Frontline Tankers May Restructure
August 28, 2014 by Paul Ausick
This has not been a good week for Norwegian shipping magnate John Fredriksen. On Wednesday Seadrill Ltd. (NYSE: SDRL), the Fredriksen-controlled offshore drilling firm, posted a solid beat on earnings, but revenues fell short of the consensus estimate and the outlook through the end of 2015 was weak.
Thursday morning Frontline Ltd. (NYSE: FRO), Fredriksen’s tanker company, reported a loss of $0.81 per share, compared with an analysts’ consensus loss estimate of $0.27 per share. The company also took an impairment charge of $56.2 million on three of its very-large crude carriers (VLCCs).
The worse news for Frontline is that this may be the good news. The average daily time charter equivalent day rate for a VLCC fell from $32,700 in the first quarter of 2014 to $13,900 in the second quarter. The day rate for a smaller Suezmax tanker fell from $27,700 to $12,400. Spot rates fell in a similar fashion.
Frontline agreed in July to terminate its long-term leases (called charter parties) with Ship Finance International Ltd. (NYSE: SFL). The cancellation will cost Frontline $58.8 million, with about $10.5 million due when the contracts terminate in the fourth quarter. The remaining debt will be added to Frontline’s books as notes payable.
The really bad news is that a restructuring may be on the way:
Despite the improved tanker market experienced so far in the third quarter, the Company is in a challenging situation with $1,031 million in debt and lease obligations as of June 30, 2014. Based on the current outlook for the tanker market, it is doubtful if the Company can generate sufficient cash from operations to repay the $190 million convertible bond loan with maturity in April 2015. The Board is considering various financing alternatives such as raising equity or selling assets, establish new loans or refinance existing arrangements to raise sufficient cash to repay the $190 million convertible bond loan. A full restructuring of the company, including lease obligations and debt agreements might be the only alternative.
Frontline’s shares, unremarkably, traded down 7% in Thursday’s premarket, at $2.38 in a 52-week range of $2.03 to $5.18. The consensus price target on the shares is just $2.35.
Liberty Media Corp (NASDAQ:LMCA) was upgraded by Evercore Partners from an “equal weight” rating to an “overweight” rating in a research note issued on Thursday.
SNPMarketScopeResearchNotes2014-08-01 08:26:21.000ARRSARRIS GROUP, INC.Ken LeonS&P CAPITAL IQ KEEPS BUY OPINION ON ARRIS GROUP SHARESWe are maintaining our $35 target price applying a narrower risk premium with a forward P/E of 11.9X below the 5-year historic average at 13.3X and below the communications equipment average at 14.3X. We are raising our EPS estimates in 2014 by $0.42 to $2.52 and 2015's by $0.58 to $2.95 a share. ARRS posts Q2 operating EPS of $0.70, vs. $0.46, $0.02 above the consensus from Capital IQ. With a $788M backlog at June 30, we see mid- to upper-single digit revenue growth in 2014 and 2015. Risks to our recommendation are tied to less visibility on orders from US public carriers.|US;ARRS
WoodMac: Wolfcamp spending could surpass that of Bakken by 2017
HOUSTON, July 29
By OGJ editors
Activity in the Wolfcamp shale is expanding and, by as early as 2017, could overtake the Bakken in tight oil spending, according to analysis on the West Texas-New Mexico play from Wood Mackenzie.
Wolfcamp capital expenditures are expected to eclipse $12 billion during this year as rigs ramp up, ranking the Wolfcamp third behind the Bakken and Eagle Ford. That total is equal to about 80% of what will be spent in the Bakken this year (OGJ Online, Apr. 2, 2014).
Crude and condensate production from the play is expected to average 200,000 b/d during the year and reach 700,000 b/d by the end of the decade.
WoodMac notes that the Wolfcamp is still in its early development phase with less than 10% of total capital spent thus far. The firm increased the play’s capex forecast for 2015 by more than $4.3 billion to $13.9 billion to account for an influx of new entrants with capital. The Wolfcamp is now projected to generate $30 billion in remaining value.
Serving as a hub of activity has been the Midland basin, where an increase in acreage value is being facilitated through advancements in stacked pay development.
The Midland outpaces the emerging Delaware basin because of higher oil cuts, lower well costs, and better supporting infrastructure, WoodMac says, adding that it expects the basin to drive production for the next 2 decades with more than 40,000 remaining locations.
However, Benjamin Shattuck, WoodMac upstream analyst, says stakeholders should be cautiously optimistic, “While we have seen performance improve across all benches of the Wolfcamp, we are still waiting for an operator to effectively develop multiple benches over a sizeable acreage position.”
