OSG Reports Fiscal 2007 and Fourth Quarter Results

1/22/2008 11:40:47 AM


HIGHLIGHTS

-- TCE revenues were $251.8 million, an increase from $241.6 million quarter-over-quarter

-- Net income was $21.0 million, a decline from $113.2 million quarter-over-quarter

-- Diluted EPS was $0.67 compared with $2.86 quarter-over-quarter

-- 8.3 million shares repurchased during fiscal 2007 or 20.9% of total shares outstanding

-- Sale of 24.5% limited partner interest in OSG America L.P. completed, enhancing visibility of U.S. Flag fleet

NEW YORK--(BUSINESS WIRE)--Feb. 26, 2008--Overseas Shipholding Group, Inc. (NYSE: OSG), a market leader in providing energy transportation services, today reported results for the fiscal year and fourth quarter of 2007.

For the fiscal year ended December 31, 2007, the Company reported a 5% increase in time charter equivalent(1) (TCE) revenues to $1,039.2 million from $992.8 million in 2006. Although net income declined $181.4 million, or 46%, to $211.3 million for the fiscal year 2007 compared with $392.7 million in fiscal 2006, EBITDA(1) in the same period decreased 20% to $476.3 million from $595.1 million in 2006. Diluted earnings per share declined 38% to $6.16 per share in 2007 from $9.92 per diluted share a year ago. In 2007, gains on vessel sales and sale of securities totaled $48.3 million, or $0.99 per diluted share, compared with $74.1 million, or $1.56 per diluted share, in 2006.

For the quarter ended December 31, 2007, TCE revenues were $251.8 million, an 4% increase from $241.6 million for the same period of 2006. The growth in TCE revenues reflects an increase of 1,600 revenue days across all segments of the Company's fleet (see Spot and Time Charter TCE Rates Achieved and Revenue Days table, found later in this release). The impact of this increase in days was substantially offset by higher fuel costs and a significant weakening in spot rates for the Company's VLCCs, Aframaxes and Handysize Product Carriers as the market switched from contango (when the price of oil in the futures market is higher than the current market price) to backwardation (when the current market price of oil is higher than the futures market). The switch to backwardation adversely impacted seaborne crude oil movements in all tanker categories as it became more economical for refiners to drawdown on crude oil inventories. Rates for VLCCs, Aframaxes and Handysize Product Carriers fell to their lowest levels in the last three years in early November before picking up significantly in late November. EBITDA for the quarter decreased 48% to $88.9 million from $170.3 million in the comparable period of 2006. Net income for the period decreased to $21.0 million, and diluted EPS decreased to $0.67 per share compared with $113.2 million, or $2.86 per diluted share, for the same period a year ago. Net income in the fourth quarter of 2006 benefited from gains on vessel sales and sale of securities of $53.1 million, or $1.12 per diluted share. Period-over-period diluted EPS also benefited from the Company's repurchase of 21.7% of total shares outstanding since September 2006.

TCE revenues in the fourth quarter of 2007 for the International Crude Oil Tanker segment were $134.8 million, a decrease of $20.5 million, or 13%, from $155.3 million, in the same period of 2006. The decrease was principally due to significant declines in the daily TCE rates earned for the VLCCs and Aframaxes, partially offset by the inclusion of the results of Heidmar Lightering from April 1, 2007. TCE revenues for the International Product Carrier segment were $59.4 million, up $5.0 million, or 9%, from $54.4 million in the year earlier period. The growth was principally attributable to the delivery of two LR1 (Panamax) Product Carriers during the third quarter of 2007. TCE revenues from the U.S. segment were $50.6 million, up $22.5 million, or 80%, from $28.1 million in the same quarter a year earlier, reflecting the acquisition of Maritrans and the delivery of three product carriers, the Overseas Houston, the Overseas Long Beach and the Overseas Los Angeles in 2007. The balance of TCE revenues were derived from the Company's two International Flag dry bulk carriers and one car carrier, the Overseas Joyce, which was reflagged under the Marshall Islands flag in late October.

