bloomberg.

Frontline fell 0.5 krone, or 0.2 percent, to 326.5 kroner ($64.25) as of 2:16 p.m. in Oslo trading, valuing the shipping line at 24.4 billion kroner. The shares earlier fell as much as 2 percent. The stock has gained 26 percent this year.

Supertanker owners trimmed about $20,000 from their daily fuel costs by slowing down last year, the May 2 filing said. Fuel now represents about 85 percent of daily costs, Jensen said.

Shipping Competitors

Frontline and its competitors sailed at about 12 knots last year, compared with 15 knots normally, according to the filing.

Supertankers are sailing close to their fastest speed for at least two months, according to data complied by Bloomberg.

The average VLCC is moving at 10.45 knots, 13 percent faster than on May 29 when they were traveling at 9.22 knots. The data include ships at anchor. Tanker rental rates are on course for a record year, earning about $107,000 a day, a Bloomberg survey of 13 analysts and brokers this month showed.

Sailing slower would help mitigate a fleet expansion that the International Energy Agency said July 1 will ``massively'' exceed growth in oil demand in the next two years.

Owners decided to slow down last ``autumn,'' Frontline Chief Financial Officer Inger Klemp said by phone July 10. The jump in ship-rental rates after that probably encouraged some to speed up again, she said.

Still, other owners may decide that current rental earnings are too good to sail slower, said Per Mansson, managing director of tanker broker Nor Ocean Stockholm AB.

``It won't happen,'' he said in an e-mailed note today. ``Owners cannot start giving away money in a market like this to improve things at a later stage.''

Tuesday, April 1, 2008

John Fredriksen

Billionaire Cashes In On Offshore Oil Rush

With Supply Scarce, His Rigs Are Hot;
$600,000 Day Rate

April 1, 2008

LONDON -- As a buccaneering oil trader, John Fredriksen shipped crude from trouble spots like Iran and used hardball tactics to build up the world's biggest tanker fleet. The son of a welder, this modern-day Onassis is now Norway's richest man, worth at least $7 billion.

He is also one of a new breed of entrepreneurs reshaping the oil business.

Mr. Fredriksen has amassed an array of state-of-the-art oil rigs capable of drilling in the world's deepest oceans. With production declining in mature basins like Alaska, the deep waters of the Gulf of Mexico and offshore Brazil and West Africa are oil's hottest real estate. But the rigs that can drill there are in short supply. That means contractors like Mr. Fredriksen can charge huge premiums for their services.

His success is part of a broader power shift from Big Oil -- the Shells, Exxons and BPs of the world -- to the oil-field-services sector. As they venture into ever harsher and more remote environments, the majors are becoming more reliant on these outside contractors -- geologists, well testers, seismic data experts and offshore drillers -- to find and extract their crude. The service companies are the new rule-setters in an increasingly costly game.

Helping to fuel their rise is a growing fear that the world's oil production may be about to plateau and decline. "Peak oil" anxiety has contributed to the steep increase in the price of crude, which has nearly tripled since 2004. Peak theory is now feeding into wider concerns that demand for all the world's resources -- not only oil but wheat, copper and other commodities -- is increasing faster than supply, creating new limits to global growth.

Mr. Fredriksen made an early bet many thought was insane. Three years ago, his company, Seadrill Ltd., broke one of the cardinal rules of the rig business. It ordered two "ultradeep water" rigs, capable of drilling in waters at a depth of at least 7,500 feet, for nearly $900 million -- on spec. It didn't have a single contract from an oil company to guarantee them.

"We didn't feel it was a risk," said Mr. Fredriksen, a 62-year-old with piercing blue eyes, elegantly attired in a blazer and cravat on a recent afternoon in his London office. "We knew there was a boom coming on."

There's no telling how long that boom will last. But Mr. Fredriksen sees years of strong demand ahead. The amount of oil pumped from deep-water fields will nearly double between 2005 and 2010 to about 11 million barrels a day, according to the U.S. Energy Information Administration. Douglas-Westwood, a consulting firm, says capital spending on deep-water oil will rise to $25 billion annually by 2012, nearly double the figure for 2003.

Yet there are only 39 rigs in the world capable of drilling in ultradeep water. Seadrill has four of them, with eight more under construction. While there are older companies that are bigger than Seadrill, few have such a modern fleet.

That gives Mr. Fredriksen enormous pricing power. His units are in such demand he can charge major oil companies nearly $600,000 a day to use them. Similar rigs were earning about $70,000 a day just five years ago. With leasing rates like these, a vessel that cost half a billion dollars to build can pay for itself in as little as four years.

The Oil Outsider

John Fredriksen was born in a working-class Oslo suburb in 1944. His humble background set him apart from Norway's blue-blooded shipping aristocracy -- men like Sigval Bergesen and Anders August Jahre, the Nordic equivalent of the Vanderbilts and Rockefellers. They, along with the tycoons of Greece and Hong Kong controlled the world of international shipping in the postwar years. "There was an Ivy League of shipowners -- the founding fathers of the business," says Boris Nachamkin, one of Mr. Fredriksen's first bankers. "He was the outsider."

His first job was as a shipping broker, running cargoes of fish from Iceland to Hamburg, Germany. After brief stints in Canada and New York, he moved to Beirut in the late 1960s. There he shipped crude out of Saudi Arabia and Iraq and sent back cargoes of refined products. He soon developed a firm grasp of the oil trade. "He knows how oil moves, who gets it when it's tight and when it's flowing quickly," says Morten Arntzen, another of Mr. Fredriksen's former bankers and later a business partner.

By the mid-1970s, shipping was in deep trouble. The 1973 Arab-Israeli war sent oil prices into orbit. Fuel consumption plummeted in the West, and demand for long-haul tankers collapsed. Many venerable shipping companies went bust in the slump and Norway's fjords were full of empty tankers. Mr. Fredriksen sensed an opportunity. He started leasing cheap ships and later buying many of them outright.

In the 1980s, Mr. Fredriksen was one of the few traders exporting Iranian oil during the Iran-Iraq war, shuttling tankers through the Persian Gulf from Kharg Island, a big oil terminal that was repeatedly targeted by Saddam Hussein's air force. Mr. Fredriksen says his tankers were hit three times by Iraqi missiles.

A noted reveler, he would often hold court throughout the 1980s at Oslo's fashionable Theatre Café. Locals nicknamed his regular table there Kharg Island.

"When he was traveling, he needed three brokers with him -- one recovering from the night before, one on duty and the other preparing for the next day," says Clarence Dybeck, a fellow shipowner from Sweden. "He had a tremendous capacity for work."

In the world of Norwegian business, he tended to keep a low profile. He never admitted to owning any ships, claiming instead to be acting on behalf of a group of unnamed investors. That was common in the industry, where shipowners could be held liable for wrecks and oil spills, says fellow Norwegian Tor Olav Troim, vice chairman of Frontline, Mr. Fredriksen's shipping company.

