Bermuda-based Nordic American Tankers Ltd. yesterday boosted its earnings capacity with the delivery of its latest tanker, named Nordic Sprite.

The debt-free oil tanker operator has now expanded its fleet to 15 Suezmax tankers — so called because they are the largest-sized ships that can negotiate the Suez Canal — including two newly build vessels, expected to be delivered in December 2009 and April 2010.

In the midst of the global economic crisis, NAT continues to make a profit and pay out attractive dividends to shareholders. The company has a policy of paying out all of a quarter's free cash flow as dividends — last week NAT announced a dividend of 87 cents per share for the fourth quarter.

With the shares trading at around $28.20 a share yesterday, that amounts to an annualised dividend yield of more than 12 percent.

Rates remain healthy in NAT's business of hiring out tankers, even though the price of crude oil has plummeted from $147 a barrel last July to around $35 yesterday.

NAT said the average daily hire rate for each of its vessels in the spot oil market was $40,157 net. The company estimates its break-even price is less than $10,000.

The fourth-quarter rates were much higher than the $27,000 average NAT achieved in the same period for the prior year, despite the dramatic fall in the price of oil and the slump in demand.

What has helped to buoy rates is oil companies and commodity traders hiring out oil tankers to use for storage, because of the large differential between today's lowly oil price and that purchased for delivery a few months later.

For example, at 2.46 p.m. yesterday afternoon, light, sweet crude oil for March delivery was trading at $35.09 a barrel on the Nymex Exchange in New York, while contracts for December 2009 delivery were selling for $47 a barrel.

Royal Dutch Shell and Citigroup are among the companies who have hired tankers to take advantage of the market in a practice known as "contango". That has tied up a significant amount of tanker capacity, which has decreased the availability of vessels to actually transport oil, thereby boosting rates.

NAT said in its earnings statement last week that it believes approximately 35 very large crude carriers (VLCCs) are being used for storage now.

How long tanker rates can remain high is debatable, particularly with the global downturn keeping demand low, inventories growing in the US, the world's biggest oil consumer, and the Organisation of Petroleum Exporting Countries likely to make further production cuts.

NAT chief executive officer Herbjorn Hansson told business TV channel CNBC last week: "There may be muddy waters in the near term, but rates are excellent."

Yesterday, Goldman Sachs downgraded Bermuda-based Frontline, which is the world's largest owner of supertankers, to "sell" from "neutral", citing a weaker-than-average balance sheet and a likely drop in hire rates.

There will likely be a "sharp decline" in rental rates in the second quarter as ships stop storing oil at sea and Opec cuts output, analysts led by Hugo Scott-Gall in London wrote in a note.

The shares were added to the bank's "conviction sell" list, having previously been rated "neutral". The stock fell by around five percent in Oslo trading.

NAT's debt-free status means it has a clean balance sheet. It has a history of selling shares to raise capital in order to add to its fleet, instead of borrowing money, since it started with its first three tankers in 1997.

While it could be argued this has had the effect of diluting the value of shares for existing shareholders, the tanker acquisitions have added to earnings capacity, as well as dividends. The strategy is paying off handsomely during the ongoing credit crunch, with companies finding it difficult to borrow money.

NAT said last week it had gained $107 million in cash on January 15 this year from a follow-on share offering and also boasts an untapped $500 million credit facility.

According to a report by Morgan Stanley, published last week, the company offers a "safe harbour in a choppy tanker market".

"NAT is holding all the cards now, in our view and should greatly strengthen its relative position in a down market," the report stated.