UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[_] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
-----------------------------
Commission file number 033-79220-04
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CALPETRO TANKERS (IOM) LIMITED
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(Exact name of Registrant as specified in its charter)
Isle of Man
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(State or other jurisdiction of incorporation or organization)
15-19 Athol Street, Douglas, Isle of Man, IM1 1TP
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(Address of principal executive offices)
Securities registered or to be registered pursuant to section 12(b) of the Act.
Title of each class Name of each exchange on which registered
None Not applicable
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Securities registered or to be registered pursuant to section 12(g) of the Act.
None
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Securities for which there is a reporting obligation pursuant to section 15(d)
of the Act.
None
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Indicate the number of shares outstanding of each of the registrant's classes of
capital or common stock, as of the close of the period covered by the annual
report.
Common stock: 2 shares, par value of $500 per share
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Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
[ ] Yes [ X] No
If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
[ ] Yes [X] No
Note - Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.
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.
[X] Yes [ ] 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 filer [ ] Non-accelerated filer [X]
Indicate by check mark which financial statement item the registrant has elected
to follow:
[ ] Item 17 [ X ] Item 18
If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
CALPETRO TANKERS (IOM) LIMITED
INDEX TO REPORT ON FORM 20-F
Page
PART I
Item 1. Identity of Directors, Senior Management and Advisers 1
........................
Item 2. Offer Statistics and Expected Timetable........................ 1
Item 3. Key Information.................................................2
Item 4. Information on the Company..................................... 5
Item 4A. Unresolved staff comments......................................19
Item 5. Operating and Financial Review and Prospects...................19
Item 6. Directors, Senior Management and Employees.....................21
Item 7. Major Shareholders and Related Party Transactions..............22
Item 8. Financial Information....................................... 23
Item 9. The Offer and Listing....................................... 23
Item 10. Additional Information...................................... 23
Item 11. Quantitative and Qualitative Disclosures About Market Risk.. 24
Item 12. Description of Securities Other than Equity Securities...... 25
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies............. 25
Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds......................................... 25
Item 15. Controls and Procedures..................................... 25
Item 16. [Reserved] 26
Item 16A. Audit Committee Financial Expert............................ 26
Item 16B. Code of Ethics.............................................. 26
Item 16C. Principal Accountant Fees and Services...................... 26
Item 16D. Exemptions from the Listing Rules for Audit Committees...... 27
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers ................................................. 27
PART III
Item 17. Financial Statements........................................ 28
Item 18. Financial Statements........................................ 28
Item 19. Exhibits.................................................... 28
PART I
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Matters discussed in this document may constitute forward-looking statements.
The Private Securities Litigation Reform Act of 1995 provides safe harbor
protections for forward-looking statements in order to encourage companies to
provide prospective information about their business. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance, and underlying assumptions and other statements, which
are other than statements of historical facts.
CalPetro Tankers (IOM) Limited (the "Company") desires to take advantage of the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995
and is including this cautionary statement in connection with this safe harbor
legislation. This document and any other written or oral statements made by us
or on our behalf may include forward-looking statements, which reflect our
current views with respect to future events and financial performance. The words
"believe," "except," "anticipate," "intends," "estimate," "forecast," "project,"
"plan," "potential," "will," "may," "should," "expect" and similar expressions
identify forward-looking statements.
The forward-looking statements in this document are based upon various
assumptions, many of which are based, in turn, upon further assumptions,
including without limitation, management's examination of historical operating
trends, data contained in our records and other data available from third
parties. Although we believe that these assumptions were reasonable when made,
because these assumptions are inherently subject to significant uncertainties
and contingencies which are difficult or impossible to predict and are beyond
our control, we cannot assure you that we will achieve or accomplish these
expectations, beliefs or projections.
In addition to these important factors and matters discussed elsewhere herein
and in the documents incorporated by reference herein, important factors that,
in our view, could cause actual results to differ materially from those
discussed in the forward-looking statements include the strength of world
economies and currencies, general market conditions, including fluctuations in
charterhire rates and vessel values, changes in demand in the tanker market, as
a result of changes in OPEC's petroleum production levels and world wide oil
consumption and storage, changes in the company's operating expenses, changes in
governmental rules and regulations or actions taken by regulatory authorities,
potential liability from pending or future litigation, general domestic and
international political conditions, potential disruption of shipping routes due
to accidents or political events, and other important factors described from
time to time in the reports filed by CalPetro Tankers (IOM) Limited with the
Securities and Exchange Commission.
Please note: In this section, "we", "us" and "our" all refer to the Company.
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
Selected Financial Data
The selected statement of operations and retained earnings data of the Company
with respect to the fiscal years ended December 31, 2005, 2004 and 2003, and the
selected balance sheet data at December 31, 2005 and 2004, have been derived
from the Company's audited financial statements included herein and should be
read in conjunction with such statements and the notes thereto. The selected
statement of operations and retained earnings data with respect to the years
ended December 31, 2002 and 2001 and the selected balance sheet data at December
31, 2003, 2002 and 2001 have been derived from audited financial statements of
the Company not included herein. The following table should also be read in
conjunction with Item 5 "Operating and Financial Review and Prospects" and the
Company's audited financial statements and notes thereto included herein. The
Company's accounts are maintained in US dollars.
Year ended December 31,
2005 2004 2003 2002 2001
(U.S. Dollars in thousands except per share data)
Statement of operations
and retained earnings data:
Net operating revenues 2,657 3,068 3,500 3,929 4,355
Net (loss) / income (107) (53) (37) 70 103
Per share data:
Dividends per share - - - - -
Balance sheet data (at
year end):
Total assets 31,946 37,364 42,734 48,049 53,288
Current portion of loans 2,984 5,210 5,210 5,210 5,210
Long term loans 26,858 29,842 35,052 40,262 45,472
Stockholders' equity 1,441 1,548 1,601 1,638 1,568
Risk Factors
The cyclical nature of the tanker industry may lead to volatile changes in
charter rates, which may adversely affect our earnings
Our vessel the SIRIUS VOYAGER (formerly Chevron Mariner) (the "Vessel") is
currently operated under a bareboat charter (the "Charter") to Chevron Transport
Corporation ("Chevron"). The Charter has a term expiring on April 1, 2015,
subject to the fact that Chevron has the option to terminate the charter earlier
on four specified dates. The first option to terminate was on April 1, 2005 and
subsequent options exist on each of the three subsequent two-year anniversaries
thereof. Non-binding notice of the intention to exercise the option to terminate
the Charter must be given at least twelve months in advance for the first
Optional Termination Date with irrevocable notice being required at least nine
months before the first Optional Termination Date and seven months in advance
for subsequent Optional Termination Dates. No notice has been received with
regard to the second optional termination date, April 1, 2007, which implies
that the vessel will be on charter to Chevron at least until April 1, 2009.
