OREANDA-NEWS. During the reporting period tanker freight rates continue to be at historically low levels with no positive dynamic throughout 2013. Reflecting the challenges facing the global tanker industry over the past five years, the Clarksea tanker index remained at its level of 2009. Nevertheless second hand values for Product tankers (MRs, LRs) have risen about 10-15 pct since the start of 2013, Aframaxes rose by 5-10 pct while Suezmaxes and VLCCs have recovered from their value drop by the third quarter of 2013 and are at the same levels as at the beginning of the year.

Highlights

Gross revenue: USD 964.6 million (-7.8 pct*)
Time charter equivalent (TCE) revenues: USD 661.4 million (-1.0 pct*)
EBITDA: USD 301.7 million (- 4.5 pct*)
Adjusted Net Profit: USD 28.8 million (9M 2012: USD 71.0 million profit)
Delivery of six new vessels (LR2 and Aframax tankers; two LPG carriers (Ice class 1B); one Panamax bulk carrier (Ice class 1B) and one multifunctional ice breaking supply vessel (Icebreaker Ice10), amounting to 360,786 tonnes deadweight in total
Two new multifunctional icebreaking supply vessels Vitus Bering and Alexey Chirikov (Icebreaker Ice 10) started operations on the Sakhalin I project fully in line with SCF development strategy, under long-term charter to the project operator Exxon Neftegas Ltd
LPG carriers Sibur Voronezh and Sibur Tobol entered service under long-term time-charter agreement with petrochemical group SIBUR, to transport LPG from the Ust-Luga terminal (Leningradsky Region), Russia
The voyage of enhanced  ice class (Arc4) tanker SCF Yenisei  via the Northern Sea Route as a part of the SCF long-term research programme on logistical solutions for the transit of  hydrocarbons in the  Arctic
SCF Group and ING BANK N.V. signed a USD 75 million, 10 year project finance facility for financing two new LPG carriers.
Total fleet size was 158 owned and chartered vessels (including nine tugs leased to Rosnefteflot and JVs fleet), representing nearly 12 million tonnes DWT as at the period end.
*Comparative percentage increases on the previous nine months to 30 September 2012

Commenting on the results, Sergey Frank, President and CEO of OAO Sovcomflot, said:

“Despite the challenges facing the global tanker industry over the past five years, Sovcomflot’s business model remains robust. Our conservative chartering policy, with 65 per cent of vessels engaged in long-term employment and industrial projects, continues to serve the company well. Consistent  implementation of Sovcomflot’s strategy and our many years of experience in shipping in Arctic and Sub-Arctic seas contribute to  expanding  Sovcomflot’s share in the continuously growing sectors of Russia’s oil and gas industry. Overall our operations continue to benefit from the professionalism and expertise of our crews and shore-based staff around the world.”

Nikolai Kolesnikov, Senior Executive Vice-President, Chief Financial Officer, added:

“Sovcomflot’s performance improved notably in the third quarter of 2013, where our earnings (EBITDA) increased by more than 10 per cent year on year, on the back of revenue growth. The Group’s stable financial condition and good earnings visibility have helped it retain access to sources of debt capital, on favourable terms, throughout the shipping cycle, and the Group is on track to secure post-delivery debt financing for its remaining vessels under construction. Sovcomflot was successful in concluding an innovative long-term credit transaction for financing two new LPG carriers.”
Gross revenue for the nine months to 30 September 2013 declined by 7.8 per cent to USD 964.6 million (9M 2012: USD 1,046.4 million). Time charter equivalent (TCE) revenue declined by 1.0 per cent to USD 661.4 million (9M 2012: USD 667.8 million).

Earnings before interest, tax and depreciation (EBITDA) were USD 301.7 million, a decline of 4.5 per cent on the previous period (9M 2012: USD 336.9 million). For the period to 30 September 2013, the Group made adjusted profit of USD 28.8 million (9M 2012: USD 71.0 million net profit). This performance reflects the especially challenging tanker market conditions experienced over the period.
The Group’s third quarter net profit, for the three months ended 30 September 2013, was USD 9.1 million (Q3 2012: net loss of USD 8.5 million). This result underlines the Group’s cautious optimism that the market is showing signs of recovering from its historic lows of recent times.

Operating Highlights

Key Business Segments

Crude Oil Tankers

Time Charter Equivalent (TCE) revenues for the nine months period to 30 September 2013   were USD 260.0 million (9M 2012: USD 283.0 million). This represented a decline of 8.1 percent in TCE revenues compared with the previous period in 2012. The performance reflects the persistent tough conditions of the crude oil tanker market over the reporting period.

As at 30 September 2013, the Group had two Very Large Crude Carrier (VLCC) tankers on order, each of 320,000 tonnes deadweight. The vessels will work under a seven year time charter contract to PetroChina International Co., Ltd..

Oil Product Tankers

Time Charter Equivalent (TCE) revenues for the period were USD 164.4 million (9M 2012: USD 167.9 million). This was a decline of 2.1 per cent on the previous nine months period.

This segment remains of significant importance to the Group and accounted for 25 per cent of total TCE revenues during the reporting period. The vessels operated include: products tankers; chemical; asphalt and bitumen carriers. During the period, the Group took delivery of the 118,316 tonnes deadweight Aframax tankers Anatoly Kolodkin and Viktor Bakaev.

In August the Group’s tanker SCF Yenisei continued the programme of NSR voyages and made an easterly crossing of the Northern Sea Route, carrying a cargo of light oil products. This year the navigational window was widened: the voyages started in the early August and continued up till the end of October. This marked the next stage in preparations for the upcoming development of energy resources in the Russian Arctic, which the Group is conducting in close cooperation with oil and gas majors, FGUP Atomflot and the Russian Ministry of Transport.

