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Aegean Marine Petroleum Network 20-F 2009 Documents found in this filing:UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
20-F
(Mark
One)
OR
OR
OR
Date
of event requiring this shell company report _________________
Commission
file number001-33179
Securities
registered or to be registered pursuant to section 12(b) of the
Act.
Securities
registered or to be registered pursuant to section 12(g) of the
Act.
*
Not for trading, but only in connection with the registration of American
Depositary Shares, pursuant to the requirements of the Securities and Exchange
Commission.
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act.
Indicate
the number of outstanding shares of each of the issuer's classes of capital or
common stock as of the close of the period covered by the annual
report.
42,841,303
shares of common stock, par value $0.01 per share.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
If
this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
Note
– Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See the definitions of
"large accelerated filer" and "accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:
If
"Other" has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow:
If
this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
TABLE
OF CONTENTS
PART I
PART II
PART III
Matters
discussed in this report may constitute forward-looking statements. The Private
Securities Litigation Reform Act of 1995 provides safe harbor protections for
forward-looking statements in order to encourage companies to provide
prospective information about their business. Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance, and underlying assumptions and other statements, which are other
than statements of historical facts.
Aegean
Marine Petroleum Network Inc., or the Company, desires to take advantage of the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995
and is including this cautionary statement in connection with this safe harbor
legislation. This report and any other written or oral statements made by us or
on our behalf may include forward-looking statements, which reflect our current
views with respect to future events and financial performance. When used in this
report, the words "anticipate," "believe," "expect," "intend," "estimate,"
"forecast," "project," "plan," "potential," "may," "should," and similar
expressions identify forward-looking statements.
The
forward-looking statements in this report are based upon various assumptions,
many of which are based, in turn, upon further assumptions, including without
limitation, management's examination of historical operating trends, data
contained in our records and other data available from third parties. Important
assumptions relating to the forward-looking statements include, among other
things, assumptions regarding demand for our products, the cost and availability
of refined marine fuel from suppliers, pricing levels, the timing and cost of
capital expenditures, competitive conditions, and general economic conditions.
These assumptions could prove inaccurate. Although we believe that
these assumptions were reasonable when made, because these assumptions are
inherently subject to significant uncertainties and contingencies which are
difficult or impossible to predict and are beyond our control, we cannot assure
you that we will achieve or accomplish these expectations, beliefs or
projections.
In
addition to these assumptions and matters discussed elsewhere herein, important
factors that, in our view, could cause actual results to differ materially from
those discussed in the forward-looking statements include: our future operating
or financial results; our future payment of dividends and the availability of
cash for payment of dividends; our ability to retain and attract senior
management and other key employees; our ability to manage growth; our ability to
maintain our business in light of our proposed business and location expansion;
our ability to obtain double hull bunkering tankers given the scarcity of such
vessels in general; the outcome of legal, tax or regulatory proceedings to which
we may become a party; adverse conditions in the shipping or the marine fuel
supply industries; our ability to retain our key suppliers and key customers;
our contracts and licenses with governmental entities remaining in full force
and effect; material disruptions in the availability or supply of crude oil or
refined petroleum products; changes in the market price of petroleum, including
the volatility of spot pricing; increased levels of competition; compliance or
lack of compliance with various environmental and other applicable laws and
regulations; our ability to collect accounts receivable; changes in the
political, economic or regulatory conditions in the markets in which we operate,
and the world in general; our future, pending or recent acquisitions, business
strategy, areas of possible expansion, and expected capital spending or
operating expenses; our failure to hedge certain financial risks associated with
our business; uninsured losses; our ability to maintain our current tax
treatment; our failure to comply with restrictions in our credit agreements;
increases in interest rates; and other important factors described from time to
time in our U.S. Securities and Exchange Commission filings.
PART
I
Not
applicable.
Not
applicable.
Please
note: Throughout this report, all references to "we," "our," "us" and
the "Company" refer to Aegean Marine Petroleum Network Inc. and its
subsidiaries. We use the term deadweight ton, or dwt, in describing the size of
vessels. Dwt, expressed in metric tons, each of which is equivalent to 1,000
kilograms, refers to the maximum weight of cargo and supplies that a vessel can
carry. Unless otherwise indicated, all references to "dollars" and "$" in this
report are to, and amounts are presented in, U.S. dollars.
A. Selected Financial
Data>
1
2
Gross
spread per metric ton of marine fuel sold represents the margins we generate per
metric ton of marine fuel sold. We calculate gross spread per metric ton of
marine fuel sold by dividing the gross spread on marine fuel by the sales volume
of marine fuel. Marine fuel sales do not include sales of lubricants. The
following table reflects the calculation of gross spread per metric ton of
marine fuel sold for the periods presented:
The
following table reconciles our gross spread on marine petroleum products sold to
the most directly comparable GAAP measure, operating income, for all periods
presented:
The
amount that we have to pay for marine petroleum products to fulfill a customer
order has been the primary variable in determining the prices quoted to
customers. Therefore, we evaluate gross spread per metric ton of marine fuel
sold and gross spread on marine petroleum products in pricing individual
transactions and in long-term strategic pricing decisions. We actively monitor
our pricing and sourcing strategies in order to optimize our gross spread on
marine petroleum products. We believe that this measure is important to
investors because it is an effective intermediate performance measure of the
strength of our operations.
3
Gross
spread on marine petroleum products (including gross spread on marine fuel and
gross spread on lubricants) and gross spread per metric ton of marine fuel sold
should not be considered as alternatives to operating income, net income or
other GAAP measures and may not be comparable to similarly titled measures of
other companies. Gross spread on marine petroleum products and gross spread per
metric ton of marine fuel sold do not reflect certain direct and indirect costs
of delivering marine petroleum products to our customers (such as crew salaries,
vessel depreciation, storage costs, other vessel operating expenses and overhead
costs) or other costs of doing business.
For
all periods presented, we purchased marine petroleum products in Greece from our
related company, Aegean Oil, which is a physical supplier in Greece. The cost of
these marine petroleum products was contractually calculated based on Aegean
Oil's actual cost of these products plus a margin. For further discussion please
refer to the section of this report entitled "Major Shareholders and Related
Party Transactions."
(8)
This figure includes our service tanker, Orion, based in our Portland
(U.K.) service center.
The
ownership of floating storage facilities allows us to mitigate risk of supply
shortages. Generally, storage costs are included in the price of refined marine
fuel quoted by local suppliers. We expect that the ownership of floating storage
facilities will allow us to convert the variable costs of a storage fee mark-up
per metric ton quoted by suppliers into fixed costs of operating our own storage
facilities, thus enabling us to spread larger sales volumes over a fixed cost
base and to decrease our marine petroleum products costs.
4
Not
applicable.
Not
applicable.
Some
of the following risks relate principally to the industry in which we operate
and our business in general. The risks and uncertainties described below are not
the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial also may impair our
business operations. If any of the following risks occur, our
business, financial condition, operating results and cash flows could be
materially adversely affected and the trading price of our securities could
decline.
Risk
Factors Relating to Our Business
If the contraction of the global credit
markets and the resulting volatility in the financial markets continues or worsens then we may
not be able to obtain sufficient funds to grow or effectively manage our
growth
A
principal focus of our strategy is to grow by expanding our business. Our future
growth depends, in part, on our ability to obtain financing for our existing and
new operations and business lines. Over the last year, global financial
markets have experienced extraordinary volatility following significant
contraction, deleveraging and reduced liquidity in the global credit markets.
Recently, a number of major financial institutions have experienced
serious financial difficulties and, in some cases, have entered into bankruptcy
proceedings or are in regulatory enforcement actions. These difficulties may
adversely affect the financial institutions that may provide us with credit to
support our working capital requirements and may impair their ability to
continue to perform under their financing obligations to us, which could
negatively impact
our ability to fund current
and future obligations. We cannot predict how long the current market conditions
will last. However, these recent and developing economic factors may have a
material adverse effect on our ability to expand our
business.
Our
future growth will depend on a number of additional factors, which also may be
adversely affected in the current economic climate, which include our ability
to:
5
A
deficiency in any of these factors may negatively impact our ability to generate
cash flow, raise money or effectively manage our growth. In addition,
competition from other companies could reduce our expansion or acquisition
opportunities, cause us to lose business opportunities, competitive advantages
or customers or cause us to pay higher or charge lower prices than we might
otherwise pay or charge. Furthermore, competitive conditions in the markets that
we may consider for future expansion may be more adverse to us than those in
markets served by our existing service centers, and any new markets that we may
service may be less profitable than our existing markets.
If further emergency governmental measures are implemented in response to the economic
downturn, that could have a material adverse impact
on our results of
operations, financial
condition and cash flows
In response to the extraordinary
volatility of the global financial markets and the adverse changes in the global
credit markets, governments have taken highly significant measures in response
to such events, including the enactment of the Emergency Economic Stabilization
Act of 2008 in the United States, and may implement other significant responses
in the future. Securities and futures markets and the credit markets are subject
to comprehensive statutes, regulations and other requirements. The U.S.
Securities and Exchange Commission, or the SEC, other regulators,
self-regulatory organizations and exchanges are authorized to take extraordinary
actions in the event of market emergencies, and may effect changes in law or
interpretations of existing
laws. We cannot predict what, if any, such measures would be, but changes to
securities, tax, environmental, or other laws or regulations, could have a material adverse effect on our
results of operations, financial condition or cash flows.
An
inability to obtain financing for our growth or to fund our future capital
expenditures could negatively impact our results of operations and financial
condition
In
order to fund future vessel acquisitions, new markets and products, increased
working capital levels or capital expenditures, we will be required to use cash
from operations, incur borrowings or raise capital through the sale of debt or
additional equity securities. Use of cash from operations for those
purposes would reduce cash available for dividend distributions to you. Our
ability to obtain additional bank financing or to access the capital markets for
any future offerings may be significantly limited by the volatility in the global financial
markets over the last year, and the adverse changes in the global credit
markets. The credit markets
in the United States and elsewhere have experienced significant contraction,
deleveraging and reduced liquidity. These adverse market
conditions and other contingencies and uncertainties are beyond our control. Our
ability to obtain additional bank financing will also depend on our financial
condition, which may be adversely affected by prevailing economic
conditions.
Our
failure to obtain the funds for future vessel acquisitions, new markets,
products or capital expenditures could impact our results of operations
and financial condition. The issuance of additional equity securities would
dilute your interest in our Company and reduce dividends payable to you. Even if
we are successful in obtaining additional bank financing, paying debt service
would limit cash available for working capital and increasing our indebtedness
could have a material adverse effect on our business, results of operations,
cash flows and financial condition.
Business
acquisition opportunities may present increased risks and uncertainties, which
if realized could result in costs that outweigh the financial benefit of such
acquisitions
As
part of our growth strategy, we intend to explore acquisition opportunities of
marine fuel supply and complementary businesses. This expansion could expose us
to additional business and operating risks and uncertainties,
including:
6
Although
our management will endeavor to evaluate the risks inherent in any particular
transaction, we cannot assure you that we will properly ascertain all such
risks. In the current economic and regulatory climate, it may be especially
difficult to assess the risks involved in a particular transaction, because we
cannot predict what course of action governments and regulatory agencies will
take in response to market volatility and the contracted credit
markets.
In
addition, future acquisitions could result in the incurrence of substantial
additional indebtedness and other expenses. Future acquisitions may also result
in potentially dilutive issuances of equity securities and may affect the market
price of our common shares. Difficulties encountered with acquisitions may have
a material adverse effect on our business, financial condition and results of
operations.
