Seadrill Reports: Q1 and Extraordinary Dividend

(KBHM) John Fredriksen's rig company Seadrill (SDRL:NO) beat analysts estimates today when they released their results for the first quarter. Seadrill reported profits of $439 million for the quarter, versus $879 million the previous year. The consensus was $368 million.

The company also reported a quarterly dividend of $0.82 per share. An unexpected extraordinary dividend of $0.15 was also reported.Carnegie analyst Frederik Lunde said "They're showing confidence for the future by raising the dividend". 


Seadrill also noted they wish to reach profits of $4 billion before 2015.They're report also says "Day rates have now reached 2007 levels. Compared to 2007, we are seeing a significant number of large and independent oil companies wishing to secure capacity. The driver is mainly the shift from exploration to production with a focus to start production at the correct time".


Seadrill currently trading at NOK 211,50, down one per cent.

The AMSC Rollercoaster

(KBHM) American Shipping Company (AMSC:NO) has had some very turbulent, but interesting few weeks on the Oslo Stock Exchange. The stock soared from NOK 0,89 on April 18^th, to NOK 6,46 on the 4^th of May, equalling an increase of 626%. Kudos to those who made a killing, but for the others who entered at the peak, have endured a decrease of roughly 60%. Ouch.

Despite the huge decrease, the stock is still up 162% for the year.

American Shipping Company operates in the US Jones Act Market. Meaning it only serves domestic American ports. In the first quarter of 2012, Jones Act product tanker rates were 40% higher than the equivalent in the year before. First quarter 2012, the rates averaged $51 700 per day.

These fantastic rates allowed AMSC to release impressive first quarter results. They achieved a net profit of $8,2 million, versus -$5,5 million for the same period in 2011.

Today the company could also announce that their lenders have agreed to increase leverage on their ships, which should lead the way for new investments in product tankers. Is the performance for the year done, or will we see increased activity and results going forward?

AMSC:NO currently trading at NOK 3,15, up 0.32%.

Oil News

(KBHM) Oil has declined for the sixth consecutive day in New York, the longest run of declines in almost two years. This is mainly due to crude stockpiles increasing in the US, the world’s largest consumer of the commodity.

The last five days, oil futures are down 8.6 per cent. US inventories currently stand at 378 million barrels, up 7.8 million barrels the last week. This is the highest inventory the US has held since August 1990. Societe Generale said in a report that refiners are poised to increase crude oil purchases thus making a rebound in crude prices.

Crude for June delivery fell as much as $1.23 and is currently trading at $95.78 a barrel in electronic trading on the New York Mercantile Exchange.

On a linked note, China, the world’s second-largest oil consumer, will cut retail gasoline and diesel prices tomorrow for the first time since October after international crude costs fell to a government threshold for adjusting fuel rates.

The maximum price at which gasoline can be sold to motorists will be reduced by 330 yuan ($52) a metric ton, that is a reduction of as much as 3.5 percent, according to Bloomberg.

This cut will increase financial pressure on China’s oil refiners. China Petroleum & Chemical Corp. (600028), the nation’s biggest processor, had a 16-fold increase in its refining loss to 9.2 billion yuan in the first quarter compared with a year earlier.

Vale vs. Cosco

(KBHM) Brazilian company Vale (VALE3:BZ), the worlds largest iron-ore producer is refusing to use China Ocean Group Co’s (Cosco) vessels, as a protest to a Chinese ban on Vale’s mega-ships. The boycott has been going on for two months already, and Vale is said to have chartered more expensive vessels from other owners. State-owned company Cosco, China’s largest dry-bulk operator, is expecting a large impact on operations from the boycott, and is considering filings complaints with the Ministry of Commerce.

Cosco President Ma Zehua said “many recent steps taken by Vale aren’t rational, we believe their decisions are based on their perception that Cosco is doing something to lobby the government and not allow Valemaxes into Chinese ports.”

Vale has plans of spending $8 billion on a fleet of 35 mega-ships, hitting other shipowners earnings by creating new competition. These vessels, Valemax’s, are thought by Cosco to not be safe. The vessels are 400 000 dead weight ton iron-ore carriers, and almost the size of the Bank of America Tower in New York, and twice the size of traditional Capesize vessels. Vale has stated they expect to eventually win Chinese permission to use these vessels.

Vale has already taken delivery of 10 Valemax vessels, and the miner has set up a transit port in the Philippines where iron-ore can be loaded off the mega-ships and loaded onto smaller vessels.

It remains to be seen if these monster carriers will be accepted by the Chinese government, and if so, what effects they will bring to the already devastated Capesize rates. 

Stocks up on Putin news

(KBHM) Russian stock futures climbed as Vladimir Putin returned to Russia’s presidency for a third term promising to forge ahead with state asset sales and improve the nation’s investment climate. 

These valuable state assets being sold could create great business opportunities for Russians and foreigners alike. It remains to be seen if they will be given to "preferred businessmen" i.e. Putins oligarchs? Or will there be a honest and fair sale procedure?

