Big oil tanker groups vulnerable, warn bosses

At least one leading oil tanker operator is likely to
follow collapsed smaller operators into insolvency,
industry sources say.

At least one leading oil tanker operator is likely to follow collapsed smaller operators into insolvency, senior figures in the industry believe, as the sector is swamped by oversupply.

The executives were speaking amid a slump that has sent the rates paid to charter ships way below vessel operating expenses. The average short-term spot market rate to charter a very large crude carrier -- the largest widely-used class -- from the Gulf to Far East on Friday stood at just $1,795 per day, compared with the $29,800 that Frontline, the biggest listed tanker operator by fleet capacity, recently said such vessels needed to break even.

Nasdaq-listed Omega Navigation, Netherlands-based Marco Polo Seatrade and several other small operators have already been forced into bankruptcy protection. Cyprus-based Ocean Tankers, which made a €19.6m net loss for the first half on €9.77m income, has had several of its ships arrested -- held under court orders by creditors -- during port calls this year.

Now executives predict that far larger names are likely to follow. 

Moody's last week downgraded one operator facing acute challenges -- New York-listed General Maritime -- to Caa3, only just above default.

Jens Martin Jensen, Frontline's chief executive, said his company was running its vessels more slowly to conserve fuel and spending extra time waiting in port before accepting cargoes in an effort to ride out the poor market.

"We could see bigger players than [the ones that have already collapsed] disappearing," he said.

Morten Arntzen, chief executive of Overseas Shipholding Group, said the most vulnerable companies were those that had entered the downturn with significant ship orders under way and poor corporate governance. The market has been depressed by the rapid expansion of the world tanker fleet, which is growing far faster than oil demand, as vessels ordered before the financial crisis are delivered.

"When banks have to start putting out money for operations and working capital, that's when companies go out of business," Mr Arntzen said.

Bruce Chan, chief executive of New York-listed Teekay Tankers, said a range of sizes of companies would suffer.

"Companies that have a significant amount of spot market exposure and a lot of debt will not have the cash flow capacity to weather a prolonged downturn," Mr Chan said.

Nobody from General Maritime was available to discuss its prospects. The company said when it announced a $36.8m first-half net loss on July 27 that it complied with all its banking covenants.