Overseas Shipholding Group Reports First Quarter 2008 Results

1/22/2008 11:40:47 AM


Highest Ever First Quarter TCE Revenues Driven by Strong Crude Oil Rates; 67% Quarter-over-Quarter EPS Increase Further Enhanced by Share Repurchase Program

NEW YORK--(BUSINESS WIRE)--April 29, 2008--Overseas Shipholding Group, Inc. (NYSE:OSG):

HIGHLIGHTS

* TCE revenues were $375.8 million, a 45% increase from $259.2 million quarter-over-quarter

* Net income was $112.4 million, a 33% increase from $84.7 million quarter-over-quarter

* Diluted EPS was $3.60 per share, a 67% increase from $2.16 quarter-over-quarter

* Shares repurchased during the first quarter totaled 400,000

* Bond redemption announced to repurchase all $176,115,000 outstanding of 8.25% Senior Notes due March 2013

Overseas Shipholding Group, Inc. (NYSE: OSG), a market leader in providing energy transportation services, today reported results for the first quarter of fiscal 2008.

For the quarter ended March 31, 2008, TCE revenues(1) were $375.8 million, a 45% increase from $259.2 million for the same period of 2007. The growth in TCE revenues reflects an increase of 1,052 revenue days primarily in the International Crude Oil and Product Carrier segments, and a more than 100% increase quarter-over-quarter in VLCC spot charter rates. EBITDA for the quarter increased 22% to $178.4 million from $146.1 million in the comparable period of 2007. Net income for the period increased 33% to $112.4 million, and diluted EPS increased 67% to $3.60 per share compared with $84.7 million, or $2.16 per share, for the same period a year ago. Net income in the first quarter of 2007 benefited from a gain on sale of securities of $15.0 million, or $0.25 per diluted share. Period-over-period diluted EPS also benefited from the Company's repurchase of 19.3% of total shares outstanding since March 31, 2007.

Morten Arntzen, President and CEO of OSG, commented, "As anticipated, superior first quarter results reflect the strength of the crude oil tanker market and the strong performance of our product tanker business. We are building long-term sustainable value for shareholders by taking a portfolio approach to running this business. While we have continued to strengthen and grow our spot-oriented crude transportation business, we have diversified our fleet, built a substantial book of locked-in future revenue and expanded in businesses providing for earnings and cash flow stability." Arntzen continued, "It is based on OSG's quality, scalable platform that we are able to expand into new, higher margin businesses and win projects such as the U.S. Gulf shuttle tanker business and the FSO charter for one of our ULCCs. Embarking on my fifth year at OSG, I've never felt better about how the business looks than I do today. Looking at what we've achieved and seeing the commercial and technical platform we have in place to support our growth plans makes me confident about what OSG can achieve going forward and the results we can deliver for our shareholders."

TCE revenues in the first quarter of 2008 for the International Crude Oil segment were $248.9 million, an increase of $102.1 million, or 70%, from $146.8 million, in the same period of 2007. The increase was principally due to increases in rates earned by VLCCs as OPEC increased their quota production by 500,000 barrels per day, resulting in additional long-haul movements from the Middle East to both the Far East and the United States. Revenue days in the International Crude Oil unit increased by 767. OSG Lightering, a unit of the International Crude Oil segment, added $18.7 million or 508 revenue days in the period. TCE revenues for the International Product Carrier segment were $66.4 million, up $8.5 million, or 15%, from $57.9 million in the year earlier period. The growth was principally attributable to an increase in revenue days from the delivery of four vessels after January 1, 2007. TCE revenues from the U.S. segment were $52.8 million, up $3.2 million, or 6%, from $49.6 million in the same quarter a year earlier. This reflects the delivery of the Overseas Houston, Overseas Long Beach and the Overseas Los Angeles in 2007, offset by the sale of two dry bulk carriers and the reflagging of one car carrier under the Marshall Islands flag in 2007. The balance of TCE revenues were derived from the Company's two International Flag dry bulk carriers and, in 2008, one car carrier.

Income from vessel operations was $127.4 million in the first quarter of 2008, a 65% increase from $77.4 million in the same period a year earlier. For the quarter ended March 31, 2008, total operating expenses increased 43%, or $85.4 million, to $283.3 million from $197.9 million in the corresponding quarter in 2007. The increase in operating expenses was principally the result of the acquisition of the Heidmar lightering business effective April 2007, and an increase in chartered-in tonnage in the International Crude Oil and Product Carrier segments. As of March 31, 2008, OSG chartered in 56 vessels compared with 48 at March 31, 2007. Voyage expenses increased by $18.7 million quarter-over-quarter, principally a result of higher fuel expenses. Vessel expenses increased $12.0 million quarter-over-quarter primarily due to crew costs associated with the Company's continuing efforts to attract and retain high quality crews. In addition, the Company increased the estimated salvage value of its owned fleet effective January 1, 2008. This change in estimate reduces depreciation by approximately $2.7 million per quarter commencing in the first quarter of 2008.

FINANCIAL HIGHLIGHTS

Share Repurchase. From January 1 through March 31, 2008, OSG repurchased 400,000 shares at an average price per share of $57.33. Since the initial announcement of its share repurchase program on June 9, 2006, the Company has repurchased 9.0 million shares at an average price of $65.90 per share, or 22.7% of total shares outstanding, at a total cost of $592.0 million. The Company's current $200 million share repurchase program has a total of $21.8 million that remains outstanding.

