2_30 pm jeff pribor - crude, product & speciality tankers

Crude, Product and Specialty Tankers

06/19/13

Jefferies LLC

Tanker Sector Overview

Number of Vessels: 7,475 ─ 1,996 Crude Tankers

─ 2,257 Product Tankers (1)

─ 3,222 Chemical / Other Tankers

Total Capacity: 507.9 million dwt ─ Crude Tankers: 346.1 million dwt

─ Product Tankers: 111.3 million dwt (1)

─ Chemical / Other Tankers: 50.5 million dwt

Average Age (2): 8.1 years ─ Crude Tankers: 8.1 years

─ Product Tankers: 8.0 years (1)

─ Chemical / Other Tankers: 8.2 years

(1) Includes IMO III chemical tankers , which is not included in the chemical tanker calculation. However, IMO III chemical tankers are considered as both product and chemical tankers. (2) Weighted by dwt.

1

Tanker Sector Overview (Cont’d)

Crude oil tankers carry crude oil, diesel oil or residual fuel oil “dirty” products

Product tankers are able to carry “clean” refined petroleum products such as gasoline, jet fuel, kerosene, naphtha and gas oil

Crude and Product tankers as a whole do not form a distinct tanker classification, but are identified on the basis of their size, coating of their cargo tanks, number of cargo segregations and cargo pumping systems

─ The product tanker fleet comprises of LR2, LR1 and MR product tankers, which are similar to Aframax, Panamax and Handymax crude oil tankers, respectively in terms of specification with the main difference being the coating of the tanks, which allow for transportation of the “cleaner,” more corrosive oil products

Chemical tankers are generally smaller tankers up to ~60,000 dwt at various IMO grades with a greater number of tanks and special coating that allows them to carry organic / inorganic chemicals, vegetable oils and other special cargos

─ Chemical tankers of IMO III grade are also able to carry refined petroleum products and are deemed to be part of the product fleet as well

2

Fleet Overview

World Tanker Fleet

Vessel Type World Fleet

% Single Hull

By Dwt

Average Age

Years

Typical Trade

Number Dwt

(million)

Crude / Product / Chemical Route

ULCC / VLCC

>200,000 Dwt

623 190.9 0.4% 7.6 Crude Long haul from Arabian Gulf to Western Europe, United States and Asia

Suezmax Tanker 120-200,000 Dwt

492 76.1 0.0% 7.7 Crude Long and medium haul from West Africa and North Sea to the United States

Aframax / LR2 Tanker 80-120,000 Dwt

908 97.3 0.1% 8.3 Crude / Product

Medium and short haul from West Africa to the United States and Europe and intra-regional locations

Panamax / LR1 / Chemical Tanker 60-80,000 Dwt

417 30.1 0.1% 7.4 Crude / Product / Chemical

Medium and short haul to intra-regional locations

Handy / MR / Chemical Tanker 10-60,000 Dwt

3,280 104.8 2.7% 8.9 Product / Chemical

Medium and short haul to intra-regional locations

Small Tankers

<10,000 Dwt

1,755 8.7 2.6% 12.6 Product / Chemical /

Other

Short haul to intra-regional locations

Total / Average 7,475 507.9 0.8% 8.1(1)

(1) Weighted by dwt.

3

Crude Tankers Supply-Demand Dynamics

Product Tankers Supply-Demand Dynamics

The crude tanker market is still suffering from unfavorable supply-demand dynamics

─ The crude tanker tonnage is expected to grow by 3.9% y-o-y in 2013 while demand is expected to grow by 2.5% during the same time frame

The product tanker market is showing much more favorable supply-demand dynamic fundamentals

─ Product tanker fleet is expected to increase by 3.3% y-o-y in 2013 and demand is expected to increase by 4.6%

─ The positive demand growth outlook is partly driven by growth in volumes on long-haul routes and projected improvements in trade outlook from the US to South America

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E

Product Demand Product Supply

Crude vs. Product Supply-Demand Dynamics

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E

Crude Demand Crude Supply

Source: Clarksons Shipping Intelligence Network.

4

Benchmark Trade Flows

Arabian Gulf

West Africa

Far East

UK Continent

Caribbean

USA Mediterranean

Refined ProductCrude Oil

Source: Poten & Partners.

5

Crude Tankers Overview

6

Annual Global Oil Demand (MMbd)

Crude Oil Demand Overview

OPEC vs. Non-OPEC Production Growth (MMbd)

(3.0)(2.0)(1.0)0.01.02.03.04.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E

Non-OPEC OPEC

Source: Clarksons Research, IEA and Jefferies Equity Research.

