HIGHLIGHTS
-- TCE revenue up 16% to $194.8 million quarter-over-quarter.
-- EPS (diluted) of $1.82 increases 5% quarter-over-quarter.
-- Quarterly gain on vessel sales and sale of securities adds $22.4
million, or $0.46 per share.
-- Seven vessels sold to and leased back from Double Hull Tankers, Inc.
in connection with its IPO on October 13, 2005.
-- Active fleet asset management program brings fleet to 106 vessels,
including newbuilds.
-- Quarterly dividend of $0.175 paid on August 25, 2005.
NEW YORK, Nov. 3, 2005 (PRIMEZONE) -- Overseas Shipholding Group, Inc. (NYSE:OSG) today announced results for the third quarter and year-to-date fiscal year 2005. Net income for the quarter ended September 30, 2005 of $72.1 million, or $1.82 per diluted share, increased 5.2% compared with net income of $68.5 million, or $1.74 per diluted share, in the third quarter of 2004. TCE revenues for the quarter were $194.8 million compared with $167.9 million, an increase of 16.0% year-over-year. EBITDA for the third quarter 2005 declined 6.9% to $135.4 million from $145.4 million in the third quarter of 2004. The decrease in EBITDA was principally attributable to a decline in TCE rates for VLCCs and Aframaxes in the third quarter of 2005 compared with the year ago period. See Appendix 3 for a reconciliation of EBITDA.
For the nine months ended September 30, 2005, the Company reported net income of $351.1 million, or $8.89 per diluted share, an increase of 84.7% over $190.1 million, or $4.86 per diluted share, in the first nine months of 2004. TCE revenues for the first nine months of 2005 increased by 34.4% to $690.5 million from $513.9 million in the first nine months of 2004. EBITDA rose by 28.8% to $535.1 million from $415.4 million in the first nine months of 2004.
"We are pleased with our quarterly and year-to-date performance," said Morten Arntzen, President and CEO of Overseas Shipholding Group, Inc. "The tactics supporting our expansion strategy in crude, products, U.S. Flag and LNG trades are paying off. By diversifying our investment among these four strategic business units, we have created a superior value proposition for shareholders. We have diversified our fleet and continue to balance our chartering strategy between spot and time charters, affording shareholders a more stable, long-term investment opportunity in this sector, and at the same time, continue to participate in a buoyant crude transportation market."
Mr. Arntzen continued, "I strongly believe that the winners in this market will be the companies that have large modern fleets, the financial strength to execute their strategy throughout the cycle, the ability to attract top talent and a commitment to quality, safety and environmental programs that provide superior transportation services to customers. OSG continues to pursue each of these objectives."
HIGHLIGHTS OF RECENT ACTIVITIES AND THIRD QUARTER EVENTS
-- Active Management of a Diversified Fleet
In furtherance of the Company's strategy of actively managing
its fleet by balancing its mix of owned and chartered-in
tonnage, OSG sold and chartered back seven tankers in conjunction
with Double Hull Tankers, Inc.'s (DHT) initial public offering on
October 13, 2005. OSG received consideration of $580.6 million
consisting of $412.6 million in cash and 14 million shares in DHT,
representing a 47% equity stake in the company. The transaction
resulted in a $230.0 million gain, which will be amortized over
the five to six and one-half year initial charter terms. The
transaction will be immediately accretive to earnings.
The Company used the proceeds from the transaction to reduce its
debt outstanding in line with its goal of returning to leverage
ratios and liquidity levels that existed prior to the early-2005
acquisition of Stelmar Shipping Ltd.
Additional information regarding the financial impact of the
transaction to OSG is provided in Appendix 5, "Impact of DHT
Transaction."
During the third quarter, the Company:
-- sold and chartered back the Overseas Polys and the Overseas
Cleliamar (both 1993-built Panamax tankers) for terms of 50
months.
-- sold the Bravery, an International Flag Aframax built in
1994.
-- re-delivered the Kaluga and Charles Eddie, vessels that had
been chartered-in for one year and three years, respectively.
Subsequent to quarter-end, the Company:
-- announced that it will time charter-in four International Flag
newbuild product carriers from Parakou Shipping Limited, for a
period of ten years each. The vessels are expected to be
delivered to OSG between September 2006 and June 2007. The
product carriers, all sister ships with a capacity of 51,000
deadweight tons, will be able to transport petroleum products,
vegetable oils and IMO III chemicals.
-- sold three VLCCs (Overseas Ann, Overseas Chris and the Regal
Unity) and four Aframaxes (Overseas Cathy, Overseas Sophie,
Rebecca and the Ania) to DHT and time chartered the vessels
back for initial terms of five to six and one-half years.