"I was more secretive" in those days, says Mr. Fredriksen. Domestic critics denounced him for shipping oil to South Africa, in defiance of the apartheid-era trade embargo. He says all Norwegian shipping firms did it.

In 1985, he moved to Cyprus, lured by lower taxes and the island's reputation as a shipping center. "It's almost impossible to do business in Norway today," he says, citing the tax regime and frequent regulatory changes. In 1986, the Norwegian authorities charged him with fraud, alleging that his tankers were found to have used customers' cargoes for fuel. Police raided his offices in Oslo, and he turned himself in a few days later. The main charges were later dropped and he paid a fine on a lesser charge. But the affair still rankles: It was motivated by "jealousy" of his success, he says.

Mr. Fredriksen's penchant for secrecy changed in 1996 when he bought Frontline, a publicly listed Swedish shipping company. It soon grew into a giant, and a key force in the consolidation of the fragmented shipping business. In 1996 he owned seven tankers. By 2001, Frontline had 70. The company today has the world's biggest tanker fleet, with 86 vessels.

Hardball Tactics

A year after he bought Frontline, he launched a hostile takeover bid for ICB Shipping, a Swedish tanker firm. His methods -- full-page ads in local newspapers, angry letters to ICB board members, pressuring shareholders -- shocked some Swedes. "No one had seen those sort of tactics before in Sweden," says Clarence Dybeck, the then head of ICB. "He could be quite brutal." After a grueling two-year battle, he finally won control of the company.

Mr. Fredriksen was meanwhile benefiting from big changes in the oil-shipping industry. After notorious oil spills like the Erika, a tanker which broke up off the coast of France in 1999, oil companies stopped chartering dangerous single-hull tankers. Such ships have a single outer shell between the oil and the ocean; double-hull tankers, which have an extra space between hull and storage tank, are considered safer. Shipowners who had invested in double-hulls cleaned up. John Fredriksen was one of them.

The tanker business was also coming out of its slump. Fields close to the big oil-consuming countries -- in the North Sea, Alaska and Mexico -- were declining. Crude was increasingly coming from faraway places like West Africa and the Middle East. China and India were emerging as major oil importers. Long-haul tankers were back in vogue. With his expanded fleet, Mr. Fredriksen cashed in on a freight market that was entering a new golden age. By 2001, the chartering rates paid by the oil companies to ship crude around the globe were the highest they had been in 30 years.

Already a billionaire, in 2002 he bought the Old Rectory, a mansion in London's ritzy Chelsea district, from the Greek shipping family of Theodore Angelopoulos, for £38 million (at the time, about $57 million), one of the highest prices ever paid for a London home. The house has a rich history: The Battle of Waterloo was planned in its garden.

He also continued to diversify. He currently has stakes in dozens of businesses, from shipping to fish farming to oil trading. His empire includes "dry bulk" ships, those that carry things like coal, steel and grain, as well as liquefied-natural-gas carriers and tugboats that supply offshore oil platforms. His company Marine Harvest is the world's biggest producer of farmed salmon. Among other investments: Aktiv Kapital, a buyer of distressed consumer debt, and Arcadia Petroleum, a big crude-oil trading firm.

A Big Rig Bet

One of his boldest moves, in terms of startup costs and the risk of failure, was into the drilling business. As oil prices began their ascent in 2003, contractors were putting in big orders for mobile drilling platforms that operate in shallow waters. But Mr. Fredriksen says his contacts in Asian shipyards told him the majors weren't investing enough in deep-water rigs.

Yet deep-water drilling's potential was clear: Offshore Angola, some companies drilling for crude had an unprecedented 95% "hit" rate, says Mr. Troim. Messrs. Fredriksen and Troim started ordering semisubmersibles, or "semis" -- one of the most advanced kind of floating rigs. In June 2005, a month after taking the newly created Seadrill public, they commissioned two semis, one for $394 million and another for $490 million. "Everyone was laughing at us at the beginning," says Mr. Troim. "We were Mr. Nobody."

Larger than a football field, semis are floating vessels, supported by big pontoonlike structures submerged below the sea surface, that can operate in waters up to 10,000 feet deep. Dynamic positioning -- a computer-controlled thruster system fed by data from satellites and transponders located on the seabed -- keeps them in place directly above the oil well. The price tag for such a vessel is now around $655 million.

Seadrill expanded aggressively, ordering new rigs and swallowing up competitors in a flurry of deal making. Its market value has grown from $200 million when it listed in 2005 to $10.5 billion today.

"Fredriksen and Troim move very fast," says Odd Harald Hauge, a Norwegian journalist who has written two books on Mr. Fredriksen. "They do deals on napkins."

A Wave of Mergers

One of their most daring acquisitions was of Smedvig ASA, a big Norwegian driller, in January 2006. Noble Corp., a U.S. rival, had taken a 30% stake in the company, but Seadrill snapped up shares and eventually forced Noble to sell out. "We bought that in a taxi in Seoul," says Mr. Fredriksen.

The revved-up drilling sector was being swept by merger fever. In July 2007, Transocean Inc. and GlobalSantaFe Corp., the world's two biggest offshore-drilling contractors by market value, agreed to an $18 billion merger. Seadrill itself has often been touted as a potential takeover target by a more established U.S. or Asian driller. Mr. Troim said it approached some U.S. rivals about a tie-up in 2006, but the talks went nowhere.

A merger would help solve one of Seadrill's key problems -- a lack of staff, especially engineers and drill operators who are in short supply. Seadrill has tried to deal with that by aggressively poaching managers and crews from its peers. The company recently hired one of Transocean's top executives to run its Houston office.

There are some worries the sector's boom may be unsustainable. Analysts fret that contractors may have ordered too many rigs, which will lead to overcapacity and a collapse in day rates. But others say high oil prices, which underpin the business, will stay lofty for years to come, and that with many rigs contracted out well into the next decade, the deep-water drillers have a bright future.

For the time being, the majors are in a bind. In the 1990s, when oil slumped to $10 a barrel, they aggressively cut costs, shed jobs and divested themselves of assets. When oil prices recovered, they often lacked personnel and equipment and were forced to outsource a lot of the work of drilling and extracting crude.

Some of the majors are now resorting to building their own, cheaper rigs. Royal Dutch Shell PLC has designed a new class of drilling vessel, the bully rig, which it says is suitable for both deep-water and arctic conditions and will cost 20% less to lease than the competition. But it will only take delivery of the first two in 2010.

Mr. Troim was recently in Houston meeting with potential customers: One person familiar with the talks said oil executives came away shaken by the sky-high rates Mr. Troim was demanding -- up to $600,000 a day. Mr. Troim says Seadrill's charges are typical for the industry, and the market can bear them. "It's been fun to see a company grow from two men and a dog to being a major player in this market," says Mr. Troim. "More fun than making money."