If the tanker industry, which has been cyclical, is depressed in the future when
our Vessel's Charter expires or is terminated, our earnings and available cash
flow may decrease. Our ability to recharter our Vessel on the expiration or
termination of its current Charter and the charter rates payable under any
renewal or replacement charters will depend upon, among other things, economic
conditions in the tanker market. 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.
Because our Charter may be terminated in April 2009, we may incur additional
expenses and not be able to recharter our Vessel profitably
Chevron had its first option to terminate its Charter on April 1, 2005 and has
options to terminate on each of the three subsequent two-year anniversaries
thereof. Chevron has the sole discretion to exercise these options and will not
owe any fiduciary or other duty to the holders of the Notes in deciding whether
to exercise the termination options, and the charterer's decision may be
contrary to our interests or those of the holders of the Notes. Chevron has not
exercised its right to exercise the first and second termination option.
We cannot predict at this time any of the factors that Chevron will consider in
deciding whether to exercise any of its remaining termination options under the
Charter. It is likely, however, that Chevron would consider a variety of
factors, which may include whether a vessel is surplus or suitable to Chevron's
requirements and whether competitive charterhire rates are available in the open
market at that time.
In the event Chevron does terminate the Charter, we will attempt to arrange a
replacement charter, or may sell the Vessel. Replacement charters may include
shorter-term time charters and employing the Vessel on the spot charter market
(which is subject to greater fluctuation than the time charter market). Any
replacement charter may bring us lower charter rates and would likely require us
to incur greater expenses which may reduce the amounts available, if any, to pay
principal and interest on the Notes.
We operate in the highly competitive international tanker market which could
affect our position at the end of our current Charter and if Chevron terminates
its Charter earlier
The operation of tanker vessels and transportation of crude and petroleum
products is an extremely competitive business. Competition arises primarily from
other tanker owners, including major oil companies as well as independent tanker
companies, some of whom have 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 existing
Charter with Chevron we are not exposed to the risk associated with this
competition. At the end of our current Charter and in the event that Chevron
terminates the charter on any optional termination date, we will have to compete
with other tanker owners, including major oil companies as well as independent
tanker companies for charters. 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, which could result in our achieving lower revenues from our Suezmax oil
tanker.
Compliance with environmental laws or regulations may adversely affect our
earnings and financial conditions at the end of the existing Charter or if
Chevron terminates its Charter prior to that time
Regulations in the various states and other jurisdictions in which our Vessel
trades affect our business. Extensive and changing environmental laws and other
regulations, compliance with which may entail significant expenses, including
expenses for ship modifications and changes in operating procedures, affect the
operation of our Vessel. Although Chevron is responsible for all operational
matters and bears all these expenses during the term of our current Charter,
these expenses could have an adverse effect on our business operations at any
time after the expiration or termination of the Charter or in the event Chevron
fails to make a necessary payment.
We may not have adequate insurance in the event existing charters are not
renewed
There are a number of risks associated with the operation of ocean-going
vessels, including mechanical failure, collision, property loss, cargo loss or
damage and business interruption due to political circumstances in foreign
countries, hostilities and labour strikes. In addition, the operation of any
vessel is subject to the inherent possibility of marine disaster, including oil
spills and other environmental mishaps, and the liabilities arising from owning
and operating vessels in international trade. Under the Charter, Chevron bears
all risks associated with the operation of our Vessel including the total loss
of the Vessel. However, we cannot assure holders of the Notes that we will
adequately insure against all risks at the end of the Charter or in the event
the Charter is terminated. We may not be able to obtain adequate insurance
coverage at reasonable rates for our Vessel in the future and the insurers may
not pay particular claims.
We are highly dependent on Chevron and Chevron Corporation
We are highly dependent on the due performance by Chevron of its obligations
under the Charter and by its guarantor, Chevron Corporation, of its obligations
under its guarantee. A failure by Chevron or Chevron Corporation to perform
their obligations could result in our inability to service the Term Loans. If
the Notes holders had to enforce the mortgages securing the Notes, they may not
be able to recover the principal and interest owed to them.
We may not be able to pay down our debt in the future, which could result in the
loss of our Vessel
We currently must dedicate a large portion of our cash flow from operations to
satisfy our debt service obligations. Our ability to pay interest on, and other
amounts due in respect of, our Term Loans will depend on our future operating
performance, prevailing economic conditions and financial, business and other
factors, many of which are beyond our control. There can be no assurance that
our cash flow and capital resources will be sufficient for payment of our
indebtedness in the future. If we are unable to service our indebtedness or
obtain additional financing, as needed, this could have a material adverse
effect on the holders of the Notes.
Governments could requisition our Vessel during a period of war or emergency,
resulting in a loss of earnings
A government could requisition for title or seize our Vessel. Requisition for
title occurs when a government takes control of a vessel and becomes her owner.
Also, a government could requisition our Vessel for hire. Requisition for hire
occurs when a government takes control of a vessel and effectively becomes her
charterer at dictated charter rates. Generally, requisitions occur during a
period of war or emergency. Government requisition of our Vessel would
negatively impact our revenues.
The Notes may not be as liquid as other securities with established trading
markets, which may affect the value of the Notes and your ability to trade them
The Notes are not listed on any national securities exchange or traded on the
NASDAQ National Market and have no established trading market. Consequently, the
Notes could trade at prices that may be higher or lower than their principal
amount or purchase price, depending on many factors, including prevailing
interest rates, the market for similar notes and warrants, and our financial
performance. The placement agents for the Notes currently make a market for the
Notes, but are not obligated to do so and may discontinue their market making
activity at any time. In addition, their market making activity is subject to
the limits imposed by the Securities Act and the Exchange Act. We cannot assure
you that an active trading market will exist for the Notes or that any market
for the Notes will be liquid.
Substantial leverage and debt service could affect our ability to grow and
service our debt obligations
We are highly leveraged. As of December 31, 2005, we had $29.9 million in total
indebtedness outstanding and stockholders' equity of $1.4 million. The degree to
which we are leveraged could have important consequences for the holders of the
Notes, including:
o our ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes may
be limited;
o we must dedicate a substantial portion of our cash flow from
operations to the payment of interest on our Term Loans and any future
indebtedness, which reduces the funds available to us for other
purposes;
o we may have trouble withstanding competitive pressures and responding
to changing business conditions;
o we may be more vulnerable than others in the event of a downturn in
general economic conditions or in our business; and
o we may be more highly leveraged than other tanker owners with which we
compete, which may put us at a competitive disadvantage.
We have a limited business purpose which limits our flexibility
Our activity is limited to engaging in the acquisition, disposition, ownership,
and chartering of a Suezmax oil tanker. During the terms of our Charter with
Chevron we expect that the only source of operating revenue from which we may
pay principal and interest on the Term Loans will be from this Charter.
Item 4. Information on the Company
The Company
CalPetro Tankers (IOM) Limited was incorporated in the Isle of Man on May 13,
1994 together with three other companies: CalPetro Tankers (Bahamas I) Limited,
CalPetro Tankers (Bahamas II) Limited and CalPetro Tankers (Bahamas III)
Limited, each of which is incorporated in the Bahamas (together the "Owners").
