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August 9, 2001

Ship recycling code issued
In an effort to address concerns about conditions in the international ship scrapping industry, leading shipping industry organizations have launched a Code of Practice on Ship Recycling.

It is the product of a working party representing the Chamber of Shipping (ICS), BIMCO, Intercargo, Intertanko, ITOPF, ITF and OCIMF.

It outlines the measures that shipowners should be prepared to take before disposing of ships for scrap.. 

Speaking at the launch in London the chairman of the working party, ICS Secretary General, Chris Horrocksdescribed the code as "a concerted response to the concerns that have been raised about the working and environmental conditions in some of the world's ship recycling facilities, almost all of which are located in developing countries."

While the shipping industry cannot determine the conditions in the recycling yards," said Horrocks, "it can take some practical steps to reduce the risks associated with the dismantling of ships."

In addition to covering the measures that shipowners might take prior to the delivery of ships at recycling yards, such as the cleaning and certification of tanks to hot works and entry standards, the Code incorporates an Inventory of Potentially Hazardous Materials on Board. This is intended for completion on a ship's last voyage prior to being broken up. Copies of the inventory, suitable for completion, can be downloaded at www.marisec.org/recycling.

Horrocks said that the production of the code should be seen as a first step:

"We intend to pursue the dialogue with all the parties that have responsibility for ship recycling standards, both inter-governmentally and at industry level," he said.

"For instance, we aim to discuss with shipbuilders the need to design ships with their ultimate disposal in mind, and perhaps to develop a 'green passport' for new ships, detailing the materials used in their construction and up-dated as necessary during the working life of the vessel.

"We aim to continue discussions with the ship recycling yards, and perhaps encourage them to develop their own code in relation to shore-based practices.

"Above all, we have to emphasize that ship recycling is not only a necessary but also an essentially 'green' industry which plays an essential part in the elimination of ships at the end of their working lives."

Shell plans floating LNG terminal for Timor Sea
Shell Development (Australia) Pty Ltd (SDA) is proposing to use the world's first floating liquefied natural gas (FLNG) technology to develop the Greater Sunrise gas fields in the Timor Sea.

The facility would be located offshore on a barge, close to the proposed Sunrise drilling platform. It would be an industry first, placing Australia in the forefront of applying advanced LNG engineering.

Dr. Alan Parsley, CEO of SDA, said: "This breakthrough results from an innovative combination of three well-established technologies: Floating Production Storage and Offtake (FPSO) vessels for oil production, LNG shipping and LNG plant design."

"Based on our extensive experience in each of these areas," he said, "we have been able to propose a project which will deliver world class cost, environmental and safety performance. As a demonstration of confidence in this new technology, Shell will stand behind the FLNG proposal."

As well as manufacturing LNG, the barge offers the option of compressing gas for delivery by pipeline to Darwin, which would support the development of new industries in the area and provide for the longer-term supply of gas to customers in the eastern states of Australia.

SDA outlined the proposal to the joint venturers in the Sunrise gas fields, who will compare its merits with an onshore LNG development proposal made earlier this year by Phillips Petroleum. The FLNG barge can be delivered within the overall schedule for development of Sunrise.

Dr Parsley continued: "We have been seeking a formula for the development of our gas resources in the Timor Sea which is commercially and environmentally sound, and with this package we believe we have found it. The combination of FLNG and the potential to supply gas to shore provides the foundation for a huge gas development project that will boost the economies of Australia and East Timor.
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"The Floating LNG approach to development of Sunrise offers cost reductions over construction of an onshore plant and thus generates commercial returns for shareholders in Sunrise, and substantial tax revenues which will deliver benefits for the people of Australia and East Timor.

"Sunrise developed with FLNG also delivers superior environmental performance, with reduced greenhouse gas emissions.

"The project proposed by Shell is in line with our commitment to sustainable development, offering commercial, environmental and social benefits to Australia and East Timor.

"The decision to deploy this breakthrough technology is evidence of the strategic importance the Royal Dutch/Shell Group places on development of its gas resources in the Timor Sea."

OSG earnings soar
Overseas Shipholding Group, Inc. reported sharply higher net income for the quarter ended June 30, 2001 of $42.7 million, or $1.25 per share, compared with net income of $11.0 million, or $.32 per share, in the second quarter of 2000.

Results for the second quarter of 2001 include an $11.6 million, or $.33 per share, after-tax gain on securities transactions compared with $246,000, or $.01 per share, in the second quarter of last year. Net shipping revenues for the current quarter rose to $106.6 million versus $79.2 million in the same year ago period and operating income more than doubled to $51.7 million from $25.6 million.

Net income for the first six months of 2001 reached $83.1 million, or $2.44 per share, versus $16.0 million, or $.47 per share, for the corresponding period of 2000. Results for the first half of 2001 include the aforementioned gain on securities transactions offset by an after-tax restructuring charge of $5.7 million, or $.17 per share, to cover costs associated with the reduction of staff at the New York headquarters and the transfer of ship management and administrative functions to our subsidiary in Newcastle, U.K. Results for the first six months of 2000 included $1.7 million, or $.05 per share, from securities transactions and $4.2 million, or $.12 per share, arising from a change from completed voyage method to percentage completion method of accounting for voyage revenues. Net shipping revenues for the six months ended June 30, 2001 totaled $233.3 million, an increase of 66% over the $140.3 million recorded in the same period of 2000. Operating income for the first half of 2001 was $114.5 million, a more than three-fold increase over the $31.6 million reflected in the first half of 2000.