Write to Guy Chazan at

Monday, March 24, 2008

Oman to Spend $4 Billion on Shipping Fleet

Oman to spend $4bn on shipping fleet
by Luke Pachymuthu
Monday, 24 March 2008

Oman's state shipping firm will spend up to $4 billion in the next three to four years to expand its fleet size, a senior company official said, part of the sultanate's efforts to upgrade its oil industry.

Oman Shipping Company (OSC) is looking to grow its fleet mainly to meet demand for energy transportation, Chief Financial Officer (CFO) Kuldeep Mathur told newswire Reuters in a recent phone interview.

"We are expanding the fleet with a view of the future demands for our export grade crudes and products," he said.

Part of OSC's multi-billion dollar expansion includes a recent order to build 10 Very Large Crude Carriers (VLCCs), Mathur said.

In February, OSC placed two separate orders with South Korea's Hyundai Heavy Industries Company, the world's largest shipbuilder, to build five supertankers, and with Daewoo Shipbuilding and Marine Engineering Company to build another five VLCC's. The deals were valued at about $770 million each.

OSC is in discussions with the National Iranian Tanker Company (NITC) on securing a long-term charter contract for at least five of the recently ordered supertankers, Mathur said.

"Yes, we are discussing the option with them, along with others, but we are not decided yet," Mathur said declining to offer details.

International pressure and the implementation of broad-based sanctions on Iran, led by the US, have made it difficult for the Islamic republic to access funding from financial institutions.

"Sleeving through Oman would make sense, because it allows for Iran to get around the issue of financing," said a Singapore-based sales and purchase shipping broker, referring to the practice when one firm with limited credit uses another with better credit to do a trade on its behalf for a fee.

NITC was not immediately available for comment.

The expansion planned by OSC, whose stakeholders are the Ministry of Finance and Oman Oil Company, is part of the sultanate's broader vision to upgrade its shipping and chartering sector and depend less on leased vessels.

Oman, like other Gulf states, is also trying to diversify its economy away from oil, which generates almost half its gross domestic product but is seeing declining production.

OSC boasts a current fleet size of seven liquefied natural gas (LNG) tankers and two clean tankers, with four oil tankers including a VLCC and Very Large Gas Carrier on the order book.

The CFO said part of the expansion plan included growing the company's clean tanker fleet, by adding between 15 and 20 refined product tankers.

"We are looking at new and considering buying second-hand clean product tankers as well... we have certain refineries in Oman and taking position on this to provide employment prospects for these vessels," Mathur said, without giving details.

Oman, which operates two refineries - Oman Refinery Company and Sohar Refinery Company with a combined capacity of more than 225,000 barrels per day (bpd) - is planning a third facility of about 300,000 bpd at the southeastern city of Al-Duqm.

The proposed refinery, part of the Duqm Refining and Petrochemical Complex and is due for completion in 2012, will have a significant refined product export slate, sources familiar with the project said.

"We should see more potential for export of light distillate products like naphtha and gasoline to support growing regional demand," Mathur said.

Financing for the company's fleet expansion could likely come via loan arrangements from the North Asian institutions, Japan Bank for International Cooperation, Korea Export Insurance Corporation (KEIC), or European banks BNP Paribas and Societe Generale, Mathur said.

"We have a very good relationship with several banks, and could look to either one to finance our expansion plans," he added.

He said the expansion would include some general cargo and multi-purpose vessels. The firm now operates two Supramax bulk vessels. (Reuters)

Tuesday, January 22, 2008

Baltic Dirty Tanker Index

Baltic Dirty Tanker Index, BDTI, chart, graph

Sunday, January 20, 2008

Double Hull (DHT) Shares Rise on Upgrade

Shares of Double Hull Tankers Rise After Analyst Suggests Stock Is Undervalued
January 18th, 2007

NEW YORK (AP) -- Shares of Double Hull Tankers Inc., which owns and operates a fleet of crude oil tankers, soared Friday after a Citi analyst raised the stock to "Buy," citing its improved value following steep sell off.

Analyst John Kartsonas said that despite his negative expectations for the tanker market in the next several years, Double Hull's current share value provides a buying opportunity for investors.

He noted that the company's recent implementation of a fixed quarterly dividend provides steady benefits for investors as well, despite some investors frowning over the new 25 cent-per-share dividend as a cut from previous quarters.

Quarterly dividends ranged between 37 cents a share and 44 cents a share in 2007.

"Management's decision to reduce the dividend might have upset some investors, but the reality is that longer term it should prove to be a wise decision -- a company cannot pay dividends that are well above earnings and rely purely on the equity markets for growth," Kartsonas said in a note to clients. "Given the importance of dividends in the shipping world, we believe investors will continue to view Double Hull as a dividend provider but this time with the additional benefit of growth."

He raised his estimates for 2008, citing stronger-than-expected first-quarter vessel rates and newly-acquired carriers.

However, lowered his 12-month price target to $12 from $14, saying he expects higher costs in 2008. He also lowered his 2009 estimates on lower expected vessel rates.

Shares of Double Hull rose 90 cents, or 9.5 percent, to $10.40 Friday. The stock has ranged between $9.32 and $18.79 in the past 12 months.

Thursday, January 17, 2008

Bloomberg Roundup

Asian Aframax Rates Fall Most in Two Years as Charters Decline
By Katherine Espina
Jan. 9 (Bloomberg)

Asian aframax hiring rates fell the most in two years as chartering demand slowed following a pick- up in hiring before the Christmas holidays and the Northern Hemisphere winter.

The rate to transport 80,000 metric tons of fuel from Kuwait to Singapore dropped 6.9 percent to Worldscale 220.42 yesterday, according to the London-based Baltic Exchange. That's the biggest one-day decline since Jan. 3, 2006.

Aframax rates on the Middle East-Singapore route have fallen 25 percent since the end of last year. Shipping a ton of fuel on the route costs $22.43, based on Bloomberg data.

``The build-up of tonnage is the main concern, and a substantial boost in enquiry levels is needed to turn things around,'' Oslo-based analysts Henrik With and Glenn Lodden at DnB NOR Markets, said in their weekly report. ``Sentiment for suezmaxes and aframaxes is quite muted.'' A suezmax can move one million barrels of oil.

The demand for supertankers, also known as very large crude carriers or VLCCs, will influence the market for aframaxes, according to Matsui & Co.'s Katsunori Nishikawa, general manager for chartering at the Tokyo-based company's shipbroking division.

Freight rates for supertankers on the benchmark Persian Gulf-to-Japan route have fallen 31 percent since end-2007, according to data on the Baltic Exchange. Rates on the route slumped 16.5 percent to Worldscale 191.47 yesterday, according to data on the Baltic Exchange.

