Overseas Shipholding Group Reports Third Quarter 2010 Results

  


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2 Nov 2010

osg_corp.jpgOverseas Shipholding Group, Inc. a market leader in providing energy transportation services, yesterday reported results for the third quarter and nine months ended September 30, 2010. For the quarter ended September



30, 2010, the Company reported TCE1 revenues of $208.6 million, a
marginal increase from $207.3 million in the third quarter of 2009.
Quarter-over-quarter TCE revenues were impacted by the mix of spot and
time charter voyages. Sixty-three percent of the Company’s TCE revenues
were derived from spot earnings in the third quarter of 2010 compared
with 43% in the year ago period. Net loss attributable to the Company
(Loss2) for the quarter ended September 30, 2010 was $31.8 million, or
$1.06 per diluted share, compared with a Loss of $19.6 million, or
$0.73 per diluted share, in the same period a year ago. Adjusted for
special items, third quarter Loss was $26.8 million, or $0.89 per
diluted share, compared with a Loss in the third quarter of 2009 of
$26.3 million, or $0.98 per diluted share. Details on special items are
provided later in this press release.

Morten Arntzen, President
and CEO of OSG stated, “Our financial results reflect the continuing
challenges facing the global tanker industry in 2010. Although world
oil demand is recovering from the trough of 2009, high levels of vessel
deliveries, sluggish ton-mile growth and modest North America oil
demand have negatively impacted our results. In this difficult spot
market, we are focused on strengthening our businesses and taking all
measures within our control that enhance our long-term prospects. We
continue to improve and execute our newbuilding and conversion program
and took delivery of Overseas Anacortes which began a three-year
charter to Tesoro at an attractive level. We completed another round of
restructuring our Products newbuilding contracts resulting in a win for
OSG. The FSO Africa commenced a three-year service contract, which will
significantly improve the results on this vessel in the fourth quarter
and beyond. I am pleased that we continue to control expenses both
ashore and at sea without diminishing the quality of service to our
customers or the technical performance of our fleet.”

Arntzen
concluded, “The pace of the global economic recovery remains uncertain,
thus continued financial discipline is critical. I am confident that
our market-leading commercial and technical platforms in Crude,
Products and U.S. Flag, combined with our strong balance sheet and
liquidity position, will enable OSG to emerge at the head of the pack
when our markets recover.”

TCE revenues for the crude oil segment
were $95.3 million, a 5% decrease from $99.8 million in the same period
a year ago. The decline was predominantly due to a shift in the mix of
spot and fixed charters in the comparable periods. While VLCC spot
rates increased in the quarter-over-quarter period, rates for synthetic
time charters, which represented 7% of revenue days in the third
quarter of 2010 compared with 67% in the same period a year ago,
declined significantly quarter-over-quarter. In addition, crude oil TCE
revenues declined due to substantial idle time for two double sided
Aframaxes in the international flag lightering business and a decline
of 226 revenue days. Products TCE revenues increased 4% to $47.9
million from $46.0 million in the same period a year ago. The increase
in Products TCE revenues reflected an increase in 579 revenue days in
the MR class, partially offset by the impact of two LR1s that were out
of service undergoing repairs. U.S. Flag TCE revenues increased 3% to
$61.3 million from $59.5 million, principally due to the delivery of
four vessels to the U.S. Flag fleet since June 2009, partially offset
by the sale of two older vessels and an increase of vessels in layup.
There were five U.S. Flag vessels in layup for a total of 460 days in
the third quarter of 2010.

For the nine months ended September 30,
2010, the Company reported TCE revenues of $670.1 million, a 10%
decrease from $748.5 million in 2009. During the first nine months of
2010, approximately 65% of the Company’s TCE revenues were derived from
spot earnings compared with 50% in the first nine months of 2009. Loss
for the first nine months of 2010 was $79.0 million, or $2.71 per
diluted share, compared with Earnings of $93.3 million, or $3.47 per
diluted share, a year ago. Adjusted for special items, the Loss in the
first nine months of fiscal 2010 was $39.4 million, or $1.36 per
diluted share, compared with Loss of $7.2 million, or $0.27 per diluted
share, in the same period a year earlier.

Select Quarterly Income Statement Detail

Vessel
expenses were $64.0 million, a 4% decrease from $66.7 million in the
same period a year ago. The decline is principally attributable to
lower crew costs, timing of delivery of lubricating oils and reduced
expenses for stores and spares and repairs in the crude and products
fleets in the current period;

General and administrative expenses
were $25.1 million, an 11% decrease from $28.3 million in the same
period a year ago. The decline reflects ongoing expense reduction
efforts companywide. In addition, the 2009 period included $1.7 million
of costs associated with the tender offer for the publicly traded units
of OSG America L.P. that was completed in the fourth quarter last year;
and

Equity in results of affiliated companies was a loss of
$165,000. The loss reflects the impact of floating-to-fixed interest
rate swap agreements associated with the FSO Africa debt that were
de-designated as hedges as of March 31, 2010 and are therefore
marked-to-market through earnings, and costs associated with the FSO
Africa prior to commencement of its service contract on August 30,
2010. The Company’s share of the mark-to-market loss on the FSO Africa
swaps during the quarter was $3.0 million and totaled $11.5 million for
the nine months ended September 30, 2010.

