HIGHLIGHTS
-- Net income for the second quarter of fiscal 2006 was $60.2
million on Time Charter Equivalent (TCE(1)) revenues of $216.3
million
-- Diluted EPS of $1.52 per share reflects a loss on the sale of
vessels of $3.5 million or $0.07 per diluted share
-- Cash and tax-effected Capital Construction Fund totaled $347.5
million
-- Total debt declined 20% from December 31, 2005 to $770.2 million
-- Liquidity adjusted debt to capital was 17.0% versus 24.5% at
December 31, 2005
-- $30 million of high yield debt repurchased
-- Two Product Carrier and two Aframax tanker charter-in commitments
were announced during the quarter
-- Board of Directors authorized share repurchase program of $300
million in June
NEW YORK, Aug. 8, 2006 (PRIMEZONE) -- Overseas Shipholding Group, Inc. (NYSE:OSG), a market leader in providing energy transportation services, today reported results for the second fiscal quarter of 2006.
For the quarter ended June 30, 2006, net income was $60.2 million, down 47% from $114.2 million in the same period a year earlier. Diluted earnings per share were $1.52, compared with $2.89 per share in the second quarter of 2005. The year ago quarter benefited from gains on vessel sales of $13.2 million, or $0.32 per share, compared with a loss of $3.5 million, or $0.07 per share, in the current quarter. EBITDA for the second quarter declined 38% to $109.1 million from $176.3 million in the second quarter of 2005. TCE revenues in the quarter decreased by 5% to $216.3 million from $228.6 million in the second quarter of 2005. See Appendix 1 for a reconciliation of TCE revenues to shipping revenues and Appendix 2 for a reconciliation of EBITDA to net income.
For the six months ended June 30, 2006, the Company reported net income of $188.6 million, or $4.76 per share, a 32% decline from net income of $279.1 million, or $7.06 per diluted share, recorded in the first half of 2005. Net income for the first half of 2005 benefited from gains on ship disposals of $26.1 million, or $0.65 per share, compared with a loss of $3.6 million, or $0.07 per share, for the same period in fiscal 2006. EBITDA for the first six months of 2006 was $289.2 million, a 28% decrease from $399.7 million in the first half of 2005. TCE revenues for the six months of 2006 increased less than 1% to $496.4 million from $495.8 million in the first half of 2005.
Morten Arntzen, President and Chief Executive Officer, stated, "It was another quarter of strong performance in each of our sectors. In what is generally a seasonally weak quarter, our crude oil tanker fleet, which is entirely double hull, continued to benefit from the tanker market's greater discrimination against single hull tankers and from the tight oil markets across the globe. During the same period, we continued to produce steady results from our Product and U.S. segments, while also building a bigger book of longer term time charters." Mr. Arntzen continued, "We continue to generate strong cash flow, have nearly $350 million in cash and tax-effected Capital Construction Fund and $1.8 billion of credit, all available for future growth initiatives and our stock buyback program."
(1) See Appendix 1 for reconciliation to shipping revenues.
TCE revenues in the second quarter of 2006 for the Crude oil tanker segment were $145.6 million, a decrease of 1% quarter-over-quarter, principally due to a decrease in TCE rates earned and revenue days for Aframaxes, partially offset by increases in daily TCE rates earned on Panamaxes and VLCCs and in revenue days for VLCCs. TCE revenues for the Product Carrier segment were $49.3 million, a decrease of 7% from the year earlier period, principally as a result of profit sharing recognized on two clean Panamaxes in the 2005 period, partially offset by an increase in the average daily TCE rates earned by the Handysize Product Carriers. U.S. segment revenues were down 29% quarter-over-quarter to $15.1 million, as a result of a decrease in revenue days due to the sale of three crude oil tankers in 2005.
For the quarter ended June 30, 2006, total ship operating expenses increased $46.3 million from the corresponding quarter in 2005 to $168.8 million. The increase in vessel expenses of $9.6 million was principally attributable to increases in crew and environmental costs, the timing of certain purchases, repair costs on certain Panamax crude tankers and Handysize Product Carriers as well as costs incurred on three reflagged vessels that participate in the U.S. Maritime Security Program. The increase in time and bareboat charter expenses of $12.0 million resulted principally from the sale and charter back of 13 vessels. General and administrative expenses increased $7.6 million to $23.1 million principally due to an increase in compensation, including the recognition of targeted cash incentive compensation on a quarterly basis, expenses incurred in connection with an investigation by the U.S. Department of Justice and increases in legal, accounting and consulting services. In addition, lower earnings from asset sales accounted for an increase in quarter-over-quarter ship operating expenses of $16.7 million.
