Building vs. Purchasing Jones Act Suezmax Tanker

Jones Act tanker vessels aren’t sold often—especially on a charter-free basis—so it’s worth looking at the numbers behind Overseas Shipholding Group's recent purchase and planned reactivation of the 2004-built + Jones Act qualified Suezmax tanker called the Alaskan Frontier.

A question to examine: how much would a newbuilding Jones Act Suezmax tanker cost? According to my estimates, $250MM.

· Last October, the Alaskan Frontier sold for $20MM (close to scrap/recycling value) after having been in cold lay-up for 3 years.

· OSG stated they will put an additional $30MM into the vessel to get her back in shape for Jones Act operation.

· $20MM sale price + $30MM maintenance investment = $50MM value for a 20-year-old Jones Act Suezmax tanker.

· If we then assume a tanker has a 25-year useful life, as OSG does in its financial reporting, that means that a newbuilding Jones Act tanker would cost $250MM.

The catch: getting a slot at a US shipyard to build the vessel. The two dominant Jones Act tanker builders Philly Shipyard, Inc. and General Dynamics NASSCO are likely booked through 2028…