Arlington Tankers (ATB) 10-Q 2006 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2006

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934.

For the period from                      to                    

Commission file number: 001-32343

Arlington Tankers Ltd.

(Exact name of Registrant as specified in its charter)

Bermuda	98-0460376
(Jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

First Floor, The Hayward Building
22 Bermudiana Road
Hamilton HM 11, Bermuda
(Address of principal executive offices)

Registrant’s telephone number, including area code:(441) 292-4456

Former name, former address and former fiscal year, if changes since last report:Not applicable.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   YesR No£

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer£            Accelerated FilerR            Non-Accelerated Filer£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes£ NoR

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON STOCK, AS OF AUGUST 8, 2006:Common Stock, par value $0.01 per share: 15,500,000 shares

ARLINGTON TANKERS LTD. AND SUBSIDIARIES
INDEX

PART I:	FINANCIAL INFORMATION
ITEM 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of June 30, 2006 (unaudited) and December 31, 2005	3
	Condensed Consolidated Statements of Operations (unaudited) and Comprehensive Income (unaudited) for the three and six months ended June 30, 2006 and 2005	4
	Condensed Consolidated Statement of Shareholders’ Equity (unaudited) for the six months ended June 30, 2006	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2006 and 2005	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	31
ITEM 4.	Controls and Procedures	31
PART II:	OTHER INFORMATION
ITEM 1.	Legal Proceedings	32
ITEM 1A.	Risk Factors	32
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
ITEM 3.	Defaults Upon Senior Securities	41
ITEM 4.	Submission of Matters to a Vote of Security Holders	41
ITEM 5.	Other Information	42
ITEM 6.	Exhibits	42
SIGNATURES		43
EXHIBIT INDEX		44
EX-3.1 Bye-Laws
EX-31.1 Section 302 Certification C.E.O.
EX-31.2 Section 302 Certification of C.F.O.
EX-32.1 Section 906 Certification of C.E.O. & C.F.O.

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Item 1. Financial Statements

     Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. Our condensed consolidated financial statements are expressed in U.S. dollars. In this report, references to “dollars,” “U.S.$” or “$” are to United States dollars.

ARLINGTON TANKERS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

	June 30,		December 31,
	2006		2005
	(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	10,492	$	11,839
Short-term investments		8,600		2,500
Other receivables		1,266		1,601
Prepaid expenses and accrued income		185		283
Total current assets		20,543		16,223
NONCURRENT ASSETS:
Vessels, net		353,087		269,031
Deferred debt issuance costs		1,075		1,193
Interest rate swap agreement at fair value		4,978		—
Total noncurrent assets		359,140		270,224
TOTAL ASSETS	$	379,683	$	286,447
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accrued expenses	$	674	$	2,399
Unearned charter revenues		5,356		2,237
Total current liabilities		6,030		4,636
NONCURRENT LIABILITIES:
Interest rate swap agreement at fair value		—		2,160
Long-term debt		229,500		135,000
TOTAL LIABILITIES		235,530		141,796
SHAREHOLDERS’ EQUITY:
Preference shares, $0.01 par value per share, 4,000,000 authorized, none issued or outstanding at June 30, 2006 and December 31, 2005		—		—
Common stock, $0.01 par value per share; 60,000,000 authorized; 15,500,000 shares issued and outstanding at June 30, 2006 and December 31, 2005		155		155
Additional paid-in capital		136,275		138,038
Retained earnings		7,723		6,458
Total shareholders’ equity		144,153		144,651
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	379,683	$	286,447

See notes to condensed consolidated financial statements.

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ARLINGTON TANKERS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)

	FOR THE THREE MONTHS						FOR THE SIX MONTHS
	ENDED JUNE 30,						ENDED JUNE 30,
	2006			2005			2006			2005
REVENUES	$	17,259		$	13,538		$	34,503		$	27,830
OPERATING EXPENSES:
Vessel operating expenses		4,526			3,376			9,248			6,715
Depreciation		3,967			3,098			7,944			6,196
General and administrative expenses		713			553			1,454			974
TOTAL OPERATING EXPENSES		9,206			7,027			18,646			13,885
OPERATING INCOME		8,053			6,511			15,857			13,945
OTHER INCOME (EXPENSE):
Interest expense		(3,415	)		(1,678	)		(6,715	)		(3,339	)
Interest income		129			55			273			93
Unrealized gain on interest rate swap		2,956			—			7,137			—
NET OTHER INCOME/(EXPENSE)		(330	)		(1,623	)		695			(3,246	)
NET INCOME	$	7,723		$	4,888		$	16,552		$	10,699
OTHER COMPREHENSIVE INCOME:
Net unrealized gain (loss) on derivative instrument		—			(2,724	)		—			266
COMPREHENSIVE INCOME	$	7,723		$	2,164		$	16,552		$	10,965
Earnings per common share, basic and diluted	$	0.50		$	0.32		$	1.07			0.69
Weighted average shares outstanding, basic and diluted		15,500,000			15,500,000			15,500,000			15,500,000

See notes to condensed consolidated financial statements.

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ARLINGTON TANKERS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2006

(IN THOUSANDS)

	Common		Paid-in			Retained
	Stock		Capital			Earnings			Total
Balance as of January 1, 2006	$	155	$	138,038		$	6,458		$	144,651
Net income							16,552			16,552
Cash dividend paid				(1,763	)		(15,287	)		(17,050	)
Balance at June 30, 2006 (unaudited)	$	155	$	136,275		$	7,723		$	144,153

See notes to condensed consolidated financial statements.

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ARLINGTON TANKERS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

	FOR THE SIX MONTHS
	ENDED JUNE 30,
	2006			2005
OPERATING ACTIVITIES:
Net income	$	16,552		$	10,699
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		7,944			6,196
Unrealized (gain)/loss on interest rate swap		(7,137	)		—
Amortization of debt issuance costs		118			81
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Other receivables		334			773
Prepaid expenses and accrued income		98			1,245
Accrued expenses and other current liabilities		(1,725	)		(795	)
Unearned revenues		3,119			(2,040	)
Net cash provided by operating activities		19,303			16,159
INVESTING ACTIVITIES:
Capital expenditures on vessels		(92,000	)		—
Sale of short-term investments		7,300			—
Purchase of short-term investments		(13,400	)		—
Net cash (used) by investing activities		(98,100	)		—
FINANCING ACTIVITIES:
Proceeds from long-term debt		94,500			—
Dividend payments from retained earnings		(15,287	)		(10,102	)
Dividend payments from paid in capital		(1,763	)		(4,468	)
Net cash provided (used) by financing activities		77,450			(14,570	)
Net (decrease) increase in cash		(1,347	)		1,589
Cash and cash equivalents, beginning of period		11,839			5,960
Cash and cash equivalents, end of period	$	10,492		$	7,549

See notes to condensed consolidated financial statements.

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ARLINGTON TANKERS LTD. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

1. GENERAL

     Arlington Tankers Ltd. (the “Company” or “Arlington”) was incorporated in September 2004 under the laws of Bermuda for the purpose of acquiring six tanker vessels (the “Initial Vessels”) consisting of two V-Max VLLC’s from Concordia Maritime AB (“Concordia”), two Product tankers from Stena AB (“Stena”), and two Panamax tankers from subsidiaries of Stena, Concordia and two companies owned 75% by Stena and 25% by Fram Shipping Co. Ltd (“Fram”). In November 2004, the Company completed its initial public offering by issuing and selling to the public 11,450,000 common shares, par value $0.01 per share, at a price to the public of $20.00 per share, raising gross proceeds of $229 million before the deduction of underwriting discounts, commissions and expenses of approximately $17.7 million. Simultaneously, the Company issued a total of 4,050,000 common shares at a price of $20.00 per share to Stena, Concordia and Fram, for total consideration of $81 million, as part of the settlement of the purchase price of the Initial Vessels. On that date the Company also raised $135 million of secured debt (before expenses of approximately $0.8 million) as part of the financing of the Initial Vessels. On acquisition of the Initial Vessels, the excess of the purchase price of $426.5 million over the historical book value of $283.2 million at which the predecessor shareholders carried the Initial Vessels on their books was considered a deemed distribution of $143.3 million to those predecessor shareholders. An aggregate of 1,717,500 of these shares were sold in the initial public offering in connection with the underwriters’ exercise of their over-allotment option. The Company did not receive any proceeds from the sale of shares by the Stena, Concordia, and Fram. Concurrent with the closing of this initial public offering, the Company completed the acquisition of the Initial Vessels.

     On December 12, 2005, the Company entered into a five-year term loan agreement with The Royal Bank of Scotland plc. The term loan agreement provides for a term loan facility of up to $229.5 million. The purpose of the term loan agreement was to (1) refinance the indebtedness under the Company’s $135 million debt facility with a group of banks for which Fortis Bank (Nederland) N.V. acted as agent, (2) finance the purchase price of two new Product tankers from Stena and (3) general corporate purposes. The Company completed the refinancing of its previous debt facility in December 2005 and completed the vessel acquisitions in January 2006. The new term loan agreement matures on January 5, 2011. All amounts outstanding under the term loan agreement must be repaid on that maturity date. There is no principal amortization prior to maturity. Borrowings under the term loan agreement bear interest at a floating rate of LIBOR plus a margin of 75 basis points. The margin would increase to 85 basis points if the ratio of the value of the Company’s vessels to the amount outstanding under the loan facility falls below 2.0 (the “Ratio”). The increased interest margin is equivalent to approximately $229,500 per year in increased interest costs in the event the Ratio falls below 2.0. In connection with the term loan agreement, the Company entered into an interest rate swap agreement with The Royal Bank of Scotland. As a result of this swap, the Company has fixed the interest rate on the term loan agreement at 5.7325%, or 5.8325% if the Ratio falls below 2.0. The annual cash interest costs will approximate 5.38% (5.48% if the Ratio falls below 2.0) due to the benefit that the Company received from the termination of a swap with Fortis Bank of $4.8 million that has been designated by the Company’s Board of Directors to offset the higher interest costs of the new $229.5 million term loan facility.

     On January 5, 2006, the Company entered into a series of agreements with certain Stena subsidiaries, Stena Bulk, Northern Marine Management Ltd. (“Northern Marine”), and Stena Maritime (the “Stena Parties”), pursuant to which the Company, through wholly owned subsidiaries, completed the purchase from subsidiaries of Stena Maritime two Product tankers known as theStena Conceptand theStena Contest(the “Additional Vessels”) from subsidiaries of Stena Maritime for a purchase price per Additional Vessel of $46,000,000. In connection with the acquisition of the Additional Vessels, the Company and the Stena Parties also entered into certain related agreements with the Stena Parties and amended certain of our agreements with the Stena Parties related to the Initial Vessels. At the closing of this acquisition, the Company’s subsidiaries that purchased the Additional Vessels and Stena Bulk entered into new time charter party agreements with respect to the Additional Vessels. Under the new time charter parties, which are substantially similar to the time charter parties that the Company’s subsidiaries have entered into for the Initial Vessels, the Company’s subsidiaries that purchased the Additional Vessels time chartered the Additional Vessels to Stena Bulk for an initial period of three years at the fixed daily basic hire without any additional hire provision. At the end of the initial three-year period, both the Company and Stena Bulk have the option to extend the time charters on a vessel-by-vessel basis for an additional 30 months, at the fixed daily basic hire. If Stena Bulk exercises this option, there will be an additional hire provision during the 30-month period. If the Company exercises this option, there will be no additional hire arrangement. Furthermore, if Stena Bulk exercises the 30-month option, there will be two additional one-year options, exercisable by Stena Bulk, at the fixed daily basic hire set forth below, but without an additional hire provision.

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     At the closing of the acquisition of the Additional Vessels, the time charter parties for the Company’s existing Product tankers and Panamax tankers were amended. These amendments modified the charter periods for the Company’s previously-acquired Product tankers and Panamax tankers and provided certain changes to the calculation of additional hire under these time charter parties. The amendments to the terms of the charters provided that (1) the five-year fixed term for one of the Product tankers (Stena Consul) and one of the Panamax tankers (Stena Compatriot) was extended to November 2010, followed by three one-year options exercisable by Stena Bulk and (2) the five-year fixed term for one of the Product tankers (Stena Concord) and one of the Panamax tankers (Stena Companion) was reduced so that it expired in November 2008, followed by three one-year options exercisable by Stena Bulk. The term of the charters for the V-MAX tankers were not amended. The amendments to the additional hire provisions provided for certain favorable adjustments to fuel consumption metrics used in the calculation of additional hire for the Product tankers and Panamax tankers.

     At the closing of the acquisition of the Additional Vessels, the ship management agreements for the Company’s Initial Vessels were also amended. These amendments modified the provisions relating to drydocking of the vessels. Specifically, the amendments provided that all drydockings during the term of the ship management agreements are to be at the sole cost and expense of Northern Marine. In addition, Northern Marine agreed to conduct at least one mid-period drydocking for each Product tanker and Panamax tanker prior to redelivery of such vessels. Furthermore, upon redelivery of the existing vessels to the Company at the expiration of the ship management agreements, Northern Marine has agreed to pay to the Company a drydocking provision for each day from the completion of the last special survey drydocking during the term of the applicable Ship Management Agreement (or if no special survey occurs during the term of such agreement, from the date of commencement of such agreement), to date of redelivery at the daily rates specified in the ship management agreements.

     As of February 10, 2005, Stena and Concordia directly and indirectly owned an aggregate of approximately 14.4% of the Company’s outstanding common shares.

     The Company’s eight vessels (the “Vessels”) are currently owned by eight subsidiaries of the Company (each, a “Vessel Subsidiary”). The primary activity of each of the Vessel Subsidiaries is the ownership and operation of a Vessel.

     The following table sets out the details of the Vessels included in these consolidated financial statements:

Vessel Type	Year Built		Dwt		Flag	Date Acquired
V-MAX
Stena Victory		2001		314,000	Bermuda	November 10, 2004
Stena Vision		2001		314,000	Bermuda	November 10, 2004
Panamax
Stena Companion		2004		72,000	Bermuda	November 10, 2004
Stena Compatriot		2004		72,000	Bermuda	November 10, 2004
Product
Stena Concord		2004		47,400	Bermuda	November 10, 2004
Stena Consul		2004		47,400	Bermuda	November 10, 2004
Stena Concept		2005		47,400	Bermuda	January 5, 2006
Stena Contest		2005		47,400	Bermuda	January 5, 2006

     Effective November 10, 2004 for the Initial Vessels and January 5, 2006 for the Additional Vessels, the Company has chartered the Vessels to subsidiaries of Stena and Concordia (the “Charterers”) under three, four and five-year fixed rate charters, increasing annually by an amount equal to the annual increase in the fees under the Company’s ship management agreements. Under the charters, in addition to the fixed rate basic hire, each Vessel has the possibility of receiving additional hire from the Charterers through profit sharing arrangements related to the performance of the tanker markets on specified geographic routes, or from actual time charter rates. Additional hire is not guaranteed, and correlates to weighted average historical voyage rates for the specified routes. The charters contain three one-year options on the part of the Charterers to extend the terms of the charters. Stena and Concordia have each agreed to guarantee the obligations of their respective subsidiaries under the charters.