Each of the Owners was organised as a special purpose company for the purpose of
acquiring one of four oil tankers (each a "Vessel", together the "Vessels") from
Chevron. California Petroleum Transport Corporation ("California Petroleum"), a
Delaware corporation, acting as agent on behalf of the Owners, issued as full
recourse obligations $167,500,000 Serial First Preferred Mortgage Notes and
$117,900,000 8.52% First Preferred Mortgage Notes due 2015 (together the
"Notes"). The proceeds from the sale of the Notes were applied by way of
long-term loans, being Serial Loans in respect of the Serial First Preferred
Mortgage Notes and Term Loans in respect of the First Preferred Mortgage Notes
due 2015, to the Owners to fund the acquisition of the Vessels from Chevron. We
were allocated $51,830,000 of the Serial Loans and $29,842,000 of the Term Loans
and acquired our Vessel, the SIRIUS VOYAGER (ex CHEVRON MARINER), as described
below. We will engage in no business other than the ownership and chartering of
our Vessel and activities resulting from or incidental to such ownership and
chartering.
We are wholly-owned by California Tankers Investments Limited, a company
organised under the laws of the Bahamas, which is in turn a wholly-owned
subsidiary of CalPetro Holdings Limited, an Isle of Man company. CalPetro
Holdings Limited is a wholly-owned subsidiary of Independent Tankers Corporation
("ITC"), a Cayman Islands company which is a wholly-owned subsidiary of
Frontline Ltd ("Frontline"), a publicly listed Bermuda company
Overview of the Business
Our Vessel is a 150,000 deadweight tonne ("dwt") Suezmax oil tanker, called the
SIRIUS VOYAGER (formerly Chevron Mariner), which was acquired from Chevron.
Suezmax tankers are medium-sized vessels ranging from approximately 120,000 to
200,000 dwt, and of maximum length, breadth and draft capable of passing fully
loaded through the Suez Canal. The Vessel has been chartered back to Chevron.
The Charter has a term expiring on April 1, 2015, subject to Chevron's right to
terminate the Initial Charter on certain specified dates. The option to
terminate has already lapsed for two of these dates. Chevron can elect to
terminate the Charter on any of the two remaining termination dates, which occur
on April 1, 2009 and April 1, 2011. For future optional termination dates,
non-binding notice of the intention to exercise the option to terminate the
Charter must be given at least twelve months in advance with irrevocable notice
of Chevron's intention to terminate must be given seven months prior to the
termination date. Chevron is required to pay us a termination payment (the
"Termination Payment") on or prior to the termination date as follows:
(In millions of $)
Optional Termination
Termination Date Payment
April 1, 2009 8.89
April 1, 2011 7.88
Chevron is principally engaged in the marine transportation of oil and refined
petroleum products. Chevron's primary transportation routes are from the Middle
East, Indonesia, Mexico, West Africa and the North Sea to ports in the United
States, Europe, the United Kingdom and Asia. Chevron has advised us that it
expects to use the Vessel worldwide as permitted under the Charter. The
obligations of Chevron under the Charter are guaranteed by Chevron Corporation,
a major international oil company, pursuant to a guarantee (the "Chevron
Guarantee"). Chevron is an indirect, wholly-owned subsidiary of Chevron
Corporation.
The Vessel is a double-hull oil carrier and is presently registered under the
Bahamas flag. The Vessel was constructed under the supervision of Chevron and
designed to Chevron's specifications to enhance safety and reduce operating and
maintenance costs, including such features as high performance rudders, extra
steel (minimal use of high tensile steels), additional fire safety equipment,
redundant power generation equipment, extra coating and electrolytic corrosion
monitoring and protection systems, additional crew quarters to facilitate added
manning and double-hull design patented by one of Chevron Corporation's
subsidiaries. The builder of the SIRIUS VOYAGER (formerly Chevron Mariner) was
Ishikawajima do Brasil Estaleiros S.A.
The Management
On March 31, 1999, Frontline became our Manager and Technical Advisor, pursuant
to an assignment of a Management Agreement. Under the Management Agreement,
Frontline provides administrative, management and advisory services to us along
with technical advisory services. If the Charter is terminated by Chevron,
Frontline, acting on our behalf, will provide all technical management services
and will attempt to find an acceptable replacement charter for the Vessel. If an
acceptable replacement charter is commercially unavailable, the Manager will
solicit bids for the sale or re-charter of the Vessel. The Manager's ability to
obtain an acceptable replacement charter, to sell the Vessel or re-charter the
Vessel will depend on market rates for new and used vessels, both of which will
depend on the supply of and demand for tanker capacity for oil transportation,
and the advantages or disadvantages of the Vessel compared with other vessels
available at the time.
The International Tanker Market
The market for international seaborne crude oil transportation services is
highly fragmented and competitive. Seaborne crude oil transportation services
generally are provided by two main types of operators: major oil company captive
fleets (both private and state-owned) and independent shipowner fleets. In
addition, several owners and operators pool their vessels together on an ongoing
basis, and such pools are available to customers to the same extent as
independently owned and operated fleets. Many major oil companies and other oil
trading companies also operate their own vessels and use such vessels not only
to transport their own crude oil but also to transport crude oil for third party
charterers in direct competition with independent owners and operators in the
tanker charter market. Competition for charters is intense and is based upon
price, location, size, age, condition and acceptability of the vessel and its
manager. Competition is also affected by the availability of other size vessels
to compete in the trades in which we engage.
The oil transportation industry has historically been subject to regulation by
national authorities and through international conventions. Over recent years,
however, an environmental protection regime has evolved which could have a
significant impact on the operations of participants in the industry in the form
of increasingly more stringent inspection requirements, closer monitoring of
pollution-related events, and generally higher costs and potential liabilities
for the owners and operators of tankers.
In order to benefit from economies of scale, tanker charterers will typically
charter the largest possible vessel to transport oil or products, consistent
with port and canal dimensional restrictions and optimal cargo lot sizes. The
oil tanker fleet is generally divided into the following five major types of
vessels, based on vessel carrying capacity:
(i) ULCC-size range of approximately 320,000 to 450,000 dwt; (ii) VLCC-size
range of approximately 200,000 to 320,000 dwt; (iii) Suezmax-size range of
approximately 120,000 to 200,000 dwt; (iv) Aframax-size range of approximately
60,000 to 120,000 dwt; and (v) small tankers of less than approximately 60,000
dwt.
ULCCs and VLCCs typically transport crude oil in long-haul trades, such as from
the Arabian Gulf to Rotterdam via the Cape of Good Hope. Suezmax tankers also
engage in long-haul crude oil trades as well as in medium-haul crude oil trades,
such as from West Africa to the East Coast of the United States. Aframax-size
vessels generally engage in both medium-and short-haul trades of less than 1,500
miles and carry crude oil or petroleum products. Smaller tankers mostly
transport petroleum products in short-haul to medium-haul trades.