-- U.S. Flag Business Unit Update
On November 2, 2005, Shell Trading U.S. Company (STUSCO), a
subsidiary of Shell Oil, agreed to time charter two vessels in
OSG's U.S. Flag newbuild program. The charters will commence upon
delivery of the vessels.
On October 28, 2005, the keel was laid at the Aker Philadelphia
Shipyard for the first of ten U.S. Flag product carriers being
built that OSG will bareboat charter. The ten-ship newbuild
program is the largest newbuild program of Jones Act vessels.
OSG has the option to charter two additional product carriers
under the program. In late 2004, OSG stated its intention to
expand its presence in the U.S. Flag market and since that time
the Company has significantly increased its fleet from ten vessels
to 22, including newbuildings, establishing OSG as the largest
owner/operator in the market.
Three International Flag product carriers, Overseas Maremar,
Overseas Ambermar and Overseas Luxmar, were reflagged to U.S. on
September 6, September 12 and October 8, 2005, respectively.
These vessels, and the Company's car carrier, all participate in
the U.S. Government's Maritime Security Program in exchange for
which OSG receives a subsidy beginning in mid-October 2005 of $2.6
million per vessel, increasing to $3.1 million per vessel over the
ten year program.
FINANCIAL PROFILE
During the first nine months of 2005, shareholders' equity increased by $339 million to $1.77 billion and liquidity, including undrawn bank facilities, increased to more than $970 million.
Liquidity adjusted debt to capital was 37.4% at September 30, 2005, a reduction of close to 13 percentage points from a pro forma 50.3% as of December 31, 2004, adjusted to reflect the Stelmar acquisition and the sales of product carriers in January 2005. Giving pro forma effect to the receipt of cash proceeds from the DHT transaction, the liquidity adjusted debt to capital at September 30, 2005 would be 26.7%.
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 nine month periods ended September 30, 2005 compared with the same periods of 2004.
---------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2005 2004 2005 2004
---------------------------------------------------------------------
VLCC
Average TCE Rate(a) $34,676 $61,729 $54,285 $64,194
Number of Revenue Days 1,714 1,557 4,720 4,580
Aframax
Average TCE Rate(a) $26,769 $31,148 $31,360 $32,117
Number of Revenue Days 1,508 1,235 4,592 3,584
Panamax
Average TCE Rate(a) $22,807 $17,931 $24,129 $17,384
Number of Revenue Days 1,187 169 3,363 506
Handysize Product Carrier
Average TCE Rate(a) $18,239 $16,872 $17,722 $18,048
Number of Revenue Days 2,537 355 7,046 1,015
---------------------------------------------------------------------
(a) Includes vessels operating on voyage charters and period
charters and the effect of forward freight agreements.
FOURTH QUARTER TCE RATES
As of October 31, 2005, the Company has achieved the following average estimated TCE rates for the percentage of days booked for vessels operating in the fourth quarter of 2005. 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 acquisitions or disposals and the timing and length of drydocks and repairs.
---------------------------------------------------------------------
Fourth Quarter Revenue Days
----------------------------------------------------
Vessel Class and Average Fixed as Open as % Days
Charter Type TCE Rates of 10/31/05 of Total Booked
10/31/05
---------------------------------------------------------------------
VLCC (Tankers
International
pool) -- Spot $52,000 1,183 496 1,679 70.46%
---------------------------------------------------------------------
Aframax (Aframax
International
pool) -- Spot $41,500 602 598 1,200 50.17%
Aframax (Aframax
International
pool) -- Time(a) $25,500 271 -- 271 100.00%
---------------------------------------------------------------------
Panamax (Stelcape
joint venture)
-- Spot $37,000 181 258 439 41.23%
Panamax -- Time $20,500 728 -- 728 100.00%
---------------------------------------------------------------------
Handysize
(Product) -- Spot $34,000 162 320 482 33.61%
Handysize
(Product) -- Time $16,500 2,062 -- 2,062 100.00%
---------------------------------------------------------------------
(a) Includes one vessel fixed on time charter for the entire period
outside the Aframax International pool.