Global oil demand is the leading driver of crude tanker market outlook

─ Traditionally driven by developed economies

─ Developing economies have driven growth over the past few years

─ Any marginal increase in demand is usually transported by sea given lead time, cost and nature of distribution alternatives

Global oil production also significantly impacts crude tanker market demand outlook

─ Non-OPEC production is currently a bigger piece of the overall picture, affecting trade flows

60.0

68.0

76.0

84.0

92.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E

7

Crude Oil Demand Overview (Cont’d)

OECD Inventories and Forward Demand Cover

45

50

55

60

65

2400

2450

2500

2550

2600

2650

2700

2750

2800

Q306 Q207 Q108 Q408 Q309 Q210 Q111 Q411 Q312 Q213

OECD Inventories Days of Forward Demand Cover

MMbbls Days

Source: Clarksons Research, IEA , EIA and Jefferies Equity Research.

With OECD inventories at 59.8 days of forward demand versus a historical average of 54-55 days, and US inventories near a 20+ year high, current global oil production levels are at unsustainably high levels

─ Without a reduction in current oil production and/or an increase in real oil demand, global crude oil inventory levels will likely rise further applying additional pressure on global crude oil prices

US oil production has been growing y-o-y while demand has been moving in the opposite direction

─ Production has grown by 28.0% since 2007 while demand has fallen by 10.0%

─ There are federal restrictions in the export of US crude

US Oil Production vs. US Oil Demand

17.5 18.0 18.5 19.0 19.5 20.0 20.5 21.0

4.0

5.0

6.0

7.0

8.0

2007 2008 2009 2010 2011 2012 2013E

US Oil Production US Oil Demand

MMbd MMbd

8

Orderbook as % of Total Fleet (2)

-

10.0%

20.0%

30.0%

40.0%

50.0%

-

20

40

60

80

100

120

140

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Orderbook (Million Dwt) Orderbook as % of Fleet

Delivery Schedule (Million Dwt) (1)

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

2013E 2014E 2015E+ULCC / VLCC Suezmax Aframax Panamax Handy & Small

Vessel Type (Dwt) (1)

164 Total Vessels 32.6 Million Dwt 9.4% of Existing Fleet

Crude Tanker Orderbook

15.1

12.5

5.0

ULCC / VLCC 57%

Suezmax 27%

Aframax 15%

Panamax 1%

Handy & Small 0%

(1) Orderbook data only includes crude tankers and does not include product, chemical and specialized tankers. (2) Tanker orderbook and fleet data show figures for +10,000 dwt tankers, which include chemical tankers, as well as specialized tankers, and excludes product tankers, as well as IMO III chemical tankers. Source: Clarksons Shipping Intelligence Network.

9

-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

VLCC Suezmax Aframax

Crude Oil Tanker Asset Values and Rates

5-year Old Asset Values ($Millions)

1-Year Timecharter Rates ($/Day)

-

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

$160.0

$180.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

VLCC Suezmax Aframax

Current AverageVLCC 55.0$ 87.3$ Suezmax 40.0 60.0 Aframax 30.0 45.8

Current Average

VLCC 19,000$ 42,958$

Suezmax 16,050 32,383

Aframax 13,000 24,452


10

Ownership Distribution by dwt

Top 10 Owners

24.7%

Next 15 Owners 15.7%

Rest of Owners 59.6%

Crude Tanker Ownership Overview


The ownership distribution in the crude tanker sector shows a high level of fragmentation ─ The top 25 owners own only 40.4% of the total capacity

─ No single owner owns more than 3.1% of total capacity

─ A significant portion of the fleet is “captive”

Top 5 Ownership Distribution by dwt

#1 Owner 3.1%

#2 Owner 3.3% #3 Owner

2.1%

#4 Owner 2.3%

#5 Owner 2.6%


11

Product Tankers Overview

12

US Refined Product Exports (MMbd)

Product Tanker Demand Overview

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

OECD Product Inventories (MMbbls)

-

400

800

1,200

1,600

03/10 03/11 03/12 03/13

North America Europe Pacific

Source: Clarksons Research, IEA, U.S. Energy Information Administration and Jefferies Equity Research.