RECENT ACTIVITIES AND QUARTERLY HIGHLIGHTS
-- On August 7, 2006 OSG announced a strategic partnership with
TransCanada (NYSE, TSX: TRP) to commercialize a new technology
for compressed natural gas marine transportation. Based on an
entirely new design and using a patented technology, OSG will own
and operate vessels that will transport CNG from stranded gas
fields throughout the world.
-- On June 9, 2006, the Board of Directors authorized the repurchase
of up to $300 million worth of the Company's common stock. The
specific timing and amount of share repurchases will vary based
on market conditions, securities law limitations and other
factors. There have been no purchases under the program through
today's date.
-- During the quarter, the Company repurchased principal amounts of
$23.9 million of its 8.25% notes and $6.7 million of its 8.75%
debentures that are due in 2013.
-- In connection with the Company's capital-efficient fleet
expansion program, on June 16, OSG agreed to charter-in two
product carriers from subsidiaries of Cido Tanker Holding Co. The
tankers will be built at the Hyundai Mipo Dockyard in
South Korea and are scheduled to be delivered to OSG in April
and July 2009.
-- Future revenues associated with time charters as of June 30,
excluding the Gas segment, totaled $826.8 million. This amount
represented 30,978 revenue days, up from $746.1 million as of
December 31, 2005.
-- On July 13, 2006, the Company sold the Pacific Sapphire, a
1994-built Aframax tanker, and will recognize a gain of
approximately $14.0 million in the third quarter of 2006.
Proceeds from the sale were $40.4 million.
-- In June, the Board declared a $0.25 per share dividend to
shareholders of record on August 8, 2006.
FLEET METRICS AND STATISTICS
-- As of June 30, 2006, OSG had an operating fleet of 91
International Flag and U.S. Flag vessels. Fifty-five percent, or
50 vessels, were owned, compared with 66%, or 63 vessels, as of
June 30, 2005.
-- Revenue days in the quarter totaled 7,533, a decrease of 5% over
the same period a year earlier, principally due to the sale of
older tankers.
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------
Revenue Days 2006 2005 2006 2005
---------------------------------------------------------------------
Crude Tankers 4,108 4,183 8,020 8,024
Product Carriers 2,625 2,663 5,225 4,919
U.S. 618 907 1,134 1,763
Other 182 181 362 361
------------------------------------------------
7,533 7,934 14,741 15,067
-- OSG's newbuild program of chartered-in and owned vessels totals
26 and spans all lines of business: four International Flag
Aframax tankers, eight International Flag product carriers, 10
Jones Act product carriers (collectively representing 1.3 million
deadweight tons), and four LNG carriers, (representing 864,800
cubic meters). Detailed updates on most vessels under
construction can be found in the Newbuild Program in the Fleet
section of www.osg.com.
-- At the Aker Philadelphia Shipyard, the steel structure of
U.S. Flag product carrier Hull 005 is nearing completion and
the deckhouse and engine stack were recently lifted into
position atop the deck. The tanker is expected to be
completed during the fourth quarter of 2006. Construction is
underway for Hull 006 and Hull 007, which are scheduled for
delivery in the second and fourth quarters, respectively, of
2007.
-- At the Samsung Heavy Industries shipyard in South Korea, the
steel structure of the engine room and two cargo holds of
LNG carrier Hull 1605 are largely completed and in the
drydock. The keel was laid for Hull 1606 on July 3, 2006.
Deliveries are slated for the third and fourth quarters of
2007.
-- At the Hyundai Heavy Industries shipyard in South Korea,
approximately 60% of steel cutting and 20% of block assembly
is complete for LNG carrier Hull 1791. On Hull 1792, steel
cutting commenced on June 9th and block assembly is
progressing. Deliveries are slated for the fourth quarter of
2007 and the first quarter of 2008, respectively.
FINANCIAL PROFILE
During 2006, shareholders' equity increased by $182.5 million to $2.1 billion and liquidity, including undrawn bank facilities, increased to more than $2.14 billion. Total long-term debt as of June 30, 2006 was $770.2 million compared with $965.7 million at December 31, 2005. Liquidity adjusted debt to capital was 17.0% as of June 30, 2006, an improvement from 24.5% as of December 31, 2005.
AVERAGE TCE RATES ACHIEVED
The following table shows time charter equivalent revenues per day and revenue days (defined as ship operating days less lay-up, repair and drydock days) for the Company's International Flag fleet for the three and six months ended June 30, 2006 compared with the same periods of 2005.
