Double Hull Tankers (DHT)

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Double Hull Tankers (NYSE: DHT) is a small shipping company that as of April 2008 operated nine crude oil tankers with a total carrying capacity of 1.66 million deadweight tonnes.^[1] DHT split off from its parent company Overseas Shipholding Group OSG and held its own IPO in October of 2005. Since then, the company is chartering out all of its vessels to OSG, with the earliest charters terminating in October 2010 and the latest terminating in January 2018.^[2]

DHT receives a daily minimum rate on each ship chartered by OSG in addition to a portion of revenues the vessels earn in the spot market. Most of the company's competitors make money by chartering out its vessels to oil companies on either a time charter or spot charter basis. Time charters are long term contracts that are written in advance of voyages, and spot charters are short term contracts, written at the time that services commence. Historically, spot charters have offered higher pay to ship owners but are less stable in nature.

As of February 2008, the newbuilding order book (the total number of ships on order globally) extended to 2012 and contained enough orders to increase the existing global tanker fleet by almost 40%.^[3]. As tanker capacity increases relative to demand for tanker services, both charter rates and ship values fall. DHT's arrangement with OSG however, insulates it from fluctuations in tanker rates in the near term. In the longer term, as its ships come off contract, the company will see its exposure to spot markets increase.

As of early 2008, DHT had $329MM in debt. Over 90MM of this amount is floating, with a majority of the rest locked in for only short periods. This debt is a major burden on the company with ineterest expense accounting for more than 17% of total revenue.

[edit] Company Overview

As of April 2008, DHT was managing 9 crude oil tankers^[4] for a total shipping capacity of 1,659,921 deadweight tonnes. All of these ships were double-hulled, meaning that they are not barred from transport in certain parts of the world like single-hulled ships are^[5]. Their fleet is relatively young; as of the year ended 2007, the weighted average age of its fleet is 7.8 years, compared to the world crude tanker fleet average of 11.2 years.^[6]

As explained in the intro, DHT has chartered out all of its vessels to its former parent company OSG. Thus, while DHT has substantial guaranteed income until their charters expire (beginning in late 2010, unless extended for a one- to three- year period at OSG's discretion^[7]), it also means that the company is for the moment solely dependent on the success of this one company.^[8]

The company's largest expense are those associated with vessel upkeep, maintenance, and operation. After its IPO, DHT began outsourcing these responsibilities to Tanker Management. a subsidiary of OSG. ^[9] DHT's fees to tanker management are largely fixed, making their net income sensitive to changes in revenue. Should they maintain relations with Tanker Management, the company has already agreed to the price of future daily rates on the technical management of their tankers until October 2012.^[10] The chart below indicates that their daily time charter equivalents have been decreasing.

Because the company has only operated independently for a limited amount of time, there is limited financial data available. The revenue/net income chart below shows figures from 2007, 2006, and the time in 2005 after the company's IPO.

^[11]

^[12] Note that TCE rates divide time charter revenues (shipping revenues minus voyage expenses) in a period by revenue days in the period.

[edit] Trends and Forces

[edit] As contracts with OSG expire, DHT's revenue will become more volatile

Until 2010, 100% of DHT's shipping revenues will come from its former parent OSG, and until October 2008, all of DHT's ship maintenance and crew staffing responsibilities have been assigned to an OSG subsidiary.^[13] Thus, in the future, when DHT and OSG become more independent, the company will have to find other, potentially lower-paying clients and other, potentially more costly technical management. While it, as of April 2008, suffices for DHT to use a board of one CEO, one CFO, and one VP, the company will have significantly larger challenges as time increases the age of its fleet, decreases the value of its vessels, and makes its revenue and operating expense less predictable.

