OREANDA-NEWS. June 08, 2012. Commenting on the Group’s results Sergey Frank, President & CEO of OAO Sovcomflot, said:

 “Despite some limited revival in the global tanker market, at the beginning of 2012, tanker owners are still experiencing challenging times. It is way too early to talk about recovery from this period of long-term market depression. During the first quarter of 2012, freight rates were at historical lows and the market saw an over-supply of new-buildings. In the first quarter freight rates remained at historic low levels due to a continued tanker supply / demand imbalance. Despite this background, the Group has proven to be resilient, which has demonstrated the ongoing viability of its business-model. SCF Sovcomflot has ended the period with positive results, with net profit 36.3% above the level achieved last year. Significantly, the Group’s profitability index remains way ahead of the industry average, which gives us cause to look to the future with confidence.”


Q1 2012 Highlights:

 • Gross revenue up 14.4% to USD 394.9 million (Q1 2011: USD 345.1 million).

 • Net profit up 36.3% to USD 45.4 million (Q1 2011: USD 33.3 million).

 • Grand Aniva gas carrier completes the 500th delivery of LNG for Sakhalin-2 project, via the LNG terminal at the port of Prigorodnoe (Sakhalin Island).

 • Expansion of co-operation with Glencore through the acquisition of an equity participation in four LR1 product carriers (74,000 tonnes dwt).

 • Long-term charter of two 20,600 cbm ice-class LPG tankers with Russian petrochemical company SIBUR.

 • Completion of engineering and design tests in preparation for the transportation of the Berkut Gravity Base Substructure for the Arkutun Dagi oil field of the Sakhalin-1 project (operator - Exxon Neftegas Ltd). Towing and installation of the platform at the field will be carried out by Sovcomflot with its partner - the Dutch company Van Oord.


Key Business Segments:

 Crude Oil Tankers

 This segment remains the largest for SCF Group, and accounted for 41% of Time Charter Equivalent (TCE) revenues during Q1 2012. SCF currently has six crude oil tankers on order, including an order for the Group’s first Very Large Crude Carriers (VLCCs), comprising two 320,000 tonnes DWT vessels.

 The SCF tanker Nevsky Prospect was the first vessel to load at the new oil terminal at the port of Ust-Luga (part of the second line of the Baltic pipeline system), in the Leningrad Region.

 Oil Product Tankers

 This segment accounted for 26% of SCF Group’s TCE revenues in Q1 2012. During the period, delivery was taken of five LR1 tankers – SCF Progress, SCF Plymouth, SCF Pacifica, SCF Pearl and SCF Prudencia, built in 2011. All of these vessels form part of a joint-venture with Glencore, in which SCF Group has a 51 per cent shareholding.

 Gas Carriers

 Gas carriers accounted for almost 9% of TCE revenues in Q1 2012. During the reporting period, the Group signed an agreement for the long-term time-charter of two gas carriers of 20,600 cubic metres each (ice-class 1B). This involves the regular, year-round, transportation of LPG for the petrochemical company SIBUR.

 In March 2012, the gas carrier Grand Aniva completed the 500th delivery of LNG, via the LNG terminal at the port of Prigorodnoe (Sakhalin Island) for the Sakhalin-2 project. This achievement reflects the long-term mutually profitable partnership with the project operator – Sakhalin Energy Investment Company (“SEIC”).

 LNG transportation by sea represents a growing part of SCF’s portfolio of interests, and it is a key element within the Group’s development strategy. The new-building program includes six gas carriers. The Group is already the leading operator of ice-class LNG-carriers in the world.

 Offshore

 The offshore market segment performed well in Q1 2012, bringing in nearly a quarter of gross revenues, and TCE revenues, an increase of 19.4% over the first quarter of 2011. Over the period, the construction of the first of two multifunctional ice-class (ice-10) supply vessels commenced at the Arctech Helsinki Shipyard. The ships will be employed on the Sakhalin-1 project.

Fleet Summary:

 As at 31 March 2012, the SCF Group fleet comprised 158 vessels amounting to a total of 11.7 million tonnes dwt. The fleet comprises of 145 owned vessels, four chartered-in vessels, nine escort tugs which have been chartered-out on bareboat charter to an associate company – Rosnefteflot. The average age of tanker is seven years, compared with an industry average of 11 years.

 Assets under construction at the period end comprised 16 vessels, with a total deadweight of nearly 1.7 million tonnes. This includes: two VLCCs; six gas-carriers (four ice-class LNG, Ice 1C, 170.000 cubic metres; two LPG-carriers, Ice 1B, 20.550 cubic metres); four Aframax tankers; two multifunctional ice-class supply vessels; two Panamax bulkers.

 A detailed fleet list is available on the Group’s website (www.scf-group.com).

 The Group retains its leading position in the major conventional tanker market segments, and remains one of the largest ship owners and tanker fleet operators. According to Clarkson research, the Group is ranked: first in the world by dwt tonnage and the number of Aframax vessels; in the world’s top-five by the dwt tonnage and numbers of Suezmax vessels; first in MR-type oil product carriers; third in the number of shuttle tankers. SCF is also the world’s leading operator of ice-class tankers.


Outlook for 2012:

 SCF Group has a conservative view of the tanker market’s development over the current year. In terms of leading indicators and forecasts for petroleum and oil products consumption, as well as the supply of tonnage, there are no reasons to believe that market situation will dramatically improve in 2012.

 Nevertheless the demand for oil, including both consumption as well as strategic and commercial oil stock building in case of any disruption to oil supplies from the Persian Gulf, has grown considerably in the first half of this year. Significant growth in the freight rates for large oil tankers has been seen in the first quarter and at the beginning of the second quarter of 2012, compared with last year. This growth reflects a sharp temporary increase in oil demand.

 Freight rates remain under pressure, however, due to the imbalance between vessel supply and demand caused by the oversupply of tonnage. Meanwhile, the market value of oil tankers remains at historic lows. SCF Group believes that a fundamental positive improvement will not come before 2013.

 During 2012 the crude oil tanker market will be significantly influenced by events in the Persian Gulf, with the possibility of a temporary increase in tanker rates, and then a significant reduction after global strategic oil reserves have been replenished. Developments in the crude oil tanker market will also have an impact on the prevailing freight rates for oil product tankers.

 Overall, the tanker market remains volatile, speculative and strongly fragmented. The freight market is traditionally characterised by a large number of players, mostly small ship-owners, irregular additions of new tonnage and low supply discipline.

 Despite the unfavorable market situation, the SCF business model gives grounds for cautious optimism. The Group continues to implement its development strategy with a focus on long-term contracts with key customers, and expanding its participation in major industrial projects on the continental shelf. With the backing of a strong customer base, a diversified portfolio of quality services and some USD 5.5 billion of future contracted revenues, SCF Group can face the future with confidence.