     Effective November 10, 2004 for the Initial Vessels and January 5, 2006 for the Additional Vessels, the Company has also entered into ship management agreements with Northern Marine. The ship management agreements provide for the technical management of the Vessels.

     The basic hire rate for each of the Vessels is payable to the Company monthly in advance and will increase annually by an amount equal to the annual increase in the fee payable under the applicable ship management agreement. The basic hire under the charters for

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each vessel type during each charter year is set forth below. The first charter year for the Initial Vessels commenced on November 10, 2004. Each subsequent charter year will begin on November 11 of the applicable year and end on the subsequent November 10. The first charter year for the Additional Vessels commenced on January 5, 2006. Each subsequent charter year will begin on January 5 of the applicable year and end on the subsequent January 4. In 2011, the charter period may be extended for a six month-period beginning on January 5 and ending on July 4 and subsequent charter years will begin on July 5 and end on July 4.

     The following table sets forth the daily basic hire for the Initial Vessels.

	Stena Vision,		Stena		Stena
	Stena Victory		Compatriot		Companion		Stena Consul		Stena Concord
Period	(V-MAX)		(Panamax)		(Panamax)		(Product)		(Product)
Nov. 11, 2005 – Nov. 10, 2006	$	36,075	$	17,688	$	17,688	$	15,765	$	15,765
Nov. 11, 2006 – Nov. 10, 2007		36,469		17,989		17,989		16,043		16,043
Nov. 11, 2007 – Nov. 10, 2008		36,882		18,306		18,306		16,335		16,335
Nov. 11, 2008 – Nov. 10, 2009 (1)		37,316		18,639		18,639		16,642		16,642
Nov. 11, 2009 – Nov. 10, 2010 (2)		37,772		18,989		18,989		16,964		16,964
Nov. 11, 2010 – Nov. 10, 2011 (3)		38,251		19,356		19,356		17,303		17,303
Nov. 11, 2011 – Nov. 10, 2012		38,753		19,741		—		17,658		—
Nov. 11, 2012 – Nov. 10, 2013		—		20,145		—		18,031		—

(1)	This period is the first for which the Charterer has the option to extend the charters forStena CompanionandStena Concord. There can be no assurance that the Charterer will exercise any option.
(2)	This period is the first for which the Charterer has the option to extend the charters for the V-MAX Tankers,Stena VisionandStena Victory. There can be no assurance that the Charterer will exercise any option.
(3)	This period is the first for which the Charterer has the option to extend the charters forStena CompatriotandStena Consul. There can be no assurance that the Charterer will exercise any option.

     The following table sets forth the daily basic hire for the Additional Vessels that the Company acquired in January 2006.

	Stena Concept
	Stena Contest
Period	(Product)
January 5, 2006 – January 4, 2007	$	19,765
January 5, 2007 – January 4, 2008		20,043
January 5, 2008 – January 4, 2009		20,335
January 5, 2009 – January 4, 2010 (1)		17,942
January 5, 2010 – January 4, 2011		18,264

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	Stena Concept
	Stena Contest
Period	(Product)
January 5, 2011 – July 4, 2011		18,603
July 5, 2011 – July 4, 2012 (2)		21,158
July 5, 2012 – July 4, 2013		21,531

(1)	At the end of the initial fixed charter period expiring on January 4, 2009, either the Company or the Charterers may extend the charters on a vessel-by-vessel basis for an additional 30-month period expiring on July 4, 2011. If the Charterer extends the Charter for this 30-monthly period, the Company would be eligible to earn additional hire in addition to basic hire.
(2)	This period is the first for which the Charterer has the option to extend the charters if either one of the Charter exercises the option described in Footnote 1 above.

     In addition to the basic hire, the Charterers may pay the Company quarterly in arrears an additional hire payment for the Initial Vessels. Under the charters, the additional hire, if any, in respect of each Initial Vessel, is payable on the 25th day following the end of each calendar quarter.

     The additional hire, if any, payable in respect of an Initial Vessel, other than the V-MAX tankers as described below, for any calendar quarter is an amount equal to 50% of the weighted average hire, calculated as described below, for the quarter after deduction of the basic hire in effect for that quarter. The weighted average hire is a daily rate equal to the weighted average of the following amounts:

• a weighted average of the time charter hire per day received by the Charterer for any periods during the calculation period, determined as described below, that the Initial Vessel is subchartered by the Charterer under a time charter, less ship broker commissions paid by the Charterer in an amount not to exceed 2.5% of such time charter hire and commercial management fees paid by the Charterer in an amount not to exceed 1.25% of such time charter hire; and

• the time charter equivalent hire for any periods during the calculation period that the vessel is not subchartered by the Charterer under a time charter.

     The calculation period is the twelve -month period ending on the last day of each calendar quarter, except that in the case of the first three full calendar quarters following the commencement of the Company’s charters, the calculation period is the three, six and nine month periods, respectively, ending on the last day of such calendar quarter and the first calendar quarter also includes the period from the date of the commencement of the Company’s charters to the commencement of the first full calendar quarter.

     In the case of the V-MAX tankers, which are currently sub-chartered by subsidiaries of Concordia to Sun International, the Company receives additional hire equal to the difference between the amount paid by Sun International under its time charters and the basic hire, less ship broker commissions paid by the charterer in an amount not to exceed 2.5% of the charterhire received by the charterer and commercial management fees paid by the charterer in an amount not to exceed 1.25% of the charterhire received by the charterer. The sub-charter agreements for the two V-MAX tankers to Sun International are due to expire in June 2007 and September 2007.

     Immediately following the expirations of the Concordia subcharters with Sun International, both V-MAX tankers will commence operating under a new two year sub-charter agreement between Concordia and Litasco, a subsidiary of the Russian energy company LukOil OAO. During the period of these sub-charters the Company will continue to earn not only guaranteed basic charter hire from Concordia, but, as a result of the new sub-charters, will also earn guaranteed additional hire from the profit sharing provisions of the charter agreements. Under the new sub-charters to Litasco, the profit sharing provisions in the Concordia charters are expected to result in revenue of approximately $700,000 per quarter in addition to the guaranteed basic charter hire levels, once the Litasco sub-charters commence.

     The Vessel Subsidiaries have entered into fixed-rate ship management agreements with Northern Marine. Under the ship management agreements, Northern Marine is responsible for all technical management of the vessels, including crewing, maintenance, repair, drydockings, vessel taxes and other vessel operating and voyage expenses. Northern Marine has outsourced some of these

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services to third-party providers. We have agreed to guarantee the obligations of each of the Company’s Vessel Subsidiaries under the ship management agreements.

     Under the ship management agreements, Northern Marine has agreed to return the Vessels in-class and in the same good order and condition as when delivered, except for ordinary wear and tear.

     Northern Marine is also obligated under the ship management agreements to maintain insurance for each of the Company’s Vessels, including marine hull and machinery insurance, protection and indemnity insurance (including pollution risks and crew insurances), war risk insurance and off-hire insurance. Under the ship management agreements, the Company pays Northern Marine a fixed fee per day per vessel for all of the above services, which increases 5% per year, for so long as the relevant charter is in place. Under the ship management agreements, Northern Marine has agreed to indemnify the Company for the loss of the basic hire for each of the Vessels in the event, for circumstances specified under the charters, the Vessel is off -hire or receiving reduced hire for more than five days during any twelve-month period, net of amounts received by us from off-hire insurance. Stena has agreed to guarantee this indemnification by Northern Marine. Both the Company and Northern Marine have the right to terminate any of the ship management agreements if the relevant charter has been terminated.

     The daily base operating costs, which are payable by the Company monthly in advance, for each charter year are set forth below. For the Initial Vessels, the first charter year commenced on November 10, 2004 and ended on November 10, 2005. Each subsequent charter year will begin on November 11 of the applicable year and end on the subsequent November 10. For the Additional Vessels, the first charter year commenced on January 5, 2006 and will end on January 4, 2007. Each subsequent charter year will begin on January 5 of the applicable year and end on the subsequent January 4. In 2011, the charter period may be extended for a six month-period beginning on January 5 and ending on July 4 and subsequent charter years will begin on July 5 and end on July 4.

     The following table sets forth the daily base operating costs for the Initial Vessels.

	Stena Vision,		Stena		Stena
	Stena Victory		Compatriot		Companion		Stena Consul		Stena Concord
Period	(V-MAX)		(Panamax)		(Panamax)		(Product)		(Product)
Nov. 11, 2005 – Nov. 10, 2006	$	7,875	$	6,038	$	6,038	$	5,565	$	5,565
Nov. 11, 2006 – Nov. 10, 2007		8,269		6,339		6,339		5,843		5,843
Nov. 11, 2007 – Nov. 10, 2008		8,682		6,656		6,656		6,135		6,135
Nov. 11, 2008 – Nov. 10, 2009		9,116		6,989		6,989		6,442		6,442
Nov. 11, 2009 – Nov. 10, 2010 (1)		9,572		7,339		7,339		6,764		6,764
Nov. 11, 2010 – Nov. 10, 2011 (2)		10,051		7,706		7,706		7,103		7,103
Nov. 11, 2011 – Nov. 10, 2012 (3)		10,553		8,091		—		7,458		—
Nov. 11, 2012 – Nov. 10, 2013		—		8,495		—		7,831		—

(1)	This period is the first for which the Charterer has the option to extend the charters for Stena Companion and Stena Concord. There can be no assurance that the Charterer will exercise any option.
(2)	This period is the first for which the Charterer has the option to extend the charters for the V-MAX Tankers. There can be no assurance that the Charterer will exercise any option.
(3)	This period is the first for which the Charterer has the option to extend the charters forStena CompatriotandStena Consul. There can be no assurance that the Charterer will exercise any option.

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     The following table sets forth the daily base operating costs for the Additional Vessels that the Company acquired in January 2006.

	Stena Concept
	Stena Contest
Period	(Product)
January 5, 2006 – January 4, 2007	$	5,565
January 5, 2007 – January 4, 2008		5,843
January 5, 2008 – January 4, 2009		6,135
January 5, 2009 – January 4, 2010 (1)		6,442
January 5, 2010 – January 4, 2011		6,764
January 5, 2011 – July 4, 2011		7,103
July 5, 2011 – July 4, 2012 (2)		7,458
July 5, 2012 – July 4, 2013		7,831

(1)	At the end of the initial fixed charter period expiring on January 4, 2009, either the Company or the Charterers may extend the charters on a vessel-by-vessel basis for an additional 30-month period expiring on July 4, 2011. If the Charterer extends the charter for this 30-monthly period, the Company would be eligible to earn additional hire in addition to basic hire.
(2)	This period is the first for which the Charterer has the option to extend the charters if either one of the Charterers exercises the option described in Footnote 1 above.

     The Company has also agreed to pay to Northern Marine an incentive fee for each day a vessel is on hire for over 360 days during any twelve-month period following the date the applicable vessel was delivered to the Company in amount equal to the basic hire for such vessel. If the Company terminates its ship management agreements with Northern Marine because Northern Marine has failed to perform its obligations under such agreements, Stena has agreed to provide a replacement ship manager to perform the obligations set forth in the ship management agreements on the same terms and for the same fixed amounts payable to Northern Marine.

     Northern Marine provides technical and crewing management and payroll and support sources to the Stena Sphere shipping divisions and approximately 10 other clients, including ChevronTexaco Corporation, Technip Offshore UK and Gulf Marine Management. Northern Marine has offices in Glasgow, Aberdeen, Mumbai, Kiel, Houston, Manila, Rotterdam and Singapore and has over 4,400 seafarers employed on approximately 90 vessels.

2. ACCOUNTING POLICIES

Basis of accounting and presentation

     The unaudited condensed interim consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and the Securities and Exchange Commission’s instructions to Form 10-Q. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. The resulting operations for the interim periods ended June 30, 2006, are not necessarily indicative of the results for the entire year ended December 31, 2006. The consolidated financial statements include the assets and liabilities, results of operations and cash flows of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

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Cash and cash equivalents and short-term investments

     The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less as of the date of purchase to be cash equivalents. The Company considers all demand and time deposits and all highly liquid investments with an original maturity of greater than three months as of the date of purchase to be short-term investments. Cash and cash equivalents of $10.5 million and short-term investments of $8.6 million as of June 30, 2006 are pledged as described in Note 8 and are held at a single financial institution with a Standard & Poor’s rating of A+. The carrying value of cash and cash equivalents approximates its fair value.

Drydocking

     In addition to vessel acquisition, other major capital expenditures include funding our maintenance program of regularly scheduled in-water survey or drydocking necessary to preserve the quality of our vessels as well as to comply with international shipping standards and environmental laws and regulations. Management anticipates that the Vessels that are younger than 15 years will undergo in-water surveys 2.5 years after drydocking and that Vessels are to be drydocked every five years, while vessels 15 years or older are to be drydocked every 2.5 years in which case the additional drydocks take the place of these in-water surveys. During 2006, we anticipate that five vessels will undergo their initial in-water surveys. Under the terms of our vessel management agreements with Northern Marine, the cost of these initial in-water surveys is covered by the vessel management fees that the Company pays to Northern Marine. During the duration of these in-water surveys, the Company will not have the opportunity to earn additional hire revenues from profit-sharing arrangements with Stena.

Estimates and concentrations

     The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from such best estimates.

     The Company operates in the shipping industry which historically has been cyclical with corresponding volatility in profitability and vessel values. Vessel values are strongly influenced by charter rates which in turn are influenced by the level and pattern of global economic growth and the world-wide supply and demand for vessels. The spot market for tankers is highly competitive and charter rates are subject to significant fluctuations. Dependence on the spot market may result in lower utilization. Each of the aforementioned factors are important considerations associated with the Company’s assessment of whether the carrying amount of its owned Vessels are recoverable. The Company seeks to mitigate the effect of such factors by various means such as by obtaining long term charter contracts. There is a concentration of credit risk in that all revenues are due solely from the Charterers. See Note 4.

Fair value of financial instruments

     Statement of Financial Accounting Standards (“SFAS”) No. 107, “Disclosures about Fair Value of Financial Instruments,” requires the disclosure of fair values for all financial instruments, both on- and off-balance-sheet, for which it is practicable to estimate fair value. The Company estimates that there are no material variations between fair value and book value for its financial assets or liabilities as of June 30, 2006 and December 31, 2005.

Earnings per share

     Earnings per share are based on the weighted average number of common shares outstanding for the period presented. For all periods presented, the Company had no potentially dilutive securities outstanding and therefore basic and diluted earnings per share are the same.

Distributions to shareholders

     The Company intends to pay a quarterly cash distribution denominated in U.S. dollars to the holders of its common shares in amounts substantially equal to the charter hire received from the Charterers, less cash expenses and less any cash reserves established by the Company’s board of directors. The Company intends to declare those dividends in January, April, July and October of each year and pay those dividends in the subsequent month. Distributions to shareholders are applied first to retained earnings. When retained earnings are not sufficient, distributions are applied to additional paid-in capital.

