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Overseas Shipholding Group Reports First Quarter 2011 Results

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  • The $23.3 million decrease in TCE revenue for the quarter ended March 31, 2011 from the year-earlier quarter is principally due to a 33% decrease in TCE revenue earned in the International Crude Tankers segment to $88.8 million. Spot rates realized by the Company’s VLCCs in the first quarter of 2011 fell by 52% from the year-earlier period, while the benefit realized in the first quarter of 2010 from FFA cover was absent in the 2011 quarter. Spot rates for Aframaxes also fell 16% quarter-over-quarter. In the International Products segment, where revenue fell by 10% to $45.3 million, a 574-day increase in MR revenue days was more than offset by a 15% decrease in realized spot rates and a reduction in both revenue days and rates realized from time charters from the prior year. TCE revenues in the U.S. segment, however, increased by $22.8 million, or 50%, to $68.4 million, primarily as a result of the deliveries of the shuttle tanker Overseas Cascade and two product carriers in 2010, which commenced multi-year time charters at attractive rates. The U.S. segment also benefited from increased lightering volumes.
  • Vessel expenses were $69.4 million, an 8% increase from $64.1 million in the same period a year ago, principally as a result of changes to the U.S. Flag operating fleet: two Product Carriers that delivered during 2010, the Overseas Puget Sound, which performed a grain voyage to position it for sale, and the Overseas Chinook, which completed its conversion to a shuttle tanker in March;
  • Charter hire expenses were $95.4 million, a 5% increase from $90.6 million in the prior year period, reflecting a 336-day increase in time chartered-in days for International Flag MRs, and two bareboat chartered-in U.S. Flag Product Carriers that delivered subsequent to the first quarter of 2010;
  • General and administrative expenses were $24.5 million, a decrease of $2.4 million from $26.8 million in the first quarter of 2010 and in line both with the Company’s annual guidance of $95 to $100 million and sequentially with $24.0 million in the fourth quarter of 2010. Contributing to the quarter-over-quarter decrease were reductions of $0.9 million in shoreside compensation and $1.6 million in legal and consulting costs; and
  • Equity in income of affiliated companies increased significantly to a gain of $5.6 million from a loss of $2.3 million in the first quarter of 2010, when delays in the conversion of the two FSOs and mark-to-market losses related to interest rate swaps associated with the FSO Africa had a significant negative impact on results. Both FSO service vessels have been fully employed on long-term contracts with MOQ since the third quarter of 2010, and each continued to earn contractual performance bonuses this quarter.

Special Items

Special items that affected reported results in the first quarter of 2011 reduced the quarterly Loss by a net $0.1 million, or $0.00 per diluted share, and included:

  • Gains on sales of securities of $0.4 million, or $0.01 per diluted share;
  • Unrealized gains on bunker swaps of $0.7 million, or $0.02 per diluted share; and
  • Loss on vessel sales of $0.9 million, or $0.03 per diluted share.

For a detailed schedule of these special items in the current quarter and the corresponding historical period, see Reconciling Information, which is posted in Webcasts and Presentations in the Investor Relations section of www.osg.com.

Liquidity and Other Key Metrics

  • Cash and cash equivalents and short-term investments (consisting of time deposits with maturities greater than 90 days) increased marginally to $278 million from $274 million as of December 31, 2010;
  • Total debt was $2.06 billion, up from $1.99 billion as of December 31, 2010;
  • Liquidity 3, including undrawn bank facilities, was approximately $1.1 billion. Liquidity-adjusted debt to capital 4 was 49.4%, an increase from 48.0% as of December 31, 2010;
  • As of March 31, 2011, vessels constituting 30% of the net book value of the Company’s vessels were pledged as collateral;
  • Construction contract commitments were $177 million as of March 31, 2011, including $107 million due during the remainder of 2011. All such commitments are fully funded; and
  • Principal repayment obligations are $35 million for the second through fourth quarters of 2011 and $54 million in 2012.

Segment Activity

Crude Oil

  • In January 2011, OSG redelivered two Aframaxes, the Overseas Jacamar, which had been chartered in, and the Aqua, a time-charter in which the Company had a less than 100% interest; and
  • In the first quarter of 2011, OSG chartered in four Suezmaxes on a short-term basis. Three of these vessels have delivered and the other is expected to deliver in the third quarter. All four vessels are, or will, operate in the Suezmax International (SI) pool.

Products

  • On February 12, 2011, the Atlantic Grace, a 47,000 dwt 2008-built product carrier, delivered under a three-year time charter-in and joined the Clean Products International (CPI) commercial pool;
  • On March 17, 2011, the Atlantic Star, a 47,000 dwt 2008-built product carrier, delivered under a three-year time charter-in and immediately commenced a three-year time charter-out to the Company’s partner in CPI; and
  • In January 2011, OSG redelivered the Overseas Takamar (LR2), which had been chartered-in.

U.S. Flag

  • On March 25, 2011, the Overseas Chinook completed conversion to a shuttle tanker and commences a four-year charter to Petrobras America, Inc. in early May;
  • On April 1, 2011, the ATB OSG 351 delivered and has commenced long-term employment in Delaware Bay lightering;
  • In March 2011, the Overseas Puget Sound and the Overseas New Orleans, the last non-double hull vessels in the U.S. Flag fleet, were delivered to buyers; and
  • On April 28, 2011, the last of the 12 Jones Act Product Carriers being constructed for OSG by Aker Philadelphia Shipyard, Inc., the 46,815 dwt Overseas Tampa, delivered and is operating in the spot market. The vessel is bareboat chartered-in for ten years and the Company has extension options for the life of the vessel.

Spot and Fixed TCE Rates Achieved and Revenue Days

The following table provides a breakdown of TCE rates achieved between spot and fixed charter rates and the related revenue days for the three months ended March 31, 2011 and the comparable period of 2010. Revenue days in the quarter ended March 31, 2011 totaled 9,592 compared with 8,773 in the same period a year earlier. A summary fleet list by vessel class can be found later in this press release.

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