Putin, whose first eight years in the Kremlin saw average economic growth of 7 percent as oil prices rose fivefold, signed at least a dozen decrees after being sworn in yesterday and said the world’s biggest energy exporter was beginning a “new stage” in its development. 

Russia’s Micex Index has tumbled 20 percent since Putin passed on the presidency to Dmitry Medvedev in May 2008 because of term limits. Gazprom, Russia’s state-run natural gas monopoly, rose two percent to $11.01 in New York yesterday, after slumping to $10.79 on May 4th, the weakest since December 30th.

This continues my thought to the fact that Putin may very well be bad for Russians, but good for Gazprom?

"The Beginning of the End of Putin"

(KBHM) Great article about Putin in the previous edition of The Economist. 

I especially like their list of reforms Putin must do to be remembered favourably in history:  

• Promise not to run for President again in 2018
• Offer to hold a fresh parliamentary election
• Establish the rule of law and reform the economy (which he has previously promised)
• Reinstate wholly free elections for regional governors as a step towards greater decentralisation of power
• Release Mikhail Khodorkovsky, the jailed former boss of the Yukos oil company 
• And instead of Mr Medvedev, choose as prime minister a relative liberaliser such as Alexei Kudrin, a former finance minister who has sought to engage the protesters

If Putin were to complete these suggested reforms, Russia could be heading toward a brighter future. With public spending accounting for 40 % of their GDP, which is high for a middle-income country. Russia's federal budget in 2007 needed oil prices of $30 per barrel to balance. 2012 however, Russia will need a number closer to $130. 

Oil WTI, currently trading at $107.6 per barrel. 

Trøim Comments on Recent SDRL Sale

(KBHM) As I noted the other day, Fredriksen recently sold 24 million Seadrill shares, totalling a little under $1 billion. He is rumoured to use this money for building a larger position in commodity carriers, among others oil product vessels. 

His right hand man Tor Olav Trøim comments on the sale to Reuters: "John wants to have large liquidity to expand in commodity shipping but it won't be tomorrow or next month". 

He goes on to say "He is looking further out and expects markets to improve in 2014 or 2015. If you want to get newbuilds in 2015, you have to order them and make down payments in 2012-13". Does this mean we have to hold off until 2014-15 for better freight rates? 

Seadrill (SDRL) currently trading at NOK 220.50, up 1.38%.

Depressed Capesize and Jolly Handysize

(KBHM) Good interview on Bloomberg last night. Quite rare to hear the lads at Bloomie talk about the shipping industry. Johnson Leung from Jeffries Bank, is defending the container industry. He points out that he likes the Japanese names as they currently have "distressed valuations", before the cycle turns. He sees a 20-40% upside in the industry. His reasoning is that "the industry lost so much money last year", which I'm not sure is enough of a story for me. 

He has some good information about the bulk market, however. The figures are gradually rising in general. Capesize vessels are under a lot of pressure, due to fear of China's economic downturn; which would result in decreasing iron ore imports. Smaller sized vessels, on the other hand are looking good. He notes that Handysize freight rates have gained 30% the last month. 

That may be the reason for his recommendation (or pitch, had he had the air-time) for Pacific Basin (2343:HK), who's owns 35 bulkers, all non-Capesize, and charters another 75. Their current new-build book consists of eight Handysize and six Handymax.  

Pacific Basin (2343:HK) closed yesterday at HK$ 4.15, up 1.2%. They currently offer a 5.1% dividend yield. March 1st the company posted a 69% profit drop in 2011 due to lower rates and a write-off of vehicle-carrying ships. 

"The time to buy is when there's blood in the streets"

- Baron Rothschild, 18th Century 

Shipping and Offshore Update

(KBHM) John Fredriksen's Golden Ocean Group (GOGL) has been hammered in the last week, dropping a whole ten percent on the back of a bad bulk market. However, the Baltic Dry Index (BDIY) was up a few points on China's ever increasing iron ore imports. Baltic Dry ended Monday up 1.58% and is now at 837 points. Both DNB Markets and Arctic Securities now have a BUY recommendation on the stock. 

Although one should never listen to analysts, Golden Ocean has proved to be a dividend friendly company, with an excellent management team led by Herman Billung, and backed by John Fredriksen. GOGL ended trading today at NOK 4.96 up 3.77%.

For the daydreamers: all time high for the Baltic Dry was 11 793 in May, 2008. 

And for the optimists: all time low was 554 in July, 1986.

While there may be some optimism and positivity around GOGL, Fredriksen's drilling company Seadrill (SDRL) just got downgraded from BUY to HOLD by Sociéte Générale today. With that said, what do the French know about shipping? 

Another piece of company news emerged today, SDRL signed a contract with Saudi Aramco. It is a three year deal for the jack-up rig "West Callisto", with a one-year option. According to the press release this deal is worth approximately $164 million, plus a $20 million mobilisation bonus. The start date is set for September, 2012. 

Fredriksen recently sold approximately 24 million SDRL shares to "increase firepower for shipping acquisitions". It is rumoured he is gearing up for his largest shipping investment in more than 12 years. Between 1996 and 2001 he purchased 80 vessels totalling $4.6 billion. He will probably be aiming to enter new shipping areas, such as oil-product tankers. 

