Overseas Shipholding Group Reports Fourth Quarter and Fiscal 2009 Results

Overseas Shipholding Group, Inc. (NYSE: OSG), a market leader in providing energy transportation services, today reported results for the fourth quarter and fiscal year ended December 31, 2009.

For the fiscal year ended December 31, 2009, the Company reported time charter equivalent revenues (TCE¹) of $952.6 million, a 38% decrease from $1.5 billion in 2008. The year-over-year decline in TCE revenues was due to lower average daily TCE rates earned by nearly all of the Company’s international flag vessel classes. Revenue days decreased year-over-year by 1,810 days. Average daily TCE rates earned by the Company’s international crude oil tankers declined 50% to $26,307 per day compared with $52,344 per day in the year earlier period and international product carriers declined 21% to $17,976 per day compared with $22,803 per day. Net income attributable to the Company (Earnings²) for fiscal year 2009 was $70.2 million, or $2.61 per diluted share, compared with Earnings of $317.7 million, or $10.65 per diluted share, a year ago. Earnings in the fiscal year 2009 included Special Items that increased Earnings by $93.3 million, or $3.47 per diluted share, compared with Special Items that decreased Earnings by $116.8 million, or $2.70 per share, in fiscal 2008.

For the quarter ended December 31, 2009, the Company reported TCE revenues of $204.1 million, a 41% decline from $348.7 million in 2008. The decline in TCE revenues was due to lower average daily TCE rates earned by nearly all of the Company’s international flag vessel classes. Revenue days decreased quarter-over-quarter by 1,577 days due to a net reduction in the operating fleet from December 31, 2008 of 16 vessels. Net loss attributable to the Company (Loss²) for the quarter ended December 31, 2009, was $23.2 million, or $0.86 per diluted share, compared with Loss of $79.5 million, or $2.89 per diluted share, in the same period a year ago. Special Items that increased fourth quarter Loss totaled $7.3 million, or $0.27 per diluted share. Special items that increased the fourth quarter 2008 Loss totaled $156.2 million, or $4.89 per diluted share. Details on Special Items are provided later in this press release.

Morten Arntzen, President and CEO, said, "2009 was one of the most difficult tanker markets of the last 20 years. The slowdown in worldwide economic activity that began in 2008 continued throughout 2009. As a result, global oil demand was down, notably in North America, and refinery utilization levels were painfully low in Europe, Japan and the U.S. This combined with substantial OPEC production cuts and a 6% increase in the global tanker fleet, combined to produce a very tough rate environment.” Arntzen added, "While market conditions were tough last year, the commercial, financial and operational platforms of OSG performed well and enabled OSG to enter 2010 in solid shape. Indeed, we commenced the year with a fully financed newbuilding program, a modern fleet, a cash and short-term investments position of $525 million and liquidity of approximately $1.6 billion. Shareholders, creditors, customers and employees can count on us to continue prudent financial discipline and to maintain our long standing commitment to operate the safest, cleanest and most reliable fleet in the industry.”

Quarterly Events & Select Income Statement Detail

Tender for OSG America L.P.

On November 5, 2009, OSG initiated a tender offer for the 6,999,565 outstanding publicly held common units of OSG America L.P., a Delaware limited partnership formed by the Company, for $10.25 in cash per unit. At the time of the tender offer, the Company effectively owned 77.1% of OSG America L.P. The number of common units (Units) validly tendered in the initial offering period satisfied the non-waivable condition that more than 4,003,166 Units be validly tendered, such that OSG owned more than 80% of the outstanding Units. OSG exercised its right pursuant to the partnership agreement to purchase all of the remaining Units that were not tendered in the Offer and acquired the remaining outstanding Units on December 17, 2009. As a result, the Company became the owner of 100% of OSG America L.P. The Company financed the purchase price of $71.8 million through funds drawn under its $1.8 billion credit facility.

