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North America Equity Research24 July 2015

Shifting TidesMaritime Shipping Weekly

Shipping

Noah R. Parquette, CFA AC

(1-212) 622-9224

[email protected]

Bloomberg JPMA PARQUETTE <GO>

J.P. Morgan Securities LLC

See page 11 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Oil Tankers

Nigeria bans specific oil tankers from calling on its ports

The Nigerian state oil company (NNPC) last week banned 113 oil tankers, primarily VLCCs, from calling on Nigerian oil terminals. The ban was reportedly due to a crackdown on oil theft and corruption in the country, as it’s alleged that there were discrepancies between loading and discharge figures. Intertanko strongly opposes the ban, pointing out that some of the ships haven’t called on Nigeria ports in years, and some haven't called at all. Regardless, if the ban holds we believe this could have a positive effect on the tanker market, as the ban would artificially reduce local supply off West Africa and decrease trading efficiencies, effectively lowering the overall supply potential of the fleet.

Push for repeal of crude export ban continues

The Senate Energy committee released a bill last week that did not include legislation that would repeal the ban on exporting crude oil. Nevertheless, Senator Lisa Murkowski, the Alaskan Senator who has been championing a repeal of the law, said she intends to have the panel vote before August recess (August 7th) on a bill that includes oil exports. Regardless, debate in Congress over repealing the ban continues to grow, especially after the Iran deal was announced. We continue to view a repeal of the ban as a significant positive for smaller crude tanker, with neutral to slightly negative effects for product tankers.

EURN and ASC remain our top picks in the sector.

Table 1: Price performance

Name Ticker Rating PT Price ($) WTD MTD YTD

Ardmore Shipping ASC OW 17.00 14.06 -1.4% 16.1% 17.5%

DHT Holdings DHT OW 10.00 8.38 -0.6% 7.9% 14.6%

Euronav EURN OW 18.00 15.72 -2.8% 6.1% -

Navios Maritime Midstream Partners NAP N 17.00 15.82 -0.9% 2.0% 30.2%

Navios Maritime Acquisition NNA OW - 4.08 -5.8% 13.6% 12.4%

Scorpio Tankers STNG OW 13.00 10.97 -2.8% 8.7% 26.2%

Teekay Tankers TNK OW 9.50 7.49 -0.8% 13.3% 48.0%

Tsakos Energy Navigation TNP OW 13.00 9.44 -5.7% -0.9% 35.2%

Source: J.P. Morgan estimates, Bloomberg. All prices as of 24 July 15

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Noah R. Parquette, CFA(1-212) [email protected]

Tanker Overview

Figure 1: Baltic tanker indices

Source: Baltic Exchange.

Table 2: Tanker spot/period rates

$ per vessel/day

Weekly

Period Vessel Class 2012 2013 2014 2015 YTD 07/17/15 07/24/15 % Change

VLCC $18,296 $16,099 $27,304 $55,912 $81,637 $71,380 -12.6%

Suezmax $16,908 $15,511 $27,791 $48,330 $41,054 $39,287 -4.3%

Spot Aframax $12,939 $14,529 $24,705 $40,276 $31,106 $32,899 5.8%

LR1 $11,637 $11,098 $18,858 $28,199 $30,956 $29,239 -5.5%

MR $10,505 $13,226 $12,323 $22,409 $30,912 $25,767 -16.6%

VLCC $22,125 $19,837 $28,115 $46,150 $48,000 $55,000 14.6%

Suezmax $17,356 $16,014 $22,750 $33,983 $40,000 $42,500 6.3%

1-year Aframax $13,639 $13,288 $17,558 $24,600 $29,000 $29,000 0.0%

LR1 $12,995 $14,981 $15,870 $21,333 $24,000 $26,000 8.3%

MR $13,514 $14,351 $14,601 $16,550 $19,500 $20,500 5.1%

VLCC $26,995 $23,404 $30,183 $42,217 $44,500 $44,500 0.0%

Suezmax $20,952 $18,096 $24,413 $32,500 $34,000 $35,000 2.9%

3-year Aframax $15,870 $15,048 $19,029 $23,517 $25,000 $25,000 0.0%

LR1 $14,168 $15,514 $16,466 $19,100 $22,000 $22,500 2.3%

MR $14,389 $15,063 $15,399 $15,708 $17,000 $17,000 0.0%

Source: Clarkson Research Services.