[edit] Oversupply of new vessels will drive down both spot rates and time charter rates

The newbulding order book (as of February 2008) extends to 2012 and consisted of almost 2/5 of the existing world tanker fleet.^[14] Meanwhile, global oil demand rose only by 1.8% year-over-year in 2007.^[15] While the growth of developing countries like China and India will continue to drive demand for tanker services in the future, the February 2008 order book indicates that these considerations have already been taken into account, and that the industry will become even more competitive in the near-term.

[edit] DHT's high debt exposes it to interest rate fluctuations and fluctuations in the price of its tankers

As of the end of 2007, DHT had $329 million in total debt and $97 million in current liabilities.^[16] Current assets for that year were only $13.6 million, and debt load represents more than 100% of the company's market cap during April 2008.^[17] Any change in interest rates will have a significant impact on the company's free cash flow since about $90 million of its debt is floating rate, and the rest is fixed-rate for only short terms.^[18] High interest rates also make otherwise lucrative vessel purchases less rewarding. Finally, tanker oversupply (as discussed above) will make it difficult for DHT to renegotiate its debt, since a greater number of tankers in the world fleet will lower the value of DHT's own tankers.

[edit] Competitors

Some of DHT's major competitors include:

• Frontline is a crude oil shipping company that operates 83 vessels worldwide and has a total tonnage of approximately 19.35 million dwt.^[19]
• Overseas Shipholding Group, a U.S. based tanker company that transports crude oil, petroleum product, and liquefied natural gas internationally. Domestically, they also operate a U.S. Flagged fleet^[20]..
• General Maritime Corporation, a U.S.-based crude oil transportation company whose fleet is made up of 30 vessels that the company wholly owns. They have a total capacity of 2.4 million dwt^[21].
• Teekay Corporation provides international transportation for crude oil and petroleum products, and operates approximately evenly in the charter and spot markets. They have a total capacity of 4.2 million dwt^[22].
• Tsakos Energy Navigation, based in Bermuda, charters the shipment of crude oil and petroleum products for its fleet of 40 vessels, of which one is a liquefied natural gas carrier. They have a carrying capacity of 14.9 million dwt^[23].

DHT is different from its competitors because of their company structure - they are a holding company who is largely dependent on their subsidiaries for cash flows since their most significant asset is the equity they hold in their subsidiaries.^[24] Moreover, DHT's strategy is unique in that it lets them expect consistent cash flows over long periods of time. Like some of DHT's competitors, however, the company has chosen to concentrate solely on the crude oil transport sector of the tanker industry, a decision likely following from their small size.

Note that dwts measure shipping capacity.

 Double Hull Tankers

	Select All  |  Select None Metrics Average Age of Fleet Average Time Charter Equivalent per Day Earnings Capacity Days Net Earning Days Off-Hire Days Average Vessel Operating Expenses per Day Time Charter Equivalent Revenues Vessels Owned Vessels Chartered In Debt to Equity Average Number of Vessels Revenue Net Income Number of Vessels Percentage Utilization Deadweight Tons Cancel

	Select All  |  Select None Companies American Commercial Lines (ACLI) Alexander & Baldwin (ALEX) Arlington Tankers (ATB) B+H Ocean Carriers (BHO) Capital Product Partners L.P. (CPLP) Double Hull Tankers (DHT) DryShips (DRYS) Diana Shipping (DSX) Eagle Bulk Shipping (EGLE) Euroseas (ESEA) Excel Maritime Carriers (EXM) Frontline (FRO) StealthGas (GASS) Golar LNG (GLNG) General Maritime (GMR) Genco Shipping (GNK) Hornbeck Offshore Services (HOS) Horizon Lines (HRZ) International Shipholding (ISH) Kirby (KEX) K-Sea Transportation Partners LP (KSP) Nordic American Tanker Shipping (NAT) Navios Maritime Holdings (NM) OceanFreight (OCNF) Omega Navigation Enterprises (ONAV) Overseas Shipholding Group (OSG) Aries Maritime Transport (RAMS) Ship Finance International (SFL) Seaspan (SSW) TBS International (TBSI) Tidewater (TDW) Teekay Lng Partners, L.P. (TGP) Teekay Shipping (TK) Grupo TMM, S.A. (TMM) Tsakos Energy Navigation (TNP) Teekay Offshore Partners L.P. (TOO) Trailer Bridge (TRBR) Aktieselskabet Dampskibsselskabet Torm (TRMD) Ultrapetrol (Bahamas) (ULTR) U.S. Shipping Partners L.P. (USS) Knightsbridge Tankers (VLCCF) BRISTOW GROUP (BRS) Firstgroup PLC (FGP-LN) Danaos (DAC) FreeSeas (FREE) PHI (PHII) Rand Logistics (RLOG) Cancel

