Business Context and Reporting Period
This Form 6-K filing by Nordic American Tankers Ltd. (NAT) reports results for the second quarter of 2013, ended June 30, 2013. NAT operates a homogeneous fleet of 20 Suezmax tankers, focusing on spot market trading through the Orion Tanker Pool. The company emphasizes a conservative financial strategy, maintaining low net debt and a consistent dividend policy despite a weak market environment characterized by refinery maintenance shutdowns and new vessel deliveries.
Key Financial Metrics
| Metric | 2Q 2013 | 1Q 2013 | 2Q 2012 |
|---|---|---|---|
| Net Voyage Revenue | $10.0 million | $17.3 million | $28.5 million |
| Net Loss | ($31.7 million) | ($32.4 million) | ($7.9 million) |
| Loss Per Share (Basic) | ($0.48) | ($0.59) | ($0.15) |
| Operating Cash Flow (Non-GAAP) | ($10.6 million) | ($4.9 million) | $10.3 million |
| Cash and Cash Equivalents | $71.1 million | $55.5 million (Dec 2012) | $104.3 million |
| Total Liquidity Reserve | $330 million | N/A | N/A |
| Long-term Debt (Drawn) | $210 million | $250 million | $250 million |
| Dividend Per Share | $0.16 | $0.16 | N/A |
Liquidity and Debt: The company maintains a total liquidity reserve of approximately $330 million, comprising cash, working capital, and the undrawn portion of a $430 million credit facility. Net debt per vessel stands at $4.4 million. The credit facility matures in November 2017 and is non-amortizing.
Material Changes vs. Prior Period
- Revenue Decline: Net voyage revenue decreased significantly to $10.0 million in 2Q 2013 from $17.3 million in 1Q 2013 and $28.5 million in 2Q 2012, driven by weaker spot rates and refinery maintenance shutdowns.
- Equity Offering: NAT completed an equity offering in the quarter, generating net proceeds of approximately $102 million, strengthening its balance sheet.
- Acquisition: The company acquired Scandic American Shipping Ltd. in 1Q 2013, resulting in non-recurring charges of $3.6 million in G&A expenses for that quarter.
- Contract Extension: A commercial frame agreement with an ExxonMobil subsidiary was extended for two years.
- Vessel Purchase Cancellation: NAT cancelled an agreement to purchase a 2013-built Suezmax tanker at an insignificant cost due to the seller's failure to deliver on time.
Guidance, Outlook, and Risks
Outlook: Management expects the third quarter of 2013 to show improvement over the second quarter. The Suezmax market fundamentals are viewed as improving due to political unrest in Egypt and a narrowing price gap between WTI and Brent crude, which may stimulate US oil imports. The company anticipates fleet utilization could grow in 2014 as the Suezmax fleet may shrink due to scrapping.
Strategy: NAT continues to focus on cost efficiency and maintaining a low cash break-even rate of approximately $12,000 per day per vessel. The company aims to expand its fleet accretively when market conditions are favorable.
Risks and Contingencies:
- Market Volatility: Spot rates remain under pressure from new vessel deliveries and global economic uncertainty, particularly in Europe.
- Scrapping Activity: While scrapping has been sluggish in 2013, the company expects an increase as vessels approach 15-year survey dates and owners face financial constraints.
- Legal: NAT is in arbitration regarding a claim for drydocking and maintenance costs against a former charterer of the vessel Nordic Harrier.
- Derivatives: The company does not engage in derivatives, exposing it to direct market rate fluctuations.
Investor Verification Checklist
- Verify the sustainability of the $0.16 quarterly dividend given the current net loss and negative operating cash flow.
- Confirm the status of the arbitration claim regarding the Nordic Harrier and potential recovery amounts.
- Monitor the utilization rates of the Orion Tanker Pool and the impact of the ExxonMobil agreement extension on revenue stability.
- Assess the impact of the $102 million equity raise on future earnings per share dilution versus balance sheet strength.
- Track the narrowing WTI-Brent spread and its actual effect on US crude import volumes and Suezmax demand.