"OSG's expansion and diversification has created a global shipping company that is well-positioned to thrive in any market," stated Morten Arntzen, President and CEO of OSG. "In 2007, we strengthened our leadership position in each of the markets we trade. The acquisition of Heidmar Lightering, the IPO of substantially all of the assets in our U.S. Flag unit structured as a master limited partnership, the expansion and diversification of our crude oil and product fleets with Suezmax and LR1 tankers, and our entrance into the U.S. ultra-deepwater shuttle tanker trade, were just a few of the transactions undertaken to increase earnings and cash flows in the future. In the last 18 months we repurchased nearly 22% of our total outstanding stock, and in 2007, our shareholders enjoyed a 32.2% year-over-year gain in our stock price compared with the Dow Jones Transportation (DJT) average of less than 1%." Arntzen concluded, "Indications are that the first quarter of 2008 will be a strong start to the year."

Income from vessel operations was $29.0 million in the fourth quarter of 2007, a 71% decrease from $98.1 million in the same period a year earlier. For the quarter ended December 31, 2007, total operating expenses increased 53%, or $86.2 million, to $247.8 million from $161.6 million in the corresponding quarter in 2006. The increase in operating expenses was principally the result of the inclusion of the Maritrans and the Heidmar Lightering acquisitions, a $28.5 million reduction in the quarter-over-quarter results from disposal of vessels and an increase in chartered-in tonnage. As of December 31, 2007, OSG chartered in 53 vessels compared with 43 a year earlier.

FINANCIAL HIGHLIGHTS

Share Repurchase. From October 1, 2007 through December 31, 2007, OSG repurchased 125,000 shares at an average price per share of $61.62. Since the initial announcement of its share repurchase program on June 9, 2006, the Company has repurchased 8.6 million shares, constituting 21.7% of total shares outstanding at a total cost of $569.5 million. The Company's current $200 million repurchase program has a total of $44.8 million that remains outstanding.

Future Locked-in Revenue. Future revenues associated with noncancelable term charters as of December 31, 2007, totaled $1.8 billion including time charters entered into by the Aframax International pool and fixed rate contracts of affreightment from the U.S. Flag lightering operation. Such future revenues exclude the Gas segment.

OSG America L.P. Initial Public Offering. On November 15, 2007, OSG completed the initial public offering of OSG America L.P., a master limited partnership, issuing 7.5 million common units, priced at $19.00 per unit. The transaction generated $129.3 million in proceeds to OSG, which the Company used to pay down debt in the fourth quarter. OSG America L.P. trades on the New York Stock Exchange under the ticker "OSP". OSG executed the transaction in order to enhance the valuation of its U.S. Flag assets, which as a stand alone entity, is expected to be valued at a premium due to the more predictable nature of cash flows generated by medium and longer-term charters. At December 31, 2007, the OSG America, L.P. fleet comprised 18 U.S. Flag product carriers and tug barges, a newbuild fleet of five product carriers and one ATB being converted to double hull configuration and options to purchase or bareboat charter an additional 10 vessels upon delivery.

OSG owns a 75.5% interest in OSG America, including a 2% general partner interest.

RECENT ACTIVITIES AND QUARTERLY EVENTS

Crude Oil Tankers

Fleet Deliveries

On December 4, 2007, OSG took delivery of the Overseas Newcastle, a 2001-built 164,000 dwt Suezmax tanker that has been bareboat chartered-in for seven years. On January 28, 2008, OSG took delivery of the Overseas London, a 2000-built 153,000 dwt Suezmax tanker that has been bareboat chartered-in for 10 years. Both ships trade in the spot market.

On November 26, 2007, the Action, a 116,000 dwt Aframax newbuild commenced a three-year time charter-in, in which OSG has a 50% interest. The vessel trades in the Aframax International commercial pool.

Other Fleet Activity

On December 18, 2007 and January 25, 2008, the Overseas Beryl and the Overseas Eliane, respectively, joined the International Flag crude oil lightering fleet as dedicated lightering vessels. OSG's International Flag lightering fleet now totals five vessels and three workboats.

