Rough Seas for Nordic American

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Across the universe of oil companies reporting this quarter, we've seen a sequential improvement as prices have strengthened. Total SA (NYSE: TOT) tallied a 14% sequential improvement in income, and BP (NYSE: BP) managed an upside surprise. With more spring in the oil market's step, you'd expect the tanker companies to have turned around as well, no?

No.
The oil tanker market marches to a slightly different beat. It's not the price of oil that drives results, but the volumes of oil being shuttled around the globe -- that, and the tightness of the tanker fleet. Unfortunately for Nordic American Tanker (NYSE: NAT), oil demand is depressed and the global tanker fleet is growing. I outlined these issues back in April, and not much has changed since.

In the third quarter, spot Suezmax tanker rates averaged an abysmal $13,000 per day. To give you some context, daily rates were over $40,000 in the fourth quarter of 2008. Frontline (NYSE: FRO) says that tanker rates have been below operating costs since July. Other tanker companies have a higher breakeven rate than Nordic American, which has no debt to service, but even this company can't make money at $13,000 per day. The company reported a loss of $0.28 per share, the largest in its history.

As a result, Nordic American dropped its dividend to $0.10 per share, compared to $0.50 last quarter and $1.61 in the comparable period last year. These are uncharted waters for most holders of Nordic American stock, accustomed as they are to pulling in 10% or better annual payouts.

Maintaining its dividend when money isn't coming in the front door would be a terrible mistake, however. It's good to see Nordic American sticking with its usual policy of paying a variable dividend without relying on debt. This wards off the specter of insolvency, whereas other shippers like B+H Ocean Carriers, TOP Ships, and the ever-so-scary DryShips (Nasdaq: DRYS) have scrambled to secure covenant waivers from their lenders.