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URL:  https://boards.fool.com/crude-tanker-cos-beyond-q3-29739732.aspx

Subject:  Crude tanker cos: Beyond Q3 Date:  12/22/2011  2:10 AM
Author:  Hohum777 Number:  8695 of 25801

Crude tanker spot rates for VLCCs and Suezmax vessels in Q3 were horrendous, and this showed
in Q3 results.
- Tanker company GMR were forced into a bankruptcy filing prior to Q3 results.
- DHT took a major impairment charge and slashed its dividend
- FRO warned it would run out of cash in Q1 2012, if market conditions remained the same.
- Saga Tanker has one operating VLCC, but it has essentially wound up operations.

The primary cause was/is a VLCC supply glut. While there have been impacts in other vessel
categories, I don't think the impact has been as severe. If one factors in financing,
vessel break-even for a VLCC is higher. Back in Aug 2011, when FRO released Q2 results,
the CEO of FRO mgmt suggested a plan for VLCC owners. He suggested taking 50 vessels
(VLCCs > 15 yo) out of operations (2/3 scrapped, 1/3 moved to lay-up), with the idea that the
remaining vessels would have a greater utilization, and perhaps better rates. One newbuild VLCC
went straight to lay-up. A start, but it fizzled from there. At least, until last week.

http://www.hellenicshippingnews.com/News.aspx?ElementId=1459...

Three VLCCs removed from service, including a 1998-build headed for a scrap beach. Yes, a
couple of shipping brokers were puzzling over the two VLCCs headed for scrap. It is interesting
that the oldest of the three VLCCs continues operating, but not the newer vessels. I think
there will be more events like that.


Mentioned in several prior threads on this board, FRO is working on a restructuring.
The main thrust of the plan is FRO moving the newest of its owned fleet, (6 VLCCs, 4 Suezmax
and 5 VLCC newbuilds) to a new entity. Fair market value was assessed at $1.1B, book value was $300M
more. That's a lot of ship value beyond depreciation eroded in the last 7-8 months. The
scary aspect is that those write-downs will likely continue. As I was working on my tanker
spreadsheet, I realized, other than FRO and DHT, most of the other companies are
not acknowledging an inflated BV. However, if they have lender financing in place, the issue
will eventually catch up to them.

https://docs.google.com/spreadsheet/pub?hl=en_US&hl=en_U...


Other thoughts:
- If TNK shares fall too low, would TK consider folding the entity back into TK?

- VLCCF have dropped at least one hint that the company might lean towards Dry bulk vessels
when existing tanker charters expire (Their four tankers are the oldest DH VLCCs in FRO's fleet)

- The restructuring of FRO is still a work-in-progress. The company could still spring
a surprise or two.
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