Tuesday, February 22, 2000

Bill Gates buys a chunk of NNS
An SEC filing last week reveals that the world's richest man, Microsoft chairman Bill Gates has bought himself an 8% piece of Newport News Shipbuilding through his Cascade Investment LLC investment vehicle.

The investment means that Gates is now one of the shipbuilder's two top shareholders, sharing the number 1 position with First Manhattan Co., a New York investment company.

Yet more diesel consolidation
Alstom of France and MAN of Germany (parent of MAN B&W) have agreed terms for MAN to acquire Alstom´s diesel engine business. Effective March 31, 2000, MAN B&W Diesel AG, Augsburg, will take over Alstom Engines Ltd. (AEL) of the U.K . and its its brands Ruston, Paxman and Mirrlees Blackstone brands.

AEL is a worldwide supplier of medium and high speed diesel and gas-fueled engines with outputs ranging from 500 kW to 15,000 kW. Primary applications are in fast ferries, naval and coast guard ships, luxury yachts, locomotives, power stations and packaged generator sets. AEL employs some 1,500 people and has an annual sales of around $200 million. "Its business," says MAN, "is profitable."

For MAN the move is a diversification into profitable and growing markets for high speed engines as well as a valuable extension of its presence in the market for medium speed engines.

The AEL engines' output range is higher than the upper end of the engine lines supplied by MAN Nutzfahrzeuge AG. The takeover is expected to yield synergies in technological development, engine programmes and worldwide distribution in all areas of application. The Ruston, Paxman and Mirrlees Blackstone brands have developed excellent reputations in their respective markets and are complementary to the MAN and MAN B&W brands. The plan is to maintain the acquired business within the MAN family and to strengthen their technical and brand identities, bringing a wider range of products to a wider range of markets and place more resources at the disposal of customers.
For ALSTOM the proposed deal is in line with the decision announced a year ago to divest its non-core industrial businesses representing about Euro 850 million of sales by April 2000. The announcement of this sale is another step closer to the completion of this divestment process.

The acquisition is subject to the approval of MAN`s supervisory board and of the relevant regulatory authorities. It is anticipated that the transaction will be completed in May 2000. Consultation with employees of AEL and with key customers will commence immediately.

OSG has a profitable 1999
Overseas Shipholding Group, Inc. reports net income of $247,000, or $0.01 per share, for the quarter ended December 31, 1999, compared with a net loss of $74,431,000, or $2.02 per share, for thequarter ended December 31, 1998 (when results included a provision of $85.9 million--$55.9 million after tax--related to planned vessel dispositions and an extraordinary after-tax charge of $13.6 million for debt extinguishment.)

Net income for the year ended December 31, 1999 was $14,764,000, or $0.41 per share, versus a net loss of $37,920,000, or $1.03 per share, for the prior year. The 1999 results reflect an $8,100,000 after-tax gain,from the successful completion its vessel disposal program. They also include after-tax gains from the sale of marketable securities of $1,225,000 or $0.03 per share, compared with after-tax gains of $14,163,000, or $0.38 per share, during 1998.

In1999, OSG operated profitably "despite the reduction in tanker demand resulting from OPEC-led oil production cuts." Curtailment in tanker employment was exacerbated by an increase in the pace of newbuilding deliveries into the world tanker fleet. Accordingly, VLCC and Aframax rates in the fourth quarter continued a trend of successive quarterly decreases, with VLCC rates declining by 50% and Aframax rates by greater than 25% compared to the prior year's quarter. Tanker earnings were further eroded by the increase in bunker costs resulting from a nearly three-fold increase in oil prices.

OPEC countries and other large producers implemented oil production cutbacks averaging four million b/d for the last three quarters of 1999, even as Asian oil demand rose by 700,000 b/d in response to surging industrial output. Oil consumption in North America, propelled by robust gasoline demand, also increased by 540,000 b/d. Rising world oil demand, coupled with production cutbacks, resulted in sizeable declines in world oil inventories. OSG believes that such inventories will need to be replenished during 2000, benefiting VLCC and Aframax tanker employment and rates.