The shipping industry is highly cyclical, experiencing volatility in
profitability, vessel values and charter rates. In particular, freight and
charterhire rates are strongly influenced by the supply and demand for shipping
capacity.
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. The factors that influence demand for tanker capacity
include:
o demand for oil and oil products;
o global and regional economic conditions;
o the distance oil and oil products are to be moved by sea; and
o changes in sea borne and other transportation patterns
The factors that influence the supply of tanker capacity include:
o the number of newbuilding deliveries;
o the scrapping rate of older vessels;
o potential conversion of tankers to other purposes; and
o the number of vessels that are out of service.
Tanker values have generally experienced high volatility. The fair market value
of oil tankers, including the Vessel, can be expected to fluctuate, depending
upon 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, as vessels grow older, they may be
expected to decline in value. These factors will affect the value of the vessel
at the termination or expiration of the current Charter.
For the third year in a row the tanker market was very profitable, even if 2005
could not compete with 2004. The extreme volatility witnessed in rates over 2004
was experienced to a smaller extent in 2005. According to industry reports, the
time charter equivalent earnings, or TCEs, for a modern Suezmax ranged between
lows of $23,000 per day and highs of $107,000 in 2005.
The International Energy Agency ("IEA") reported in their May issue, that world
oil demand in 2005 was 83.59 million barrels per day (mbd), an increase of 1.05
mbd over 2004. The Middle East, China and North America contributed with 55% of
this increase which is an indicator of their strong economic growth.
Lack of spare oil production capacity drove crude oil prices to about $70 per
barrel towards the end of the year and dampened the extremely strong growth in
oil consumption of close to 4.0% in 2004 to 1.3% in 2005 according to IEA. China
continued its rapid economic growth with full force also in 2005 with GDP
increasing 9.8% however their growth in oil demand was down from 15.4% in 2004
to 2.4% in 2005. Hurricanes Katrina and Rita which hit the US Gulf Coast in
August and September were each among the top five most powerful storms of all
time and lead to damages to production platforms which caused additional
ton-miles for the last quarter of 2005. It is estimated that hurricanes reduced
U.S. production by 0.4 million barrels per day, as an average over the year.
Geopolitical tension in Nigeria, Venezuela, Iraq, Iran and other parts of the
Middle East, seems to have had limited effect on their production as the OPEC
members in total increased their production by 3.2% in 2005 compared to total
world supply which increased 1.3%.
The size of the world Suezmax fleet increased by 7% in 2005 from 315 vessels to
337. Two Suezmaxes were scrapped while 24 were delivered. The total orderbook
for Suezmaxes was at 63 at the end of the year, of which 7 were ordered during
the year. The total orderbook for Suezmaxes equates to 18.7% of the existing
fleet.
Even though spot market rates have declined during the first four months of
2006, we believe the outlook for the remainder of 2006 is positive due to the
continued growth in oil consumption combined with relatively few deliveries,
combined with an increasing amount of conversions for other purposes, which
should lead to a positive demand environment for tankers.
There is no guarantee that Suezmax rates would be sufficient to meet the debt
service required if the bareboat charter entered into with Chevron is
terminated. Spot market rates are volatile and generally linked to global
economic development and especially demand for oil but also to political events
affecting oil producing countries.
Inspection by Classification Society
Every commercial vessel's hull and machinery is "classed" by a classification
society authorised by its country of registry. The classification society
certifies that the vessel has been built and maintained in accordance with the
rules of such classification society and complies with applicable rules and
regulations of the country of registry of the vessel and the international
conventions to which that country is a member.
Each vessel is inspected by a surveyor of the classification society every year,
every two and a half years and every four to five years. Should any defects be
found, the classification surveyor will issue a "recommendation" for appropriate
repairs which have to be made by the shipowner within the time limit prescribed.
The Vessel will be maintained during the term of the Charter by Chevron in
accordance with good commercial maintenance practice commensurate with other
vessels in Chevron's fleet of similar size and trade, as required by the
Charter. The Charter requires Chevron to return the Vessel on termination of the
Charter "in class" under the rules of the American Bureau of Shipping (or
another classification society previously approved by us). In addition, we have
the right to inspect the Vessel and to require surveys upon redelivery, and
Chevron will be responsible for making or compensating us for certain necessary
repairs in connection with such redelivery.
Insurance
The operation of any ocean-going vessel carries an inherent risk of catastrophic
marine disasters, environmental mishaps, cargo and property losses or damage and
business interruptions caused by adverse weather and ocean conditions,
mechanical failures, human error, political action in various countries, war,
terrorism, piracy, labour strikes and other circumstances or events. Pursuant to
the Charter, the Vessel may be operated through out the world in any lawful
trade for which the Vessel is suitable, including carrying oil and its products.
In the past, political conflicts in many regions, particularly in the Arabian
Gulf, have included attacks on tankers, mining of waterways and other efforts to
disrupt shipping in the area. Vessels trading in such regions have also been
subject to acts of terrorism and piracy. In addition, the carriage of petroleum
products is subject to the risk of spillage and leakage. Any such event may
result in increased costs or the loss of revenues or assets, including a Vessel.
Under the Charter, Chevron is entitled to self-insure against marine and war
risks relating to the Vessel and against protections and indemnity risks
relating to the Vessel during the term of the Charter and, accordingly,
purchasers of the Notes cannot rely on the existence of third-party insurance.
There can be no assurance that all risks will be adequately insured against,
that any particular loss will be covered or that we will be able to procure
adequate insurance coverage at commercially reasonable rates in the future. In
particular, stricter environmental regulations may result in increased costs
for, or the lack of availability or, insurance against the risks of
environmental damage or pollution.
Chevron will, pursuant to the Charter, indemnify us from damages arising from a
failure to maintain any financial responsibility requirements whether relating
to oil or other pollution damage. Chevron will also indemnify us to the extent
losses, damages or expenses are incurred by us relating to oil or other
pollution damage as a result of the operation of the Vessel by Chevron.
Environmental and Other Regulations
Government regulation significantly affects the ownership and operation of our
Vessel. The various types of governmental regulation that affect our vessel
include international conventions and national, state and local laws and
regulations of the jurisdictions where our Vessel operates or is registered
significantly affect the ownership and operation. We believe we are currently in
substantial compliance with applicable environmental and regulatory laws
regarding the ownership and operation of our tanker. However, because existing
laws may change or new laws may be implemented, we cannot predict the ultimate
cost of complying with all applicable requirements or the impact they will have
on the resale value or useful life of our tanker. Future, non-compliance could
require us to incur substantial costs or to temporarily suspend operation of our
tanker.
We believe that the heightened environmental and quality concerns of insurance
underwriters, regulators and charterers are leading to greater inspection and
safety requirements on all vessels and creating an increasing demand for modern
vessels that are able to conform to the stricter environmental standards. We
maintain high operating standards for our Vessel that emphasize operational
safety, quality maintenance, continuous training of our crews and officers and
compliance with United States and international and other national regulations.
