The Netherlands: Fairstar Announces 2010 4Q Results and Fleet Utilization Update

Fairstar Heavy Transport NV (FAIR) announced today an EBITDA loss of USD 2.7 million for the Fourth Quarter of 2010.

Fleet utilization of FJORD and FJELL for the quarter was 32%, the lowest level ever experienced by Fairstar since the FJORD and FJELL went into service in 2008 and 2009 respectively. The disappointing operating results were offset by a significant increase in cash liquidity of over USD 29 million. The balance sheet was further enhanced by raising USD 12.3 million in additional equity in November of 2010.

The Fairstar new build semi-submersible, open stern, 50,000DWT vessels FORTE and FINESSE are fully financed and will be delivered by Guangzhou Shipbuilding International (GSI) in the Second and Fourth Quarters of 2012.

Earlier this month, Fairstar has signed a Letter of Intent to provide a total land and marine logistics solution to transport 115 modules as well as related equipment from the Agrium Kenai Nitrogen Operations, comprising Plants 4, 5, and 6, from Kenai, Alaska to Ossiomo, Nigeria. Under the terms of the LOI, Fairstar will be responsible for the interface management of the land transportation in Alaska with Mammoet as well as the land transportation interface in Nigeria with Premier Logistics. The Marine Transportation Contract, expected to be finalized in March, has an approximate value of USD 25 million and will require both the FJORD and FJELL to mobilize to Alaska in early July in order to facilitate the loading of the modules for transport to Nigeria.

Once FJORD has discharged its modules in Nigeria, it will immediately proceed to Angola where it is contracted to load FPSO components for the DSME CLOV FPSO Project and sail with this cargo to the DSME Yard in Okpo, Korea. Subsequent to the DSME contract, FJORD will sail to either the Hyundai Yard in Korea or another site designated by the Kellogg Joint Venture – Gorgon to pick up the first of its multiple voyage modules for transport to the Gorgon LNG facility on Barrow Island, Australia.

FJORD is now scheduled to be fully utilized for a period of approximately two years from July 2011 at day rates averaging throughout the period of over USD 80,000. The FJELL is also scheduled to arrive in Kenai, Alaska in early July and will sail to Nigeria shortly after the FJORD has departed. FJELL will discharge its cargo in Nigeria sometime in December 2011. Because of the need to use both FJORD and FJELL for this project, Fairstar has declined the request to cut the transportation rate previously agreed for the return of the JB 115 from Melbourne to Rotterdam.

The rate suggested to Fairstar by the client holding the return option was very close to break even and would have positioned the FJELL back in Rotterdam causing an unattractive increase in the mobilization costs involved in sailing to Alaska. The total transportation solution provided by Fairstar from Alaska to Nigeria is the first of its kind in the Marine Heavy Transport Industry. The complexity of combining the land transportation provided by Mammoet and Premier Logistics with the marine transportation interfaces is a reflection of Fairstar’s growing reputation as a skilled project manager able to combine the proper ships with the necessary imagination required to successfully execute a “door to door” logistics solution.

The FORTE will join the FJORD in service on Gorgon immediately upon delivery by GSI in April 2012 and is expected to be under contract for at least 18 months from the delivery date. There has been a significant increase in Tender activity for energy infrastructure projects both on-shore and off-shore in recent months.

Fairstar has offered FJELL (image) and FINESSE for projects in 2012 and 2013. FJORD and FORTE are under consideration for multi voyage contracts in 2014 and 2015.

“In summary, Fairstar is highly optimistic about the future of marine heavy transport services for major energy and construction infrastructure projects. We anticipate a future shortage of modern, open stern, semi-submersible, asbestos free vessels. We intend to invest in the experienced crews required to operate them. We foresee the increasing, environmental, safety and technical demands expected by owners and sponsors of multi-billion dollar energy projects. We are certain these developments will continue to raise the barriers of entry into this market segment, allowing Fairstar to maintain our sustainable competitive advantage and the related inherent pricing power. Fairstar re-affirms its guidance of 80% full fleet utilization as well as T/C rates averaging USD 80,000 per day from July of 2011 throughout the 2014 financial year.”

Philip Adkins, Chief Executive of Fairstar, summed up the current market and the future of Fairstar as follows: “Early in 2010 the Fairstar Board of Directors, working closely with the Management Team, undertook a careful examination of the current and future markets for marine heavy transportation. We saw an industry with high fixed capital costs, excessive leverage, ageing ships, over capacity and a reliance on third party low cost “rent-a-crews”. We also saw an opportunity in the Gorgon Tender Process to transform Fairstar and change the entire industry. Our vision is now beginning to show signs of great promise for all our stakeholders. A year from now, Fairstar will be on the cusp of owning and operating a fleet of the newest, open stern, semi-submersible ships available. These ships will be manned by some of the most experienced crews in the industry and Fairstar will continue to be led by a management team fiercely determined to create and preserve sustainable long term value for all our stakeholders. Leadership in our industry will not be determined by size”

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Source:Fairstar, February  10, 2011;