Performance Shipping Inc. Signs Shipbuilding Contract for the Construction of a Newbuilding LR1 Tanker Vessel

Rhea-AI Summary

Performance Shipping Inc. (NASDAQ: PSHG) has signed a shipbuilding contract for a newbuilding LR1 tanker vessel with a contract price of US$54.1 million. The vessel will be equipped with advanced engines and emission compliance systems. This marks the company's fourth shipbuilding contract, with future deliveries scheduled from October 2025 to January 2027. The company's revenue backlog stands at US$203.9 million, securing growth and sustainability in the energy transition.

Positive

• Signing a shipbuilding contract for a newbuilding LR1 tanker vessel signifies fleet expansion and renewal, prioritizing fuel efficiency and low emissions.

• The vessel will feature advanced engines and emission compliance systems, showcasing the company's commitment to environmentally sustainable operations.

• The company's revenue backlog of US$203.9 million secures growth opportunities and aligns with favorable market fundamentals, supported by an aging fleet and a healthy orderbook.

Negative

• None.

Insights

Financial Analyst

Performance Shipping Inc.'s announcement of a new shipbuilding contract represents a strategic move in expanding and modernizing their fleet. From a financial perspective, the decision to invest 54.1 million in a newbuilding LR1 tanker is significant, considering this price tag represents a substantial capital outlay. The payment structure, with staged payments coinciding with construction milestones, helps in cash flow management by spreading the cost over time. The company's stated aggregate revenue backlog of 203.9 million, covering 93% of newbuilding capital expenditures, indicates a strong forward-looking revenue stream tied to their time-charter contracts. This could reassure investors about the company's ability to finance its expansion without incurring excessive debt or diluting equity. However, the success of this strategy hinges on market demand and charter rates remaining favorable. The lead time for delivery by January 2027 also exposes the company to market fluctuation risks over the intervening period. Investors should monitor freight and charter rates, as these will be key drivers of the company's financial performance post-delivery.

Environmental Compliance Expert

The environmental technologies employed in the new LR1 tanker, such as electronic main engines with high-pressure selective catalytic reactors and exhaust gas cleaning systems, reflect the shipping industry's regulatory landscape, which is increasingly focused on reducing emissions. This compliance with Tier III (NOx Emissions) standards and the inclusion of ballast water treatment systems are vital for future operations within stringent international waters and port regulations. These features may offer a competitive advantage by future-proofing the vessel against potential tightening of environmental regulations. Additionally, the company's commitment to lower carbon emissions by modernizing their fleet aligns with broader industry trends and customer expectations of environmentally sustainable operations, potentially improving their marketability and customer relationships in the long run. As an investor, it's important to recognize that these eco-friendly advancements could lead to operational cost savings and strengthen the company's branding, but they also come with higher upfront costs.

ATHENS, Greece, May 07, 2024 (GLOBE NEWSWIRE) -- Performance Shipping Inc. (NASDAQ: PSHG), ("we" or the "Company"), a global shipping company specializing in the ownership of tanker vessels, today announced that, through a separate wholly-owned subsidiary, it has signed a shipbuilding contract with Jiangsu Yangzijiang Shipbuilding Group Co., Ltd., Jiangsu New Yangzi Shipbuilding Co., Ltd., and Jiangsu Yangzi Xinfu Shipbuilding Co., Ltd., (collectively the "Seller") for the construction of a scrubber fitted 75,000 DWT LR1 chemical/product oil tanker for a contract price of US$54.1 million excluding extras and net of commission to third parties. 15% of the purchase price is payable upon receipt of a refund guarantee, expected to occur within 30 days; 10% of the purchase price is payable at each of the milestones of steel cutting, keel laying and launching of the vessel, and the remaining 55% of the purchase price is payable upon the vessel’s delivery. The Company expects to take delivery of the vessel by January 2027.

The vessel will be equipped with electronic main engines with high-pressure selective catalytic reactors (HPSCR) for Tier III (NOx Emissions) compliance, exhaust gas cleaning systems (EGCS – commonly referred to as scrubbers) for Tier II (NOx Emissions) compliance, and ballast water treatment systems (BWTS).

Andreas Michalopoulos, the Company's Chief Executive Officer, stated:

“We are pleased to announce our shipbuilding contract to construct one modern eco-design LR1 tanker. This vessel will feature the latest high specification engine and emission requirements, along with a scrubber and water ballast treatment system. The construction of the vessel is undertaken by one of the most reputable and highly specialized shipyards in the world. This contract marks our fourth shipbuilding contract, including three LNG-ready LR2 oil tankers and one LR1 chemical/product oil tanker with scheduled deliveries ranging from October 2025 to January 2027.

“Our newbuilding commitments are supported by the three recently announced time charter employment contracts for our three newbuilding LR2 tankers, securing a firm period of five years, generating gross revenues of US$169.8 million and supplementing our existing revenue backlog of US$34.1 million. With our aggregate revenue backlog of US$203.9 million, representing 93% of all our remaining newbuilding capital expenditures, we are well positioned for growth.

“Our fleet expansion and renewal strategy prioritizes fuel efficiency and low emissions, reflecting our commitment to participating in the energy transition. By taking constructive steps towards lower carbon emissions, we aim to provide our customers with environmentally sustainable operations. We believe that our investment strategy aligns with our view of continuing favorable market fundamentals, supported by an aging fleet and a healthy orderbook, which currently stands at 9%.”

About the Company

Performance Shipping Inc. is a global provider of shipping transportation services through its ownership of tanker vessels. The Company employs its fleet on spot voyages, through pool arrangements and on time charters.

Cautionary Statement Regarding Forward-Looking Statements

Matters discussed in this press release may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include, but are not limited to, statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts, including with respect to the delivery of the vessels we have agreed to acquire. The words "believe," "anticipate," "intends," "estimate," "forecast," "project," "plan," "potential," "will," "may," "should," "expect," "targets," "likely," "would," "could," "seeks," "continue," "possible," "might," "pending" and similar expressions, terms or phrases may identify forward-looking statements.

The forward-looking statements in this press release are based upon various assumptions, many of which are based, in turn, upon further assumptions, including, without limitation, our management's examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs, or projections.

In addition to these important factors, other important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include, but are not limited to: the strength of world economies, fluctuations in currencies and interest rates, general market conditions, including fluctuations in charter rates and vessel values, changes in demand in the tanker shipping industry, changes in the supply of vessels, changes in worldwide oil production and consumption and storage, changes in our operating expenses, including bunker prices, crew costs, drydocking and insurance costs, our future operating or financial results, availability of financing and refinancing including with respect to vessels we agree to acquire, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, the length and severity of epidemics and pandemics, including COVID-19, and their impact on the demand for seaborne transportation of petroleum and other types of products, changes in governmental rules and regulations or actions taken by regulatory authorities, general domestic and international political conditions or events, including "trade wars", armed conflicts including the war in Ukraine and the war between Israel and Hamas, the imposition of new international sanctions, acts by terrorists or acts of piracy on ocean-going vessels, potential disruption of shipping routes due to accidents, labor disputes or political events, vessel breakdowns and instances of off-hires and other important factors. Please see our filings with the US Securities and Exchange Commission for a more complete discussion of these and other risks and uncertainties.