Declining Oil Output Attributed to Lackluster Tanker Stock Performance

Thursday, June 21, 2001
Tanker stocks have taken a severe beating this month on declining oil output and global economic jitters, but several analysts are predicting a steady recovery and consider the slump a good buying opportunity.

"Charter hire rates are expected to rebound steadily through 2001 as Iraq and OPEC increase oil production," investment bank Lehman Brothers said in a report on Wednesday.

"Recent weakness in the oil tanker sector provides an extremely attractive entry point for investors," it added.

Lehman Brothers underwrote a controversial tanker initial public offering last week of General Maritime, which was priced at $18 a share and has since traded down to a low of $12.90 a share on Wednesday.

Lehman's view that the market would recover was shared by consultancy Marine Money Capital Partners (MMPC).

"It's a skittish market," MMPC president Matt McCleery said. "But we see it as a good market for some time to come. We're getting calls from all kinds of people who are interested in buying," he added.

Lehman Brothers said that 62 percent of the world tanker fleet was controlled by owners with less than five vessels, and it was therefore still ripe for consolidation.

But not all analysts were so optimistic.

"I'm surprised share prices haven't fallen further," said an analyst with Oslo-based First Securities. "I'm afraid some investors are only looking at the quarterly results."

When the tanker market peaked at $100,000 per day for a VLCC in October/November 2000, Frontline stock stood at around 160 Norwegian crowns. The analyst said it was strange therefore that with the market now down to break-even levels (less than $20,000 a day) the share price had barely shifted. On Thursday it reached a high of $18.68.

He said Q2 would be weak, while Q3 results would be "awful" for tanker operators in general. One New York equity analyst pointed to several insiders filing to sell stock last week as an indication that they viewed the stock as having peaked.

Overseas Shipholding Group said three founding families - Recanati, Fribourg and Merkin - had filed an intent to sell five million shares at the start of last week.

OSG stock reached a high for the year of $37.50 a share on June 6, but dropped to a low for the month of $29.45 on Tuesday.

Key players at Teekay have also been selling. A spokesman said Axel Karlshoej, chairman emeritus and brother of its late founder Torben Karlshoej, had filed an intent of sale on Friday.

Having reached a high point for the month of $52 a share on June 4, Teekay shares slipped to a low for the month of $40.26 per share on Tuesday.


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