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August 3 2010

Impairment charge plunges OSG into red

The impact of the Deepwater Horizon incident is being felt in the tanker market as well as in offshore drilling. As a result, Overseas Shipholding Group, Inc. (NYSE: OSG) took a non-cash impairment charge that saw it report a loss for the quarter ended June 30, 2010, of $37.9 million, or $1.26 per diluted share, compared with a loss of $8.8 million, or $0.33 per diluted share, in the same period a year ago. Adjusted for special items, second quarter fiscal 2010 loss was $10.1 million, or $0.34 per diluted share, compared with a loss in the second quarter of 2009 of $7.8 million, or $0.29 per diluted share.

"In taking the non-cash impairment charge this quarter," said President and CEO Morten Arntzen, "we are putting behind us the difficulty of employing single hull assets in our markets and recognizing the profound impact the U.S. Gulf of Mexico oil spill is having and will have on our industry and the tanker markets in particular. Over the last five years, we have made significant investments through a companywide commitment to strive for best-in-class technical performance from our fleet. We believe a combination of more stringent U.S. regulations and oil industry vetting requirements are likely to result from the oil spill, elevating the importance of quality operations and favoring companies committed to delivering this."

OSG says that impairment losses are taken when events or changes in circumstances occur that cause the company to believe that future cash flows for an individual vessel will be less than its carrying value and not fully recoverable.

During the second quarter of 2010, OSG says that it continued to experience difficulty employing three U.S. Flag single hull vessels and two International Flag single hull Aframaxes in lightering operations in the U.S. Gulf of Mexico. In addition, following the April 2010 explosion and sinking of drilling rig Deepwater Horizon and the subsequent oil spill in the U.S. Gulf of Mexico, legislation currently being proposed in the United States is expected to impact drilling and transportation services. Such legislation currently under consideration includes provisions that could impact single-hull vessels trading to the Louisiana Offshore Oil Platform (LOOP) and performing lightering operations, among other matters, that could negatively impact the company's business. As a result of these factors, and regulatory requirements in the Delaware Bay, OSG concluded that three of its single hull U.S. Flag product carriers, including one that was sold on July 1, 2010, one 1981-built U.S. Flag lightering ATB and two International Flag single hull Aframaxes were impaired as of June 30, 2010, resulting in a non-cash charge of $25.2 million.

Read OSG's detailed second quarter earnings announcement HERE


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