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
Trade - Crude Oil
---------------------------------------------------------------------
VLCC
Average TCE Rate(a)(b) $49,036 $48,881 $63,843 $65,466
Number of Revenue Days 1,633 1,534 3,265 3,006
Aframax
Average TCE Rate(a) $26,729 $29,891 $32,184 $33,605
Number of Revenue Days 1,479 1,561 2,841 3,084
Panamax
Average TCE Rate(a) $26,048 $23,819 $27,566 $25,364
Number of Revenue Days 996 999 1,914 1,766
---------------------------------------------------------------------
Trade - Refined Petroleum
Products
---------------------------------------------------------------------
Panamax
Average TCE Rate(a) $19,531 $57,863 $22,104 $34,340
Number of Revenue Days 179 182 359 410
Handysize
Average TCE Rate(a)(b) $18,742 $17,186 $19,578 $17,431
Number of Revenue Days 2,446 2,481 4,866 4,509
(a) Includes vessels operating on voyage charters and period
charters.
(b) Includes the effect of forward freight agreements, which are used
to create synthetic time charters.
SPOT AND TIME CHARTER TCE RATES ACHIEVED
The following table provides a breakdown of TCE rates achieved for the second quarters of 2006 and 2005 between spot and time charter rates. The information for VLCCs, Aframaxes and Panamaxes is based, in part, on information provided by the pools or commercial joint ventures in which they participate.
Three Months Ended Three Months Ended
June 30, 2006 June 30, 2005
----------------------------------------
Spot Time Spot Time
Charter Charter Charter Charter
---------------------------------------------------------------------
Trade - Crude Oil
---------------------------------------------------------------------
VLCC
Average TCE Rate $49,036 -- $48,881 --
Number of Revenue Days 1,633 -- 1,534 --
Aframax
Average TCE Rate $26,468 $27,590 $32,234 $24,800
Number of Revenue Days 1,142 337 1,069 492
Panamax
Average TCE Rate $26,224 $25,895 $28,938 $19,572
Number of Revenue Days 450 546 453 546
---------------------------------------------------------------------
Trade - Refined Petroleum
Products
---------------------------------------------------------------------
Panamax
Average TCE Rate -- $19,531 -- $57,863
Number of Revenue Days -- 179 -- 182
Handysize
Average TCE Rate $24,462 $17,871 $27,351 $16,235
Number of Revenue Days 643 1,803 290 2,191
---------------------------------------------------------------------
2006 TCE RATES
The Company has achieved the following average estimated TCE rates for the percentage of days booked for vessels operating through July 28, 2006. The information for the VLCCs, Aframaxes and Panamaxes is based, in part, on information provided by the pools or commercial joint ventures in which they participate. All numbers provided are estimates and may be adjusted for a number of reasons, including the timing of any vessel acquisitions or disposals and the timing and length of drydocks and repairs.
Third Quarter Revenue Days
-------------------------------
Vessel Class and Average Fixed Open
Charter Type TCE as of as of % Days
Rates 7/28/06 7/28/06 Total Booked
---------------------------------------------------------------------
Trade - Crude Oil
---------------------------------------------------------------------
VLCC - Spot $64,500 946 604 1,550 61%
Aframax - Spot $36,000 466 568 1,034 45%
Aframax - Time $29,000 330 -- 330 100%
---------------------------------------------------------------------
Panamax - Spot $28,500 180 280 460 39%
Panamax - Time $25,000 552 -- 552 100%
---------------------------------------------------------------------
Trade - Refined
Petroleum Products
---------------------------------------------------------------------
Panamax - Time $19,000 184 -- 184 100%
Handysize - Spot $25,000 223 242 465 48%
Handysize - Time $18,000 2,062 -- 2,062 100%
---------------------------------------------------------------------
VLCC and V-Plus tankers trade in the Tankers International pool; Aframaxes
trade in the Aframax International pool and Panamaxes trade in the Panamax
International Shipping Company joint venture.
The following table shows average estimated time charter TCE rates and associated days booked and days open as of July 28, 2006, by quarter, for the fourth quarter of 2006.
