NAT has decided to issue a letter to shareholders to set out recent success.
Hamilton, Bermuda, August 28, 2012
I would like to update you on developments in the company and in our industry. Conditions remain challenging in the tanker business, and we are doing our utmost to safeguard shareholder interests. Over the recent past NAT’s position compared with the rest of the industry has improved. While some other tanker companies are debt-laden, NAT is in a good situation because of our low debt – about $5 million net debt per vessel.
Our recent agreement with a subsidiary of ExxonMobil is an example of our proactive business attitude, covering transportation of oil both in the Atlantic basin and also in other places in the world. The party to the contract is the Orion Tanker pool where NAT owns 20 vessels of the combined fleet of 29 vessels. We have this arrangement in place among other things to minimize the waiting days for our vessels between cargoes. In the current market, when there is an oversupply of vessels, utilizing our fleet efficiently is very important.
We believe that our agreement with ExxonMobil, the top energy company in the world, reflects well both on Nordic American as a company and on our fleet. Other major oil companies are also a strong part of our customer base including Shell and British Petroleum. Our vessels have an average age between ten and eleven years and are in excellent technical condition. Maintaining our vessels, which are designed to last for at least 25 years, can be expensive, but thanks to our relative lack of debt NAT can afford to adhere to the highest standards of quality. Going forward, we hope to expand and update our fleet as circumstances warrant.
Today, our clients are scrutinizing our vessels more closely than ever, physically inspecting and vetting them regularly. Our vessels are high quality ships and our maintenance philosophy is simple: maximize a vessel’s useful life to generate earnings while maintaining quality. We believe that not all owners at this time can afford to keep their vessels in top shape. One of our objectives is to reduce costs, of course, but it must not be done at the expense of quality operations. We believe this approach serves us well.
NAT has made, and is continuing to make, important investments on our existing fleet to reduce fuel consumption. Depending on the speed we use on a specific voyage, a Suezmax vessel consumes on average about 30 tons to 65 tons per day in ballast and laden condition, respectively. High oil prices have had a significant impact on our industry. A few years ago, for example, the price of bunker fuel that we use to power our ships cost about $200 per ton. Today, the price is $600 to $700 per ton. We are implementing measures that we think on average can save us minimum about five tons or more of fuel daily per vessel, adjusted for actual operating days. At current bunker oil prices, that amounts to savings, or increased net earnings, of more than $3,000 per vessel per operating day. Such measures could translate into an improvement of approximately $0.30 – $0.40 per share over a year, improving cash flow and dividend potential correspondingly.
Our dividend continues to enjoy the enthusiasm of our shareholders, and we are committed to staying focused on dividends. A company with a strong balance sheet has essentially three choices – retain cash for investments or acquisitions down the road, return cash to shareholders or do a combination. Paying dividends has essentially the similar financial effect and risk to buying back shares, the main difference being by paying dividends all shareholders receive cash which we believe is, in our situation, a more shareholder friendly approach. In this market environment, we consider earnings and cash flow in the context of dividends but it is always a question of the financial position of the company whether to pay dividend or not. In addition to earnings and cash flow, our company’s strong management and balance sheet are among the factors contributing to a sound stock price compared with other tanker companies. Focus is on Total Return.
Many of our shareholders ask us when we expect the markets to recover. I would love to be able to predict the future, but I cannot. The fundamentals, however, seem to be slowly turning in our favour. In our sector, the orderbook for new Suezmax vessels is shrinking rapidly. By the end of next year, fleet growth will virtually come to a standstill. Whilst no guarantees are given, seen in the context of potentially growing oil demand, this would suggest that a recovery in spot rates for our vessels could be on the horizon; the markets often turn quickly. The main point for NAT is that we have a strategy that is designed to work in all markets no matter how challenging they are. We see now, however, that 3Q2012 is expected to be weaker than 2Q2012.
With this in mind, we are actively considering opportunities to invest when ship prices are down. Over the recent past we have inspected several vessels that are candidates for acquisitions. We also keep a close eye on possible distressed situations in the industry. NAT is well positioned to take advantage of historically very low asset values. We are, however, exercising prudence and caution, and are very conscious not to make investments prematurely. The passage of time works in our favour. Our feedback from the shareholder community has clearly supported this approach.
Going forward, we shall continue to be predictable and transparent and vigilantly safeguard shareholders and the strong position of our company. I believe that at some point the tide will turn, and that our shareholders stand to gain substantially when the horizon in the tanker industry becomes rosier.
In the meantime, I would encourage shareholders and investors to contact me personally at email@example.com to give me any views or suggestions that you may have. It is always refreshing to hear from you.
Chairman & CEO
Nordic American Tankers Limited