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3. RECENTLY ISSUED ACCOUNTING STANDARDS

     In December 2004, the Financial Accounting Standards Board, or FASB, issued SFAS No. 153, “Exchanges of Nonmonetary Assets,” (SFAS No. 153). SFAS No. 153 amends Accounting Principles Board (“APB”) Opinion No. 29, “Accounting for Nonmonetary Transactions,” to require exchanges of nonmonetary assets be accounted for at fair value, rather than carryover basis. Nonmonetary exchanges that lack commercial substance are exempt from this requirement. SFAS 153 is effective for nonmonetary exchanges entered into in fiscal years beginning after June 15, 2005. The Company does not routinely enter into exchanges that could be considered nonmonetary, accordingly the Company does not expect the adoption of SFAS 153 to have a material impact on the Company’s financial statements.

     In December 2004, FASB issued SFAS No. 123, (Revised 2004) — Share-Based Payment (“SFAS 123R”). SFAS 123R replaces SFAS No. 123. SFAS 123R requires that the compensation cost relating to share-based payment transactions be recognized in financial statements and be measured based on the fair value of the equity or liability instruments issued. Under SEC rules, the Company is allowed to implement SFAS No. 123R in the first quarter of its 2006 fiscal year. Since the Company does not currently have any equity compensation plans, it does not believe that the adoption of SFAS No. 123R will have a material effect on its consolidated financial statements.

     In March 2005, The Financial Accounting Standards Board published FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligation” (“FIN 47”), to clarify that an entity must recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 also defines when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is intended to provide a more consistent recognition of liabilities relating to asset retirement obligations, additional information about expected future cash outflows associated with these obligations, and additional information about investments in long-lived assets, because it recognizes additional asset retirement costs as part of the assets carrying amounts. FIN 47 is effective for 2005. FIN 47 did not impact the Company in 2006 or 2005.

4. CHARTER REVENUES

     The minimum future revenues to be received by the Company under time charters in effect as of June 30, 2006, is $216.4 million, which represents the committed time charter income under the time charters in effect between the Company and Stena and Concordia that expire November 2008, 2009, and 2010, as well as the guaranteed additional hire revenue related to the Concordia’s sub-charter of the two V-MAX vessels to Sun International through mid-2007. The table below does not include any future additional hire related to the sub-charter agreements between Concordia and Litasco due to the uncertainty of the commencement of the sub-charter agreements.

	Minimum Future
Year	Charter Revenue
	(In thousands of $)
2006	$	35,432
2007		67,622
2008		65,548
2009		36,509
2010		11,289

5. OTHER RECEIVABLES

	June 30,		December 31,
	2006		2005
	(In thousands of $)
Additional hire revenue due from Stena/Concordia	$	1,266	$	1,601
	$	1,266	$	1,601

     As of June 30, 2006 and December 31, 2005 other receivables represent amounts due under the additional hire profit share arrangement. These amounts are calculated quarterly in arrears.

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6. VESSELS, NET

	June 30,			December 31,
	2006			2005
	(In thousands of $)
Vessels
Cost	$	402,426		$	310,426
Accumulated depreciation		(49,339	)		(41,395	)
Net book value at end of year		353,087			269,031
Spare parts		—			—
Vessels, net	$	353,087		$	269,031

     On January 5, 2006 the Company completed the purchase of the Additional Vessels for $46 million each. The Additional Vessels along with the Initial Vessels are pledged as described in Note 8.

     There have been no drydocking costs capitalized through June 30, 2006.

7.DEFERRED DEBT ISSUANCE COST

     Deferred debt issuance cost represents debt arrangement fees that are capitalized and amortized on a straight-line basis to interest expense over the term of the relevant debt. Amortization is included in other interest expense. As of June 30, 2006 and December 31, 2005 the balance relates entirely to the Company’s $229.5 million secured term loan facility with The Royal Bank of Scotland plc. Deferred debt issuance cost is comprised of the following amounts.

	June 30,			December 31,
	2006			2005
	(In thousands of $)
Debt arrangement fees	$	1,200		$	1,200
Accumulated amortization		(125	)		(7	)
Deferred debt issuance cost	$	1,075		$	1,193

8. DEBT

	June 30,		December 31,
	2006		2005
	(In thousands of $)
Secured credit facility	$	229,500	$	135,000
Total debt	$	229,500	$	135,000

     As of June 30, 2006 the Company had $229.5 million in debt on the new term loan facility with The Royal Bank of Scotland plc outstanding. On December 12, 2005, the Company entered into a five-year term loan agreement with The Royal Bank of Scotland plc. The term loan agreement provided for a term loan facility of up to $229.5 million. The term loan agreement is secured by first priority mortgages over each of the eight Vessels, assignment of earnings and insurances and the Company’s rights under the time charters for the Vessels and the ship management agreements, a pledge of the shares of the Company’s wholly owned subsidiaries and a charge over certain of the Company’s bank accounts. The term loan agreement with The Royal Bank of Scotland matures on January 5, 2011. All amounts outstanding under the term loan agreement must be repaid on that maturity date. There is no principal amortization prior to maturity. Borrowings under the term loan agreement bear interest at a floating rate of LIBOR plus a margin of 75 basis points. The margin would increase to 85 basis points if the ratio of the fair value of the Company’s vessels to the amount outstanding under the loan facility falls below 2.0 (the “Ratio”). The increased interest margin is equivalent to approximately $229,500 per year in increased interest costs in the event the ratio falls below 2.0. In connection with the term loan agreement, the Company has entered into an interest rate swap agreement with The Royal Bank of Scotland. As a result of this swap, the Company has fixed the interest rate on the term loan agreement at 5.7325%, or 5.8325% if the Ratio is below 2.0.

     The term loan agreement provides that if at any time the aggregate fair value of the Company’s vessels that secure the obligations under the Loan Agreement is less than 125% of the loan amount, the Company must either provide additional security or prepay a portion of the loan to reinstate such percentage. The term loan agreement also contains financial covenants requiring that at the end of each financial quarter (1) the Company’s total assets (adjusted to give effect to the market value of the vessels) less total liabilities is

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equal to or greater than 30% of such total assets and (2) the Company has positive working capital. At June 30, 2006 and December 31, 2005 the Company was in compliance with the financial covenants of the loan agreement.

     As of December 31, 2005 the Company had a secured credit facility of $135 million under the term loan facility with The Royal Bank of Scotland plc. The Company refinanced this $135 million indebtedness with a group of banks for which Fortis Bank (Nederland) N.V. acted as agent in December 2005 and completed the acquisition of the Additional Vessels in January 2006.

9. FINANCIAL INSTRUMENTS

Derivative instruments and hedging activities

     SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of each derivative is recorded each period in current earnings or other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction.

     For all hedging relationships, the Company formally documents the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the item, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed, and a description of the method of measuring ineffectiveness. This process includes linking all derivatives that are designated as cash-flow hedges to specific cash flows associated with assets and liabilities on the balance sheet or to specific forecasted transactions.

     The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting cash flows of hedged items. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income to the extent that the derivative is effective as a hedge, until earnings are affected by the variability in cash flows of the designated hedged item. Any other change in fair value of a derivative instrument that qualifies as a cash-flow hedge is reported currently in earnings.

     The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, the derivative is redesignated as not a hedging instrument because it is unlikely that a forecasted transaction will occur, or management determines that designation of the derivative as a hedging instrument is no longer appropriate.

     In all situations in which hedge accounting is discontinued, the Company continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value in earnings.

     Interest rate swap agreements are contractual agreements between the Company and other parties to exchange the net difference between a fixed and variable interest rate periodically over the life of the contract without the exchange of the underlying principal amount of the agreement. The interest rate swaps were executed as integral elements of the Company’s financing transactions and risk management policies to achieve specific interest rate management objectives. At the time of obtaining its financing in 2005, the Company entered into pay-fixed, receive-floating interest rate swap agreements to hedge its exposure to future cash flow variability resulting from variable interest rates on the Company’s debt.

     In December 2005, the Company terminated its $135 million credit facility and the corresponding interest rate swaps with a group of banks for which Fortis Bank (Nederland) N.V. acted as agent. The Company received a cash payment of $4.8 million as a result of terminating its interest rate swaps. In conjunction with the termination of the interest rate swaps, the Company incurred costs of approximately $745,000, primarily associated with the write-off of deferred debt issuance costs, resulting in a net realized gain in the fourth quarter of 2005 related to the termination of the interest rate swaps of $4.1 million.

     Changes in the fair value of interest rate swaps designated as hedging instruments that effectively offset the variability of cash flows associated with variable-rate, long-term debt obligations are reported in other comprehensive income. These amounts subsequently are reclassified into interest expense as a yield adjustment of the hedged interest payments in the same period in which the related interest affects earnings. The base floating rate of LIBOR plus margin of 75 basis points for the quarter ended June 30, 2006 and the base floating rate of LIBOR plus margin of 100 basis points for the quarter ended June 30, 2005 were 4.97938% and 4.0925%, respectively. For the quarter ended June 30, 2006 and the quarter ended June 30, 2005, the Company had approximately $256,000 and approximately $633,000, respectively of reclassifications to increase interest expense. These reclassifications did not impact the Company’s obligation under its debt facilities however, these amounts represent the net payments made under the swap

16

agreements that represent interest expense paid in excess of the variable interest incurred and paid under the debt facility. The following table summarizes interest expense incurred under the Company’s debt facilities and interest rate swap agreements for the six months ended June 30, 2006 and June 30, 2005, exclusive of amortized debt issue costs and other interest costs:

	Six months ended	Six months ended
($ in thousands)	June 30, 2006	June 30, 2005
Interest related to floating rate debt facility	$6,284	$2,598
Interest related to fixed rate swap agreement	256	633
Total interest incurred under debt facility and interest rate swap	$6,540	$3,231

     In December 2005, the Company entered into a new $229.5 million secured debt facility with The Royal Bank of Scotland plc. On December 21, 2005 the Company completed an initial draw down of $135 million to repay its credit facility with Fortis Bank. In conjunction with the new debt facility, the Company entered into an interest rate swap to change the characteristics of the interest payments on its secured debt facility from LIBOR to a fixed rate of 5.7325%, or 5.8325% if the Ratio falls below 2.0. The interest rate swap agreement was not designated nor qualified as a cash flow hedge pursuant to SFAS No. 133, accordingly changes in the fair value of this swap are recorded in current earnings. The fair value of the swap at June 30, 2006 was an asset of $5.0 million. Accordingly, the Company recorded a non-cash increase in the fair value of the interest rate swap of $3.0 million in current earnings as an unrealized gain in the second quarter of 2006. The fair market value of the Company’s interest rate swap will generally fluctuate based on the implied forward interest rate curve for the 3-month LIBOR. If the implied forward interest rate curve decreases, the fair market value of the interest rate swap will decrease which will result in an unrealized loss in current earnings. If the implied forward interest rate curve increases, the fair market value of the interest rate swap will increase as a result of an unrealized gain in current earnings. If the implied forward interest rate curves increase above the fixed rate of 5.7325%, the fair market value of the swap will increase and result in an unrealized gain on the swap. In either case, changes in the unrealized gain or loss as a result of fluctuations in the fair value of the interest rate swap did not impact the Company’s cash dividend payments.

     Except for these interest rate swaps, the Company had no other outstanding derivative instruments as of June 30, 2006 and December 31, 2005.

     The Company is exposed to credit loss in the event of non-performance by the counter-parties to its swap contracts. The Company minimizes its credit risk on these transactions by endeavoring to only deal with credit-worthy financial institutions, and therefore the Company views the risk of non-performance by the counter-parties as low.

10. SHARE CAPITAL

     As of June 30, 2006 and December 31, 2005, the Company’s authorized share capital is comprised of 12,000 founder shares, par value $1.00 per share, which have been authorized but not issued, 60,000,000 common shares, par value $0.01 per share, and 4,000,000 undesignated preference shares, par value $0.01 per share.

     As of June 30, 2006 and December 31, 2005, the Company had 15,500,000 common shares issued, outstanding and fully paid. There were no preference shares issued and outstanding.

11. COMMITMENTS AND CONTINGENCIES

	June 30		December 31,
	2006		2005
	(In thousands of $)
Ship mortgages	$	229,500	$	135,000

     As of June 30, 2006, ship mortgages represent first mortgages on the eight Vessels as collateral for amounts outstanding under the secured credit facility with a maturity date of January 11, 2011. As of December 31, 2005, ship mortgages represent first mortgages on the six Vessels as collateral for amounts outstanding under the secured credit facility with a maturity date of January 11, 2011.

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     The minimum future Vessel operating expenses to be paid by the Company under the ship management agreements in effect as of June 30, 2006 that expire in 2008, 2009, and 2010, and which increase 5% per year on November 9^th is $63.4 million. Below is a summary by year of the minimum future Vessel operating expenses:

	Minimum Future Vessel
Year	Operating Expenses
	(In thousand of $)
2006	$	9,315
2007		19,297
2008		19,631
2009		10,710
2010		4,428

     The Company has guaranteed the obligations of each of its subsidiaries under the charters and ship management agreements described in Note 1.

     The Company has entered into a registration rights agreement with subsidiaries of Concordia and Stena and the companies owned by Stena and Fram pursuant to which the Company has agreed to register the shares owned by such companies for sale to the public. The Company’s expenses under this agreement are limited to the first $0.5 million and 50% of the expenses thereafter. As of June 30, 2006 no such expenses had been incurred.

          Effective July 12, 2005, the Company adopted a tax-qualified employee savings plan (the “Savings Plan”). Pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended, eligible employees of the Company are able to make deferral contributions, subject to limitations under applicable law. Participants’ accounts are self-directed and the Company bears all costs associated with administering the Savings Plan. The Company matches 100% eligible compensation deferred by employees. All of the Company’s employees are eligible to participate in the Savings Plan. The Company has elected to operate the Savings Plan under applicable safe harbor provisions of the Code, whereby among other things, the Company must make contributions for all eligible employees and all matches contributed by the Company immediately vest 100%. For the six months ended June 30, 2006 the Company’s matching contribution was $20,600.

12. RELATED PARTY TRANSACTIONS

     As described in Note 1, the Company was formed for the purpose of acquiring the six Initial Vessels from subsidiaries of Stena, Concordia and companies owned jointly by Stena and Fram. The acquisition was completed in November 2004 as also described in Note 1. In January 2006 the Company acquired the two Additional Vessels from Stena, this is also described in Note 1. Prior to their acquisitions, the Vessels were traded in the spot market. As explained in Note 1, the Company has entered into time charters for the eight Vessels with subsidiaries of Stena and Concordia that expire in 2008, 2009 and 2010. The revenue received from Stena and Concordia for the six months ended June 30, 2006 under these contracts was $34.5 million.

     The Company has also entered into ship management arrangements with a subsidiary of Stena that expire in 2008, 2009, and 2010. The amounts charged by a Stena subsidiary under this agreement for the six months ended June 30, 2006 was $9.2 million.

