Much of the excitement over the U.S. shale oil and gas boom
has centered on the impact it will have on domestic supplies. But
not all of that fuel will stop at the borders.
Some of the oil and gas being extracted from states such as
Pennsylvania, the Dakotas, Texas and Wyoming will make its way
One company that has been moving into international markets
isNavigator Holdings (
), which owns and operates the world's largest fleet of handysize
liquefied gas carriers.
Handysize ships measure 15,000 to 20,000 cubic meters and are
designed to get into smaller ports. Navigator's fleet transports
liquefied petroleum gases (
) such as propane and butane as well as ammonia and petrochemical
gases like ethylene and propylene.
The fleet consists of 36 semi- or fully refrigerated liquefied
gas carriers, including 13 "newbuildings" -- industry speak for
new vessels -- scheduled for delivery by the end of December
Navigator, which went public in November, has built a
reputation in its niche for aggressively expanding its fleet
through both buyouts and internal growth initiatives.
That niche -- medium-size LPG carriers -- has "a very
attractive demand/supply outlook," said Natasha Boyden, senior
analyst at MLV & Co.
"Navigator is quickly becoming the top consolidator in this
segment and will be the largest owner/operator of medium LPG
carriers once its newbuild schedule is complete by 2016," Boyden
Enthusiasm over the company's growth prospects have helped its
stock price rise roughly 40% since debuting at 19 on Nov. 21.
Navigator's shares popped 12% on April 23 after the company
exercised an option to build three more 35,000-cubic-meter
semi-refrigerated liquefied gas carriers, capable of carrying
ethylene and ethane, in addition to another vessel already under
construction. They will be built at the Jiangnan Shipyard in
China for $78.4 million each.
The new vessels are being built because of the expectation
that large exports of ethane will become available from surplus
U.S. shale gas production.
U.S. ethane is attractive to global petrochemical firms
because of its low cost compared to supplies in other
One benefit of Navigator's decision to exercise its options is
that the new carriers meet one of the company's target growth
initiatives, says Evercore analyst Jonathan Chappell.
Another benefit is the timing of the decision. It occurred one
day afterEnterprise Products Partners (
) announced plans to build the largest ethane-export facility in
the world, with startup due for the second half of 2016 in the
Gulf of Mexico.
"Although Navigator has not signed long-term contracts yet for
the new vessels, management remains confident that contracts of
at least 10 years for these assets are near completion, with
export facilities in the East Coast and now the Gulf likely to
add to demand," Chappell noted in a report.
The Enterprise facility is designed to have an aggregate
loading rate of around 10,000 barrels an hour, or up to 240,000 a
According to Chappell, Navigator estimates that the facility
will require 37 carriers with a 200,000-barrel capacity to
transport the ethane from the Gulf of Mexico to Europe.
"There are very few ethane-capable carriers in the market
today of this size, with Navigator's four contracted newbuildings
putting it in a strong relative competitive position within this
burgeoning trade," Chappell said.
Navigator competes in an industry with a variety of different
players, most of which specialize in tankers and large vessels
rather than handysize ships.
Other shippers that transport LPG, petroleum and petrochemical
products includeFrontline (
) andArdmore Shipping (ASC).
Navigator's growth depends "not only on its ability to expand
relationships with existing customers, but also to obtain new
ones where there is significant competition," analyst Boyden
"The process of obtaining new charters is highly competitive
and generally involves intensive screening and competitive bids
that extend for several months," she added.
Morgan Stanley analyst Fotis Giannakoulis says Navigator holds
a "dominant position" in the premium semi-refrigerated
gas-carrier market with a share of 30%.
In addition, he noted, "gas carriers are set to benefit from
the U.S. shale gas boom, which should produce price arbitrage
opportunities for long-distance exports, driving demand."
Six Big Clients
More than half of Navigator's revenue last year came from six
customers. According to Boyden, the two biggest were Pertamina, a
state-owned oil and gas company in Indonesia, and Tomza Group, a
Mexican LPG distributor.
Financially, Navigator has built a record of delivering
consistent double-digit growth on the top and bottom lines.
Last month it reported first-quarter revenue of $69.8 million,
up 65% from the prior year. Net income more than doubled to $16.9
million. Earnings before income taxes, depreciation and
amortization climbed to $35.9 million from $20.7 million a year
Analysts polled by Thomson Reuters expect Navigator to report
full-year EPS of $1.44 in 2014 and $2 in 2015.