Due
to the lack of diversification in our lines of business, adverse developments in
the marine fuel supply business would negatively impact our results of
operations and financial condition
We
rely primarily on the revenues generated from our business of physical supply
and marketing of refined marine fuel and lubricants to end customers. Due to the
lack of diversification in our lines of business, an adverse development in our
marine fuel supply business would have a significant impact on our business,
financial condition and results of operations.
Because
of the limited supply of secondhand double hull bunkering tankers, we may not be
able to acquire secondhand double hull bunkering tankers on economically
acceptable terms which could impede our growth and negatively impact our results
of operations and financial condition
Our
ability to grow is in part dependent on our ability to expand our fleet through
acquisitions of suitable secondhand double hull bunkering tankers. We believe
that the availability of secondhand double hull bunkering tankers in the open
market is limited. We may not be able to locate suitable secondhand tankers or
negotiate acceptable purchase contracts with their owners or obtain financing
for such acquisitions on economically acceptable terms. Our failure to locate
and acquire suitable secondhand double hull bunkering tankers could limit the
future growth of our business and have a material impact on our results of
operations and financial condition.
If
we purchase secondhand vessels we will be exposed to increased operating risks
because of the quality of those vessels and the lack of builders' or sellers'
warranty protection
Our
fleet renewal and expansion strategy includes the acquisition of secondhand
vessels as well as newbuildings. Since December 2006, we have
acquired nine secondhand bunkering vessels, including barges. Unlike
newbuildings, secondhand vessels typically do not carry warranties with respect
to their condition. Our inspections of secondhand vessels would normally not
provide us with as much knowledge of its condition as we would possess if the
vessel had been built for us and operated by us throughout its life. Repairs and
maintenance costs for secondhand vessels are difficult to predict and may be
more substantial than for vessels we have operated since they were built. These
costs could decrease our profits and reduce our liquidity.
Delays
or defaults by the shipyards in the construction of new vessels could increase
our expenses and diminish our net income and cash flows
We
have entered into newbuilding contracts for the construction of double hull
bunkering tankers; as of the date of this report, we have 19 vessels remaining
to take delivery. These projects are subject to the risk of delay or defaults by
the shipyards caused by, among other things, quality or engineering problems,
work stoppages, weather interference, unanticipated cost increases, delays in
receipt of necessary equipment, and inability to obtain the requisite permits or
approvals. In accordance with industry practice, in the event the shipyards are
unable or unwilling to deliver the tankers, we may not have effective
remedies. Failure to construct or deliver the ships by the shipyards or any
significant delays could increase our expenses and diminish our net income and
cash flows.
7
International
authorities and flag states may delay implementation of the phase-out of single
hull vessels which may lessen the competitive advantage we hope to gain by
acquiring double hull bunkering tankers
Our
strategy involves capitalizing on the phase-out of single hull bunkering
tankers. Under environmental protection laws and regulations, the European
Union, or the EU and the International Maritime Organization, or the IMO (the
United Nations agency for maritime safety), have already banned single hull
vessels of 5,000 dwt and above from carrying HGO, which includes most of the
grades of marine fuel, as of October 2003 and as of April 2005,
respectively, and banned all single hull vessels of less than 5,000 dwt but
above 600 dwt from carrying HGO in 2008. Both the EU and the IMO will also
require a phase-out of all single hull vessels in 2010. The EU and the IMO,
however, allow for exemptions. Under the EU regulations, for example, oil
vessels operated exclusively in ports and inland navigation may be exempted from
the double hull requirements provided they are duly certified under inland water
legislation. Under the IMO regulations, a flag state may allow single hull
vessels conforming to certain technical specifications to continue to operate
until the earlier of 2015 or the 25th anniversary of the vessel's delivery. A
flag state may also allow single hull vessels to carry HGO if the vessels are
either engaged in voyages exclusively within its jurisdiction or jurisdiction of
another party upon such party's agreement.
Our
future success will depend, in part, on the timely and comprehensive
implementation of the phase-out of single hull vessels. Any delay or limitation
in application of the environmental protection laws and regulations could limit
our anticipated growth or other anticipated benefits because our strategy
involves employing and acquiring secondhand double hull bunkering
tankers.
If
we are unable to comply with existing or modified environmental laws and
regulations in the United Kingdom relating to our fuel storage facilities, we
would be exposed to significant compliance costs and liabilities
Our
operations involving the storage of fuel in the United Kingdom are subject to
stringent laws and regulations governing the discharge of materials into the
environment, otherwise relating to protection of the environment, operational
safety and related matters. Compliance with these laws and regulations increases
our overall cost of business in the United Kingdom, including our capital costs
to maintain and upgrade equipment and facilities, or claims for damages to
property or persons resulting from our operations. Failure to comply with these
laws and regulations may result in the assessment of administrative, civil, and
criminal penalties, the imposition of investigatory and remedial liabilities,
and the issuance of injunctions that may restrict or prohibit our United Kingdom
operations or even claims of damages to property or persons resulting from our
United Kingdom operations. The laws and regulations applicable to our United
Kingdom operations are subject to change, and we cannot provide any assurance
that compliance with current and future laws and regulations will not have a
material effect on our results of operations or earnings. A discharge of
hazardous materials into the environment could, to the extent such event is not
insured, subject us to substantial expense, including both the cost to comply
with applicable laws and regulations and liability to private parties for
personal injury or property damage.
We
have a limited history of marketing marine lubricants or operating specialty
tankers and we may not be able to enter, or effectively manage our entry into
these new lines of business, which could negatively impact our results of
operations and financial condition
We
market our own brand of marine lubricants and recently commenced the operation
of a fleet of product tankers with roll-on roll-off facilities and refueling
capabilities for fuel trucks designed to distribute gasoline and other refined
petroleum products to island economies, which we refer to as specialty tankers.
The marketing of marine lubricants and the acquisition and management of
specialty tankers impose additional responsibilities on our management and
staff. We have limited experience marketing marine lubricants and no experience
in distributing refined petroleum products to island economies nor do we have
any history of operating or competing in these lines of business over
significant periods. As we have a limited history of marketing marine lubricants
and operating specialty tankers, it is difficult to predict our management
needs. Accordingly, we may be required to increase the number of our employees.
We will also have to market our products and services in new locations and to an
expanded customer base. We may not be successful in executing our growth plans
and may incur significant expenses and losses in connection with our future line
of business which could negatively impact our results of operations
and financial condition.
8
Most
of our customers are not obligated to continue to employ us and if some of our
key customers reduce or terminate their purchases our results of operations
would decrease
Generally,
we have not derived a significant amount of revenue from written volume
commitments from our key customers or any other understandings with our key
customers that relate to future purchases. Purchases by our key customers could
be reduced or terminated at any time. A substantial reduction or a termination
of purchases by any of our key customers could decrease our results of
operations.
We
extend trade credit to most of our customers and our financial position and
results of operations may diminish if we are unable to collect accounts
receivable
We
extend trade credit to most of our customers. Our success in attracting business
has been due, in part, to our willingness to extend trade credit on an unsecured
basis to our customers. As of December 31, 2008, 29 of our customers had
outstanding balances with us of at least $1.0 million under the lines of
credit that we have extended to them. Our credit procedures and policies do not
fully eliminate customer credit risk. The recent adverse changes in world credit
markets may cause these numbers to increase if our customers cannot borrow money
and are illiquid. We may not be able to collect on the outstanding balances of
our customers if any of our customers enter bankruptcy proceedings. Losses due
to nonpayment by our customers, if significant, would diminish our financial
position and results of operations.
We
depend on a limited number of suppliers, which makes us susceptible to supply
shortages or price fluctuations that could diminish our operating
results
We
currently purchase refined marine petroleum products from a limited number of
suppliers. If our relationship with any of our key suppliers terminates or if
any of our key suppliers suffers a disruption in production, we may not be able
to obtain a sufficient quantity of refined marine fuel and lubricants on
acceptable terms and without interruption in our business. We may
experience difficulties and delays in obtaining marine fuel from alternative
sources of supply. Any interruption or delay in the supply of marine fuel, or
the inability to obtain fuel from alternate sources at acceptable prices and
within a reasonable amount of time, would impair our ability to meet scheduled
deliveries to our customers and could cause customers to cancel orders, which
would weaken our financial condition and reduce our results of
operations.
The
refined marine fuel that we purchase from our suppliers may fail to meet the
specifications that we have agreed to supply to our customers and, as a result,
we could lose business from those customers and be subject to claims or other
liabilities
If
the refined marine fuel that we purchase from our suppliers fails to meet the
specifications we have agreed to supply to our customers, we could lose our
customers and be subject to claims or other liabilities. Although we carry
insurance policies to protect us against most of the risks involved in the
conduct of our business and in most cases we have recourse against our suppliers
for marine fuel which fails to meet agreed specifications, our insurance
coverage may not be adequate and such recourse cannot be assured. The
loss of customers and increased liabilities would reduce our earnings and could
have a material adverse effect on our business, weaken our financial condition
and reduce our results of operations.
If
Aegean Oil or other third-party physical suppliers fail to provide services to
us and our customers as agreed we would be subject to customer
claims, which could negatively affect our business and results of
operations
We
have contracted with Aegean Oil to employ our specialty tanker, Maistros, and to
provide various services to our customers in Greece, including fueling of
vessels in port and at sea. Aegean Oil is a related company owned and controlled
by members of Mr. Melisanidis' family. Mr. Melisanidis, our founder and
Head of Corporate Development, may also be deemed a control person of Aegean Oil
and other affiliated entities for United States securities law purposes, but
Mr. Melisanidis disclaims such control. In connection with our limited
marine fuel trading activities, from time to time we contract with other
third-party physical suppliers to deliver marine fuel to our customers in
markets where we do not have service centers. The failure of Aegean Oil or any
other third-party physical supplier to perform these services in accordance with
the terms we have agreed with them and our customers could affect our
relationships with our customers and subject us to claims and other liabilities
which could harm our business or negatively affect our financial results. If
Aegean Oil or any of the other third-party physical suppliers fails to perform
its obligations to us, you will not have any recourse directly against Aegean
Oil or the other third-party physical suppliers.
9
Agreements
between us, Aegean Oil and other affiliated entities may be more favorable or
less favorable than agreements that we could obtain from unaffiliated third
parties
The
marine fuel service supply agreement, the contract of affreightment and other
agreements we have with Aegean Oil, our largest supplier of marine petroleum
products, as well as other agreements we have with affiliated entities have been
made in the context of an affiliated relationship. Aegean Oil and other
affiliated entities are owned and controlled by members of Mr. Melisanidis'
family. Mr. Melisanidis has also been involved historically with our
related companies and had a leadership role with respect to the promotion of
their products and services. Because immediately prior to the completion of our
initial public offering we were majority-owned by Leveret
International Inc., or Leveret, a company controlled by
Mr. Melisanidis, the negotiation of the marine fuel service supply
agreement and our other contractual arrangements may have resulted in prices and
other terms that are more favorable or less favorable to us than terms we might
have obtained in arm's-length negotiations with unaffiliated third parties for
similar services. Moreover, Aegean Oil and other affiliated entities remain our
related companies, and we remain subject to similar risks in future business
dealings with these parties.
If
we increase our marine fuel inventory we will be more vulnerable to price
fluctuations, which may result in the reduced value of our inventory and cause
us to suffer financial loss
Due
to the nature of our business, we may increase the volume of our marine fuel
inventories. Depending upon the price and price movement of refined marine fuel,
our marine fuel inventories may subject us to a risk of financial loss. Pricing
terms with our suppliers and customers and hedges by way of oil futures or other
instruments, should we enter into them, may not adequately protect us in the
event of a substantial downward movement in the price of marine
fuel.
