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May 9, 2001
OSG income soars
Results for the first quarter of 2001 include an after-tax restructuring charge of $5,554,000. Results for the 2000 quarter include income of $4,152,000, or $.12 per share, arising from an accounting change.
"These results," said chairman and CEO Morton P. Hyman, "reflect not only significant rate improvement for all classes of the companys foreign flag vessels, but also the improvement in vessel utilization and profitability achieved through OSGs participation in the Tankers International (Tankers``) VLCC pool and the PDV Marina/OSG Aframax pool,"
TCE revenues continued to benefit fromOSGs participation in commercial alliances that create opportunities to enhance vessel returns through improved fleet utilization.
Hyman serves as chairman of the Tankers VLCC pool of 50 modern vessels which due to the size and scope of pool operations has been able to enter into contracts of affreightment, obtain backhaul cargoes and achieve scheduling efficiencies.
Tankers has been a leader in developing increased triangulation opportunities arising from growing VLCC shipments from West Africa to the Far East.
OSG generated over $70 million in cash flow from operating activities in the first quarter enabling it to reduce its adjusted debt to capital ratio to 42.2%, well below its target of 50%. This improvement in leverage has been achieved even as the Company has made payments of 70% of its $750 million commitment for fleet renewal.
OSG says that IMO's revised pase out schedule for single hull tankers means that approximately 76 million dwt of the world tanker fleet will be forced to cease trading by the end of 2006, including 30% of the existing VLCC fleet aggregating 39.4 million dwt. In 2004, 40 VLCCs (11.2 million dwt) and in 2005, 64 VLCCs (20.7 million dwt) will be required to be scrapped. The new regulations will benefit OSG and other owners who have invested in modern double-hulled vessels.
OSGs current $750 million 16-vessel fleet renewal program will add 6 VLCC and 6 Aframax newbuildings, and 4 modern second hand vessels to the OSG fleet. On completion of the program, 93% of OSGs international fleet will be protected by double hulls, double sides or double bottoms.
OSG says rates for tankers remained strong in the first quarter, although below peak levels achieved in late 2000. This moderation in rates reflects the effect of OPECs 1.5 million barrels per day (bpd) quota reduction in February as well as reduced quantities of Iraqi shipments owing to disputes over application of the U.N. sanctions. Even so, average daily OPEC production during the first quarter was only 550,000 bpd less than in the fourth quarter of 2000, while remaining 1.9 million bpd above that of the first quarter of 2000. OPECs announcement of a further 1 million bpd quota reduction effective April 1, 2001 contrasts with an increase of 1.9 million bpd, or 2.5%, in world oil consumption in the first quarter of 2001 compared with the same year-ago period.
The historically low level of current crude oil stocks, and the expectation of 1.5% growth in world oil consumption for the balance of this year, should provide support for tanker markets in the second half of this year.