Our Vessel is subject to both scheduled and unscheduled inspections by a variety
of governmental and private entities, each of which may have unique
requirements. These entities include the local port authorities such as the U.S.
Coast Guard, harbor master or equivalent, classification societies, flag state
administration or country of registry, and charterers, particularly terminal
operators and major oil companies which conduct frequent vessel inspections.
Each of these entities may have unique requirements that we must comply with.
International Maritime Organization
The International Maritime Organization, or the IMO (the United Nations agency
for maritime safety and the prevention of marine pollution by ships), has
adopted the International Convention for the Prevention of Marine Pollution from
Ships, 1973, as modified by the Protocol of 1978 relating thereto, which has
been updated through various amendments, or the "MARPOL Convention. The MARPOL
Convention relates to environmental standards including oil leakage or spilling,
garbage management, as well as the handling and disposal of noxious liquids,
harmful substances in packaged forms, sewage and air emissions. In March 1992,
the IMO adopted regulations that set forth pollution prevention requirements
applicable to tankers, which became effective in July 1993. These regulations,
which have been adopted by more than 150 nations, including many of the
jurisdiction in which our Vessel operates, provide, in part, that:
o tankers between 25 and 30 years old must be of double-hull
construction or of a mid-deck design with double-sided construction,
unless:
(1) they have wing tanks or double-bottom spaces not used for the
carriage of oil which cover at least 30% of the length of the
cargo tank section of the hull or bottom; or
(2) they are capable of hydrostatically balanced loading (loading
cargo into a tanker in such a way that, in the event of a breach
of the hull, water flows into the tanker, displacing oil upwards
instead of into the sea);
o tankers 30 years old or older must be of double-hull construction or
mid-deck design with double-sided construction; and
o all tankers are subject to enhanced inspections.
Also, under IMO regulations, a tanker must be of double-hull construction or a
mid-deck design with double-sided construction, or be of another approved design
ensuring the same level of protection against oil pollution, if the tanker:
o is the subject of a contract for a major conversion or original
construction on or after July 6, 1993;
o commences a major conversion or has its keel laid on or after January
6, 1994; or
o completes a major conversion or is a newbuilding delivered on or after
July 6, 1996.
These regulations were amended in 2001 and provided a timetable for the phase
out of single hull tankers. This timetable was amended again in December 2003 in
response to European Union, or EU, proposals, further accelerating the final
phase-out dates for single hull tankers.
The baseline phase-out dates apply to tankers according to their certified
arrangement (protectively located segregated ballast tanks or PL/SBT) and the
type of oil carried as cargo. These regulations identify 3 categories of single
hull tankers, including double side and double bottom tankers:
a) Category 1 (Pre- PL/SBT) oil tankers--any tanker of 20,000 dwt or above
carrying crude oil, fuel oil, heavy diesel oil or lubricating oil as cargo
or of 30,000 dwt or above carrying other types of oil.
b) Category 2 (PL/SBT) oil tankers--any tanker of 20,000 dwt or above carrying
crude oil, fuel oil, heavy diesel oil or lubricating oil as cargo or of
30,000 dwt or above carrying other types of oil.
c) Category 3 oil tankers--any tanker of between 5,000 dwt and 20,000 dwt
carrying crude oil, fuel oil, heavy diesel oil or lubricating oil as cargo
or less than 30,000 dwt carrying other types of oil.
The table below provides the specific phase out dates according to each category
of oil tanker. Oil tankers that meet MARPOL Regulation 13F or have double
bottoms and double sides with dimensions in compliance with MARPOL Regulation
13G1(c) continue to be exempt from the accelerated phase out.
Baseline Phase Out Scheme
Phase Out Date Year of Delivery
Category 1 Category 2 Category 3
April 5, 2005 before April 5, 1982 before April 5, 1977
+ 2005 after April 5, 1982 After April 5, 1977 but before
January 1, 1978
+ 2006 1978* and 1979*
+ 2007 1980* and 1981*
+ 2008 1982*
+ 2009 1983*
+ 2010 1984* or later
+ by Anniversary of Delivery Date In Year
* subject to CAS
For Category 2 and 3 tankers, a successful completion of the Condition
Assessment Scheme (CAS) is required by 15 years of age or by the first
intermediate or renewal survey due after April 5, 2005, which ever occurs later.
The new phase-out regime became effective on April 5, 2005. For Category 1
tankers (pre-MARPOL tankers without segregated ballast tanks, generally built
before 1982), the final phase-out date was brought forward to 2005 from 2007.
For Category 2 tankers (MARPOL tankers, generally built after 1982) the final
phase out date has brought forward to 2010 from 2015.
To soften the significant impact that would occur if the approximately 700
tankers (approximately 67.0 million tons dwt) were to be phased out globally in
2010 as per above, two exceptions to the baseline phase out dates were adopted
which allow Category 2 and 3 oil tankers that have passed the CAS to operate
beyond the 2010 cut-off date as summarized below:
Exception One - a flag state may permit oil tankers to operate to 25 years of
age provided that, not later than July 1, 2001, the entire cargo tank length is
protected with one of the following arrangements which cannot be used for the
carriage of oil:
o Double bottoms having a height at centerline which does not meet that
required by the MARPOL Regulation 13E; or
o Wing tanks having a width which does not meet that required by the
International Bulk Chemical Code for type 2 cargo tank location.
Exception Two - a flag state may permit oil tankers, that do not have double
bottoms nor double sides, to operate to the age of 25 or the anniversary date of
the tanker's delivery in 2015, whichever occurs earlier.
Although the flag States are permitted to grant extensions in both of the above
cases provided CAS is satisfactorily completed and IMO has been so informed of
the extension, coast States have the right to deny oil tankers that have been
granted such extensions into their ports and offshore terminals.
Oil tankers granted life extension under Exception One may be denied entry after
2015 if they are 25 years of age and older. Oil tankers with neither double
bottoms nor double sides which have been granted an extension under Exception
Two may be denied entry after the relevant phase out date.
In December 2003, the IMO adopted MARPOL Regulation 13H on the prevention of oil
pollution from oil tankers when carrying heavy grade oil, or HGO. The new
regulation bans the carriage of HGO in single hull oil tankers of 5,000 dwt and
above after April 5, 2005, and in single hull oil tankers of 600 dwt and above
but less than 5,000 dwt, no later than the anniversary of their delivery in
2008.
Under MARPOL Regulation 13H, HGO means any of the following:
o crude oils having a density at 15(0)C higher than 900 kg/m3;
o fuel oils having either a density at 15(0)C higher than 900 kg/ m3 or
a kinematic viscosity at 50(0)C higher than 180 mm2/s;
o bitumen, tar and their emulsions.
