Omega Navigation Q2 2009 Results
Omega Navigation Enterprises, Inc. (NASDAQ: ONAV) (SGX: ONAV50), a provider of global marine transportation services focusing on product tankers, announced its financial and operational results for the quarter ended June 30, 2009.
For the quarter ended June 30, 2009, Omega Navigation reported total revenues of $16.7 million and Net Income of $3.4 million, or $0.23 per basic share, excluding a loss related to the termination of a purchase agreement, a loss on interest rate derivative instruments and incentive compensation grants expense. Including these items the Company reported Net Loss of $1 million or $0.06 per basic share. EBITDA for the second quarter of 2009 was $6.6 million. Please see below for a reconciliation of EBITDA to Cash from Operating Activities.
Operating Income included revenue of $0.7 million attributable to profit sharing.
The company owned and operated an average of eight vessels, all of which were product carriers, during the second quarter of 2009, the same number as in the second quarter of 2008. In addition, since April 2009, the Company holds a 50% interest in a joint venture, which owns an additional product carrier vessel. The Omega King and the Omega Queen were out of service for 8 and 12 days, respectively, during the 2009 period for scheduled drydockings and immediately thereafter entered in to new time charters. The Omega Queen was chartered out to ST Shipping (Glencore) for a base rate, which covers operating expenses and debt service, with profit-sharing above the base rate. The Omega King entered a new time charter with Torm at an average base rate of $16,500 per day for one year, with profit-sharing elements. Torm also has an option to extend the charter for one year at a base rate of $20,000 per day plus profit-sharing. The Omega Prince and Omega Princess also entered in to new charter arrangements. These vessels entered commercial management agreements with ST Shipping whereby their actual earnings will be pooled with 7 vessels of similar operating characteristics, also commercially managed by ST Shipping. Excluding profit-share, the panamaxes averaged $22,898 per day per vessel and the MR's averaged $19,083 per vessel per day (net of voyage expenses) for the second quarter of 2009. In the second quarter of 2008, the Panamax product tankers averaged $25,050 per day per vessel and the MR's product tankers averaged $20,742 per day per vessel (net of voyage expenses). Voyage revenues were mainly adversely affected in the second quarter of 2009 by the offhire time related to the scheduled drydockings noted above, by the lower hire rates on the new charter arrangements mentioned above and by 5 days offhire related to a collision on the Omega Theodore, which occurred at the end of March 2009 as previously announced. After completion of repairs, the Omega Theodore was redelivered to ST Shipping in accordance with the current time charter agreement.
Since the inception of our product tankers' charters through the end of the second quarter of 2009, the profit sharing element of those charters that we have or are entitled to receive amounted to approximately $14.1 million. The Company has already received $13.2 million of cash and has recorded profit share revenues of $13.2 million, and currently expects to record an additional $0.9 million in quarters to follow for voyages performed through the second quarter of 2009.
Operating expenses for our MR product tankers averaged $5,304 per day per vessel in the second quarter of 2009, versus $5,073 per day per vessel in the second quarter of 2008. Our Panamax product tankers averaged operating expenses of $5,735 per day per vessel in the second quarter of 2009, versus $5,201 per day per vessel in the second quarter of 2008. The increase of the daily operating expenses of the vessels relates mainly to the maintenance expenses related to the drydockings of the Omega King and Omega Queen in the second quarter of 2009 and an increase in crew wages.
First Six Months 2009 Results
For the six months ended June 30, 2009, Omega Navigation reported total revenues of $35.4 million and Net Income of $9.7 million, or $0.63 per basic share excluding a loss on interest rate derivative instruments, a gain on warrants revaluation, non cash incentive compensation grants and a loss related to the termination of a purchase agreement. Including these items, Net income was $4.7 million or $0.31 per share. EBITDA for the first six months of 2009 was $19.8 million. Please see below for a reconciliation of EBITDA to Cash from Operating Activities.
Operating Income included revenue of $2.4 million attributable to profit sharing.
The company owned and operated an average of eight vessels, all of which were product carriers, during the first half of 2009, the same as in the first half of 2008. In addition, since April 2009, the Company holds a 50% interest in a joint venture, which owns an additional product carrier vessel. Excluding profit-sharing, the Company's Panamax product tankers earned an average time-charter equivalent rate of $23,692 per day per vessel during the first half of 2009, versus $25,063 per day per vessel (net of voyage expenses), during the first six months of 2008. The Company's Handymax product tankers earned an average time-charter equivalent rate of $19,910 per vessel per day during the first half of 2009 versus $20,751 per day per vessel (net of voyage expenses) during the first six months of 2008.
Operating expenses for the MR product tankers averaged $5,298 per day per vessel in the first half of 2009 versus $4,833 per day per vessel in the first six months of 2008. Panamax product tankers averaged operating expenses of $5,957 per day per vessel in the first six months of 2009 versus $5,240 per day per vessel in the first half of 2008. The increase in operating expenses was primarily related to maintenance expenses incurred during scheduled drydockings in the first half of 2009, insurance deductible incurred related to the collision on the Omega Theodore and an increase in crew wages.
