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ITCL - Second Quarter and Six Months 2011 Results

Press release from Independent Tankers Corporation Limited 26.08.2011


Highlights

 

  • Independent Tankers reports a net loss of $0.05 million, equivalent to a loss per share of $0.001 for the second quarter of 2011. 

  • Independent Tankers reports net income of $8.1 million, equivalent to earnings per share of $0.11, for the six months ended June 30, 2011. 

  • In July 2011, BP Shipping Limited extended the bareboat charters for British Pride and British Purpose until July 2013. 

 

Introduction

 

Independent Tankers Corporation Limited (the "Company" or "Independent Tankers") was incorporated in Bermuda on January 18, 2008 and the shares have traded on the Norwegian over-the-counter market, since March 7, 2008. Independent Tankers' business is mainly concentrated on the ownership and operation of crude oil tankers on long term bareboat contracts, which include certain cancellation options, to major oil companies. Independent Tankers owns or leases six VLCC's and three Suezmax tankers. All vessels are financed through bonds in the US market and one vessel is also subject to financial lease arrangements. The main shareholder is Frontline Ltd. ("Frontline") with an ownership of approximately 83 percent.

 

Second Quarter and Six Months 2011 Results

 

The Board of Independent Tankers announces a net loss of $0.05 million, equivalent to a loss per share of $0.001 for the second quarter of 2011. This compares with net income of $8.2 million, equivalent to earnings per share of $0.11 for the preceding quarter. The decrease is primarily due to the gain of $8.8 million that was recognized in the first quarter on the termination of a funding agreement in the Golden State group.

 

The Ulriken (formerly Antares Voyager) and the Pioneer continued to trade in the spot market and the average daily time charter equivalents ("TCEs") earned in the second quarter were $23,500 and $16,400, respectively. The average daily bareboat rate earned in the second quarter by the Company's VLCCs was $23,300, which was the same as the preceding quarter.

 

Interest income for the quarter decreased by $0.6 million to $1.5 million mainly due to the termination of the Golden State funding agreement in March, resulting in the transfer of cash to lower interest bearing deposit accounts. Interest expense of $7.4 million for the second quarter was the same as the prior quarter. At June 30, 2011, all of the Company's bond debt of $295.9 million is at fixed interest rates ranging from 7.84% to 8.52%.

 

In August 2011, the Company has average total cash cost breakeven rates for the remaining part of 2011 for its two spot traded VLCCs of $32,400 per day and $19,200 per day for the four bareboat vessels.

 

Chartering Summary

 

In July 2011, BP extended the bareboat charters for the VLCCs British Purpose and British Pride for one additional year. As a result, the British Purpose will trade on a market rate with a minimum bareboat rate of $20,000 per day from July 15, 2011 until July 14, 2013. The British Pride traded on a bareboat rate of $24,895 per day until the fixed period ended on July 30, 2011 and will trade on a market rate with a minimum bareboat rate of $20,000 per day until July 30, 2013.

 

Other Matters

 

On July 15, 2011, the UK tax lease arrangement between Holyrood Shipping Plc and Commerzbank Leasing for the VLCC British Pride was terminated and the outstanding lease obligation was settled in full using restricted cash. At June 30, 2011 the lease obligation was $70.3 million. The termination was cash neutral for the Company. The vessel was then sold to Holyrood Petro Limited, a previously dormant subsidiary of the Company, which simultaneously entered into a lease with Holyrood Shipping Plc.

 

74,825,166 ordinary shares were outstanding as of June 30, 2011, and the weighted average number of shares outstanding for the first quarter was also 74,825,166.

 

The Market

 

The market rate for a VLCC trading on a standard 'TD3' voyage between The Arabian Gulf and Japan in the second quarter of 2011 was WS 53; equivalent to $8,000/day; representing a decrease of approximately WS 5.5 points from the first quarter of 2011 and a decrease of WS 35 points from the second quarter of 2010. Present market indications are approximately $9,000 to 10,000/day in the third quarter of 2011.

 

The market rate for a Suezmax trading on a standard 'TD5' voyage between West Africa and Philadelphia in the second quarter of 2011 was WS 77; equivalent to approximately $13,500/day compared to approximately $18,200/day in the first quarter of 2011, representing a decrease of approximately WS 6 points from the first quarter of 2011 and a decrease of WS 37 points from the second quarter of 2010. Present market indications are approximately $7,000/day in the third quarter of 2011.

 

Bunkers at Fujairah averaged $657/mt in the second quarter of 2011 compared to $600/mt in the first quarter of 2011. Bunker prices varied between a low of $611/mt at the beginning of May and a high of $686/mt on the 10th of April. On August 24, 2011, the quoted bunker price in Fujairah was 661/mt.

 

Philadelphia bunkers averaged $681/mt in the second quarter, which was an increase of $77/mt from the first quarter of 2011. Bunker prices varied between a low of $566/mt mid May and a high of $720/mt at the beginning of April. On August 24, 2011, the quoted bunker price in Philadelphia was 672/mt.

 

The VLCC fleet totalled 573 vessels at the end of the second quarter of 2011, up from 561 vessels at the end of the previous quarter. 15 VLCCs were delivered during the quarter versus an estimated 18 at the beginning of the year. The orderbook counted 149 vessels at the end of the second quarter, down from 164 orders from the previous quarter. Three new orders were placed during the quarter, whilst three contracts were cancelled, and the current orderbook represents approximately 27 percent of the VLCC fleet. During the quarter three vessels were removed from the trading fleet and according to Fearnleys the single hull fleet stands at 35 vessels.