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Company	Data From	Deadweight Tons	Number of Vessels	Revenue	Percentage Utilization	Net Income
Double Hull Tankers (DHT)	2007	1.51M[25]	8[26]	$81.4M[26]	Add	$27.5M[26]
General Maritime (GMR)	2007	2.69M[27]	20[28]	$255M[28]	93.7%[28]	$44.5M[28]
Overseas Shipholding Group (OSG)	2007	12.2M[29]	112[29]	$1.13B[30]	94.6%[31]	$211K[30]
Teekay Shipping (TK)	2006	4.4M[32]	158[33]	$2.01B[34]	99.3%[35]	$262M[34]
Tsakos Energy Navigation (TNP)	2006	4.28M[36]	37[37]	$428M[38]	97.4%[37]	$196M[38]

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[edit] Footnotes

1. ↑ DHT Fleet
2. ↑ DHT Fleet
3. ↑ 2007 DHT 20F Page 14
4. ↑ DHT Fleet
5. ↑ Marine Log's Article on the European Union's ban of single-hulled ships
6. ↑ 2007 DHT 20F Page 19
7. ↑ 2007 DHT 20F Page 9
8. ↑ 2007 DHT 20F Page 8
9. ↑ 2007 DHT 20F Page 21
10. ↑ 2007 DHT 20F Page 28
11. ↑ Google Finance: DHT Income Statement
12. ↑ 2007 DHT 20F Page 5
13. ↑ 2007 DHT 20F Page 10
14. ↑ 2007 DHT 20F Page 14
15. ↑ [1]
16. ↑ Google Finance Balance Sheet
17. ↑ [2]
18. ↑ 2007 DHT 20F Page 14
19. ↑ FRO 2006 10-K, page 26
20. ↑ OSG 2006 10-K, Page 9
21. ↑ GMR 2006 10-K, Page 16
22. ↑ TK 2006 10-K, Page 17
23. ↑ TNP 2006 10-K, Page 18
24. ↑ 2007 DHT 20F Page 11
25. ↑ 2007 DHT, 20-F, Item 4, Page 19
26. ↑ ^{26.0 26.1 26.2} 2007 DHT, 20-F, Item 3, Page 5
27. ↑ 2007 GMR, 10-K, Item 1, Page 4
28. ↑ ^{28.0 28.1 28.2 28.3} 2007 GMR, 10-K, Item 6, Page 29
29. ↑ ^{29.0 29.1} OSG - 10-K of 2007, Item 1, pg 9
30. ↑ ^{30.0 30.1} OSG - 10-K of 2007, Item 6, pg 39
31. ↑ This Sheet
32. ↑ TK - 20-F of 2006, Item 4 pg 12
33. ↑ TK - 20-F of 2006, Item 4 pg 17
34. ↑ ^{34.0 34.1} TK - 20-F of 2006, Item 3 pg 5
35. ↑ TK - 20-F of 2006, Item 6 pg 33
36. ↑ TK - 20-F of 2006, Item 4 pg 23
37. ↑ ^{37.0 37.1} TK - 20-F of 2006, Item 3 pg 4
38. ↑ ^{38.0 38.1} TK - 20-F of 2006, Item 19 pg F-3