WoodMac adds that stacked pay potential has “stoked the flames” of the merger and acquisition market in the Wolfcamp, where the deal market had been dominated by operators making bolt-on acquisitions to grow out positions in established areas.
Raise NPV for DMLP and FRHLF
Summary and Recommendation
With all the action in RTF (Royalty Trust Fund) stocks in 2014, we raise estimated Net Present
Value (NPV) for two of the nine in the group and add timely input for others. The median total
return is 22% year-to-date while the range is 12% to 78 % and the average is 32% (see Table 4 on
page 7). We advocate owning all of the stocks with rebalancing to keep the total position at a
constant share of an investor’s diversified portfolio.
• Raise NPV to $32 a unit from $28 for Dorchester Minerals (DMLP) on an increase in
estimated value of perpetual mineral rights underlying Top Line – Royalty Interests to 2
times that for Bottom Line – Net Profits Interests (see table Present Value on page 2).
Our confidence in making that change was aroused when we learned at the DMLP annual
meeting presentation last month that the general partner would take advantage of the
mineral owner’s right to participate fully in the Bottom Line – Net Profits of new wells in
the Bakken trend of North Dakota. Previously the general partner was more skeptical of
the drilling profitability and chose not to invest and thereby give up some profit.
• Raise NPV to $26 a share from $21 for Freehold Royalties (FRHLF) on an increase in
estimated value of perpetual mineral rights underlying Top Line – Royalty Interests to 2
times that for Bottom Line – Net Profits Interests (see table Present Value on page 2).
That change keeps the estimate consistent with DMLP above and is further reinforced by
the strong market reception for closely similar PrairieSky Royalties (see Meter Reader
June 3, 2014).
• Trustee change was approved by unitholders at rescheduled meetings on June 20 for
Permian Basin Royalty Trust (PBT) and Cross Timbers Royalty Trust (CRT).
McDep Ratios of 0.82 and 0.84 are the lowest in the RTF group (see Tables 1-3 on pages
4 to 6). Rising oil volume is a bright spot for Top Line Cash Payers (see chart Oi
I believe it may have more to do with this, via WSJ:
Viper Energy's IPO Prices Well Above Forecast
Pricing Is Latest Sign of Strong Investor Demand for High-Yield
By MATT JARZEMSKY
June 17, 2014 7:07 p.m. ET
Mineral-rights owner Viper Energy Partners LP's initial public offering priced well above expectations Tuesday, people familiar with the deal said, in the latest sign of strong investors demand for high-yielding stocks tied to the energy sector.
The Midland, Tex.-based company sold 5 million shares for $26 apiece, these people said, raising $130 million before the potential sale of additional shares to underwriters. Viper had forecast the shares would fetch $19 to $21 apiece, according to a regulatory filing.
Viper Energy is the first U.S.-listed master limited partnership, or MLP, whose business consists solely of owning mineral rights, according to bankers and analysts. These assets entitle it to royalties on sales of oil and gas drilled beneath 14,804 acres in Texas' Permian Basin region.
As such, the deal marked a new twist on recent years' boom in MLPs, which typically own steadily cash-producing assets and pay out much of their income to shareholders as dividends.
Viper, which plans to pay dividends four times a year, estimates it will pay a total of about $1.10 in distributions over the next four quarters through June 30, 2015, which equates an annual yield of about 4.22%. The Alerian MLP exchange-traded fund, which tracks a basket of MLPs, carries a 5.95% dividend yield, according to FactSet.
Texas shale-oil driller Diamondback Energy Inc. FANG -0.91% is spinning out Viper Energy after acquiring the Permian Basin mineral rights for $440 million in September. The IPO valued the new company at $1.98 billion.
Oil Trade Dormant Since ’10 Revives as Brent Spreads Grow
By Grant Smith and Naomi Christie - Jul 16, 2014
Oil traders have the most incentive in four years to store crude at sea and sell it as prices rise, prompting speculation about a revival in the trade once used by companies including BP Plc and Citigroup Inc.
Brent for September traded at $107.03 a barrel at 1 p.m. Singapore time today, 94 cents more than the same grade for August, according to the ICE Futures Europe exchange. That premium hasn’t been bigger since May 2010, the bourse’s data show. That was also around the time oil companies last used tankers for storage in this way, according to E.A. Gibson Shipbrokers Ltd., a London-based broker that arranges charters.
The gap between the two months is wide enough for oil traders to profit from keeping oil at sea for delivery later, according to Energy Aspects Ltd., a consultant in London. Frontline Ltd., an operator of the biggest tankers, said July 14 the premium should be enough to encourage such bookings. The price structure, known as contango, hasn’t translated into vessels being hired for storage so far and other analysts say it still needs to get bigger for that to happen.
