November 2, 2010
OSG results reflect tanker market challenges
Overseas Shipholding Group, Inc. (NYSE: OSG) reports results that, in the words of President and CEO Morten Arntzen, "reflect the continuing challenges facing the global tanker industry in 2010."
For the quarter ended September 30, 2010, OSG reported TCE (time charter equivalent) revenues of $208.6 million, a marginal increase from $207.3 million in the third quarter of 2009. Quarter-over-quarter TCE revenues were impacted by the mix of spot and time charter voyages. Sixty-three percent of the company's TCE revenues were derived from spot earnings in the third quarter of 2010 compared with 43 percent in the year ago period.
Net loss for the quarter ended September 30, 2010 was $31.8 million, or $1.06 per diluted share, compared with a loss of $19.6 million, or $0.73 per diluted share, in the same period a year ago. Adjusted for special items, third quarter loss was $26.8 million, or $0.89 per diluted share, compared with a loss in the third quarter of 2009 of $26.3 million, or $0.98 per diluted share. Details on special items are provided later in this press release.
"Although world oil demand is recovering from the trough of 2009," said Mr. Arntzen, "high levels of vessel deliveries, sluggish ton-mile growth and modest North America oil demand have negatively impacted our results. In this difficult spot market, we are focused on strengthening our businesses and taking all measures within our control that enhance our long-term prospects. We continue to improve and execute our newbuilding and conversion program and took delivery of Overseas Anacortes which began a three-year charter to Tesoro at an attractive level. We completed another round of restructuring our Products newbuilding contracts resulting in a win for OSG. The FSO Africa commenced a three-year service contract, which will significantly improve the results on this vessel in the fourth quarter and beyond. I am pleased that we continue to control expenses both ashore and at sea without diminishing the quality of service to our customers or the technical performance of our fleet."
Mr. Arntzen concluded, "The pace of the global economic recovery remains uncertain, thus continued financial discipline is critical. I am confident that our market-leading commercial and technical platforms in Crude, Products and U.S. Flag, combined with our strong balance sheet and liquidity position, will enable OSG to emerge at the head of the pack when our markets recover."
Vessel expenses were $64.0 million, a 4 percent decrease from $66.7 million in the same period a year ago. OSG says the decline is principally attributable to lower crew costs, timing of delivery of lubricating oils and reduced expenses for stores and spares and repairs in the crude and products fleets in the current period.
OSG says it has actively managed its products order book over the past 18 months by negotiating price reductions, vessel swaps and modified delivery dates.
On August 17, 2010, the Overseas Kythnos delivered. The 50,284 dwt MR product carrier was bareboat chartered-in for five years. On October 26, OSG purchased the vessel and canceled the bareboat charter-in commitment. The vessel is part of the company's core fleet of medium-range product carriers that trade predominantly in the Atlantic Basin;
In October 2010, OSG finalized amendments to certain construction contracts, the result of which was to replace contracts for two LR1s with scheduled delivery dates in 2011 with two crude Aframaxes slated to deliver in 2013. These amendments increase the company's remaining construction commitments by less than $5 million; and
On August 31, 2010, Overseas Anacortes delivered. The vessel, a 46,656 dwt U.S. Flag Jones Act product carrier, is bareboat chartered-in for five years and the company has extension options for the life of the vessel. The vessel has been chartered-out to Tesoro for three years;
On July 1, 2010 and August 18, 2010, Overseas Philadelphia and Overseas Diligence were sold, respectively.
As of September 30, 2010, five U.S. Flag vessels remain in layup, including Overseas Galena Bay, which is classified as held for sale on the company's balance sheet as of September 30, 2010 and expected to be sold in the fourth quarter of 2010.