S.O.S. in General Maritime's Future?

The Company: General Maritime Corporation, operator of one of the largest mid-sized, double-hull crude oil tanker fleets in the world.
The Document: A presentation at the Merrill Lynch Transportation Conference
The Finding: Chief Financial Officer Jeffrey Pribor provided an update on the company's business strategy, emphasizing the optimization of fleet deployment. One overlooked item -- GMR's growing dependence on one customer for voyage revenue growth.

The Gist: Looking ahead to the balance of 2008, GMR estimates that crude oil tanker ton-mile demand will parallel an expected 3-4 percent increase in tanker capacity, modeling in expected scrapings of single hull vessels and expected conversions to dry bulk (i.e. coal, iron ore, grain). However, Pribor warned supply could outstrip demand in the second half if new tonnage hits the waters for service.

Management believes it can derive optimal return from assets by choosing a balanced deployment of fleet between time charters, which can last up to several years, and spot market, which are single-voyage charters lasting from two to 10 weeks.

Fleet utilization (less drydock) is averaging between 93 percent and 96 percent, with 15 of its 21 vessels on time charters -- most through 2010 -- with rates set between $27,750 and $39,000 a day. The estimated $182 million in time-contracted revenue for 2008 is expected to cover the majority of its cash outlays, according to Pribor. GMR counts among its blue-chip customer base most of the major international oil companies, including Chevron, CITGO Petroleum, ConocoPhillips, and Exxon Mobil.

Left unsaid at the meeting was that Lukoil, Russia's second largest oil producer, accounted for 43.6 percent of voyage revenues during the first quarter, up from 23.3 percent a year earlier. Ten of GMR's 15 time charters are with Lukoil.

The Question: GMR's time charter coverage allows for secured cash flow. Will greater-than-anticipated expansion of its world tanker fleet expose GMR to significant decline in day-rate pricing when Lukoil's charter contracts begin to expire come 2010?

David Phillips

David Phillips has more than 25 years' experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms. He sifts through SEC filings for his blog The 10Q Detective, looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges. He has been widely quoted in outlets such as BusinessWeek, The International Herald Tribune, Investor's Business Daily, Kiplinger's Personal Finance, and The Wall Street Journal.

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