Two aframaxes, capable of moving a total of 211,778 tons of cargo, are so far scheduled to arrive in Singapore next week. That compares with five aframaxes with a combined capacity of 538,257 tons arriving in the city state this week, according to Bloomberg data.

Persian Gulf Tanker Rates May Fall as Owners' Confidence Wanes
By Alaric Nightingale
Jan. 10 (Bloomberg)

The cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, may fall for an 11th trading day as an increase in ship supply undermines owners' confidence.

The benchmark hire rate for very large crude carriers, or VLCCs, sailing to Asia climbed at the fastest pace in at least 16 years in November and December, prompting oil companies to withhold cargoes to temper the gains. The key rental price has dropped every day since Dec. 19, the Baltic Exchange data showed.

``It's dropping in the way that it came up,'' Nikos Varvaropoulos, an Athens-based broker at Optima Shipbrokers, said by phone today. ``Every charterer is trying to fix lower and lower and lower. It's a matter of mentality.''

Chevron Corp., the second-largest U.S. oil company, hired the tanker Astro Chorus at a rate of 175 Worldscale points, according to a report today from Paris-based shipbroker Barry Rogliano Salles. That's 0.6 percent higher than the London-based Baltic Exchange's benchmark rate of 173.91 points.

Astro Chorus, built in 2001, is fitted with two steel hulls to cut the risk of an oil spill. Supply of cheaper-to-hire single-hulled tankers is ``very good,'' said Varvaropoulos. The exchange's key assessment, which is for vessels up to 15 years old, takes into account both vessel types.

There are 115 modern two-hulled tankers available for hire within the next 30 days, according to the report from Barry Rogliano Salles. There were 111 yesterday.

Booking Ships

Still, refineries have yet to begin booking the ships they need to load in February and there are about 30 outstanding cargoes for January. By this time last month, all of December's Middle East cargoes had been assigned to tankers.

Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in U.S. dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.

Each flat-rate assessment gives owners and oil companies a starting point for negotiating hire rates without having to calculate the value of each deal from scratch.

At 173.91 Worldscale points, owners of double-hulled very large crude carriers, or VLCCs, can earn about $141,763 a day on a 39-day round trip from Saudi Arabia to South Korea, based on a formula by R.S. Platou, an Oslo-based shipbroker, and marine fuel prices for Fujairah compiled by Bloomberg.

Asian Aframax Charter Rates Fall an Eighth Day on Tanker Supply
By Katherine Espina
Jan. 11 (Bloomberg)

Asian aframax hiring rates fell for an eighth day to the lowest in six weeks as slowing demand for bigger tankers trickled down to smaller vessels.

The rate to transport 80,000 metric tons of fuel on an aframax tanker from Kuwait to Singapore dropped 3.9 percent to Worldscale 183.75 yesterday, bringing the decline so far this week to 26 percent, according to the London-based Baltic Exchange. The rate is the lowest since Nov. 28. Shipping a ton of fuel on the route costs $19.94, based on Bloomberg data.

Aframax rates on the Middle East-Singapore route have slumped 33 percent since the start of this year as chartering demand slowed following a rush in hiring before the Christmas holidays and the Northern Hemisphere winter. Charter rates for supertankers, which can carry two million barrels of oil, on the Middle East-Japan route have plunged 34 percent 10 days into the new year because of an increase in the supply of ships.

``The market sentiment in the very large crude carrier market is weak and it's affecting aframaxes and suezmaxes,'' according to Takeshi Ando at the tanker team of shipbroker Matsui & Co. in Tokyo. A suezmax can move one million barrels of oil.

The rate on the benchmark Persian Gulf-to-Japan route declined 4 percent to Worldscale 166.88 yesterday, according to data on the Baltic Exchange.

The market's main concern is the ``build-up of tonnage'' and only a substantial rise in demand will turn rates around, according to Oslo-based analysts Henrik With and Glenn Lodden at DnB NOR Markets, in their weekly report.

Persian Gulf Oil-Tanker Rates May Decline on Canceled Bookings
By Alaric Nightingale
Jan. 11 (Bloomberg)

The cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, may fall for a 12th day on signs oil companies are canceling bookings and waiting for the market to drop.

Companies provisionally hire ships subject to port approvals and other conditions. It can take between one day and one week for an oil company to commit irrevocably to a ship rental and it costs nothing to cancel a conditional booking.

Oil companies are ``just fixing and failing and fixing and failing,'' Per Mansson, a tanker broker at Nor Ocean Stockholm AB, said by phone today. ``They make a deal, wake up the next morning, see the market is lower, and fail it.''

Chartering officials withheld cargoes since the end of 2007 to temper the fastest gain in tanker rates in at least 16 years in November and December on the benchmark voyage between the Middle East and Asia. That may have created a backlog of cargoes that will curb further declines, according to Mansson.

No new tanker bookings were reported today by shipbrokers. The London-based Baltic Exchange's benchmark assessment for voyages to Asia fell 4 percent to 166.88 Worldscale points yesterday, almost half the level it reached on Dec. 18.

There are 114 modern tankers available for hire within the next 30 days, according to a report today from Paris-based Barry Rogliano Salles. Yesterday there were 115.

Persian Gulf Tanker Rates May Drop Amid U.S. Recession Concern
By Alaric Nightingale
Jan. 15 (Bloomberg)

The cost of shipping Middle East crude to Asia, the world's busiest route for supertankers, may extend 13 days of declines on concern that U.S. demand for oil will drop.

Goldman Sachs Group Inc. joined Merrill Lynch & Co. last week in estimating that the world's largest economy may already be in a recession. That will curb energy demand, Boone Pickens, chairman of Dallas-based hedge fund BP Capital LLC, said yesterday.

``Traders will disappear and oil companies will run their refineries with less output'' in a recession, Per Mansson, a tanker broker at Nor Ocean Stockholm AB, said in an e-mailed note today. The number of tankers booked has been ``much less'' than normal, a sign oil demand may already be waning, he said.

China International United Petroleum & Chemical Corp., or Unipec, hired the tanker Hyundai Star at a rate of 125 Worldscale points, according to a report today from Paris-based shipbroker Barry Rogliano Salles. That's 16 percent below the London-based Baltic Exchange's benchmark rate of 148.44 points for voyages to Asia.

Hyundai Star, built in 1995, probably cost less to hire than the benchmark because it's fitted with one steel hull separating its cargo from the ocean. The exchange assessment also includes bookings of double-hull vessels that cut the risk of an oil spill.

Asian Aframax Charter Rates May Extend Decline on Vessel Supply
By Katherine Espina
Jan. 16 (Bloomberg)

Asian aframax charter rates may extend declines after falling for an 11th day as a dearth of cargoes causes a surplus of tankers.

