Nordic American Tankers (NYSE:NAT) – The 3rd Quarter 2017 report
Link to the complete 3rd Quarter 2017 report:
Hamilton, Bermuda, November 3, 2017
Nordic American Tankers today reported unaudited results for the three months ended September 30, 2017:
On October 19, 2017, we announced our 81st consecutive quarterly dividend distribution. As expected, the 3rd quarter of 2017 proved challenging. As previously announced, earnings on our ships were lower than in the preceding quarters. The TCE (timecharter equivalent) for 3Q2017 was $10,600 per day per ship. During the quarter we had eight vessels in scheduled drydocking. This concludes our drydocking program for 2017. At this point in the 4th quarter, we see a strengthening of tanker rates with recent fixtures at $20,000 per day. The tanker environment may change quickly and unexpectedly, up or down.
NAT is financially sound. We are in the process of making the capital structure of NAT even more efficient in order to retain our flexibility and to further grow the Company. Our net debt at the end of 3Q2017 stood at about $341.5m equal to about $11.4m per vessel, which is among the lowest in the industry.
We have signed the main terms with a major financial institution for a full financing arrangement of our three newbuildings for delivery in June, August and October 2018, respectively. We expect to be able to announce the final agreement later this month.
During the third quarter, we signed four Time Charter contracts with major oil companies. The contracts have various durations, up to two years, with floor rates above our cash break-even and profit sharing mechanisms, securing employment for these ships while maintaining potential upside benefits.
NAT enjoys a significant upside potential when the market improves. The historic average market rate for the last 25 years was about $30,000 per day per Suezmax vessel. Such earnings could give the basis for a dividend of about $2.00 per share per year, provided full pay-out. This would create a solid dividend yield. As of today, a $2.00 annual dividend would represent a yield north of 40%.
Recently, we have seen comprehensive discussions about the new sulphur requirements for bunker consumption on ships to be in effect from 2020. Our 33 Suezmax tankers are fully compliant to run on 0.10% sulphur content or less. Such low sulphur fuel is available in the market. Therefore, going forward we do not see that this new requirement is an issue for NAT.
The Net result for 3Q2017, (after depreciation and finance charges), was -$34.3m . In 2Q2017 the Net result was -$15.9m. The Adjusted Net Operating Loss was -$0.7m (Ebitda) for 3Q2017. In 2Q2017 the Adjusted Net Operating Earnings were $15.2m .
We continue our unbroken practice of paying dividends. Tanker markets are volatile but our strategy remains steadfast.
Later in this report we have included all relevant accounting numbers for 3Q2017 and for other periods.
Our fleet consists of 33 (including 3 newbuilds) well maintained Suezmax tankers (all ships with CAP 1 class notation, which above all is related to steel quality) with an aggregate cargo capacity of 33 million barrels of crude oil, equivalent to one third of the world’s daily oil consumption. This illustrates the size of NAT.
The average age of our fleet is about 12 years, and the individual vessels are evenly spread across the decades; 10 units (including our 3 newbuilds) built from 2010 onwards, 13 units built between 2000 and 2009 and the remaining 10 built in the late 1990s. This is a balanced portfolio of vessels.
The outcome of the inspections of our ships by oil companies (“vetting”) reflects the good quality of our fleet.
Having the largest fleet of Suezmax tankers in the world, we focus on renewal and growth. In a capital intensive industry like ours, timing and financing are the key issues to achieve a sound cost structure. We will consider growth and renewal through acquisitions and newbuilds, as we have done in the past.
NAT is scheduled to take delivery of its three Suezmax newbuilds in June, August and October of 2018, respectively. 30% of the building price was paid cash on contract signature in October 2016. The remaining 70% will be financed through a financing arrangement with a major international financial institution. We have agreed main terms and are in the final documentation stages for this financing.
The above mentioned financing is part of our strategy to explore alternative sources of funding to make our capital structure more efficient.