FINANCIAL INFORMATION -- SUMMARY CONSOLIDATED STATEMENTS
OF OPERATIONS
($ in thousands except per share amounts)
---------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2005 2004 2005 2004
---------------------------------------------------------------------
Shipping Revenues
Time and
Bareboat
Charter
Revenues $ 185,082 $ 163,072 $ 656,186 $ 488,572
Voyage Charter
Revenues 18,121 8,881 60,808 41,733
------------ ------------ ------------ ------------
203,203 171,953 716,994 530,305
Voyage
Expenses (8,443) (4,065) (26,449) (16,374)
------------ ------------ ------------ ------------
Time Charter
Equivalent
Revenues 194,760 167,888 690,545 513,931
------------ ------------ ------------ ------------
Vessel Expenses 42,866 24,697 130,938 74,264
Time and Bareboat
Charter Hire
Expenses 26,403 16,818 78,226 39,507
Depreciation and
Amortization 39,995 25,368 116,444 75,009
General and
Administrative 13,495 9,294 45,032 32,494
------------ ------------ ------------ ------------
Total Ship
Operating
Expenses 122,759 76,177 370,640 221,274
------------ ------------ ------------ ------------
Income from Vessel
Ops (100%
owned) 72,001 91,711 319,905 292,657
Equity in
Income of
Joint Ventures 1,851 12,024 32,188 19,022
------------ ------------ ------------ ------------
Operating Income 73,852 103,735 352,093 311,679
Other Income 21,552 16,295 66,522 28,717
------------ ------------ ------------ ------------
Income before
Interest and
Taxes 95,404 120,030 418,615 340,396
Interest Expense 22,639 18,809 71,039 55,183
------------ ------------ ------------ ------------
Income before
Taxes 72,765 101,221 347,576 285,213
Provision/
(Credit) for
Federal Income
Taxes 700 32,700 (3,569) 95,100
------------ ------------ ------------ ------------
Net Income $ 72,065 $ 68,521 $ 351,145 $ 190,113
============ ============ ============ ============
Basic Net Income
Per Share $ 1.83 $ 1.74 $ 8.90 $ 4.87
Diluted Net
Income Per
Share $ 1.82 $ 1.74 $ 8.89 $ 4.86
Weighted Avg.
Number of
Shares (Basic) 39,445,347 39,368,594 39,442,633 39,021,687
Weighted
Average Number
of Shares
(Diluted) 39,513,752 39,424,207 39,508,564 39,083,569
---------------------------------------------------------------------
TCE REVENUE BY SEGMENT
($ in thousands)
---------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2005 2004 2005 2004
---------------------------------------------------------------------
International Flag
Crude $121,984 $138,647 $484,874 $421,000
Product 46,271 5,990 124,867 18,319
Other 6,120 5,371 19,249 19,425
U.S. Flag 20,385 17,880 61,555 55,187
-------- -------- -------- --------
Total TCE Revenues $194,760 $167,888 $690,545 $513,931
---------------------------------------------------------------------
FINANCIAL INFORMATION -- SUMMARY CONSOLIDATED BALANCE SHEETS
($ in thousands)
---------------------------------------------------------------------
September 30, December 31,
2005 2004
---------- ----------
Cash and Cash Equivalents $ 140,120 $ 479,181
Other Current Assets 143,341 166,436
Capital Construction Fund 294,037 268,414
Vessels, including capital leases and
vessel held for sale 2,677,347 1,456,365
Investments in Joint Ventures 106,841 227,701
Other Assets 88,072 82,701
---------- ----------
Total Assets $3,449,758 $2,680,798
========== ==========
Current Liabilities $ 147,712 $ 200,743
Long-term Debt and Capital Leases 1,386,978 906,183
Other Liabilities 149,769 147,500
Shareholders' Equity 1,765,299 1,426,372
---------- ----------
Total Liabilities and Shareholders'
Equity $3,449,758 $2,680,798
---------------------------------------------------------------------
FINANCIAL INFORMATION -- SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
---------------------------------------------------------------------
Nine Months Ended
September 30,
---------------------------
2005 2004
----------- -----------
Net cash provided by operating
activities $ 332,546 $ 256,534
----------- -----------
Cash Flows from Investing
Activities:
Expenditures for vessels (1,905) (51,130)
Proceeds from disposal of vessels 434,641 44,104
Acquisitions of interests in joint
ventures (69,145) (2,292)
Acquisition of Stelmar Shipping Ltd. (742,433) --
Investments in and advances to joint
ventures (8,439) (123,213)
Distributions from joint ventures 20,853 --
Purchases of other investments (709) (256)
Proceeds from dispositions of other
investments 15,946 8,535
Other -- net (680) (584)
----------- -----------
Net cash (used in)investing
activities (351,871) (124,836)
----------- -----------
Cash Flows from Financing Activities:
Issuance of common stock, net of
issuance costs -- 115,513
Issuance of long-term debt, net
of issuance costs 781,268 158,784
Payments on debt and obligations
under capital leases (1,080,061) (43,002)
Cash dividends paid (20,710) (20,642)
Issuance of common stock upon exercise
of stock options 187 3,277
Other -- net (420) (868)
----------- -----------
Net cash provided by/(used in)
financing activities (319,736) 213,062
----------- -----------
Net (decrease)/increase in cash
and cash equivalents (339,061) 344,760
Cash and cash equivalents at
beginning of period 479,181 74,003
----------- -----------
Cash and cash equivalents at end
of period $ 140,120 $ 418,763
---------------------------------------------------------------------
FLEET
At September 30, 2005, OSG was the second largest publicly listed oil tanker company in the world as measured by number of vessels. OSG's fleet of 106 vessels, including newbuilds, aggregates over 12.3 million dwt. Adjusted for OSG's participation interest in joint ventures and chartered-in vessels, the fleet totaled 98.6 vessels aggregating over 10.9 million dwt.
