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Oil storage, shipbuilding and bunker supply group Titan Petrochemicals Group Limited has posted a HK$735 million (approximately US$94 million) net loss for the first half of 2010, compared to a loss of HK$54 million (approximately US$6.9 million) loss during the corresponding period last year.

The group’s revenue for the first six months of 2010 was HK$1,042 million (approx. US$134 million), an increase of 35 percent over the same period in 2009.

Operating losses increased to HK$356 million (approx. US$46 million), excluding the losses on disposals of vessels, compared to a loss of HK$147 million (approx. US$19 million), after exclusion of the gain on the repurchase of bonds in the first half of 2009.

Titan said the resultant loss was attributed to the depressed shipping and shipbuilding markets.

Offshore Storage (Floating Storage)

With the deployment of all owned VLCCs from transportation to offshore or floating storage units (FSU) in the first half of 2009, the group had a total capacity of 1,776,000 cubic metres at the beginning of the 2010 period.

Following the disposal of its three owned VLCCs in March 2010 and the subsequent leasing of replacement vessels in the second quarter of the year, the average FSU capacity was maintained at 1,560,000 cubic metres as compared to 976,000 cubic metres for the same period last year and contributed to the increase in revenue by 66 percent to HK$324 million.

Lower profit margins were recorded due to higher operating costs arising from the additional charter hires as well as costs incurred in preparing the leased vessels for floating storage unit (FSU) activities. As a result, the segment EBITDA decreased by 68 percent to HK$33 million.

Onshore Storage (China Terminals)

Titan's onshore storage business remained profitable, mainly due to the group entering into long-term lease agreements with customers. Revenues for Titan’s China terminals increased 20 percent to HK$89 million and segment EBITDA increased 17 percent to HK$64 million for the first six months of this year.

Titan's flagship Nansha facility recorded an overall average monthly utilisation of 68 percent over the six-month period, compared to 80 percent for the first half of 2009, due to a reduction in fuel oil storage utilisation.

Nansha Terminal has a total operating capacity of 715,300 cubic metres which is comprised of 590,000 cubic metres of fuel oil storage and 125,300 cubic metres of chemical storage. Utilisation rates during the period for fuel oil storage were 67 percent, and 72 percent for chemical storage.

At the Fujian facility, the average monthly utilisation rate rose from 64 percent to 90 percent for the first half of 2010, compared to the same period last year, based on 90,000 cubic metres of Phase I chemical storage capacity. The terminal is expected to complete construction of its 100,000 dwt jetty in the third quarter of 2010, while the Phase II 330,000-cubic metre oil product and fuel oil storage tanks will be ready by the end of this year.

This will allow larger vessels to load and discharge and, thereby, improve the terminal’s competitiveness. The jetty is expected to be very important to the future expansion of the storage capacity at the Fujian facility. Phase I of the Shanghai Yangshan Petrochemical Terminal, consisting of 420,000 cubic metres of storage capacity, recorded average monthly utilisation of 82 percent for the period. Construction of Phase II is expected to be finished in the second half of 2010.

Transportation and Supply/Distribution

The group’s transportation operations have continued to make losses in depressed market conditions. Titan's operations are now mainly involved in the coastal tanker trade and revenues for the first half of 2010 decreased 62 percent to HK$73 million, while the operating loss increased to HK$61 million compared to HK$26 million in the first half of 2009.

The fall in revenue was mainly due to the fact that four of the group's eight coastal tankers were dry-docked for conversion into double-hulled tankers during part of this period, thus resulting in only four of the vessels being fully operational throughout the period.

As part of the rationalisation of its transportation business, Titan subsequently sold and delivered two of its tankers in July 2010, the effect of which has been to reduce the transportation fleet to six coastal tankers and fleet capacity from 57,119 dwt to 43,316 dwt.

In response to the market’s preferential demand for double-hulled vessels, Titan commenced a programme for the conversion of its fleet into double-hulled vessels during the period. In July 2010, the conversion of three coastal tankers had been completed and the vessels resumed operations. Titan plans to complete the conversion of its three remaining coastal tankers during the second half of 2010.

Revenues for the supply/distribution business in the first half of 2010 rose by 98 percent to HK$465 million, however, segment EBITDA was lower at HK$5 million compared to HK$18 million for the same period last year.

Outlook

Commenting on the outlook for the rest of the year, Titan said: "We do not expect that the second half of 2010 will bring much improvement in the operating environment for the group. While the shipbuilding market remains soft with a scarcity of new orders, the storage services demand in both the onshore and offshore markets are expected to remain stable and the shipping rates in some niche segments should see some turnaround.

Titan said it will remain a key player in the offshore storage market having taken steps to lease three double-hulled VLCCs as replacements for the single-hulled vessels sold.

The group’s fleet of FSUs is now made up of six chartered-in vessels - the same number as at the start of the year although not all of these replacements are fully operational yet.

Titan said in its performance summary that it is now the first provider in Malaysian waters to operate double-hulled FSUs, thus enabling it to provide oil companies with high quality double-hulled floating storage services.

For the China terminal business, in order to further increase utilisation, Titan said it will continue to market its existing storage facilities in Nansha Phase I and II with the aim of increasing utilisation by both acquiring new customers and also converting spot business to longer term leases. Construction work will meanwhile proceed on Nansha Phase III and Fujian Phase II for completion in the second quarter of 2011 and the end of 2010, respectively.

Titan said it was confident that the Shanghai Yangshan Phase II terminal will be able to commence active operations during second half of this year. Approximately 80 percent of its 600,000-cubic metre capacity is said to have already been leased out on a long term basis.

With the additional Yangshan capacity, the group’s total combined storage capacity has been increased to 1,825,300 cubic metres, which is approximately 32 percent of the total planned capacity of all three of its terminals.

The increased restrictions imposed against single-hulled tankers in accordance with the requirements of the International Maritime Organisation prompted the group to accelerate the conversion of its entire fleet of coastal tankers to double-hulled tankers, and to dispose its owned single-hulled VLCCs as well as replacing them with double-hulled VLCCs for the offshore storage business.

"Upon the completion of these strategies, we will be able to widen our business scope and deepen our cooperation with customers," Titan said.

"We plan to add value to our storage services by offering our storage business customers integrated logistics services. We believe that our ability to do so may generate additional demand for both our storage services and transportation services. To this end, we will closely monitor any opportunities to increase our transportation capacity to complement our growing fuel oil and chemical storage capacity. We are cautiously optimistic for an improved performance in this segment of our business," Titan added.

"We believe that continued growth of the Chinese economy offers significant opportunities for our oil storage business and marine services over the medium and long term. With the successful completion of the Bond Exchange Offer in July, we are now in a much stronger position to secure financing going forward and, at the same time, allows us to maintain the group’s liquidity to fully focus on the development of our core segments and to explore opportunities to cooperate with potential strategic partners which will, in turn, provide a solid platform for future growth," Titan concluded.