Our
business and our customers' businesses are vulnerable to currency exchange
fluctuations, which could negatively affect our results of operations and cash
flows and reduce our profitability
Generally,
in all our service centers, we invoice our customers for the sale and delivery
of marine petroleum products in U.S. dollars. Many of our customers are foreign
customers and may be required to obtain U.S. dollars to pay for our products and
services. A rapid depreciation or devaluation in a currency affecting our
customers could have an adverse effect on our customers' operations and their
ability to convert local currency to U.S. dollars to make required payments to
us. This would in turn result in credit losses for us, which would reduce our
results of operations and cash flows.
We
generate almost all of our revenues and incur the majority of our expenses in
U.S. dollars. In the year ended December 31, 2008, we incurred not more
than 2% of our operating expenses and general and administrative expenses in
currencies other than the U.S. dollar—primarily the Euro, the British Pound, the
UAE dirham, the Gibraltar pound, the Jamaican dollar and the Singapore dollar.
Changes in the rates of exchange between these currencies and the U.S. dollar
would lead to deviations from our budgeted operating expenses, which would
affect our financial results. When translated into U.S. dollars, expenses
incurred in currencies other than the U.S. dollar increase when the value of the
U.S. dollar falls, which reduces our profitability.
We
rely on the expertise of our senior management and our inability to retain key
personnel could interrupt our business and limit our growth
Our
success depends to a significant degree upon the abilities and efforts of our
management team and our ability to hire and retain key members of our management
team. The loss of any of these individuals could adversely affect our business
prospects and financial condition. Difficulty in hiring and retaining key
personnel could negatively impact our results of operations and financial
condition. We do not intend to maintain "key man" life insurance on any of our
officers or our board members, including Peter C. Georgiopoulos, the
Chairman of our board of directors, and Mr. Melisanidis, our founder and Head of
Corporate Development. We believe that Mr. Georgiopoulos is an important
member of our board of directors and Mr. Melisanidis is an important member
of our management team and that the loss of the services or involvement in our
business on the part of either or both of them would have a material adverse
effect on our Company. We have entered into employment agreements with
Mr. Melisanidis, E. Nikolas Tavlarios, our President and Spyros
Gianniotis, our Chief Financial Officer.
10
As
we expand our fleet, we may not be able to recruit suitable employees and crew
for our tankers, which may limit our growth and cause our financial performance
to suffer
As
we expand our fleet, we will need to recruit suitable crew, shoreside,
administrative and management personnel. We may not be able to continue to hire
suitable employees as we expand our fleet of tankers. If we are unable to
recruit suitable employees and crews, we may not be able to provide our services
to customers, our growth may be limited and our financial performance may
suffer.
A
portion of our employees are covered by national collective bargaining
agreements, which set minimum standards for employment, and any industrial
action or other labor unrest could disrupt our business
A
portion of our employees from Greece and from the Philippines are covered by
national collective bargaining agreements which set minimum standards for
employment. Industrial action or other labor unrest, such as the dockworkers
strike in Piraeus, Greece that affected port operations in 2007, could
disrupt our business. If not resolved in a timely and cost-effective manner,
such industrial action or other labor unrest could prevent or hinder our
operations from being carried out normally and could disrupt our business and
reduce our results of operations and cash flows.
We
are a holding company, and we depend primarily on the ability of our operating
subsidiaries to distribute funds to us in order to satisfy our financial and
other obligations and to make dividend payments
We
are a holding company, and we have no significant assets other than the equity
interests in our subsidiaries. As a result, our ability to satisfy our financial
and other obligations and to pay dividends depends primarily on the performance
of our operating subsidiaries and their ability to distribute funds to us. If we
are unable to obtain funds from our operating subsidiaries, we will not be able
to pay dividends unless we obtain funds from other sources. We may not be able
to obtain the necessary funds from other sources on terms acceptable to
us.
Restrictive
covenants in our senior secured credit facility impose financial and other
restrictions that limit our corporate activities, which could negatively affect
our growth and cause our financial performance to suffer
In
February 2009, we entered into a senior secured credit facility with an
international commercial bank, which we call our senior secured credit facility.
Our senior secured credit facility contains covenants that impose operating and
financing restrictions on us. Such restrictions affect, and in many respects
limit or prohibit, among other things, our ability to pay dividends, incur
additional indebtedness, create liens, sell assets, or engage in mergers or
acquisitions. These restrictions could limit our ability to plan for or react to
market conditions or meet extraordinary capital needs or otherwise restrict
corporate activities. These restrictions could adversely affect our ability to
finance our future operations or capital needs or to engage in other business
activities which will be in our interest.
We
may not achieve sufficient earnings to pay dividends to our
shareholders
We currently intend to pay regular cash
dividends on a quarterly basis. We will make such dividend payments to our
shareholders only if our board of directors, acting in its sole discretion,
determines that payments of dividends would be in our best interest and in
compliance with relevant legal and contractual requirements. The principal
business factors that our board of directors expects to consider when
determining the timing and amount of dividend payments will be our earnings,
financial condition and cash requirements at the time.
U.S.
investors in our Company could suffer adverse tax consequences if we are
characterized as a passive foreign investment company
If,
for any taxable year, our passive income or our assets that produce or are held
for production of passive income exceed levels provided by law, we may be
characterized as a passive foreign investment company, or PFIC, for U.S. federal
income tax purposes. This characterization could result in adverse U.S. tax
consequences to our U.S. shareholders. If we are classified as a PFIC, a U.S.
Holder of our common shares could be subject to increased tax liability upon the
sale or other disposition of our common shares or upon the receipt of amounts
treated as "excess distributions." Under these rules, the excess distribution
and any gain upon a sale would be allocated ratably over the U.S. Holder's
holding period for the common shares, and the amount allocated to the current
taxable year and any taxable year prior to the first taxable year in which we
were a PFIC would be taxed as ordinary income in the current taxable year. The
amounts allocated to each of the other taxable years would be subject to tax at
the highest marginal rates on ordinary income in effect for the applicable class
of taxpayer for that year, and an interest charge for the deemed tax deferral
benefit would be imposed on the resulting tax liability as if such tax liability
had been due with respect to each such other taxable year. The tax liability
with respect to the amount allocated to years prior to the year of the
disposition or distribution cannot be offset by any net operating losses. In
addition, holders of shares in a PFIC may not receive a "step-up" in basis on
shares acquired from a decedent. U.S. Holders should consult with their own U.S.
tax advisors with respect to the U.S. tax consequences of investing in our
common shares as well as the specific application of the "excess distribution"
and other rules discussed in this paragraph. For a discussion of how we might be
characterized as a PFIC and related tax consequences, please see Taxation —
"United States Federal Income Taxation of U.S. Holders—Passive Foreign
Investment Company."
11
We
may not be exempt from Liberian taxation which would materially reduce our net
income and cash flow
The
Republic of Liberia enacted a revised income tax act effective as of
January 1, 2001, or the New Act. In contrast to the income tax law
previously in effect since 1977, or the Prior Law, which the New Act repealed in
its entirety, the New Act does not distinguish between the taxation of a
non-resident Liberian corporation, such as our Liberian subsidiary, Aegean
Marine Petroleum S.A., or AMP, which conducts no business in Liberia and was
wholly exempted from tax under the Prior Law, and the taxation of ordinary
resident Liberian corporations.
In
2004, the Liberian Ministry of Finance issued regulations pursuant to which a
non-resident domestic corporation, such as our Liberian subsidiary, AMP, will
not be subject to tax under the New Act retroactive to January 1, 2001, or
the New Regulations. In addition, the Liberian Ministry of Justice issued an
opinion that the New Regulations were a valid exercise of the regulatory
authority of the Ministry of Finance. Therefore, assuming that the New
Regulations are valid, AMP will be wholly exempt from Liberian income tax as
under the Prior Law.
If
our Liberian subsidiary, AMP, were to be subject to Liberian income tax under
the New Act, it would be subject to tax at a rate of 35% on its worldwide
income. As a result, its, and consequently our, net income and cash flow would
be materially reduced by the amount of the applicable tax. In addition, we, as
shareholder of the Liberian subsidiary, would be subject to Liberian withholding
tax on dividends paid by AMP at rates ranging from 15% to 20%.
If
we become subject to tax in the jurisdictions in which we operate, our net
income and cash flow would decrease
Our
business is affected by taxes imposed on the purchase and sale of refined marine
petroleum products in various jurisdictions in which we operate from time to
time. These taxes include sales, excise, goods and services taxes, value-added
taxes, and other taxes. We currently do not pay a material amount of tax,
including withholding taxes, in any jurisdiction in which we operate. As a
result of changes in our operations, tax laws or the application by tax
authorities of these laws or our failure to comply with tax laws or otherwise,
we may become liable for an increased amount of tax in any jurisdiction. An
increased liability for taxes would decrease our net income and cash
flow.
Our
insurance policies may not be adequate to cover our losses and because we obtain
some of our insurance policies through protection and indemnity associations, we
may be subject to calls in amounts based not only on our own claim records, but
also the claim records of other members of the protection and indemnity
associations which could expose us to additional expenses
We
carry insurance policies to protect us against most of the accident-related
risks involved in the conduct of our business, including marine hull and
machinery insurance, protection and indemnity insurance, which includes
pollution risks, crew insurance, and war risk insurance. We may not be
adequately insured to cover losses from our operational risks. Additionally, our
insurers may refuse to pay particular claims and our insurance policies may be
voidable by the insurers if we take, or fail to take, certain action, such as
failing to maintain certification of our vessels with applicable maritime
regulatory organizations. Any significant uninsured or under-insured loss or
liability could have a material adverse effect on our business, results of
operations, cash flows and financial condition. In addition, we may not be able
to obtain adequate insurance coverage at reasonable rates in the future during
adverse insurance market conditions.
As
a result of the September 11, 2001 attacks, the United States response to
the attacks and related concerns regarding terrorism, insurers have increased
premiums and reduced or restricted coverage for losses caused by terrorist acts
generally. Accordingly, premiums payable for terrorist coverage have increased
substantially and the level of terrorist coverage has been significantly
reduced.
We
may also be subject to calls or premiums in amounts based not only on our claim
records but also the claim records of other members of the protection and
indemnity associations through which we receive insurance coverage for tort
liability, including pollution-related liability. Our payment of these calls
could result in significant expense to us, which could have a material adverse
effect on our results of operations, cash flows and financial condition.
Moreover, the protection and indemnity associations and other insurance
providers reserve the right to make changes in insurance coverage with little or
no advance notice.
12
Maritime
claimants could arrest our vessels, which could disrupt our cash
flow
Crew
members, suppliers of goods and services to a vessel and other parties may be
entitled to a maritime lien against that vessel for unsatisfied debts, claims or
damages. In many jurisdictions, a maritime lien holder may enforce its lien by
arresting a vessel through foreclosure proceedings. The arrest or attachment of
one or more of our vessels could interrupt our cash flows and require us to pay
a significant amount of money to have the arrest lifted. In addition, in some
jurisdictions under the "sister ship" theory of liability, a claimant may arrest
both the vessel that is subject to the claimant's maritime lien and any
"associated" vessel, which is any vessel owned or controlled by the same owner.
Claimants could try to assert "sister ship" liability against one vessel in our
fleet for claims relating to another vessel in our fleet.
