StealthGas fleet hits the 40 mark

The StealthGas philosophy of fleet build-up to critical mass and controlling costs in a stable sector of shipping is paying dividends

Delivered in April 2009 by the Kanrei shipyard of Naruto in Japan, the 3,500m³ Gas Astrid is the 40th vessel in the current StealthGas in-service fleet of fully pressurised (FP) LPG carriers. A further six FP gas carriers are on order for the company, all at Kanrei, for delivery through 2011. In numerical terms StealthGas fleet is the largest gas carrier operates in the world. All the ships are fully owned.

Of the gas carriers on order, the first, Gas Exelero, is a sister ship of Gas Astrid and is scheduled for delivery in June 2009. The remainder comprise three 5,000m³ and two 7,500m³ ships. The principal particulars of Gas Astrid are shown in the table on page 58.

StealthGas Inc is part of the Athens-based Vafias Group and its rise to prominence has been one of the more remarkable developments in the gas shipping sector in recent years. StealthGas was established in December 2004 by Harry Vafias, the 31-year old chief executive of the Vafias Group. Mr Vafias took the company public in the US in October 2005 and there was a follow-up offering in 2007 which raised about US$300 million from the capital markets.

Initially, the rapid build-up of the FP fleet was based on the acquisition of existing vessels but in February 2007 the company took delivery of its first newbuilding LPGC. This was the 6,300m³ Gas Flawless from the Higaki yard in Japan.

“The decision to focus on small fully pressurised LPG carriers with the launch of StealthGas, and to ensure healthy returns for our investors, was not a particularly difficult one,” points out Harry Vafias. “Rates in the FP LPG sector have traditionally been less volatile than those in the tanker and bulk carrier sectors. With StealthGas we are in the business for the long-haul and the relative steadiness and predictability of the returns provide a good base on which to build. While the operation will not make a killing overnight, it will also not collapse with the onset of a market downturn. Healthy returns are ensured through the scale of our operation.

“In addition, when the Vafias Group was looking at new opportunities, we saw that of the various shipping sectors at the time, the orderbook for FP LPGCs was the smallest by far and that the shipowners active in the sector were running relatively small operations. We were aware that the production of LPG was increasing, not least as a byproduct of the growing number of LNG trains coming onstream worldwide, and that the demand for LPG was also rising, both as a source of fuel and as a petrochemical feedstock.

“Finally, we were already familiar with the energy major charterers and their strict ship vetting procedures through our operation of tankers by Stealth Maritime, an affiliate of StealthGas,” continues Mr Vafias. “We knew that the stringent crew recruitment and training policies we employed at Stealth Maritime could be transposed to StealthGas in order to meet the equally robust vetting standards set by gas carrier charterers.

“It is also worth pointing out that FP LPGCs are the simplest and most straightforward of all the gas carriers to operate. As a result, we were aware that operating expenses would be manageable and amenable to tight control.”

The 40 StealthGas LPG carriers fall within the 3-8,000m³ size range and offer a total capacity of 177,000m³. As of the end of 2008 the average age of the StealthGas FP LPG carriers was 11.4 years, against an industry average of 19 years for ships of this type.

To ensure a measure of diversification, the StealthGas fleet also includes four new medium range product tankers, comprising two 47,000 dwt ships delivered early in 2008 and two ships, one of 46,000 dwt and the other of 50,500 dwt, due for delivery this year.

The two product tankers delivered in early 2008 – Navig8 Fidelity and Navig8 Faith – are both fixed on seven-year bareboat charters. The performance of the pair helped bolster the StealthGas commercial results in 2008. Voyage revenues, at US$112.6 million, were 25.1 per cent ahead of those for 2007 while net income, at US$30.0m, was 33.3 per cent ahead.

Recent deals to fix forward employment for LPG carriers in the StealthGas fleet, while reflecting that rates for such ships are under pressure like everywhere else, also show that reductions have been relatively marginal compared to other sectors of shipping. In January 2009 time and bareboat charters were arranged for three StealthGas LPGCs at an average day rate of US$8,168. In March 2009 similar arrangements for four further StealthGas ships averaged US$7,661. However, even these most recent rates secured by StealthGas are well in excess of the running costs incurred by the company’s FP LPGCs.

Going forward, StealthGas has 85-90 per cent of its cargo-carrying capacity fixed on time and bareboat charters with leading gas majors and traders for the remainder of this year. The company has been particularly successful in securing bareboat charters for its vessels and at any one time about one-third of the FP LPGCs are so employed. Under such arrangements the responsibility for vessel management falls to the charterer.

Of the ships not on bareboat, approximately 50 per cent are managed in-house and 50 per cent by third party ship managers. StealthGas has slowly been increasing its share of the fleet management duties but the speed of the build-up of this and other Vafias Group fleets has been so great that the assistance of independent ship managers has been necessary.

The operation of small FP LPGCs on coastal distribution routes is labour-intensive, with numerous port calls and a heavy cargo-handling workload. Third party ship managers have enabled StealthGas to assimilate new ships into its operation in a streamlined and trouble-free manner and have been a key element in the success that has been achieved so far.

“Going forward, StealthGas has established a winning formula in providing a fleet that is able to meet the requirements of a wide range of customers and to yield good returns for those investors wishing to commit to our company,” states Harry Vafias. “However, like most shipping companies our share price has taken a knock over the last nine months, to the extent that our current stock market value is a woefully inadequate representation of our market capitalisation.

“Shipping in general faces another 18 months of difficult trading conditions, not least because of the large number of new container ships, bulk carriers and tankers on order. In contrast, there are still comparatively few small LPG carriers on order and fleet supply and demand is in relative balance. StealthGas was one of the very few listed companies to pay a dividend in the last quarter of 2008 and, with more or less full fleet employment secured for the year ahead, we are as attractive an investment choice as we have ever been.” LPG