Overseas Shipholding Group, Inc. (NYSE: OSG) (OSG), a provider of energy transportation services for crude oil and petroleum products in the U.S. Flag markets, today announced that it has exercised options to extend its bareboat charter agreements with American Shipping Company ASA (Oslo Stock Exchange: AMSC / OTCQX: ASCJF) for two vessels, and that it will not be exercising extension options for three other vessels.
The two bareboat charter extensions provide for additional one-year terms, commencing in December 2022 and ending in December 2023. With these extensions, seven vessels will continue on lease from AMSC - six with maturity dates aligned to end in December 2023 and one with a maturity of 2025. OSG will operate the three vessels whose charters have not been extended for the next 12 months until the end of their current bareboat term in December 2022.
Sam Norton, OSG’s President and CEO, stated, “We believe the market continues to support attractive commercial opportunities for the vessel leases that we are retaining to supplement the strong and stable cash flow generation from our niche businesses. With our newly fortified balance sheet we are well-positioned to continue on a path towards long-term value creation and attractive cash flow generation as the demand recovery continues to materialize.”
Mr. Norton also commented that, “Our decision not to exercise some of our options reflects a continued diversification from a relatively high concentration in conventional Jones Act tankers and ATBs to our niche businesses that have enjoyed higher and more stable returns. The Jones Act market for larger conventional tankers has shifted over the last five years as marginal demand drivers domestically have become more volatile in both crude and refined product flows. While we are witnessing a rebound in demand currently, charter periods obtainable in the markets we serve have shortened and the trajectory to increased stability remains uncertain.”
“The future of seaborne energy transportation and the type, design and markets for vessels that will be engaged in this business in the future are evolving in ways not yet well defined,” Mr. Norton continued. “The progressive U.S. transformation away from a carbon fuels-based economy should present interesting new business niches for OSG to competitively apply its differentiated set of skills. In addition to seeking to reduce volatility in our current earnings profile, the decision to redeliver three vessels to AMSC will allow us to redirect resources towards participating in a broader spectrum of opportunities in the existing and emerging markets for energy and liquid bulk commodities of all types.”
“The reduction in future fixed payment obligations that will result is a meaningful step towards reducing financial and operating leverage in our business to a level commensurate with current uncertainty in the commodity markets in which we are active,” said Dick Trueblood, the Company’s Vice President and Chief Financial Officer. “We believe we have retained an appropriate level of exposure to what we see is an improving market environment. At the same time, the shift in focus implicit in our decision not to exercise some of the extension options will allow us to direct more of our resources and capital towards those portions of our business which have historically generated more stable cash flows.”