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Marine Log

November 14, 2007

Weak VLGC market hits BW Gas

BW Gas third quarter results were impacted by a weak VLGC (Very Large Gas Carrier) market and rising fuel costs.

The company recorded a third-quarter operating profit before depreciation and disposals of $74.4 million, compared to $99.2 million in the third quarter 2006. Operating profit was $58.1 million in the quarter, compared with $ 71.9 million in the same period of 2006.

Gain on sale of vessels amounted to $10.9 million, while there was no sale of vessels during third quarter 2006.

Third quarter 2007 showed a substantial decrease in freight rates for the VLGC segment and a slight decrease in the freight rates for the LGCs and MGCs compared to the same period of 2006. However, the company says the trend for 2007 is positive but the increase in bunker prices limit result improvements.

The operating profit in the LPG segment amounted to $ 36.9 million in the third quarter of 2007 compared to $ 47.7 million in the third quarter 2006. The average number of LPG vessels increased from 39.9 to 40.4.

The operating profit in the LNG segment amounted to $24.4 million in the third quarter 2007 compared to $ 24.6 million in the third quarter 2006.

One LNG vessel was drydocked for scheduled maintenance this quarter, resulting in 11 days offhire and increased operating expenses. The depreciations decreased by $2.1 million following the change in estimated useful economic life of LNG vessels from 30 to 35 years as of January 2007 and the reclassification of 0.5 vessel from operational to financial lease. The average number of LNG vessels decreased from 8.0 to 6.5.

The account show net financial expenses of $34.2 million in the third quarter of 2007 ($30.5 million in 2006), of which interest expenses amounted to $ 21.8 million ($ 19.9 million in 2006). This increase is mainly due to increased debt. Other financial items amounted to -$16.5 million in third quarter of 2007 (-$18.4 million in 2006), and consist mainly of changes in market value of interest rate swaps.

Profit before tax was $ 23.9 million in the third quarter 2007 compared to $ 41.4 million in the same quarter 2006.

Net profit from continuing operations was $17.0 million ($0.1 per share) in the third quarter 2007 compared with $41.8 million in third quarter 2006 ($0.3 per share). Income tax expense of $6.9 million ($ -0.4 million in 2006) is mainly related to unrealized foreign exchange gains on intercompany debt in tonnage taxed entities.

For the first nine months of 2007 the operating profit amounted to $156.8 million ($190.0 million in 2006). The 2007 figures include a net gain on sale of tangible fixed assets from continuing operations of $31.7 million ($0.1 million in 2006).

Profit before tax from continuing operations amounted to $107.8 million in the first nine months of 2007 ($180.9 million in 2006). Net profit from continuing operations was $ 87.3 million ($ 0.6 per share) in the first nine months of 2007 compared with $ 174.4 million in the same period of 2006 ($ 1.3 per share).

The board expects operating profit for 2007 to be weaker than for 2006.

The Norwegian Government presented in September a new proposal for taxation of Norwegian ship owning companies which implies taxation of a ten year period of undistributed profit kept in the Norwegian tonnage tax system not previously subject to taxation. In effect, this means a back-tax on the shipping industry from 1996. The new system will be ratified in December provided that the Parliament approves the budget with this back- tax plan. The effect of the current proposal for BW Gas is a tax of approximately NOK 3.8 billion, payable with 10% annually over 10 years. 33% of the amount will be waived by the tax authorities if an equal amount is spent on environmental investments.

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