The product tanker trade will benefit from continuously growing US refined product exports

─ US refined product exports set a record in Q4 2012 at 3.2 MMbd and product tanker spot rates entered 2013 at near 4-year highs

─ Increasing US crude oil production should also translate to additional US refined product exports in 2013

With robust growth in US crude oil production and US refined product production, a major portion of the OECD product inventories are being built up in North America

─ As of March 2013, approximately 48.9% of the OECD product inventories belonged to North America

13

Refinery Capacity Net Additions (MMbd)

(1.0)

(0.5)

-

0.5

1.0

1.5

2.0

2.5

Product Tanker Demand Overview (Cont’d)

Seaborne Product Import Changes (MMbd)

Source: Clarksons Research, IEA, U.S. Energy Information Administration and Jefferies Equity Research.

Total global refining capacity is projected to increase approximately 2-3% in 2013

─ Majority of the capacity additions scheduled in Asia and Middle East

─ Refining capacity in Asia has increased by 5.5 MMbd since 2009, more than offsetting the Atlantic Basin shutdowns

The seaborne product trade is expected to expand 3-4% in 2013

─ Product tanker trade will benefit from both record US exports and structural changes within the global refining complex

$(0.6)

$(0.4)

$(0.2)

$-

$0.2

$0.4

$0.6

$0.8

(1) Includes Brazil, Former Soviet Union territories and other regions not part of North America, Europe, Middle East and Asia. (2) Includes Mexico, Latin America, Africa and other regions not included in North America, Europe and Asia.

North America

Europe

Other (1) Asia Middle East

North America

Europe Other (2) Asia

20

08

20

09

20

10

20

11

20

12

20

13

E

20

08

20

09

20

10

20

11

20

12

20

13

E

20

08

20

09

20

10

20

11

20

12

20

13

E

20

08

20

09

20

10

20

11

20

12

20

13

E

2008

20

09

2010

20

11

2012

20

13E

2014

E

2015

E

2008

20

09

2010

20

11

2012

20

13E

2014

E

2015

E

2008

20

09

2010

20

11

2012

20

13E

2014

E

2015

E

2008

20

09

2010

20

11

2012

20

13E

2014

E

2015

E

2008

20

09

2010

20

11

2012

20

13E

2014

E

2015

E

14

Product Imports: Major Growth Regions (MMbpd)

Evolving Product Trade Flows

Product Exports: Major Growth Regions (MMbpd)

Source: Clarksons Shipping Intelligence Network and EIA.

Global product imports are projected to increase by 3.9% in 2013

─ While imports are expected to be static in Europe and decline in the US, non-US and non-Europe areas such as Latin America are expected to grow their imports due to fundamental changes in refinery capacity affecting product import-export dynamics

US exports of products have grown significantly in recent years and will continue to grow due to an unbalanced dynamic between expanding US crude production and stagnant US oil demand

─ Middle East and India have also shown growth in product exports with continuous refinery capacity additions across the respective regions

-

0.5

1.0

1.5

2.0

2.5

3.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

United States Middle East India

-

0.5

1.0

1.5

2.0

2.5

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E

Latin America Japan Australia

15

Product Tanker Trade Routes – 1986

144

257

143

134

38

Source: Poten & Partners

16

Trading activity fairly limited geographically

Most of the supply originating in the Middle East


Product Tanker Trade Routes – 2012

7

AG279

BALT148

BSEA234USAC

72

ECC86

CARIB86

FE372

MED398

UKC652

SEA269

USG293

WINDA138

USWC64

INDO78

NAFR58

17

Market and trading sophistication have evolved (the market has more than quadrupled)

─ 3,227 spot fixtures in 2012 vs. 716 spot fixtures in 1986

New sources of supply, increased participants and variation in product specifications have resulted in this trade picture


Orderbook as % of Total Fleet (2)

-

20.0%

40.0%

60.0%

80.0%

100.0%

-

10

20

30

40

50

60

70

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Orderbook (Million Dwt) Orderbook as % of Fleet

Delivery Schedule (Million Dwt) (1)

Product Tanker Orderbook Vessel Type (Dwt) (1)

222 Total Vessels 13.5 Million Dwt 12.1% of Existing Fleet

2.8

7.2

3.5

(1) Orderbook data represents figures for product tankers above 10,000 dwt, which includes IMO III chemical tankers. (2) Product tanker orderbook shows figures for Aframax product tankers, Panamax product tankers, as well as 10,000-60,000 dwt product tankers. Product tanker fleet data represents figures for

+10,000 dwt product tankers. Both orderbook and fleet data include IMO III chemical tankers above 10,000 dwt. Source: Clarksons Shipping Intelligence Network.

