U.S. Shipping Partners L.P. said that the U.S. Navy's Military Sealift Command has agreed to charter two new tankers being constructed for the Partnership's joint venture. The initial charter will be for twelve months at a cost of approximately $51 million. The Navy then has options to extend the charters via three one-year options and a further 11-month option, which if exercised would increase the cost to approximately $220m.
The U.S. Navy said the ships would be deployed globally to transport petroleum products in support of US military forces. They will replace the current government-owned T-5 tankers that are expected to reach the end of their service life in 2010.
The ships, due for delivery to the Navy in late 2010 and early 2011, are part of a series of nine 49,000-dwt tankers on order at San Diego's National Steel and Shipbuilding Company. U.S. Shipping Partners fixed the first of this series of vessels to oil major BP in December 2006.
The Partnership, through its subsidiary USS Product Carriers LLC, entered into a contract, effective March 14, 2006, with the National Steel and Shipbuilding Company (NASSCO), a subsidiary of General Dynamics Corporation, for the construction of nine 49,000 deadweight ton (dwt) double-hulled tankers.
General Dynamics provided a performance guarantee to Product Carriers in respect of the obligations of NASSCO under the construction contract. NASSCO is scheduled to deliver the first tanker in the second quarter of 2009, with subsequent tankers delivered every six to eight months. We currently expect the cost to construct these nine tankers to aggregate approximately $1b, exclusive of capitalized interest. The base contract price is subject to increase based on increases in certain published price indexes. In addition, NASSCO and Product Carriers share
in any cost savings achieved measured against the original contract price based on the terms of the construction contract. On August 7, 2006, the Partnership entered into a joint venture, USS Products Investor LLC, to finance the construction of the first five petroleum tankers.