Fixed Rates and
Revenue Days as Open Days
of 7/28/06 as of 7/28/06
----------------------------------
Q406 Q406
---------------------------------------------------------------------
Trade - Crude Oil
---------------------------------------------------------------------
VLCC
Average TCE Rate --
Number of Revenue Days -- 1,576
Aframax
Average TCE Rate $28,500
Number of Revenue Days 282 1,047
Panamax
Average TCE Rate $25,000
Number of Revenue Days 549 460
---------------------------------------------------------------------
Trade - Refined Petroleum Products
---------------------------------------------------------------------
Panamax
Average TCE Rate $19,000
Number of Revenue Days 184 --
Handysize
Average TCE Rate $18,000
Number of Revenue Days 2,069 676
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, Three Months Ended Six Months Ended
except per share --------------------- --------------------
amounts) June 30, June 30, June 30, June 30,
2006 2005 2006 2005
-------- -------- -------- --------
Shipping Revenues:
Pool revenues $133,002 $128,105 $326,107 $316,059
Time and bareboat
charter revenues 68,252 65,965 139,100 135,876
Voyage charter
revenues 29,499 44,314 56,572 61,856
-------- -------- -------- --------
Total Shipping
Revenues 230,753 238,384 521,779 513,791
-------- -------- -------- --------
Operating Expenses:
Voyage expenses 14,449 9,786 25,366 18,006
Vessel expenses 53,876 44,272 102,791 88,072
Time and bareboat
charter hire
expenses 38,056 26,022 81,227 51,823
Depreciation and
amortization 35,860 40,090 70,214 76,449
General and
administrative 23,070 15,516 47,081 31,537
Loss/(gain) on
disposal of vessels 3,498 (13,174) 3,619 (26,076)
-------- -------- -------- --------
Total Operating
Expenses 168,809 122,512 330,298 239,811
-------- -------- -------- --------
Income from Vessel
Operations 61,944 115,872 191,481 273,980
Equity in Income of
Affiliated
Companies 4,516 12,664 11,328 30,337
-------- -------- -------- --------
Operating Income 66,460 128,536 202,809 304,317
Other Income 6,794 7,671 16,186 18,894
-------- -------- -------- --------
73,254 136,207 218,995 323,211
Interest Expense 15,134 25,569 37,741 48,400
-------- -------- -------- --------
Income before
Federal Income
Taxes 58,120 110,638 181,254 274,811
Credit for Federal
Income Taxes (2,111) (3,523) (7,341) (4,269)
-------- -------- -------- --------
Net Income $ 60,231 $114,161 $188,595 $279,080
======== ======== ======== ========
Weighted Average Number of Common Shares Outstanding:
Basic 39,536,097 39,447,473 39,526,087 39,441,276
Diluted 39,590,687 39,512,839 39,580,119 39,505,969
Per Share Amounts:
Basic net income $1.52 $2.89 $4.77 $7.08
Diluted net income $1.52 $2.89 $4.76 $7.06
Cash dividends
declared $0.50 $0.35 $0.675 $0.525
2005 has been reclassified to conform with the 2006 presentation.
TCE REVENUE BY SEGMENT
The following table reflects TCE revenues generated by the Company's three reportable segments for the three and six months ended June 30, 2006 and 2005, respectively, and excludes the Company's proportionate share of TCE revenues of joint ventures. See Appendix 1 for reconciliations of Time Charter Equivalent revenues to Shipping Revenues.
Three Months Ended June 30,
------------------------------------------
($ in thousands) % of % of
2006 Total 2005 Total
---------------------------------------------------------------------
International Flag
Crude tankers $145,552 67.3 $147,164 64.4
Product carriers 49,340 22.8 53,169 23.3
Other 6,295 2.9 6,845 2.9
U.S. 15,117 7.0 21,420 9.4
---------------------------------------------
Total TCE Revenues $216,304 100.0 $228,598 100.0
Six Months Ended June 30,
---------------------------------------------
% of % of
($ in thousands) 2006 Total 2005 Total
---------------------------------------------------------------------
International Flag
Crude tankers $352,643 71.0 $348,811 70.4
Product carriers 103,202 20.8 92,675 18.7
Other 12,496 2.5 13,129 2.6
U.S. 28,072 5.7 41,170 8.3
---------------------------------------------
Total TCE Revenues $496,413 100.0 $495,785 100.0
INCOME FROM VESSEL OPERATIONS BY SEGMENT
The following table reflects income from vessel operations accounted for by each reportable segment. Income from vessel operations is before general and administrative expenses, gain/(loss) on disposal of vessels and the Company's share of income from joint ventures.