The rate to transport 80,000 metric tons of fuel on an aframax tanker from Kuwait to Singapore dropped 0.71 percent to Worldscale 174.17 yesterday, according to the London-based Baltic Exchange. Shipping a ton of fuel on the route costs $17.45, based on data compiled by Bloomberg.

``There's a lack of activities and I don't see any indication that the market has hit bottom,'' according to Matsui & Co.'s Katsunori Nishikawa, general manager for chartering at the Tokyo-based company's shipbroking division. ``We see more declines as very large crude carrier rates are down as well.''

Aframax rates on the Middle East-Singapore route have Slumped 36 percent this month as chartering demand slowed following a rush in hiring before the Christmas holidays and the Northern Hemisphere winter. Charter rates for supertankers, which can carry 2 million barrels of oil, on the benchmark Middle East-Japan route have plunged 55 percent in the past 14 days, influencing fees for smaller tankers.

The rate to hire a supertanker, also known as a very large crude carrier, on the benchmark Persian Gulf-to-Japan route declined 2.2 percent to Worldscale 145.16 yesterday, according to the Baltic Exchange data. That's the lowest since Nov. 26.

`Bloated Pool'

``Shipowners do not have the best bargaining position currently,'' Oslo-based Henrik With and Glenn Lodden at DnB NOR Markets wrote in their weekly report. While demand may rise because of February cargoes, there is a ``bloated pool'' of supertankers, suezmaxes and aframaxes, With and Lodden said.

A suezmax can transport 1 million barrels of oil while an aframax can move 650,000 barrels.

Still, tanker demand usually rises ahead of the week-long Chinese Lunar New Year celebrations in February, shipbrokers said.

``I do hope there will be more activities as usually before the Chinese New Year, charterers would cover their forward positions, but it seems that fuel oil demand from China is not that much,'' Nishikawa said by phone from Tokyo.

China, the world's biggest oil user after the U.S., imported 14 percent less fuel oil last year, with shipments dropping to 24 million tons, according to preliminary data from the Beijing-based Customs General Administration yesterday.

Persian Gulf Tanker Rates May Drop as Owners Vie for Cargoes
By Alaric Nightingale
Jan. 17 (Bloomberg)

-- The cost of shipping Middle East crude to Asia, the world's busiest route for supertankers, may drop for a 15th day after shipowners with vessels for hire in January failed to find cargoes.

There are 34 very large crude carriers, or VLCCs, still seeking cargoes to load in January compared with 10 to 15 outstanding consignments, Paris-based shipbroker Barry Rogliano Salles said in a report today.

``You have owners that are open in January and they will look at February dates,'' Mathieu Philippe, a tanker broker at Barry Rogliano Salles, said by phone today. The decline in rates will probably halt next week, he said.

VLCC rates to Asia plunged 59 percent since December as oil companies withheld cargoes to halt the fastest gains in prices for at least 16 years. The International Energy Agency yesterday cut its forecast for first-quarter global crude demand by 100,000 barrels a day, citing warmer-than-normal U.S. weather.

CPC Corp., Taiwan's state oil refiner, hired the tanker Grand Lady at a rate of 83.5 Worldscale points for a voyage to Asia. That's 36 percent below the London-based Baltic Exchange's benchmark assessment of 130.78 points for voyages to Asia.

The rental rate is lower than the Baltic Exchange's assessment because Grand Lady is fitted with a single hull and because its owners chose to send the vessel to Asia so that it could be converted into an iron-ore carrier, Philippe said. The Baltic Exchange also takes into account prices of double-hull tankers that cut the risk of an oil spill.

Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in U.S. dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.

Hire Rates

Each flat rate assessment gives owners and oil companies a starting point for negotiating hire rates without having to calculate the value of each deal from scratch.

At 130.78 Worldscale points, owners of double-hulled very large crude carriers, or VLCCs, can earn about $100,854 a day on a 39-day round trip from Saudi Arabia to South Korea, based on a formula by R.S. Platou, an Oslo-based shipbroker, and Bloomberg marine fuel prices.

Monday, January 7, 2008

Gulf rates could drop as tankers chase cargoes

Gulf rates could drop as tankers chase cargoes
Published: January 07, 2008, 00:29

Oslo: The cost of shipping Middle East crude to Asia, the world's busiest route for supertankers, may fall for a seventh trading day as ships that are available for hire within the next several days compete on price for cargoes.

Refineries have hired ships for more than half of January's expected cargoes, according to an e-mailed report from Paris- based Barry Rogliano Salles.

At the same time, some owners failed to find cargoes at near-record rental rates and may now compete on price to haul the consignments, Mathieu Philippe, a Dubai-based broker for the company, said by phone.

"The only problem is vessels that are going to be open within 10 days are going to be cheap," he said.

"If they don't fix now, they are going to have to swallow a lot of waiting time" earning nothing. Once those carriers have found cargoes, Phillipe said he expects rental rates to rally again.

Very large crude carrier, or VLCC, rates soared in November and December after Opec increased crude oil production and amid signs Japanese refineries may have hired extra vessels to replenish stockpiles that were near their lowest in 20 years.

Royal Dutch Shell Plc, Europe's biggest oil company, hired the tanker Irene SL at a rate of 280 Worldscale points, according to Barry Rogliano.

Discharge options

That's 11 per cent above the London-based Baltic Exchange's benchmark assessment of 250.63 points for shipments to Asia.

The booking may have cost more than the benchmark because Shell took out alternative discharge options, including to the Red Sea.

Increased discharge options, especially when they include shorter-distance voyages such as to the Red Sea, normally cost more because owners can't plan follow-up voyages.

Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes.

Flat rates for every voyage, quoted in US dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.

Each flat-rate assessment gives owners and oil companies a starting point for negotiating hire rates without having to calculate the value of each deal from scratch.

At 250.63 Worldscale points, owners of double-hulled VLCCs, can earn about $223,319 a day on a 39-day round trip from Saudi Arabia to South Korea, based on a formula by R.S. Platou, an Oslo-based shipbroker, and Bloomberg marine fuel prices.

Friday, December 21, 2007

Persian Gulf Tanker Rates May Drop

Persian Gulf Tanker Rates May Drop as Refineries Delay Cargoes
By Alaric Nightingale
Dec. 20 (Bloomberg)

The cost of shipping Middle East crude to Asia, the world's busiest market for supertankers, may drop as oil companies resist paying record prices to hire ships.

Very large crude carriers, or VLCCs, are making about $300,000 a day on benchmark international trade routes to Asia, according to prices compiled by Bloomberg. In 2004, the previous record year, they made $290,000 a day, according to London-based shipbroker Galbraith's Ltd.

Charterers who hire ships for oil companies may now be ``holding back if possible for fear of paying too much,'' Charlie Fowle, a director at the company, said in an e-mailed note today.

