Oil Tankers: Short on Supply, Long on Profits

Even as crude oil prices appear to have topped this month, it's important to realize that these high rates are being locked in for half a decade. A great many tankers are owned by the big oil companies such as Saudi Aramco and ConocoPhillips(COP Quote). Increasingly, however, more are leased on one- to five-year charters or picked up on the spot market for one-way or round-trip runs. That gets a big capital expense off the oil companies' books, not to mention liability in the event of a spill. The folks behind the leasing are typically powerful private trading firms such as Glencore International of Switzerland or Vitol of the Netherlands -- which might each have 175 ships under lease at any given time -- or major oil companies such as Exxon Mobil(XOM Quote) or ChevronTexaco(CVX Quote).

Most oil-tanker companies are still privately held and are based either in the Scandinavian countries or in Greece. Several have made spectacular public debuts in the past year, however, and I spoke to the chief executive of one of them last Thursday: Evangelos Pistiolis of Top Tankers(TOPT Quote).

Pistiolis is the fourth shipping company CEO with whom I've spoken, and they are all cut from the same cloth: Upper-crust British accents, Continental engineering degrees, smooth Mediterranean temperaments, rich families and homes in some sunny port along the coast of Greece. Life is good for the shipping magnates, and fortunately, the same can be said for their shareholders.

It's not just their growth, which has been outstanding. It's that most of the tanker companies have such powerful cash flow that they are able to throw off huge quarterly dividends. Frontline(FRO Quote) and Nordic American Tanker(NAT Quote), which are based in Bermuda, yield the most at 19.7% and 13.5%. Top Tankers yields 4.5%; when it went public, the dividend yield was 8%. Meanwhile, competitor Tsakos Energy Navigation(TNP Quote) also yields 4.5%.