• Vessel expenses decreased to $73.8 million, or 13%, from $84.5 million principally due to a reduction in costs related to a fixed rate technical management agreement with DHT Maritime, Inc. (that was renegotiated in early 2009), the redelivery of 11 older product carriers, and reduced levels of expenses for U.S. Flag vessels in lay up during the fourth quarter. In addition, in the fourth quarter of 2009, the Company recorded a reserve of $3.4 million for a probable assessment in 2010 (based on the 2009 pension plan valuation) by a multi-employer pension plan covering British crew members that served as officers onboard OSG’s vessels (as well as vessels of other owners) in prior years;
• Charter hire expenses were $86.8 million, a 28% decrease from $120.5 million, principally due to the redelivery of a net 10 (weighted by ownership) vessels during 2009 and significantly lower profit share due to owners;
• Depreciation and amortization was $42.7 million, an 11% decline from $47.8 million, principally due to two U.S. Flag vessels being classified as held for sale (for which depreciation ceased) and the redelivery of 11 single hull MR product carriers subsequent to December 31, 2008; and
• G&A expenses decreased 9% to $36.4 million from $39.8 million. Lower G&A was due to Companywide cost control efforts that included reductions in compensation and benefits paid to shoreside staff and lower consulting, legal, travel and entertainment and other discretionary expenditures. Reductions in G&A were offset by several fourth quarter expenses including $4.6 million associated with the tender of OSG America L.P., $1.8 million in advisory services associated with the Aker settlement announced December 11, 2009 and $1.2 million related to OSG’s share of additional costs associated with the management of the FSO conversion project.
• Equity in income / (loss) of affiliated companies decreased significantly in the fourth quarter of 2009 from third quarter 2009 levels principally due to OSG’s share of costs incurred related to the conversion the two FSO service vessels. Although the FSO Asia completed conversion in mid-November, the vessel did not commence FSO services until 2010, resulting in liquidated damages paid in connection with the late delivery of the two FSO units. In addition, the Company took a charge related to hedge ineffectiveness on interest rate swaps associated with the $500 million secured term loan established by the joint venture.
• The tax benefit for 2009 reflects the income statement impact of a carryback of approximately $34 million (the cash carryback is approximately $42 million) of 2009 tax losses against earnings generated in 2004. On November 6, 2009, the Worker, Homeownership, and Business Assistance Act of 2009 was enacted, which included a provision allowing taxpayers to elect an increased carryback for net operating losses incurred in 2009.

Special Items

Other items, that affected reported results in the fourth quarter of 2009, which combined to increase Loss by an aggregate of $7.3 million, or $0.27 per share, included:

• $6.0 million of expenses, or $0.23 per diluted share, associated with the tender of OSG America L.P. and the Aker American Shipping settlement;
• $0.7 million, or $0.03 per diluted share, related to a negative change in the mark-to-market balance of unrealized freight derivative positions; and
• $0.6 million loss on vessel sales, or $0.02 per diluted share.

For a detailed schedule of these special items in the current, year-to-date and corresponding historical periods, see Reconciling Information, which is posted in Webcasts and Presentations in the Investor Relations section of www.osg.com.

Segment Information

TCE revenues in the fourth quarter of 2009 for the Crude Oil segment were $100.1 million, a decline of $104.3 million, or 51%, from $204.4 million in the same period of 2008. The decrease was principally due to dramatically lower average spot rates earned across all vessel classes. Average daily TCE rates for the Company’s VLCC, Suezmax, Aframax and Panamax tankers in the fourth quarter 2009 were $37,620 per day, $25,274 per day, $13,693 per day and $17,696 per day, respectively. TCE revenues for the Product Carrier segment were $44.3 million, a decline of $35.2 million, or 44%, from $79.5 million in the year earlier period. The decrease was due to lower average spot rates earned by the LR1s and the medium-range (MR) product carriers and a decrease in revenue days attributable to the redelivery of 11 single hull MRs after December 31, 2008. Average daily TCE rates for the Company’s LR1 and MR tankers in the fourth quarter 2009 were $12,683 per day and $17,138 per day, respectively. TCE revenue for the U.S. Flag segment were $57.8 million, a decrease of $5.0 million, or 8%, from $62.8 million in the same quarter last year. The decrease was principally due to out-of-service days attributable to the lay up of four U.S. Flag vessels for all or part of the fourth quarter, partially offset by higher time charter rates on charter agreements executed in 2006 for two newbuild product carriers that delivered in 2009. Average daily TCE rates for the Company’s U.S. Flag product carriers and ATBs in the fourth quarter 2009 were $41,182 per day and $30,935 per day, respectively. For more detail, see Spot and Fixed TCE Rates Achieved and Revenue Days later in the press release.

Liquidity and Other Key Metrics

• Cash and short-term investment balances (which consist of time deposits with maturities greater than 90 days) were $525 million, up from $344 million as of December 31, 2008;
• Total debt was $1.8 billion, up from $1.4 billion as of December 31, 2008;
• Liquidity³, including undrawn bank facilities, was approximately $1.6 billion and liquidity-adjusted debt to capital⁴ was 40.1%, an increase from 35.5% as of December 31, 2008, adjusted to reflect the reclassification of the noncontrolling interest to equity in accordance with accounting guidance that became effective in 2009;
• Construction contract commitments were $522 million, a decrease of $300 million from $822 million as of December 31, 2008; and
• Principal repayment obligations are less than $38 million per annum in 2010 and 2011.