Sinochem Corp., China's biggest chemicals trader, hired the tanker C. Champion at a rate of 285 Worldscale points, according to a report today from Oslo-based shipbroker PF Bassoe AS. That's 10 percent below the London-based Baltic Exchange's benchmark rate of 317.66 points for voyages to Asia.

Higher Rates

Flat rates for ships loading next year are higher than those in 2007 because of record refueling costs. The Baltic Exchange's assessments reflect 2007 flat rates until the end of the year.

At 317.66 Worldscale points, owners of double-hulled very large crude carriers, or VLCCs, can earn about $297,0777 a day on a 39-day round trip from Saudi Arabia to South Korea, based on a formula by R.S. Platou, an Oslo-based shipbroker, and Bloomberg marine fuel prices.

That means costs for Japanese refineries fell 0.4 percent to $7.42 a barrel from $7.45 a barrel on Dec. 18.

There are 23 modern two-hulled tankers available for hire within the next 30 days, according to a report today from Paris- based Barry Rogliano Salles. There were 40 such ships competing for cargoes two months ago, according to the shipbroker.

Friday, December 14, 2007

Hebei Spirit

South Korea Battles Biggest Oil Spill in 4 1/2 Years
By Sungwoo Park and Bomi Lim
Dec. 7 (Bloomberg)

South Korea battled to contain the world's biggest oil spill in 4 1/2 years after a supertanker collided with a barge near Hyundai Oilbank Co.'s refinery on the nation's west coast.

The collision caused three holes on the ship's side and 10,500 metric tons (78,750 barrels) of crude oil was spilled, the Ministry of Maritime Affairs and Fisheries said in a statement today. The Hebei Spirit has stopped leaking and the slick is 7.4 kilometers (4.6 miles) long and 2 kilometers wide, it said.

Hebei Spirit is fitted with one hull, according to Lloyd's Register-Fairplay, which assigns ship-registration numbers. An international ban on such ships is due to start in 2010. Modern tankers are fitted with two hulls to cut the risk of an oil spill and are usually more expensive to hire.

South Korean oil companies are probably the world's ``biggest users'' of single-hull tankers, Per Mansson, a tanker broker at Nor Ocean Stockholm AB, said in an e-mailed note today. ``This might change policies in Korea and that would be tremendous for the market.''

The government will form a committee comprising oil-spill experts and seek help from residents of nearby regions to contain the slick, according to the statement. The vessel held 263,000 tons of crude oil and there were no casualties, it said.

The spill is the worst in South Korea's history and the biggest anywhere since the Tasman Spirit leaked about 27,000 tons of oil at the port of Karachi in Pakistan in July 2003, Tim Wadsworth, technical support manager for the International Tanker Owners Pollution Federation Ltd. in London, said by phone.

Barge Crashes

The oil leaked after a crane on the barge crashed into the Hebei Spirit at 7:15 a.m. local time, said Jeong Seong Mun, deputy director at the ministry's safety information center. The barge, owned by Samsung Heavy Industries Co., suffered minor damage, the ministry said in an earlier statement.

The leak is almost a third of the 37,000 tons spilled into Prince William Sound, Alaska, by the Exxon Valdez in 1989, according to data on the International Tanker Owners Pollution Federation's Web site.

Today's spill surpasses a 1995 accident in South Korean waters, when 5,000 tons of oil leaked at Yeosu, 455 kilometers south of Seoul. The country mobilized 166,905 people, 8,295 boats and 45 aircraft to contain the spill, which resulted in 9.6 billion won ($104 million) of economic losses, the ministry said in a statement.

The government has sent 30 patrol boats, 4 helicopters and 10 oil-spill control vessels to the site of the latest spill and is yet to assess its economic impact, said Lee Woo Sung, an official at the ministry.

Natural Resources

The environment ministry is studying what damage the spill may have caused, Cho Gyu Won, an assistant director at the ministry's natural resources division, said from Gwacheon, near Seoul.

The tanker was carrying crude oil for Hyundai Oilbank's refinery at Daesan, Kim Sung Yong, a spokesman for the company, said by telephone. South Korea's fourth-biggest oil refiner may reduce processing at its 390,000 barrels-a-day Daesan plant following the spill, said company officials who asked not to be identified.

Hyundai Oilbank's Kim said the crude-oil processing rate at the refinery remains unchanged at about 80 percent of capacity. The company is using its stockpiles and will ask state-run Korea National Oil Corp. for an emergency supply, if needed, he said.

The very large crude carrier, or VLCC, capable of carrying more than 2 million barrels of oil, is registered to Hong Kong- based Hebei Ocean Shipping Co., according to data compiled by Bloomberg. A man who answered the phone at the company's office wouldn't comment and declined to identify himself.

Single Hull

Of the eight VLCCs listed on Hebei Ocean's Web site, at least six are fitted with a single hull, according to the Lloyd's Register-Fairplay database.

The accident led owners of double-hull tankers to raise prices for leasing the vessels by 15 percent compared with benchmark prices yesterday, Charlie Fowle, a director at London- based shipbroker Galbraith's Ltd., said by phone today.

Contracts called forward freight agreements that indicate the future cost of shipping oil jumped by as much as 8 percent, according to Ben Goggin, head of tanker FFAs at broker London- based SSY Futures Ltd.

Teekay's Spin-Offs

Teekay Tankers' Taste of Success
Ruthie Ackerman

Teekay Corp. thinks the whole is less than the sum of its parts.

The energy-based maritime conglomerate has spun off yet another one of its major operations. On its first day of trading Thursday, shares in Teekay Tankers (nyse: TNK) gained 4.0%, or 78 cents, to $20.28. Its initial public offering price of $19.50 per share was at the high end of the anticipated range.

The offering was of a 40% interest in Teekay Tankers; parent Teekay Corp. (nyse: TK) is retaining 60%.

Teekay also has spun off Teekay Offshore Partners (nyse: TOO), which specializes in fleets for storage of oil for offshore units, and Teekay LNG Partners (nyse: TGP), which operates vessels that carry liquified natural gas.

Since it began its spin-off program in May 2005, Teekay stock is up 28.5%. Teekay LNG is up 33.0% since it came public in May 2005, and Teekay Offshore has risen 20.2% since its debut in December 2006. By contrast, an index of energy-transport companies compiled by Revere Data has increased only about 11% since May 2005.

Charles W. Rupinski, an analyst at Maxim Group, said Teekay's tanker business is its most volatile one, and management probably thought it was dragging down the valuation of the company as a whole.

Even though spot rates are very high right now and Teekay has a lot of spot exposure, going forward the tanker business is facing many challenges and investors are likely to be cautious, Rupinski said.

