Jones Act Tanker Owner Seeks Refinancing
The Jones Act tanker that set records for day rates may now be refinanced, as its private equity owner seeks to profit after an unexpected jump in rates for U.S.-flagged ships that could be reaching a plateau, market sources said.
The American Phoenix has been inspected and valued since late last year by interested parties, including several American banks and the shipping arms of major oil companies, said people familiar with the discussions.
Alterna Capital Partners, the Connecticut-based majority owner of the American Phoenix, is seeking to refinance at a time when the ship's valuation has climbed thanks to record rates for Jones Act tankers because of the shale boom. Ships moving between U.S. ports are required to be Jones Act compliant - U.S.-flagged, U.S.-built, and U.S.-crewed - making them three times more expensive than international vessels.
The banks are considering financing for the vessel, which could take the form of a leasing arrangement, equity or debt. Alterna is also seeking at least $150 million to sell the 350,000-barrel vessel, sources said.
That price tag represents a premium of $25 million over the purchase price of a dozen or so recently ordered new-build tankers set to be delivered starting in 2015.
The owners of the Phoenix may be exiting just as easing of the export ban, a flood of new Jones Act tonnage, and investment in alternative transport like railcars could soften rates in the next year.
The surge in oil production has led to increased scrutiny of a 40-year-old law banning the export of crude. This year, U.S. officials told energy companies that they may export a variety of ultra-light oil known as condensate if it has been minimally refined, in an apparent marginal loosening of the ban. Jones-Act tankers would not be needed for these shipments.
Several industry executives cautioned that Alterna's investigating options could be a function of the private equity investment cycle, rather than a call on the Jones Act market.
"It's the big home run they have in their fund, and they're trying to raise another fund, so they're trying to liquidate it," said one Jones Act investor.
Record-Setting
The Phoenix rose under unusual circumstances. Mid Ocean Tanker Company, a partnership between Alterna and minority owner and operator Mid Ocean Marine rescued the partially built hull from the scrapyard, buying it out of bankruptcy in Louisiana court proceedings for $12.65 million. The owners poured an additional $60 million to $80 million into its construction, according to shipping industry sources.
Alterna leased the American Phoenix to Koch Shipping and Supply in July 2012 for $55,000 per day, at a time when daily U.S. crude oil production stood at 6.3 million barrels. Since then, it has been watching skyrocketing Jones Act rates from the sidelines.
Less than two years later, U.S. crude production rose to 8.4 million barrels per day, and rates in the Jones Act spot market had nearly doubled.
The ship set a record in June 2013 when it was leased to Exxon Mobil Corp. from Koch Shipping and Supply for $100,000 a day. In May, Exxon renewed its lease for another year, this time at $120,000 a day, shipping sources said.
Any sale or refinancing would transfer Koch's existing contract to the buyer, as well as a subsequent five-year charter to a major U.S. oil company, said a source familiar with the transaction.
Representatives from Exxon and Alterna declined to comment. A representative of Mid Ocean Marine could not be reached for comment.
By Anna Louie Sussman (C) Reuters 2014.