13. SUBSEQUENT EVENTS

     On July 27, 2006, the Company declared a dividend of $9,145,000 or $0.59 per share, and paid that dividend on August 8, 2006 to shareholders of record as of August 4, 2006.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results Of Operations

Forward Looking Statements

     This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to us that are based on beliefs of our management as well as assumptions made by us and information currently available to us, in particular in this “Item 2. Management’s Discussions and Analysis of Financial Condition and Results of Operations”. When used in this document, words such as “believe,” “intend,” “anticipate,” “estimate,” “project,” “forecast,” “plan,” “potential,” “will,” “may,” “should,” and “expect” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. All statements in this document that are not statements of historical fact are forward-looking statements. Forward-looking statements include, but are not limited to, such matters as:

• future operating or financial results;

• future payments of quarterly dividends and the availability of cash for payment of quarterly dividends;

• statements about future, pending or recent acquisitions, business strategy, areas of possible expansion, and expected capital spending or operating expenses;

• statements about tanker market trends, including charter rates and factors affecting vessel supply and demand;

• expectations about the availability of vessels to purchase, the time which it may take to construct new vessels, or vessels’ useful lives; and

• our ability to repay our secured credit facility at maturity, to obtain additional financing and to obtain replacement charters for our vessels.

     Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, the factors described in Part II, Item 1A below under the heading “Risk Factors” and the factors otherwise referenced in this report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statements included herein. We do not intend, and do not assume any obligation, to update these forward-looking statements.

     You should read this information together with our consolidated financial statements and related notes included in “Item 1. Financial Statements.”

     On November 10, 2004, we completed our initial public offering and acquired our original fleet of six tankers, consisting of two V-MAX tankers, two Panamax tankers and two Product tankers. The total purchase price for these vessels equaled approximately $426.5 million, consisting of $345.5 million in cash and 4,050,000 common shares that we issued to subsidiaries of Concordia and Stena and two companies owned by Stena and Fram. We financed the cash portion of the purchase price through our initial public offering and borrowings under a secured credit facility. The 4,050,000 shares issued to the sellers were valued at $81 million, based on the initial public offering price of $20.00 per share. An aggregate of 1,717,500 of the shares issued to the vessel sellers were sold in our initial public offering in connection with the underwriters’ exercise of their over-allotment option. We did not receive any proceeds from the sale of these shares.

     Effective November 10, 2004, we chartered our six Initial Vessels to subsidiaries of Stena and Concordia under fixed rate charters, which we refer to as the charters. We refer to the subsidiaries of Stena and Concordia to which we have chartered our vessels as the Charterers. Under the charters, we receive fixed basic hire in amounts that increase annually at a rate equal to the annual increase in the fees payable under our ship management agreements described below. Furthermore, in addition to the fixed rate basic hire, each of our vessels has the possibility of receiving additional hire from the Charterers through profit sharing arrangements related to the performance of the tanker markets on specified geographic routes, or from actual time charter rates. Additional hire is not guaranteed, and correlates to weighted average historical voyage rates for the specified routes. The charters contain options on the part of the Charterers to extend the terms of the charters. Stena and Concordia have each agreed to guarantee the obligations of their respective subsidiaries under the charters.

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     Effective November 10, 2004, we have also entered into ship management agreements with Northern Marine. The ship management agreements provide for the technical management of our vessels. Under the ship management agreements, we have agreed to pay Northern Marine a flat fee per day per vessel, which increases 5% every year.

     As a result of our entering into the charters, our revenues since November 10, 2004 have been generated primarily from charter payments made to us by the Charterers. As a result of our entering into the ship management agreements, our vessel operating expenses for the vessels are fixed, increasing 5% annually. These arrangements are designed to provide us with stable and generally predictable cash flow and reduce our exposure to volatility in the spot markets for the vessels.

     On December 12, 2005, we entered into a five-year term loan agreement with The Royal Bank of Scotland plc. The term loan agreement provides for a term loan facility of up to $229.5 million. The purpose of the term loan agreement was to (1) refinance the indebtedness under our $135 million debt facility with a group of banks for which Fortis Bank (Nederland) N.V. acted as agent, (2) finance the purchase price of two new Product tankers from the Stena Group and (3) general corporate purposes. We completed the refinancing of our previous debt facility in December 2005 and completed the vessel acquisitions in January 2006. The new term loan agreement matures on January 5, 2011. All amounts outstanding under the term loan agreement must be repaid on that maturity date. There is no principal amortization prior to maturity. Borrowings under the term loan agreement bear interest at a floating rate of LIBOR plus a margin of 75 basis points. The margin would increase to 85 basis points if the ratio of the value of our vessels to the amount outstanding under the loan facility falls below 2.0. The increased interest margin is equivalent to approximately $229,500 per year in increased interest costs in the event the ratio falls below 2.0. In connection with the term loan agreement, we entered into an interest rate swap agreement with The Royal Bank of Scotland. As a result of this swap, we have fixed the interest rate on the term loan agreement at 5.7325%. The annual cash interest costs will approximate 5.38% due to the benefit that we received from the termination of a swap with Fortis Bank of $4.8 million that has been designated by our Board of Directors to offset the higher interest costs of the new $229.5 million term loan facility.

     On January 5, 2006, we entered into a series of agreements, which we refer to as the with Stena Bulk, Northern Marine and Stena Maritime, which we refer to as the Stena Parties, pursuant to which we, through wholly owned subsidiaries, completed the purchase from subsidiaries of Stena Maritime two Product tankers known as theStena Conceptand theStena Contest, which we refer to as the Additional Vessels, for a purchase price per Vessel of $46 million. In connection with the acquisition of the Additional Vessels, the Stena Parties and we also entered into certain related agreements and amended certain of the agreements related to our previously-acquired six vessels which we refer to as the Initial Vessels. At the closing of the acquisition, our subsidiaries that purchased the Additional Vessels and Stena Bulk entered into time charter parties. Under the time charter parties, which are substantially similar to the time charter parties that our subsidiaries have entered into for the Initial Vessels, our subsidiaries that purchased the Additional Vessels time chartered the Additional Vessels to Stena Bulk for an initial period of three years at the fixed daily basic hire. At the end of the initial three-year period, both we and Stena Bulk have the option to extend the time charters on a vessel-by-vessel basis for an additional 30 months, at the fixed daily basic hire. If Stena Bulk exercises this option, there will be an additional hire provision during the 30-month period. If we exercise this option, there will be no additional hire arrangement. Furthermore, if Stena Bulk exercises the 30-month option, there will be two additional one-year options, exercisable by Stena Bulk, at the fixed daily basic hire set forth below, but without an additional hire provision.

     At the closing of the acquisition, the time charter parties for our existing Product tankers and Panamax tankers were amended. These amendments modified the charter periods for our previously acquired Product tankers and Panamax tankers and provided certain changes to the calculation of additional hire under these Time Charter Parties. The amendments to the terms of the charters provided that (1) the five-year fixed term for one of the Product tankers (Stena Consul) and one of the Panamax tankers (Stena Compatriot) was extended to November 2010, followed by three one-year options exercisable by Stena Bulk and (2) the five-year fixed term for one of the Product tankers (Stena Concord) and one of the Panamax tankers (Stena Companion) was reduced to a November 2008 expiration date, followed by three one-year options exercisable by Stena Bulk. The term of the charters for the V-MAX tankers were not amended. The amendments to the additional hire provisions provided for certain favorable adjustments to fuel consumption metrics used in the calculation of additional hire for the Product tankers and Panamax tankers.

     At the closing of the acquisition, the ship management agreements for our Initial Vessels were also amended. These amendments modified the provisions relating to drydocking of the vessels. Specifically, the amendments provided that all drydockings during the term of the ship management agreements are to be at the sole cost and expense of Northern Marine. In addition, Northern Marine agreed to conduct at least one mid-period drydocking for each Product tanker and Panamax tanker prior to redelivery of such vessels. Furthermore, upon redelivery of the existing vessels to us at the expiration of the ship management agreements, Northern Marine has agreed to pay to us a drydocking provision for each day from the completion of the last special survey drydocking during the term of the applicable ship management agreement (or if no special survey occurs during the term of such agreement, from the date of commencement of such agreement), to date of redelivery at the daily rates specified in the ship management agreements.

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     As of February 10, 2005, Stena and Concordia directly and indirectly owned an aggregate of approximately 14.4% of the outstanding common shares.

     We acquired our Initial Vessels from Stena, Concordia and Fram concurrently with the completion of our initial public offering on November 10, 2004. We acquiredStena ConceptandStena Contestfrom Stena on January 5, 2006. The Vessels are currently owned by eight subsidiaries of the Company (each, a “Vessel Subsidiary”). The primary activity of each of the Vessel Subsidiaries is the ownership and operation of a Vessel.

     The following chart summarizes certain information about our fleet.

Vessel Type	Year Built		Dwt		Flag	Date Acquired
V-MAX
Stena Victory		2001		314,000	Bermuda	November 10, 2004
Stena Vision		2001		314,000	Bermuda	November 10, 2004
Panamax
Stena Companion		2004		72,000	Bermuda	November 10, 2004
Stena Compatriot		2004		72,000	Bermuda	November 10, 2004
Product
Stena Concord		2004		47,400	Bermuda	November 10, 2004
Stena Consul		2004		47,400	Bermuda	November 10, 2004
Stena Concept		2005		47,400	Bermuda	January 5, 2006
Stena Contest		2005		47,400	Bermuda	January 5, 2006

     Our wholly -owned subsidiaries have time chartered our vessels to the Charterers. Upon completion of our initial public offering in November 2004, each of our Initial Vessels was chartered for a fixed term expiring in November 2009, followed by three one-year options exercisable at the option of the Charterers. In January 2006, in connection with our acquisition of two Additional Vessels from Stena, the fixed term for one of our Product tankers (Stena Consul) and one of our Panamax tankers (Stena Compatriot) was extended to November 2010, followed by three one-year options exercisable by the Charterer and the fixed term for one of our Product tankers (Stena Concord) and one of our Panamax tankers (Stena Companion) was reduced to November 2008, followed by three one-year options exercisable by the Charterer. The terms of the charters for our V-MAX tankers were not amended.

     The fixed charter period for the Additional Vessels that we acquired in January 2006 expires in January 2009. At the end of the initial three-year period, both we and the Charterer have the option to extend the time charters on a vessel-by-vessel basis for an additional 30 months. Furthermore, if the Charterer exercises the 30-month option, there will be two additional one-year options, exercisable by the Charterer.

     We have agreed to guarantee the obligations of each of our subsidiaries under the Charters.

     The Charterers are Stena Bulk AB, a wholly owned subsidiary of Stena, and CM V-MAX I Limited and CM V-MAX II Limited, each a wholly owned subsidiary of Concordia.

     The following table sets forth the daily basic hire for our Initial Vessels.

	Stena Vision,		Stena		Stena
	Stena Victory		Compatriot		Companion		Stena Consul		Stena Concord
Period	(V-MAX)		(Panamax)		(Panamax)		(Product)		(Product)
Nov. 11, 2005 – Nov. 10, 2006	$	36,075	$	17,688	$	17,688	$	15,765	$	15,765
Nov. 11, 2006 – Nov. 10, 2007		36,469		17,989		17,989		16,043		16,043
Nov. 11, 2007 – Nov. 10, 2008		36,882		18,306		18,306		16,335		16,335
Nov. 11, 2008 – Nov. 10, 2009 (1)		37,316		18,639		18,639		16,642		16,642
Nov. 11, 2009 – Nov. 10, 2010 (2)		37,772		18,989		18,989		16,964		16,964
Nov. 11, 2010 – Nov. 10, 2011 (3)		38,251		19,356		19,356		17,303		17,303

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	Stena Vision,		Stena		Stena
	Stena Victory		Compatriot		Companion		Stena Consul		Stena Concord
Period	(V-MAX)		(Panamax)		(Panamax)		(Product)		(Product)
Nov. 11, 2011 – Nov. 10, 2012		38,753		19,741		—		17,658		—
Nov. 11, 2012 – Nov. 10, 2013		—		20,145		—		18,031		—

(1)	This period is the first for which the Charterer has the option to extend the charters forStena CompanionandStena Concord. There can be no assurance that the Charterer will exercise any option.
(2)	This period is the first for which the Charterer has the option to extend the charters for the V-MAX Tankers,Stena VisionandStena Victory. There can be no assurance that the Charterer will exercise any option.
(3)	This period is the first for which the Charterer has the option to extend the charters forStena CompatriotandStena Consul. There can be no assurance that the Charterer will exercise any option.

     The following table sets forth the daily basic hire for the Additional Vessels that we acquired in January 2006.

	Stena Concept
	Stena Contest
Period	(Product)
January 5, 2006 – January 4, 2007	$	19,765
January 5, 2007 – January 4, 2008		20,043
January 5, 2008 – January 4, 2009		20,335
January 5, 2009 – January 4, 2010 (1)		17,942
January 5, 2010 – January 4, 2011		18,264
January 5, 2011 – July 4, 2011		18,603
July 5, 2011 – July 4, 2012 (2)		21,158
July 5, 2012 – July 4, 2013		21,531

(1)	At the end of the initial fixed charter period expiring on January 4, 2009, either we or the Charterers may extend the charters on a vessel-by-vessel basis for an additional 30-month period expiring on July 4, 2011. If the Charterer extends the Charter for this 30-monthly period, we would be eligible to earn additional hire in addition to basic hire.
(2)	This period is the first for which the Charterer has the option to extend the charters if either one of the Charter exercises the option described in Footnote 1 above.

     In addition to the basic hire, the Charterers may pay the Company quarterly in arrears an additional hire payment. Under the charters, the additional hire, if any, in respect of each Vessel, is payable on the 25th day following the end of each calendar quarter.

     The additional hire, if any, payable in respect of a Vessel, other than the V-MAX tankers as described below, for any calendar quarter is an amount equal to 50% of the weighted average hire, calculated as described below, for the quarter after deduction of the basic hire in effect for that quarter. The weighted average hire is a daily rate equal to the weighted average of the following amounts:

• a weighted average of the time charter hire per day received by the charterer for any periods during the calculation period, determined as described below, that the Vessel is subchartered by the charterer under a time charter, less ship broker

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	commissions paid by the charterer in an amount not to exceed 2.5% of such time charter hire and commercial management fees paid by the charterer in an amount not to exceed 1.25% of such time charter hire; and
•	the time charter equivalent hire for any periods during the calculation period that the vessel is not subchartered by the charterer under a time charter.

     The calculation period is the twelve month period ending on the last day of each calendar quarter, except that in the case of the first three full calendar quarters following the commencement of the Company’s charters, the calculation period is the three, six and nine month periods, respectively, ending on the last day of such calendar quarter and the first calendar quarter also includes the period from the date of the commencement of the Company’s charters to the commencement of the first full calendar quarter.

     In the case of the V-MAX tankers, which are currently sub-chartered by subsidiaries of Concordia to Sun International, the Company receives additional hire equal to the difference between the amount paid by Sun International under its time charters and the basic hire, less ship broker commissions paid by the charterer in an amount not to exceed 2.5% of the charterhire received by the charterer and commercial management fees paid by the charterer in an amount not to exceed 1.25% of the charterhire received by the charterer. The sub-charter agreements for the two V-MAX tankers to Sun International are due to expire in June 2007 and September 2007.