Three Months Ended June 30,
---------------------------------------------
% of % of
($ in thousands) 2006 Total 2005 Total
---------------------------------------------------------------------
International Flag
Crude tankers $74,277 83.9 $82,950 70.2
Product carriers 10,881 12.3 24,415 20.6
Other(a) 1,840 2.1 2,713 2.3
U.S. 1,514 1.7 8,136 6.9
---------------------------------------------
Total Income from
Vessel Operations $88,512 100.0 $118,214 100.0
=============================================
(a) Reflects reserves related to a Department of Justice
investigation and the settlement of certain crew benefits for the
six months ended June 30, 2005.
Six Months Ended June 30,
--------------------------------------------
% of % of
($ in thousands) 2006 Total 2005 Total
---------------------------------------------------------------------
International Flag
Crude tankers $204,052 84.3 $223,440 80.0
Product carriers 31,415 13.0 40,883 14.7
Other(a) 3,651 1.5 297 0.0
U.S. 3,063 1.2 14,821 5.3
---------------------------------------------
Total Income from
Vessel Operations $242,181 100.0 $279,441 100.0
=============================================
(a) Reflects reserves related to a Department of Justice
investigation and the settlement of certain crew benefits for the
six months ended June 30, 2005.
Reconciliations of income from vessel operations of the segments to income before federal income taxes as reported in the consolidated statements of operations follow:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------
($ in thousands) 2006 2005 2006 2005
---------------------------------------------------------------------
Total income from vessel
operations of all
segments $ 88,512 $118,214 $242,181 $279,441
General and administrative
expenses (23,070) (15,516) (47,081) (31,537)
(Loss)/gain on disposal
of vessels (3,498) 13,174 (3,619) 26,076
--------------------------------------
Consolidated income from
vessel operations 61,944 115,872 191,481 273,980
Equity in income of
affiliated companies 4,516 12,664 11,328 30,337
Other income 6,794 7,671 16,186 18,894
Interest expense (15,134) (25,569) (37,741) (48,400)
--------------------------------------
Income before
federal income
taxes $ 58,120 $110,638 $181,254 $274,811
======================================
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
($ in thousands) 2006 2005
---------- ----------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $177,295 $188,588
Voyage receivables 124,527 157,334
Other receivables 55,665 22,202
Inventories and prepaid expenses 24,824 16,763
---------- ----------
Total Current Assets 382,311 384,887
Capital Construction Fund 300,282 296,126
Vessels and other property 2,108,682 2,288,481
Vessels held for sale 124,873 --
Vessels under Capital Leases 34,325 36,267
Deferred drydock expenditures, net 35,540 19,805
---------- ----------
Total Vessels, Deferred Drydock
and Other Property 2,303,420 2,344,553
---------- ----------
Investments in Affiliated Companies 285,149 269,657
Other Assets 56,558 53,457
---------- ----------
Total Assets $3,327,720 $3,348,680
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable, sundry
liabilities and accrued expenses $125,797 $105,173
Short-term debt and current
installments of long-term debt 20,938 20,066
Current obligations under capital
leases 7,300 6,968
---------- ----------
Total Current Liabilities 154,035 132,207
Long-term Debt 732,159 923,612
Obligations under Capital Leases 38,072 42,043
Deferred Gain on Sale and Leaseback
of Vessels 211,929 233,456
Deferred Federal Income Taxes and
Other Liabilities 133,017 141,334
Shareholders' Equity 2,058,508 1,876,028
---------- ----------
Total Liabilities and
Shareholders' Equity $3,327,720 $3,348,680
========== ==========
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands) Six Months Ended
June 30,
--------------------
2006 2005
-------- --------
Cash Flows from Operating Activities:
Net income $188,595 $279,080
Items included in net income not
affecting cash flows:
Depreciation and amortization 70,214 76,449
Amortization of deferred gain on sale
and leasebacks (20,861) (1,526)
Deferred compensation relating to
restricted stock and stock option
grants 1,900 844
Deferred federal income tax credit (5,400) (2,317)
Undistributed earnings of affiliated
companies 7,045 (8,629)
Other - net 3,951 (3,784)
Items included in net income related to
investing and financing activities:
Gain on sale of securities - net (8,889) (12,203)
Loss/(gain) on disposal of vessels 3,619 (26,076)
Payments for drydocking (21,279) (7,592)
Changes in operating assets and
liabilities 18 (28,324)
-------- --------
Net cash provided by operating
activities 218,913 265,922
-------- --------
Cash Flows from Investing Activities:
Expenditures for vessels (5,394) (1,215)
Proceeds from disposal of vessels -- 337,027
Acquisition of interest in affiliated
company that owned four V-Pluses -- (69,145)
Acquisition of Stelmar Shipping Ltd -- (742,433)
Expenditures for other property (3,293) (6,368)
Investments in and advances to affiliated
companies -- (7,486)
Distributions from affiliated companies -- 20,660
Other - net (936) 15,562
-------- --------
Net cash (used in) investing
activities (9,623) (453,398)
-------- --------
Cash Flows from Financing Activities:
Issuance of debt, net of issuance costs 48,663 781,268
Payments on debt and obligations under
capital leases (242,889) (904,374)
Cash dividends paid (16,807) (13,805)
Issuance of common stock upon exercise of
stock options 215 156
Other - net (9,765) (333)
-------- --------
Net cash provided by/(used in)
financing activities (220,583) (137,088)
-------- --------
Net decrease in cash and cash equivalents (11,293) (324,564)
Cash and cash equivalents at beginning of
year 188,588 479,181
-------- --------
Cash and cash equivalents at end of period $177,295 $154,617
======== ========
2005 has been reclassified to conform with the 2006 presentation.
