Omega Takes a Hit on Derivatives

Mar 6 2009

Product tanker specialist Omega Navigation reported total revenues of $20.1 mill and net income of $5.8 mill, or $0.38 per basic share for 4Q08.

However, this figure excluded a loss on its interest rate derivative agreements, a gain on warrants revaluation and incentive compensation grants expense. Including these items, Omega recorded a net loss of $4.4 mill or $0.29 per basic share. EBITDA for 4Q08 was $17 mill.

Operating income included revenue of $2.2 mill primarily attributable to profit sharing on vessel charters, which represented the highest amount booked to income since the inception of the charters, which included a profit sharing provision. This was due to a very strong 4Q product tanker market.

Omega owned and operated an average of eight vessels, all product carriers, during the period, the same number as 4Q07. Excluding profit sharing, the LR1s earned an average time-charter equivalent rate of $24,949 per day per vessel, versus $25,047 per day per vessel during 4Q07. The Handymaxes earned an average TCE rate of $20,798 per vessel per day during 4Q08, versus $20,750 per day per vessel during 4Q07.

Since the inception of the product tankers' charters through the end of 4Q08, the profit sharing element amounted to about $13.6 mill. The company has already received $10.9 mill cash and has recorded profit share revenues of $10.8 mill and currently expects to record an additional $2.8 mill in subsequent quarters for voyages performed through 4Q08.

Operating expenses for the MRs averaged $5,110 per day per vessel in 4Q08, versus $4,048 per day per vessel in 4Q07. LR1 operating expenses averaged of $5,564 per day per vessel during the period, versus $4,582 per day per vessel in 4Q07. The increase was mainly due to a hike in crew wages across the fleet.

As for the full year, Omega reported total revenues of $77.7 mill and net income of $22.7 mill, or $1.50 per basic share, excluding a loss on its interest rate derivative instruments, a gain on warrants revaluation and incentive compensation grants expense.

Including these items net income was $11 mill, or $0.72 per basic share. EBITDA for 2008 was $57.1 mill.

Net income included $6.8 mill of revenues primarily arising from profit sharing on four tanker charters. The size of the profit sharing contribution was again down to the strong spot market for product tankers throughout the year.

All of the company's product tankers are employed under timecharters to established operators including NORDEN, ST Shipping (Glencore) and TORM. Six of the eight product tankers had profit sharing arrangements.

George Kassiotis, Omega’s president and ceo, commented: "We are pleased to have concluded our 11th consecutive quarter with strong operating income, since our IPO in April 2006. We attribute our strong operating income to our strategy of acquiring high quality modern vessels and seeking predictable and stable cash flows through the term employment of our vessels. In addition, the fact that the charters of six of our eight product tankers have a profit sharing provision has enabled us to participate in any upside of the charter market and thereby maximise our profitability and the return for our shareholders. The profit sharing agreements in 2008 have allowed the company to enjoy particularly strong earnings, with the product tanker market remaining quite strong throughout 2008.

" While we have seen some evidence of spot and term rates weakening in the first quarter of 2009, our profit sharing agreements continue to generate revenues above the base rates and thereby adding to our profitability. All of the vessels in our current fleet are under three year timecharters with established charterers pursuant to which we had covered 100% of our operating days for 2008 and we have contracted 79% for 2009.

"The charters on the Panamax Ice Class vessels delivered to us in March and April of 2007, respectively, extend to 2010. In addition, the Company recently announced new charters on the 'Omega Lady Miriam' and 'Omega Lady Sarah', which provide for contracted time charter coverage on these vessels until mid 2012. Finally, we recently announced the declaration of our 11th consecutive quarterly base dividend of $0.50 per common share with respect to the fourth quarter of 2008," he concluded.

Source: Tanker Operator