“The prompt Brent spreads are at a level that incentivizes floating storage, that is, it becomes economic for companies to store crude on tankers,” Amrita Sen, the chief oil analyst for Energy Aspects, said by e-mail yesterday. “It’s a trade that proved profitable during the period of contango in 2008 to 2009.”
Oil companies and banks, including BP, Royal Dutch Shell Plc and Citigroup’s commodities trading unit, anchored ships laden with crude off the U.K. coast in 2009 to take advantage of the contango. London-based BP said “interesting trading opportunities” helped it earn $500 million more than normal in the first quarter of 2009.
Contango encourages traders to put oil in storage, then profitably sell futures contracts and deliver the supplies at a later date, according to Petromatrix, a consultant based in Zug, Switzerland. The structure can penalize financial investors seeking to maintain a position from one month to the next as the subsequent contract is more expensive, according to Olivier Jakob, Petromatrix’s managing director.
The August Brent contract expires today. Price movements can be amplified on the day before expiration as traders seek to close outstanding positions. Still, contango has also developed between the second- and third-month contracts on ICE Futures Europe, with September Brent trading at a discount of about 60 cents to October.
The collapse in the premium for near-term Brent supplies reflects both the return of Libyan shipments and subdued crude demand from refiners, Torbjoern Kjus, a senior analyst at DNB ASA in Oslo, said on July 10. Libya, the holder of Africa’s biggest crude reserves, is preparing to resume exports from the Es Sider and Ras Lanuf terminals that were handed over last week by rebels seeking self-rule in the nation’s east.
The front-month Brent contract hasn’t traded at a discount of more than $1 a barrel to the second month since May 2010, toward the end of the yearlong spell of contango in which traders implemented the floating storage strategy. A spread of 75 cents to 80 cents a barrel per month makes stockpiling crude on tankers viable, Energy Aspects estimates.
While September is trading at a premium to next-month prices, a better measure of contango for determining if storage works is between August and January, according to Eugene Lindell, a senior analyst at JBC Energy GmbH in Vienna. That spread is currently almost $2 a barrel. It would need to rise to about $2.50 to $3 a barrel before traders began booking vessels, he said.
The last time traders stored crude on tankers was June 2010, according to Patrick Tye, an analyst at Gibson. There have been no reported bookings of tankers for storage so far as a result of the contango, said Odysseus Valatsas, the chartering manager at Dynacom Tankers Management Ltd. The Glyfada, Greece-based company operates VLCCs and other tankers.
Barclays Plc, Citigroup and Societe Generale SA predict that the discount to the front month is unlikely to persist as rising Chinese demand will bolster refinery operating rates and curb a short-term surplus. Lower output from the North Sea will also support near-term Brent, Citigroup predicts.
If Libyan exports continue to recover, Saudi Arabia, the biggest oil exporter, will adjust its output to prevent a surplus, supporting the front month, Barclays and Societe Generale said. This will cause the contango to reverse into the opposite condition, known as backwardation, in which the front-month trades at a premium to later deliveries, the banks said.
Equities researchers at Goldman Sachs increased their price objective on shares of RPC (NYSE:RES) from $26.00 to $27.00 in a research report issued on Thursday. Goldman Sachs’ price target indicates a potential upside of 17.29% from the company’s current price.
Choking Smog Puts Chinese Driver in Natural Gas Fast Lane
By Bloomberg News - Jul 3, 2014
Powering vehicles with natural gas, a cleaner alternative to diesel fuel and gasoline, is catching on faster in China than in any other nation as President Xi Jinping seeks to reduce smog.
About 3.8 million cars, trucks and buses in China, the world’s biggest energy consumer and emitter of greenhouse gases, will be filling up with compressed or liquefied natural gas by 2020, according to Bloomberg New Energy Finance. That’s almost double the current number, making Asia’s largest economy the fastest-growing market.
The emergence of natural gas as a motor fuel emitting 32 percent less than diesel is buttressed by China’s network of almost 4,900 refueling stations and a $400 billion gas import deal with Russia. The fuel is also about 30 percent cheaper than its diesel equivalent as LNG trades at a three-year-low in Asia. Chinese Premier Li Keqiang has promised to ban dirtier vehicles as smog in the capital, Beijing, increasingly exceeds World Health Organization limits and forces residents to don masks outdoors.
“Natural gas vehicles have significant growth potential in China because they’re more economical than conventional models and because the government is committed to fighting pollution,” Ricky Wang, an analyst at ICIS-C1 Energy, a Shanghai-based commodity consultant, said by phone on July 1. “Gas demand from the transport sector is booming.”