FLEET
On June 30, 2006, OSG was the second largest publicly traded oil tanker company in the world as measured by number of vessels. OSG's fleet of 117 vessels, (prior to the June 28, 2006 announcement of the Company's intent to sell three vessels), including newbuilds, aggregates 13.0 million deadweight tons and 865,000 cbm. Adjusted for OSG's participation interest in joint ventures and chartered-in vessels, the fleet totaled 108.85 vessels. For current fleet information, which is updated on a quarterly basis, refer to the Company's website at www.osg.com.
Vessels Vessels Total at
Owned Chartered-in June 30, 2006
------------------------------------------------
Total Vessels Total
Vessel Type No. WBO No. WBO Vessels WBO Dwt
---------------------------------------------------------------------
VLCC (including
V-Plus) 12 12 10 6.25 22 18.25 6,994,410
Aframax 9 9 10 7.60 19 16.60 1,968,408
Panamax 9 9 2 2.00 11 11.00 831,396
Summary
International
Flag
Crude
Tankers 30 30 22 15.85 52 45.85 9,794,214
Panamax 2 2 0 0 2 2.00 73,313
Handysize 12 12 13 13.00 25 25.00 1,074,834
Summary
International
Flag Product
Carriers 14 14 13 13.00 27 27.00 1,148,147
International
Flag Dry
Bulk Carriers 0 0 2 2.00 2 2.00 319,843
Total
International
Flag
Operating
Fleet 44 44 37 30.85 81 74.85 11,262,204
U.S. Flag
Operating
Fleet(a) 6 6 4 4.00 10 10.00 386,047
Total Operating
Fleet 50 50 41 34.85 91 84.85 11,648,251
Newbuild Fleet
International Flag
Aframax Crude
Tankers 4 4 0 0 4 4.00 456,000
Handysize Product
Carriers 0 0 8 8.00 8 8.00 392,000
U.S. Flag
Product
Carriers 0 0 10 10.00 10 10.00 460,000
Subtotal of
Crude Tankers,
Product
Carriers and
Dry Bulk
Carriers 54 54 59 52.85 113 106.85 12,956,251
Newbuild LNG
Carriers 4 2 0 0 4 2.00 864,800 cbm
Total Operating
and Newbuild
Fleet 58 56 59 52.85 117 108.85 --
WBO = Weighted by Ownership
(a) Includes three owned Product Carriers that trade internationally,
thus the associated revenue is included in the Product Carrier
segment.
Average Age of International Flag Operating Fleet
OSG has one of the youngest International Flag fleets in the industry. The Company believes its modern, well maintained fleet is a significant competitive advantage in the global market. The table below reflects the average age of the Company's owned International Flag fleet compared to the world fleet.
Average Age of Average Age of
OSG's Owned World Fleet
Vessel Class Fleet at 6/30/06 at 7/1/06(a)
---------------------------------------------------------------------
VLCC 6.2 years 8.8 years
Aframax 8.6 years 9.2 years
Panamax(b) 3.3 years 10.5 years
Handysize 5.4 years 12.7 years
(a) Source: Clarkson database as of July 1, 2006.
(b) Includes Panamax tankers that trade crude oil and refined
petroleum products.
Drydock Schedule
In addition to regular inspections by OSG personnel, all vessels are subject to periodic drydock, special survey and other scheduled maintenance. The table below sets forth anticipated days off-hire for these events by class for the Company's owned and bareboat chartered-in vessels.