For 3Q2017 a cash dividend of $0.03 per share has been declared. Payment of the dividend is expected to be on or about December 5, 2017, to shareholders of record on November 13, 2017.
In an improved tanker market, higher dividends can be expected.
Nordic American Offshore Ltd. (NYSE: NAO)
NAT owns 16.1% of Nordic American Offshore Ltd. and the NAT Chairman & CEO and his immediate family own 13.4% of NAO.
World Economy and the Tanker Market
A low oil price, above all driven by high crude oil volumes is positive for NAT. The growth of the Far Eastern economies, including China and India, and their effect on tanker markets, is often underestimated. Some Far Eastern economies are located far from the supply sources for oil. This can in turn create favorable ton-mile dynamics. NAT is active in the Far East and does business with major oil companies in the region.
The world Suezmax fleet (excl. shuttle & product tankers) counts 488 vessels at the end of 3Q2017, following an increase of 15 vessels in the quarter. We expect 10 more to be delivered during 4Q2017, bringing the total delivery during 2017 to 56 units. 2017 represents a peak year for deliveries. For 2018 we expect 33 vessels, and in 2019 we see 7 vessels for delivery. The order book is almost entirely made up of established industry players, and the absence of speculative orders is a positive feature.
The supply of tanker tonnage is inelastic in the short-term. When there are too many ships in an area, rates tend to go down. When there is scarcity of ships, rates tend to go up. Short-term spot tanker rates may be expected to be volatile.
Corporate Governance/Conflict of Interests
It is vital to ensure that there is no conflict of interests among shareholders, management, affiliates and related parties. Interests must be aligned. From time to time in the shipping industry, we see that questionable transactions take place which are not in harmony with sound corporate governance principles, both as to transparency and related party aspects. We have zero tolerance for corruption.
Strategy going forward
The NAT strategy is built on expanding and maintaining a homogenous and top quality fleet, leveraging our industry network and close customer relationships with big oil. A strong balance sheet, combined with a homogenous fleet and economies of scale is intended to give a low cash break-even level enabling NAT to distribute free cashflow to our shareholders.
This strategy will benefit in both a strong tanker market and in a weak one. In an improved market, higher dividends can be expected and vice versa.
Our dividend policy should continue to enable us to achieve a competitive cash yield.
NAT is committed to further growing the Company.
Our fleet of 33 more or less identical vessels is a special feature of NAT that is particularly valuable to our customers.
NAT is firmly committed to protecting its underlying earnings and dividend potential. We shall safeguard and further strengthen this position in a deliberate, predictable and transparent way.
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Link to the Graph: http://hugin.info/201/R/2147194/823451.pdf
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,” “will,” “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 tanker market, as a result of changes in OPEC’s petroleum production levels and world wide oil consumption and storage, changes in our operating expenses, including bunker prices, drydocking and insurance costs, the market for our vessels, availability of financing and refinancing, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents or political events, vessels breakdowns and instances of off-hires and other important factors described from time to time in the reports filed by the Company with the Securities and Exchange Commission, including the prospectus and related prospectus supplement, our Annual Report on Form 20-F, and our reports on Form 6-K.
| Herbjørn Hansson, Chairman & CEO
Nordic American Tankers Limited
Tel: +1 866 805 9504 or +47 90 14 62 91
| Bjørn Giæver, CFO
Nordic American Tankers Limited
Tel: +1 888 755 8391 or +47 91 35 00 91
Gary J. Wolfe
Seward & Kissel LLP
New York, USA
Tel: +1 212 574 1223
 Net Debt is working capital, less long term debt, adjusted for deposits paid for the three newbuildings, divided by 30 vessels
 Adjusted Net Operating Earnings (Loss) represents Net Operating Earnings or Loss before depreciation and non-cash administrative charges
Please see later in this announcement for a reconciliation of Net Operating Earnings (Loss) to Adjusted Net Operating