Nordic posts earnings increase
Nordic American Offshore (NAO) posted its first quarter results last month and said 1Q14 revenue was $13.1 million, up from $1.28 million for three months ending December 31, 2013. NAO reported earnings per share of $0.10, up from a loss of $0.01 in the previous quarter ending December 31, 2013. The company said its net income of $1.7 million for the 1Q14 was impacted by a tax charge on operations of $1.2 million. A positive operating cash flow of $6.5 million for the 1Q14 reflected 94% of the earnings capacity for NAO’s fleet, as three of its six operating vessels were delivered in January, 2014.
NAO’s initial fleet is providing services for Apache Corporation’s (APA) Apache North Sea Limited, BG International Limited (BRGYY), and Statoil Petroleum AS, a subsidiary of Statoil ASA (STO). The average duration of the contracts is just over two years with rates between approximately $25,000–$29,000 per day per vessel. The company expects the cash break-even rate to be about $12,000 per day based on the budget for vessel operating expenses of $10,000 per day.
Citing Fearnley Offshore Supply AS, Nordic American Offshore said “during 2013, the general market for offshore supply vessels strengthened substantially, especially for large PSVs and PSV utilization was around 90% for the year. During the traditionally strong summer season, the PSV day rates almost doubled as compared to those in 2012 (approximately $15,000 per day in 2012, approximately $30,000 per day in 2013). Increased demand from exploration activity and activity on both new and mature oil fields was high during the year. Fearnley expects the activity level to remain high in the coming years, as several new fields are being developed. Field development investment on the Norwegian Continental Shelf (NCS) is expected to increase by 40% over the next four years.”
Peer Tidewater (TDW) noted that fiscal 2014 revenues increased 15% driven by the overall increases in utilization and average day rates due to the increased number of newer and more sophisticated vessels in the company’s fleet, including the acquisition of Troms Offshore. It anticipates that its longer-term utilization and day rate trends for its vessels will be correlated with demand for and the price of crude oil. Tidewater further said that a number of analysts expect worldwide demand for crude oil in calendar year 2014 to increase at a rate higher than in 2013 primarily driven by China, the Middle East, and Latin America with modest growth projected for the U.S. Another peer GulfMark Offshore Inc. (GLF) said its average day rate for North Sea exceeded $22,000—its highest first quarter average since 2008, driven by new-build vessels.
Potential high dividend yield with first dividend of $0.45 per share
NAO declared its first dividend of $0.45 per share for 1Q14. The record date was June 17, 2014, and the payment is to be made on or around June 30, 2014.
Nordic American Tankers, which owns around a 26% stake in NAO, said in its annual filing that “the objective of the company’s investment in NAO is over time to produce higher dividend for shareholders of NAT than otherwise would have been the case.” NAT further added that a dividend in kind of $0.13 per share will be distributed to NAT shareholders in the form of NAO shares post the listing of NAO on the New York Stock Exchange (or NYSE).