With the crude oil prices hitting their lowest levels in many years, consumers are utilizing the situation to pile up inventories, leading to sound business propositions for the companies engaged in crude oil transportation.
Here's an overview of the crude tanker business and the top six stocks in this business segment.
In the Spring of 2020, oil prices collapsed amid the COVID-19 pandemic and economic slowdown. OPEC and its allies agreed to historic production cuts to stabilize prices, but they dropped to 20-year lows.
The Oil Tanker Business
The movement and storage of crude oil in large volume needs oil tankers, which are large sized transport ships. There are different categories of oil tankers—a crude tanker is used for transporting bulk volume of unrefined crude oil from the oil extraction facilities to the refineries. Whereas, a product tanker is used to carry refined products from oil refineries to the markets/consumer facilities. A replenishment oiler is used for refueling ships at the sea, and the old nonoperational oil tankers which are used as floating oil storage units.
The crude tanker business falls under the oil services industry, and is often classified under the subcategory of oil and gas storage and transportation.
The crude tanker business involves firms which own, operate or lease the crude tankers for their requirements of oil transportation and storage. Different entities get into detailed business contracts, which are based on duration of the lease, the quantity of the oil to be transported or stored, the route of transport, or a mix of all such factors. Contracts also include details of which party bears the operational expenses, including fuel costs, crew payments, and insurance. Along with all the above mentioned factors, the demand and supply of oil across various regions of the globe also impacts the crude tanker business.
Let’s look at the top stocks of companies operating in this oil transportation sector. The presented list is non-inclusive, and is arranged in decreasing order of annual revenues.
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List of Top Crude Tanker Companies
Teekay was founded in 1973 and is based in Hamilton, Bermuda. It is a provider of crude oil and gas transportation, floating storage and long-distance towing. It operates through four different business segments, namely, offshore logistics, offshore production, liquefied gas carriers and conventional tankers. It has around 200 tanker assets, making it one of the largest crude tanker companies of the world. With a recent market cap of $710.5 million, its 2014 revenues stood at $1.993 billion and trailing twelve months (TTM) EPS at 0.41. It has a history of regular dividend payments with a healthy dividend yield of 25% and a quarterly dividend payment frequency.
Founded in 1984 with headquarters in Hamilton, Bermuda, the NYSE listed Frontline was recently acquired by Frontline 2012 Ltd. in a reverse merger transaction in November 2015. FRO provides seaborne shipping of oil crude oil and products and operates 22 vessels including 14 enormous crude carriers (VLCC). It has a global presence, and primary regions of operations include the Middle Eastern Gulf, Far East, Atlantic Basin, Northern Europe, the Caribbean and the Louisiana Offshore oil port. Its business strategy follows outsourcing of many functions including those like vessel management, crew staffing, and accounting services. With a recent market cap of $20.03 billion, its 2014 revenues stood at $521 million, and EPS (TTM) at 0.15. It has a history of sporadic dividend payments, with dividend yield at 6.6%.
TNP was founded in 1993 and is based in Athens, Greece. It is a global provider of seaborne crude oil and petroleum transportation services. It has a large fleet of 50 vessels, with the majority comprising of mid-sized carriers. With a recent market cap of $614 million, its 2014 revenues stood at $501 million, and EPS (TTM) at 1.42. It is a regular dividend payer with a quarterly frequency and has a dividend yield of 3.41%.
NAT is another Hamilton, Bermuda-based crude tanker company that was founded in 1995. NYSE listed NAT specializes in the acquisition and chartering of double-hull tankers. It owns and operates 24 Suezmax crude oil tankers. With a recent market cap of $1.28 billion, its 2014 revenues stood at $351 million, and EPS (TTM) at 0.94. It has a history of regular dividend payments, with a quarterly payment frequency making it fit for investors looking for regular dividend income. The dividend yield stood at 10.61%.
SFL is based in Hamilton, Bermuda and was founded in 2003. It is in the business of owning, operating and chartering vessels. Although it is primarily into oil transportation, its operations also span across a wide variety of functions that include transportation of oil, chemicals and containers. Its fleet includes around 60 different large sized vessels. With a recent market cap of $1.42 billion, its 2014 revenues stood at $327.4 million, and EPS (TTM) at 1.64. It has a history of regular dividend payments with a quarterly frequency and a healthy dividend yield of 11.85%.
DHT is based in Hamilton, Bermuda and was founded in 2005. It owns and operates crude oil tankers, and has a fleet of 18 crude tankers including 14 VLCC. With a recent market cap of $742.8 million, its 2014 revenues stood at $150.789 million and trailing twelve months (TTM) EPS at 1.03. It is a regular dividend payer with a quarterly frequency and has a dividend yield of 9.29%.
In the last one year of declining prices and increasing oversupply of crude oil, the performance of different stocks of crude oil tanker companies has been a mixed bag.
Graph Courtesy: Yahoo! Finance
Over a 10-year long period, there have been wide swings in the intermittent performance of the stocks, but the overall returns have been negative.
The Bottom Line
The valuation of crude tanker companies is a complex affair, as the crude tanker market gets impacted by a variety of factors which include the oil prices, demand and supply from various regions of the globe, route of transportation, and geopolitical developments. The multiple and sporadic spikes and wide swings in either directions do indicate good short term trading opportunities for active traders. Long term investors may need to remain vigilant with regular tracking of stock specific developments, and switching their holdings accordingly.