The improvement in operating results for 2001 compared with 2000 reflects substantial increases in time charter equivalent ("TCE") rates for all classes of the OSG's foreign flag tankers and an increase in the size of our operating fleet.

Morton P. Hyman, Chairman and Chief Executive Officer of the Company, said "We are pleased to report robust second quarter earnings reflecting not only the relative strength of the shipping markets, but also the company's ability to consistently outperform those markets through enhanced vessel utilization. Our unique VLCC and Aframax pools enable us to achieve scheduling efficiencies and to undertake contracts of affreightment with major oil companies that optimize vessel returns and enhance the value of our franchise in the VLCC and Aframax markets."

In June 2001, OSG agreed to acquire a one-third interest in a joint venture formed to purchase six new VLCCs from Bergesen d.y. ASA, a major Norwegian owner. Two of these vessels completed earlier in the year were delivered to the joint venture in July 2001. Two vessels built in 2000 are expected to be delivered to the joint venture by the end of the third quarter. The remaining two are expected to be delivered to the joint venture upon completion of construction in February and July 2002. OSG's joint venture partners are Frontline Ltd. and Euronav Luxembourg S.A., with whom the OSG holds interests in three additional modern VLCCs. The three joint venture partners are founding members of the Tankers International LLC ("Tankers") pool, the world's largest commercial operator of modern VLCCs.

Since the early part of 2000, OSG has taken delivery of four newbuildings (two VLCCs and two Aframaxes) and entered into transactions providing for the joint ownership of nine modern VLCCs and a modern Aframax tanker. All fourteen of these vessels together with the eight remaining newbuildings are or will, upon delivery, be employed in the Company's strategic commercial alliances with the Tankers VLCC pool and OSG's Aframax pool with PDV Marina, the marine transportation subsidiary of the Venezuelan state oil company. The Company will take delivery of its latest double-hulled VLCC (Overseas Ann) in mid August.

Progress payments on vessels under construction and investments in joint ventures aggregated more than $70 million during the six months ended June 30, 2001. Even as the Company satisfied such obligations, the ratio of cash adjusted debt to capitalization has improved to 39.5% from 45.5% as of December 31, 2000. With additional capital expenditures of approximately $95 million during the balance of the year in connection with its newbuilding program and investments in joint ventures, the cash adjusted debt to capitalization ratio is expected to be approximately 40% at year end.

TCE rates for the company's foreign flag tankers declined dramatically during the second quarter from the levels prevailing in the first quarter of 2001 as OPEC implemented production cuts in response to a slowdown in the world economy and normal seasonal reduction in oil demand. Through late July, cumulative cuts announced by OPEC since the end of 2000 amounted to 3.5 million barrels per day ("mbd"), 1.0 mbd of which is scheduled to go into effect this September 1. The effect of OPEC cuts was exacerbated during the six week period ending in mid July when Iraq halted export of 2.2 mbd of crude oil due to disputes over the application of United Nations sanctions. World oil demand in the first half of the year averaged only 0.7 mbd higher than in the comparable year-ago period, a 0.9% increase. In light of recent faltering world industrial output and consumer demand and high energy prices, IEA now forecasts world oil demand growth of only 0.5% for all of 2001. The resulting decline in second quarter TCE rates will be more fully reflected in actual voyage results in the third quarter.

The size of the world tanker fleet remained virtually unchanged in the second quarter at 273.1 million deadweight tons ("mdwt") as newbuilding deliveries of 4.7 mdwt were offset by scrap sales of 4.0 mdwt and conversions and losses of 0.7 mdwt. Scrap sales increased significantly in the second quarter in response to weakening tanker rates. Ten VLCCs were scrapped in the current quarter compared to two in the prior quarter resulting in 17 VLCCs being removed from service in the first half of the year. The VLCC orderbook declined by 0.9 mdwt in the second quarter to 26.8 mdwt, or 20.8% of the existing VLCC fleet; 28.7% of the existing fleet is 20 years of age or older. Conversely, contracting for Aframaxes during the quarter exceeded 3.2 mdwt (31 vessels) bringing the Aframax orderbook to a record 12.1 mdwt, or 23% of the existing Aframax fleet; 25.9% of the existing fleet is 20 years of age or older. Although increased ordering over the past year will result in a larger number of deliveries to the world fleet in 2002 and 2003, customer preferences and governmental authority requirements increasingly favor modern, double-hulled tonnage. This, together with new regulations adopted in April by the International Maritime Organization that accelerate the phase-out of older, single-hulled tankers, should offset these newbuilding deliveries. Upon completion of its fleet renewal program 93% of OSG's VLCC fleet will be double-hulled, double-sided or double-bottomed in comparison to 39% of the current world VLCC fleet; 100% of OSG's Aframax fleet will be double-hulled, double-sided or double-bottomed in comparison to 58% of the current world Aframax fleet.

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