Aegean Marine Petroleum S.A has this week confirmed that it expects its new storage facility in
Fujairah, United Arab Emirates, to be in commercial operation before the end of this year.
In an earnings call to discuss the company's results for the second quarter of 2014,
E. Nikolas (Nick) Tavlarios [pictured], President, provided an update on the company's progress with the new facility, saying: "Essentially the construction was completed efficiently on April 30, 2014. We have been in a commissioning process which involves testing all the equipment and getting certain safety certificates in the area – in the operation itself. That testing has been going on and those certificates are being obtained. Our expectation is within the next month, maybe month and a half that that will all be done."
Tavlarios also confirmed that Aegean has arranged for a shipment of oil product to arrive its Fujairah storage terminal, saying: "We’re taking a shipment of oil right now of our own oil there again engaging in the testing process. That will be done within the coming weeks. And then after that we'll begin to do our own operation there and go through a whole vetting process to begin to receive customer oil in there. We expect this to be 2014 active and open for customers."
In answer to a question on capital expenditure in Fujairah and the possibility of selling an interest in the business, Tavlarios remarked: "With respect to our Fujairah facility, I think others that have undertaken projects in the region we’re no different than they are. They launched their projects extensively and in some cases the cost go higher than they first expected and we were not immune to doing work in that region. So, it is what it is and we are here today, we do see a great opportunity for us particularly as you watched January 1, 2015 coming into play and how that will affect even other parts of the world. So that will be a very good platform for us to engage in our business and support the balance of, let’s just say, our Eastern business there. When it comes to how we deploy that capital, what we do with that asset, we always are after doing the best possible thing when you look at all aspects of our business that way. That’s why we did move along some of our older non-core vessels and we streamline some of our expenses. So if the appropriate suitor came along and wanted to invest in that with us, we would be open to it. Having said that, Fujairah is very, very important to our business in the region and we intend to – right now we’re operating with a small Panamax vessel there and we turn it probably close to twice a month and that to some degree restricts what we’re able to do there. The operating expenses on the Panamax are equivalent to the operating expenses of the shoreside storage facility. So that will go away but at the same time, you’ll have 455,000 cubic meters of storage capacity of which if you lease an enormous amount out to a third party then that is just new income for you and you’re basically in for the same operating expense. So, there is no change to our expense structure because of having that and our earning power is significantly higher. So we’re happy to be involved in that business."
Tavlarios also replied to a question regarding the number of vessels the company is likely to sell this year, saying: "So we mentioned before that we’re going to work out to sell our floating storage floating vessel in Fujairah and that will obviously be the expenses of the shoreside storage facility we’ll swap out with that one. So that one is sort of neutral to the OpEx structure of the company. But we will pull cash in from selling that. So that’s slightly to occur likely by the end of this month. There is two other vessels that are being contemplated right now. I would say one of those is – and they’re both probably around that greater than 50% markup probability. At that point I think we’re really reaching a very good level that we’re comfortable with."
Leasing out Fujairah storage
As mentioned in previous earnings calls by the company, Tavlarios confirmed this week that Aegean intends to lease out storage capacity in Fujairah to third parties and that it is currently in discussions with potential clients. "Yes. We’ve been marketing with customers quite a bit. There could be some contract business on the balance of these short-term contracts," he said.
In an earnings call in Februrary, Tavlarios had stated: "We are in conversation with various firms, the plan is to launch operations by having us as the first customer. Then, as typical with running tankage, you then become approved from a safety perspective to operate and engage other customers - known as the vetting process. And, once that is completed, then we'll be able to engage in contracts with those other customers. So that's the protocol and the process and that'll go on over the next months."
