Sovcomflot shrugs off sanctions as it returns to profit

Lloyd's List

SOVCOMFLOT has returned to profitability and will now press ahead with its international growth plans, with sanctions unlikely to have much of an impact on the Kremlin-owned Russian tanker giant, according to its chief financial officer.

Nikolay Kolesnikov granted a rare interview to Lloyd’s List after the company announced last week that it has booked an $83.9m profit for 2014, reversing the full-year loss seen in 2013.

Much of the improvement will simply be down to the improved market, with the rising tide lifting all tankers, although the pick-up did not really start until the opening months of this year.

Mr Kolesnikov acknowledges that the first quarter of 2015 has basically been strong for the segment, both on the crude and the product side.

But we are not witnessing a simple repetition of the first quarter of 2014, and the recovery looks like it will probably continue at least into the second quarter, he believes.

Moreover, each company’s own efforts are all part of the picture and need to be included in any balanced assessment. “I’m sure you’ll hear different stories from different owners," he said.

"Obviously we’ve been preparing for this and the strategy we have been pursuing for a number of years has served us well.

“We are firm believers in the more diversified energy shipping model, rather than that pursued by more pure-play tanker companies.”

In particular, SCF has benefited from good support from the industrial side of its business, which is based on fixed-rate, fixed-term gas transportation and upstream work, such as shuttle tankers and supply ships. This has provided a cushion of stable cashflow and earnings.

For instance, SCF has gas carriers on long-term charter to Gazprom and VLCCs backed by contracts with PetroChina, with healthy margins in both instances.

“At the same time, we are still one of the bigger players on the commercial tankers side and, as a big player, we are positioned to read the benefits of the upturn in the tanker markets.

“We have sustained six years of misery. Now that the market is turned, we are well positioned to capture that growth.”

Sovcomflot has obviously built a strong domestic base, servicing exports of Russian hydrocarbons by lifting crude and product from all the export terminals in the Baltic, the Black Sea and the Russian Far East.

Mr Kolesnikov claims it is involved in every offshore development off the Russian coast, including the expanding Sakhalin project.

Nevertheless, the company seeks balance, both in terms of geography and with its clients, and uses the rule of thumb that no more than 10% of business overall should be with any one client. Two-thirds or more of its business is now with non-Russians.

“Russia is our backyard and it is easier for us to grow here. But we are trading our vessels all around the globe and following our clients, who are all global players.

“Basically what we are doing is, we are exporting services. Not only are we servicing the Russian foreign trade but we are working with our international customers in providing them [with] a marine service that is performed by a Russian company.

“I don’t think we want to change that; that’s the way we see our strategy going forward. We are believers in globalisation and we want to stick to our principles.”

But of course, one of the pitfalls facing Russian entities active in international markets is the sanctions imposed by the US and EU over the stand-off in Ukraine.

Mr Kolesnikov acknowledged that this is an issue to which SCF needs to be sensitive, but maintained it has largely done its homework on the matter.

“As an international group, we have done our own analysis and risk assessment. We need to make sure we don’t expose the group,” he said.

The company already has a multinational management team, including a US national main board director, while its vessels fly flags of countries other than Russia.

It has also adopted a blanket policy of not calling at ports in countries subject to sanctions, in an effort to highlight its squeaky clean credentials.

“Where there is some indirect impact, is that certain of our Russian energy customers have been subject to this or that sanctions regime recently,” said Mr Kolesnikov.

“That obviously, in certain instances, may be restricting their access to capital and affecting their growth plans.”

Projects contemplated by clients may take longer to materialise, and such concerns may even reassess their investment programmes, so Sovcomflot is both targeting new business and looking at opportunities elsewhere.

Meanwhile, Russia remains a major provider of hydrocarbons to global markets.

“Shipowners are optimists by nature; it’s a tough enough industry already to make it even more complicated.

“But look, we’ve survived piracy in East and West Africa, we’ve survived one of the most protracted crises in the industry, so I’m pretty sure we’ll get over current issue and ultimately common sense will prevail. I’m sure about that.

“I just want politicians to do their part of the job and find a political solution.”