Chapter two Strategic Business Units and Support Departments
The following is a breakdown of Bahri’s Business Units and its Support Departments:
Oil and Gas Transport Sector
There are indications that the demand for oil will increase, which in turn will affect the increasing demand for VLCCs. The Company expects higher demand for its vessels in light of the interim arrangements to operate the VLCCs currently owned by Bahri as part of Saudi Aramco’s oil transport program. These arrangements shall take effect starting January 1, 2013 and will continue until the long-term shipping contract comes into force in accordance with the terms of the merger agreements. The demand for the Company’s VLCCs is also expected to increase due to the limited quantity of new ships in the market and the phase-out of old ships owned by competitors. Sources indicate that the Indian, Chinese, and US markets in particular are the largest and the most important in terms of demand for VLCCs. There are other important factors not to be overlooked, such as bunker fuel prices, freight rates, new laws and legislations governing the oil shipping business, and natural and other unpredictable factors.
The oil and gas division contributes significantly to the Company’s profits. It is the largest division, and performs the transportation of crude oil through a fleet of 17 VLCCs owned by the Company, 15 of which are operated in the spot market and the other two on time charter. Each vessel has the capacity to carry approximately 2.2 million barrels, with a dead weight of about 300,000 tons. By owning this fleet, the Company is now ranked among the top eight VLCC owners in the world. During the first six months of 2012, VLCC markets benefited from higher freight rates due to the increase in demand for oil. This increased demand also resulted in long distance oil transportation, especially from West Africa and South America to East Asia, and therefore increased KSA’s oil exports. However, in the second half of 2012 the freight rates slipped due to the introduction of new tankers which increased the tonnage in the market. Given the instability of oil markets around the world, which affects time charter contracts, the Company has concentrated its business in the spot market and refrained from committing to too long or short time charter periods until the freight rates improve.
Number of voyages performed by the VLCCs during 2012 in comparison with 2011
2012
2011
Type of Operation
Number of Voyages Number of VLCCs
Number of Voyages Number of VLCCs
VLCCs operating in the spot market
86
15
79
13
VLCCs operating on time charter agreements
14
2
28
4
Total
100
17
107
17
Major Routes of the VLCCs Around the World
Shipping line trajectory
2012
2011
Arabian Gulf / Far East
23%
45%
Arabian Gulf / U.S.A.
41%
30%
South America / West Africa - East Asia
36%
25%
26
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