     Immediately following the expirations of the Concordia subcharters with Sun International, both V-MAX tankers will commence operating under a new two year sub-charter agreement between Concordia and Litasco, a subsidiary of the Russian energy company LukOil OAO. During the period of these sub-charters the Company will continue to earn not only guaranteed basic charter hire from Concordia, but, as a result of the new sub-charters, will also earn guaranteed additional hire from profit sharing provisions of the charter agreements. Under the new sub-charters to Litasco, the profit sharing provisions in the Concordia charters are expected to result in revenue of approximately $700,000 per quarter in addition to the guaranteed basic charter hire levels, once the Litasco sub-charters commence.

     Our Vessel Subsidiaries have entered into fixed rate ship management agreements with Northern Marine. Under the ship management agreements, Northern Marine is responsible for all technical management of the vessels, including crewing, maintenance, repair, drydockings, vessel taxes and other vessel operating and voyage expenses. Northern Marine has outsourced some of these services to third-party providers. We have agreed to guarantee the obligations of each of our subsidiaries under the ship management agreements.

     Under the ship management agreements, Northern Marine has agreed to return vessels in-class and in the same good order and condition as when delivered, except for ordinary wear and tear.

     Northern Marine is also obligated under the ship management agreements to maintain insurance for each of the Vessels, including marine hull and machinery insurance, protection and indemnity insurance (including pollution risks and crew insurances), war risk insurance and off-hire insurance. Under the ship management agreements, we pay Northern Marine a fixed fee per day per vessel for all of the above services, which increases 5% per year, for so long as the relevant Charter is in place. Under the ship management agreements, Northern Marine has agreed to indemnify us for the loss of the basic hire for each of our Vessels in the event, for circumstances specified under the Charters, the vessel is off hire or receiving reduced hire for more than five days during any twelve-month period, net of amounts received by us from off-hire insurance. Stena has agreed to guarantee this indemnification by Northern Marine. Both we and Northern Marine have the right to terminate any of the ship management agreements if the relevant Charter has been terminated.

     The daily base operating costs, which are payable by us monthly in advance, for each charter year are set forth below. The first charter year commenced on November 10, 2004 and will end on November 10, 2005. Each subsequent charter year will begin on November 11 of the applicable year and end on the subsequent November 10.

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     The following table sets forth the daily base operating costs for the Initial Vessels.

	Stena Vision,		Stena		Stena
	Stena Victory		Compatriot		Companion		Stena Consul		Stena Concord
Period	(V-MAX)		(Panamax)		(Panamax)		(Product)		(Product)
Nov. 11, 2005 – Nov. 10, 2006	$	7,875	$	6,038	$	6,038	$	5,565	$	5,565
Nov. 11, 2006 – Nov. 10, 2007		8,269		6,339		6,339		5,843		5,843
Nov. 11, 2007 – Nov. 10, 2008		8,682		6,656		6,656		6,135		6,135
Nov. 11, 2008 – Nov. 10, 2009		9,116		6,989		6,989		6,442		6,442
Nov. 11, 2009 – Nov. 10, 2010 (1)		9,572		7,339		7,339		6,764		6,764
Nov. 11, 2010 – Nov. 10, 2011 (2)		10,051		7,706		7,706		7,103		7,103
Nov. 11, 2011 – Nov. 10, 2012 (3)		10,553		8,091		—		7,458		—
Nov. 11, 2012 – Nov. 10, 2013		—		8,495		—		7,831		—

(1)	This period is the first for which the Charterer has the option to extend the charters forStena CompanionandStena Concord. There can be no assurance that the Charterer will exercise any option.
(2)	This period is the first for which the Charterer has the option to extend the charters for the V-MAX Tankers. There can be no assurance that the Charterer will exercise any option.
(3)	This period is the first for which the Charterer has the option to extend the charters forStena CompatriotandStena Consul. There can be no assurance that the Charterer will exercise any option.

     The following table sets forth the daily base operating costs for the Additional Vessels.

	Stena Concept
	Stena Contest
Period	(Product)
January 5, 2006 – January 4, 2007	$	5,565
January 5, 2007 – January 4, 2008		5,843
January 5, 2008 – January 4, 2009		6,135
January 5, 2009 – January 4, 2010 (1)		6,442
January 5, 2010 – January 4, 2011		6,764
January 5, 2011 – July 4, 2011		7,103
July 5, 2011 – July 4, 2012 (2)		7,458
July 5, 2012 – July 4, 2013		7,831

(1)	At the end of the initial fixed charter period expiring on January 4, 2009, either we or the Charterers may extend the charters on a vessel-by-vessel basis for an additional 30-month period expiring on July 4, 2011. If the Charter extends the Charter for this 30-monthly period, we would be eligible to earn additional hire in addition to basic hire.
(2)	This period is the first for which the Charter has the option to extend the charters if either one of the Charterers exercises the option described in Footnote 1 above.

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     We have also agreed to pay to Northern Marine an incentive fee for each day a vessel is on hire for over 360 days during any twelve-month period following the date the applicable vessel was delivered to us in amount equal to the basic hire for such vessel. If we terminate our ship management agreements with Northern Marine because Northern Marine has failed to perform its obligations under such agreements, Stena has agreed to provide a replacement ship manager to perform the obligations set forth in our ship management agreements on the same terms and for the same fixed amounts payable to Northern Marine.

     Northern Marine provides technical and crewing management and payroll and support sources to the Stena Sphere shipping divisions and approximately 10 other clients, including ChevronTexaco Corporation, Technip Offshore UK and Gulf Marine Management. Northern Marine has offices in Glasgow, Aberdeen, Mumbai, Kiel, Houston, Manila, Rotterdam and Singapore and has over 4,400 seafarers employed on approximately 90 vessels.

Dividend Policy

     We have paid dividends on our common shares quarterly since our incorporation in September, 2004. We intend to continue to pay quarterly cash dividends denominated in U.S. dollars to the holders of our common shares in amounts substantially equal to the charterhire received by us under the Charters, less cash expenses and any cash reserves established by our board of directors. We intend to declare those dividends in January, April, July and October of each year and pay those dividends in the subsequent month. Distributions to shareholders are applied first to retained earnings. When retained earnings are not sufficient, distributions are applied to additional paid-in capital.

     There are restrictions that limit our ability to declare dividends, including those established under Bermuda law and under our secured term loan agreement. In addition to the discussion below, please see “Item 1A. Risk Factors — We cannot assure you that we will pay any dividends” and “—We may not be able to recharter our vessels profitably after they expire, unless they are extended at the option of the Charterers.”

     Under Bermuda law a company may not declare or pay dividends if there are reasonable grounds for believing either that the company is, or would after the payment be, unable to pay its liabilities as they become due, or that the realizable value of its assets would thereby be less than the sum of its liabilities and its issued share capital (par value) and share premium accounts (share premium being the amount of consideration paid for the subscription of shares in excess of the par value of those shares). As a result, in future years, if the realizable value of our assets decreases, our ability to pay dividends may require our shareholders to approve resolutions reducing our share premium account by transferring an amount to our contributed surplus account.

     The declaration and payment of any dividends must be approved by our board of directors. Under the terms of our credit facility, we may not declare or pay any dividends if we are in default under the credit facility.

     There can be no assurance that we will not have other cash expenses, including extraordinary expenses, which could include the costs of claims and related litigation expenses. There can be no assurance that we will not have additional expenses or liabilities, that the amounts currently anticipated for the items set forth above will not increase, that we will not have to fund any required capital expenditures for our vessels or that our board of directors will not determine to establish cash reserves. Other than the fees under our ship management agreements, none of our fees or expenses are fixed.

     The table below sets forth amounts that would be available to us for the payment of dividends for each of the fiscal years set forth below assuming that:

• the basic hire is paid on all of our tankers and all of our tankers are on hire for 360 days per fiscal year;

• no additional hire is paid other than the additional hire based on the current sub-charters with Sun International, and additional hire of $1.4 million earned in the first six months of 2006;

• we have no cash expenses or liabilities other than the ship management agreements, our current directors’ fees, the current salaries and benefits of our President and our Chief Financial Officer, currently anticipated administrative and other expenses and interest under our credit facility;

• we pay no U.S. federal income taxes and minimal U.S. state and payroll taxes or have to fund any required capital expenditures with respect to our vessels;

• no cash reserves are established by our board of directors;

• we remain in compliance with our credit facility which requires, among other things, that the market value of our vessels exceeds 140% of our borrowings under the facility (or 125% if the loan amount at the time of such dividend all of our vessels are on time charter for a remaining period of at least 12 months) in order to pay dividends;

• we do not issue any additional common shares or other securities or borrow any additional funds; and

• the Charterers do not exercise any options to extend the terms of the Charters.

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     The table below does not reflect noncash charges that we will incur, primarily depreciation on our vessels. The timing and amount of dividend payments will be determined by our board of directors and will depend on our cash earnings, financial condition, cash requirements and availability and the provisions of Bermuda law affecting the payment of dividends and other factors. The table below does not take into account any expenses we will incur if the subsidiaries of Concordia and Stena and the two companies owned by Stena and Fram exercise their rights to have us register their shares under the registration rights agreement. For an overview of the registration rights agreement, see “Item 3. — Quantitative and Qualitative Disclosures about Market Risk— If a significant number of our common shares are sold in the market, the market price of our common shares could significantly decline, even if our business is doing well.”

     We cannot assure you that our dividends will in fact be equal to the amounts set forth below. The amount of future dividends set forth in the table below represents only an estimate of future dividends based on our charter contracts, ship management agreements and an estimate of our other expenses and assumes that none of our expenses materially increase during the periods set forth below. The amount of future dividends, if any, could be affected by various factors, including the loss of a vessel, required capital expenditures, cash reserves established by our board of directors, increased or unanticipated expenses, a change in our dividend policy, increased borrowings or future issuances of securities, many of which will be beyond our control. As a result, the amount of dividends actually paid may vary from the amounts currently estimated and such variations may be material. There can be no assurance that any dividends will be paid. See “Item 3. — Quantitative and Qualitative Disclosures about Market Risk — We cannot assure you that we will pay any dividends” and “—We may not be able to recharter our vessels profitably after they expire, unless they are extended at the option of the Charterers.”

     Based on the assumptions and the other matters in the preceding paragraphs, we estimate that the amount of cash available for dividends for each of the fiscal years set forth below would be as follows.

	Fiscal Year Ending
	December 31,
	2006			2007			2008
	(In millions of $, except
	per share amounts)
Basic Hire	$	64.5		$	65.0		$	65.7
V-MAX Additional Hire (1)		2.4			1.0			—
Panamax and Product tankers Additional Hire (2)		1.4			—			—
Vessel operating expenses		(18.5	)		(18.9	)		(19.6	)
Cash Administrative expenses (3)		(2.2	)		(2.2	)		(2.3	)
Cash interest cost (4)		(12.3	)		(12.3	)		(12.3	)
Cash available for dividends	$	35.3		$	32.6		$	31.5
Estimated dividends per share(5)	$	2.28		$	2.10		$	2.03

(1)

The V-MAX additional hire in 2006 and 2007 represents the guaranteed additional hire from the sub-charter agreements with Sun International that are due to expire in June 2007 and September 2007. Immediately following the expiration of the Concordia sub-charters with Sun International, we expect both V-MAX tankers to commence operating under new two year sub-charter agreements between Concordia and Litasco, a subsidiary of the Russian energy company LukOil OAO. Because we cannot determine the exact commencement date for the new sub-charter agreements between Concordia and Litasco, we have not included any additional hire related to these sub-charter agreements in our estimated cash available for dividends. Once the new sub-charters to Litasco commence, the profit sharing provisions in the Concordia charters are expected to result in revenue of approximately $700,000 per quarter in addition to the guaranteed basic charter hire levels.

(2)

The Company has received $1.4 million of additional hire relating to its Panamax and Product tankers for the six months ended June 30, 2006. No estimates have been made for additional hire revenues that are not contractually guaranteed via long-term sub-charters, as is the case for the V-MAX. Panamax and Product tanker additional hire revenue shown is the actual year-to-date amount through June 30, 2006.

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(3)	Cash administrative expenses exclude approximately $300,000 that we expect to incur in 2006 related to the purchase of the two Additional Vessels and will be funded by our new $229.5 million term loan facility with The Royal Bank of Scotland plc.
(4)	Cash interest costs reflect the benefit of approximately $1 million per year from the 2005 termination of the Interest Rate Swap with Fortis Bank. The interest expense for each year will be approximately $13.2 million ($229.5 million at 5.7325%).
(5)	Based on 15,500,000 issued and outstanding common shares.

     We believe that our cash flow from our charters will be sufficient to fund our interest payments under our term loan agreement and our working capital requirements for the short and medium term. To the extent we intend to pursue vessel acquisitions, we will need to obtain additional capital. Our longer term liquidity requirements include repayment of the principal balance of our secured term loan facility in January 2011. We will require new borrowings or a combination of new borrowings and issuances of equity or other securities to meet this repayment obligation.

     In July 2006, we declared a dividend of $0.59 per share. That dividend was paid on August 8, 2006 to our shareholders of record as of August 4, 2006. The July 2006 dividend was based on our operating results for the second quarter ending June 30, 2006. In that period, we earned additional hire of $1.3 million, including additional hire of $700,000 on vessels other than the V-MAX tankers. In April 2006, we declared a dividend of $0.57 per share. That dividend was paid on May 9, 2006 to our shareholders of record on May 5, 2006. The May 2006 dividend was based on our operating results for the first quarter ending March 31, 2006. In that period, we earned additional hire of $1.4 million, including additional hire of $800,000 on vessels other than the V-MAX tankers. In July 2005, we declared a dividend of $0.53 per share. That dividend was paid on August 9, 2005 to our shareholders of record on August 5, 2005.The July 2005 dividend was based on our operating results for the second quarter year ending June 30, 2005. In that period, we earned additional hire of $1.1 million, including additional hire of $377,000 on vessels other than the V-MAX tankers.

Results of Operations

     The discussion below compares our results of operations for the three and six months ended June 30, 2006 to the three and six months ended June 30, 2005.

THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2005

  Total operating revenues

     Total operating revenues were $17.3 million for the three months ended June 30, 2006 compared to $13.5 million for the three months ended June 30, 2005. Revenues for the three months ended June 30, 2006 consisted of $16.0 million in basic hire and $1.3 million in additional hire. During the three months ended June 30, 2006, the Charterers operated our Panamax tankers and Product tankers in the spot market, resulting in payment to us of $700,000 of additional hire. These four vessels benefited from higher tanker spot rates during the second quarter of 2006. In addition, the two V-MAX tankers that are sub-chartered to Sun International generated $600,000 of additional hire.

     Total operating revenues of $17.3 million for the three months ended June 30, 2006 were $3.8 million higher than the total operating revenues for the three months ended June 30, 2005. The increased revenues were attributed to the additional of two new Product tankers to our fleet in January 2006, as well as slightly higher daily charter rates in 2006. We expect that total operating revenues, including guaranteed additional hire revenues from our V-MAX tankers in 2006 will be approximately $68.3 million.

