MISC Annual Report 2017

MISC BERHAD | Annual Report 2017 94 Additionally, the market was besieged by tonnage oversupply as deferred execution of environmental regulations (e.g. Ballast Water Management (BWM) Convention will be held in 2019 instead of 2017) had contributed to lower-than-expected scrapping of older tonnages. On a brighter note, the oil price recovery that took place over most part of 2017 encouraged the return of Exploration and Production (E&P) investments, albeit limited, and supported new demand for shuttle tankers during the year. KEY DEVELOPMENTS The year in review saw AET making good strides forward on the operational front and expanding its international footprint. Through an internationally competitive bidding, AET won the contract to provide two DPST newbuilds to Norwegian Oil Major, Statoil ASA, on a long-term basis (beginning the second half of 2019), thereby strengthening its presence in the North Sea shuttle tanker market. In the first half of 2017, AET secured a landmark three-year global Aframax Contract of Affreightment (COA) with an Oil Major, the first of its kind in the world with the potential to turn evergreen upon completion. Leveraging on its leading position in the USG and its capability in the lightering operations, AET continued to capture a portion of the growing reverse lightering business brought about by increasing US crude oil exports. The company also expanded its presence and operations in South America in 2017 and with the support of several strategic customers, will expand its STS operation into Brazil in 2018. In 2017, AET acquired two second-hand VLCCs from Gener8 Maritime, Inc. These vessels, the Eagle Venice (ex-Gener8 Noble) and Eagle Victoria (ex-Gener8 Theseus), are currently on long-term charters to Koch Industries, Inc., consistent with AET’s strategy to expand its VLCC fleet and develop this business sector into another source of secured income. The segment also took delivery of the first two LR2 product tanker newbuilds, namely the Eagle Lyon and Eagle Le Havre in 2017, as part of an ongoing plan to shore up its products asset portfolio. Both vessels, which received their Green Shipping Certificates, were delivered to long-term charterer TOTAL. For the year in review, 54 AET vessels were awarded the Environmental Achievement Awards by the Chamber of Shipping of America (CSA) for their environmentally responsible operations, with 22 of these vessels having held this rank for ten years or more. 55 AET vessels also received the Jones F. Devlin Awards for accident-free operations at the CSAAnnual Safety Awards event. In line with its continuous commitment towards improving its global environmental footprint, AET has opted to equip two of its new Aframax tankers, currently under construction, with LNG dual fuel capabilities. In addition to this, the two DPST projects awarded by Statoil will also have dual fuel capabilities, and will be the most advanced DPSTs when they are delivered. To leverage on scale and improve sustainability, AET had injected four of its chemical tankers, namely the Bunga Lucerne, Bunga Lily, Bunga Lavender and Bunga Lilac, into a tanker pool, and secured time charters for its Akasia class product / chemical carriers. OUTLOOK Moving forward, rising global oil consumption, higher US exports and gradually moderating oil inventories are expected to drive a moderate increase in tanker demand in 2018. Tanker demand could possibly rise by some 4%, potentially matching supply growth. This should halt the market’s deterioration, but tanker rates are unlikely to receive a significant boost without further vessel scrappage or slower capacity growth. As a consequence, we expect tanker rates to remain at the current low levels throughout 2018 though they should avoid the sharp falls of the last two years. Against this backdrop, AET will explore opportunities to grow its DPST fleet in both South America and the North Sea. This may involve either acquiring second-hand DPSTs with attached charters, or participating in new tenders. AET will also look to expand the VLCC fleet to strengthen its source of secured income from long-term charters. The segment will also work on optimising its midsize tanker fleet by focusing on efficiency, rejuvenation and building dual fuel capabilities. This will help AET to ensure its competitive edge in the USG and South America lightering business, apart from other niche business opportunities globally. In addition, this segment will continue to rebalance its product tanker portfolio focusing on fleet efficiency and business sustainability. MANAGEMENT DISCUSSION & ANALYSIS PETROLEUM & PRODUCT SHIPPING