NAO realized a large currency gain on two of their newbuilds somewhere in the tune of $8MM. Not only that but if rates stay around where they are now they can expect to see that same gain on the two additional ships expected to be delivered later this year. That is around a 18% savings based on the original price of the two newbuildings.
One Time Costs
There were a couple of one time costs that were included in the quarterly results that had an impact on earnings. They realized about $400k of some maintenance costs for the first three quarters of 2014. The year to date results included the $1.5MM cost related to listing on the NYSE.
Low Rates for PSV's in the North Sea
Rates are currently very low for PSV's in the North Sea - part of this is due to the decline in oil prices and part of this is the seasonal low part of the year for spot rates. There is a large oversupply of PSV's currently operating in the North Sea area and this has significantly effected rates. NAO did secure four month contracts for two of their vessels and noted that the rates were well above the current spot levels. Further they noted in a note to shareholders that three of their PSV's "are on long term charters with an average duration of two years before options" and this should help cover the costs of most of the fleet. It is also noted that most of the activity for the PSV's in the north sea is around existing rigs and the PSV cost is a small portion of their overall budget. Low breakeven players like NAO ($12K per ship per day, low by market standards) are going to do the best in the depressed market but that doesn't mean that they will be doing well.
High Dividend Payout at Current Rates
A matter of large concern is the amount of their dividend as it pertains to revenues. 12 months ending Dec 31st, 2014 is showing a net voyage revenue of $51.508MM and a net gain of $6.931MM but they paid out $31.220MM in cash dividends. $0.45 a quarter was all fine and well when revenues where high but is a different story now. They are very committed to maintaining the dividend in good time and in bad (similar to parent company Nordic American Tankers (NYSE:NAT)) but if spot rates don't recover then one could assume the dividend rate would be cut (wouldn't be the worst thing) or they would payout the dividend with debt (which NAT has done in the past). They currently have a credit facility of $150MM of which nothing has been drawn (they currently have zero net debt per vessel).
High Quality Fleet
NAO's fleet is in great technical condition and the fleet is basically brand new with the oldest ship being built in 2012. It should give it an advantage over some of the older fleets with a higher level of ability / reliability and fuel savings. In addition several of their ships are able to operate in the artic regions and recently there have been new blocks available for drilling in artic regions so this might be an advantage in the future.
I am currently long NAO - In a market where a lot of players are leveraged and carry large amounts of debt, I like their approach of low debt and low breakeven rates. Along with their parent company they continue to focus on cost efficiencies aboard their vessels and in their administrative costs. I believe in a low spot price environment that they will be one of the players that will be around for the long term.
Disclosure: The author is long NAO, NAT.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.