Q206 Q306 Q406
----------------------------------------------
Pro- Pro-
Actual jected jected
Days Days Days
Off- Off- No. of Off- No. of
Hire Hire Vessels Hire Vessels
---------------------------------------------------------------------
Trade - Crude Oil
---------------------------------------------------------------------
VLCC 21 73 4 11 1
Aframax 3 12 2 11 1
Panamax 5 0 0 3 1
---------------------------------------------------------------------
Trade - Refined
Petroleum Products
---------------------------------------------------------------------
Panamax 3 0 0 0 0
Handysize 142 157 8 77 2
U.S. 2 5 1 0 0
---------------------------------------------------------------------
Total 176 247 15 102 5
MARKET OVERVIEW
Worldwide oil demand during the second quarter of 2006 was approximately 83.3 million barrels per day ("b/d"), an increase of 800,000 b/d, or 1.0%, compared with the second quarter of 2005. The increase in second quarter demand was centered in China where demand increased by 570,000 b/d, or 8.8%, and in the Middle East where demand grew by 330,000 b/d, or 5.4%. Demand in North America, the largest consuming area in the world, increased by 0.2% while demand in both OECD Europe and OECD Asia were down by 2.4% and 2.3%, respectively.
Worldwide oil demand for the first half of 2006 increased by 0.8% compared with the first six months of 2005. Demand declined in OECD countries primarily due to the warmer-than-normal temperatures in the U.S. Northeast during the first quarter of 2006 that reduced demand for heating oil. Demand growth in non-OECD areas rose by 3.3% as the robust economy in China increased product demand by 6.5%. Strong demand growth in China should continue during the remainder of 2006 driven by an expected 10.2% increase in GDP. Moreover, the start-up of the Hainan refinery in Southern China in the second half of 2006 will result in additional tonne-mile demand for the Far East market.
Tanker supply increased by 2.8%, or 8.7 million dwt (4.1 million dwt during the first quarter and 4.6 million dwt in the second quarter) in the first half of 2006 from year-end 2005 levels. While there was growth in all vessel categories, the highest percentage increase occurred in the Panamax sector, where tonnage increased by 8.0% since the beginning of the year. VLCCs, on the other hand, experienced the lowest percentage growth at 1.8%. This additional tonnage exerted downward pressure on TCE rates and is a key factor as to why rates during the first half of 2006 were lower than 2005 in all vessel categories except VLCCs.
Newbuilding vessel prices strengthened during the first six months, increasing by approximately 5% for crude tankers and by approximately 7% for Product Carriers from year-end 2005 levels. Shipyards are operating near full capacity and therefore have no imminent reason to reduce newbuilding prices. Prices for modern second hand vessels remained strong, holding about even with newbuilding prices as buyers remained willing to pay a premium for immediate delivery.
More-extensive-than-usual refinery maintenance programs, as well as unanticipated refinery downtime in the U.S., Japan and Aruba in the first half of 2006, had a negative impact on freight rates. Crude tanker rates improved, however, during June as the peak refinery maintenance ended in the U.S. and Asia, and Iran began utilizing VLCC tankers as floating storage facilities, effectively increasing overall crude tanker utilization rates.
Lower refinery utilization rates in the U.S. combined with changes in gasoline and diesel specifications resulted in increased gasoline product imports. Product Carrier rates in the second quarter followed Crude oil tanker rates, which were lower at the beginning of the quarter but higher at the end.
Geopolitical events continued to influence rates during the second quarter of 2006. The shut-in of approximately 500,000 b/d of production in Nigeria, as a result of continued attacks on its oil infrastructure, increasing concern over Iran's nuclear capabilities and a forecast for another active hurricane season in the U.S., were supportive of tanker rates during the quarter.
The opening of the Baku-Tbilisi-Ceyhan ("B-T-C") pipeline early in the third quarter provides a new outlet on the Mediterranean for light sweet Azeri crude oil, the flow of which will increase significantly in the next few years. The first lifting of Azeri crude oil from Ceyhan was moved in an Aframax vessel to a Mediterranean refinery. Pipeline flow is currently estimated at about 200,000 b/d and is forecast to increase to 400,000 b/d by the end of 2006 and to 850,000 b/d by the end of 2007. This crude can be utilized in refineries in Europe (replacing declining North Sea production), on the U.S. East Coast (substituting for North Sea or Nigerian crudes) and in Asia where there is increased demand for light sweet crude oil to meet lower sulfur specifications.