As indicated in the highlights section, OSG actively manages the balance between its owned and chartered-in tonnage. Since the beginning of the year, the Company has entered into sale-leaseback transactions covering six of its older vessels (excluding the DHT transaction). This has allowed the Company to maintain the size of our fleet while capturing the benefit of high vessel values.
-- FLEET LIST (As of September 30, 2005)
---------------------------------------------------------------------
OWNED AND OPERATED FLEET
---------------------------------------------------------------------
Vessel Class Owned Chartered-in Total Fleet Dwt
or partial
ownership
---------------------------------------------------------------------
International Flag
Fleet
V-Plus 2 -- 2
VLCC 13 8 21
Aframax 13 4 17
Panamax 11 2 13
Handysize Product
Carrier 12 13 25
Capesize Bulk
Carrier -- 2 2
-------------------------------------------------
Total 51 29 80 11,312,785
-------------------------------------------------
U.S. Flag Fleet
Panamax 2 -- 2
Handysize Product
Carrier 5 2 7
Bulk Carrier -- 2 2
Pure Car Carrier 1 -- 1
-------------------------------------------------
Total 8 4 12 569,859
---------------------------------------------------------------------
Total Operating
International and
U.S. Flag Fleet 59 33 92 11,882,644
---------------------------------------------------------------------
NEWBUILDING COMMITMENTS
---------------------------------------------------------------------
Delivery Dates Chartered-in or
partial Dwt/cbm
ownership
---------------------------------------------------------------------
U.S. Flag Fleet
Handysize Product
Carrier 2006 -- 2010 10 460,000
---------------------------------------------------------------------
Total Operating and
Newbuild Fleet 102
---------------------------------------------------------------------
LNG Carrier (measured
in cbm) 2007 -- 2008 4 864,800
Total Fleet 106
---------------------------------------------------------------------
---------------------------------------------------------------------
OPERATING FLEET WEIGHTED TO REFLECT OSG OWNERSHIP
---------------------------------------------------------------------
Vessel Class Owned Chartered-in Total Dwt
or partial Fleet
ownership
---------------------------------------------------------------------
International Flag Fleet 51 23.6 74.6 9,889,828
U.S. Flag Fleet 8 4.0 12.0 569,859
---------------------------------------------------------------------
Total 59 27.6 86.6 10,459,687
---------------------------------------------------------------------
For current fleet information, refer to the Company's website: www.osg.com
-- OSG'S OPERATING FLEET
The table below presents changes to the Company's fleet ownership
profile, based on the numbers of vessels weighted to reflect
ownership, excluding newbuilds.
---------------------------------------------------------------------
Weighted to Reflect Ownership
---------------------------------------
Tonnage Control As of As of
Sept. 30, 2005 Dec. 31, 2004
---------------------------------------------------------------------
Owned 69% 79%
Time chartered-in 7% 13%
Bareboat chartered-in 24% 8%
---------------------------------------
Total 100% 100%
---------------------------------------------------------------------
-- 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 wholly-
owned International Flag fleet in comparison with the world
fleet.
---------------------------------------------------------------------
Vessel Class Average Age of OSG's Average Age of World
Owned Fleet Fleet(a)
---------------------------------------------------------------------
VLCC 5.5 years 8.2 years
Aframax 7.4 years 9.0 years
Panamax 2.5 years 11.1 years
Handysize (Product Carrier) 4.7 years 12.5 years
---------------------------------------------------------------------
(a) Source: Clarkson's as of 10/1/05
-- DRYDOCK SCHEDULE
In addition to regular inspections by OSG personnel, all vessels
are subject to periodic drydock, special survey and other
maintenance. The table below sets forth anticipated days off-hire
by vessel class.
