Sovcomflot profit hit by 'especially severe' tanker market

Severe conditions in the tanker market pulled Russian shipowner Sovcomflot into the red for the first nine months of 2017.

The state-backed company logged a bottom line loss of $6.8m in the year to the end of September, swinging from a profit of $218.1m at the same stage in 2016.

Sergey Frank, chief executive of the company, said: “This year has proven to be a very challenging period for the tanker industry and the situation now faced by many conventional tanker shipowners is especially severe.

“An over-supply of tonnage and reduced demand, resulting from oil capacity cut-backs led by OPEC, have resulted in low freight rates over a sustained period which have weighed upon the earnings of all participants in the tanker shipping industry.

“With tanker freight rates in some segments of the spot market declining by more than 50% year-on-year, Sovcomflot’s results have not been immune from the earnings weakness affecting our industry.”
Harsh environments and harsh realities

He notes Sovcomflot, also sometimes called SCF, was shielded from the downturn to some extent by its offshore and harsh environment business, where assets typically boast long-term contract coverage.

“In the near term, we expect to strengthen our industrial business portfolio with the addition, in Q4 2017 and Q1 2018, of two further offshore vessels into the fleet which will be employed under long-term time-charter agreements with key clients,” Frank said.

“We are also engaged in opportunities which will provide further growth for the group in both the offshore and gas sectors.”

Sovcomflot noted a new contract with Lukoil for the shuttle tanker Vasily Dinkov was signed in August, while the 172,600-cbm ice-breaking LNG carrier Christophe de Margerie completed its first voyage through the Northern Sea Route in the same month.
Nikolai Kolesnikov, the shipowner’s chief financial officer, said: “Sovcomflot’s performance in the first nine months of 2017 reflects the harsh realities of the tanker market.

“However, the significant decline in tanker market freight rates over the period was countered by our higher value-added industrial shipping activities in offshore and gas transportation which we have been growing consistently over the past years and which currently account for up to 50% of the group’s total invested capital.

“Importantly, we can capture follow-on business from existing projects as demonstrated in the reporting period by the five-year extension of the time-charter for the provision of shuttle tanker services for the Lukoil-operated Varandey project.”