Loan Covenant Compliance
As of June 30, 2009, the Company was fully compliant with all its loan covenants.
Recent Fleet Developments
With the recent announcement of the delivery of the newbuilding vessel Omega Duke to a joint venture, in which Omega Navigation has a 50% shareholding, Omega's current operated fleet includes nine double hull product tankers with an aggregate carrying capacity of 559,358 dwt. The Omega Duke has been time chartered to ST Shipping (Glencore International AG) for a period of 5 years until mid 2014, with a base rate which fully covers operating expenses and debt service plus profit sharing arrangement. With the additional announcements that the Omega Queen and Omega King have been time chartered out, seven out of nine product tankers are currently employed under fixed rate time charters. The recent time charters are to established counterparties, ST Shipping and Torm A/S. Currently seven out of nine of the vessels have profit-sharing arrangements associated with them which enable the Company to share in the charter market's upside potential.
With these recent charters concluded, the company has for the remainder of 2009 and until mid 2010 fixed rate time charter coverage of 78%, inclusive of the joint venture, all with profit-sharing arrangements allowing the Company to take advantage of any upside in the charter market. The company has entered the Omega Prince and Omega Princess into floating rate time charters with rates based on the market results of a pool of similar vessels commercially managed by ST Shipping and through these arrangements enjoy excellent utilization rates and above spot market charter rates. All of the time charters recently concluded are for relatively short periods of time, which increases the Company's flexibility to terminate those on short notice in case the market improves and thereby take advantage of better market conditions. Also, with these time charters we have continued full utilization of the fleet without experiencing any unscheduled offhire time.
In the first six months of the year, the turmoil which prevailed in the global economy had a severe impact on the entire tanker industry, and specifically on rates and asset values. Omega's strategy of owning young, high quality assets and employing its vessels through term time charters has enabled the company to present profitable operating results, even in these uncertain times and depressed tanker market. While oil demand has contracted and oil product inventories remain high, there has been recent evidence that the economic climate may be recovering. As the economic recovery progresses, we would expect to see an increase in oil demand, and the resultant increase in rates and asset values.
George Kassiotis, President and Chief Executive Officer of Omega Navigation, commented: "We are pleased to have concluded our thirteenth consecutive quarter with profitable operating results, since our IPO in April 2006. We attribute our profitable operating results 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 on seven of our nine product tankers have profit-sharing provisions has enabled us to participate in any upside of the charter market and thereby maximize our profitability.
"We continue to return profitable operating results even in this most challenging economic environment. We have seen signs that the economic environment is improving and with that demand for oil and oil products should gradually return as well. We would expect that once demand improves and current high inventory levels decrease, we should see an improving rate environment and asset values should also improve. Based on our current charter rates and the continued performance of each of our charterers, we believe that we are well positioned to continue to show profitable operating results even in this economic climate. While rates remain somewhat depressed, we believe we are now seeing evidence of a rebound in demand for oil products, which should help stimulate rates going forward.
"We seek to optimize the management of our capital exposure, deliver our balance sheet and create synergies, which will enhance our ability to fund our growth plans and take advantage of opportunities during challenging times.
"In this respect, we are pleased to enjoy a strong business relationship with Glencore, one of the largest commodities traders in the world. The joint ownership of the Omega Duke is further evidence of the high standards of operating performance that our Company offers to its customers and end users of its vessels and also demonstrates our ability to create synergies in a challenging environment.
"We also believe that we continue to have strong relationships with our commercial lenders, that are large European and Asian banks, which have continued to offer their support to the Company.
"We would like to reiterate that we are continuing to pursue a strategy of prudent growth, gradually expanding our fleet and our revenue and profit generation potential.
"We remain optimistic about the long term fundamentals of the product tanker market, the area of our strategic focus. We believe that we enjoy strong competitive advantages in this market with our focused business strategy, our fleet of young high quality vessels, term employment with established charterers, a solid and flexible capital structure and a strong management team, enabling us to continue delivering strong, stable and predictable results for our shareholders."
Gregory McGrath, Chief Financial Officer of Omega Navigation, commented, "As of June 30, 2009, the Company had a ratio of net debt to net capitalization of about 64%, with respect to the current eight vessel fleet and including debt already incurred for the pre-delivery financing of the remaining six newbuildings, which we believe is modest for industry standards given our strong time charter coverage and the young age and quality of our fleet. As of June 30, 2009 we were fully compliant with all our loan covenants.
"We continue to have a strong relationship with our commercial lenders and have received their ongoing support and commitment to the Company, even in this very challenging credit market. Our balance sheet was also recently strengthened by the formation of the joint venture company which owns the Omega Duke and the consequent novation of the debt associated with that vessel from Omega to the joint venture."