Fourth quarter 2006 - Charter Rates Continue to Increase (01.03.07)
Fourth quarter 2006 – After close of the fourth quarter, Aker American Shipping (AKASA) entered into an agreement in principle with OSG for up to 6 more product tankers, potentially bringing the series to 16 vessels. The first product tanker, delivered February 9th, has gone into operation for Shell, and is now earning revenues for subsidiary American Shipping Corporation. Concurrent with the delivery of the first Product Tanker, Aker American Shipping has closed a senior secured credit facility of USD 770 million with Fortis Capital as Agent, financing its long term ownership of the first 10 vessels. AKASA raised NOK 700 million for working capital purposes through a bond issue February 16th.
OSLO / PHILADELPHIA (February 28, 2007) – Aker American Shipping ASA and Overseas Shipholding Group (OSG), signed an agreement in principle on February 7, 2007, where Aker Philadelphia Shipyard, will construct up to six additional Veteran Class MT-46 Jones Act Product Tankers (three fixed plus three options), keep ownership through subsidiaries and in line with AKASA’s business concept bareboat charter them to subsidiaries of OSG for initial terms of 10-15 years. The transaction is valued well in excess of USD 700 million for AKASA, (before profit sharing) reflecting a continuing strong market showing higher rates and longer terms of the bareboat charters.
The first product tanker was completed in beginning of 2007 and delivered to the subsidiary American Shipping Corporation, (ASC) on February 9th. It is in operation for Shell.
OSG has further announced signing of a time charter agreement with BP for another of the initial order of ten product tankers. To date, nine of the ten initial vessels have signed time charters in place.
Profit after tax was USD 4.4 million for Q4 of 2006, whereas the Q4 result in 2005 was a profit of USD 0.9 million. Net financial items year to date are positive with USD 7.4 million, including reversal of USD 2.2 million in loss on interest swaps booked last year as well positive mark to market value of USD 4.7 million for the same swaps booked in Q4 of 2006. These interest swaps were related to the previous financing facility, and were terminated February 9th of 2007 upon entering into the USD 770 million refinancing deal. New interest swaps have been arranged, securing the interest rate of the new financing facility.
The tax cost of USD 1.4 million relates to changes in deferred tax and is not tax payable.
There were no operating revenues for the fourth quarter of 2006, as the entire activity in this period was related to the first four product tankers where no revenues will be recognized before they are in operation. Fourth quarter of 2005 had revenues of USD 24.4 million as the activity in this period also comprised work on the last container vessel, in addition to work on the first two product tankers. As previously reported, there will be no revenue from the product tankers before they are in operation (the first in first quarter of 2007).
Construction reached 99.6% complete for the first, 78.8% for the second, 36.8% for the third and 2.7% for the fourth of the initial ten product tankers to be leased to OSG. As this represents construction of own assets, related costs of USD 238.7 million are included in property, plant & equipment (PPE) for the first four product tankers. The remainder of PPE, USD 73.8 million, is net value of fixed assets.
Following the delivery of container vessel 4 on July 12th, there is no longer any ship under construction in inventories. The USD 22 million represents equipment prepayments related to the last six of the initial ten product tankers, where production has not yet started (USD 12 million), mark to market value of the interest swaps (USD 5 million) and contractual holdbacks related to delivered vessels (USD 5 million). The construction loan is increased with USD 33 million to USD 125 million during the fourth quarter.
Jones Act Market
AKASA has entered into agreements for the construction and bareboat charter of up to sixteen new build Jones Act product tankers. The vessels have been chartered to OSG which will charter the vessels to end users in the Jones Act market. To date, OSG has placed 9 of the 10 initial vessels on long term charters. It is believed that the Jones Act product tanker charter rates will continue to strengthen.
Operations
The first product tanker was delivered to ASC February 9th, and then leased to OSG which operates it on a long term charter with Shell. Delivery of this vessel was some 8 weeks later than planned. The main reason for the delay was the five month delay in construction schedule caused by an accident during delivery from a supplier of the fourth container vessel’s engine (the ship immediately preceding the tanker). The shipyard recovered 3 of the 5 month delay, with the remaining 2 months still impacting the product tanker series. Curing time for the final cargo tank painting was also negatively impacted by the cold weather in Philadelphia during January and February.
A new union agreement for the 4 year period until January 2011 was ratified February 2, 2007.
High activity level in the US construction industry and following strain on human resources, sub-contractors and suppliers, add to the challenge of recovering the schedule caused by the incident described above.
