Fuel Up Your Portfolio With These Oil and Gas Shipping Companies
Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ninety percent of world trade happens through the shipping industry. This includes transportation of oil, gas, LNG, and other natural resources. The increase in consumption and demand for these natural resources has resulted in huge investments and infrastructure development in the shipping industry.
I have analyzed three shipping companies on the basis of long-term contracts to supply shipping facilities to oil and gas companies in order to generate high revenue and sustain in the long run.
Five year time-charter contract
Recently, Teekay LNG Partners (NYSE: TGP) entered into a couple of five year contracts with Cheniere. This is a fixed-rate time-charter contract, where Teekay provides LNG transportation services. The company will provide two new 173,400 cubic meter LNG carriers that are currently under construction with Daewoo Shipbuilding & Marine Engineering.
The carriers will consist of fuel-efficient MEGI engines that have lower emission levels, and the delivery is scheduled in the first half of 2016. This will be the first LNG export facility with MEGI engines that allows ships to use LNG instead of fuel oil, offering fuel savings of $20,000 per day at current fuel prices. The contract’s rate will fall between $80,000 and $85,000 per day.
Teekay completed its 50/50 joint venture ‘Exmar LPG BVBA’ with Exmar, in the first quarter of 2013. Exmar LPG BVBA controls 29 LPG carriers, including five chartered-in ships, and eight new builds. In the coming years, the global LPG trade from the Middle East and the U.S. will increase. The Middle East Gulf will export around 41 million tons of LPG by 2016, up from 34 million in 2011.
LPG demand will be strong from South Korea and Japan due to government support and rising consumption of LPG in different sectors. To take advantage of this opportunity, Exmar LPG BVBA ordered eight mid-size gas carries, or MGCs. This investment will generate more than $10 million of distributable cash flow this year and will increase to more than $25 million next year.
High crude oil demand will drive revenue for marine transport business
Due to increasing demand for crude oil from the U.S., Kirby’s (NYSE: KEX) coastal marine transport business should continue to perform well throughout 2013. It ships crude oil from the Bakken Shale to refineries in Corpus Christi, Houston, California, and Chicago.
Currently six of the company’s 82 barges are engaged in shipping oil. Kirby recently allocated 10% of its inland barge capacity, or 250 to 300 tank barges, to crude oil moves since there is need for additional transloading capacity. Thus, Kirby’s marine transport revenue should increase from $1.4 billion in 2012 to $1.75 billion in this year.
Kirby's land-based diesel engine repairs, refurbishment activities, and new builds for fracking machines have begun to show moderate growth. Therefore, the company will fully utilize its centrally located re-manufacturing facility based in Oklahoma City; it is close to the shales and land-based fracking machines are accessible within 24 hours.
Kirby’s diesel engine service business is expected to generate revenue of $144.2 million this quarter and $151.3 million in the fourth quarter of this year from $140 million in the first quarter.
Long-term FSRU project
Recently, Jordan granted a new tender for supply of LNG to meet the country’s increasing demand. For this, the Jordanian Energy Ministry chose Golar LNG (NASDAQ: GLNG) to supply a floating storage and regasification unit, or FSRU. The vessel will have a storage capacity of 160,000 cubic meters of LNG that can transmit 490 million cubic feet per day, or MMcfd.
The company is negotiating and remains optimistic that it will secure a long-term 20 year contract for its two FSRU’s, the Golar Eskimo and Golar Igloo. The two FSRUs will earn around $130,000 per day. The operations will begin by end of 2014.
In order to accelerate in floating liquefaction natural gas, or FLNG activities, Golar recently secured 25% stake in the Douglas Channel LNG project in British Columbia. The project will initiate in 2015 and has the capacity to produce around 700,000 metric tons per annum of LNG. The Douglas project has already secured the permit from the National Energy Board to export 1.8 million tons per annum for 20 years.
Golar will have an additional opportunity to provide shipping for this project with its barge FLNG solution. Additionally, this project will likely provide future opportunities in Northeast Canada and West Africa. The project is expected generate $140 million per annum in the initial phase.
The long-term contract with Jordan will help Golar generate high revenue in the coming years, and its 25% stake in Douglas project will open up opportunities for shipping in other countries.
Teekay’s long-term contract with Cheniere and joint-venture with Exmar will help the company sustain in the long run and generate high revenue.
Kirby’s coastal marine transport business will continue grow due to the increase in demand for crude oil, while diesel engine service business will observe a slow growth.
Therefore, I recommend a buy for all three stocks.
Madhukar Dubey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!