Sovcomflot sees stable business streams counterbalancing tanker downturn


Lloyd’s List

Sovcomflot's net profits for the second quarter grew more than fivefold to $110.3m

Russia’s biggest shipping company enjoyed a very profitable quarter as the tanker market paid handsomely. Now, with that same market hit by both seasonal weakness and extraordinary circumstances, Sovcomflot remains confident it is well covered by its other activities for the rest of 2020 and 2021

RUSSIAN shipping giant Sovcomflot is confident that its business strategy can help shield it from the deteriorating tanker market.

Sovcomflot controls oil and products tankers, as well as liquefied natural gas carriers. It caters to both the conventional energy market and oil and gas projects. The company has had an exceptional first half to 2020 profits-wise, like most companies operating in the tanker field.

Net profits for the second quarter of $110.3m were up from $20.9m during the same period last year, as revenues grew from $383m to $458m. With this result, Sovcomflot’s earnings for the first six months hit $226.4m, up from $90m in the first half of 2019.

Sovcomflot chief financial officer Nikolai Kolesnikov told Lloyd’s List that an important factor behind this performance was a very lucrative tanker market, which in parts of the first and second quarter reached near-historic highs, as low oil prices combined with an oversupply in the market spurred demand for tanker tonnage.

But the decline in global oil demand due to the coronavirus and the co-ordinated restrictions in oil supply have somewhat stabilised oil prices, severely hit tonne mile demand and undermined the use for tankers as floating storage as part of a contango play. This, coupled with traditional seasonal weakness in the third quarter, have severely dragged down the tanker spot market.

Mr Kolesnikov, who described the boosted earnings powered by Sovcmoflot’s conventional business as a welcome addition, also highlighted that the spot market does not account for more than 25% of Sovcomflot revenues and said that the company is well covered for the remainder of 2020 and well into 2021, with long-term business and period charters in place.

At the end of the second quarter, Sovcomflot had a record $12.8bn in future contracted earnings and receivables.

Sovcomflot has laid out its aim to have 70% of its revenues generated from its industrial business by 2025, which includes long-term services to specific energy projects. The company is especially prominent in this field in the Russian Arctic region, shipping cargoes out of the Yamal LNG plant and is set to do the same for the future Arctic LNG 2 liquefaction plant.

Mr Kolesnikov noted that today the conventional and industrial sides yield an approximately equal share of total revenues.