18

LR2 30%

LR1 13%

MR & Handy 57%

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2013E 2014E 2015E+LR2 LR1 MR & Handy

1-Year Timecharter Rates ($/Day)

-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

LR2 LR1 MR

5-year Old Asset Values ($Millions)

-

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

$70.0

$80.0

$90.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

LR2 LR1 MR

Product Tanker Asset Values and Rates Current Average

LR2 30.0$ 45.8$ LR1 27.0 37.4 MR 25.0 33.9

Source: Clarksons Shipping Intelligence Network. Note: LR2 TC rates represent Aframax TC rates. Also, LR2 and LR1 asset values represent Aframax and “coated” Panamax values.

Current Average

LR2 13,000$ 24,452$

LR1 15,000 21,914

MR 14,000 18,240

19

Ownership Distribution by dwt

Top 10 Owners

20.2%

Next 15 Owners 14.0%


Product Tanker Ownership Overview


The ownership distribution in the product tanker sector, similar to the crude tanker sector, is highly fragmented ─ The top 25 owners own only 34.2% of the total capacity

─ No single owner owns more than 2.8% of the total capacity

Top 5 Ownership Distribution by dwt

#1 Owner 2.8%

#2 Owner 2.7% #3 Owner

2.5%

#4 Owner 2.4%

#5 Owner 2.0%


20

Chemical Tankers Overview

21

Chemical Tanker Sector Overview

Global Chemical Tanker Fleet Structure

IMO Grade Cargo Type (1) Description Vessels Dwt

(million) Size Range (Dwt)

IMO I Category X:

Sophisticated chemicals (e.g. Butyl Benzene)

Modern parcel tankers with number of segregations at 75% or more of total tanks

89 2.3 1-49,999

Avg. 25,977

IMO II

Category Y:

Bulk chemicals (e.g. Vegetable Oils and

FAME)

Modern chemical tanker with sophisticated coatings and number of segregations between 51% and 75% of total tanks

2866 47.5 1-60,000+

Avg. 16,578

IMO III

Category Z:

Easy chemicals (e.g. MTBE)

Chemical / Product tankers, also involved in non-oil trades; number of segregations between 51% and 75% of total tanks

986 33.4 1-60,000+

Avg. 33,914

Non-Grade Category OS cargos: (e.g.

Molasses)

Older chemical / product tankers in non-oil trades; no longer able to carry vegetable oils

267 0.7 1-19,999

Avg. 2,475

Total 4,208 83.9

(1) MARPOL Annex II Categories: X = major hazard, Y = hazard, Z = minor hazard, OS = other substances. Note: IMO III tankers are included in the product tanker analysis. Source: Clarksons Shipping Intelligence Network.

Chemical tankers have either stainless steel or coated tanks

─ Types of coating include epoxy / phenolic coating and zinc / marine line coating

22

Total Global Seaborne Trade by Commodity Group (MM tonnes)

Chemical Products Demand Overview

Annual Percentage Growth Rate of Seaborne Chemical Trade

Source: Drewry Maritime Research.

Seaborne trade of chemicals is expected to grow in the near-term future

─ Refinery expansion in the Middle East is expected to drive clean petroleum products (“CPP”) and chemical trade flows especially in regional trades due to the region’s proximity to the Asian Markets

─ Also, the expected substantial increase of US organic exports could be beneficial for ton-mile demand in the chemical tanker sector

Seaborne chemical trade is greatly influenced by global economic development

─ The movement in seaborne chemical trade has closely followed the trends of global GDP, as well as industrial production growth

-

50

100

150

200

250

2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E

Organics Inorganics Veg/Animal Oils & Fats Other Cargos

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2008 2009 2010 2011 2012 2013E 2014E

Global GDP Seaborne Chemical Trade

23

Handy Chemical Tanker Fleet and Orderbook Development (1)

Chemical Tanker Supply-Demand Overview

Chemical Tanker Supply and Demand (2)

The surplus capacity problem created during the economic boom has continuously been mitigated since the 2008 crash

─ Annual growth in the orderbook dwt averaged 41.3% from 2002 to 2007 but has since declined at an annual average of 14.0% from 2008 to 2013 YTD

─ As a result, orderbook as a % of fleet has declined in the last 5 years to 12.7% from 75.8% as fleet growth has slowed significantly

The supply-demand dynamics in the chemical tanker market has been improving and is expected to become even more favorable in the near-term

─ Demand for chemical cargos is expected to grow at an average of 3.1% from 2013 to 2016 while supply is expected to decline at an average of 0.9%

MM Dwt

(1) Orderbook and Fleet development data represents figures for 10,000-60,000 dwt chemical tankers. (2) Demand figures represent pure chemical tankers and excludes CPP ships, while supply figures includes all IMO ships. Data is from Drewry Maritime Research. Source: Drewry Maritime Research and Clarksons Shipping Intelligence Network.