Table 3: Tanker asset values

$ in millions

June July YTD June July YTD

2012 2013 2014 2015 2015 % Change 2012 2013 2014 2015 2015 % Change

VLCC Aframax

Resale 82.0 83.0 105.0 105.0 105.0 0.0% Resale 40.0 43.0 57.0 56.0 56.0 -1.8%

5-Year 57.0 60.0 77.0 80.0 84.0 9.1% 5-Year 27.5 32.0 42.0 45.0 46.0 9.5%

10-Year 37.0 41.0 52.0 55.0 59.0 13.5% 10-Year 17.0 22.0 27.0 31.0 32.0 18.5%

15-Year 27.0 26.0 29.0 37.0 41.0 41.4% 15-Year 10.0 11.0 14.0 16.0 16.0 14.3%

Suezmax MR

Resale 55.0 57.0 72.0 70.0 73.0 1.4% Resale 35.0 38.0 37.0 38.0 38.5 4.1%

5-Year 40.0 42.0 57.0 59.0 60.0 5.3% 5-Year 25.0 29.0 25.0 27.0 27.5 10.0%

10-Year 26.0 27.0 37.0 40.0 42.0 13.5% 10-Year 16.5 19.0 16.0 18.0 18.0 12.5%

15-Year 16.0 16.0 20.0 22.0 22.0 10.0% 15-Year 10.0 11.0 10.0 12.0 12.0 20.0%


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Baltic Dirty Tanker Index (BDTI) Baltic Clean Tanker Index (BCTI)

3



Table 4: Fleet summary statistics

Fleet (m. dwt) Employed (m. dwt) Utilization

7/17/15 7/24/15 Change 7/17/15 7/24/15 Change 7/17/15 7/24/15 Change

VLCC 196.8 196.5 (0.3) 184.4 184.0 (0.3) 94% 94% 0%

Suezmax 76.8 76.9 0.1 69.5 69.8 0.3 91% 91% 0%

Aframax 97.8 97.8 0.0 90.1 90.1 0.0 92% 92% 0%

Panamax/LR1 29.5 29.5 - 27.4 27.5 0.1 93% 93% 0%

MR/Handy 91.7 92.0 0.3 77.2 77.1 (0.1) 84% 84% 0%

Total 492.6 492.8 0.1 448.6 448.5 (0.1) 91% 91% 0%

Source: J.P. Morgan estimates, Bloomberg.

Table 5: Fleet summary statistics (cont.)

