Thursday, July 20, 2000

OMI "positioned for record breaking earnings"

Stamford, CT, based tanker major OMI today reported net income of $9,328,000 or $0.16 basic/diluted earnings per share (EPS) for the second quarter 2000. This compares with a net loss of $33,172,000 or $0.80 basic/diluted loss per share in the second quarter 1999. For the six months ended June 30, 2000, the net loss was $642,000 or $0.01 basic/diluted loss per share compared to the net loss of $30,436,000 or $0.73 basic/diluted loss per share (including $0.07 income from the cumulative effect of the change in accounting principle) for the six months ended June 30, 1999.

OMI says that though April, May and June are traditionally considered to be 'slow' months in the shipping industry, "rates for Suezmax and ULCC vessels exceeded expectations during the second quarter and continue on an upward trend." However, bunker prices continued to increase , reducing earnings.

President and CEO Craig H. Stevenson, Jr. declared "OMI is strategically positioned to reach record breaking earnings with its younger, cost efficient tankers operating at a very exciting time in the international tanker market.'' He said "Our timing in disposing of older tonnage and acquiring newbuildings is fortuitous." The company's new Suezmaxes had led the way to strong second quarter cash flows.

Currently, OMI's fleet comprises 21 vessels, including three chartered-in vessels. The fleet includes five wholly-owned Suezmaxes, three chartered-in Suezmaxes, three 66,000 dwt product tankers currently carrying crude oil, nine handysize product carriers transporting clean products and one ULCC purchased from a joint venture partner June 30, 2000.

OMI participates in marketing alliances for its Suezmax and product carrier fleets. In 1998, OMI formed a joint venture, Alliance Chartering LLC, with Frontline Ltd., to charter both companies' Suezmaxes. This joint venture currently maintains a significant market share in the Suezmax market segment. In 1999, OMI entered into a joint venture, International Product Carriers Limited ("IPC") with Osprey Maritime Limited for midsize product tankers. This joint venture began operations on May 1, 1999. Currently, seven of OMI's nine product carriers are operating under adjustable rate time charters with IPC.

During the second quarter, the OMI's spot market vessels (seven Suezmaxes, three Panamaxes and seven product carriers) averaged daily time charter equivalents of $27,200 for Suezmaxes, $16,900 for Panamaxes and $10,800 for the product carriers. "Rates for voyages thus far booked in the third quarter are higher than the previous quarter's average in all vessel categories, significantly so in Suezmaxes," says OMI.



Suezmax Tanker Market

After a very difficult tanker market in 1999, TCEs for crude carriers have recovered sharply in the first half of 2000, and in the second quarter, reached very high levels not seen since the last Iraqi/Kuwaiti brief conflict in early 1991. It should be noted that in contrast to the freight rate gains during the Iraqi/Kuwaiti political crisis, the current tanker market improvement reflects market fundamentals and as a result is expected to last longer than the previous spike.

The crude tanker rate improvement has been the result of increasing world oil demand at a time of very low oil inventory levels, increased crude oil seaborne volumes as OPEC oil producers have raised oil production twice by the total of 2.4 million b/d so far this year, relatively high tanker scrapping activity in the first half of 2000, as well as a reduction of the tanker supply from the year-end 1999 level.

The positive outlook for the crude tanker market is expected to continue as a result of the need for additional oil production by OPEC, in excess of that announced recently (Saudi Arabia has announced its intention to increase oil production by another 0.5 million b/d in the near future), to accommodate the seasonal world oil demand gains in the winter months at a time when oil inventories are expected to continue at very low levels. To the extent that most of the excess world crude oil production capacity is in the long-haul Middle East, the need for more oil will enhance tanker tonne-mile demand with a positive effect on tanker TCEs. In addition, stricter enforcement of existing tanker regulations by classification societies, stricter inspections by charterers and the planning of new tanker regulations by the European Union, in line with the U.S. OPA 90, will tighten controls of tankers trading in European waters, make employment of old tankers more difficult and force deletions of unsuitable tonnage. Given the tanker orderbook for delivery in the balance of 2000, the relatively low newbuilding deliveries next year and the tanker fleet age demographics the level of tanker scrappings will determine the degree of tanker TCE gains.

Product Tanker Market

The product tanker market improved further in the second quarter 2000, and TCEs for handysize product tankers in the Caribbean reached levels not seen since the same period three years ago. This was due to tightness in the gasoline and distillate markets in the Atlantic region that has created long haul trading opportunities, and a smaller than expected increase in the product tanker fleet due to high scrapping activity.

A firm product tanker market is expected for the foreseeable future as a result of increasing world oil demand, very low oil product inventories in the U.S. and Western Europe, regional imbalances in oil product consumption and production that have created changes in the pattern of petroleum product trades toward longer haul movements, and continuous scrapping of old tonnage as charterers focus more on tonnage quality. Furthermore, oil product imports are expected to increase in the U.S., Western Europe and the Pacific region as oil demand growth is expected to exceed refinery capacity growth in these areas in the next few years.

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