3 Stocks To Buy With The Shipping Tycoon

Includes: FRO, GLNG, LNG, SDRL
by: Bidness Etc

As reported, shipping tycoon John Fredriksen is investing $11 billion in his businesses, which include Frontline Ltd (NYSE:FRO), SeaDrill Ltd (NYSE:SDRL) and Golar LNG Ltd (NASDAQ:GLNG).

John Fredriksen is a Norwegian shipping magnate who owns the largest fleet of supertankers in the world, along with other vessels used for the transportation of grain, mineral and liquid gas; he also has other business interests, including deepwater drilling.

Fredicksen is in the process of investing $7 billion in his deep-water drilling business and $4 billion in the shipping business.

Frontline Ltd

Frontline Ltd and its subsidiaries are involved in the ownership and operations of oil tankers and OBO (oil/bulk/ore) vessels. The company transports crude oil, and basic materials, such as iron ore and coal, worldwide.

FRO, along with the rest of the industry, has faced financial turmoil ever since the economic meltdown in 2008. In December 2007, average weekly charter rates for supertankers peaked at $229,484 a day, due to the high demand and prices of crude oil. However, the financial turmoil left the industry in a weak state, as prices and demand for crude oil and other basic materials collapsed. This left the industry with excess supply of vessels, which were built in the prior years to cater the growing demand of crude oil; the rates for crude carriers are hovering at their 10-year lows.

This excess supply has decreased the prices of buying new vessels in international markets to half their levels prior to the financial meltdown.

Fredriksen is of the opinion that tanker prices and charter rates have bottomed, and are likely to improve in the future, as the global economic outlook improves and older vessels retire.

The way forward will be through fuel efficient vessels, which burn one-fourth less fuel as compared to the existing vessels, and will improve the profitability of the sector through lower operational costs, going forward.

SeaDrill Ltd

Seadrill Ltd provides international offshore drilling services to the Oil and Gas Industry. The services provided include drilling, maintenance and completion of offshore wells and well services.

There has been an annual increase of 10% in offshore upstream spending since 2009, and this trend is expected to continue going forward. The demand-supply balance has squeezed, and daily rates and the duration of contracts have witnessed an increase. This is due to high crude oil prices and increased offshore drilling activity in the Gulf of Mexico, North Sea, Africa and Brazil.

SDRL is investing about $7 billion in expanding its operations, and has placed 18 new buildups, which are expected to be delivered between 2012 and 2015. The company intends to order additional buildups going forward.

The above-mentioned capital expenditure will not only aid the company in continuing on the path of high growth that it has sustained since its incorporation, but also place the company at a competitive advantage as compared to its peers. The company has recorded revenue backlog of $20.3 billion by secured rig contracts.

For a detailed analysis, please review our report "Seadrill's 8.4% Dividend Yield, Strong Revenue Growth Make It A Must-Buy Stock".

Golar LNG Ltd

Golar LNG Ltd is a midstream liquid natural gas (LNG) operator, which is involved in the liquefaction, transportation, regasification and trading of liquid natural gas worldwide. The company owns, operates and charters floating storage regasification units (FSRUs) and LNG carriers.

There has been an increased demand for liquid natural gas in Asia, due to the increasing demand of energy, and a switch to production of energy using natural gas as a desired fuel as compared to coal, which is less environmentally friendly and is trading at less than $13/mmbtu. Coal is trading at this figure due to inventory build-ups and a mild weather, which has decreased prices from $17/mmbtu witnessed in March 2012.

The shale gas boom in the U.S. decreased the prices of natural gas, reaching 10-year lows of $1.94/mmbtu in April 2012. Since it is economically not viable to transport natural gas in its gaseous form, it is converted to liquid natural gas for transportation through sea. Hence, there is immense growth potential for companies like GLNG to benefit from the increased transportation of liquid natural gas.

For the reason mentioned above, the company has ordered an additional 11 liquid natural gas carriers and two floating storage regasification units worth $2.7 billion, which are expected to be received by early 2015. The company is likely to continue on this growth path since its fleet is being doubled from its existing fleet size of 13 vessels.




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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The article has been written by Qineqt's Energy Analyst. Qineqt is not receiving compensation for it (other than from Seeking Alpha). Qineqt has no business relationship with any company whose stock is mentioned in this article.