Lauritzen Tankers - continuing expansion
In 2007, EBITDA was USD 21.1m, up USD 14.7m on 2006. The improvement was due to increased activity for the company’s own and time chartered fleet.
Including gains of USD 6.6m on the sale of vessels and other assets, operating income was USD 22.1m, up USD 17.6m on 2006. Increased financial costs due to the investment programme were partly offset by unrealised gains on securities.
Minorities’ share of profits was USD 5.6m compared to USD 0.1m in 2006. A considerable part of the increased activity was generated from a joint venture in which Lauritzen Tankers has a controlling influence. JL’s share of the result totalled USD 15.4m, USD 11.8m more than 2006. Results were in line with expectations and were satisfactory.
Main events
Lauritzen Tankers continued to build up its Medium Range (MR) product tanker fleet in 2007, taking delivery of three long-term time-chartered 53,000 dwt newbuildings and one 48,000 dwt newbuilding.
A 2004-built 37,200 dwt ice-class product tanker was acquired and a 40,000 dwt newbuilding was sold on delivery.
During 2007, eight identical 50,500 dwt IMO II/III MR product tankers were ordered at Guangzhou Shipyard International Company Limited in China for delivery in 2009-11.
Towards the end of the year, Lauritzen Tankers acquired part ownership of a 2004-built 37,255 dwt product tanker.
Based on current contracts, the fleet of owned, time-chartered and managed vessels will increase by 16 newbuildings in the next few years, with three being delivered in 2008.
In exploiting Lauritzen Tankers’ competencies in dynamic positioning, JL has grasped the opportunities offered by the strongly rising markets in the off-shore oil exploration and production sectors and has initiated conversion projects which will be offered to the market in 2008 onwards. The first of these projects is an Accommodation and Support Vessel (ASV).
Market trends
Spot market freight rates for Medium Range (MR) product tankers opened 2007 on a strong note but by June a significant softening set in which lasted until November. The market East of Suez was subdued for most of the year, whereas after a strong start, the Atlantic Basin witnessed a prolonged weakening of the market, cf. Figure 9.
Average spot market rates for product tankers fell by about 4% compared to 2006. Although under pressure, period rates held momentum during most of the year and declined only marginally on average.
Demand for products tankers
With crude oil prices doubling during the year, world oil consumption growth was limited to 1.4%. The reduction in inventories also hit the growth of seaborne trade.
Imports of refined products into Europe and Japan, Korea and Australia declined during the first nine months of the year with some pick-up in the fourth quarter, whereas US imports are reported to have stagnated. Increasing imports into emerging markets, however, made a significant contribution to the fairly strong market conditions for product tankers in 2007, especially during the first half.
Other developments in world oil markets, however, supported seaborne trade growth. Among them was the implementation of the new IMO regulations on the carriage of vegetable oils, which had the effect of raising average voyage length and led to a reduction in the number of vessels capable of meeting the new legislation, thus adding to ballast ratio. Rising demand for low sulphur distillates led to an increase in seaborne demand since US imports for example had to be sourced from further afield. Finally, the growing number of geographical areas served by product tankers reduced average port efficiency, leading to fewer ton-miles recorded by the average product tanker.
Supply of product tankers
The product tanker fleet is estimated to have grown by approximately 10% during 2007.
In 2007, new orders for MR product tankers fell by 40% compared with 2006. At year-end 2007, the order book in the 25-60,000 dwt MR product tanker segment amounted to 55% of the existing fleet and the MR product tanker segment will face another year of strong fleet growth in 2008, cf. Figure 10.
About 20% of the MR 25-60,000 dwt segment is 20 years old or more. The majority of these are single hull tankers and are thus likely to be phased out within the next few years.
Lauritzen Tankers’ fleet
In 2007, the total number of ship days reached 3,906 with 10.7 vessels on average compared to the 2,489 days with 6.8 vessels on average reported in 2006, cf. Figure 11.
At the end of 2007, Lauritzen Tankers controlled a fleet of 12 MR product tankers.
Technical management of Lauritzen Tankers own fleet was handled by Lauritzen Fleet Management.
Off-hire of the own fleet, including scheduled dry docking was 1.3%.
Prospects for 2008
Deliveries of MR product tankers will be up on 2007. Average spot market rates are expected to decline slightly compared with 2007, although to remain at healthy levels due to higher forecast growth in oil consumption and thus in seaborne movements.
The markets may also benefit from stocks being replenished to more normal levels. The rise in gasoline and transportation fuels’ specifications is also expected to benefit demand.
During 2008, Lauritzen Tankers will take delivery of two 40,000 dwt product tanker newbuildings and a 47,000 dwt long-term time-chartered newbuilding will be added to the fleet, cf. p. 8.
Finally, Lauritzen Tankers will take delivery of an Accommodation and Support Vessel at the end of 2008.
Earnings before depreciation (EBITDA) as well as gains on the sale of vessels are expected to be in line with 2007, although increased depreciation and financial costs due to the continued fleet build up will influence profits before tax. Minorities and tax is expected to be in line with 2007 and thus JL’s share of the result is expected to be significantly below 2007.