     The vessels were off hire for a combined total of 10 days for the three months ended June 30, 2006, compared to 0.58 days off hire for the three months ended June 30, 2005.

  Total vessel operating expenses

     Total vessel operating expenses were $4.5 million for the three months ended June 30, 2006 compared to $3.4 million for the three months ended June 30, 2005. Vessel operating expenses for the three months ended June 30, 2006 were higher than the same period in 2005 reflecting the addition of the Additional Vessels to our fleet in January 2006 and the annual increase in daily vessel management

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fees under our ship management agreements. We expect that vessel operating expenses will be approximately $18.5 million for 2006 based on our fixed cost rate vessel management agreements.

  Depreciation

     Depreciation was $4.0 million for the three months ended June 30, 2006, compared to $3.1 million for the three months ended June 30, 2005. The year over year increase in depreciation reflects the addition of two new Product tankers to our fleet in January 2006. We estimate that depreciation on our eight vessels for 2006 will be approximately $16 million.

  General and administrative expenses

     General and administrative expenses were $713,000 for the three months ended June 30, 2006 compared to $553,000 for the three months ended June 30, 2005. The increase in general and administrative expenses reflects higher legal, accounting, and administrative costs associated with the purchase of the Additional Vessels in January 2006, and higher administrative costs associated with the establishment of executive offices in Westport, Connecticut. We estimate that administrative expenses for 2006 will be approximately $2.5 – $2.7 million in 2006 which includes approximately $300,000 associated with the purchase of the Additional Vessels in January 2006.

  Net Other Income (Expense)

     Net other income (expense) represents interest expense, net of interest income and other financial items. Net other expense was $330,000 for the three months ended June 30, 2006, compared to net other expense of $1.6 million for the three months ended June 30, 2005. For the three months ended June 30, 2006, the net other expense, includes $3.4 million in interest expense related to our $229.5 million secured credit facility with The Royal Bank of Scotland, plc, which matures in January 20111 offset by, $129,000 of interest income, and $3.0 million related to the unrealized gain on the Company’s interest rate swap. Net other expense for the three months ended June 30, 2005 reflects interest expense of $1.7 million on the Company’s prior $135 million secured credit facility with Fortis Bank, offset by $55,000 of interest income.

     With respect to our new $229.5 term loan credit facility, by entering into an interest rate swap agreement, we have fixed the interest rate under the facility at 5.7325% (5.8325% if the Ratio falls below 2.0) for the five-year term. The interest rate swap agreement was not designated nor qualified as a cash flow hedge pursuant to SFAS No. 133, accordingly changes in the fair value of this swap are recorded in current earnings. The fair value of the swap at June 30, 2006 was an asset of $5.0 million. The fair value of the swap at March 31, 2006 was an asset of $2.0 million. Accordingly, the Company recorded a non-cash increase in the fair value the interest rate swap of $3.0 million in current earnings as an unrealized gain in the second quarter of 2006. In the second quarter of 2005, the Company accounted for its prior interest rate swap agreement as a cash flow hedge pursuant to SFAS No. 133, and accordingly changes in the fair value of the prior swap agreement were recorded as a component of other comprehensive income.

SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2005

  Total operating revenues

     Total operating revenues were $34.5 million for the six months ended June 30, 2006 compared to $27.8 million for the six months ended June 30, 2005. Revenues for the six months ended June 30, 2006 consisted of $31.9 million in basic hire and $2.6 million in additional hire. During the six months ended June 30, 2006, the Charterers operated our Panamax tankers and Product tankers in the spot market, resulting in payment to us of $1.4 million of additional hire. These four vessels benefited from higher tanker spot rates during the first quarter of 2006. In addition, the two V-MAX tankers that are sub-chartered to Sun International generated $1.2 million of additional hire for the six months ended June 30, 2006.

     Total operating revenues of $34.5 million for the six months ended June 30, 2006 were $6.7 million higher than the total operating revenues for the six months ended June 30, 2005. The increased revenues were attributed to the addition of the two Additional Vessels to our fleet in January 2006, as well as slightly higher daily charter rates in 2006. We expect that total operating revenues, including guaranteed additional hire revenues from our V-MAX tankers in 2006 will be approximately $68.3 million.

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     The vessels were off hire for a combined total of 11.95 days for the six months ended June 30, 2006, compared to 8.39 days off hire for the six months ended June 30, 2005.

  Total vessel operating expenses

     Total vessel operating expenses were $9.2 million for the six months ended June 30, 2006 compared to $6.7 million for the six months ended June 30, 2005. Vessel operating expenses for the six months ended June 30, 2006 were higher than the same period in 2005 reflecting the addition of two new Product tankers to our fleet in January 2006 and the annual increase in daily vessel management fees under our ship management agreements. We expect that vessel operating expenses will be approximately $18.5 million for 2006 based on our fixed cost rate vessel management agreements.

  Depreciation

     Depreciation was $7.9 million for the six months ended June 30, 2006, compared to $6.2 million for the six months ended June 30, 2005. The year over year increase in depreciation reflects the addition of the Additional Vessels to our fleet in January 2006. We estimate that depreciation on our eight Vessels for 2006 will be approximately $16 million.

  General and administrative expenses

     General and administrative expenses were $1.5 million for the six months ended June 30, 2006 compared to $974,000 for the six months ended June 30, 2005. The increase in general and administrative expenses reflects higher legal, accounting, and administrative costs associated with the purchase of the Additional Vessels in January 2006, and higher audit fees than the first quarter of 2005. We estimate that administrative expenses for 2006 will be approximately $2.5 – $2.7 million in 2006 which includes approximately $300,000 associated with the purchase of the Additional Vessels in January 2006.

  Net Other Income (Expense)

     Net other income (expense) represents interest expense, net of interest income and other financial items. Net other income was $695,000 for the six months ended June 30, 2006, compared to net other expense of $3.2 million for the six months ended June 30, 2005. For the six months ended June 30, 2006, the net other income, includes $7.1 million related to the unrealized gain on the Company’s interest rate swap, $273,000 of interest income, offset by $6.7 million in interest expense related under our $229.5 million secured credit facility with The Royal Bank of Scotland plc, which matures in January 2011. Net other expense for the six months ended June 30, 2005 reflects interest expense of $3.3 million on the Company’s prior $135 million secured credit facility with Fortis Bank, offset by $93,000 of interest income.

     With respect to our new $229.5 million term loan credit facility, by entering into an interest rate swap agreement, we have fixed the interest rate under the facility at 5.7325% (5.8325% if the Ratio falls below 2.0) for the five-year term. The interest rate swap agreement was not designated nor qualified as a cash flow hedge pursuant to SFAS No. 133, accordingly changes in the fair value of this swap are recorded in current earnings. The fair value of the swap at June 30, 2006 was an asset of $5.0 million. The fair value of the swap at December 31, 2005 was a liability of $2.1 million. Accordingly, the Company recorded a non-cash increase in the fair value the interest rate swap of $7.1 million as an unrealized gain for the six months ended June 30, 2006. For the six months ended June 30, 2005, the Company accounted for its prior interest rate swap agreement as a cash flow hedge pursuant to SFAS No. 133, and accordingly changes in the fair value of the prior swap agreement were recorded as a component of other comprehensive income.

     Based upon the effectively fixed interest rate under the terms of the swap agreement, we estimate that interest expense under the new facility will be approximately $13.2 million per year.

  Liquidity and Capital Resources

     We operate in a capital intensive industry. Our liquidity requirements relate to our operating expenses, including payments under our ship management agreements, quarterly payments of interest and the payment of principal at maturity under our $229.5 million secured credit facility and maintaining cash reserves to provide for contingencies.

     Our financial statements prior to the November 10, 2004 completion of our initial public offering represent the operations of our vessels by the predecessor vessel subsidiaries prior to our acquisition of the vessels. The acquisition of the vessels by the predecessor

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vessel subsidiaries and their operations were funded by bank debt provided by Concordia and advances from Stena and Concordia and, in the case of two of the Stena predecessor vessel subsidiaries, a loan from Fram. As a result, our financial statements for the period prior to the completion of our initial public offering are not indicative of the financial position, results of operations or cash flows that we would have achieved had we operated as an independent entity during these periods or of future results.

     On December 12, 2005, we entered into a five-year term loan agreement with The Royal Bank of Scotland plc. The term loan agreement provides for a term loan facility of up to $229.5 million. The purpose of the term loan agreement was to (1) refinance our existing indebtedness under its $135 million debt facility with a group of banks for which Fortis Bank (Nederland) N.V. is acting as agent, (2) finance the purchase price of two new Product tankers from the Stena Group and (3) general corporate purposes. The Company completed the refinancing of its indebtedness with Fortis Bank in December 2005 and completed the Additional Vessel acquisition in January 2006. The term loan agreement matures on January 5, 2011. All amounts outstanding under the term loan agreement must be repaid on that maturity date. There is no principal amortization prior to maturity. Borrowings under the term loan agreement bear interest at a floating rate of LIBOR plus a margin of 75 basis points. The margin would increase to 85 basis points if the ratio of the value of our vessels to the amount outstanding under the loan facility falls below 2.0. The increased interest margin is equivalent to approximately $229,500 per year in increased interest costs in the event the ratio falls below 2.0. In connection with the term loan agreement, the Company has entered into an interest rate swap agreement with The Royal Bank of Scotland. As a result of this swap, we fixed the interest rate on the term loan agreement at 5.7325%. The annual cash interest costs will approximate 5.38% due to the benefit that the Company received from the termination of its existing swap with Fortis Bank of $4.8 million that has been designated by the Board of Directors to offset the higher interest costs of the new $229.5 million term loan facility. The term loan agreement provides that if at any time the aggregate market value of the Company’s vessels that secure the obligations under the Loan Agreement is less than 125% of the loan amount, the Company must either provide additional security or prepay a portion of the loan to reinstate such percentage. The term loan agreement also contains financial covenants requiring that at the end of each financial quarter (1) the Company’s total assets (adjusted to give effect to the market value of the vessels) less total liabilities is equal to or greater than 30% of such total assets and (2) the Company has positive working capital.

     We had outstanding long term debt of $229.5 million as of June 30, 2006. This amount reflects outstanding borrowings under our secured credit facility, which matures in January 2011. By entering into an interest rate swap agreement, we have effectively fixed the interest rate under the facility at approximately 5.7325% per year. Our long term debt outstanding as of December 31, 2005 was $135 million representing borrowings to finance our initial six vessels in conjunction with the Company’s initial public offering.

     As of June 30, 2006, we had cash and cash equivalents of $10.5 million. Net cash provided by operating activities for the six months ending June 30, 2006 was $19.3 million.

     Net cash used in investing activities in 2005 was $98.1 million. This amount relates to the purchase of our two new Product tankers on January 5, 2006 for $92 million and the purchase of $13.4 million in marketable securities for the six months ending June 30, 2006 with a maturity greater than 90 days, offset by the sale of $7.3 million in marketable securities for the six months ending June 30, 2006.

     Net cash provided by financing activities for the six months ending June 30, 2006 was $77.5 million, which consisted of proceeds from the final draw down of the Company’s $229.5 million secured credit facility in the amount of $94.5 million, offset by $17.1 million in dividend payments made in February 2006 and May 2006.

     We collect our basic hire monthly in advance and pay our ship management fees monthly in advance. We receive additional hire payable quarterly in arrears. We expect charter revenues will be sufficient to cover our ship management fees, interest payments, administrative expenses and other costs and continue to pay quarterly dividends as described above in under the caption Dividend Policy.

     We believe that our cash flow from our charters will be sufficient to fund our interest payments under our secured credit facility and our working capital requirements for the short and medium term. To the extent we pursue additional vessel acquisitions, we will need to obtain additional debt or equity capital. Our longer term liquidity requirements include repayment of the principal balance of our secured credit facility in January 2011. We will require new borrowings or a combination of new borrowings and issuances of equity or other securities to meet this repayment obligation.

Critical Accounting Policies and Estimates

     Our accounting policies are more fully described in Note 2 to the Notes to Condensed Consolidated Financial Statements included elsewhere in this report. As disclosed in Note 2 to the Notes to Consolidated Financial Statements, the preparation of financial

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statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic and industry conditions, present and expected conditions in the financial markets, and in some cases, the credit worthiness of counterparties to contracts. We regularly reevaluate these significant factors and make adjustments where facts and circumstances dictate. The following is a discussion of the accounting policies that we apply and that we consider to involve a higher degree of judgment in their application.

REVENUE RECOGNITION

     Revenues are generated from time charters and the spot market. Charter revenues are earned over the term of the charter as the service is provided. Probable losses on voyages are provided for in full at the time such losses can be estimated.

VESSELS, DEPRECIATION AND IMPAIRMENT

     Our vessels represent our most significant assets and we state them at cost less accumulated depreciation. Depreciation of our vessels is computed using the straight-line method over their estimated useful lives of 25 years. This is a common life expectancy applied in the shipping industry. Significant vessel improvement costs are capitalized as additions to the vessel rather than being expensed as a repair and maintenance activity. Should certain factors or circumstances cause us to revise our estimate of vessel service lives, depreciation expense could be materially lower or higher. If circumstances cause us to change our assumptions in making determinations as to whether vessel improvements should be capitalized, the amounts we expense each year as repairs and maintenance costs could increase, partially offset by a decrease in depreciation expense.

     We review long -lived assets used in our business on an annual basis for impairment, or whenever events or changes in circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable. We assess recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future undiscounted net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and its fair value. We estimate fair value based on independent appraisals, sales price negotiations, active markets, if available, and projected future cash flows discounted at a rate determined by management to be commensurate with our business risk. The estimation of fair value using these methods is subject to numerous uncertainties which require our significant judgment when making assumptions of revenues, operating costs, selling and administrative expenses, interest rates and general economic business conditions, among other factors.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     We are exposed to market risk arising from changes in interest rates, primarily resulting from the floating rate of our borrowings. We use interest rate swaps to manage such interest rate risk. We have not entered into any financial instruments for speculative or trading purposes.

     At June 30, 2006, we had a $229.5 million outstanding under our debt facility. The borrowings under our $229.5 million secured term loan facility bear interest at a floating rate of LIBOR (reset quarterly) plus a margin of 0.75%. We have entered into an interest rate swap agreement that has effectively fixed the interest rate under the facility at approximately 5.7325% per year. Periodic cash settlements under the swap agreements occur quarterly corresponding with interest payments under the secured credit facility. The unrealized gain on the fair value of the interest rate swap agreement as of June 30, 2006 was $5.0 million. At December 31, 2005, we had a $135 million outstanding under our debt facility. The unrealized loss on the fair value of the interest rate swap agreement as of December 31, 2005 was $2.2 million.

Item 4. Controls and Procedures

     Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2006. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that

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information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934, or Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2006, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

     No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

     The nature of our business, i.e., the acquisition, chartering and ownership of our vessels, exposes us to the risk of lawsuits for damages or penalties relating to, among other things, personal injury, property casualty and environmental contamination. Under rules related to maritime proceedings, certain claimants may be entitled to attach charterhire payable to us in certain circumstances. There are no actions or claims pending against us as of the date of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

Risk Factors

     The following important factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this report or presented elsewhere by management from time to time.