Y-O-Y Change

Orderbook as % of Fleet

0.0%

20.0%

40.0%

60.0%

80.0%

-

10.0

20.0

30.0

40.0

50.0

Fleet Orderbook

24

-25.0%-20.0%-15.0%-10.0%

-5.0%0.0%5.0%

10.0%15.0%20.0%

2007 2008 2009 2010 2011 2012 2013E

Demand Supply

$7,500 $9,000

$10,500 $12,000 $13,500 $15,000 $16,500 $18,000 $19,500 $21,000 $22,500 $24,000

2007 2008 2009 2010 2011 2012 2013 Q1

Coated 22-24,000 Dwt Coated 30-32,000 Dwt Stainless 8-9,000 Dwt Stainless 22-24,000 Dwt

Historical IMO II Chemical Tanker 1- Year Timecharter Rates ($/Day) (1)

Historical IMO II Chemical Tanker Secondhand Asset Values ($Millions)

Chemical Tanker Asset Values and Rates

(1) Estimated rates are based on a 12-month TC with prompt delivery in $/day or sailed TCE on today’s spot market. Source: Drewry Maritime Research.

$-

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

2007 2008 2009 2010 2011 2012 2013 Q1

Stainless 8-9,000 Dwt Stainless 22-24,000 Dwt Coated 22-24,000 Dwt Coated 35-37,000 Dwt

2013 Q1 Average

Coated 22-24,000 Dwt 14.0$ 17.2$

Coated 35-37,000 Dwt 16.0 22.3

Stainless 8-9,000 Dwt 8.8 12.4

Stainless 22-24,000 Dwt 18.0 25.0

25

2013 Q1 Average

Coated 22-24,000 Dwt 11,300$ 13,141$

Coated 30-32,000 Dwt 13,000 14,959

Stainless 8-9,000 Dwt 8,300 9,691

Stainless 22-24,000 Dwt 13,600 17,109

Appendix

26

Charter Types and Time Charter Equivalent

Voyage Expense (Fuel and Port / Canal Costs) Operating Expense

Charter Type Owner Charterer Owner Charterer

Spot / Voyage / COA ✓ ✓

Time Charter ✓

✓

Bareboat Charter ✓

✓

Rates in shipping are usually quoted on a Time Charter Equivalent (“TCE”) basis in order to facilitate comparisons across different operators and periods

─ Fuel costs can be a significant part of total cost, which is sometimes overlooked due to the TCE convention

For example, a MR product tanker burns approximately 30 tons of bunker per day laden at 13.5 knots which, based on today’s bunker cost of ~$600 / ton, results in a daily cost of $18,000

This means that, given current MR product tanker 1-yr TC rate of $14,000 / day, a MR product tanker operating in the spot market will have to earn $32,000 / day ($14,000 + $18,000) to earn a TCE rate of $14,000 / day

Larger vessels burn could burn 3-4 times more fuel, while fuel consumption rises exponentially with increases in speed, rendering fuel cost a significant consideration when trading spot

27

Disclaimer

Clarkson Research Services Limited (CRSL) have not reviewed the context of any of the statistics or information contained in the commentaries and all statistics and information were obtained by Jefferies LLC from standard CRSL published sources. Furthermore, CRSL have not carried out any form of due diligence exercise on the information, as would be the case with finance raising documentation such as Initial Public Offering (IPOs) or Bond Placements. Therefore reliance on the statistics and information contained within the commentaries will be for the risk of the party relying on the information and CRSL does not accept any liability whatsoever for relying on the statistics or information.

Insofar as the statistical and graphical market information comes from CRSL, CRSL points out that such information is drawn from the CRSL database and other sources. CRSL has advised that: (i) some information in CRSL’s database is derived from estimates or subjective judgments; and (ii) the information in the databases of other maritime data collection agencies may differ from the information in CRSL’s database; and (iii) whilst CRSL has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures and may accordingly contain errors; and (iv) CRSL, its agents, officers and employees do not accept liability for any loss suffered in consequence of reliance on such information or in any other manner; and (v) the provision of such information does not obviate any need to make appropriate further enquiries; (vi) the provision of such information is not an endorsement of any commercial policies and/or any conclusions by CRSL; and (vii) shipping is a variable and cyclical business and any forecasting concerning it cannot be very accurate.

28

2_30 pm jeff pribor - crude, product & speciality tankers

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