Two companies that own Jones Act tankers went through bankruptcy in recent years as the charter business declined following the Great Recession. They are Overseas Shipping Group (OSG) that own two US flag tankers and manage another ten and the smaller US Shipping Corp that owns three Jones Act tankers. These days the surge in US crude production has created strong demand for Jones Act tankers and record charter rates for owners. Now tankers once dedicated to the Alaska trade between Valdez and the West Coast are being considered for crude shuttle duty around the Lower 48. Today we continue our review of US Flag fleet owners.
In the first episode in this series we described the regulations of the Jones Act that restricts marine transport between US inland and coastal ports to US Flag vessels (see The Jones Act Coastal Trade). Just 42 self propelled tanker vessels – the majority of which carry about 300 MBbl of refined products or crude oil ply US coastal waters. In episode two we began a deep dive look at the Jones Act tanker fleet and its ownership. This time we round out coverage of the Jones Act tanker fleet owners with a look at Overseas Shipping Group and the ExxonMobil, BP and Conoco Alaska fleets.
Overseas Shipping Group (OSG)
OSG is a publically traded crude and refined product transportation company that owns and manages vessels in the international and US Flag markets. The company is currently in Chapter 11 Bankruptcy proceedings (since November 2012) but continues to operate while its debts are restructured. The company manages ten Jones Act tankers and owns two – a business that is now highly profitable – thanks to surging demand for US domestic crude transport and a limited supply of qualified vessels. As we pointed out in the first episode of this series, charter rates for Jones Act tankers have doubled since the start of 2012 to over $100,000/day. OSG manages 10 Medium Range (MR) tankers for American Shipping Company (AMSC) under an “Evergreen” long-term bareboat charter that does not expire until 2019. The bareboat charter terms involve a fixed $88 million annual payment from AMSC to OSG plus 50 percent of additional charter profits over operating costs.
The table below shows the OSG and AMSC fleet. OSG own two MR Jones Act tankers – the Overseas Cascade and Overseas Chinook that are under long term charter to Brazilian national oil company Petrobras serving as shuttle tankers for that company’s offshore Gulf of Mexico (GOM) oil rigs. According to a Reuters story in December 2013, Petrobras has chartered the Overseas Cascade for two successive six month terms – the last time for $110,000/day. If that is the case then we guess Petrobras are managing without one of these tankers in the GOM in order to cash in on high demand for its use in the coastal crude trade. The ten vessels that OSG manage for AMSC (indicated in the “owner” column on the table all have the same capacity (332 MBbl) and are under long term charter (LTC) to oil companies Shell, BP and Tesoro that originally used them to move refined products along the West Coast. Two of the vessels, the Overseas Texas City and Overseas Boston have been sub chartered to Phillips 66 that uses them to ship crude from the Eagle Ford in South Texas to their Bayway refinery in Linden New Jersey.
Source: RBN Energy
MidOcean Marine owns one of the newest Jones Act tankers in the fleet – the 339 MBbl American Phoenix that was brought into service in 2012 and is under LTC to Koch industries. We described the story of the American Phoenix in our first blog on the Jones Act including a picture (see The Sea and Mr. Jones). The vessel has been used for refined product movements on the East Coast as well as the transportation of Eagle Ford crude to Bayway and is reportedly under short-term charter to ExxonMobil.
Seariver Maritime is the 100% subsidiary of ExxonMobil Corp (XOM) that operates that company’s shipping fleet. Seariver own three Jones Act vessels, one MR tanker and two Suezmax tankers used in the Alaska trade. The S/R American Progress is a 342 MBbl tanker that XOM previously used primarily to ship crude from Alaska to West Coast refineries but this vessel has lately been used to move crude from the US Gulf Coast to the West Coast via the Panama Canal.
The other two Seariver vessels are the 773 MBbl Kodiak and Sierra that are used exclusively to move the company’s equity crude from Valdez, Alaska to West Coast refineries. In July 2011, the company ordered two new “liberty Class” crude oil tankers to be built at Aker Philadelphia Shipyard, due to be delivered in 2014, to replace the Kodiak and Sierra that were built 35 years ago. The new vessels will be able to carry about 1.5 MMBbl of crude (115 deadweight tonnes) nearly twice the capacity of their predecessors.
Polar Tankers Inc.
Polar Tankers is a subsidiary of ConocoPhillips Inc that operates five Endeavor class (880 MBbl) tankers used exclusively to deliver crude from Valdez, AK to refineries in Puget Sound, WA, San Francisco and LA/Long Beach, CA. Northrop Grumman Ship Systems built these E-class vessels, delivered from 2001 to 2006.
Alaska Tanker Co.
Keystone Shipping Company, (37.5%), OSG Ship Management (37.5%) and BP Oil Shipping Company (25%) created the Alaska Tanker Company (ATC) in 1999 to manage BP’s Alaskan crude-oil shipping requirements. ATC operates four Alaska Class 1.3 MMBbl tankers built by NASSCO in San Diego between 2004 and 2006 (see picture of Alaskan Frontier below). Like the Polar Tankers Endeavor class, these vessels are also used exclusively to ship Alaska North Slope equity crude from Valdez to the West Coast.
The Alaska Fleet
The eleven tankers currently used exclusively to move crude from Valdez to West Coast refineries have over 11 MMBbl of capacity. Once the two XOM tankers on order replace the oldest two vessels, the fleet capacity will increase to 12.5 MMBbl. This at a time when crude production in Alaska has fallen to 500 Mb/d from over 2 MMb/d in the 1980’s (see “After The Oil Rush – ANS Decline and the West Coast Crude Market”). Consumption of ANS crude by West Coast refiners is also under threat from less expensive supplies now being shipped by rail from North Dakota and Western Canada (see Coast Bound Train – The Future of Crude By Rail to the West Coast). The net result is that capacity from the Alaska Jones Act fleet could become available to move crude along Lower 48 Coastal routes. The use of XOM’s smallest Alaska tanker to move crude from the Gulf Coast to the West Coast through the Panama canal is an early indication of this shift. When the Panama Canal expansion is completed, (see Panama Tailored to Fit Larger Vessels) it will allow larger Aframax size vessels such as the Endeavor and Alaska class tankers to move crude from the Gulf Coast to the West Coast. The expected 2015 completion date of the expansion was thrown up into the air a few weeks back due to a dispute between the Panama Canal Authority and the contractor responsible for the project.
Next up in this series we look at the larger articulated barge (ATB) fleet that operates alongside MR tankers in the coastal market and are increasingly being used to move crude oil.