Bond Redemption. On April 7, 2008, OSG announced the redemption of all $176,115,000 principal outstanding of its 8.25% Senior Notes due 2013. The redemption price is 104.125% of the principal amount of the Notes together with accrued and unpaid interest as of the redemption date, which is May 15, 2008. This redemption will reduce the Company's interest expense by approximately $7.0 million per annum through March 2013.

Future Locked-in Revenue. Future revenues associated with noncancelable term charters as of March 31, 2008, totaled $1.7 billion including time charters entered into by the Aframax International pool and fixed rate contracts of affreightment from the U.S. Flag lightering operation. Additionally, future revenues from term contracts of the Gas segment and the FSO project total approximately $1.8 billion and will be recognized in equity in income from affiliated companies.

RECENT ACTIVITIES AND QUARTERLY EVENTS

Crude Oil Tankers

Vessel Delivery

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 ten years.

New Markets

On February 28, 2008, OSG announced that Maersk Oil Qatar AS had awarded two time-charter contracts to a joint venture between OSG and Euronav NV for a term of eight years. The contracts provide for two ULCCs, the TI Africa (currently owned by OSG) and the TI Asia (currently owned by Euronav), to be converted to FSOs (Floating Storage and Offloading service vessels) and commence service in July 2009 and September 2009, respectively.

Vessel Sale

On April 9, 2008, the Company entered into an agreement to sell the Pacific Ruby, a 1994-built Aframax tanker. The sale is expected to close in the second quarter of 2008 and the Company will recognize a gain of approximately $13.0 million at the time of sale.

Product Carriers

Fleet Activity

On January 9, 2008, the Company sold and bareboat chartered back the 1998-built Overseas Rimar, a Handysize Product Carrier. The $12 million gain from the sale was deferred and will be amortized over the 7 1/2 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.

Vessel Sale

On January 24, 2008, the Company entered into an agreement to sell the Overseas Aquamar, a 1998-built Handysize Product Carrier. The sale closed on April 17, 2008 and the Company will recognize a gain of approximately $10.5 million in the second quarter of 2008.

Vessel Delivery

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

U.S.

Fleet Deliveries

On April 11, 2008, OSG America L.P., a master limited partnership in which the Company owns a 75.5% interest, took delivery of the Overseas New York, a 46,817 dwt U.S. Flag Jones Act Product Carrier. The vessel is on a seven-year bareboat charter-in arrangement and the Company has extension options for the life of the vessel. The vessel has been chartered-out to Shell for three years and began trading on April 21, 2008.

On April 24, 2008, OSG America took delivery of the OSG 243, an ATB that has been converted from single hull to double hull.

Gas

As of March 31, 2008, all four Q-Flex LNG carriers have delivered and commenced trading, each on a 25-year time charter. OSG has a 49.9% ownership interest in the joint venture entity that owns the LNG carriers. During the first quarter, OSG's proportionate share of revenue days was 135 days, which generated $1.6 million and was recorded in equity in income of affiliated companies.

FLEET METRICS AND CORPORATE STATISTICS

As of March 31, 2008, OSG's owned or operated fleet totaled 116 International Flag and U.S. Flag vessels compared with 104 at March 31, 2007. Fifty-two percent, or 60 vessels, were owned as of March 31, 2008, with the remaining vessels bareboat or time chartered-in. OSG's newbuild program of chartered-in and owned vessels totaled 41 vessels across its Crude Oil, Product and U.S. Flag 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 March 31, 2008 totaled 9,561 compared with 8,509 in the same period a year earlier. The increase principally reflects the addition of the OSG Lightering fleet in April 2007, the delivery of two Suezmax tankers and two Panamax Product Carriers since June 30, 2007, and two Handysize Product Carriers since January 1, 2007. 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 March 31, 2008, stockholders' equity exceeded $1.85 billion and liquidity, including undrawn bank facilities, exceeded $1.9 billion. Total long-term debt as of March 31, 2008 was $1.6 billion, substantially unchanged from December 31, 2007. Liquidity adjusted debt to capital was 30.8% as of March 31, 2008, compared with 32.6% as of December 31, 2007. Liquidity adjusted debt is defined as long-term debt reduced by cash and the Capital Construction Fund.

SPOT AND TIME CHARTER TCE RATES ACHIEVED AND REVENUE DAYS

The following tables provide a breakdown of TCE rates achieved for the first quarter of fiscal 2008 and 2007 between spot and time charter rates. The information is based, in part, on information provided by the pools or commercial joint ventures in which the vessels participate.

ABOUT OSG

Overseas Shipholding Group, Inc. (NYSE: OSG), a Dow Jones Transportation Index company, is one of the largest publicly traded tanker companies in the world. As a market leader in global energy transportation services for crude oil and petroleum products in the U.S. and International Flag markets, OSG is committed to setting high standards of excellence for its quality, safety and environmental programs. OSG is recognized as one of the world's most customer-focused marine transportation companies and is headquartered in New York City, NY. More information is available at www.osg.com.

OSG - Overseas Shipholding Group, Inc.