It is essential to understand the NAT strategy to formulate a view on what the future holds. This is commented upon later in this report.
1. Normally, a set-back in oil demand is followed by a forceful rebound. We are now at a positive turning point for the NAT vessels. Production of oil goes up following increased oil demand. The upward move in the price of oil, in raw materials such as steel and copper has increased the value of our fleet by more than $100 million over the last few months. This strengthens NAT which has an expansionary perspective.
2. We believe that the global economy is poised to enjoy a robust growth going forward. This is good for the NAT business.
3. As seen in the past, small events can turn the market in our favor. The closure of the Suez canal a few days during the first quarter served as a reminder of how finely balanced the market is. One ship too many pushes freight rates lower and one ship too few does the opposite.
4. Despite OPEC oil production cuts during 1q 2021, the average time charter equivalent (TCE) came in at $9,400 per day per ship – an improvement on the previous quarter that gave a TCE of $8,700 per day per ship. Except for one, all our ships are working on short term contracts. An upswing in demand will immediately increase the NAT results. The operating costs per ship are about USD 8,000 per day.
5. The first quarter of 2021 produced a net loss of $25.0 million or an earning per share (EPS) of -$0.16. This compares to the previous quarter, that produced an EPS of -$0.19. Consequently, there was a small improvement in 1Q 2021 compared to 4Q 2020.
6. Payment of dividend is a priority for NAT. The dividend for 1Q2021 is 2 cents ($0.02) per share, payable on Friday June 18, 2021, to shareholders on record Friday June 4, 2021. This is our 95th consecutive quarterly dividend payment. When earnings improve, higher dividends can be expected.
7. The founder, chairman and CEO and his son Alexander are between them the second laRgest shareholder in the company.
8. Our industry network and close customer relationships with major oil companies and traders are based on trust, fleet quality and on our people. The quality of our fleet is proven by the technical “vetting”.
9. Inspections undertaken by those who lease the vessels. NAT has sound corporate governance principles. The company has zero tolerance for corruption.
10. Detailed financial information for the first quarter of 2021 and for other periods is included later in this report.
Our Fleet
Our fleet now consists of 25 (incl. 2 newbuildings) well maintained Suezmax tankers with a cargo lifting capacity of 1 million barrels of crude oil each. We focus solely on the Suezmax market. We believe Suezmax vessels are more versatile and the one-million-barrel market offers more options in trading than the Very Large Crude Carriers (VLCC) with their two-million-barrel lifting capacity.
We take extra care to maintain our vessels to the highest standards for the safety of crew, cargo and the environment. The outcome of the inspections of our ships by oil companies (“vetting”) reflects the good quality and maintenance of our fleet.
The operations of our Suezmax fleet have not been materially affected by the Covid-19 pandemic. Main challenges have been related to crew changes and we are following guidance issued by health authorities and international shipping trade associations to safeguard our seafarers.
NAT has one of the largest fleets of Suezmax tankers in the world. In a capital intensive industry like ours, careful maintenance of our existing fleet and the timing & financing of expansion are key elements to ensure both our financial stability and our commitment to paying cash dividends.
All our vessels are running on IMO compliant fuel.
Results for the first quarter 2021
For the first quarter 2021, the net loss was -$25.0 million or -$0.16 per share. This compares with a net loss of -$28.7 million and an EPS of -$0.19 per share in the fourth quarter if 2020. EBITDA (non- GAAP measure) came in at -$1.3 million for the first quarter 2021, compared to an EBITDA for the previous quarter of -$5.1 million.
For detailed information about our statement of operations (P&L), balance sheet, cash flow and reconciliation of certain Non-GAAP financial measures, we refer to the tables on page 5 and 6 of this press release.
Financing
Our Long Term Debt stood at $329.0 million, net of transaction costs, as of March 31, 2021. Our fleet is financed through two financing arrangements;
1) The total outstanding balance to CLMG/Beal Bank (including current portion of the debt), is $249.7 million as of March 31, 2021. Restricted cash of $4.0 million is related to deposits held for future Drydockings of our vessels, in accordance with our borrowing agreement.
2) The total outstanding balance to Ocean Yield (including current portion of the debt) is $110.3 million as of March 31, 2021.
Current portion of long term debt is $16.8 million related CLMG/Beal Bank and $8.0 million is related to the Ocean Yield Financing. This is presented in our balance sheet with a total of $22.2 million net of transaction costs.
Our two newbuildings for delivery first half 2022 is financed with Ocean Yield. The financing agreement for up to 80% contains pre-delivery funding for the last two pre-delivery installments for the newbuildings, if required.
During 1Q 2021 the Company issued 1,872,875 shares, with gross proceeds of $6.4 million under the $60 million ATM established October 16, 2020. At March 31, 2021, the Company had a total of 153,318,987 common shares outstanding.
For the first quarter of 2021 a cash dividend of 2 cents $ 0.02 per share has been declared. This is the 95th consecutive quarterly dividend payment.
Payment of the dividend will be on or about June 18, 2021, to shareholders of record on June 4, 2021. Our dividend will always be a reflection of our cash earnings.
World Economy and the Tanker Market
What is good for the world economy and world trade is positive for the crude oil tanker business.
OPEC oil production cuts are easing from this month, as world oil inventories have decreased rapidly on the back of strong oil demand in the Far East and a cold winter in Europe & US. We believe this marks the turning point for the tanker market as oil producers around the world will start adding barrels to the market in the coming months and years.
With all of the stimulus spending, potential infrastructure spending, continued quantitative easing, strong consumer and business balance sheets and euphoria around the potential end of the pandemic, we believe that the global economy has the potential to have a robust, multi-year growth. This is good for oil and tanker demand.
Historically, every set-back in world oil demand has been followed by a forceful rebound the following year. The above combined with a muted fleet growth bodes well for the years to come.
The world’s Suezmax fleet (excl. shuttle, product & Jones Act tankers) counted 546 vessels at March 31, 2021. 13 conventional Suezmax vessels was added to the world fleet during 1Q 2021 and 9 remaining to be delivered for the rest of 2021. We currently see 26 conventional Suezmax tankers for delivery in 2022, and 3 for delivery from the shipyards in 2023.
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 on our industry network and close customer relationships with major oil companies. Employment of our ships with major oil companies is a priority.
We are a dividend company with the objective of having a strong balance sheet and low G&A costs, enabling us to distribute free cash flows to our shareholders.
This strategy will be positive in a strong tanker market. In an improved market, higher dividends can be expected.
Our dividend policy should continue to enable us to achieve a competitive cash yield.
Our fleet of 25 (including newbuildings) 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.
Source: Nordic American Tankers Limited