Under MARPOL Regulation 13H, the flag state may allow continued operation of oil
tankers of 5,000 dwt and above, carrying crude oil with a density at 15(0)C
higher than 900 kg/m3 but lower than 945 kg/m3, that conform to certain
technical specifications and, in the opinion of the such state, the ship is fit
to continue such operation, having regard to the size, age, operational area and
structural conditions of the ship and provided that the continued operation
shall not go beyond the date on which the ship reaches 25 years after the date
of its delivery. The flag state may also allow continued operation of a single
hull oil tanker of 600 dwt and above but less than 5,000 dwt, carrying HGO as
cargo, if, in the opinion of the such state, the ship is fit to continue such
operation, having regard to the size, age, operational area and structural
conditions of the ship, provided that the operation shall not go beyond the date
on which the ship reaches 25 years after the date of its delivery.
The IMO has also negotiated international conventions that impose liability for
oil pollution in international waters and a signatory's territorial waters. In
September 1997, the IMO adopted Annex VI to the International Convention for the
Prevention of Pollution from Ships to address air pollution from ships. Annex VI
was ratified in May 2004, and became effective in May 2005. Annex VI sets limits
on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibits
deliberate emissions of ozone depleting substances, such as halons,
chlorofluorocarbons, emissions of volatile compounds from cargo tanks and
prohibition of shipboard incineration of specific substances. Annex VI also
includes a global cap on the sulfur content of fuel oil and allows for special
areas to be established with more stringent controls on sulfur emissions.
Compliance with these regulations could require the installation of expensive
emission control systems and could have an adverse financial impact on the
operation of our Vessel. Additional or new conventions, laws and regulations may
be adopted that could adversely affect our ability to manage our Vessel.
The operation of our Vessel is also affected by the requirements set forth in
the IMO's Management Code for the Safe Operation of Ships and Pollution
Prevention, or the ISM Code. The ISM Code requires ship owners and bareboat
charterers to maintain an extensive "Safety Management System" that includes the
adoption of a safety and environmental protection policy setting forth
instructions and procedures for safe operation and describing procedures for
emergencies. The failure of a ship owner or a bareboat charterer to comply with
the ISM Code may subject such party to increased liability, may decrease
available insurance coverage for the affected vessels and may result in a denial
of access to, or detention in certain ports. We rely on the safety management
system that has been developed by Chevron.
The ISM Code requires that vessel operators obtain a safety management
certificate for each vessel they operate. This certificate evidences compliance
by a vessel's management with ISM Code requirements for a safety management
system. No vessel can obtain a certificate unless its manager has been awarded a
Document of Compliance, issued by each flag state, under the ISM Code. All of
our vessels and their operators have received ISM certification. Chevron is
required to renew these documents of compliance and safety management
certificates annually.
Non-compliance with the ISM Code and other IMO regulations may subject the
vessel owner or a bareboat charterer to increased liability, may lead to
decreases in available insurance coverage for affected vessels and may result in
a tanker's denial of access to, or detention in, some ports. Both the United
States Coast Guard and EU authorities have indicated that vessels not in
compliance with the ISM Code will be prohibited from trading in U.S. and EU
ports, as the case may be.
The IMO continues to review and introduce new regulations. It is impossible to
predict what additional regulations, if any, may be passed by the IMO and what
effect, if any, such regulations might have on the operation of oil tankers.
United States Oil Pollution Act of 1990 and Comprehensive Environmental
Response, Compensation and Liability Act of 1980
The United States regulates the tanker industry with an extensive regulatory and
liability regime for environmental protection and cleanup of oil spills,
consisting primarily of the United States Oil Pollution Act of 1990, or OPA, and
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, or CERCLA. OPA affects all owners and operators whose vessels trade with
the United States or its territories or possessions, or whose vessels operate in
the waters of the United States., which include the United States territorial
sea and the 200 nautical mile exclusive economic zone around the United States.
CERCLA applies to the discharge of hazardous substances (other than oil) whether
on land or at sea. Both OPA and CERCLA impact our operations.
Under OPA, vessel owners, operators and bareboat charterers are "responsible
parties" who are jointly, severally and strictly liable (unless the spill
results solely from the act or omission of a third party, an act of God or an
act of war) for all containment and clean-up costs and other damages arising
from oil spills from their vessels. These other damages are defined broadly to
include:
o natural resources damages and related assessment costs;
o real and personal property damages;
o net loss of taxes, rents, royalties, fees and other lost revenues;
o net cost of public services necessitated by a spill response such as
protection from fire, safety or health hazards; and
o loss of subsistence use of natural resources.
OPA limits the liability of responsible parties to the greater of $1,200 per
gross ton or $10.0 million per tanker that is over 3,000 gross tons (subject to
possible adjustment for inflation). Under a recently proposed legislation, OPA
liability limits will be increased, when such legislation is enacted, to the
greater of $1,900 per gross ton or $16.0 million per tanker that is over 3,000
gross tons per discharge (subject to possible adjustment for inflation). The act
specifically permits individual states to impose their own liability regimes
with regard to oil pollution incidents occurring within their boundaries, and
some states have enacted legislation providing for unlimited liability for
discharge of pollutants within their waters. In some cases, states that have
enacted this type of legislation have not yet issued implementing regulations
defining tanker owners' responsibilities under these laws.
CERCLA, which applies to owners and operators of tankers, contains a similar
liability regime and provides for cleanup and removal of hazardous substances
and for natural resource damages. Liability under CERCLA is limited to the
greater of $300 per gross ton or $5.0 million. These limits of liability do not
apply, however, where the incident is caused by violation of applicable United
States federal safety, construction or operating regulations, or by the
responsible party's gross negligence or willful misconduct. These limits do not
apply if the responsible party fails or refuses to report the incident or to
co-operate and assist in connection with the substance removal activities. OPA
and CERCLA each preserve the right to recover damages under existing law,
including maritime tort law.
OPA also requires owners and operators of vessels to establish and maintain with
the United States Coast Guard evidence of financial responsibility sufficient to
meet the limit of their potential strict liability under the act. The United
States Coast Guard has enacted regulations requiring evidence of financial
responsibility in the amount of $1,500 per gross ton for tankers, coupling the
OPA limitation on liability of $1,200 per gross ton with the CERCLA liability
limit of $300 per gross ton. We expect that if the recently proposed legislation
increasing liability limitations under OPA is enacted, the United States Coast
Guard will accordingly increase the amounts of the financial responsibility.
Under these regulations, an owner or operator of more than one tanker is
required to obtain a certificate of financial responsibility for the entire
fleet in an amount equal only to the financial responsibility requirement of the
tanker having the greatest maximum strict liability under OPA and CERCLA.
Operators, such as Chevron in the case of our Vessel, are required to insure
their vessels with pollution liability insurance in the maximum commercially
available amount of $1.0 billion any one incident or occurrence. A catastrophic
spill could exceed the insurance coverage available, in which event there could
be a material adverse effect on our business.
Under OPA, oil tankers without double hulls will not be permitted to come to
United States ports or trade in the United States waters by 2015.
