Highlights

• Third quarter TCE revenues were $186.2 million, a reduction of $22.4 million, or 11%, from $208.6 million in the prior year period, primarily driven by lower average spot rates earned in the Company’s International Crude classes
• Third quarter Loss was $71.1 million, or $2.35 per diluted share, compared with a Loss of $31.8 million, or $1.06 per diluted share in the prior year period
• Adjusted for special items, third quarter Loss was $66.5 million, or $2.20 per diluted share
• New deliveries in the third quarter included the Overseas Milos, a newbuild MR product carrier, and the Valorous Queen, a time chartered-in chemical carrier

Company Website: http://www.osg.com
NEW YORK -- (Business Wire)

Overseas Shipholding Group, Inc. (NYSE: OSG), a market leader in providing energy transportation services, today reported results for the third quarter and nine months of fiscal 2011 ended September 30, 2011.

For the quarter ended September 30, 2011, the Company reported TCE¹ revenues of $186.2 million, a decline of $22.4 million, or 11%, from $208.6 million in the 2010 quarter. TCE revenues declined primarily due to lower average spot rates in each of the Company’s International Crude sectors and higher fuel costs. TCE revenues in the Company’s International Products segment were little changed as an increase in revenue days on net fleet growth was offset by higher spot exposure and lower spot and fixed rates. U.S. Flag revenues increased quarter-over-quarter primarily due to the delivery of three newbuild product carriers and significantly higher Delaware Bay lightering volumes. Revenue days increased by 641 days, or 7%, primarily as a result of new deliveries of International and U.S. Flag product carriers. Net loss (Loss²) for the quarter ended September 30, 2011 was $71.1 million, or $2.35 per diluted share, compared with a Loss of $31.8 million, or $1.06 per diluted share, in the same period in 2010. Adjusted for special items that increased the Loss by $4.6 million, or $0.15 per diluted share, the third quarter Loss was $66.5 million, or $2.20 per diluted share, compared with a Loss of $26.8 million, or $0.89 per diluted share, in the third quarter of 2010. Details on Special Items are provided later in this press release.

Morten Arntzen, President and CEO stated, “Our International flag tanker markets deteriorated further in the third quarter as new deliveries outpaced the market’s ability to absorb them and our Asian customers continued to substitute shorter-haul Middle East crudes at the expense of West African crudes. Economic and political uncertainty continue to run high across the globe, with European sovereign debt issues and an uncertain fiscal and monetary picture in Washington impacting consumer and business confidence. The potential fallout has prompted analysts to trim their global growth and oil demand forecasts. This has also resulted in much tighter lending markets for the shipping industry. As a result, new tanker orders have fallen dramatically this year and the orderbook is now at its lowest level in six years. This is encouraging, as continued ordering discipline combined with earlier scrapping of vintage double hull tankers will be required to bring about a recovery in our crude transportation markets.”

Arntzen concluded, “In the midst of the weakest markets in decades, we remain focused on strengthening the Company on a number of fronts. We continue to control costs at sea and ashore, and are redelivering or renegotiating higher cost charters-in wherever possible. Our joint ventures are now producing a steady stream of earnings and our U.S. Flag unit continues to perform ahead of plan. Our employees remain focused on taking all actions within their power to improve the competitiveness of the Company, while providing safe, clean and reliable service to our customers.”

For the nine months ended September 30, 2011, the Company reported TCE revenues of $600.1 million, a 10% decrease from $670.1 million in 2010. Loss for the first nine months of 2011 was $142.9 million, or $4.74 per diluted share, compared with a Loss of $79.0 million, or $2.71 per diluted share, in 2010. Adjusted for special items, the Loss for the first nine months of 2011 was $137.3 million, or $4.55 per diluted share, compared with a Loss of $39.4 million, or $1.36 per diluted share, in the prior year period.