Indeed, although the offering did well, investors put a significantly lower value on the spin-off than the parent. Using the pro forma earnings for last year provided by the Teekay Tankers offering document, the spin-off was valued at 9.2 times last year's income while the parent fetched 12.7 times last year's reported profit. The spin-off is planning to return a high proportion of its earnings to shareholders by way of dividends.

Teekay Tankers is getting nine double-hull Aframax-class tankers, which will be used for spot charters and short- or medium-term fixed-rate time-charter contracts. At the end of June, the ships, whose name derives from the acronym for average freight rate assessment and which are smaller than the oil supertankers that cannot make it into some harbors and canals, were worth about $275 million

Teekay Tankers raised about $180.8 million from the IPO after expenses and commissions. The proceeds will be used to partially repay Teekay for the inital fleet.

In addition, Teekay will give Teekay Tankers the opportunity to purchase up to to four Suez-max class tankers within 18 months. These ships are built to fit through the Suez Canal.

Wednesday, December 12, 2007

Asian Aframax Rate Gains Most Since 2005

Asian Aframax Rate Gains Most Since Feb. 2005 on Yearend Demand
By Katherine Espina
Dec. 12 (Bloomberg)

Asian aframax rates rose the most in two years and nine months, benefiting from higher costs for chartering bigger tankers and boosted by increased shipments for January ahead of the yearend holidays.

The rate to transport 80,000 metric tons of fuel from Kuwait to Singapore jumped 12 percent yesterday to Worldscale 233.75, according to the London-based Baltic Exchange. The gain is the biggest since Feb. 23, 2005, when the rate rose 16 percent. Shipping a ton of fuel on the route costs $19.94, based on Bloomberg data.

Hiring rates of supertankers, also known as very large crude carriers or VLCCs, on the Middle East to Far East routes have risen almost four percent since November, prompting charterers to split cargoes so smaller ships like suezmaxes and aframaxes can move them. Supertanker rates may extend gains after an oil spill in South Korea last week involving a single- hull vessel increased speculation of more demand for two-hull tankers.

``There is a knock-on effect from VLCC rates rising,'' Takeshi Ando at the tanker team of shipbroker Matsui & Co. in Tokyo said. ``Aframax owners don't like to offer below VLCC rates so I expect this sector will still go up,'' Ando said by phone.

The hiring rate for a supertanker on the Middle East-Japan route rose 5.5 percent yesterday to Worldscale 227.19, advancing more than fourfold since the start of the year, according to the Baltic Exchange's data. A supertanker on the Middle East-Singapore route gained 5.6 percent to Worldscale 231.56, its fourth day of gains.

Winter Demand

Aframax rates on the Middle East-Singapore route surged 4.5 percent last week, bringing gains in the past eight weeks to 78 percent, as transport demand rose to meet fuel needs for the Northern Hemisphere winter and shipowners passed on the additional costs from higher bunker prices.

Five aframaxes, capable of moving a total of 543,920 tons of fuel, are scheduled to arrive in Singapore this week while one with 113,013-ton capacity will arrive next week, according to Bloomberg data. That compares with three last week, with the capacity to haul a total of 309,880 tons of fuel.

The collision between a barge and the single-hulled supertanker Hebei Spirit on Dec. 7 in South Korea spilt 10,500 metric tons (78,750 barrels) of oil, the worst oil spill in the world in four-and-a-half years.

The following is a table of rates to charter smaller tankers capable of carrying less than 1 million barrels of crude oil or oil products on Asian routes as of Dec. 11, according to the Baltic Exchange.

Route Tons Rate Change Carrier
Kuwait-Singapore 80,000 233.75 +11.86% Aframax
Persian Gulf-Japan 75,000 209.17 +0.40% Oil Product Tanker
Singapore-Japan 30,000 312.50 0% Oil Product Tanker
Middle East-Japan 55,000 251.73 +0.23% Oil Product Tanker

Friday, December 7, 2007

Well, it finally happened

A single-hull tanker spilled.

Freight Derivatives Surge After South Korea Oil Spill
By Alaric Nightingale
Dec. 7 (Bloomberg)

Forward freight agreements, contracts that traders buy and sell to bet on the future cost of shipping crude oil, surged after a single-hull tanker was involved in the worst spill in South Korea's history.

Contracts for January climbed as much as 8 percent while those for the first the three months of next year advanced 7 percent, according to Ben Goggin, head of tanker FFAs at SSY Futures Ltd. in London.

``All my sellers from yesterday have turned buyers this morning,'' he said by telephone today. ``This could push rates much higher.''

The Hebei Spirit spilt 10,500 metric tons of crude oil about 5 kilometers (3.1 miles) off the coast of South Korea after it was struck by a crane on a barge. Should South Korea respond by banning such single-hull ships from its waters, it would be ``tremendous'' for the tanker market, Per Mansson, a shipbroker at Nor Ocean Stockholm AB, said in an e-mailed note today.

Modern tankers are fitted with two hulls to cut the risk of an oil spill and usually cost more to hire.

Contracts that indicate the cost of shipping crude in January climbed to 140 Worldscale points, from 130 yesterday, Goggin said. FFAs for the first quarter of next year rose to 120 Worldscale points from 112 points.

$108,000 a Day

Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in U.S. dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.

Based on 2007 flat rates, owners of very large crude carriers, or VLCCs, would earn about $108,000 a day for leasing out vessels at a rate of 140 Worldscale points, a formula from Oslo-based shipbroker RS Platou AS and marine-fuel prices compiled by Bloomberg showed. Earnings will turn out to be higher than that because 2008's flat rates will be raised to reflect this year's record refueling costs.

``If it's proved that a double hull would have avoided the spill, then I think it will have huge ramifications,'' Charlie Fowle, a director at Galbraith's Ltd., a London-based shipbroker, said in an interview. ``Everybody will be clamoring for double- hulls.''

Wednesday, December 5, 2007

Frontline Shares Fall As Contract Ends

Frontline Shares Fall As Contract Ends
Associated Press

Shares of Frontline Ltd. slipped in trading Tuesday, after a JPMorgan analyst reduced his 2008 earnings estimates to reflect the oil tanker operator's expected losses from the end of two long-term charter agreements.

Frontline (FRO) said earlier Tuesday it ended deals for two vessels with Ship Finance International Ltd. (SFL ), which then sold the tankers for $40 million each. Frontline expects $32.8 million for the contract's early termination.

Analyst Jonathan B. Chappell cut his 2008 profit estimate to $2.55 per share from $2.70 per share, saying the company "continues to trade short-term gains for long-term earnings losses."

He reiterated his "Underweight" rating for Frontline, and suggested the stock should underperform other tanker operators for the next nine months to a year.

Shares of Frontline fell $1.76, or 3.9 percent, to close at $42.87. The stock has ranged between $29.35 and $53.09 in the past year.

Chappell also lowered 2008 profit estimate on Ship Finance to $1.77 per share from $1.96 per share.