Product Carriers

Fleet Expansion

On October 30, 2007, OSG exercised its option to build two additional 73,500 dwt coated Panamax Product Carriers, or LR1 tankers, at the SPP Plant and Shipbuilding Co. Ltd. based in Tong Yang, South Korea. The vessels are scheduled for delivery in the third and fourth quarters of 2011, respectively.

On January 9, 2008, the Company sold and bareboat chartered back the 1998-built Overseas Rimar, a Handysize Product Carrier. The estimated $12 million gain from the sale will be deferred and amortized over the seven and one-half year term of the charter back as a reduction of charter hire expense. OSG has an option to purchase the vessel at the end of the charter-in period.

On January 29, 2008, OSG took delivery of the Overseas Serifos, a 50,000 dwt Product Carrier, under a 10-year bareboat charter.

U.S.

Fleet Expansion

On October 3, 2007, OSG announced a definitive agreement to bareboat charter-in two additional MT-46 Jones Act Product Carriers for initial terms of 10 years. The ships, which are to be built at the Aker Philadelphia Shipyard, will be converted to shuttle tankers. The order brings the number of Jones Act tankers OSG has committed to charter from Aker to twelve.

Fleet Diversification

On October 5, 2007, OSG announced its entrance into the U.S. Gulf of Mexico shuttle tanker business, exclusively a Jones Act trade. The Company will charter two Jones Act shuttle tankers to Petrobras America, Inc. Commencing with the expected delivery of the converted ships to Petrobras in the first quarters of 2010 and 2011, OSG will transport oil from ultra-deepwater fields, Chinook and Cascade, for initial periods of five and four years, respectively. This will be the first FPSO and shuttle tanker project in U.S. Gulf of Mexico waters.

Fleet Delivery

On November 16, 2007, OSG took delivery of the Overseas Los Angeles, the third in the 12-ship order placed at the Aker Philadelphia Shipyard. The vessel, which has been chartered to BP, began trading in November.

Gas

Four OSG Q-Flex carriers delivered and commenced 25-year time charters during the fourth quarter 2007 and first quarter 2008. The Al Gattara delivered on November 6 and began trading on November 23, the Tembek delivered on November 19 and began trading on December 6, the Al Gharrafa delivered on January 11 and began trading on January 28 and the Al Hamla delivered on February 15 and is expected to begin trading on March 3. OSG has a 49.9% ownership interest in the joint venture entity that owns the LNG carriers.

FLEET METRICS AND CORPORATE STATISTICS

As of December 31, 2007, OSG's owned or operated fleet totaled 112 International Flag and U.S. Flag vessels compared with 103 at December 31, 2006. Fifty-three percent, or 59 vessels, were owned as of December 31, 2007, with the remaining vessels bareboat or time chartered-in. OSG's newbuild program of chartered-in and owned vessels totaled 44 and spanned all lines of business. A detailed fleet list and updates on vessels under construction can be found in the Fleet section of www.osg.com.

Revenue days in the quarter ended December 31, 2007 totaled 9,287 compared with 7,688 in the same period a year earlier. The increase principally reflects the addition of the former Maritrans fleet on November 28, 2006, the OSG Lightering fleet in April 2007 and the net delivery of approximately (based on operating days) five vessels since December 2006. Revenue days by segment can be found in Spot and Time Charter TCE Rates Achieved and Revenue Days, later in this press release.

FINANCIAL PROFILE

At December 31, 2007, stockholders' equity and liquidity, including undrawn bank facilities, each exceeded $1.8 billion. Total long-term debt as of December 30, 2007 was $1.6 billion compared with $1.3 billion at December 31, 2006. Liquidity adjusted debt to capital was 32.6% as of December 31, 2007, compared with 14.8% as of December 31, 2006. Liquidity adjusted debt is defined as long-term debt reduced by cash and the Capital Construction Fund. The increase in liquidity adjusted debt primarily reflects $551 million used for share repurchases in 2007.

OSG - Overseas Shipholding Group, Inc.- 2008 News Releases