Terrorist
attacks, piracy, and international hostilities have previously affected the
shipping industry, and any future attacks could negatively impact our results of
operations and financial condition
Terrorist
attacks, such as the attack on the MT Limburg in
October 2002, could adversely affect our operations. We conduct our marine
fuel supply operations outside of the United States, and our business, results
of operations, cash flows and financial condition could suffer by changing
economic, political and government conditions in the countries and regions where
our vessels are employed or registered. Moreover, we operate in a sector of the
economy that is likely to be adversely impacted by the effects of political
instability, terrorist or other attacks, war, piracy, or international
hostilities.
Our
principal shareholders control our Company and may not act in the best interests
of our other shareholders
Our
principal shareholders, Leveret, a company controlled by Mr. Melisanidis,
and Peter C. Georgiopoulos, the Chairman of our board of directors, currently
own 35.1% and 9.9% of our outstanding common shares, respectively. On
July 19, 2006, Leveret and AMPNInvest LLC, or AMPNInvest, a Marshall
Islands limited liability company that has been succeeded by Messrs.
Georgiopoulos and John Tavlarios, entered into a Framework Agreement, as
amended, which affects our management and governance. We refer you to the
discussion in the section of this report entitled "Directors, Senior Management
and Employees—Framework Agreement" for a description of the Framework Agreement.
Pursuant to the Framework Agreement, Leveret and AMPNInvest agreed to identify,
mutually agree on and elect seven members to serve on our board of directors
effective upon the closing of our initial public offering, which took place on
December 13, 2006. The Framework Agreement also provides that Leveret and
Messrs. Georgiopoulos and Tavlarios, as successors to AMPNInvest, will vote in
favor of our board of directors, including the independent directors and the
nominees of our board, and in accordance with our board's recommendations on all
matters proposed for a vote or consent of our shareholders for the duration of
the Framework Agreement. The Framework Agreement expires on December 13, 2011,
the fifth anniversary of the completion of our initial public offering, unless
terminated earlier pursuant to its provisions. Accordingly both
Mr. Melisanidis, through Leveret, and Messrs. Georgiopoulos and
Tavlarios may be deemed to control our Company. Leveret and Messrs.
Georgiopoulos and Tavlarios may serve their own interests, which may not be
aligned with the interests of other shareholders when voting in favor of our
board of directors, including its nominees, or in accordance with our board's
recommendations on all matters proposed for a vote or consent of our
shareholders.
Neither
our Company nor our shareholders will be able to enforce the Framework
Agreement
The
Framework Agreement between AMPNInvest and Leveret does not name any third-party
beneficiaries. Leveret and Messrs. Georgiopoulos and John Tavlarios, as
successors to AMPNInvest, are free to mutually terminate the Framework Agreement
at any time. Upon termination, Leveret and Messrs. Georgiopoulos and Tavlarios
will be free to vote for nominees not approved by our board of directors and on
matters proposed for a vote or consent of the shareholders in a manner not
recommended by our board. Alternatively, if either party breaches
the Framework Agreement, our Company and its shareholders will not be able to
enforce the Framework Agreement. We refer you to the discussion in the section
of this report entitled "Directors, Senior Management and Employees—Framework
Agreement" for a description of the Framework Agreement. In addition, Leveret
and Messrs. Georgiopoulos and Tavlarios who together own 47.7% of our
outstanding common shares are obligated to vote in favor of our board of
directors, including its nominees, and in accordance with our board's
recommendations on all matters proposed for a vote or consent of our
shareholders even if a majority of the other shareholders vote
otherwise.
13
Mr. Melisanidis,
through Leveret, may continue to be able to exercise effective control over our
Company and may have conflicts of interest with our other
shareholders
Leveret,
a company controlled by Mr. Melisanidis, owns 35.1% of our outstanding common
shares. For so long as Leveret is controlled by Mr. Melisanidis and owns a
significant percentage of our outstanding common shares, Mr. Melisanidis
may be able to exercise effective control over us and will be able to strongly
influence the outcome of shareholder votes on other matters, including the
adoption or amendment of provisions in our articles of incorporation or bylaws
and approval of possible mergers, amalgamations, control transactions and other
significant corporate transactions. This concentration of ownership may have the
effect of delaying, deferring or preventing a change in control, merger,
amalgamations, consolidation, takeover or other business combination. This
concentration of ownership could also discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of us, which
could in turn have an adverse effect on the market price of our common
shares.
Mr. Melisanidis,
through Leveret, may not necessarily act in accordance with the best interests
of other shareholders. Moreover, Mr. Melisanidis and members of
Mr. Melisanidis' family hold significant interest in our related companies.
For further discussion, please refer to the section of this report entitled
"Major Shareholders and Related Party Transactions." We cannot assure you that
the interests of Mr. Melisanidis will coincide with the interests of other
holders of our common stock. To the extent that conflicts of interests may
arise, Mr. Melisanidis, through Leveret, may vote in a manner adverse to us
or to you or other holders of our securities.
We
have entered into an employment agreement with Mr. Melisanidis. The
employment agreement restricts Mr. Melisanidis' ability to compete with us
during the term of the employment agreement and 12 months following its
termination. If we are unable to enforce such restrictions on
Mr. Melisanidis against competing with us, any direct or indirect
competition from Mr. Melisanidis could be particularly damaging to
us.
Some
of our directors are affiliated with other companies, which could result in
conflicts of interest that may not be resolved in our favor
Some
of our directors also serve as directors of other public companies and are
employees or have investments in companies in industries related to ours. In
particular, Mr. Georgiopoulos, the Chairman of our board of directors, is
Chairman of the board of directors of General Maritime Corporation, or General
Maritime, and Genco Shipping & Trading Limited. Also, John Tavlarios
and George Konomos, who serve as our directors, are also directors of
General Maritime. Mr. Tavlarios is also an executive officer of General
Maritime. As such, General Maritime may be deemed one of our affiliates for
United States securities laws purposes. To the extent that the other entities
with which our directors may be affiliated compete with us for business
opportunities, prospects or financial resources, or participate in ventures in
which we may participate, our directors may face actual or apparent conflicts of
interest in connection with decisions that could have different implications for
us and the other companies. These decisions may relate to corporate
opportunities, corporate strategies, potential acquisitions of businesses,
intercompany agreements, competition, the issuance or disposition of securities,
the election of new or additional directors and other matters. Such potential
conflicts may delay or limit the opportunities available to us, and it is
possible that conflicts may be resolved in a manner adverse to us.
Our
status as a foreign private issuer exempts us from certain of the corporate
governance standards of the New York Stock Exchange, limiting the protections
afforded to investors
We
are a "foreign private issuer" within the meaning of the New York Stock Exchange
corporate governance standards. Under the New York Stock Exchange rules, a
foreign private issuer may elect to comply with the practice of its home country
and not to comply with certain New York Stock Exchange corporate governance
requirements, including the requirements that:
14
We
voluntarily comply with most of the New York Stock Exchange rules. However,
investors will not have the same protections afforded to shareholders of
companies that are subject to all New York Stock Exchange corporate governance
requirements.
Anti-takeover
provisions in our organizational documents could have the effect of
discouraging, delaying or preventing a merger, amalgamation or acquisition,
which could reduce the market price of our common shares
Several
provisions of our articles of incorporation and our bylaws could make it
difficult for our shareholders to change the composition of our board of
directors in any one year, preventing them from changing the composition of
management. In addition, the same provisions may discourage, delay or prevent a
merger or acquisition that shareholders may consider favorable.
These
provisions include:
In
addition, we may implement a shareholder rights plan that will make it more
difficult for a third party to acquire us without the support of our board of
directors and principal shareholders. These anti-takeover provisions could
substantially impede the ability of public shareholders to benefit from a change
in control and, as a result, may reduce the market price of our common stock and
your ability to realize any potential change of control premium.
We
are incorporated in the Marshall Islands, which does not have a well-developed
body of corporate law and shareholders may have difficulty protecting their
interests
Our
corporate affairs are governed by our articles of incorporation and bylaws and
by the Marshall Islands Business Corporations Act, or the BCA. The provisions of
the BCA resemble provisions of the corporation laws of a number of states in the
United States. However, there have been few judicial cases in the Marshall
Islands interpreting the BCA. The rights and fiduciary responsibilities of
directors under the law of the Republic of the Marshall Islands are not as
clearly established as the rights and fiduciary responsibilities of directors
under statutes or judicial precedent in the United States. The rights of
shareholders of companies incorporated in the Marshall Islands may differ from
the rights of shareholders of companies incorporated in the United States. The
BCA provides
that it is to be interpreted according to the laws of the State of Delaware and
other states with substantially similar legislative provisions. However, there
have been few, if any, court cases interpreting the BCA in the Marshall Islands
and we cannot predict whether Marshall Islands courts would reach the same
conclusions as United States courts. Thus, you may have more difficulty
protecting your interests in the face of actions by the management, directors or
controlling shareholders than would shareholders of a corporation incorporated
in a United States jurisdiction which has developed a relatively more
substantial body of case law.
15
Risk
Factors Relating to Our Industry
Adverse
economic conditions in the shipping industry may reduce the demand for our
products and services and negatively affect our results of operations and
financial condition
Our
business is focused on the physical supply and marketing of refined marine fuel
and marine lubricants to the shipping industry. The shipping industry has been
materially adversely affected by current economic conditions, with recent
charterhire rates reaching all time lows in certain sectors. Adverse economic
conditions in the shipping industry may have an adverse effect on our customers,
which may reduce the demand for our products and services and negatively affect
our results of operations and financial condition.
In
addition, any political instability, terrorist activity, piracy activity or
military action that disrupts shipping operations will adversely affect our
customers. Any adverse conditions in the shipping industry may reduce the demand
for our products and services and negatively affect our results of operations
and financial condition.
Material
disruptions in the availability or supply of oil may reduce the supply of our
products and have a material impact on our operating results, revenues and
costs
The
success of our business depends on our ability to purchase, sell and deliver
marine petroleum products to our customers. Material disruptions in the
availability or supply of oil may have an adverse effect on our suppliers. In
addition, any political instability, natural disasters, terrorist activity,
piracy, military action or other similar conditions may disrupt the availability
or supply of oil and consequently decrease the supply of refined marine fuel.
Decreased availability or supply of marine fuel may reduce our operating
results, revenues and results of operations.
Changes
in the market price of petroleum may increase our credit losses, reduce our
liquidity and decrease our profitability
The recent decline in the price of oil
and gas may negatively affect our business. A rapid decline in fuel
prices could decrease our profitability because if we were to purchase inventory
when fuel prices are high without having a corresponding sales contract in
place, we may not be able to resell it at a profit. Conversely, increases in
fuel prices can adversely affect our customers' businesses, and consequently
increase our credit losses. Increases in fuel prices could also affect the
credit limits extended to us by our suppliers and our working capital
requirements, potentially affecting our liquidity and profitability. In
addition, increases in oil prices will make it more difficult for our customers
to operate and could reduce demand for our services.
In
the highly competitive marine fuel supply industry, we may not be able to
successfully compete for customers with new entrants or established companies
with greater resources, which would negatively affect our financial condition
and our ability to expand our business
We
are subject to aggressive competition in all aspects of our business. Our
competitors are numerous, ranging from large multinational corporations, which
have significantly greater capital resources than us, to relatively small and
specialized firms. In addition to competing with fuel resellers, such as World
Fuel Services Corporation and Chemoil Corporation, we also compete with the
major oil producers that market fuel directly to large commercial shipping
companies. We may not be able to successfully compete for customers because of
increased competition from the major oil producers, or our suppliers who may
choose to market directly to large as well as smaller shipping companies, or to
provide less advantageous price and credit terms to us. Also, due in part to the
highly fragmented market, competitors with greater resources could enter the
marine fuel supply industry and operate larger fleets of bunkering tankers
through consolidations or acquisitions and may be able to offer better terms
than we are able to offer to our customers.