---------------------------------------------------------------------
Fourth Quarter 2005 Fiscal 2006
------------------- -------------------
Projected Projected
Days Off- No. Days Off- No.
Hire Vessels Hire Vessels
---------------------------------------------------------------------
VLCC 14 1 84 5
Aframax -- -- 51 3
Panamax -- -- -- --
Handysize (Product Carrier) 33 1 304 9
U.S. Flag 17 1 152 4
----------------------------------------
Total 64 3 591 21
---------------------------------------------------------------------
MARKET OVERVIEW
Global oil demand in the third quarter of 2005 was estimated at 82.4 million barrels per day ("b/d"), an increase of 0.9% from comparable year ago levels. Oil demand levels are slightly down in North America and Europe compared with year ago levels as high prices have begun to dampen demand. Demand in Asia, excluding China, was stable at last year's levels. Chinese oil demand, an important driver of recent worldwide growth, increased but at a relatively slow pace as artificially low domestic retail prices for key products limited refinery runs and imports into the world's second largest oil-consuming economy. Nevertheless, the long-term growth outlook for China, as well as the rest of South and Far East Asia, remains favorable with an increase in oil demand growth of 7.4% expected in 2006.
OPEC production was estimated at 30.0 million b/d, up 1.4% from the comparable year ago period. Overall non-OPEC production decreased slightly from year ago levels, while production in the Former Soviet Union ("FSU") increased to an estimated 11.6 million b/d in the third quarter of 2005 from 11.4 million b/d in the same period last year. Long-haul Middle East crude oil production in the third quarter of 2005 increased relative to the second quarter against a decrease in production from short-haul suppliers in Latin America and the North Sea. This was beneficial for VLCC employment, but had a negative impact on Aframax trades.
Preliminary data indicates that Hurricanes Katrina and Rita had a significant impact on U.S. oil demand. Consumption of transport fuels fell sharply, partly as a result of logistical disruptions and partly in response to a spike in prices. Deliveries of fuel oil on the other hand, rose as disruptions to natural gas supplies and a sharp increase in natural gas prices led to substitution. The hurricanes significantly reduced crude oil and natural gas production in the Gulf of Mexico and caused major damage to refineries and resulted in counter-seasonal declines in U.S. imports of crude oil. At one stage, over 29% of daily U.S. refining capacity was shut down. This curtailed demand for crude imports in the world's largest oil-consuming economy, although it heightened the need for imports of refined oil products. It is likely that refining capacity will be restored to pre-hurricane levels more quickly than crude production in the Gulf of Mexico. As a result, additional long-haul movements of sweet and medium sour crudes will be required until full production is restored. The 21 million barrels of crude oil that were released to refiners from the Strategic Petroleum Reserve ("SPR") following the hurricanes will also need to be replaced.
CRUDE OIL SECTOR
International Flag VLCCs
-- During the third quarter of 2005, rates for modern VLCCs trading
out of the Arabian Gulf averaged $37,600 per day, 17% higher than
the average for the previous quarter but 48% lower than the
average for the third quarter of 2004. This reflects the addition
of 22 vessels year-over-year and lower world demand growth.
-- VLCC rates improved relative to the second quarter of 2005,
reflecting the seasonal increase in worldwide demand. The
increased crude oil was primarily supplied by additional OPEC
production in the Middle East as oilfields in Saudi Arabia, UAE,
Kuwait and Iran returned from second-quarter maintenance with
expanded capacity. Late in the quarter, normal trade flows were
disrupted by Hurricanes Katrina and Rita tying up tonnage in the
U.S. Gulf. This further tightened the supply/demand balance of
tonnage and put additional upward pressure on rates. As of
October 13, 2005, about 70%, or 1.05 million b/d, of crude oil
production in the U.S. Gulf remained out of service. Crude oil
production is not forecast to fully return to pre-hurricane levels
until 2006. The reduction in U.S. Gulf crude oil output prompted
the U.S. Government to release about 21 million barrels of crude
oil from its SPR to refiners in order to maintain production runs.
In September, the combination of the hurricane-induced curtailment
of refinery operations and the release of crude oil from the SPR
caused a deceleration in crude oil imports, which had a moderating
influence on freight rate increases.
-- Global oil demand growth increased only 0.9% over the year ago
period, markedly slower than in 2004. Although apparent demand
growth in China rebounded to almost 5%, this rate was still well
below the double-digit expansions of the previous two years.