However, Chappell said that unlike Frontline, he expects Ship Finance to use the sale's proceeds to diversify and expand its fleet outside of the struggling tanker market.

He maintained his "Overweight" rating.

Ship Finance shares fell 57 cents to $24.64.

Sunday, December 2, 2007

Nokta and Chappell in 2006

Around the Markets: Rising tide lifts stock of cargo firms
By Dune Lawrence
JULY 11, 2006
International Herald Tribune

NEW YORK: As U.S. stocks sank in May and June, shares of oil tanker companies like Teekay Shipping proved buoyant, outperforming the Standard & Poor's 500 index by 17 percentage points.

The surge reverses 18 months of underperformance and may mean further gains to come, as share prices play catch-up to profit growth, with the added luster of dividends that outstrip even high- yielding utilities. The companies themselves also consider their stock cheap, if $1.31 billion in buybacks in the past year is any indication.

"As an investor, you want to buy when things are bleak, and these things have been pretty bleak," said J.C. Waller, who manages the Icon Energy Fund. "When you find that combination of value, dividend yield and price appreciation coming from where these things have been, you can't ignore it."

The Bloomberg tanker index jumped 14 percent from the end of April through June 30, as daily rates for the largest carriers reached a four-month high in what is usually a period of price declines. The S&P 500 slipped 3.1 percent in that same period. Overseas Shipholding Group, the biggest U.S.-based owner of oil tankers, led the advance with a 21 percent gain. Teekay climbed 8.8 percent.

The tanker index touched its low point for the year in mid-April, 32 percent below its record high of November 2004. Even after rebounding, its price stands at 8.2 times earnings over the past 12 months, compared with 13.4 when the index peaked. The S&P 500 trades at 17 times earnings.

whose fund has outperformed 80 percent of similar funds over the past five years, estimates that an S&P index of tanker and pipeline stocks is 22 percent undervalued.

"They've gotten so low that there's not a whole lot of downside," said Malcolm Polley at S&T Wealth Management Group. Polley started buying Frontline and General Maritime in February.

And business is improving in the industry. Freight rates for the class of ships known as very large crude carriers, which can carry two million barrels of oil, on routes from the Gulf to the United States and to Japan have climbed 25 percent and 52 percent, respectively, since April.

Earnings have held up better than many analysts predicted this year. First-quarter profit at all six members of the tanker index exceeded the estimates of analysts.

Omar Nokta, an analyst at Dahlman Rose, an investment bank that specializes in shipping and energy companies, raised his earnings predictions for some tanker stocks twice in June. Constraints in the supply of tankers, and the need to lock in oil contracts further in advance, will support earnings growth and cash flow and justify higher share prices, he said.

Nokta raised his 2006 profit projection for Teekay, the world's largest oil tanker owner, to $4.79 a share from $3.98. He expects Overseas Shipholding Group to earn $10.24 a share, up from $8.31.

"If you buy now, you get this awesome run for the fourth quarter," said Nokta. "Most of the Street hasn't changed their estimates yet, not even for the current environment."

Some analysts say that the higher rates, and the rally, will not last. They warn that the stocks' low valuations reflect the risk of investing in an industry where rates and earnings fluctuate rapidly.

Jonathan Chappell at J.P. Morgan Chase in New York attributed the June rate surge to short-term factors including the use of some tankers as storage by Iran and Saudi Arabia.

"Everything else, from inventories to demand estimates to the number of ships that have been removed this year, points to a bearish market," Chappell said.

The share prices also reflect concern that there are too many new tankers being built as estimates for the growth in demand for oil decline. The International Energy Agency expects demand to increase 1.8 percent this year, compared with a peak of 3.8 percent in 2004.

Tanker demand will increase 3.8 percent in 2006 through 2008, compared with fleet growth of 5.4 percent, according to a June estimate by shipping analysts at Jefferies in Houston.

Friday, November 30, 2007

Omar Nokta upgrades FRO, OSG, NAT

Oil Tankers Owe Strength to OPEC
Ruthie Ackerman

Increased oil production has sent spot charter rates surging on oil tankers in the last week, helping to keep the stocks of crude oil tankers and operators above water.

On Monday, Dahlman Rose & Co. analyst Omar Nokta, upgraded three tanker companies because they are the most exposed to the strong spot rates. Nokta raised his rating on Frontline, Overseas Shipholding Group, and Nordic American Tanker Shipping to “buy” from “hold” and reiterated his “buy” rating on General Maritime, Tsakos Energy Navigation, Ship Finance International, and Omega Navigation Enterprises.

But even with the upgrade oil tanker stocks were a mixed bag at the close on Monday, indicating investors didn't share Nokta's optimism.

Notka said the spot rates on the Very Large Crude Carriers, or VLCC’s, have jumped in the Arabian Gulf in the past few days. Last week, VLCC’s averaged $33,000 per day. On Monday morning they spiked to $84,000 per day, a level not seen since August 2006. The number of vessels being chartered has jumped significantly, limiting the supply of ships, Nokta said.

The strength in the oil tanker market has spread to West Africa and the Mediterranean as well, he added.

The problem for oil tanker lines over the last year has been that the supply of ships outstripped the demand for oil. With oil prices at record highs since OPEC's production cut in Nov. 2006, demand for oil tankers fell.

But Nokta believes the strong demand for oil tankers over the last few weeks is a result of increased production from the Organization of Petroleum Exporting Countries. As global oil stock levels have fallen over the past six months, OPEC has been under pressure to increase production. OPEC appears to have raised production by 750,000 barrels, Nokta said, which is more than the 500,000 barrel boost it previously announced.

Nokta believes the increased production is a sign that a formal boost should come when OPEC meets on Dec. 5. With gasoline, U.S. heating oil, and crude oil stockpiles down substantially there should be a significant amount of imports through the winter and into the spring, boosting the demand for oil tankers, Nokta said.

The conversion of 60 VLCCs into dry bulk carriers for 2008 and 2009 should offset a significant number of the 36 new VLCCs being built and the 69 more being delivered in 2009. With increased production in the Arabian Gulf demand will increase helping the tanker market to outperform expectations, Nokta said.

Thursday, November 29, 2007

Route Rates 3 - Test






TCE - equiv





280 kmt

64 days




Nov. 29th



260 kmt





Nov. 29th



250 kmt

38 days




Nov. 29th



260 kmt





Nov. 29th



130 kmt





Oct. 23rd



135 kmt





Oct. 23rd



80 kmt





Nov. 29th



80 kmt





Nov. 30th



70 kmt





Nov. 29th



50 kmt





Nov. 28th



80 kmt





Oct. 11th



55 kmt








80 kmt






TD6Black SeaMediterranean135,000mtSuezmax
TD7North SeaEur Continent80,000mtAframax

updated Nov. 30th