16
Our
operations are subject to extensive environmental laws and regulations, the
violation of which could result in liabilities, fines or penalties and changes
of which may require increased capital expenditures and other costs necessary to
operate and maintain our vessels
We
are subject to various environmental laws and regulations dealing with the
handling of fuel and fuel products. We currently store fuel inventories on our
bunkering tankers and storage facilities and we may, in the future, maintain
fuel inventories at several other locations in fixed or floating storage
facilities. Our operations involve the risks of fuel spillage or seepage,
environmental damage, and hazardous waste disposal, among other things. If we
are involved in a spill or other accident involving hazardous substances, if
there are releases of fuel and fuel products we own, or if we are found to be in
violation of environmental laws or regulations, we could be subject to
liabilities that could have a materially adverse effect on our business and
operating results. We are also subject to possible claims by customers,
employees and others who may be injured by a fuel spill, exposure to fuel, or
other accidents. If we should fail to comply with applicable environmental
regulations, we could be subject to substantial fines or penalties and to civil
or criminal liability.
In
particular, our operations are subject to numerous laws and regulations in the
form of international conventions, national, state and local laws and national
and international regulations in force in the jurisdictions in which our vessels
operate or are registered, which can significantly affect the ownership and
operation of our vessels. These regulations include, but are not limited to,
(i) the International Convention on Civil Liability for Oil Pollution
Damage of 1969, (ii) the International Convention for the Prevention of
Marine Pollution from Ships of 1973 and (iii) the International Convention
for the Safety of Life at Sea of 1974. We refer you to the discussion in the
section of this report entitled "Business—Environmental and Other Regulations"
for a description of environmental laws and regulations that affect our
business.
A
failure to comply with applicable laws and regulations may result in
administrative and civil penalties, criminal sanctions or the suspension or
termination of our operations. Some environmental laws often impose strict
liability for remediation of spills and releases of oil and hazardous
substances, which could subject us to liability without regard to whether we
were negligent or at fault. An oil spill could result in significant liability,
including fines, penalties, criminal liability and remediation costs for natural
resource damages as well as third-party damages. We are required to satisfy
insurance and financial responsibility requirements for potential oil (including
marine fuel) spills and other pollution incidents. Our insurance policies
covering certain environmental risks may not be sufficient to cover all such
risks and any claim may have a material adverse effect on our business, results
of operations, cash flows and financial condition.
Compliance
with applicable laws, regulations and standards, may require us to make
additional capital expenditures for the installation of costly equipment or
operational changes and may affect the resale value or useful lives of our
vessels. In order to satisfy these requirements, we may, from time to time, be
required to take our vessels out of service for extended periods of time, with
corresponding losses of revenues. We may also incur additional costs in order to
comply with other existing and future regulatory obligations, including costs
relating to air emissions, maintenance and inspection, elimination of tin-based
paint, development and implementation of emergency procedures and insurance
coverage or other financial assurance of our ability to address pollution
incidents. These costs could reduce our results of operations and cash flows
and weaken our financial condition. Also, in the future, market conditions
may not justify these expenditures or enable us to operate some or all of our
vessels profitably during the remainder of their economic lives.
Our
vessel operations have inherent risks that could negatively impact our results
of operations and financial condition
Our
vessels and fuel oils that they carry are at risk of being damaged or lost
because of events such as marine disasters, bad weather, mechanical failures,
human error, war, terrorism, piracy and other circumstances or events. All these
hazards can result in death or injury to persons, loss of revenues or property,
environmental damage, higher insurance rates, damage to our customer
relationships, delays or rerouting.
If
our vessels suffer damage, they may need to be repaired. The costs of vessel
repairs are unpredictable and can be substantial. We may have to pay repair
costs that our insurance policies do not cover. The loss of earnings while these
vessels are being repaired, as well as the actual cost of these repairs, would
decrease our results of operations. If one of our vessels were involved in an
accident with the potential risk of environmental contamination,
the resulting media coverage could have a material adverse effect on our
business, our results of operations and cash flows and weaken our financial
condition.
17
Our
share price may continue to be highly volatile, which could lead to a further
loss of all or part of an investor's investment
Over
the last year, the stock market has experienced extreme price and volume
fluctuations. This volatility has often been unrelated to the operating
performance of particular companies. The market price of our common shares
fluctuated substantially during 2008, with a high of $40.69 and a low of $7.93.
If the volatility in the market continues or worsens, it could have a further
adverse affect on the market price of our common shares, regardless of our
operating performance.
The
market price of our common is due to a variety of factors,
including:
Future
sales of our common shares could cause the market price of our common shares to
decline
The
market price of our common shares could decline due to sales, or the
announcements of proposed sales, of a large number of common shares in the
market, including sales of common shares by our large shareholders, or the
perception that these sales could occur. These sales, or the perception that
these sales could occur, could also make it more difficult or impossible for us
to sell equity securities in the future at a time and price that we deem
appropriate to raise funds through future offerings of common
shares.
A. History
and Development of the Company
Aegean
Marine Petroleum Network Inc. is a Marshall Islands holding company
incorporated on June 6, 2005 under the Marshall Islands Business
Corporations Act, or the BCA. On September 29, 2005, Leveret
International Inc., our then sole shareholder, contributed direct and indirect
ownership of companies that conduct our business operations. Prior to
our initial public offering we had 28,035,000 shares of our common stock
outstanding. On December 13, 2006, we consummated our initial public offering of
additional 14,375,000 shares of common stock, which we refer to as the initial
public offering.
We
maintain our principal marketing and operating offices at 42 Hatzikyriakou
Avenue, Piraeus 185 38 Athens, Greece. Our telephone number at that address is
011 30 (210) 458-6200. We also have an executive office to oversee our financial
and other reporting functions in New York City at 299 Park Avenue, New York, New
York 10171. Our telephone number at that address is (212)
763-5665.
18
B. Business
Overview
We
are an independent physical supplier and marketer of refined marine fuel and
lubricants. We procure marine fuel from refineries, major oil
producers, and resell to a diversified customer base, representing all segments
of the shipping industry, including tankers, container ships, drybulk carriers,
cruise ships, reefers, LNG/LPG, car carriers, ferries, and marine fuel traders
and brokers. We serve the following markets: Greece, Gibraltar, the
United Arab Emirates, Jamaica, Singapore, Northern Europe, Portland (U.K.), West
Africa, Vancouver, Montreal and Mexico. We are one of the largest owners and
operators of bunkering vessels. As of March 31, 2009, we own a fleet
of 33 bunkering vessels, 28 of which are double-hull.
We
provide our customers with a service that requires sophisticated logistical
operations designed to meet their strict fuel quality and delivery scheduling
needs. We believe that our extensive experience, management systems and
proprietary software systems allow us to meet our customers' specific
requirements when they purchase and take delivery of marine fuels and lubricants
around the world; this together with the capital intensive nature of our
industry, and the limited available shipyard capacity for new vessel
construction represent a significant barrier to the entry of competitors. We
have devoted our efforts to building a global brand, and believe that our
customers recognize our brand as representing high quality service and products
at each of our locations around the world. We manage our technical
ship operations in-house, which helps us maintain high levels of customer
service.
We
intend to continue expanding our business and marine fuel delivery capabilities.
In January 2008 and April 2008, we commenced operations in West Africa and in
the United Kingdom, respectively. In July 2008, we acquired
Canada-based marketer and physical supplier, ICS Petroleum, with operations in
Vancouver, Montreal, and Mexico. We expect to commence operations in
Tangiers, Morocco and Trinidad and Tobago in the second quarter of
2009.
As
we increase our global presence, we plan to expand our fleet by at least 19 new
double hull bunkering tankers, for which we have firm orders, during the next
two years, and may purchase additional secondhand vessels in the
future.
In
addition to expanding our bunkering tanker fleet, we have taken delivery of two
new double hull petroleum products tankers with roll-on roll-off facilities and
refueling capabilities for fuel trucks for the distribution of gasoline and
other refined petroleum products in island economies, which we call specialty
tankers. We view this business as complementary to our bunkering business,
involving relatively complex customer requirements and requiring significant
investment in management and software systems.
In
certain markets, we have deployed floating storage facilities which enable us to
maintain more efficient refueling operations, have more reliable access to a
supply of bunker fuel, and deliver a higher quality service to our customers. We
own two double hull Panamax tankers, Fos and Ouranos, with a cargo-carrying
capacity of approximately 68,000 dwt each, which we use as floating storage
facilities in Ghana and the United Arab Emirates, respectively. We also own one
double hull Aframax tanker, Leader, with a cargo-carrying capacity of
approximately 82,000 dwt, which we have positioned in Gibraltar for use as a
floating storage facility. In Jamaica, we use our 5,000 dwt tanker,
Aegean IX, as a floating storage facility.
In
addition to our bunkering operations, we market and distribute marine lubricants
under the Alfa Marine Lubricants brand. Alfa Marine Lubricants are currently
available in most of our markets. We view this business as
complimentary to our business of marketing and delivery marine
fuel. In February 2009, we entered into an agreement to join the
Sealub Alliance Network, a group recently formed by Gulf Oil Marine Ltd. to
collaborate in the marketing and distribution of marine lubricants.
Our
Service Centers
Greece
We
currently service our customers through our related company, Aegean Oil, in
Piraeus, Patras, and other parts of Greece. Aegean Oil has a license, which we,
as a non-Greek company, are not qualified to obtain, to operate as a physical
supplier of refined marine petroleum products in Greece. For the year ended
December 31, 2008, our sales of marine fuel in Greece amounted to approximately
695.8 thousand metric tons. We currently operate eight double hull bunkering
tankers in Greece.
19
We
purchase our fuel from Hellenic Refinery (ELPE) and Motor Oil Hellas. We compete
here against seven other physical suppliers: Eko-Elda Abee., Sekavin S.A., Seka
S.A., Jet Oil S.A., Eteka S.A., and Gallon Oil S.A.
In
addition to Piraeus and Patras, Aegean Oil has a license to operate as a
physical supplier of refined marine petroleum products in all ports in Greece,
including Thessaloniki and Crete. As we expand our business, we may elect to
service our customers in other Greek ports and seek a larger share of the total
Greek market for supply of marine petroleum products.
We
support our operations in Greece from our office in Piraeus, which we
lease.
Gibraltar
We
possess a license issued by the Bunkering Superintendent of the Port of
Gibraltar to act as a physical supplier of marine petroleum products in
Gibraltar. For the year ended December 31, 2008, our sales of marine fuel in
Gibraltar amounted to approximately 1,008.9 thousand metric tons. We
currently operate four double hull bunkering tankers in Gibraltar.
We
purchase our fuel in Gibraltar from a variety of different suppliers including
Repsol S.A. and Lia Oil S.A. We store our fuel in our floating storage facility,
the double hull Aframax tanker, Leader. We currently compete here against four
other physical suppliers, CESPA (Gibraltar) Ltd., Vemaoil
Company Ltd., Bominflot of Gibraltar Ltd., and Peninsula
Petroleum Ltd.
We
support our bunkering operations from our office in Gibraltar, which we
lease.