Special Items

Special
items that affected reported results in the third quarter of 2010
increased the quarterly Loss by an aggregate of $4.9 million, or $0.17
per share. A detailed schedule of these special items for the three and
nine months ended September 30, 2010 and 2009 is posted in Webcasts and
Presentations in the Investor Relations section of www.osg.com.

$1.7 million, or $0.06 per diluted share, associated with loss on vessel sales and other assets;

$3.0 million, or $0.10 per diluted share, related to the mark-to-market loss on interest rate swaps on the FSO Africa; and

$0.3 million, or $0.01 per diluted share, associated with the mark-to-market loss on available for sale marketable securities.

Liquidity and Other Financial Metrics

Cash
and cash equivalents, and short-term investments totaled $351 million
as of September 30, 2010, a decrease from $525 million at year end.
Uses of cash during the period included payments for vessels under
construction, cash contributed to the FSO Joint Venture in connection
with the conversion of the FSO Africa and collateral posted in
connection with the FSO Joint Venture debt facility;

Total debt was $1.86 billion, up slightly from $1.85 billion as of December 31, 2009;

Liquidity3,
including undrawn bank facilities, was approximately $1.5 billion and
liquidity-adjusted debt to capital4 was 44.2%, up from 40.1% as of
December 31, 2009. The increase in the ratio from December 31, 2009
reflects a $46.7 million increase in the unrealized loss on interest
rate swaps included in Equity;

On July 1, 2010, the Company
prepaid $42.2 million of secured term loans due through 2014 with an
average interest rate of 6%. As of September 30, 2010, 32.5% of the net
book value of the Company’s vessels were pledged as collateral; and

Construction
contract commitments were $370 million, a decrease of $152 million from
$522 million as of December 31, 2009. The $370 million as of September
30, 2010 is before the $5 million increase discussed below in Segment
Activity – Products.

Segment Activity

Crude Oil

On August
19, 2010, OSG signed a new service agreement with Maersk Oil Qatar AS
(MOQ) for the FSO Africa, a floating storage and offloading (FSO)
service vessel. The duration of the contract is for three years and
commenced on August 30, 2010. The rate consists of a base rate, which
will increase if and when more capacity and features of the FSO are
used by MOQ. The FSO Africa is jointly owned by OSG and Euronav N.V.
(Euronext Brussels: EURN);

A new pool partner joined the Company’s
Aframax International (AI) commercial pool during the quarter. The Dr.
Peters Group entered one vessel in the third quarter and is expected to
add one additional vessel in the fourth quarter of 2010. Forty-seven
vessels currently operate in the AI pool, which trades predominantly in
the Atlantic Basin; and

The Action, a time chartered-in Aframax redelivered on October 24, 2010.

Products

OSG
has actively managed its products orderbook over the past 18 months by
negotiating price reductions, vessel swaps and modified delivery dates.


On August 17, 2010, the Overseas Kythnos delivered. The 50,284 dwt
MR product carrier was bareboat chartered-in for five years. On October
26, OSG purchased the vessel and cancelled the bareboat charter-in
commitment. The vessel is part of the Company’s core fleet of
medium-range product carriers that trade predominantly in the Atlantic
Basin;

In October 2010, OSG finalized amendments to certain
construction contracts, the result of which was to replace contracts
for two LR1s with scheduled delivery dates in 2011 with two crude
Aframaxes slated to deliver in 2013. These amendments increase the
Company’s remaining construction commitments by less than $5 million;
and

Two new pool partners joined the Company’s Clean Products
International (CPI) commercial pool in the period. Koenig & Cie
joined the pool by adding one vessel in the third quarter. Mitsui
O.S.K. entered one vessel in the third quarter and is expected to add
one additional vessel in the fourth quarter of 2010. As of September
30, 2010, the CPI pool totals 14 operating vessels with the expectation
of reaching 15 vessels by year end. The CPI pool is focused on Atlantic
Basin trades.

U.S. Flag

On August 31, 2010, Overseas Anacortes
delivered. The vessel, a 46,656 dwt U.S. Flag Jones Act product
carrier, is bareboat chartered-in for five years and the Company has
extension options for the life of the vessel. The vessel has been
chartered-out to Tesoro for three years;

On July 1, 2010 and August 18, 2010, Overseas Philadelphia and Overseas Diligence were sold, respectively.

As
of September 30, 2010, five U.S. Flag vessels remain in layup,
including Overseas Galena Bay, which is classified as held for sale on
the Company’s balance sheet as of September 30, 2010 and expected to be
sold in the fourth quarter of 2010.





Source: OSG Ship Management, Inc.

Sources:  www.Shipid.com

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