 

The Suezmax fleet totalled 430 vessels at the end of the second quarter, up from 420 vessels at the end of the previous quarter. 10 vessels were delivered during the quarter versus an estimated 13 at the beginning of the year. The orderbook counted 126 vessels at the end of the quarter, down from 131 vessels at the end of the previous quarter. Six new orders were placed whilst one was cancelled during the quarter and the current orderbook now represents 29 percent of the total fleet. No vessels were removed from the trading fleet and according to Fearnleys the single hull fleet now stands at 13 vessels.

 

The International Energy Agency's ("IEA") August 2011 report stated an average OPEC oil production, including Iraq, of 29.3 million barrels per day (mb/d) during the second quarter of the year. This was a decrease of 630,000 barrels per day compared to the first quarter of 2011 and an increase of 330,000 barrels per day compared to the second quarter of 2010.

IEA further estimates in their August 2011 report that the global oil demand decreased by 1.0 mb/d or 1.1 percent in the second quarter of 2011 compared to the first quarter of 2011. At the same time the tanker market experienced a growth in fleet supply in the second quarter of 2011 due to a high number of newbuilding deliveries despite fewer actual deliveries in the second quarter of 2011 than anticipated, with 17 percent slippage in the VLCC segment and 23 percent in the Suezmax segment. Henceforth the weak tanker market experienced in the second half of 2010 also continued in the first half of 2011 and so far into the third quarter of 2011.

The decision by the IEA to temporarily release 60 million barrels from global strategic petroleum reserves proved negative for tanker demand and we noticed a decrease in long-haul imports to the US. Further, the current international situation has delayed the economic recovery and future oil demand might suffer.

 

The newbuilding orderbook at the end of the second quarter 2011 includes a high number of expected vessel deliveries in 2011 and 2012. However, the actual number of deliveries is likely to be lower due to the expected delays, slippage and cancellations of newbuilding orders going forward.

 

The International Monetary Fund forecasts world growth to rise by approximately 4.3 percent and 4.5 percent in 2011 and 2012, respectively and the IEA projects an increase in world's oil consumption in 2011 by 1.2 mb/d compared to 2010 and in 2012 by 1.6 mb/d compared to 2011. This is not enough to absorb the newbuilding orderbook, but will help mitigate.

 

Strategy and Outlook

 

The Company's strategy is mainly concentrated around chartering out the vessels on long term charters to reputable oil companies and for the time being BP and Chevron. The Company's charter coverage for its six double hull VLCCs is 67 percent for the remaining part of 2011, 67 percent in 2012 and 23 percent in 2013 if the charters are not extended. The charter coverage for the three double hull Suezmax tankers is 100 percent until 2015.

 

Independent Tankers has historically not been influenced by spot market exposure due to fixed bareboat contracts on all the vessels. As a consequence of the termination of the bareboat charters for the VLCCs Pioneer and Ulriken, the Company will be exposed to market fluctuations for these vessels. Frontline, as manager, is obligated to find potential buyers for the vessel subject to certain price requirements and a bondholders meeting must be held in order to approve or reject any offers. If there are no buyers or an offer is rejected by the bondholders, Frontline needs to seek bareboat, time or spot charters for the vessels which meet the requirements of the indentures. The broker valuations received for Pioneer at June 30, 2011 indicate that the market value of the vessel is slightly lower than the net debt on the vessel. The other three VLCCs in the Windsor Petroleum bond structure and the two VLCCs in the Golden State Petroleum bond structure had estimated market values that were slightly higher or higher than the net debt of the vessels at June 30, 2011. Due to the lack of liquidity in the secondhand sale and purchase market for VLCCs there is uncertainty to what extent the estimated market values can be achieved through actual transactions. There is also uncertainty linked to what extent the negative development in the tanker market since June 30 has influenced values.

 

During the third quarter of 2011, the Windsor Petroleum bond structure was downgraded from B3 to Caa1 by Moody's Investors Service and from BB+ to BB- by Standard and Poor's Rating Services. The reason for the downgrading was the negative development in the tanker market.

 

The Company will continue to operate with low cash cost breakeven rates and financing through the US bond market with maturities from 2015 to 2021. The fixed minimum bareboat rates of $20,000 per day for three of the VLCCs and the fixed bareboat contract of Phoenix Voyager in addition to the long term financing creates a solid foundation for the Company going forward. However, the uncertainty around a potential sale or, if not achievable, a charter to a non investment grade counterparty for Ulriken and Pioneer, increases the risk of the Company and might have negative influence on the Company's future profit and credit profile. 

 

Forward Looking Statements

 

This press release contains forward looking statements. These statements are based upon various assumptions, many of which are based, in turn, upon further assumptions, including the Company's management's examination of historical operating trends. Although the Company believes that these assumptions were reasonable when made, because assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond its control, the Company cannot give assurance that it will achieve or accomplish these expectations, beliefs or intentions.

 

Important factors that, in the Company's view, could cause actual results to differ materially from those discussed in this press release include the strength of world economies and currencies, general market conditions including fluctuations in charter hire 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 the Company's operating expenses including bunker prices, drydocking and insurance costs, 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, and other important factors described from time to time in the reports filed by the Company with the Norwegian over-the-counter market in Oslo.

 

The full report is available for download in the link enclosed and from the Company's website www.itcl.bm.

 

The Board of Directors
Independent Tankers Corporation Limited
Hamilton, Bermuda
August 25, 2011

 

 

Questions should be directed to:
Magnus Vaaler: Vice President Finance, Frontline Management AS
+47 23 11 40 21

2nd quarter 2011 results

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