United
Arab Emirates
We possess a license issued by Sharjah
Economic Development Department to act as a physical supplier of marine
petroleum products in the port area of Fujairah. For the year ended December 31,
2008, our sales of marine fuel in Fujairah amounted to approximately 988.0
thousand metric tons. We currently operate four double hull bunkering
tankers in the UAE.
We
purchase our fuel in Fujairah from a variety of different suppliers including
FAL Energy Co. Ltd., which also engages in supply operations in the port,
Vitol, and ENOC. We store our fuel in our floating storage facility, the double
hull Panamax tanker, Ouranos. We compete here against other physical
suppliers, including ENOC Bunkering (Fujairah) LLC, Akron Trade and Transport,
International Supply, and Oil Marketing & Trading Inc., and
Chemoil.
We
support our bunkering operations from two offices in Fujairah and Kohr Fakkan,
which we lease.
Jamaica
We
are authorized by the Port Authority of Jamaica to act as a physical supplier of
marine petroleum products in Jamaica. We service our customers in the ports of
Kingston and Ocho Rios, Jamaica, and may elect to service our customers in other
locations in Jamaica. For the year ended December 31, 2008, our sales of marine
fuel in Jamaica amounted to approximately 522.2 thousand metric
tons. We operate two double hull tankers and one single hull
bunkering tanker in Jamaica.
In
Jamaica, we have a long-term contract to purchase our fuel from the state
refinery, Petrojam Limited, which also engages in limited supply operations
within the port. We store our fuel in our floating storage facility,
the single hull tanker, Aegean IX.
We
support our bunkering operations from our office in Kingston, which we
lease.
Singapore
We possess a license issued by the
Maritime and Port Authority of Singapore to act as a physical supplier of marine
petroleum products in the port of Singapore. For the year ended December 31,
2008, our sales of marine fuel in Singapore amounted to approximately 1,128.4
thousand metric tons. We operate five double hull bunkering tankers
in Singapore.
We
purchase our fuel in Singapore from a variety of different suppliers including
BP Singapore Pte. Ltd., Chemoil, Conoco-Phillips, Shell Singapore, Kuo Oil,
and ExxonMobil. We compete here against other physical suppliers, including
major oil producers, Global Energy Trading Pte. Ltd., Alliance Oil Trading,
Searights Maritime Services Pte. Ltd., Equatorial Marine Fuel and Sentek Marine
& Trading.
We
support our bunkering operations from our office in Singapore, which we
lease.
20
Northern
Europe
We
possess a license issued by the Belgian Federal Ministry of Finance to trade and
supply marine petroleum products offshore and in ports. We deliver fuel offshore
and service over 45 ports located throughout Northern Europe, including the
North and Irish Sea, the French Atlantic, the English Channel and St. George
Channel. For the year ended December 31, 2008, our sales of marine fuel in
Northern Europe amounted to 278.5 thousand metric tons. We operate
three double hull bunkering tankers in Northern Europe.
We
purchase our fuel in Northern Europe from a variety of different suppliers,
including Total Belgium and Verbeke Netherlands. We are not aware of any other
physical suppliers in Northern Europe with significant operations offshore. When
we conduct our operations in ports, we compete here against other physical
suppliers, including Chemoil Europe BV, BP, Total, and ExxonMobil.
We
support our offshore bunkering operations in Northern Europe from our office in
Antwerp, Belgium, which we lease.
West
Africa
We
possess a license from Ghana's National Petroleum Authority to act as a physical
supplier of marine petroleum products both off the coast and in the ports of
Ghana. We commenced physical supply operation in January, 2008 and for the year
ended December 31, 2008, our sales of marine fuel in West Africa amounted to
approximately 174.5 thousand metric tons. We operate one double hull and two
single hull bunkering tankers in West Africa. We are not aware of any other
competing physical suppliers of marine petroleum products in Ghana.
We
purchase our fuel in West Africa from a variety of different suppliers,
including Traffigura Ltd. and OVLAS Trading S.A., and store it in our floating
storage facility, the double hull Panamax tanker, Fos. We compete
here against other physical suppliers, including OW Bunkering and Addax
Bunkering Services.
We
support our bunkering operations from our office in Accra, Ghana, which we
lease.
United
Kingdom
We
own a marine fuel terminal infrastructure located in Portland Harbor. Our
terminal is located near the southern access of the North Sea Sulphur Emission
Control Area (SECA) and provides convenient access for commercial vessels to
refuel. We store our marine fuel in land-based storage tanks, which we lease
from Portland Port Limited. We commenced bunkering and terminal operations in
April 2008 and for the year ended December 31, 2008, our sales of marine fuel,
including low sulphur marine fuels, amounted to 114.2 thousand metric
tons. We operate one double hull bunkering tanker and own a special
purpose vessel in the United Kingdom.
We
purchase our fuel in the United Kingdom from a variety of different suppliers
including Total and Statoil. We compete here against other physical suppliers,
including WFS (Falmouth).
We
support our terminal and bunkering operations from our office in Portland
(U.K.), which we lease.
Vancouver
We
trade and supply marine petroleum products off the coast and in the port of
Vancouver. For the year ended December 31, 2008, our sales of marine
fuel in the port of Vancouver area amounted to 157.0 thousand metric tons; this
represents sales since July 1, 2008, the closing of our acquisition of
ICS Petroleum. We operate two single hull bunkering barges in
the port of Vancouver.
We
purchase our fuel in Vancouver from a variety of different suppliers, including
Esso (Imperial Oil), which also engages in supply operations in the
port. We compete here against other physical suppliers, including
major oil producers, Marine Petrobulk Ltd., Shell Canada, and Petro
Canada.
We
support our bunkering operations here from our office in Vancouver, which we
lease.
21
Sales
and Marketing
Most
of our marketing, sales, ship-management and other related functions are
performed at our main offices in Piraeus, Greece. We also market products and
services from our offices in New York City, Miami, and Singapore. Following our
acquisition of ICS Petroleum Ltd. on July 1, 2008, we market products and
services to Canadian and Mexican
markets from our offices in Vancouver and Montreal, Canada. Our sales
force interacts with our established customers and markets our fuel sales and
services to large commercial shipping companies and foreign governments. We
believe our level of customer service, years of experience in the industry, and
reputation for reliability are significant factors in retaining our customers
and attracting new customers. Our sales and marketing approach is designed to
create awareness of the benefits and advantages of our fuel sales and services.
We are active in industry trade shows and other available public
forums.
Administrative
Offices
Cyprus
We
maintain an administrative office in Cyprus, which we lease. Our office in
Cyprus is responsible for, among other things, certain invoicing functions of
our principal operating subsidiary, AMP.
New
York City
We
maintain an executive office in New York City to oversee our financial and other
reporting functions.
Customers
We
market marine fuel and related services to a broad and diversified base of
customers. During the years ended December 31, 2006, 2007, and 2008, none
of our customers accounted for more than 10% of our total
revenues. Our customers serviced during the past three years, include
Greek-owned commercial shipping companies such as Capital Maritime &
Trading Corp., Neptune Line Shipping and ENESEL S.A., other international
shipping companies such as A.P. Moller and Royal Carribean Cruises Ltd.,
marine fuel traders and brokers such as World Fuel Services Corporation and oil
majors, such as Exxon Mobil Corporation.
Suppliers
We
purchase our marine fuel and lubricants from refineries, oil majors or other
select suppliers around the world. In the year ended December 31, 2008, we
purchased marine petroleum products of approximately $351.5 million, or
approximately 13.5% of our total purchases of marine petroleum products from our
related company, Aegean Oil. The majority of our purchases of marine petroleum
products during the year ended December 31, 2008, were made from unrelated
third-party suppliers and totaled $2,242.9 million, or approximately 86.5% of
our total purchases of marine petroleum products. Our cost of fuel is
generally tied to spot pricing, market-based formulas or is governmentally
controlled. We are usually extended trade credit from our suppliers for our fuel
purchases, which is generally required to be secured by standby letters of
credit or letters of guarantee.
We
compete with marine fuel traders and brokers such as World Fuel Services
Corporation, Chemoil Corporation and major oil producers, such as BP Marine,
Shell Marine Products and ExxonMobil Marine Fuel, for services and end
customers. We also compete with physical suppliers of marine fuel products such
as CESPA (Gibraltar) Ltd. and Fujairah National Bunkering Co. LLC for
business from traders and brokers as well as end customers. Our competitors
include both large corporations and small, specialized firms. Some of our
competitors are larger than we are and have substantially greater financial and
other resources than we do. Some of our suppliers also compete against
us. 22
Environmental
and Other Regulations
Government
regulations and laws significantly affect the ownership and operation of our
tankers and marine fuel facilities. We are subject to various
international conventions, laws and regulations in force in the countries in
which our fuel facilities are located, and where our vessels may operate or are
registered. Compliance with such laws, regulations and other
requirements entails significant expense, including vessel modification and
implementation of certain operating procedures.
A
variety of government, quasi-governmental and private organizations subject our
tankers to both scheduled and unscheduled inspections. These
organizations include the local port authorities, national authorities, harbor
masters or equivalent, classification societies, flag state and charterers,
particularly terminal operators and oil companies. Some of these
entities require us to obtain permits, licenses and certificates for the
operation of our tankers and marine fuel facilities. Our failure to
maintain necessary permits or approvals could require us to incur substantial
costs or temporarily suspend operation of our marine fuel terminal or one or
more of the vessels in our fleet.
We
believe that the heightened levels of environmental and quality concerns among
insurance underwriters, regulators and charterers have led to greater inspection
and safety requirements on all vessels and may accelerate the scrapping of older
vessels throughout the industry. Increasing environmental concerns
have created a demand for tankers that conform to the stricter environmental
standards. We are required to maintain operating standards for all of
our vessels emphasizing operational safety, quality maintenance, continuous
training of our officers and crews and compliance with applicable local,
national and international environmental laws and regulations. We
believe that the operation of our vessels will be in substantial compliance with
applicable environmental laws and regulations and that our vessels have all
material permits, licenses, certificates or other authorizations necessary for
the conduct of our operations; however, because such laws and regulations are
frequently changed and may impose increasingly stricter requirements, we cannot
predict the ultimate cost of complying with these requirements, or the impact of
these requirements on the resale value or useful lives of our
tankers. In addition, a future serious marine incident that results
in significant oil pollution or otherwise causes significant adverse
environmental impact could result in additional legislation or regulation that
could negatively affect our profitability.
International
Maritime Organization
The
International Maritime Organization, or the IMO (the United Nations agency for
maritime safety and the prevention of pollution by ships), has adopted the
International Convention for the Prevention of Marine Pollution from Ships,
1973, as modified by the Protocol of 1978 relating thereto, which has been
updated through various amendments, or the MARPOL Convention. The MARPOL
Convention implements environmental standards including oil leakage or spilling,
garbage management, as well as the handling and disposal of noxious liquids,
harmful substances in packaged forms, sewage and air emissions.
In
April 2001, the IMO adopted regulations under the MARPOL Convention, which
became effective in September 2002, requiring the phase-out of most single hull
oil tankers by 2015 or earlier, depending on the age of the tanker and whether
it has segregated ballast tanks. Under the regulations, the flag
state may allow for some newer single hull ships registered in its country that
conform to certain technical specifications to continue operating until the 25th
anniversary of their delivery. Any port state, however, may deny entry of those
single hull tankers that are allowed to operate until their 25th anniversary to
ports or offshore terminals. These regulations have been adopted by over 150
nations, including many of the jurisdictions in which our tankers
operate.
