Exxon shatters record

Freight rates for medium-range (MR) product tankers involved in the coastwise carriage of US crude appear to have hit a record high.
Petrobras is also the charterer of the Overseas Chinook.

Petrobras is also the charterer of the Overseas Chinook.

Shipbrokers were reeling this week in the wake of reports that ExxonMobil extended a six-month relet of the 46,900-dwt Overseas Cascade (built 2009) at a rate of $110,000 per day.

Market sources claim the vessel had been earning approximately 50% less with the same charterer earlier this year and noted the latest deal includes a six-month option.

Previously, the rate record in the Jones Act arena was held by the 49,000-dwt American Phoenix (built 2012), which ExxonMobil fixed for five years at a rate of $100,000 daily earlier this year.

While six-figure highs are encouraging critics are quick to point out that the average duration of US tanker fixtures have declined significantly over a relatively short period of time.

Many industry observers remain confident, however, that the Jones Act market will remain strong in the near term due to rising US crude production and capacity constraints.

The Overseas Cascade was built by Aker Philadelphia Shipyard, one of only two US shipyards that are actively involved in the construction of bluewater products tankers.

In 2010 the ship went to Petrobras for five years and it reappeared on the industry’s radar about 12 months ago when ExxonMobil started fixing the unit in six-month intervals.

Jewel of OSG's Jones Act fleet

The tanker is believed to be among the most valuable assets in the fleet of its long-time owner, Overseas Shipholding Group (OSG), due to the spike in demand for Jones Act tonnage.

The bankrupt US tanker operator paid approximately $115m to acquire the unit when it first hit the water but today it may be worth as much as $136.4m, according to VesselsValue.com.

With freight rates and asset values on the rise it may not come as a surprise that OSG’s Chapter 11 case has been of particular interest to firms seeking exposure to the Jones Act market.

Today, the company says it still plans to separate its international and US-flag businesses and is working with Deloitte & Touche to prepare care-out financial statements for each of the individual divisions but is tight-lipped about whether it intends to court buyers.

“The debtors anticipate that the separation of the international and US flag businesses will not only best serve the strategic goals of these two different segments, but will allow the realization of certain tax benefits,” it recently told the US bankruptcy court overseeing its case.

Jones Act outlook

At a recent conference hosted by TradeWinds, Bob Flynn of MJLF & Associates argued that Jones Act tonnage will see daily levels of approximately $85,000 over the next few years provided the gradual increase in domestic shale oil production continues.

“Limited incremental shipyard capacity, US Gulf and US West Coast trade flow expansion and the scrapping of ageing barge tonnage will keep upward pressure on Jones Act markets,” he added during a presentation that can be viewed in full by clicking on the link to the right.

Joe Pyne, long-time chief executive of Kirby Corp, reminded the audience that the Jones Act tanker sector is extremely sensitive to even the slightest shift in vessel supply as there are fewer than three dozen tankers and 42 tugs/barges in the bluewater fleet.

At last check OSG’s US-flag stable included 12  tankers with individual carrying capacities of approximately 46,000-dwt a piece and nearly a dozen articulated-tug barges, which makes it one of the nation’s largest operators of Jones Act crude and products carriers.

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