OPA also amended the Federal Water Pollution Control Act to require owners or
operators of tankers operating in the waters of the United States to file vessel
response plans with the United States Coast Guard, and their tankers are
required to operate in compliance with their United States Coast Guard approved
plans. These response plans must, among other things:
o address a "worst case" scenario and identify and ensure, through
contract or other approved means, the availability of necessary
private response resources to respond to a "worst case discharge";
o describe crew training and drills; and
o identify a qualified individual with full authority to implement
removal actions.
In addition, the United States Coast Guard has announced it intends to propose
similar regulations requiring certain vessels to prepare response plans for the
release of hazardous substances.
OPA does not prevent individual states from imposing their own liability regimes
with respect to oil pollution incidents occurring within their boundaries. In
fact, most U.S. states that border a navigable waterway have enacted
environmental pollution laws that impose strict liability on a person for
removal costs and damages resulting from a discharge of oil or a release of a
hazardous substance. These laws may be more stringent than United States federal
law.
Other U.S. Environmental Requirements
The U.S. Clean Air Act of 1970, as amended by the Clean Air Act Amendments of
1977 and 1990, or the CAA, requires the U.S. Environmental Protection Agency, or
EPA, to promulgate standards applicable to emissions of volatile organic
compounds and other air contaminants. Our Vessel is subject to vapor control and
recovery requirements for certain cargoes when loading, unloading, ballasting,
cleaning and conducting other operations in regulated port areas. CAA also
requires states to draft State Implementation Plans, or SIPs, designed to attain
national health-based air quality standards in primarily major metropolitan
and/or industrial areas. Several SIPs regulate emissions resulting from vessel
loading and unloading operations by requiring the installation of vapor control
equipment. Although a risk exists that new regulations could require significant
capital expenditures and otherwise increase our costs, we believe, based on the
regulations that have been proposed to date, that no material capital
expenditures beyond those currently contemplated and no material increase in
costs are likely to be required.
The Clean Water Act (the "CWA") prohibits the discharge of oil or hazardous
substances into navigable waters and imposes strict liability in the form of
penalties for any unauthorized discharges. The CWA also imposes substantial
liability for the costs of removal, remediation and damages. State laws for the
control of water pollution also provide varying civil, criminal and
administrative penalties in the case of a discharge of petroleum or hazardous
materials into state waters. The CWA complements the remedies available under
the more recent OPA and CERCLA, discussed above. Under current regulations of
the EPA, vessels are not required to obtain CWA permits for the discharge of
ballast water in U.S. ports. However, as a result of a recent U.S. federal court
decision, vessel owners and operators may be required to obtain CWA permits for
the discharge of ballast water, or they will face penalties for failing to do
so. Although the EPA is likely to appeal this decision, we do not know how this
matter is likely to be resolved and we cannot assure you that any costs
associated with compliance with the CWA's permitting requirements will not be
material to our results of operations.
The National Invasive Species Act, or NISA, was enacted in 1996 in response to
growing reports of harmful organisms being released into U.S. ports through
ballast water taken on by ships in foreign ports. NISA established a ballast
water management program for ships entering U.S. waters. Under NISA, mid-ocean
ballast water exchange is voluntary, except for ships heading to the Great
Lakes, Hudson Bay, or vessels engaged in the foreign export of Alaskan North
Slope crude oil. However, NISA's exporting and record-keeping requirements are
mandatory for vessels bound for any port in the United States. Although ballast
water exchange is the primary means of compliance with the act's guidelines,
compliance can also be achieved through the retention of ballast water onboard
the ship, or the use of environmentally sound alternative ballast water
management methods approved by the U.S. Coast Guard. If the mid-ocean ballast
exchange is made mandatory throughout the United States, or if water treatment
requirements or options are instituted, the costs of compliance could increase
for ocean carriers.
Our operations occasionally generate and require the transportation, treatment
and disposal of both hazardous and non-hazardous wastes that are subject to the
requirements of the U.S. Resource Conservation and Recovery Act or comparable
state, local or foreign requirements. In addition, from time to time we arrange
for the disposal of hazardous waste or hazardous substances at offsite disposal
facilities. If such materials are improperly disposed of by third parties, we
might still be liable for clean up costs under applicable laws.
Our Vessel currently carry cargoes to U.S. waters regularly and we believe that
it is suitable to meet OPA and other U.S. environmental requirements and that it
would also qualify for trade if chartered to serve U.S. ports.
European Union Tanker Restrictions
In July 2003, the European Union adopted legislation, which was amended in
October 2003, that prohibits all single hull tankers from entering into its
ports or offshore terminals by 2010 or earlier, depending on their age. The EU
has also already banned all single hull tankers carrying heavy grades of oil
from entering or leaving its ports or offshore terminals or anchoring in areas
under its jurisdiction. Commencing in 2005, certain single hull tankers above 15
years of age have also been restricted from entering or leaving EU ports or
offshore terminals and anchoring in areas under EU jurisdiction. The EU is also
considering legislation that would: (1) ban manifestly sub-standard vessels
(defined as those more than 15 years old that have been detained by port
authorities at least twice in a six month period) from EU waters and create an
obligation of port states to inspect vessels posing a high risk to maritime
safety or the marine environment; and (2) provide the EU with greater authority
and control over classification societies, including the ability to seek to
suspend or revoke the authority of negligent societies. The sinking of the m.t.
Prestige and resulting oil spill in November 2002 has led to the adoption of
other environmental regulations by certain EU nations. It is impossible to
predict what legislation or additional regulations, if any, may be promulgated
by the EU or any other country or authority.