As
a result of the oil spill in November 2002 relating to the loss of the
MT Prestige, which was
owned by a company not affiliated with us, in December 2003, the Marine
Environmental Protection Committee of the IMO, or MEPC, adopted an amendment to
the MARPOL Convention, which became effective in April 2005. The amendment
revised an existing regulation 13G accelerating the phase-out of single hull oil
tankers and adopted a new regulation 13H on the prevention of oil pollution from
oil tankers when carrying heavy grade oil. Under the revised regulation, single
hull oil tankers were required to be phased out no later than April 5, 2005 or
the anniversary of the date of delivery of the ship on the date or in the year
specified in the following table: 23
Under
the revised regulations, a flag state may permit continued operation of certain
Category 2 or 3 tankers beyond their phase-out date in accordance with the above
schedule. Under regulation 13G, the flag state may allow for some
newer single hull oil tankers registered in its country that conform to certain
technical specifications to continue operating until the earlier of the
anniversary of the date of delivery of the vessel in 2015 or the 25th
anniversary of their delivery. Under regulations 13G and 13H, as
described below, certain Category 2 and 3 tankers fitted only with double
bottoms or double sides may be allowed by the flag state to continue operations
until their 25th anniversary of delivery. Any port state, however,
may deny entry of those single hull oil tankers that are allowed to operate
under any of the flag state exemptions.
In
October 2004, the MEPC adopted a unified interpretation of regulation 13G that
clarified the delivery date for converted tankers. Under the interpretation,
where an oil tanker has undergone a major conversion that has resulted in the
replacement of the fore-body, including the entire cargo carrying section, the
major conversion completion date shall be deemed to be the date of delivery of
the ship, provided that:
In
December 2003 the MEPC adopted a new regulation 13H on the prevention of
oil pollution from oil tankers when carrying heavy grade oil, or HGO, which
includes most of the grades of marine fuel. The new regulation bans the carriage
of HGO in single hull oil tankers of 5,000 dwt and above after April 5, 2005,
and in single hull oil tankers of 600 dwt and above but less than 5,000 dwt, no
later than the anniversary of their delivery in 2008.
Under
regulation 13H, HGO means any of the following:
24
Under
regulation 13H, the flag state may allow continued operation of oil tankers of
5,000 dwt and above carrying crude oil with a density at 15ºC higher than 900
kg/m3 but
lower than 945 kg/m3, that
conform to certain technical specifications and if, in the opinion of the flag
state, the ship is fit to continue such operation, having regard to the size,
age, operational area and structural conditions of the ship and provided that
the continued operation shall not go beyond the date on which the ship reaches
25 years after the date of its delivery. The flag state may also
allow continued operation of a single hull oil tanker of 600 dwt and above but
less than 5,000 dwt carrying HGO as cargo if, in the opinion of the flag state,
the ship is fit to continue such operation, having regard to the size, age,
operational area and structural conditions of the ship, provided that the
operation shall not go beyond the date on which the ship reaches 25 years after
the date of its delivery.
The
flag state may also exempt an oil tanker of 600dwt and above carrying HGO as
cargo if the ship is either engaged in voyages exclusively within an area under
its jurisdiction, or is engaged in voyages exclusively within an area under the
jurisdiction of another party, provided the party within whose jurisdiction the
ship will be operating agrees. The same applies to vessels operating as floating
storage units of HGO.
Any
port state, however, can deny entry of single hull tankers carrying HGO, which
have been allowed to continue operation under the exemptions mentioned above,
into the port or offshore terminals under its jurisdiction or deny ship-to-ship
transfer of HGO in areas under its jurisdiction, except when this is necessary
for the purpose of securing the safety of a ship or saving life at
sea.
Revised
Annex I to the MARPOL Convention entered into force in January 2007. Revised
Annex I incorporates various amendments adopted since the MARPOL Convention
entered into force in 1983, including the amendments to regulation 13G
(regulation 20 in the revised Annex) and regulation 13H (regulation 21 in the
revised Annex). Revised Annex I also imposes construction requirements for oil
tankers delivered on or after January 1, 2010. A further amendment to revised
Annex I includes an amendment to the definition of HGO that will broaden the
scope of regulation 21. On August 1, 2007, regulation 12A (an amendment to Annex
I) came into force requiring oil fuel tanks to be located inside the double hull
in all ships with an aggregate oil fuel capacity of 600m3 and
above which are delivered on or after August 1, 2010, including ships for which
the building contract is entered into on or after August 1, 2007 or, in the
absence of a contract, for which the keel is laid on or after February 1,
2008.
In
September 1997, the IMO adopted Annex VI to the MARPOL Convention to
address air pollution from ships. Effective in May 2005, Annex
VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial
vessel exhausts and prohibits deliberate emissions of ozone depleting substances
(such as halons chlorofluorocarbons), emissions of volatile compounds from cargo
tanks, and the shipboard incineration of specific substances. Annex
VI also includes a global cap on the sulfur content of fuel oil and allows for
special areas to be established with more stringent controls on sulfur
emissions. We believe that all our vessels are currently compliant in
all material respects with these regulations. Additional or new
conventions, laws and regulations may be adopted that could require the
installation of expensive emission control systems and that could adversely
affect our business, cash flows, results of operations and financial
condition.
In
October 2008, the IMO adopted amendments to Annex VI regarding particulate
matter, nitrogen oxide and sulfur oxide emission standards which are expected to
enter into force on July 1, 2010. The amended Annex VI would reduce
air pollution from vessels by, among other things, (i) implementing a
progressive reduction of sulfur oxide, emissions from ships, with the global
sulfur cap reduced initially to 3.50% (from the current cap of 4.50%), effective
from January 1, 2012, then progressively to 0.50%, effective from January 1,
2020, subject to a feasibility review to be completed no later than 2018; and
(ii) establishing new tiers of stringent nitrogen oxide emissions standards for
new marine engines, depending on their date of installation. Once
these amendments become effective, we may incur costs to comply with these
revised standards.
25
Safety
Requirements
The
IMO has also adopted the International Convention for the Safety of Life at Sea,
or SOLAS Convention, and the International Convention on Load Lines, 1966, or LL
Convention, which impose a variety of standards to regulate design and
operational features of ships. SOLAS Convention and LL Convention standards are
revised periodically. We believe that all our vessels are in substantial
compliance with SOLAS Convention and LL Convention standards.
Under
Chapter IX of SOLAS, the requirements contained in the International Safety
Management Code for the Safe Operation of Ships and for Pollution Prevention, or
the ISM Code, promulgated by the IMO, also affect our operations. The
ISM Code requires the party with operational control of a vessel to develop an
extensive safety management system that includes, among other
things, the adoption of a safety and environmental protection policy
setting forth instructions and procedures for operating its vessels safely and
describing procedures for responding to emergencies.
The
ISM Code requires that vessel managers or operators obtain a safety management
certificate for each vessel they operate. This certificate evidences
compliance by a vessel's management with ISM Code requirements for a safety
management system. No vessel can obtain a safety management
certificate unless its manager has been awarded a document of compliance, issued
by each flag state, under the ISM Code. We have all material
requisite documents of compliance for our offices and safety management
certificates for vessels in our fleet for which the certificates are required by
the IMO. We are required to renew these documents of compliance and safety
management certificates annually.
Non-compliance
with the ISM Code and other IMO regulations may subject the shipowner or
bareboat charterer to increased liability, may lead to decreases in available
insurance coverage for affected vessels and may result in the denial of access
to, or detention in, some ports. The U.S. Coast Guard and European
Union, or EU, authorities have indicated that vessels not in compliance with the
ISM Code by the applicable deadlines will be prohibited from trading in U.S. and
EU ports, as the case may be.
Oil Pollution
Liability>
Many
countries have ratified and follow the liability plan adopted by the IMO and set
out in the International Convention on Civil Liability for Oil Pollution Damage
of 1969, as amended in 2000, or the CLC. Under this convention and depending on
whether the country in which the damage results is a party to the CLC, a
vessel's registered owner is strictly liable for pollution damage caused in the
territorial waters of a contracting state by discharge of persistent oil,
subject to certain complete defenses. The limits on liability outlined in the
1992 Protocol use the International Monetary Fund currency unit of Special
Drawing Rights, or SDR. Under an amendment to the 1992 Protocol that became
effective on November 1, 2003 for vessels of 5,000 to 140,000 gross tons (a unit
of measurement for the total enclosed spaces within a vessel), liability will be
limited to approximately 4.51 million SDR plus 631 SDR for each additional gross
ton over 5,000. For vessels over 140,000 gross tons, liability will be limited
to 89.77 million SDR. The exchange rate between SDRs and U.S. dollars was
0.685387 SDR per U.S. dollar on March 9, 2008. The right to limit liability is
forfeited under the CLC where the spill is caused by the owner's actual fault
and under the 1992 Protocol where the spill is caused by the owner's intentional
or reckless conduct. Vessels trading to states that are parties to these
conventions must provide evidence of insurance covering the liability of the
owner. In jurisdictions where the CLC has not been adopted various legislative
schemes or common law govern, and liability is imposed either on the basis of
fault or in a manner similar to that of the CLC. We believe that our insurance
will cover the liability under the plan adopted by the IMO.
In
2001, the IMO adopted the International Convention on Civil Liability for Bunker
Oil Pollution Damage, or the Bunker Convention, which imposes strict liability
on ship owners for pollution damage in jurisdictional waters of ratifying states
caused by discharges of bunker fuel. The Bunker Convention requires registered
owners of ships over 1,000 gross tons to maintain insurance for pollution damage
in an amount equal to the limits of liability under the applicable national or
international limitation regime (but not exceeding the amount calculated in
accordance with
the Convention on Limitation of Liability for Maritime Claims of 1976, as
amended). The Bunker Convention has been ratified by a sufficient number of
nations for entry into force, and became effective on November 21,
2008.
26
The
IMO has negotiated international conventions that impose liability for oil
pollution in international waters and a signatory's territorial waters.
Additional or new conventions, laws and regulations may be adopted which could
limit our ability to do business and which could have a material adverse effect
on our business and results of operations.
European
Union Restrictions
In
July 2003, in response to the MT Prestige oil spill in
November 2002, the European Union adopted legislation, which was amended in
October 2003, that prohibits all single hull tankers from entering into its
ports or offshore terminals by 2010 or earlier, depending on their
age. The European Union has also already banned all single hull
tankers carrying heavy grades of oil from entering or leaving its ports or
offshore terminals or anchoring in areas under its
jurisdiction. Commencing in 2005, certain single hull tankers above
15 years of age will also be restricted from entering or leaving European
Union ports or offshore terminals and anchoring in areas under European Union
jurisdiction.
The European Union is also considering
legislation that would: (i) ban manifestly sub-standard vessels (defined as
those over 15 years old that have been detained by port authorities at least
twice in a six-month period) from European waters and create an obligation of
port states to inspect vessels posing a high risk to maritime safety or the
marine environment and (ii) provide the European Union with greater authority
and control over classification societies, including the ability to seek to
suspend or revoke the authority of negligent societies. It is impossible to
predict what legislation or additional regulations, if any, may be promulgated
by the European Union or any other country or authority.
In
2005, the European Union adopted a directive on ship-source pollution, imposing
criminal sanctions for intentional, reckless or negligent pollution discharges
by ships. The directive could result in criminal liability for
pollution from vessels in waters of EU countries that adopt implementing
legislation. Criminal liability for pollution may result in
substantial penalties or fines and increased civil liability
claims.