Average Speed (knots) Average Distance (nm) Million Ton-Miles

7/17/15 7/24/15 Change 7/17/15 7/24/15 Change 7/17/15 7/24/15 % Change

VLCC 11.5 11.6 0.0 7,990 8,010 20 1,473,168 1,474,162 0%

Suezmax 10.6 10.7 0.1 4,994 5,143 149 347,150 359,006 3%

Aframax 10.5 10.8 0.3 2,985 3,079 94 268,842 277,295 3%

Panamax/LR1 11.2 11.4 0.2 4,048 4,110 61 110,689 112,668 2%

MR/Handy 11.3 11.4 0.1 2,766 2,802 36 213,621 216,089 1%

Total 11.1 11.2 0.1 5,381 5,439 58 2,413,470 2,439,220 1%


Table 6: Employed vessels by destination

Million Tons (dwt) Billion Ton-Miles

Destination 7/17/15 7/24/15 % Change 7/17/15 7/24/15 % Change

Asia 242.1 242.0 -0.1% 1,558 1,551 -0.4%

Europe/Med. 79.4 78.7 -0.8% 230 239 3.7%

N. America 54.8 55.0 0.3% 316 326 3.2%

Carib./S. America 20.2 20.9 3.5% 57 60 5.7%

Middle East 14.7 13.6 -7.0% 42 41 -3.8%

Africa 14.5 14.0 -3.7% 70 67 -3.8%

Other 22.8 24.2 6.2% 141 155 10.2%

Total 448.5 448.5 0.0% 2,413 2,439 1.1%


Table 7: Employed vessels by origin

Million Tons (dwt) Billion Ton-Miles

Origin 7/17/15 7/24/15 % Change 7/17/15 7/24/15 % Change

Middle East 151.4 152.0 0.4% 863 876 1.5%

West Africa 48.0 49.2 2.4% 356 365 2.6%

Asia 53.9 53.7 -0.4% 114 118 3.5%

Bsea/Med. 45.5 43.4 -4.7% 163 153 -6.2%

Carib./S. America 55.1 53.3 -3.2% 456 443 -2.9%

N. America 20.4 21.9 7.0% 95 101 5.9%

Europe 53.4 52.2 -2.3% 251 253 0.8%

Other 20.7 22.8 10.3% 116 131 13.0%

Total 448.5 448.5 0.0% 2,413 2,439 1.1%


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Figure 2: Global refinery maintenance calendar,000 barrels/day

Source: Bloomberg.

Table 8: VLCC freight forward curve - TD3

$ per vessel/day

Period Jul-17 Jul-23 Change

Jul-15 81,438 81,785 346

Aug-15 72,928 71,442 (1,486)

Sep-15 63,631 63,841 210

Oct-15 63,479 63,689 210

Nov-15 66,841 66,354 (487)

Dec-15 72,989 73,198 210

Q3/15 72,661 - -

Q4/15 67,774 67,687 (88)

Q1/16 59,988 58,615 (1,374)

Q2/16 59,988 58,615 (1,374)

2016 47,787 48,100 313

Source: Imarex, Bloomberg.

Table 9: LR1 freight forward curve - TC5

$ per vessel/day


Jul-15 38,720 38,692 (28)

Aug-15 40,632 38,627 (2,005)

Sep-15 35,565 35,380 (185)

Oct-15 33,013 32,213 (801)

Nov-15 33,866 32,758 (1,108)

Dec-15 34,719 33,918 (801)

Q3/15 38,306 - -

Q4/15 33,866 32,929 (938)

Q1/16 29,055 29,027 (28)

Q2/16 25,364 24,633 (730)

2016 26,627 26,119 (508)


Figure 3: Floating storage profit/loss – Brent$ per barrel

Source: Bloomberg. Clarkson Research Services. J.P. Morgan estimates.

Table 10: Aframax freight forward curve - TD7

$ per vesse/day


Jul-15 32,075 30,145 (1,930)

Aug-15 29,906 30,128 223

Sep-15 26,222 26,436 214

Oct-15 31,232 31,437 205

Nov-15 32,627 32,824 197

Dec-15 42,698 42,886 188

Q3/15 29,398 - -

Q4/15 35,519 35,682 163

Q1/16 30,447 30,610 163

Q2/16 24,786 24,940 154

2016 26,508 26,654 146


Table 11: MR freight forward curve – TC2

$ per vessel/day


Jul-15 30,213 27,249 (2,964)

Aug-15 29,292 24,270 (5,022)

Sep-15 25,665 23,503 (2,162)

Oct-15 25,017 22,644 (2,372)

Nov-15 26,006 23,423 (2,583)

Dec-15 28,223 26,044 (2,179)

Q3/15 28,391 - -

Q4/15 26,415 24,014 (2,401)

Q1/16 23,707 23,165 (542)

Q2/16 18,506 18,016 (491)

2016 19,910 19,669 (241)


(6,000)(5,000)(4,000)(3,000)(2,000)(1,000)

01,0002,0003,0004,000

Capacity Offline Capacity Online Net

(12)(10)(8)(6)(4)(2)02468

3-month profit 6-month profit

5



Figure 4: VLCC historical newbuild prices$ in millions


Figure 5: VLCC deliveries/scrapping and YOY growthmillion dwt


Figure 6: VLCC single voyage activity (2-mo moving avg)number of vessels (weekly)

Source: Clarkson Research Services

Figure 7: VLCC historical secondhand prices$ in millions


Figure 8: VLCC orderbook and orderbook as a % of fleetmillion dwt


Figure 9: VLCC fleet supply growthYOY growth

Source: Clarkson Research Services. J.P. Morgan estimates.