-- The world VLCC fleet grew to 468 vessels (136.7 million dwt) at
September 30, 2005 from 456 vessels (132.7 million dwt) at the
beginning of the year. Three deletions (0.9 million dwt) and
twenty deliveries (6.2 million dwt) during the first nine months
of 2005 continued to exert downward pressure on freight rates.
Thirty-one newbuilding orders were placed during the first nine
months of 2005. As a result, the orderbook increased to 98
vessels (29.7 million dwt) at September 30, 2005, equivalent to
21.7%, based on deadweight tons, of the existing VLCC fleet.
International Flag Aframaxes
-- In the Caribbean, Aframax freight rates were somewhat less
volatile in the third quarter of 2005 compared with the second
quarter, but decidedly weaker, as fleet expansion outpaced demand
growth. For the entire quarter, rates averaged $21,700 per day,
24% less than the previous quarter and 29% less than the third
quarter of 2004. There was a pickup in lightering activity in
the U.S. Gulf in the aftermath of the hurricanes. A number of VLCC
cargoes, originally scheduled to unload at the Louisiana Offshore
Oil Port ("LOOP"), were diverted to smaller East Coast ports on
Aframaxes, contributing to an early September rate increase.
-- Non-OPEC oil production growth has been driven in recent years by
the FSU. FSU oil production only grew modestly in the third
quarter in comparison with the more robust growth of the previous
several years. FSU output in the third quarter of 2005 was 2%
ahead of year ago levels and seaborne crude exports were estimated
at 4.1 million b/d, also 2% above year ago levels. The fairly
small increase in exports was due to pipeline maintenance at the
Black Sea port of Novorossiysk, export duty increases favoring
product exports over crude exports and a lack of new export
infrastructure expansions compared with last year. Black Sea
transits were again subject to weather disruptions, with a
tightening effect on tonnage balances as the Bosporus Straits were
closed to shipping traffic several times in late September due to
heavy and recurrent fog. Declines in production at other key
Aframax loading areas, including the North Sea, Venezuela, and
other Latin American countries, negatively impacted demand for
Aframaxes during the third quarter.
-- The world Aframax fleet increased to 657 vessels (66.1 million
dwt) at September 30, 2005 from 627 vessels (62.5 million dwt) at
December 31, 2004, as Aframax deliveries exceeded deletions,
exerting downward pressure on rates. The pace of contracting,
however, fell behind the rate of deliveries and the orderbook
decreased to 155 vessels (16.9 million dwt) at September 30, 2005,
equivalent to 25.6%, based on deadweight tons, of the existing
Aframax fleet.
International Flag Panamaxes
-- Rates for Panamaxes trading in crude and residual oils averaged
$28,800 per day during the third quarter of 2005, 12% less than
the previous quarter and 1% less than the third quarter of 2004.
The slight downturn in rates was primarily caused by the large
number of newbuilding deliveries during the quarter, which
outweighed a sharp rise in U.S. fuel oil imports. Production
slowdowns in Latin America also had a dampening effect on rates
for Panamaxes employed in the Caribbean and the West Coast of
Central America.
-- As U.S. refiners adjusted their output mix in favor of lighter
products, producing less fuel oil, utilities continued to
substitute fuel oil for natural gas, especially following the
steep increase in the price of natural gas during the summer and
after hurricanes Katrina and Rita. As a result, U.S. fuel oil
imports in the third quarter averaged 26% over year-ago levels,
boosting demand for quality double-hull Panamaxes. Because clean
product trades benefited most from the disruptions caused by
Hurricanes Katrina and Rita, some owners moved their tonnage from
the crude and residual oils trade into the clean products trade,
providing support for Panamax rates. This support, however, was
dampened by the expansion of the Panamax fleet.
-- The world Panamax fleet rose to 319 vessels (21.1 million dwt) at
September 30, 2005 from 290 vessels (19.1 million dwt) at December
31, 2004, as deliveries exceeded deletions by a wide margin.
Thirty-three Panamaxes (1.9 million dwt) have been ordered in the
first nine months of 2005. The Panamax orderbook now stands at 175
vessels (11.5 million dwt), equivalent to 54.4%, based on
deadweight tons, of the existing Panamax fleet.
INTERNATIONAL FLAG PRODUCT TANKER SECTOR
-- Rates for Handysize Product Carriers operating in the Caribbean
trades averaged $20,900 per day during the third quarter of 2005,
3% more than the previous quarter and 10% more than the third
quarter of 2004. International trades in refined oil products
increased markedly in the aftermath of Hurricanes Katrina and Rita
in late August and mid September as the U.S. stepped up its
imports to compensate for lost refinery production. There was a
particularly sharp increase in jet fuel imports into the U.S.
relative to the second quarter as its share of refinery throughput
was cut in favor of increased gasoline output even as overall
throughput declined.