Select Income Statement Detail

• The $22.4 million decrease in TCE revenues for the quarter ended September 30, 2011 from the year-earlier quarter is principally due to a $40.9 million, or 43%, decrease in TCE revenue earned in the International Crude Tankers segment to $54.4 million on 128, or 3%, fewer revenue days. Spot TCE rates realized by the Company’s VLCCs in the third quarter of 2011 fell by 66% from the year-earlier period, while spot TCE rates in the quarter for Suezmaxes, Aframaxes and Panamaxes were lower by 21%, 33% and 27%, respectively. Crude spot markets were driven lower by continued vessel overcapacity and higher bunker prices. In the International Products segment, TCE revenues were essentially unchanged. Revenue days increased by 528 days reflecting the delivery of two owned and four time chartered-in MRs and two owned LR1s, as well as the return to full operation of two LR1s that were in drydock undergoing repairs during the prior year’s quarter. This was effectively offset by a decrease in the average blended TCE rate earned by the segment’s vessels of 15%, or $2,214 per day. In the MR sector, time charter cover was 27% of revenue days in the 2010 quarter; this fell to 9% in the current quarter. In the LR1 sector, the average spot TCE rate fell by 29%. TCE revenue in the U.S. segment increased by $20.5 million, or 33%, to $81.8 million, on an increase of 320 revenue days reflecting the deliveries of three newbuild product carriers and the return to service of the OSG 209, which was in layup in the prior year period. Additionally, the U.S. segment continued to benefit from increased Delaware Bay lightering volumes.
• Vessel expenses were $75.7 million, an 18% increase from $64.0 million in the same period a year ago. Vessel expenses reflect the return to full operation of the two LR1s referred to above and an increase in operating days of 205 days, primarily as a result of the changes in the International Products fleet described above. Vessel expenses also increased in the U.S. Flag fleet as a result of the fleet changes described above and a 425-day decrease in layup days (during which operating expenses are reduced) from the prior year period.
• Charter hire expenses increased by $4.3 million to $95.4 million, reflecting the delivery of time chartered-in International Flag product carriers and bareboat chartered-in U.S. Flag product carriers partially offset by the redelivery of in-chartered International Flag crude vessels and the return to full operation of the two LR1s referred to above.
• General and administrative expenses were $19.8 million, a 21% decrease, or $5.3 million, from $25.1 million in the third quarter of 2010 as reductions in compensation and benefits ($5.7 million) and consulting expenses were partially offset by the impact of unfavorable exchange rate movements on foreign currency denominated expenses. The change in general and administrative expenses in the current quarter reflected a total benefit of $1.7 million arising from market-related reductions in the Company’s liabilities under certain unfunded benefit plans.
• Equity in income of affiliated companies increased by $3.7 million to income of $3.5 million in the third quarter of 2011 from a loss of $0.2 million in the prior year quarter, primarily as a result of the improved operating result of the FSO Africa, which was fully employed in the current period after commencing its current service contract in August 2010. Additionally, a reduced mark-to-market loss was recorded on the interest rate swaps covering the FSO Africa’s debt, which are not effective hedges.

Special Items

Special items that affected reported results in the third quarter of 2011 increased the quarterly Loss by a net $4.6 million, or $0.15 per diluted share, and included:

• OSG’s share, $2.5 million, or $0.08 per diluted share, in the mark-to-market loss on the de-designated interest rate swaps in the FSO joint venture;
• Reduction in the unrealized gains on bunker swaps of $1.1 million, or $0.04 per diluted share; and
• Net loss on sale or write-down of securities and early retirement of debt of $0.8 million, or $0.03 per diluted share.

For a detailed schedule of these special items for the three and nine months ended September 30, 2011 and the corresponding historical periods, see Reconciling Information, which is posted in Webcasts and Presentations in the Investor Relations section of www.osg.com.

Liquidity and Other Key Metrics

• Cash and cash equivalents and short-term investments (consisting of time deposits with maturities greater than 90 days) decreased to $182 million from $274 million as of December 31, 2010;
• Total debt was $2.13 billion, up from $1.99 billion as of December 31, 2010;
• Liquidity³, including undrawn amounts of $711 million under the $1.8 billion credit facility that matures in February 2013, was approximately $0.9 billion. Liquidity-adjusted debt to capital⁴ was 54.1%, an increase from 48.0% as of December 31, 2010;
• As of September 30, 2011, vessels constituting 30% of the net book value of the Company’s vessels were pledged as collateral;
• Construction contract commitments were $96 million as of September 30, 2011, including $43 million due in the fourth quarter of 2011. All such commitments are fully funded;
• Principal repayment obligations are $11 million for the fourth quarter of 2011 and $55 million in 2012; and
• On August 5, 2011, the Company repurchased and retired $9.665 million par value of its outstanding 8.75% debentures due in 2013.

Segment Activity

Crude Oil

• On August 21, 2011, the TI Watban, a time chartered-in VLCC, was redelivered to its owner;
• On September 11, 2011, the Minerva Gloria, a time chartered-in Aframax, was redelivered to its owner; and
• Effective November 2011, PDV Marina, which is wholly owned by PDVSA and a founding member of the Aframax International pool, will withdraw its four vessels from Aframax International. The Company does not expect PDV Marina’s announcement to have a negative impact on pool returns and expects to continue moving substantive volumes for CITGO, also wholly owned by PDVSA and a source of the pool's Venezuelan cargos.

Products

• On August 31, 2011, the Overseas Milos, a newbuild 50,378 dwt MR product carrier, delivered; and
• On September 29, 2011, the Valorous Queen, a newbuild 19,900 dwt chemical carrier, delivered under a five-year time charter-in and simultaneously commenced a one-year time charter-out.

