Overseas Shipholding Group (OSG) Q2 2012 Earnings Call August 01, 2012 11:00 am ET Executives James I. Edelson - Senior Vice President, Secretary and General Counsel Morten Arntzen - Chief Executive Officer, President and Director
These statements are based on certain assumptions made by OSG management based on its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Forward-looking statements are subject to a number of risks, uncertainties and assumptions, many of which are beyond the control of OSG, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. Factors, risks and uncertainties that could cause the actual results to differ from the expectations reflected in these forward-looking statements are described in OSG's annual report on Form 10-K for 2011 and in other reports OSG files with the Securities and Exchange Commission.For this conference call, we have prepared and posted on OSG's website supporting slides that supplement our prepared remarks. The supporting presentation can be viewed and downloaded from the Investor Relations Webcasts and Presentations section on osg.com. With that out of the way, I'd like to turn the call over to our Chief Executive Officer and President, Morten Arntzen. Morten? Morten Arntzen Thanks, Jim. Good morning, everyone, and thank you for joining us on our second quarter call. With me in New York are Myles Itkin, our CFO; Lois Zabrocky, Chief Commercial Officer for all International Flag businesses; Janice Smith, our Chief Risk Officer; Jim Edelson, General Counsel; Jerry Miller, our Controller; and John Collins, Head of Investor Relations. Joining us from Newcastle is Captain Ian Blackley, Head of our International Flag Shipping Operations; and from Tampa, Captain Bob Johnston, led the U.S. Flag Unit. Please turn to Page 3 of presentation. When we spoke last May -- back in May, activity in our international flag markets was relatively healthy, especially in the larger crude classes and for MRs. Not long thereafter, demand's fell off in these segments as seasonal and technical factors reversed. Spot rates fell throughout May and then spent June at levels well below when the quarter opened, and that levels in some trade lanes close to operating cost breakeven levels.
We were still able to generate another $10 million operating cash flow in Q2 despite this, about the same as the first quarter with products. After booking April at a respectable $15,500 a day, rates fell through the $10,000 level and finished the quarter at operating cost breakeven levels.Activity in Atlantic fell off as product pricing fell on weak pre-summer demand on both sides of the Atlantic, and the arbitrage window closed in both directions. As weak as the Atlantic was, the Far Eastern markets were even weaker. This prompted many Eastern owners to reposition vessels to the Atlantic basin where our MRs are focused. This added competition and a loss of rate discipline exacted a heavy price on our MR spot market. So after an encouraging start to the quarter, our MR has averaged just about $10,000 a day with crude. The same pattern materialized in the larger crude classes as market players scrambled to build crude inventories before the Iran embargo kicked in on July 1. This was completed towards the end of May just as the typical pre-summer select was setting in. Then in June, the mishap of Motiva occurred, which took 10 to 15 VLCCs out of the AG-West trade. Suezmax spot rates followed VLCCs fairly closely, while Aframax activities remain subdued with spot rates similar to the past 12 months or so. Rates in International Crude and Products remain weak today. Read the rest of this transcript for free on seekingalpha.com