Company Specific Risk Factors

We cannot assure you that we will pay any dividends

     We intend to pay dividends on a quarterly basis in amounts determined by our board of directors. We believe our dividends will be substantially equal to the charterhire received by us under the Charters, less cash expenses and any cash reserves established by our board of directors. Such expenses consist primarily of fees under our ship management agreements, directors’ fees, salaries and benefits of our President and Co-Chief Executive Officer and our Co-Chief Executive Officer and Chief Financial Officer, payment of interest under our credit facility less the prorated cash benefit from the termination of an interest rate swap with Fortis Bank in December 2005, other administrative costs and other expenses. There can be no assurance that we will not have other cash expenses, including extraordinary expenses, which could include the costs of claims and related litigation expenses. There can be no assurance that we will not have additional expenses or liabilities, that the amounts currently anticipated for the items set forth above will not increase, that we will not have to fund any required capital expenditures for our vessels or that our board of directors will not determine to establish additional cash reserves or change our dividend policy. Other than the fees under our ship management agreements, none of our fees or expenses is fixed.

     The amount of potential future dividends set forth in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Dividend Policy” represents only an estimate of future dividends based on our charter contracts, ship management agreements, an estimate of our other expenses and the other matters and assumptions set forth therein and assumes that other than our ship management expenses, none of our expenses increase during the periods presented in the table. The amount of future dividends, if any, could be affected by various factors, including the loss of a vessel, required capital expenditures, cash reserves established by our board of directors, increased or unanticipated expenses, a change in our dividend policy, increased

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borrowings or future issuances of securities, many of which are beyond our control. As a result, the amount of dividends actually paid may vary from period to period and such variations may be material.

     Our secured term loan facility also provides that we may not pay dividends if an event of default under the facility agreement has occurred and continues or if the market value of our vessels is less than 140% of our borrowings under the facility (or, if at the time of the proposed dividend, all of our vessels are on time charter for a remaining period of 12 months, less than 120% of the loan amount). The declaration of dividends is subject to these covenants of our loan facility, compliance with Bermuda law and is subject at all times to the discretion of our board of directors. There can be no assurance that dividends will be paid in the amounts anticipated or at all.

We are highly dependent on the Charterers and their guarantors, Stena and Concordia

     All of our vessels are chartered to subsidiaries of Concordia and a subsidiary of Stena, which we refer to collectively as the Charterers. The Charterers’ payments to us under these charters, which we refer to as the Charters, are our sole source of revenue. We are highly dependent on the performance by the Charterers of their obligations under the charters and by their guarantors, Stena and Concordia, of their obligations under their respective guarantees. Any failure by the Charterers or the guarantors to perform their obligations would materially and adversely affect our business and financial position. Our shareholders do not have any recourse against the Charterers or the guarantors.

If we cannot refinance our loans, or in the event of a default under our secured term loan facility, we may have to sell our vessels, which may leave no additional funds for distributions to shareholders

     Under the terms of the Loan Agreement providing for our secured term loan facility, we are required to repay the total amount outstanding at maturity, January 5, 2011. Borrowings under the facility are guaranteed by each of our vessel owning subsidiaries and are secured by mortgages over all of our vessels; assignments of earnings, insurances and requisition compensation with respect to our vessels; and assignments of our interests in the charters and our ship management agreements. Whether or not the Charterers renew the Charters, the Loan Agreement will mature in January 2011 and we will be obligated to repay or refinance the total amount due under the loan at that time. There is no assurance that we will be able to repay or refinance this amount. In addition, even if the Charterers renew the charters for one or more of our vessels, if we are unable to refinance our credit facility on acceptable terms, we may be forced to attempt to sell our vessels. If interest rates are higher than current rates at the time we seek to refinance our credit facility, such higher rates could prevent our ability to complete a refinancing or could adversely impact our future results, including the amount of cash available for future dividends. In such event, we may conclude that such a refinancing is not on acceptable terms. In addition, in the event of a default under our credit facility all of our vessels could be sold to satisfy amounts due to the lenders under our credit facility. Depending on the market value for our vessels at the time, it is possible that after payment of the amounts outstanding under our credit facility there would not be any funds to distribute to our shareholders. In addition, under our bye-laws, any sale of a vessel would require the approval of at least a majority of our shareholders voting at a meeting.

     Because we intend to distribute dividends to our shareholders in an amount substantially equal to our charterhire, less cash expenses and any cash reserves established by our board of directors, we do not believe we will be able to repay our credit facility at the end of five years without selling some or all of our vessels. As a result, we believe we will be required to refinance the borrowing under our credit facility at or prior to its maturity.

We may not be able to recharter our vessels profitably after they expire, unless they are extended at the option of the Charterers

     Our charters have fixed terms with between three and five years remaining. The Charterers have options to extend the terms of their charter. Each of the Charterers has the sole discretion to exercise that option. We cannot predict whether the Charterers will exercise any of their extension options under one or more of the Charters. The Charterers will not owe any fiduciary or other duty to us or our shareholders in deciding whether to exercise the extension option, and the Charterers’ decision may be contrary to our interests or those of our shareholders.

     We cannot predict at this time any of the factors that the Charterers will consider in deciding whether to exercise any of their extension options under the Charters. It is likely, however, that the Charterers would consider a variety of factors, which may include the age and specifications of the particular vessel, whether a vessel is surplus or suitable to the Charterers’ requirements and whether competitive charterhire rates are available to the Charterers in the open market at that time.

     If the Charterers decide not to extend our current Charters, we may not be able to re-charter our vessels with terms similar to the terms of our Charters. We may also employ the vessels on the spot charter market, which is subject to greater rate fluctuation than the time charter market.

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     Under our ship management agreements, Northern Marine, which we refer to as Northern Marine, is responsible for all of the technical and operational management of our vessels for a fixed management fee, increasing 5% annually. Northern Marine has also agreed to indemnify us against specified off hire and reduced hire for our vessels that exceeds five days per year. However, this indemnity only extends to the amount payable to us as basic hire and would not extend to any amounts that would otherwise be payable to us as additional hire if the vessels were not off hire. Our ship management agreements with Northern Marine may be terminated by either party if the relevant Charter is terminated or expires. If our ship management agreements with Northern Marine were to terminate, we may not be able to obtain similar fixed rate terms or indemnification for off hire and reduced hire periods from another ship manager.

     If we receive lower charter rates under replacement charters, are unable to recharter all of our vessels or we incur greater expenses under replacement management agreements, the amounts available, if any, to pay distributions to our shareholders may be significantly reduced or eliminated.

     Under our Charters, there is no obligation to pay additional hire during any period when the obligation to pay basic hire is suspended under the Charter if due to technical reasons the vessel is off hire, unless the vessel is off hire as a result of a class condition or recommendation determined by the vessel’s classification society during the inspection of the vessel undertaken by us in connection with the purchase of the vessel and such condition or recommendation cannot be remedied or complied with during a regularly scheduled drydocking without increasing the duration of such drydocking.

Concordia and Stena are able to influence the Company, including the outcome of shareholder votes

     Concordia and Stena directly and indirectly owned an aggregate of approximately 14.4% of our outstanding common shares as of February 10, 2005. As a result of their share ownership and for so long as either Concordia or Stena directly or indirectly owns a significant percentage of our outstanding common shares, Concordia and Stena are able to influence the Company, including the outcome of any shareholder vote, such as the election of directors.

We are leveraged and subject to restrictions in our financing agreements that impose constraints on our operating and financing flexibility

     We have a secured term loan facility of $229.5 million, under which $135 million was outstanding as of December 31, 2005 and the remaining $94.5 million was drawn down as of January 5, 2006, to finance a portion of the cash purchase price for our vessels. We are required to apply a substantial portion of our cash flow from operations to the payment of interest on borrowings under the facility. Our facility, which is secured by, among other things, mortgages on our vessels, pledges of our time charters and assignments of earnings, insurances and requisition compensation in respect to our vessels, requires that we comply with various operating covenants and maintain certain financial ratios including that the market value of our vessels exceeds 125% of the total facility amount outstanding and that the market value of our vessels exceeds 140% of our borrowings (or 125% if the loan amount at the time of such dividend all of our vessels are on time charter for a remaining period of at least 12 months) in order for us to pay dividends. The facility also requires that Northern Marine remain as technical manager for our vessels.

     We have a floating rate of interest under our secured term loan facility. However, we have entered into an interest rate swap agreement that effectively fixes the interest rate at 5.7325% per year through maturity of the facility in January 2011. By utilizing this interest rate swap, we potentially forego benefits that might result from declines in interest rates.

We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial and other obligations

     We are a holding company, and have no significant assets other than the equity interests in our subsidiaries. Our subsidiaries own all of our vessels, and payments under our charters are made to our subsidiaries. As a result, our ability to pay dividends depends on the performance of our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by a claim or other action by a third party, including a creditor, or by Bermuda law which regulates the payment of dividends by companies. If we are unable to obtain funds from our subsidiaries, we will not be able to pay dividends unless we obtain funds from other sources. We cannot assure you that we will be able to obtain funds from other sources.

U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders

     A foreign corporation will be treated as a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of “passive income.” For purposes of

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these tests, “passive income” includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income.” U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.

     Based on our method of operation, we do not believe that we were a PFIC for our most recent taxable year or that we will become a PFIC with respect to any future taxable year. In this regard, we treat the gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, we believe that our income from our time chartering activities does not constitute “passive income,” and the assets that we own and operate in connection with the production of that income do not constitute passive assets.

     There is, however, no direct legal authority under the PFIC rules addressing our method of operation. Accordingly, no assurance can be given that the U.S. Internal Revenue Service, or IRS, or a court of law will accept our position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if there were to be changes in the nature and extent of our operations.

     If the IRS were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders would face adverse U.S. tax consequences. Under the PFIC rules, unless those shareholders make an election available under the Internal Revenue Code of 1986, as amended, such shareholders would be liable to pay U.S. federal income tax at the then prevailing income tax rates on ordinary income plus interest upon certain distributions and upon any gain from the disposition of our common shares, as if the distribution or gain had been recognized ratably over the shareholder’s holding period of our common shares. In addition, a step-up in the tax basis of our shares may not be available upon the death of an individual shareholder, and the preferential U.S. federal income tax rates currently applicable to qualified dividend income of certain U.S. investors would not apply.

Our operating income could fail to qualify for an exemption from U.S. federal income taxation, which will reduce our cash flow

     Unless exempt from U.S. federal income taxation, a foreign corporation is subject to U.S. federal income taxation at a rate of 4% on its U.S. source shipping income, including 50% of its shipping income that is attributable to transportation that begins or ends in the United States. Shipping income will be exempt from U.S. federal income taxation if, with respect to each specified category of shipping income, including time chartering income: (1) the foreign corporation generating the income is organized in a foreign country that grants an “equivalent exemption” to U.S. corporations and (2) either (A) our common shares are “primarily and regularly traded on an established securities market,” as determined under complex applicable U.S. Treasury regulations, in that same foreign country, in the United States or in another country that grants an “equivalent exemption” to U.S. corporations or (B) more than 50% of the value of our shares is treated as owned, directly or indirectly, for at least half of the number of days in the taxable year by one or more “qualified shareholders,” as defined under applicable U.S. Treasury regulations.

     Bermuda, our country of organization, is a foreign country that grants an “equivalent exemption” to U.S. corporations with respect to time chartering income. In addition, our common shares are currently “primarily and regularly traded” on the New York Stock Exchange, which is an established securities market in the United States. Therefore, we believe that our time chartering income qualifies for the exemption from U.S. federal income taxation. Our qualification for the exemption, however, is based upon certain complex factual determinations that are not completely within our control and, therefore, there can be no assurance that we will qualify for the exemption either now or in the future. If we were not to qualify for the exemption, our cash available for distributions to shareholders would be correspondingly reduced.

U.S. investors who own our common shares may have more difficulty in protecting their interests than U.S. investors who own shares of a Delaware corporation

     The Companies Act 1981 of Bermuda, which applies to us, differs in certain material respects from laws generally applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant provisions of the Companies Act which differ in certain respects from provisions of Delaware corporate law. Because the following statements are summaries, they do not discuss all aspects of Bermuda law that may be relevant to us and our shareholders.

     Interested Directors.Bermuda law and our bye-laws provide that if a director has an interest in a material contract or proposed material contract with us or any of our subsidiaries or has a material interest in any person that is a party to such a contract, the director must disclose the nature of that interest at the first opportunity either at a meeting of directors or in writing to the directors. Our bye-laws provide that, after a director has made such a declaration of interest, he is allowed to be counted for purposes of

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determining whether a quorum is present and to vote on a transaction in which he has an interest, unless disqualified from doing so by the chairman of the relevant board meeting. Under Delaware law such transaction would not be voidable if:

• the material facts as to such interested director’s relationship or interests were disclosed or were known to the board of directors and the board had in good faith authorized the transaction by the affirmative vote of a majority of the disinterested directors;

• such material facts were disclosed or were known to the shareholders entitled to vote on such transaction and the transaction was specifically approved in good faith by vote of the majority of shares entitled to vote thereon; or

• the transaction was fair as to the corporation as of the time it was authorized, approved or ratified.

     Under Delaware law, the interested director could be held liable for a transaction in which the director derived an improper personal benefit.

     Shareholders’ Suits.Class actions and derivative actions are generally not available to shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actually approved it.

     When the affairs of a company are being conducted in a manner which is oppressive or prejudicial to the interests of some part of the shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company.

     Our bye-laws contain a provision by virtue of which our shareholders waive any claim or right of action that they have, both individually and on our behalf, against any director or officer in relation to any action or failure to take action by such director or officer, except in respect of any fraud or dishonesty of such director or officer.

     Class actions and derivative actions generally are available to stockholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court has discretion to permit the winning party to recover attorneys’ fees incurred in connection with such action.

     Indemnification of Directors.Section 98 of the Companies Act provides generally that a Bermuda company may indemnify its directors, officers and auditors against any liability which by virtue of any rule of law would otherwise be imposed on them in respect of any negligence, default, breach of duty or breach of trust, except in cases where such liability arises from fraud or dishonesty of which such director, officer or auditor may be guilty in relation to the company. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them in defending any proceedings, whether civil or criminal, in which judgment is awarded in their favor or in which they are acquitted or granted relief by the Supreme Court of Bermuda pursuant to section 281 of the Companies Act.

     We have adopted provisions in our bye-laws that provide that we shall indemnify our officers and directors in respect of their actions and omissions, except in respect of their fraud or dishonesty. Our bye-laws provide that the shareholders waive all claims or rights of action that they might have, individually or in right of the company, against any of the company’s directors or officers for any act or failure to act in the performance of such director’s or officer’s duties, except in respect of any fraud or dishonesty of such director or officer. Section 98A of the Companies Act permits us to purchase and maintain insurance for the benefit of any officer or director in respect of any loss or liability attaching to him in respect of any negligence, default, breach of duty or breach of trust, whether or not we may otherwise indemnify such officer or director. We have purchased and maintain a directors’ and officers’ liability policy for such a purpose.