U.S. Flag

• In September 2011, Sunoco announced that it will make its Marcus Hook and Philadelphia refineries available for sale, and set a deadline of July 2012 for the sale of these facilities. Sunoco is the core customer of the Company’s Delaware Bay lightering business. The Company is currently evaluating the impact that Sunoco’s decision to sell these refineries could have on the Company’s Delaware Bay lightering business and the deployment of the three ATBs that are currently operating in that business;
• During the third quarter, the OSG 214 was taken out of layup and entered drydock for scheduled maintenance. With its recent return to the Jones Act spot market, all of OSG’s U.S. Flag vessels are now actively trading;
• On October 4, 2011, the articulated tug barge (ATB) unit consisting of the OSG 400 (barge) and the OSG Constitution (tug) was sold. The ATB had been trading in the Delaware Bay lightering fleet and has been replaced by the OSG 351; and
• OSG’s U.S. Flag unit has taken delivery of two newbuild tugs, the OSG Courageous and the OSG Endurance, since June 2011. These tugs have been married to the barges OSG 244 and OSG 192, respectively, replacing the OSG Liberty and the OSG Seafarer, which were sold in October 2011.

Spot and Fixed TCE Rates Achieved and Revenue Days

The following table provides a breakdown of TCE rates achieved between spot and fixed charter rates and the related revenue days for the three months ended September 30, 2011 and the comparable period of 2010. Revenue days in the quarter ended September 30, 2011 totaled 10,040 compared with 9,399 in the same period a year earlier. A summary fleet list by vessel class can be found later in this press release.

From time to time the Company enters into FFAs and related bunker swaps as hedges for reducing the volatility of earnings from operating the Company’s VLCCs in the spot market. These derivative instruments seek to create synthetic time charters. The impact of these derivatives, which qualify for hedge accounting treatment, are reported together with time charters entered in the physical market under Fixed Earnings. As of September 30, 2011, the Company had no synthetic time charters outstanding. The information in this table is based in part on information provided by the pools or commercial joint ventures in which the segment’s vessels participate.

Fleet Information

As of September 30, 2011, OSG’s owned and operated fleet totaled 112 International Flag and U.S. Flag vessels compared with 112 at September 30, 2010. Fifty-nine percent, or 66 vessels, were owned as of September 30, 2011, with the remaining vessels bareboat or time chartered-in. OSG’s newbuild program of four vessels consisted of three crude carriers and one product carrier (all owned). The Company’s fleet list excludes vessels chartered-in where the duration of the charter was one year or less at inception. A detailed fleet list and updates on vessels under construction can be found in the Fleet section on www.osg.com.

Appendix 1 – Reconciliation to Non-GAAP Financial Information

TCE Reconciliation

Reconciliation of time charter equivalent revenues of the segments to shipping revenues as reported in the consolidated statements of operations follow:

Consistent with general practice in the shipping industry, the Company uses time charter equivalent revenues, which represents shipping revenues less voyage expenses, as a measure to compare revenue generated from a voyage charter to revenue generated from a time charter. Time charter equivalent revenues, a non-GAAP measure, provides additional meaningful information in conjunction with shipping revenues, the most directly comparable GAAP measure, because it assists Company management in making decisions regarding the deployment and use of its vessels and in evaluating their financial performance.

Appendix 2 – Capital Expenditures

The following table presents information with respect to OSG’s capital expenditures for the three months and nine months ended September 30, 2011 and 2010:

Appendix 3 – Fourth Quarter 2011 TCE Rates

The Company has achieved the following average estimated TCE rates for the fourth quarter of 2011 for the percentage of days booked for vessels operating through October 21, 2011. The information is based in part on data provided by the pools or commercial joint ventures in which the vessels participate. All numbers provided are estimates and may be adjusted for a number of reasons, including the timing of any vessel acquisitions or disposals and the timing and length of drydocks and repairs.

Appendix 4 – 2012 Fixed TCE Rates

The following table shows average estimated TCE rates and associated days booked for the four quarters of 2012 as of October 21, 2011.

Conference Call Information

OSG has scheduled a conference call for today at 11:00 a.m. ET. Call-in information is (877) 941-8416 (domestic) and (480) 629-9808 (international). The conference call and supporting presentation can also be accessed by webcast, which will be available at www.osg.com in the Investor Relations/Webcasts and Presentations section. Additionally, a replay of the call will be available by telephone through November 8, 2011; the number for the replay is (877) 870-5176 (domestic) and (858) 384-5517 (international). The passcode for the replay is 4481374.

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.

Forward-Looking Statements

This release contains forward-looking statements regarding the Company's prospects, including the outlook for tanker and articulated tug barge markets, changing oil trading patterns, anticipated levels of newbuilding and scrapping, prospects for certain strategic alliances and investments, estimated TCE rates achieved for the fourth quarter of 2011 and for the four quarters of 2012, timely delivery of newbuildings in accordance with contractual terms, prospects of OSG’s strategy of being a market leader in the segments in which it competes and the forecast of world economic activity and oil demand. These statements are based on certain assumptions made by OSG management based on its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Forward-looking statements are subject to a number of risks, uncertainties and assumptions, many of which are beyond the control of OSG, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. Factors, risks and uncertainties that could cause actual results to differ from the expectations reflected in these forward-looking statements are described in the Company’s Annual Report for 2010 on Form 10-K and those risks discussed in the other reports OSG files with the Securities and Exchange Commission.

Contacts:

OSG Ship Management, Inc.
John F. Collins, Jr., +1 212-578-1699
Vice President Investor Relations

Source: Overseas Shipholding Group, Inc.