November 9, 2005
U.S. Shipping Partners rethinks ATB plans
U.S. Shipping Partners L.P. (NYSE: USS) is rethinking its ATB newbuilding plans--and is buying a Jones Act chemical tanker.
In reporting its results of operations for its third quarter ended September 30, 2005, the partnership notes that In August 2004 it entered into a contract with Southern New England Shipyard Company (SENESCO) to build a 19,999 dwt articulated tug barge (ATB at a fixed price of $45.4 million to be delivered in early 2006.
The agreement also provided for options to build up to an additional three ATB's.
U.S. Shipping Partners says SENESCO has indicated it is "not able to complete the first ATB on the contract terms due to infrastructure problems and production line issues, and that the completion of the barge will be delayed."
The partnership says it "has entered into a revised agreement with SENESCO regarding completion of the ATB at another facility which SENESCO will operate. The total cost of completion of the ATB pursuant to the revised agreement will be approximately $53.0 million with a contracted delivery date of December 2006."
The revised agreement includes "substantial penalties for late delivery."
The partnership and SENESCO have "mutually agreed to cancel the options to have SENESCO build up to three additional ATBs at a fixed price."
While the partnership says it "believes that it can contract with other shipyards to deliver additional ATBs, no assurance can be given that the partnership will be successful contracting with other shipyards to build additional ATBs on terms acceptable to the partnership."
Elsewhere in today's announcement, the partnership notes that on September 9, 2005, it took delivery of the Houston, a 240,000 bbl Jones Act double-hulled product tanker. The purchase pricel, including legal, survey and other acquisition costs, was $25.3 million. The vessel was drydocked at a cost of $3.5 million and placed into service on October 13, 2005.
On November 2, 2005, the partnership entered into a memorandum of agreement to purchase the Sea Venture, a 19,000 dwt double-bottomed chemical/product tanker. This vessel was re-built in 1983 and is capable of carrying twenty different grades of product in independent cargo tanks.
The partnership says it expects to close the purchase of the Sea Venture in late November 2005 and immediately drydock the vessel. It estimates that the total cost to purchase and drydock the vessel will be approximately $12.0 million and plans to finance it with available cash or its current credit facility. The vessel is expected to join the partnership's fleet in April 2006.
The partnership says it "feels that the Sea Venture will provide valuable flexibility to its current and future customer base" and notes that "with the addition of the Sea Venture to its fleet, the Partnership will own three of the five Jones Act parcel tankers with twenty or more independent tank segregations and will further reinforce its position as the leading U.S. Jones Act owner of chemical-capable specialized tankers."
Paul Gridley, Chairman and CEO, stated, "The acquisition of the Houston is consistent with the partnership's strategy and has been integrated seamlessly into our existing operation. The Sea Venture will further strengthen our position in the Jones Act chemical trades when it enters service early next year. In addition, the third quarter results continue to demonstrate the strength and stability of our business."
For the three months ended September 30, 2005, the partnership reported net income of $4.5 million as compared to $6.5 million for the three months ended September 30, 2004. The decrease of $2.0 million resulted from a decrease of $3.3 million in operating income, partially offset by reduced interest expense. For the nine months ended September 30, 2005, net income increased to $17.0 million from $7.5 million for the nine months ended September 30, 2004. The increase of $9.5 million resulted primarily from an increase in operating income of $1.9 million and reductions in interest expense and loss on debt extinguishment of $3.4 million and $3.2 million, respectively. Net income per basic limited partnership unit was $0.32 for the three months ended September 30, 2005, as compared to $0.83 per unit for the three months ended September 30, 2004. Net income per basic limited partnership unit increased to $1.21 for the nine months ended September 30, 2005, as compared to $0.96 for the nine months ended September 30, 2004. The average number of basic limited partnership units outstanding increased to 13.8 million in the three and nine months ended 2005 from 7.8 million in the comparable 2004 periods as a result of the partnership's November 2004 initial public offering.
For the three months ended September 30, 2005, operating income was $6.0 million, compared to $9.3 million for the three months ended September 30, 2004. Increases in general and administrative expenses of $1.2 million coupled with a reduction in revenue of $3.1 million were partially offset by decreases in vessel operating expenses of $0.8 million and voyage expenses of $0.2 million. The decrease in revenue is partially attributable to scheduled drydock offhire days coupled with a slight decrease in time charter equivalent rates which was primarily the result of weather delays caused by the hurricanes. The remaining decreases in revenue, vessel operating expenses and voyage expenses were primarily attributable to the absence of a chartered-in vessel during the third quarter 2005. During the third quarter 2004, the partnership chartered-in a vessel to fulfill its obligations under contracts of affreightment. For the nine months ended September 30, 2005, operating income was $20.4 million, compared to $18.5 million for the nine months ended September 30, 2004. The increase of $1.9 million resulted primarily from the addition of the Charleston, which was delivered in April 2004.