-- The world Handysize fleet expanded to 532 vessels (22.0 million
dwt) at September 30, 2005 from 524 vessels (21.5 million dwt) at
December 31, 2004 as deliveries exceeded deletions. Newbuilding
orders in 2005 have far outpaced deliveries and the Handysize
orderbook increased to 195 vessels (8.9 million dwt) at September
30, 2005, equivalent to 40.3%, based on deadweight tons, of the
existing Handysize fleet.
U.S. FLAG SECTOR: JONES ACT PRODUCT CARRIERS
-- The U.S. coastwise trades in products further strengthened in the
third quarter of 2005, boosted by hurricane-related dislocations.
Rates for the third quarter were at a level which equates to
$42,000 per day for OSG's existing Jones Act Handysize Product
Carriers, 8% higher than the second quarter and 28% higher than
the same period in 2004. Hurricane-related damage to pipelines in
the U.S. Gulf increased dependence on Product Carriers to
transport oil from Gulf Coast refineries to the East Coast.
Ostensibly, to ensure the uninterrupted movement of petroleum
products to affected regions in the U.S., the Jones Act, which
limits the carriage of shipments in the coastwise trades to
qualifying U.S. Flag vessels, was temporarily waived from
September 1 through September 19 and again from September 27
through October 24. This allowed International Flag tankers to
transport oil between U.S. ports. The effect of the temporary
waivers on the market was limited.
-- The total Jones Act Product Carrier fleet consisted of 43 vessels
(1.8 million dwt) at September 30, 2005. Approximately 60% of this
fleet is not double hull and will be phased out over the next ten
years as a result of OPA 90 regulations. One vessel will be
removed from the fleet by the end of 2005 and two vessels will be
phased out in 2006. The Jones Act Product Carrier orderbook
consists of ten 46,000 dwt vessels, all of which are to be
delivered over a five-year period from 2006 to 2010.
EARNINGS CONFERENCE CALL INFORMATION
The Company plans to host a conference call at 10:00 AM ET on November 3, 2005 to discuss results for the quarter. All shareholders and other interested parties are invited to call into the conference call, which may be accessed by calling +1 800 322 0079 within the United States, or +1 973 409 9258 for international participants. A live webcast of the conference call will also be available on Overseas Shipholding Group's website at http://www.osg.com in the Investor Relations Events and Webcasts section or via http://www.viavid.net. The Webcast will be available for 90 days and participants will need Windows Media Player.
An audio replay of the conference call will be available from 1:00 PM ET on Thursday, November 3rd, through midnight ET on Thursday, November 10 by calling +1 877 519 4471 within the United States and +1 973 341 3080 for international callers. The password for the replay is 6620914.
ABOUT OSG
Overseas Shipholding Group, Inc. (OSG) is a market leader in global energy transportation services. The Company owns and operates International Flag and U.S. Flag fleets that transport crude oil, petroleum products and dry bulk commodities throughout the world. Organized in 1969 and headquartered in New York City, New York, OSG also has offices in Athens, London, Manila, Newcastle and Singapore. More information about OSG is available at the Company's web site at http://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 fourth quarter, anticipated levels of newbuilding and scrapping, projected drydock schedule, the ability to restore refining capacity and crude oil production in the Gulf of Mexico from damage caused by hurricanes, integration of Stelmar Shipping Ltd., the estimated impact on the Company's financial statements of the sale of seven vessels to Double Hull Tankers, Inc. and the charter back of such vessels, 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 for 2004.
APPENDIX 1 -- GAINS ON VESSEL SALES AND SECURITIES TRANSACTIONS
The following table presents per share amounts after tax for net income adjusted for the effects of vessel sales and securities transactions:
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Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ------------------
2005 2004 2005 2004
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EPS (diluted) $ 1.82 $ 1.74 $ 8.89 $ 4.86
(Gain) on Vessel Sales (0.27) (0.21) (0.92) (0.26)
(Gain) on Securities Transactions (0.19) (0.03) (0.39) (0.15)
-------- -------- -------- --------
$ 1.36 $ 1.50 $ 7.58 $ 4.45
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Note: Net income adjusted for the effect of vessel sales and securities transactions is presented to provide additional information with respect to the Company's ability to compare from period to period vessel operating revenues and expenses and general and administrative expenses without gains and losses from disposals of assets and investments. While net income adjusted for the effect of vessel sales and securities transactions is frequently used by management as a measure of the vessels operating performance in a particular period, it is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculations. Net income adjusted for the effect of vessel sales and securities transactions should not be considered an alternative to net income or other measurements prepared in accordance with accounting principles generally accepted in the United States.
