2018 proved to be the second consecutive challenging year for the tanker industry, with trading conditions remaining extremely difficult and the spot rates well below their historical averages.

On the bright side, industry players felt a visible rebound in freight rates in the fourth quarter of 2018, reflecting a balancing between tanker supply and demand, following a sustained period of tanker fleet removals and an increase in crude oil demand from Asian refiners. In the fourth quarter, the SCF Group (Sovcomflot) increased its revenue base, achieving a profit of USD11.9 million, against a USD106.2-million loss in 2017. The annual results reflected a strong contribution from the industrial shipping business (comprising offshore services and LNG transportation). These activities now account for 57.2 percent of the group’s time charter equivalent (TCE) revenues (up from a 50.9-percent share in 2017).

Taking into account the challenging conditions in the conventional tanker markets, and in accordance with IFRS accounting standards, the SCF Group undertook an impairment review of vessel values for the year ended December 31, 2018. This operation resulted in an impairment charge of USD49.3 million (2017: USD29.0 million). Adjusting for this charge and other non-operating costs amounting to USD3.2 million in total (2017: USD78.7 million), the group achieved an adjusted profit of USD6.9 million for the year, against a USD5.3-million loss in 2017.

2018 operating highlights

The Yevgeny Primakov Icebreaker (Ice-15) joined the fleet, the final vessel in a series of four new-generation ice-breaking supply vessels (IBSV), engaged under a long-term time-charter agreement with Sakhalin Energy, which makes a total fleet of 10 supply and standby vessels servicing SEIC and ENL at Sakhalin Island (Sea of Okhotsk).

The world’s first Aframax tanker to use LNG as her primary fuel, Gagarin Prospect (114,000 DWT), entered service (July) on long-term time charter to Shell. In October, Gagarin Prospect completed her first commercial voyage using LNG fuel, from Primorsk to Rotterdam as part of Sovcomflot’s commitment to drive down tanker industry emissions.

During the year, Sovcomflot ordered a further two new generation “Green Funnel” Aframax tankers, as well as three LNG-fuelled MR product carriers from the Zvezda Shipyard in Primorsky krai. Vessels using LNG fuel release 100 percent less Sulphur Oxide (SOx), 76 percent less Nitrogen Oxide (NOx), 27 percent less Carbon Dioxide (CO2), and 100 percent fewer particulate matter into the atmosphere than those with engines burning standard marine fuels. They exceed rather than merely comply with existing and anticipated emissions regulations, including the IMO’s new global limit for sulfur in marine fuel oil that will apply as of January 1, 2020.

The group’s LNGC Pskov loaded the first cargo of LNG from Yamal LNG’s second train in August, and in November completed the first open water ship-to-ship transfer of cargo for Yamal LNG.

Christophe de Margerie, the Group’s pioneering icebreaking LNGC loaded the first cargo from Yamal LNG’s third train in December.

Sovcomflot was successful in international LNG tenders and new long-term contracts with Total and Shell, to add to the group’s LNG portfolio, fully in line with the chosen strategy of growing fixed-rate/fixed-term liquefied gas transportation business with core clients.

Time-charters for four ice-class shuttle tankers for the Sakhalin-2 and the Varandey projects were extended or renewed, thereby adding new fixed-rate follow-on business with core clients and further strengthening Sovcomflot’s global leadership in the provision of shuttle tanker services to upstream projects in the Arctic and sub-Arctic regions.

For the year ended December 31, 2018 dividends of RUB0.86 per share, totaling RUB1,696.0 million (equivalent to USD26.8 million) were declared on June 29, 2018 and paid on July 10, 2018. The year ended December 31, 2017 saw a dividend of RUB3.12 paid per share, totaling RUB6,141.0 million, equivalent to USD106.9 million.

The group raised some USD900 million of new debt capital in 2018, which included a USD106-million long-term credit facility with Sberbank; a USD252-million facility with six international banks (ABN AMRO Bank; BNP Paribas; Citibank; ING Bank; KfW IPEX-Bank, and Société Générale), and a new USD264-million six-year revolving credit facility with a consortium of five leading international banks (Citibank; DVB Bank; ING Bank; Société Générale, with UniCredit acting as mandated a lead arranger and bookrunner and ING Bank acting as the facility agent).

The group’s credit ratings remained unchanged during the reporting period and up to date: “BB+”/“stable” (S&P), “Ba1”/“stable” (Moody’s), “BB”/“positive” (Fitch).

A full version of the consolidated financial statements of Sovcomflot for 2018, is available on the entity’s website.