     Under Delaware law, a corporation may indemnify a director or officer of the corporation against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in defense of an action, suit or proceeding by reason of such position if such director or officer acted in good faith and in a manner he or she reasonably believed to be in or not be opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, such director or officer had no reasonable cause to believe his or her conduct was unlawful.

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Bermuda law and our bye-laws permit our board of directors to establish preference shares having terms which could reduce or eliminate dividends payable to our common shareholders

     Bermuda law and our bye-laws permit our board of directors to issue preference shares with dividend rates, relative voting rights, conversion or exchange rights, redemption rights, liquidation rights and other relative participation, optional or other special rights, qualifications, limitations or restrictions as may be determined by resolution of the board without shareholder approval. Such preference shares could have terms that provide for the payment of dividends prior to the payment of dividends in respect of the common shares. As a result, the issuance of these preference shares could reduce or eliminate dividends payable to common shareholders.

Our bye-laws restrict shareholders from bringing certain legal action against our officers and directors

     Our bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.

We have anti-takeover provisions in our bye-laws that may discourage a change of control

     Our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors. These provisions provide for:

• a classified board of directors with staggered three-year terms, elected without cumulative voting;

• directors only to be removed for cause and only with the affirmative vote of holders of at least 80% of the common shares issued and outstanding;

• advance notice for nominations of directors by shareholders and for shareholders to include matters to be considered at annual meetings;

• our board of directors to determine the powers, preferences and rights of our preference shares and to issue the preference shares without shareholder approval; and

• a requirement that amalgamations, sales of assets and certain other transactions with persons owning 15% or more of our voting securities, which we refer to as interested shareholders, be approved by holders of at least 66% of our issued and outstanding voting shares not owned by the interested shareholder, subject to certain exceptions.

     These provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many shareholders. As a result, shareholders may be limited in their ability to obtain a premium for their shares.

Industry Specific Risk Factors

The highly cyclical nature of the tanker industry may lead to volatile changes in charter rates and vessel values which may adversely affect our earnings

     If the tanker industry, which has been highly cyclical, is depressed in the future when our charters expire or at a time when we may want to sell a vessel, our earnings and available cash flow may decrease. Our ability to recharter our vessels on the expiration or termination of the charters and the charter rates that we may receive under any renewal or replacement charters will depend upon, among other things, economic conditions in the tanker market at that time.

     Fluctuations in charter rates and vessel values result from changes in the supply and demand for tanker capacity and changes in the supply and demand for oil and oil products. For example, charter rates and vessel values were at a high level during 2004. Charter rates declined from that high level during the first quarter of 2005, and have subsequently further declined. There can be no assurance that charter rates and vessel values will not decline from current levels.

     Our vessels are operated under time charters with the Charterers. We receive a fixed minimum daily base charter rate and may receive additional hire under the charters. Additional hire, if any, is paid quarterly in arrears. The amount of additional hire is subject

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to variation depending on the charterhire received by the Charterers under time charters, spot charters and on general tanker market conditions. The amount of additional hire that we may earn is based on a formula for assumed voyage routes and expenses that we agreed to with the Charterers. The payment of additional hire, if any, has no correlation to our potential future time charter equivalent earnings. If a vessel is off-hire, that vessel is not eligible to earn additional hire during the off-hire period. We cannot assure you that we will receive additional hire for any quarter other than in the case of the charters for the V-MAX tankers which are currently sub- chartered to Sun International until June 2007 and September 2007.

Factors beyond our control may adversely affect the value of our vessels

     The factors affecting the supply and demand for tanker vessels are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable and may adversely affect the value of our vessels. The factors that influence the demand for tanker capacity include:

• demand for oil and oil products, which affect the need for tanker capacity;

• global and regional economic and political conditions which among other things, could impact the supply of oil as well as trading patterns and the demand for various types of vessels;

• changes in the production of crude oil, particularly by OPEC and other key producers, which impact the need for tanker capacity;

• developments in international trade;

• changes in seaborne and other transportation patterns, including changes in the distances that cargoes are transported;

• environmental concerns and regulations;

• weather; and

• competition from alternative sources of energy.

     The factors that influence the supply of tanker capacity include:

• the number of newbuilding deliveries;

• the scrapping rate of older vessels; and

• the number of vessels that are out of service.

An over supply of new vessels may adversely affect charter rates and vessel values

     If the number of new ships delivered exceeds the number of tankers being scrapped and lost, tanker capacity will increase. In addition, according to Clarkson Research Studies Ltd., the total newbuilding order book for vessels with capacity of 20,000 dwt or more scheduled to enter the fleet through 2009 currently equals 24% of the existing fleet and we cannot assure you that the order book will not increase further in proportion to the existing fleet. If the supply of tanker capacity increases and the demand for tanker capacity does not increase correspondingly, charter rates could materially decline and the value of our vessels could be adversely affected.

Terrorist attacks and international hostilities can affect the tanker industry, which could adversely affect our business

     Additional attacks like those of September 11, 2001 or longer-lasting war or international hostilities, including those currently underway in Iraq and the Middle East, could damage the world economy, adversely affect the availability of and demand for crude oil and petroleum products and adversely affect our ability to recharter our vessels on the expiration or termination of the charters and the charter rates payable under any renewal or replacement charters. We conduct our operations outside the United States, and our business, financial condition and results of operations may be adversely affected by changing economic, political and government

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conditions in the countries and regions where our vessels are employed. Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political instability, terrorist or other attacks, war or international hostilities.

The value of our vessels may fluctuate and adversely affect our liquidity and may result in breaches under our credit facility

     Tanker values have generally experienced high volatility. Investors can expect the fair market value of our tankers to fluctuate, depending on general economic and market conditions affecting the tanker industry and competition from other shipping companies, types and sizes of vessels and other modes of transportation. In addition, although our Panamax and Product tankers were built in 2004 and our V-MAX tankers were built in 2001, as vessels grow older, they generally decline in value. These factors will affect the value of our vessels at the termination of their charters or earlier at the time of any sale, which during the term of the charters will require the consent of the Charterer and the lenders under our credit facility. Borrowings under our term loan agreement bear interest at a floating rate of LIBOR plus a 75 basis points margin, which would increase to 85 basis points if the ratio of the value of our vessels to the amount outstanding under the loan facility falls below 2.0. The increased interest margin is equivalent to approximately $229,500 per year in increased interest costs in the event the ratio falls below 2.0. In the event of the sale or loss of a vessel, we might be required to repay a percentage of the loan earlier than we planned or increase our payments under the facility, which could affect our financial condition and ability to make payments to our shareholders. Declining tanker values could adversely affect our ability to refinance our credit facility at its maturity in January 2011 and thereby adversely impact our business and operations and liquidity. Due to the cyclical nature of the tanker market, if for any reason we sell tankers at a time when tanker prices have fallen, the sale may be at less than the tanker’s carrying amount on our financial statements, with the result that we would also incur a loss and a reduction in earnings.

We operate in the highly competitive international tanker market which could affect our position if the Charterers do not renew our Charters

     The operation of tanker vessels and transportation of crude oil and petroleum products are extremely competitive. Competition arises primarily from other tanker owners, including major oil companies, as well as independent tanker companies, some of which have substantially larger fleets and substantially greater resources than we do. Competition for the transportation of oil and oil products can be intense and depends on price, location, size, age, condition and the acceptability of the tanker and its operators to the Charterers. During the term of our charters with the Charterers we are not exposed to the risk associated with this competition. However, if the Charterers do not exercise their options to renew the Charters, we will have to compete with other tanker owners, including major oil companies and independent tanker companies for Charterers. Due in part to the fragmented tanker market, competitors with greater resources could enter and operate larger fleets through acquisitions or consolidations and may be able to offer better prices and fleets than us, which could result in our achieving lower revenues from our vessels.

Compliance with environmental laws or regulations may adversely affect our business

     The shipping industry is affected by numerous regulations in the form of international conventions, national, state and local laws and national and international regulations in force in the jurisdictions in which such tankers operate, as well as in the country or countries in which such tankers are registered. These regulations include the U.S. Oil Pollution Act of 1990, or OPA, the International Convention on Civil Liability for Oil Pollution Damage of 1969, International Convention for the Prevention of Pollution from Ships, the IMO International Convention for the Safety of Life at Sea of 1974, or SOLAS, the International Convention on Load Lines of 1966 and the U.S. Marine Transportation Security Act of 2002. In addition, vessel classification societies also impose significant safety and other requirements on our vessels. We believe our tankers, four of which were built in 2004 and two of which were built in 2001, are maintained in compliance with present regulatory and class requirements relevant to areas in which they operate, and are operated in compliance with applicable safety and environmental laws and regulations. However, regulation of tankers, particularly in the areas of safety and environmental impact, may change in the future and require significant capital expenditures be incurred on our vessels to keep them in compliance. Although the Charterers will be responsible for all capital expenditures required due to changes in law, classification society or regulatory requirements in an amount less than $100,000 per year per vessel, all other required capital expenditures during the charter period will be split between us and the applicable Charterer based on the remaining charter period and the remaining depreciation period of the vessel, which is calculated as 25 years from the year the vessel was built.

The shipping industry has inherent operational risks, which may not be adequately covered by insurance

     Our tankers and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather, mechanical failures, human error, war, terrorism, piracy and other circumstances or events. In addition, transporting crude oil across a wide variety of international jurisdictions creates a risk of business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts, the potential for changes in tax rates or policies, and the potential for government expropriation

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of our vessels. Any of these events may result in loss of revenues, increased costs and decreased cash flows to the Charterer, which could impair its ability to make payments to us under our Charters.

     In the event of a casualty to a vessel or other catastrophic event, we will rely on our insurance to pay the insured value of the vessel or the damages incurred. Under our ship management agreements, Northern Marine is responsible for obtaining insurance for our fleet against those risks that we believe the shipping industry commonly insures against. These insurances include marine hull and machinery insurance, protection and indemnity insurance, which includes pollution risks and crew insurances and war risk insurance. Northern Marine has also obtained off hire insurance in respect of each of our vessels. Currently, the amount of coverage for liability for pollution, spillage and leakage available to us on commercially reasonable terms through protection and indemnity associations and providers of excess coverage is $1 billion per vessel per occurrence. We cannot assure you that we will be adequately insured against all risks. Under the ship management agreements, Northern Marine performs all technical management, including crewing and providing insurance for a fixed management fee. However, we may not be able to obtain adequate insurance coverage at reasonable rates for our fleet in the future in the event our existing charters are not renewed at the expiration of their terms. Additionally, our insurers may refuse to pay particular claims. Any significant loss or liability for which we are not insured could have a material adverse effect on our financial condition. In addition, the loss of a vessel would adversely affect our cash flows and results of operations.

Maritime claimants could arrest our tankers, which could interrupt the Charterers’ or our cash flow

     Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt the Charterers’ or our cash flow and require us to pay a significant amount of money to have the arrest lifted. In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel which is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert “sister ship” liability against one vessel in our fleet for claims relating to another vessel in our fleet.

Governments could requisition our vessels during a period of war or emergency without adequate compensation

     The government of the United Kingdom, the country under which our Bermuda flagged vessels would fall, could requisition or seize our vessels. Under requisition for title, a government takes control of a vessel and becomes its owner. Under requisition for hire, a government takes control of a vessel and effectively becomes its charterer at dictated charter rates. Generally, requisitions occur during periods of war or emergency. Although we would be entitled to compensation in the event of a requisition, the amount and timing of payment would be uncertain.

Rising or high oil prices may affect demand for oil, and subsequently demand for oil tankers may fall.

     Crude oil and oil products are commodities that experience price volatility. Prices for these commodities are set in an open market. We are an independent transporter of cargoes of crude oil and oil products and have no control over the price of the cargoes that we carry. We depend on circumstances where there are suitable cargoes available for our vessels to transport. In a rising or high oil price environment, demand for crude oil and oil products may be reduced, which could reduce demand for our tanker vessels. Such a reduction in demand for our tanker vessels could adversely affect our results of operations, possibly materially.

Risks Related To Our Common Shares

If a significant number of our common shares are sold in the market, the market price of our common shares could significantly decline, even if our business is doing well

     The market price of our common shares could decline due to sales of a large number of shares in the market including sales of shares by our large shareholders, or the perception that these sales could occur. These sales or the perception that these sales could occur could also make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate.

     Concordia, Stena and Fram Shipping Ltd., which we refer to as Fram, were not eligible to sell their remaining shares until their lock-up agreements expired on August 1, 2005. We have entered into registration rights agreements with them that entitle them to have all or a portion of their remaining shares registered for sale in the public market following that lock-up period. In addition, these

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shares became eligible for sale into the public market pursuant to Rule 144 under the Securities Act on November 10, 2005. Any sales under Rule 144 would be subject to certain volume and manner of sale limitations prescribed by the Rule.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

     Not applicable.

Item 3. Defaults Upon Senior Securities.

     Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders.

The following matters were submitted to a vote of our shareholders at our 2006 Annual Meeting of Shareholders held on June 12, 2006 and approved by the requisite vote of our shareholders as follows:

At the annual general meeting Dr. E Grant Gibbons was elected as a Class II director, and Michael K. Drayton and Stephen O. Jaeger continue as a Class I and Class III director, respectively.

Proposal I: Election of Dr. E Grant Gibbons as a Class II Director

The appointment of Dr. E. Grant Gibbons as a Class II Director was approved for a three (3) year term, expiring at the 2009 Annual General Meeting.

FOR	AGAINST	ABSTAIN	TOTAL
13,367,057	0	0	13,367,057

Proposal II: Approval of amendments to the Company’s bye-laws to allow the number of directors to be determined by our Board of Directors and for a quorum to be a majority of directors

Based on the recommendation of the Board of Directors, amendments to the Company’s bye-laws were approved to allow the number of directors to be determined by our Board of Directors and for the quorum to be a majority of the directors.

FOR	AGAINST	ABSTAIN	TOTAL
13,190,857	186,927	49,185	13,426,969

Proposal III: Appointment of Moore Stephens P.C. as independent registered public accounting firm for the fiscal year ending December 31, 2006

Based on the recommendation of the Audit Committee, Moore Stephens P.C. was appointed to serve as the independent registered public accountant of the Company for the fiscal year ending December 31, 2006.

FOR	AGAINST	ABSTAIN	TOTAL
13,366,918	21,671	38,380	13,426,969

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Item 5. Other Information.

Not applicable

Item 6. Exhibits.

(A) Exhibits:

Exhibit
Number		Description of Exhibit(1)
	3.1	Bye-laws
	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
	32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adapted pursuant to Section 906 of the Sarbanes Oxley Act of 2002

(1) Unless otherwise noted, each exhibit is filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ARLINGTON TANKERS LTD.
By:	/s/ Edward Terino
	Name:	Edward Terino
	Title:	Co-Chief Executive Officer and Chief Financial Officer

Date: August 8, 2006

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Exhibit
Number		Description of Exhibit(1)
	3.1	Bye-laws
	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
	32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adapted pursuant to Section 906 of the Sarbanes Oxley Act of 2002

(1) Unless otherwise noted, each exhibit is filed herewith.

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