Outlook
The shipyard has successfully managed to increase the annual throughput from less than one vessel per year in first quarter of 2005 to around 2.2 vessels per year in fourth quarter of 2006. As the first product tanker now is completed, more focus and effort is shifted to ensure that a maximum learning curve is achieved for the following vessels. The yard has established an improvement program targeting the yard to be twice as good as today. The improvement program is referred to as AIM 200. This continuous process for improving productivity and cost effectiveness on all levels is the key operational goal for the shipyard.
With multiple ships now under construction, developing the yard‘s suppliers and sub-contractor network, is also an important focus area going forward.
The transition from the sale of container vessels to the bareboat charter of product tankers has now been completed. Going forward, revenues will be generated from participation in ship operations in the US Jones Act product tanker market, starting with the first product tanker chartered to OSG which went into operation for Shell Oil. The second product tanker is expected to start earning revenues from Q3 of 2007.
Consequently AKASA will have low revenues in 2007, but expects a positive EBITDA result. Net financial items in first quarter of 2007 will be negatively impacted by USD 4.3 million, the net impact from a write-off of prepaid fees on the previous USD 350 million financing facility; which was cancelled upon entering into the new USD 770 million facility for all 10 product tankers.
The average charter rates for the nine of the ten vessels now under charter agreements (fixed periods + option periods) to Shell, BP and Tesoro, will increase approx. 20% in the period from 2007 to 2013. The highest rate for the same period is more than 35% above the lowest rate. The highest rate so far is more than 50% above the lowest rate. A strong market has been confirmed through consecutively increasing rates for all of the nine charters already secured and the new order for up to six more similar product tankers. AKASA expects a continued strengthening of the charter market, and that existing and new charter agreements could provide for additional profit sharing contributions to AKASA.
The additional order of up to 6 more product tankers will provide a steady construction backlog until mid 2012.
The required renewal of the US Jones Act tonnage persists and accordingly AKASA continues to evaluate opportunities to secure a newbuilding program beyond 2012. AKASA‘s first mover advantages and experience with both modern product tanker and containership construction, provides a firm foundation in the domestic US market.
Definitions
Jones Act - The U.S. coastwise laws, referred to as Jones Act, require all commercial vessels operating between U.S. ports to be built, owned, operated and manned by U.S. citizens and to be registered under the U.S. flag. In 1996 certain amendments were enacted to the U.S. vessel documentations laws, allowing increased non-U.S. participation in the ownership of vessels operating in the Jones Act trade under certain conditions.
This interim report has been prepared in accordance with IAS 34 Interim Financial Reporting, and the accounting principles in the report are consistent with the principles which will be used for annual reporting.
The pro forma reporting for 2005 has retroactively been adjusted for the effects of the fair value purchase price distribution allocating a depreciation expense and other adjustments to the pro forma income statement in the first six months of 2005.
Aker American Shipping ASA (AKASA) commenced operations 28 June 2005, with AKASA taking control of the shares in Kvaerner Philadelphia Shipyard, Inc (KPSI). From a reporting standpoint the takeover date is assumed to be 30 June 2005. The pro forma for the first six months of 2005 reported income statements, cash flows, equity reconciliations and balance sheet are historic KPSI accounts adjusted for pro forma equity and converted to IFRS accounting. During the third quarter of 2005, the shipyard was renamed Aker Philadelphia Shipyard (APSI).
February 28th, 2007
Board of Directors
Aker American Shipping ASA
Contact information:
Aker American Shipping ASA
Fjordalleen 16
Postboks 1423 Vika
0115 Oslo
NORWAY
David Meehan
President & CEO
Tel: + 1 215 875 2601
Cell: + 1 215 203 2708
dave.meehan@phillyshipyard.com
Jan Ivar Nielsen
CFO
Tel: +1 215 875 2678
Cell: +1 215 203 2713
jan-ivar.nielsen@phillyshipyard.com
Bengt A. Rem
Vice President
Tel: +4724130000
Cell: +4791630030
bar@akerasa.com
Disclaimer
This press release includes and is based, inter alia, on forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ. Such forward-looking information and statements are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are major markets for Aker American Shipping ASA and its subsidiaries and affiliates (the "Aker American Shipping Group") lines of business. These expectations, estimates, and projections are generally identifiable by statements containing words such as "expects,” "believes,” "estimates" or similar expressions. Important factors that could cause actual results to differ materially from those expectations include, among others, economic and market conditions in the geographic areas and industries that are or will be major markets for the Aker American Shipping Group’s businesses, oil prices, market acceptance of new products and services, changes in governmental regulations, interest rates, fluctuations in currency exchange rates and such other factors as may be discussed from time to time. Although Aker American Shipping ASA believes that its expectations and the information in this Press release were based upon reasonable assumptions at the time when they were made, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in this Press release. Neither Aker American Shipping ASA nor any other company within the Aker American Shipping Group is making any representation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the information in the Press release, and neither Aker American Shipping ASA, any other company within the Aker American Shipping Group nor any of their directors, officers or employees will have any liability to you or any other persons resulting from your use of the information in the Press release.