Quarterly and Recent Segment Activities

Crude Oil

• On February 10, 2010 the Overseas Everest, a 297,000 dwt VLCC delivered. The vessel is expected to begin trading in the Tankers International commercial pool in March 2010.
• After experiencing construction delays, the FSO Asia delivered to Maersk Oil Qatar AS (MOQ) on January 4, 2010, and commenced a commissioning period of 120 days. The conversion of the FSO Africa also experienced construction delays. Conversion of FSO Africa is continuing and is near completion. On January 21, 2010, MOQ notified the joint venture partners, OSG and Euronav NV (Euronext Brussels: EURN), that it was canceling the service contract for the FSO Africa, a right the joint venture partners contest. Commercial discussions between all parties continue. If the service contract for the FSO Africa is not renegotiated, the banks will require the joint venture partners to repay the $143 million outstanding on the secured term loan.

Products

• On February 25, 2010, the Overseas Mykonos delivered. The 52,000 dwt owned MR is IMO III certified.
• On November 2, 2009, the Overseas Skopelos delivered. The 50,000 dwt owned MR is IMO III certified.

U.S. Flag

• In connection with the settlement with America Shipping Company ASA and its related entities, during the quarter OSG agreed to purchase two 46,815 dwt handysize product carriers, the Overseas Cascade and Hull 015 (TBN Overseas Chinook), for approximately $115 million each. The two vessels are part of a 12-ship series that have been or will be constructed at Aker Philadelphia Shipyard, Inc.
• The Overseas Cascade delivered to OSG on December 11, 2009. After operating briefly following its delivery, the vessel is being converted to a shuttle tanker and upon delivery to Petrobras America, Inc., expected in April 2010, begins a five-year charter transporting oil from Petrobras’ ultra-deepwater fields in the U.S. Gulf of Mexico.

Spot and Fixed TCE Rates Achieved and Revenue Days

The following tables provide a breakdown of TCE rates achieved for the three months and fiscal year ended December 31, 2009 for the International Crude Oil and Product Carrier segments between spot and fixed charter rates and the related revenue days. The Company has entered 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. The information in these tables is based in part on information provided by the pools or commercial joint ventures in which the segment’s vessels participate.

Revenue days in the quarter ended December 31, 2009 totaled 8,950 compared with 10,527 in the same period a year earlier. Revenue days for the year ended December 31, 2009 totaled 37,900 compared with 39,708 in the same period a year earlier. A summary fleet list by vessel class can be found later in this press release.

Fleet Information

As of December 31, 2009, OSG’s owned and operated fleet totaled 106 International Flag and U.S. Flag vessels compared with 122 at December 31, 2008. Fifty-six percent, or 59 vessels, were owned as of December 31, 2009, with the remaining vessels bareboat or time chartered-in. Adjusted for OSG’s participation interest in joint ventures and chartered-in vessels, the operating fleet totaled 99.9 vessels. OSG’s newbuild program totaled 23 vessels (15 owned and 8 chartered-in) 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 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 fiscal year ended December 31, 2009 and 2008:

Appendix 3 – First Quarter 2010 TCE Rates

The Company has achieved the following average estimated TCE rates for the first quarter of 2010 for the percentage of days booked for vessels operating through February 19, 2010. 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. In addition, information presented for VLCCs as fixed includes management’s expectations with respect to the synthetic time charters entered into by the Company.

Appendix 4 – 2010 Fixed TCE Rates

The following table shows average estimated TCE rates and associated days booked for 2010 as of February 19, 2010.

Conference Call Information

OSG has scheduled a conference call for today at 11:00 a.m. ET. Call-in information is (888) 846-5003 (domestic) and (480) 629-9856 (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 until March 8, 2010; the number for the replay is (800) 406-7325 (domestic) and (303) 590-3030 (international). The passcode for the replay is 4221521.

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, petroleum products and gas 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 first quarter of 2010 and estimated TCE rates for the second, third and fourth quarters of 2010, timely delivery of newbuildings in accordance with contractual terms, the outcome of the Company’s negotiations with MOQ, 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 2009 on Form 10-K and those risks discussed in the other reports OSG files with the Securities and Exchange Commission.

¹ See Appendix 1 for reconciliation of TCE revenues, a non-GAAP measure, to shipping revenues

²Effective January 1, 2009, OSG adopted an accounting standard that changed the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. The new standard required retrospective adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of the new standard will be applied prospectively. The adoption of the new standard did not have a material impact on the Company’s financial statements. References to Results, Earnings or Loss refers to Net Income / (Loss) attributable to Overseas Shipholding Group, Inc.

³Liquidity is defined as cash plus short-term investments plus Capital Construction Fund plus availability under the Company’s secured and unsecured credit facilities.

⁴Liquidity-adjusted debt is defined as long-term debt reduced by cash, short-term investments and the Capital Construction Fund.