India, Pakistan and Iran are among other fast-growing markets for natural gas-powered vehicles, said Tony Regan, founder of Tri-Zen International Inc., a Singapore-based consultant with clients including Royal Dutch Shell Plc and OAO Lukoil. The U.S., enjoying a rising supply of low-cost natural gas because of the boom in hydraulic fracturing, or fracking, was one of the first to use LNG as a truck fuel.
In China, leaders are starting to heed demands for cleaner air in the nation, which the World Bank estimates has 16 of the planet’s 20 most-polluted cities.
Exposure to PM2.5 pollution, the small particles that pose the greatest risk to human health, contributed to an estimated 8,572 premature deaths in Beijing, Shanghai, Guangzhou and Xi’an in 2012 and more than $1 billion of economic losses, according to a study by Greenpeace and Peking University’s School of Public Health.
China is now the largest and fastest-growing market for LNG used in trucking, Regan said. By 2015, 220,000 heavy trucks and 40,000 buses in China are expected to run on LNG, he said in an e-mail July 2.
“While natural gas has been used as a fuel for vehicles since the 1930s, this was mainly for cars and taxis,” Regan said. “CNG was the first way to use gas as a motor fuel, but there is growing awareness of how much cheaper LNG is than diesel and how suitable that is to fuel trucks, trains and buses.”
Even so, China’s ability to switch drivers to natural gas will be constrained. The country is far behind the U.S. in using fracking to expand domestic production of gas. In the U.S., the technology has unlocked natural gas trapped in formations like the Marcellus shale. China’s electricity makers also are competing for gas to replace coal, meaning the nation will face a long-term shortage, according to Charlie Cao, a Beijing-based analyst at New Energy Finance.
“The lack of fueling infrastructure has been the single largest constraint to the natural gas vehicle market,” Cao said. “Drivers have to compete for already limited gas supplies, especially in the peak heating season, when the tight gas flows are prioritized for residential use.”
China will have 200 million vehicles running on all types of fuel by 2020, according to the China Association of Automobile Manufacturers. That means natural gas will fuel only about 2 percent of the total even as the use of gas surges.
Compressed natural gas, or CNG, currently dominates China’s market and accounts for 97 percent of vehicles running on natural gas, Cao said. LNG has a smaller share in transport because of higher costs for liquefaction and a shortage of infrastructure for deliveries.
Still, transportation is forecast to surpass manufacturing as China’s biggest downstream consumer of LNG by 2016, Gordon Kwan, the regional head of oil and gas research at Nomura Holdings Inc. (8604) in Hong Kong, said in an e-mail last month.
China’s LNG-powered fleet will more than double to 180,000 vehicles and use 5.3 million metric tons for a 40 percent share of LNG consumption by 2016, Kwan said.
“Natural gas vehicles are more economically attractive and technically mature than other new-energy vehicles,” Cao said. “Electric or hybrid vehicles, for example, still requires government subsidies to compete with the gasoline and diesel-fueled passenger vehicles. Building the gas fueling stations is also less capital-intensive than the charging networks.”
While China is struggling to keep up with demand, it had 51 percent more natural gas refueling stations at the end of 2013 than the year before, ICIS-C1’s Wang said. She expects about 6,000 natural gas pumps at the end of 2014, up 24 percent from last year.
China National Offshore Oil Corp., the nation’s biggest operator of LNG receiving terminals, plans to triple its filling stations supplying the fuel to 400 this year. China will have more than 12,000 such stations by 2020, with Cnooc taking 20 percent of market share, it said on April 2.
Shaanxi Automobile Group, western China’s largest truck maker, and Dongfeng Yangste Motor Co., the region’s biggest bus manufacturer, are among those producing natural gas vehicles that are outwardly indistinguishable from conventional models.
China signed a 30-year deal in May to import natural gas from Russia through a new pipeline. The agreement with OAO Gazprom, Russia’s pipeline-gas monopoly, is forecast to provide 38 billion cubic meters of gas annually, according to Alexey Miller, Gazprom’s chief executive officer. China is set to increase imports via Turkmenistan as well.
LNG costs 30 percent less than China III-standard diesel as of May this year, according to ICIS-C1 Energy.
LNG in northeast Asia dropped in the week ended June 30 to $11.25 per million British thermal units, the lowest price since March 2011, New York-based Energy Intelligence Group said on its World Gas Intelligence website.
Switching from diesel to natural gas for trucks and buses can pay for itself after 12 to 15 months and it saves 686,000 yuan over a lifetime of 10 years, Cao said.