Aker American Shipping ASA undertakes no obligation to publicly update or revise any forward-looking information or statements in the press release, other than what is required by law.
The Aker American Shipping Group consists of many legally independent entities, constituting their own separate identities. Aker American Shipping is used as the common brand or trade mark for most of these entities. In this press release we may sometimes use "Aker American Shipping”," "Group, "we," or "us," when we refer to Aker American Shipping companies in general or where no useful purpose is served by identifying any particular Aker American Shipping company.
The first product tanker was completed in beginning of 2007 and delivered to the subsidiary American Shipping Corporation, (ASC) on February 9th. It is in operation for Shell.
OSG has further announced signing of a time charter agreement with BP for another of the initial order of ten product tankers. To date, nine of the ten initial vessels have signed time charters in place.
Profit after tax was USD 4.4 million for Q4 of 2006, whereas the Q4 result in 2005 was a profit of USD 0.9 million. Net financial items year to date are positive with USD 7.4 million, including reversal of USD 2.2 million in loss on interest swaps booked last year as well positive mark to market value of USD 4.7 million for the same swaps booked in Q4 of 2006. These interest swaps were related to the previous financing facility, and were terminated February 9th of 2007 upon entering into the USD 770 million refinancing deal. New interest swaps have been arranged, securing the interest rate of the new financing facility.
The tax cost of USD 1.4 million relates to changes in deferred tax and is not tax payable.
There were no operating revenues for the fourth quarter of 2006, as the entire activity in this period was related to the first four product tankers where no revenues will be recognized before they are in operation. Fourth quarter of 2005 had revenues of USD 24.4 million as the activity in this period also comprised work on the last container vessel, in addition to work on the first two product tankers. As previously reported, there will be no revenue from the product tankers before they are in operation (the first in first quarter of 2007).
Construction reached 99.6% complete for the first, 78.8% for the second, 36.8% for the third and 2.7% for the fourth of the initial ten product tankers to be leased to OSG. As this represents construction of own assets, related costs of USD 238.7 million are included in property, plant & equipment (PPE) for the first four product tankers. The remainder of PPE, USD 73.8 million, is net value of fixed assets.
Following the delivery of container vessel 4 on July 12th, there is no longer any ship under construction in inventories. The USD 22 million represents equipment prepayments related to the last six of the initial ten product tankers, where production has not yet started (USD 12 million), mark to market value of the interest swaps (USD 5 million) and contractual holdbacks related to delivered vessels (USD 5 million). The construction loan is increased with USD 33 million to USD 125 million during the fourth quarter.
Jones Act Market
AKASA has entered into agreements for the construction and bareboat charter of up to sixteen new build Jones Act product tankers. The vessels have been chartered to OSG which will charter the vessels to end users in the Jones Act market. To date, OSG has placed 9 of the 10 initial vessels on long term charters. It is believed that the Jones Act product tanker charter rates will continue to strengthen.
Operations
The first product tanker was delivered to ASC February 9th, and then leased to OSG which operates it on a long term charter with Shell. Delivery of this vessel was some 8 weeks later than planned. The main reason for the delay was the five month delay in construction schedule caused by an accident during delivery from a supplier of the fourth container vessel’s engine (the ship immediately preceding the tanker). The shipyard recovered 3 of the 5 month delay, with the remaining 2 months still impacting the product tanker series. Curing time for the final cargo tank painting was also negatively impacted by the cold weather in Philadelphia during January and February.
A new union agreement for the 4 year period until January 2011 was ratified February 2, 2007.
High activity level in the US construction industry and following strain on human resources, sub-contractors and suppliers, add to the challenge of recovering the schedule caused by the incident described above.
Outlook
The shipyard has successfully managed to increase the annual throughput from less than one vessel per year in first quarter of 2005 to around 2.2 vessels per year in fourth quarter of 2006. As the first product tanker now is completed, more focus and effort is shifted to ensure that a maximum learning curve is achieved for the following vessels. The yard has established an improvement program targeting the yard to be twice as good as today. The improvement program is referred to as AIM 200. This continuous process for improving productivity and cost effectiveness on all levels is the key operational goal for the shipyard.
With multiple ships now under construction, developing the yard‘s suppliers and sub-contractor network, is also an important focus area going forward.
The transition from the sale of container vessels to the bareboat charter of product tankers has now been completed. Going forward, revenues will be generated from participation in ship operations in the US Jones Act product tanker market, starting with the first product tanker chartered to OSG which went into operation for Shell Oil. The second product tanker is expected to start earning revenues from Q3 of 2007.