EARNINGS CONFERENCE CALL INFORMATION
The Company plans to host a conference call at 11:00 a.m. ET on August 8, 2006 to discuss results for the second quarter. All shareholders and other interested parties are invited to call into the conference call, which may be accessed by calling +1 800-231-5571 within the United States, or +1 973-582-2952 for international participants. A live webcast of the conference call and accompanying slide presentation will be available on Overseas Shipholding Group's website at http://www.osg.com in the Investor Relations Webcasts and Presentations section or via http://www.viavid.net. The webcast will be available for 90 days and requires Windows Media Player.
An audio replay of the conference call will be available from 2:00 p.m. ET on Tuesday, August 8, through midnight ET on Tuesday August 15, 2006 by calling +1 877-519-4471 within the United States or +1 973-341-3080 for international callers. The password for the replay is 7554304.
ABOUT OSG
Overseas Shipholding Group, Inc. (NYSE:OSG) is one of the largest publicly traded tanker companies in the world with an owned, operated and newbuild fleet of 117 vessels, aggregating 13.0 million dwt and 865,000 cbm, as of June 30, 2006. As a market leader in global energy transportation services for crude oil and petroleum products in the U.S. and International Flag markets, the Company is committed to setting high standards of excellence for its quality, safety and environmental programs. OSG is recognized as one of the world's most customer-focused marine transportation companies, with offices in New York, Athens, London, Newcastle and Singapore. More information is available at www.osg.com.
FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements regarding the Company's prospects, including the outlook for tanker markets, changing oil trading patterns, prospects for certain strategic alliances and investments, estimated TCE rates achieved for the third and fourth quarters of 2006, anticipated levels of newbuilding and scrapping, projected drydock schedule, the projected growth of the world tanker fleet and the forecast of world economic activity and world oil demand. Factors, risks and uncertainties that could cause actual results to differ from expectations reflected in these forward-looking statements are described in the Company's Annual Report on Form 10-K.
APPENDIX 1 - TCE RECONCILIATION
Reconciliations of time charter equivalent revenues of the segments to shipping revenues as reported in the consolidated statements of operations follow:
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------
($ in thousands) 2006 2005 2006 2005
---------------------------------------------------------------------
Time charter equivalent
revenues $216,304 $228,598 $496,413 $495,785
Add: Voyage expenses 14,449 9,786 25,366 18,006
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Shipping revenues $230,753 $238,384 $521,779 $513,791
=========================================
Consistent with general practice in the shipping industry, the Company
uses time charter equivalent revenues, which represents shipping revenues
less voyage expenses, as a measure to compare revenue generated from a
voyage charter to revenue generated from a time charter. Time charter
equivalent revenues, a non-GAAP measure, provides additional meaningful
information in conjunction with shipping revenues, the most directly
comparable GAAP measure, because it assists Company management in making
decisions regarding the deployment and use of its vessels and in
evaluating their financial performance.
APPENDIX 2 - EBITDA RECONCILIATION
The following table shows reconciliations of net income, as reflected in the consolidated statements of operations, to EBITDA:
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------
($ in thousands) 2006 2005 2006 2005
--------------------------------------------------------------------
Net income $60,231 $114,161 $188,595 $279,080
Credit for federal
income taxes (2,111) (3,523) (7,341) (4,269)
Interest expense 15,134 25,569 37,741 48,400
Depreciation and
amortization 35,860 40,090 70,214 76,449
-----------------------------------------
EBITDA $109,114 $176,297 $289,209 $399,660
=========================================
EBITDA represents operating earnings, which is before interest expense and
income taxes, plus other income and depreciation and amortization expense.
EBITDA is presented to provide investors with meaningful additional
information that management uses to monitor ongoing operating results and
evaluate trends over comparative periods. EBITDA should not be considered
a substitute for net income or cash flow from operating activities
prepared in accordance with accounting principles generally accepted in
the United States or as a measure of profitability or liquidity. While
EBITDA is frequently used as a measure of operating results and
performance, it is not necessarily comparable to other similarly titled
captions of other companies due to differences in methods of calculation.
APPENDIX 3 - CAPITAL EXPENDITURES
The following table presents information with respect to OSG's capital expenditures for the three and six months ended June 30, 2006 and 2005.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
($ in thousands) 2006 2005 2006 2005
---------------------------------------------------------------------
Expenditures for vessels $437 $673 $5,394 $1,215
Acquisition of interests
in affiliated companies -- 69,145 -- 69,145
Investments in and
advances to affiliated
companies -- 6,452 -- 7,486
Payments for drydockings 12,660 4,963 21,279 7,592
------- ------- ------- -------
$13,097 $81,233 $26,673 $85,438
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