“The growth of gas in the transportation sector is expected to be significantly faster for the foreseeable future,” said Thomas Chhoa, Shell’s Singapore-based general manager for Global LNG to transport. “Natural gas for mobility is widely available, cleaner burning than other conventional transportation fuels, cost competitive and technically ready,” he said in a webcast hosted by the company in April.
Substantial discount for LNG-powered ships in the Port of Gothenburg
Sam Jermy Sam Jermy - Logistics - 21 hours ago
Ships powered by liquefied natural gas (LNG) can expect a substantial reduction in the port tariff when they call at the Port of Gothenburg in the future.
A discount will come into effect in 2015 and will continue for three years. The aim is to induce more shipping companies to switch to cleaner fuel. Magnus Kårestedt, Chief Executive at the Port of Gothenburg, said: "It has been our firm belief for a long time that LNG is the fuel of the future.
“This initiative is entirely in line with our ambition to reduce the environmental impact of shipping and create a sustainable Scandinavian freight hub."
LNG-powered ships receive a total tariff discount of 30 percent when they call at the port. The discount will apply until December 2018. In one year alone this would represent a substantial saving for ships that call at the Port of Gothenburg on a regular basis.
There are considerable environmental benefits to be gained from using LNG in shipping and industry. Sulphur and particle emissions are reduced to almost zero, nitrogen emissions by 85-90 per cent and carbon dioxide emissions by 25 percent.
Carl Carlsson of the Swedish Shipowners' Association said: "It's not technology that is the limiting factor, it's the financial considerations. Working within the framework of the Zero Vision Tool project, we will attempt to convince other ports in the Baltic to offer the same type of support."
New sulphur regulations
From January 1, 2015, conditions for shipping in the Baltic and North Sea will change with the introduction of new, stricter regulations governing sulphur emissions. In response, the Port of Gothenburg will revise its port tariff.
Ships that maintain a high level of environmental performance will be recompensed. Two indexes will be applied as a basis for discounting – Environmental Ship Index, which is used by many ports around the world, and Clean Shipping Index, which is an environmental index where the freight-owners' make demands on the shipping industry.
At the same time, ships that switch from oil to LNG will receive a further discount.
LNG terminal underway in Gothenburg
Preparations are currently being made for the construction of a terminal at the Port of Gothenburg that will supply both shipping and industry with liquefied natural gas. The terminal is part of a collaborative venture between Rotterdam and Gothenburg to build an infrastructure for LNG, an initiative that is also supported by the EU.
Cut & paste from Navios Acquisition (nna)
Benefits Crude Oil Tankers.
Jefferies Analyst Doug Mavrinac wrote: Even though we believe the condensate export volumes are likely to be limited, any increase in export volumes should have a net positive impact on the crude oil tanker market, even if minimal. That being said, because the volumes are likely to be minimal, we would expect any heavy condensate volumes exported out of the U.S. to be carried out on either Aframax crude oil tankers and/or Panamax crude oil tankers.” Less
U.S. Ruling Loosens Four-Decade Ban On Oil Exports
Shipments of Unrefined American Oil Could Begin As Early As August
By CHRISTIAN BERTHELSEN And LYNN COOK CONNECT
June 24, 2014 5:14 p.m. ET Wall Street Journal
The Obama administration has quietly cleared the way for the first exports of unrefined American oil in four decades, allowing energy companies to chip away at the long-standing ban on selling U.S. crude overseas.
Federal officials have told two energy companies that they can legally export a kind of ultra-light oil that has become plentiful as drillers tap shale formations across the U.S. With relatively minimal processing, oil shipments could begin as early as August, according to one industry executive involved in the matter.
Using a process known as a private ruling, the U.S. Commerce Dept.'s Bureau of Industry and Security is allowing Pioneer Natural Resources Co. of Irving, Texas, and Enterprise Products Partners LP of Houston to export ultra-light oil known as condensate to foreign buyers who could turn it into gasoline, jet fuel and diesel.
Both companies confirmed they had received the rulings.
Under current rules, companies can export refined fuel, such as gasoline and diesel, but not oil itself. The Administration's new approach, which hasn't been publicly announced, redefines some ultra-light oil as fuel after it has been minimally processed, making it eligible for sale abroad.
The Commerce Department said the companies have improved the processing of the crude in a way that qualifies it for export, even though the oil wouldn't count as being traditionally refined. Exactly how the agency defines condensate and remains unclear.
The first shipments are likely to be small, but could ultimately encompass a lot of the 3 million barrels a day of oil that energy companies are pumping from shale, industry experts say, depending on how regulators define what qualifies for export.