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Figure 10: Suezmax historical newbuild prices$ in millions


Figure 11: Suezmax deliveries/scrapping and YOY growthmillion dwt


Figure 12: Suezmax single voyage activity (2-mo moving avg)number of vessels (weekly)


Figure 13: Suezmax historical secondhand prices$ in millions


Figure 14: Suezmax orderbook and orderbook as a % of fleetmillion dwt


Figure 15: Suezmax fleet supply growthYOY growth


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Figure 16: Aframax historical newbuild prices$ in millions


Figure 17: Aframax deliveries/scrapping and YOY growthmillion dwt


Figure 18: Aframax single voyage activity (2-mo moving avg)number of vessels (weekly)


Figure 19: Aframax historical secondhand prices$ in millions


Figure 20: Aframax orderbook and orderbook as a % of fleetmillion dwt


Figure 21: Aframax fleet supply growthYOY growth


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Figure 22: MR historical newbuild prices$ in millions


Figure 23: MR/Handy deliveries/scrapping and YOY growthmillion dwt


Figure 24: MR/Handy single voyage activity (2-mo moving avg)number of vessels (weekly)


Figure 25: MR historical secondhand prices$ in millions


Figure 26: MR/Handy orderbook and orderbook as a % of fleetmillion dwt


Figure 27: MR/Handy fleet supply growthYOY growth


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Figure 28: Tanker Universe Comparables

$ in millions, except per share data

Source: J.P. Morgan estimates, Company data. Bloomberg. All prices as of 24 July 15.

Price Price LTM Div. Market Ent. Debt/ EPS EBITDA EV/EBITDA Price/ Price/

Company Ticker Rating Target 7/24/15 Yield Cap Value Tot. Cap 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E NAV Norm NAV (1)

Ardmore Shipping Corp ASC OW $17 $14.06 2.8% $365 $292 47% $0.07 $1.26 $2.15 $23 $71 $105 28.0x 8.9x 6.1x 1.2x 0.9x

Capital Product Partners LP CPLP - - $7.97 11.7% $957 $578 40% $0.31 $0.44 $0.53 $118 $148 $173 11.6x 9.2x 7.9x - -

DHT Holdings Inc DHT OW $10 $8.38 1.3% $780 $654 48% ($0.26) $0.93 $0.86 $41 $204 $217 31.0x 6.2x 5.8x 1.0x 0.9x

Euronav NV EURN OW $18 $15.72 - $2,503 $1,090 38% ($0.33) $2.35 $1.61 $180 $575 $490 19.1x 6.0x 7.0x 1.2x 1.2x

Frontline Ltd/Bermuda FRO - - $3.12 - $429 $837 109% ($0.82) $0.49 $0.17 $33 $196 $202 35.8x 6.1x 5.9x - -

Navios Maritime Midstream Partners LP NAP N $17 $15.82 - $327 $122 32% $0.14 $1.41 $1.26 $47 $62 $67 8.8x 6.7x 6.2x 1.2x 1.4x

Nordic American Tankers Ltd NAT - - $16.02 4.8% $1,429 $250 22% ($0.15) $1.26 $0.97 $76 $194 $175 20.8x 8.1x 9.0x - -

Navios Maritime Acquisition Corp NNA OW - $4.07 3.7% $629 $1,159 69% $0.00 $0.58 $0.63 $147 $205 $209 11.7x 8.4x 8.2x 1.0x 1.0x

Ship Finance International Ltd SFL - - $16.76 9.7% $1,566 $1,732 60% $1.22 $2.28 $2.37 $224 $298 $323 14.2x 10.7x 9.8x - -

Scorpio Tankers Inc STNG OW $13 $10.97 3.6% $1,986 $1,743 60% $0.04 $1.34 $1.14 $69 $443 $433 52.0x 8.1x 8.3x 1.4x 1.1x

Teekay Corp TK - - $36.55 3.5% $2,640 $6,800 67% $0.59 $1.47 $1.51 $809 $1,149 $1,228 10.6x 7.5x 7.0x - -

Teekay Tankers Ltd TNK OW $9.50 $7.49 1.6% $866 $712 59% $0.39 $1.51 $1.25 $98 $250 $219 15.6x 6.1x 7.0x 1.2x 1.1x

Tsakos Energy Navigation Ltd TNP OW $13 $9.44 2.2% $800 $1,418 55% $0.32 $1.86 $1.58 $179 $314 $309 12.2x 7.0x 7.1x 0.9x 0.9x

M ean 4.5% 54% 20.9x 7.6x 7.3x 1.1x 1.1x

M edian 3.5% 55% 15.6x 7.5x 7.0x 1.2x 1.0x

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Sector Investment Risks

North American production

The most important risk, in our view, is the true potential for North American production growth and what the time frame is for that growth. If production is not able to meet expectations, there is always the risk that transatlantic trade redevelops, which would reverse the new trade flows we are anticipating. Furthermore, a downturn in North American production could increase the global price for oil, negatively impacting demand.