Consequently AKASA will have low revenues in 2007, but expects a positive EBITDA result. Net financial items in first quarter of 2007 will be negatively impacted by USD 4.3 million, the net impact from a write-off of prepaid fees on the previous USD 350 million financing facility; which was cancelled upon entering into the new USD 770 million facility for all 10 product tankers.
The average charter rates for the nine of the ten vessels now under charter agreements (fixed periods + option periods) to Shell, BP and Tesoro, will increase approx. 20% in the period from 2007 to 2013. The highest rate for the same period is more than 35% above the lowest rate. The highest rate so far is more than 50% above the lowest rate. A strong market has been confirmed through consecutively increasing rates for all of the nine charters already secured and the new order for up to six more similar product tankers. AKASA expects a continued strengthening of the charter market, and that existing and new charter agreements could provide for additional profit sharing contributions to AKASA.
The additional order of up to 6 more product tankers will provide a steady construction backlog until mid 2012.
The required renewal of the US Jones Act tonnage persists and accordingly AKASA continues to evaluate opportunities to secure a newbuilding program beyond 2012. AKASA‘s first mover advantages and experience with both modern product tanker and containership construction, provides a firm foundation in the domestic US market.
Definitions
Jones Act - The U.S. coastwise laws, referred to as Jones Act, require all commercial vessels operating between U.S. ports to be built, owned, operated and manned by U.S. citizens and to be registered under the U.S. flag. In 1996 certain amendments were enacted to the U.S. vessel documentations laws, allowing increased non-U.S. participation in the ownership of vessels operating in the Jones Act trade under certain conditions.
This interim report has been prepared in accordance with IAS 34 Interim Financial Reporting, and the accounting principles in the report are consistent with the principles which will be used for annual reporting.
The pro forma reporting for 2005 has retroactively been adjusted for the effects of the fair value purchase price distribution allocating a depreciation expense and other adjustments to the pro forma income statement in the first six months of 2005.
Aker American Shipping ASA (AKASA) commenced operations 28 June 2005, with AKASA taking control of the shares in Kvaerner Philadelphia Shipyard, Inc (KPSI). From a reporting standpoint the takeover date is assumed to be 30 June 2005. The pro forma for the first six months of 2005 reported income statements, cash flows, equity reconciliations and balance sheet are historic KPSI accounts adjusted for pro forma equity and converted to IFRS accounting. During the third quarter of 2005, the shipyard was renamed Aker Philadelphia Shipyard (APSI).
February 28th, 2007
Board of Directors
Aker American Shipping ASA
Contact information:
Aker American Shipping ASA
Fjordalleen 16
Postboks 1423 Vika
0115 Oslo
NORWAY
David Meehan
President & CEO
Tel: + 1 215 875 2601
Cell: + 1 215 203 2708
dave.meehan@phillyshipyard.com
Jan Ivar Nielsen
CFO
Tel: +1 215 875 2678
Cell: +1 215 203 2713
jan-ivar.nielsen@phillyshipyard.com
Bengt A. Rem
Vice President
Tel: +4724130000
Cell: +4791630030
bar@akerasa.com
Disclaimer
This press release includes and is based, inter alia, on forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ. Such forward-looking information and statements are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are major markets for Aker American Shipping ASA and its subsidiaries and affiliates (the "Aker American Shipping Group") lines of business. These expectations, estimates, and projections are generally identifiable by statements containing words such as "expects,” "believes,” "estimates" or similar expressions. Important factors that could cause actual results to differ materially from those expectations include, among others, economic and market conditions in the geographic areas and industries that are or will be major markets for the Aker American Shipping Group’s businesses, oil prices, market acceptance of new products and services, changes in governmental regulations, interest rates, fluctuations in currency exchange rates and such other factors as may be discussed from time to time. Although Aker American Shipping ASA believes that its expectations and the information in this Press release were based upon reasonable assumptions at the time when they were made, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in this Press release. Neither Aker American Shipping ASA nor any other company within the Aker American Shipping Group is making any representation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the information in the Press release, and neither Aker American Shipping ASA, any other company within the Aker American Shipping Group nor any of their directors, officers or employees will have any liability to you or any other persons resulting from your use of the information in the Press release.
Aker American Shipping ASA undertakes no obligation to publicly update or revise any forward-looking information or statements in the press release, other than what is required by law.
The Aker American Shipping Group consists of many legally independent entities, constituting their own separate identities. Aker American Shipping is used as the common brand or trade mark for most of these entities. In this press release we may sometimes use "Aker American Shipping”," "Group, "we," or "us," when we refer to Aker American Shipping companies in general or where no useful purpose is served by identifying any particular Aker American Shipping company.
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