Oil price turned negative for first time in history.
Hatchworks has conducted research on the oil sector, which, in April 2020 slumped into negative aka deflationary territory. This collapse was caused by the covid-19 pandemic and economic slowdown, leaving an excess of oil and not enough storage capacity. As a consequence, for the first time in history producers were paying buyers to take oil off their hands. OPEC and its allies agreed to historic production cuts to stabilize prices, but they dropped to new lows. Although oil has recovered across the curve (which is firmly in contango) recently amidst certain economies exiting lockdown, it is a far cry from its levels pre-crisis.
US oil consumption has crashed around 33%, it went from 21M barrels a day down to below 14M barrels a day. Oil consumption is a predictor of economic activity; everything we do consumes energy. When energy consumption drops, a contraction of GDP in the US will follow.
According to a recent article, Royal Vopak (VPK), the world’s biggest oil storage firm with a market cap of $6.7B, declared that almost all space had been sold. However, since the oil markets are in ‘’contango’’, i.e., when the forward price is higher than the spot price, conditions for those companies are beneficial as oil can be stored for sale later at a higher price. The company stated in its earnings release the impact of contango is clear in their Q2 results.
Crude tankers are also presently in vast demand as there is an increasing risk of running out of storage. The amount of oil stored at sea has risen to almost 250M barrels and global floating storage is now accelerating at an ongoing level. Some of these companies in the oil tanker business include:
- Frontline Ltd (FRO) — Mkt cap of $1.7B
- Euronav (EURN) — Mkt cap of $2.4B
- SFL Corporation Ltd (SFL) — Mkt cap of $1.1B
- DHT Holdings Inc (DHT) — Mkt cap of $1B
However, it’s worth noting that the crude oil tanker marketplace is impacted by a variety of factors including oil prices, route of transportation, geopolitical and supply/demand from various regions across the globe.
According to the peer table above, Hatchworks compared the biggest crude tankers against the independent oil tanker storage ‘’Royal Vopak’’ and we can see that the forward looking earnings for Frontline Ltd (FRO), SFL Corporation (SFL), DHT Holdings Inc (DHT) and Euronav (EURN) are negative and some of them such as SFL Corporation (SFL) estimate a significant net-debt position.
In contrast, Royal Vopak (VPK), a very defensive player in the oil field, has long term leases with port authorities in many other countries. Additionally, it has a strong operating margin, modest net-debt position, and great fundamentals. As a result, Hatchworks maintains its ongoing position in Vopak.
The Hatchscore is 4.4 out of 10. Full details can be found on Hatchnet: www.hatch-net.com/companies
What is Royal Vopak?
Royal Vopak is the world’s leading independent tank storage company. They operate a global network of terminals located at strategic locations. With a strong focus on sustainability, including safety, they ensure safe, efficient and clean storage and handling of bulk liquid products and gasses for their customers. By doing so, they enable the delivery of products that are vital to our economy and daily lives, ranging from oil, chemicals, gasses and LNG to biofuels and vegetable oils.
Top Institutional Holders:
- HAL Investments BV.
- Invesco Advisers, Inc.
- Maple-Brown Abbott Ltd.
Advisors and Bookrunners:
- ABN AMRO.
- DBS Bank.
- JP Morgan.
What are the risks?
- Market volatility resulting in changing product flows with, in some circumstances, unprecedented speed of market change.
- Fluctuating movements in (crude) oil and gas market pricing have consequences for customers putting pressure on the value chain.
- Increasing competition, which can cause pressure on their occupancy rates, pricing and contract durations.
Crude Tankers Competitors:
- DHT Holdings Inc (DHT).
- SFL Corporation Ltd (SFL).
- Frontline Ltd (FRO).
Management team:
- Eelco Hoekstra: CEO.
- Gerard Paulides: CFO.
- Frits Eulderink: COO.
The Hatchwork Team
The forecast figures are based on the data of Market Screener, Investing.com, Marketwatch.com, and not from Hatchworks: https://www.marketscreener.com/ROYAL-VOPAK-6452/financials/
Legal Disclaimer — This report summary has been generated as a result of Hatchworks’ proprietary company vetting and filtering system. The level of due diligence conducted on investible assets conducted ranges from mediocre to significant, the latter being the case where Hatchworks has explicitly taken strategic positions in. By no means is the information in this file to be relied on as investment advice; this includes Hatchworks’ algorithmic composite score known as ‘Hatchscore’. Hatchworks has not received any compensation for this research. For more information you can reach us at info@hatchworksvc.com. This report is not for distribution in the United States of America. It is closed to U.S citizens. If you are a U.S. citizen, you should delete this report or return to sender.