Russia/China economic integration

The signing of the major natural gas deal between Russia and China will likely lead to long-term economic integration between those two countries, which could eventually lead to more direct oil import growth into China that would be serviced by pipeline and/or short-haul seaborne imports.

Chinese development of “new silk road”

China is notoriously anxious about its reliance on the Malacca Straits for its energy needs, given that the U.S. Navy still controls the sea lanes. Beijing is working hard to address that problem on multiple fronts, most notably is the build out of a pipeline between China and Myanmar that would bypass the Malacca Straits. China is also developing the Gwadar port in cooperation with Pakistan, which would also shorten routes and bypass the Malacca Straits. Ultimately though, we believe these projects are part of a diversification strategy by Beijing, and would only impact ton-mile demand negatively on the margin.

Supply/demand balance

Overall demand for tanker services depends on world and regional issues, including crude oil production and demand, as well as global and regional economic and geopolitical conditions. Market conditions are difficult to predict, and single events often affect the price, demand, production, and transport of oil. As such, tanker rates can fluctuate dramatically over short periods of time. While analysis of oil supply and demand factors can help provide guidance to near-term market action, overall tanker rates are almost impossible to predict.

Tanker orderbook

The tanker orderbook currently stands at 16% of the total fleet. In our opinion, if demand fails to increase proportionately with the augmented tonnage supply, then tanker rates may weaken further.

Vessel speed

Vessel speed is a function of bunker fuel prices and freight rates, as higher bunker fuel prices can incentivize owners to run vessels at slower speeds to save fuel. Fuel consumption generally has an exponential relationship to speed. Slow steaming is more often seen on the ballast voyage, especially when rates are low and fuel prices are high. An increase in the speed of the fleet is effectively an increase in supply.

11



Companies Discussed in This Report (all prices in this report as of market close on 23 July 2015)Ardmore Shipping (ASC/$13.78/Overweight), Euronav (EURN/$15.81/Overweight)

Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention.

Important Disclosures

Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider in Euronav, Ardmore Shipping.

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Euronav within the past 12 months.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Euronav.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Euronav.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking Euronav.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Euronav.

Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail [email protected].

Date Rating Share Price ($)

Price Target ($)

02-Mar-15 OW 11.93 15.00

18-May-15 OW 14.12 17.00

20-Jul-15 OW 16.18 18.00

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Jan15

Jan15

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Euronav (EURN, EURN US) Price Chart

OW $18

OW $17

OW $15

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

Initiated coverage Mar 02, 2015.

12



Date Rating Share Price ($)

Price Target ($)

18-May-15 OW 12.35 16.00

20-Jul-15 OW 14.26 17.00

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated

Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com.

Coverage Universe: Parquette, Noah R: Ardmore Shipping (ASC), DHT Holdings (DHT), Euronav (EURN), GasLog (GLOG), GasLog Partners (GLOP), Navios Maritime Acquisition (NNA), Navios Maritime Midstream Partners (NAP), Scorpio Tankers (STNG), Teekay LNG (TGP), Teekay Tankers (TNK), Tsakos Energy Navigation (TNP)

J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2015

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 44% 43% 13%IB clients* 51% 48% 38%

JPMS Equity Research Coverage 45% 47% 9%IB clients* 71% 66% 57%

*Percentage of investment banking clients in each rating category.For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P. Morgan representative, or email [email protected].

0

6

12

18

24

30

Price($)

Jul13

Oct13

Jan14

Apr14

Jul14

Oct14

Jan15

Apr15

Jul15

Ardmore Shipping (ASC, ASC US) Price Chart

OW $17

OW $16

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

Initiated coverage May 18, 2015.

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Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.

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