In the past year, OSG has become involved in a number of strategicalliances and joint ventures, These include Tankers International LLC., formed iwith A.P. Moller, Euronav, Frontline, Osprey Maritime and Reederei "Nord" Klaus E. Oldendorff. Tankers International,which commenced operations on February 1, 2000, was established to pool the participants' VLCC fleets. It will commercially manage a fleet of exclusively modern VLCCs initially numbering 39 vessels. By 2002, as the participants take delivery of newbuildings and vessels are redelivered from time charters, the fleet is expected to exceed 50 vessels. By consolidating the commercial operation of its substantial VLCC fleet into a unified transportation system, says OSG, Tankers will be able to offer to its customers "one-stop shopping" services for high-quality VLCC tonnage. The size of the fleet enables Tankers to become the logistics partner of major customers, providing new and improved tools to manage shipping programs, inventories and risk. Tankers is expected to enhance the financial performance of pool vessels through higher utilization and other operating efficiencies. Tankers will also seek to reduce operating costs by facilitating joint purchasing of goods and services by pool participants.

OSG has had an Aframax pooling agreement with PDV Marina, the marine transportation subsidiary of the Venezuelan state oil company, since1996. The OSG/PDVM pool, consisting of 20 vessels, constitutes critical mass in the Atlantic Basin, says OSG, By supplementing base load cargoes with backhauls and voyage triangulations, the pool enhances vessel utilization generating higher effective time charter rates than are otherwise attainable
in the market.

Building on a 30-year relationship, OSG and BP, along with Keystone Shipping Company ("Keystone"), last year successfully completed the formation of AlaskaTanker Company ("ATC"). ATC, which is owned 37.5% by OSG, 37.5% by Keystone, and 25% by BP, is "the premier quality provider of marine transportation services in the environmentally sensitive Alaskan crude oil trade."

ATC currently manages the vessels carrying BP's Alaskan crude oil. This transaction resulted in the conversion of OSG's long-term time charters into bareboat charters, generating core U. S. flag operating earnings averaging $15 million per year through 2005. OSG's participation in ATC also provides it with the opportunity to earn additional fee income based upon ATC's achieving certain predetermined performance criteria.

OSG operates a modern, diversified fleet of 47 vessels, including eight vessels on order, totaling 6.2 million dwt. During the year, the OSG concluded its ten vessel dry bulk disposal program and sold eight of its older, less efficient tankers. The eight vessels on order consist of four 308,700 dwt VLCCs and four 113,000 dwt, wide-bodied, shallow-draft Aframaxes. On delivery of these vessels, the average age of OSG's VLCC and Aframax fleets will be four years compared with world VLCC and Aframax fleets averaging 13 years and 11 years respectively.

New concept for offshore platform decommissioning
Norway's ProSafe ASA and engineering company Global Maritime say they have developed a new concept for removal of installations offshore. The concept is based on the use of semi-submersible service rigs and is expected to be certified within the next six months. Prosafe says the concept will then have been completely designed and engineered, so that construction can start immediately in the event of a contract award.

ProSafe believes that the market for decommissioning of offshore installations is growing, and wants to position itself for any platform decommissioning contracts on the Ekofisk, Frøy and Frigg fields, and also internationally--particularly in the U.K. sector of the North Sea. ProSafe has a strategy to increase the flexibility of the its North Sea accommodation- and service rigs in the North Sea. It plans a decommissioning rig that will retain its capacity to also serve contracts in the traditional accommodation market.

ProSafe and Global expect that a newbuild will cost approximately $48 million in addition to the value of the accommodation-and service rig. Based on low investment requirement and flexible application, the companies believe that the concept will be competitive compared to other currently known concepts for decommissioning of offshore installations.


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