Can we draw any conclusion from Fredriksen's actions? Does he not like offshore, or does he simply prefer shipping at this moment in time? Is he telling the market it might be time to buy big? 

Putin: Bad for Russia, Good for Gazprom?

(KBHM) March 4th, Russian Prime Minister Vladimir Putin won six more years as President. Putin has been in power the last 12 years, the last four as Prime Minister. He received 62 percent of the vote, amid rumours of fraudulent activities. The case of fraud during the December parliamentary elections have still not been addressed, and demonstrations are believed to carry on.

According to President Putin's campaign manager, Stanislav Govorukhin, the election was the cleanest elections in the “entire history of Russia”. This remains to be proven...

Personal opinion aside, it looks like investors are more than satisfied with the election results. Russian equities reached their highest level in more than seven months. Investors are hoping Vladimir Putin’s return to presidency will extend a rally in the developing world’s cheapest stocks. The MICEX, (Moscow Interbank Currency Exchange, for those of you who are slacking) trades at the cheapest valuation of the 21 emerging markets tracked by Bloomberg. According to S&P this is due to the lack of political and financial transparency. This is thought to improve in the future, but as I was told by a gentleman with deep knowledge of the matter: "It will take generations to improve, as corruption is not part of the system, it is the system".

I read an article saying: "A Putin victory is good for equities that have chief shareholders closely associated with the incoming president..." To be honest, you can only pick a handful of MICEX companies that President Putin does not have a certain influence towards. 

The most globally-traded Russian stock is Gazprom (GAZP:RU). As an analyst told me a while ago, "if you buy Russia, you buy Gazprom". Who was the Chairman of the Gazprom Board 2000-2001 and 2002-2008? Our good friend Dmitry Medvedev. So, under the theory that Putin-influenced companies will thrive under his reign + oil trading at $125/bbl - should we be shouting BUY GAZPROM?

Africa: The Next Big Thing in Shipping?

(KBHM) This really is a very interesting speech, and quite motivational coming from such a young man. I would highly recommend seeing the full 15 minutes of the video.

I like the fact that he refers to BRICs as a "very fashionable term", and has a slightly out-of-box mentality. Especially given that he is himself Indian, one would think he would be selling ideas in India, which makes his thoughts about Africa maybe more credible. China really did change the industry 10 years ago, and his prediction is that over the next 10 years, Africa may partly take over Chinas position.

He has some interesting points regarding foreign investment; serious investors sit down with top officials, and in some cases, heads of state. This is not the case in say, China or India. Also interesting, is that there is "serious money" going into Africa. Foreign money building roads, ports and various infrastructure, is a good sign that they're not in for the quick buck, but for the long term.

The coal mines of West Africa could also be a large driver for bulk shipping in years to come. Could they replace/take over the position of say Australia? There are a lot of interesting and important questions asked in this speech, and I will continue to research this topic further and be posting about Africa's commodity opportunities in the the future.

Golar LNG: Dividend Ready

(KBHM) Shipowner John Fredriksen has a reputation for being a large believer in dividend payouts. Golar LNG (owned 45.80% by Fredriksen), said in their Q4 report, which was released on Tuesday, that they have a bright view of the LNG market and that a "a large part of the companys market value will be paid back to shareholders through dividends..." These payouts are said to be given over the next 3-5 years.

Although the tentative dividend plan impressed analysts, profits were lower than expected. Q4 profits were reported at $17.5m versus expected $25m. However, Q4 2011 profits were reported at $5m. Golar LNG (ticker: GOL) stock rose over 200% in 2011.

Fredriksen's track record for delivering dividends is outstanding. His known and proven strategy consits of paying out profits to shareholders (as he owns large stakes himself), and for debt repayments, consolidation, investments and expansion, he goes to the equity and debt markets to raise capital. Buyers beware; never chase profit (200% increase in 2011), but Fredriksen has proved, time and time again, he has an instinct for timing the market not many others can compete with.

Russian Opposition to Create 'Mega Party'

(KBHM) Opposition activists announced plans to create a wide association of all liberal democrats in a mega party. After the demonstrations following the accusations of a rigged election this seems as a logical and strategic move for the opposition.

The political opposition to Vladimir Putin has been famously weak, and in some cases rumored to be Kremlin-backed. Boris Nemtsov, one of the co-chairs and initiators said: "We think that if the law about party creation is simplified, Putin will try to shatter the democratic camp by founding a whole series of parties that will fight amongst themselves".

He further impresses the importance of standing together against Putin: "If five or six centers of attraction appear on the democratic front, it will be a catastrophe and everyone will receive 2 percent of the vote. This threat is obvious and understood, therefore we started to think about how to start a super party."

A reform in the Russian political system is not only accute for the Russian people, but also for oversea investors. Under Putins reign, foreign investment has been limited, due to a non efficient judicial system and non excisting property rights. Boris Nemtsov has been a long time opposer of Putin and his party. Nemtsov has on several occasions been arrested for anti-Putin demonstrations. The only question is - will the Russian people take this man seriously, and give him a chance to change Russia?