United
Kingdom
Our
marine fuel terminal operations involving the storage of fuel in the United
Kingdom are subject to stringent laws and regulations governing the discharge of
materials into the environment, otherwise relating to protection of the
environment, operational safety and related matters. In particular, we are
subject to the Environmental Protection Act 1990, or EPA, which governs
pollution of water, land and air due to release of substances causing harm to
living organisms and the Water Resources Act 1991 (as amended by the Environment
Act 1995), or WRA, which is designed to protects the water environment. In
addition, the Pollution Prevention and Control (England and Wales) Regulations
2000, or the Regulations, implement integrated pollution prevention and control
regimes. These regulations cover pollution of water, land and air due to
emissions which may be harmful to the environment or may result in damage to
property or environment.
Under
EPA, WRA and the Regulations, we may be subject, among other things, to
administrative, civil and criminal penalties, the imposition of investigatory
and remedial remedies and issuance of injunctions that may restrict or prohibit
our United Kingdom operations or even claims of damages to property or persons
resulting from our operations.
In
addition, general health and safety regulations are applicable to our terminals
to ensure the safety of our premises and related structures.
We
believe that the operations of our marine fuel terminal are in substantial
compliance with applicable United Kingdom environmental laws and regulations,
and that we have all material permits, licenses, certificates and other
authorizations necessary for the conduct of our operations. The laws and
regulations are subject to change and we cannot provide any assurance that
compliance with current and future laws will not have a material effect on our
operations in the United Kingdom.
27
Vessel
Security Regulations
Since
the terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security. In December 2002,
amendments to SOLAS created a new chapter of the convention dealing specifically
with maritime security. The new chapter became effective in July 2004 and
imposes various detailed security obligations on vessels and port authorities,
most of which are contained in the International Ship and Port Facility Security
Code, or the ISPS Code. The ISPS Code is designed to protect ports and
international shipping against terrorism. After July 1, 2004, to trade
internationally, a vessel must attain an International Ship Security Certificate
from a recognized security organization approved by the vessel's flag state.
Among the various requirements are:
We
have implemented the various security measures addressed by SOLAS and the ISPS
Code, and our fleet is in compliance with applicable security
requirements.
Inspection
by Classification Societies
Our
tankers have been certified as being "in-class" by Lloyds Register of Shipping
Germanischer Lloyd, American Bureau of Shipping, Det Norske Veritas and Bureau
Veritas, all of which are members of the International Association of
Classification Societies. Generally, the regulations of vessel registries
accepted by international lenders in the shipping industry require that an
oceangoing vessel's hull and machinery be evaluated by a classification society
authorized by the country of registry. The classification society certifies that
the vessel has been built and maintained in accordance with the rules of the
classification society and complies with applicable rules and regulations of the
vessel's country of registry and the international conventions of which that
country is a member. Each vessel is inspected by a surveyor of the
classification society in three surveys of varying frequency and thoroughness:
every year for the annual survey, every two to three years for intermediate
surveys and every four to five years for special surveys. Should any defects be
found, the classification surveyor generally issues a notation or recommendation
for appropriate repairs, which have to be made by the shipowner within the time
limit prescribed. Vessels may be required, as part of the annual and
intermediate survey process, to be drydocked for inspection of the underwater
portions of the vessel and for necessary repair stemming from the inspection.
Special surveys always require drydocking.
Risk
of Loss and Insurance Coverage
General
The
operation of any tanker vessel involves risks such as mechanical failure,
physical damage, collision, property loss, inventory loss or damage and business
interruption due to political circumstances in foreign countries, hostilities
and labor strikes. In addition, there is always an inherent possibility of
marine disaster, including oil spills and other environmental mishaps, and the
liabilities arising from owning and operating vessels in international trade.
While we believe that our present insurance coverage is adequate, not all risks
can be insured against, and there can be no guarantee that any specific claim
will be paid, or that we will always be able to obtain adequate insurance
coverage at reasonable rates.
28
Hull
and Machinery and War Risk Insurance
We
have obtained marine hull and machinery and war risk insurance policies, which
provide coverage for the risk of actual or constructive total loss, for all our
vessels. Each of our vessels is covered for up to its fair market
value.
We
have also obtained increased value insurance policies for most of our vessels.
Under the increased value insurance, we will be able to recover the sum insured
under the policy in addition to the sum insured under our hull and machinery
policy in the event of the total loss of the vessel. Increased value insurance
policies also cover excess liabilities that are not recoverable in full by the
hull and machinery policies by reason of under-insurance.
Protection
and Indemnity Insurance
Protection
and indemnity insurance policies, which cover our third-party liabilities in
connection with our shipping activities, are provided by mutual protection and
indemnity associations, or P&I Associations. These insurance policies cover
third-party liability and other related expenses of injury or death of crew,
passengers and other third parties, loss or damage to cargo, claims arising from
collisions with other vessels, damage to other third-party property, pollution
arising from oil or other substances, and salvage, towing and other related
costs, including wreck removal. Protection and indemnity insurance policies are
a form of mutual indemnity insurance policies, extended by protection and
indemnity mutual associations, or "clubs." Subject to the "capping" of exposure
discussed below, our coverage, except for pollution, is unlimited.
Our
current protection and indemnity insurance coverage for pollution is up to
$1.0 billion per vessel per incident. The 14 P&I Associations that
compose the International Group insure approximately 90% of the world's
commercial tonnage and have entered into a pooling agreement to reinsure each
association's liabilities. Each P&I Association has capped its exposure to
this pooling agreement at $4.5 billion. As a member of a P&I
Association that is a member of the International Group, we are subject to calls
payable to the associations based on our claim records as well as the claim
records of all other members of the individual associations, and members of the
International Group.
Trademarks
and Licenses
We
have entered into a trademark license agreement with Aegean Oil pursuant to
which Aegean Oil granted us a non-transferable, non-exclusive, perpetual
(subject to termination for material breach), world-wide, royalty-free right and
license to use certain trademarks related to the Aegean logo and "Aegean Marine
Petroleum" in connection with marine fuel supply services.
Seasonality
Our
business is not seasonal.
Legal
Proceedings
In
the ordinary course of business, we may be subject to legal proceedings and
claims for damages or penalties relating to, among other things, personal
injury, property casualty and environmental contamination. We expect that these
claims will be covered by our insurance policies, subject to customary
deductibles. Those claims, even if lacking merit, could result in the
expenditure of significant financial and managerial resources.
On
November 30, 2005, an unrelated third party initiated a civil lawsuit in
the Court of First Instance in Piraeus against us seeking a payment of
approximately $10.0 million and legal expenses. The suit alleges that the
plaintiff was instrumental in negotiation of our fuel purchase agreement and is
entitled to the commissions of $1 per ton of marine petroleum sold in Jamaica
during a 12-year period beginning on March 1, 2005. In 2007, the Court of
First Instance ruled that the claim is maritime-related and not within its
jurisdiction. Accordingly, the claim was referred to the Maritime Disputes
Division of the Court of First Instance in Piraeus. In December 2008,
the court dismissed the plaintiff's lawsuit. On
February 26, 2009, the plaintiff commenced against us and Mr. Melisanidis a new
civil law suit in the Commercial Court of Paris, France, seeking a payment of
approximately $1.8 million of alleged commissions and $0.4 million of
compensatory damages. After an initial hearing that was held on March
31, 2009, the court has scheduled a hearing in the case for May 5,
2009. Although it is not possible to predict the outcome of this
litigation, based on the facts known to us, we believe that this litigation will
not have a material adverse effect on our financial position or results of
operations.
In the fourth quarter of 2007, we purchased Portland Bunkers International Ltd., the owner of a bunker supply facility in Portland, which is on the southern coast of England, at which we planned to commence operations during the first quarter of 2008. In February 2008, World Fuel Services Europe Limited, or WFS, the operator of a bunker facility in Falmouth, which is also on the southern coast of England, commenced an action in the English High Court, claiming, among other things, that the Company had received confidential information from certain WFS employees which gave the Company a "head start" in commencing operations in Portland. On February 26, 2008, the High Court granted WFS a preliminary injunction which prohibited the Company from dealing with certain customers in the Portland operation until March 31, 2008. The case was settled before trial and we commenced operations in Portland on April 1, 2008. 29
C. Organizational
Structure
Aegean
Marine Petroleum Network Inc. is a Marshall Islands holding company and we
transact our bunkering business primarily through Aegean Marine Petroleum S.A.,
or AMP, a wholly-owned subsidiary incorporated in Liberia and operate our
service centers through Aegean Bunkering Gibraltar Ltd., Aegean Bunkering
Jamaica Ltd., Aegean Bunkering (Singapore) Pte. Ltd., Aegean Bunkering
(Ghana) Limited, Bunkers at Sea NV, ICS Petroleum Ltd., and Portland Bunkers
International Limited, separate wholly-owned subsidiaries incorporated in
Gibraltar, Jamaica, Singapore, Ghana, Belgium, British Columbia (Canada) and
under the laws of England and Wales, respectively, and Aegean Marine Petroleum
LLC, a controlled subsidiary incorporated in the United Arab Emirates, which is
51% owned by a local nominee. We provide the management of our bunkering tankers
through Aegean Bunkering Services Inc., or ABS, a wholly-owned subsidiary
incorporated in the Marshall Islands, and Aegean Management Services M.C., a
wholly owned-subsidiary incorporated in Greece. We provide the marketing and
administrative services for our operations through Aegean Oil (USA), LLC and
AMPN USA, LLC, our wholly-owned subsidiaries formed in Delaware, the U.S, and
I.C.S. Petroleum (Montreal) Ltd., our wholly-owned subsidiary incorporated in
Canada. We hold certain of our subsidiaries through Aegean Holdings S.A. and
Aegean Investments S.A., our wholly-owned subsidiaries incorporated in the
Marshall Islands, and hold our vessel-owning subsidiaries through Aegean
Shipholdings Inc., a wholly-owned subsidiary incorporated in the Marshall
Islands.
Currently,
we own our vessels through separate wholly-owned subsidiaries listed in the
following table:
30
D. Property,
Plant and Equipment
Real
Property
The
following table presents certain information on our leased and owned properties
as of March 31, 2009. We consider our properties to be suitable and
adequate for our present needs.
31
Fleet
The
following table lists our fleet of owned vessels as of March 31,
2009:
32
We
have positioned our bunkering tankers across our existing service centers and
review vessel positioning on a periodic basis and reposition them among our
existing or new service centers to optimize their deployment. Our vessels
operate within or outside the territorial waters of each geographical location
and, under international law, usually fall under the jurisdiction of the country
of the flag they carry. Generally, our bunkering tankers, unlike our bunkering
barges, are not permanently located within any particular territorial waters and
we are free to use all of our bunkering tankers in any geographical location. We
have positioned four of our tankers in the United Arab Emirates, Ghana,
Gibraltar and Jamaica and use them as floating storage facilities and a 550 dwt
tanker as a special purpose vessel in Portland (U.K.).
We
intend to expand our business and marine fuel delivery capability. In
furtherance of this objective, we have entered into newbuilding contracts with
two shipyards located in China for the construction of new double hull bunkering
tankers; we have 19 remaining vessels for delivery in the next two years.
As we expand our global presence, we expect to enter into agreements with third
party sellers to purchase additional double hull bunkering tankers. Following
the delivery of the 19 newbuildings that we have under contract, we expect to
have 47 double hull vessels in our operating fleet of bunkering tankers by
2010.
33
The
following table presents certain information concerning 19 bunkering tankers
that we have contracted to build as of March 31, 2009.
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