Gas Tankers

Time Charter Equivalent (TCE) revenues for the period ended 30 September 2013 increased by 7.0 per cent to USD 33.7 million (9M 2012: USD 31.5 million).

The Group operates a fleet of LNG and LPG carriers, comprising six wholly-owned vessels. This business segment accounted for 5.1 per cent of TCE revenues in the nine months of 2013 (9M 2012: USD 31.5 million). In addition, the Group has an equity ownership position in another four LNG carriers, operating under long-term contracts for the Sakhalin 2 and Tangguh projects.

During the period the high ice class LPG tankers Sibur Voronezh and Sibur Tobol entered service. They will enable the year-round exportation of LPG from the port of Ust-Luga (Leningradsky Region), Russia. The vessels are part of an expanding collaboration with the Russian petrochemical holding company SIBUR.

During the period the Group continued work on transportation solutions for the Yamal LNG project as part of its agreement with OAO Novatek  and Vnesheconombank signed in June.

Offshore services

Time Charter Equivalent (TCE) revenues for the nine month period ended 30 September 2013 increased by 7.1 per cent to USD 152.3 million (9M 2012: USD 142.2 million). This business segment includes the Group’s shuttle tankers and specialised icebreaking supply vessels. The segment accounted for 23.2 per cent of the Group’s TCE revenues during the reporting period.

Following her delivery to the Group in April 2013, the multifunctional icebreaking supply vessel Alexey Chirikov commenced work at the Sakhalin-I project at the end of July. She joined Vitus Bering which was already working on the project. They operate in a high potential region for offshore oil and gas development. Ice-breaking supply vessels such as Vitus Bering enable uninterrupted operations at the oil platforms of the Arkutun-Dagi field, in the Sea of Okhotsk, which is part of the Sakhalin-1 project.

Both Alexey Chirikov and Vitus Bering were built as part of a joint venture involving Russian and Finnish shipbuilders. Around 90 per cent of the structural components for these vessels were produced in Russia at the Vyborg Shipyard (part of OAO USC).

Other

This segment includes dry bulkers, seismic vessel operations and towage operations. Time charter equivalent revenues for the first nine months of 2013 increased by 18.1 per cent to USD 50.9 million (9M 2012: USD 43.1 million).

In January 2013 the Group took delivery of NS Yakutia, a 74,559 tonnes deadweight ice class Panamax bulk carrier. On 21 September, the vessel embarked upon her first transit of the Northern Sea Route, leaving the port of Murmansk with a cargo of 67,000 tonnes of iron-ore concentrate bound for the port of Lanshan in China. The vessel completed her voyage in October 2013, saving some 18 days compared with the alternative route via the Suez Canal.

Both NS Yakutia and her sister-ship NS Energy have been classified as ENVIRO vessels, indicating a higher level of environmental protection and safety. They benefit from reinforced double hulls and double bottoms.

During the period the seismic vessel Vyacheslav Tikhonov completed a project in the Ukrainian sector of the Black Sea and worked on a large scale project in India. In June, the vessel repositioned to Sakhalin in Russia’s Far East to undertake a large project for OAO Gazprom in the Okhotsk Sea.

Fleet Summary

At the end of the first nine months of 2013, the Group’s fleet represented 158 vessels of nearly 12 million tonnes deadweight (30 September 2012: 156 vessels of 11.7 million tonnes deadweight), including nine escort tugs operating on a bareboat charter to an associate company. During the reporting period, six vessels were delivered to the Group, including: two LPG carriers (Sibur Voronezh and  Sibur Tobol); two Aframax (LR2) tankers (Anatoly Kolodkin and Viktor Bakaev); one Panamax bulk carrier (NS Yakutia) and one multifunctional ice breaking supply vessel (Aleksey Chirikov, ice class Ice10).

As at 30 September 2013, the Group had six vessels under construction, including: two Very Large Crude Carriers (VLCC) and four LNG carriers, representing 1.0 million tonnes deadweight (30 September 2012: 1.5 million tonnes deadweight). The vessels are for delivery between November 2013 and April 2015.

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

Financial Position

The Group retains its conservative approach to financing. This is supported by the long-term nature of its chartering arrangements, including the servicing of Russia’s industrial energy projects and the offshore sector. This favourable position means that Sovcomflot continues to benefit from strong and visible contracted future revenues, which amounted to a total of USD 4.9 billion as at 30 September 2013 (including revenues from joint ventures).

In July OAO Sovcomflot and ING BANK N.V. concluded a USD 75 million, 10 year project credit facility. The funds have been used to finance the two new LPG carriers operating on long-term charter to SIBUR. ING Bank acted as the sole mandated lead arranger for this project finance facility, which has a non-recourse structure and a favourable long-term tenor as well as competitive pricing, reflecting the robustness of the deal structure and the credit quality of SIBUR. The vessels are owned through Sovcomflot's newly established SCF Gas Carriers Ltd. holding company.

During the period Sovcomflot and Citigroup were shortlisted for ‘Deal of the Year’ in the 2013 Lloyd’s List Global Awards. This was in recognition of Sovcomflot’s USD 700 million, seven year credit facility which was arranged in December 2012 by a consortium of international banks including Citigroup. The funds were used to refinance three existing revolving credit facilities and for other corporate purposes.

At the period end, the Group’s order book comprised six vessels with a total contracted cost of USD 981.7 million. Some USD 277.1 million of these costs had been paid as of 30 September 2013.