NAT

Business Context and Reporting Period

This Form 6-K, filed on June 22, 2017, reports on Nordic American Tankers Limited (NAT) for the first quarter ended March 31, 2017. NAT operates a fleet of Suezmax tankers, which totaled 30 vessels as of the reporting period following the delivery of the Nordic Space in February 2017. The company operates in a volatile tanker market characterized by increasing oil demand in China and India but constrained by supply dynamics.

Key Financial Metrics

Operational Metrics: Average daily Time Charter Equivalent (TCE) was $22,700 per vessel in 1Q 2017, compared to $21,600 in 4Q 2016. Operating expenses averaged approximately $8,400 per vessel per day. The cash break-even rate is approximately $11,500 per day per ship.

Material Changes vs. Prior Period

• Revenue and Earnings: Net Voyage Revenue increased 5% sequentially from 4Q 2016 but decreased 28% year-over-year compared to 1Q 2016. Net Operating Earnings improved sequentially but remain significantly lower than the prior year due to market conditions.
• Net Loss Drivers: The reported Net Loss of $3.4 million in 1Q 2017 includes a non-cash dilution charge of $2.6 million (approx. $0.02 per share) resulting from a reduced equity stake in Nordic American Offshore (NAO) following a follow-on offering. Excluding this charge, the company generated positive operating cash flow.
• Liquidity: Cash and cash equivalents decreased from $82.2 million at year-end 2016 to $45.6 million at March 31, 2017. This reduction was driven by vessel acquisitions ($33.4 million), investment in NAO ($10 million), and dividend payments ($20.4 million).
• Fleet Expansion: The fleet grew to 30 vessels with the addition of the Nordic Space. The company has ordered three additional newbuildings for delivery in late 2018, representing a 10% fleet increase.

Guidance, Outlook, and Risks

Outlook and Strategy: Management maintains a strategy focused on efficiency and low costs to navigate market volatility. The company expects the recent vessel acquisitions to increase Total Return for shareholders over time. NAT aims to maintain a competitive cash yield through its dividend policy, with a historical payout ratio around 70% (excluding quarters where funds were withheld for acquisitions).

Financing: NAT has a $500 million credit facility maturing in December 2020. The company is in compliance with all covenants. The remaining 70% of the cost for the three newbuildings is expected to be financed through cash on hand and increased debt; these vessels are not currently pledged under the credit facility.

Risks and Contingencies:

• Market Volatility: Earnings are sensitive to fluctuations in charter rates, bunker prices, and global oil demand.
• Supply/Demand: The Suezmax orderbook represents 14% of the fleet, though slippage and cancellations may occur.
• Regulatory: Compliance with IMO regulations regarding Ballast Water Treatment Systems and low sulphur bunker oil is a key operational focus.
• Equity Investment: Continued exposure to the challenging offshore market through the 22.6% stake in NAO.

Investor Verification Checklist

• Verify the reconciliation of Adjusted Net Operating Earnings ($30.5m) to Net Loss ($3.4m) to understand the impact of non-cash charges and depreciation.
• Confirm the status of the $500 million credit facility and any potential impact of the new debt required for the 2018 newbuildings on leverage ratios.
• Monitor the cash burn rate given the decline in cash reserves from $82.2m to $45.6m in one quarter.
• Assess the impact of the NAO dilution charge on future earnings if the offshore market remains challenging.
• Review the delivery schedule and financing terms for the three new Suezmax vessels ordered from Samsung Shipyard.