APPENDIX 2 -- EQUITY IN INCOME OF JOINT VENTURE VESSELS
The following is a summary of the Company's interest in its joint ventures. Revenue days are adjusted for OSG's percentage ownership in order to state the days on a basis comparable to that of wholly-owned vessels:
($ in thousands)
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Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2005 2004 2005 2004
---------------------------------------------------------------------
Equity in Income $ 1,851 $12,024 $32,188 $19,022
Number of Revenue Days 27 208 435 379
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APPENDIX 3 -- EBITDA RECONCILIATION
The following table shows reconciliations of net income, as reflected in the consolidated statements of operations, to EBITDA:
($ in thousands)
---------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
2005 2004 2005 2004
---------------------------------------------------------------------
Net Income $ 72,065 $ 68,521 $ 351,145 $ 190,113
(Credit)/Provision for
Federal Income Taxes 700 32,700 (3,569) 95,100
Interest Expense 22,639 18,809 71,039 55,183
Depreciation and
Amortization 39,995 25,368 116,444 75,009
--------- --------- --------- ---------
EBITDA $ 135,399 $ 145,398 $ 535,059 $ 415,405
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Note: EBITDA represents operating earnings, which is before interest expense and income taxes, plus other income and depreciation and amortization expense. EBITDA should not be considered a substitute for net income, cash flow from operating activities and other operations or cash flow statement data prepared in accordance with accounting principles generally accepted in the United States or as a measure of profitability or liquidity. EBITDA is presented to provide additional information with respect to the Company's ability to satisfy debt service, capital expenditures and working capital requirements. While EBITDA is frequently used as a measure of operating results and the ability to meet debt service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation.
APPENDIX 4 -- CAPITAL EXPENDITURES
The following table presents information with respect to OSG's capital expenditures for the three and nine month periods ended September 30, 2005, excluding the acquisition of Stelmar, compared with the same periods of 2004:
($ in thousands)
---------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2005 2004 2005 2004
---------------------------------------------------------------------
Expenditures for vessels $ 690 $ 411 $ 1,905 $ 51,130
Acquisitions of interests
in joint ventures -- -- 69,145 2,292
Investments in and advances
to joint ventures 953 63,805 8,439 123,213
Payments for drydockings 2,353 7,059 9,945 11,123
-------- -------- -------- --------
$ 3,996 $ 71,275 $ 9,434 $187,758
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APPENDIX 5 -- IMPACT OF DHT TRANSACTION
The following tables provide additional pro forma information regarding the estimated impact of the DHT transaction on the Company's financial statements:
INCOME STATEMENT CHANGES
($ in millions)
---------------------------------------------------------------------
Increase/(Decrease) in Net Income
---------------------------------
Three Months
Ended Year Ended
December 31, December 31,
2005 2006
----------- ----------
Operating Income
Management Fee Income $ 2.8 $ 13.7
Vessel Expenses 0.5 2.5
Charter Hire Expenses(a) (6.7) (31.6)
Depreciation and Amortization 3.7 18.1
Equity in Income of Joint Ventures 1.9 9.3
----------- ----------
Operating Income 2.2 12.0
Interest Expense 4.0 18.7
----------- ----------
Net Income $ 6.2 $ 30.7
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BALANCE SHEET CHANGES
($ in millions)
---------------------------------------------------------------------
Increase/(Decrease)
as of October 18,
2005
Assets
Vessels $ (343.0)
Investments in Joint Ventures 168.0
Other Assets (3.3)
------------
Total Assets $ (178.3)
------------
Liabilities & Shareholders' Equity
Long-term Debt $ (412.6)
Other Liabilities (Deferred Gain) 234.3
------------
Total Liabilities & Shareholders' Equity $ (178.3)
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Footnotes to Appendix 5
(a) (Table below is footnote 1)
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Increase/(Decrease) in Net Income
---------------------------------
($ in millions) Three Months Year Ended
Ended December December 31,
31, 2005 2005
----------- -----------
Basic Hire $ (14.8) $ (71.1)
Additional Hire(b) -- --
Amortization of Deferred Gain 8.1 39.5
----------- -----------
Charter Hire Expenses $ (6.7) $ (31.6)
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(b) For each $10,000 per day that average TCE rates exceed the basic
hire rates in the period, charter hire expenses will increase by
$4,000 per day and equity in income of joint ventures will
increase by $1,868 per day.