The decision by US President Joe Biden to approve a major oil drilling project in Alaska has boosted the prospects of the tailor-made fleet of the Overseas Shipholding Group, chief executive Sam Norton told investors on Monday.
In March last year, Biden approved a version of ConocoPhillips’ $7bn Willow project putting US operators in pole position to exploit the extra 250,000 barrels per day production from the Alaskan region by 2027, Norton said.
“The promise of significant increased future production bodes well for the prospective demand for OSG’s Alaska-class tankers,” he told investors after delivering final-quarter and full-year results for 2023.
The company revealed it had bought the 193,000-dwt tanker Alaskan Frontier (built 2004) in November for $20m, which had been in cold lay-up since 2019.
The suezmax is expected to begin commercial operations in the final quarter of this year after an extensive refit and will join three other Alaska-class tankers among the company’s 21-strong fleet. The fleet includes 13 MR product carriers and four crude tankers.
The fleet includes Jones Act-compliant tankers — ships that are US-built, owned, flagged, operated and crewed. Only these ships can carry cargo between US port, which inflates rates for operators.
Norton said the Alaska class of tankers was the “most cost-effective” means for delivering the crude from Alaska to refineries in California and Washington State.
Announcing 2023 fourth-quarter net profits of $20.4m compared with $10.1m in the same period the previous year, Norton said the company was further benefiting from the upheaval in the tanker trades following Russia’s invasion of Ukraine and the Houthi attacks on commercial shipping in the Red Sea.
The changing trade patterns have boosted rates and tonne-miles and squeezed the supply of oil from non-US sources, Norton said.
“As a result, traders now seem to favour domestic product sources over overseas alternatives, giving strong support to the use of Jones Act vessels,” he said.
It had resulted in higher utilisation levels and rates for Jones Act vessels on routes including hauling diesel from the US Gulf coast to other US markets.
OSG said it had led to rates exceeding $80,000 a day for its MR tankers.
The company said shipping revenues in the fourth quarter were $116m, down $5.7m, or 4.7%, compared with the previous year, largely owing to a smaller fleet after returning three leased tankers.
Full-year revenues were $451.9m, down 3.2%. Net income for the year was $62.5m compared with $26.6m in 2022.
“Strong fundamentals have continued to support charterer interest in our vessels,” Norton said.
“We couldn’t be more pleased with our 2023 results and believe we are well-positioned now, and over the long term, to generate strong cash flows in what we expect to be a durably balanced market characterised by stable demand and constrained supply.”
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- Overseas Shipholding Group saving $1.7m through Jones Act fleet refinancing