International Conventions on Civil Liability for Oil Pollution Damage
Although the United States is not a party to these Conventions, many countries
ratified and followed the liability system adopted by the IMO and originally set
out in the International Convention on Civil Liability for Oil Pollution Damage
of 1969 and the Convention for the Establishment of an International Fund for
Oil Pollution of 1971. This international oil pollution regime was modified in
1992 by two Protocols. The amended Conventions are known as the 1992 Civil
Liability Convention and the 1992 Fund Convention. The 1992 Conventions entered
into force on May 30, 1996. Due to a number of denunciations of the 1971
Convention this Convention ceased to be in force on May 24, 2004. A large number
of States have also denounced the 1969 Civil Liability Convention and as more
States do so its importance is increasingly diminishing. Under the 1992 Civil
Liability Convention, a vessel's registered owner is strictly liable for oil
pollution damage caused in the territory, territorial seas or exclusive economic
zone of a contracting state by discharge of persistent oil from a tanker,
subject to certain complete defenses. The 1992 Fund established by the 1992 Fund
Convention pays compensation to those suffering oil pollution damage in a State
party to the 1992 Fund Convention who did not obtain full compensation under the
1992 Civil Liability Convention. This would normally apply where the shipowner
has a defense under the 1992 Civil Liability Convention or the damage exceeds
the shipowner's liability under that Convention. Under an amendment that became
effective on November 1, 2003, liability limits under the 1992 Civil Liability
Convention were increased by over 50%. For vessels of 5,000 to 140,000 gross
tons (a unit of measurement for the total enclosed spaces within a vessel)
liability will be limited to SDR 4,510,000 (approximately $6.7 million) plus SDR
631 (approximately $932) for each additional gross ton over 5,000. For vessels
of over 140,000 gross tons, liability will be limited to SDR 89,770,000
(approximately $132.7 million). Also with effect from the same date the maximum
amount payable by the 1992 Fund increased from SDR 135 million (approximately
$199.5 million) to SDR 203million (approximately $300.0 million). The right to
limit liability is forfeited under the 1992 Civil Liability Convention if it is
proved that the pollution damage resulted from the shipowner's personal act or
omission, committed with the intent to cause such damage, or recklessly and with
knowledge that such damage would probably result. Vessels trading to States that
are parties to the 1992 Civil Liability Convention must provide evidence of
insurance covering the liability of the owner. On March 2005 a third tier of
compensation was established by means of a Supplementary Fund. This Fund
provides additional compensation to that available under the 1992 Fund
Convention for pollution damage in States that are members of the Supplementary
Fund. The amount available is SDR 750 million (approximately $1.1 billion)
including the costs payable under the 1992 Civil Liability Convention and the
1992 Fund Convention, SDR 203 million (approximately $300.0 million). In
jurisdictions where the 1992 Civil Liability Convention has not been adopted,
various legislative schemes govern or common law applies, and liability is
imposed either on the basis of fault or in a manner similar to the 1992
Convention. We believe that our P&I insurance covers liabilities either under
the international oil pollution schemes or under local regimes for example the
US Oil Pollution Act 1990.
The unit of account in the 1992 Conventions is the Special Drawing Right (SDR)
as defined by the International Monetary Fund. In this document the SDR has been
converted into US dollars at the rate of exchange applicable on May 2, 2006 of
SDR 1 = USD 1.477760.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security. On November 25, 2002, the
Maritime Transportation Security Act of 2002, or MTSA came into effect. To
implement certain portions of the MTSA, in July 2003, the United States Coast
Guard issued regulations requiring the implementation of certain security
requirements aboard vessels operating in waters subject to the jurisdiction of
the United States. Similarly, in December 2002, amendments to the International
Convention for the Safety of Life at Sea, or SOLAS, created a new chapter of the
convention dealing specifically with maritime security. The new chapter came
into effect in July 2004 and imposes various detailed security obligations on
vessels and port authorities, most of which are contained in the newly created
International Ship and Port Facilities Security Code, or ISPS Code. Among the
various requirements are:
o on-board installation of automatic information systems, or AIS, to
enhance vessel-to-vessel and vessel-to-shore communications;
o on-board installation of ship security alert systems;
o the development of vessel security plans; and
o compliance with flag state security certification requirements.
The United States Coast Guard regulations, intended to align with international
maritime security standards, exempt non-U.S. vessels from MTSA vessel security
measures provided such vessels have on board a valid International Ship Security
Certificate that attests to the vessel's compliance with SOLAS security
requirements and the ISPS Code.
Our Vessel complies with the various security measures addressed by the MTSA,
SOLAS and the ISPS Code.
Organisational Structure
As described above, and also in Item 7. Major Shareholders, and Related Party
Transactions, we are a wholly owned subsidiary of California Tankers Investments
Limited, a company organised under the laws of the Bahamas, which is a
wholly-owned subsidiary of ITC. Frontline ultimately controls the Company as
described in more detail above in "The Company".
Property, Plants and Equipment
Other than the Vessel described above, we do not have any property.
Item 4A. Unresolved Staff Comments
None
Item 5. Operating and Financial Review and Prospects
Operating results
Year ended December 31, 2005 compared with the year ended December 31, 2004
Total Revenues
Finance lease interest income for the year ended December 31, 2005 amounted to
$2,657,000, compared with $3,068,000 for the year ended December 31, 2004.
Interest income has fallen in line with expectations. As the value of the
finance lease falls on an annual basis, so does the interest received on the
finance leases.
Expenses
Interest expense on the Term Loans and the Serial Loans amounted to $2,642,000
for the year ended December 31, 2005. The amortisation of discount on loans for
the period amounted to $73,000. The Company amortises the discount over the life
of the Term Loans. The corresponding figures for the period to December 31, 2004
were $3,028,000 and $73,000, respectively. Interest expense has fallen in line
with expectations, with interest payable falling in line with the loan
outstanding in the year.
Year ended December 31, 2004 compared with the year ended December 31, 2003
Total Revenues
Finance lease interest income for the year ended December 31, 2004 amounted to
$3,068,000, compared with $3,500,000 for the year ended December 31, 2003 due to
the decrease in the value of the finance lease.
Expenses
Interest expense on the Term Loans and the Serial Loans amounted to $3,028,000
for the year ended December 31, 2004. The amortisation of discount on loans for
the period amounted to $73,000. The Company amortises the discount over the life
of the Term and Serial Loans. The corresponding figures for the period to
December 31, 2003 were $3,440,000 and $73,000, respectively. Interest expense
has fallen in line with expectations, with interest payable falling in line with
the loan outstanding in the year.
Liquidity and Capital Resources
As set forth above, revenues from the Initial Charter are sufficient to pay our
obligations under the Term and Serial Loans. Chevron may elect to terminate the
Charter on specified termination dates which commenced in 2005. If the Charter
is terminated by Chevron, the Manager, acting on our behalf, will attempt to
find an acceptable replacement charter for the Vessel. If an acceptable
replacement charter is commercially unavailable, the Manager will solicit bids
for the sale or recharter of our Vessel. The Manager's ability to obtain an
acceptable replacement charter, to sell the Vessel or recharter the Vessel will
depend on market rates for new and used vessels, both of which will depend on
the supply of and demand for tanker capacity for oil transportation, and the
advantages or disadvantages of the Vessel compared with other vessels available
at the time.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements that have, or are reasonably likely to
have, a material current effect or that are reasonably likely to have a material
future effect on our financial condition, revenues or expenses, liquidity,
capital expenditures or capital reserves.
Tabular disclosure of contractual obligations
As at December 31, 2005, we had the following contractual obligations and
commitments:
<table>
Payments due by period
Less than 1 More than 5
(in $'000) year 1-3 years 3-5 years years Total
Term Loans (8.52%) 2,984 5,968 5,968 14,992 29,842
- --------------------------------------------------------------------------------------------
Total contractual obligations 2,984 5,968 5,968 14,992 29,842
- --------------------------------------------------------------------------------------------
</table>
Critical Accounting Policies
Our principal accounting policies are described in Note 2 to the financial
statements, which are included in Item 18 of this Annual Report. The most
critical accounting policies include:
o Accounting for financing leases as lessor
As the lease has been classified as a finance lease, the minimum lease payments
(net of amounts representing estimated executory costs including profit thereon)
plus the unguaranteed residual value are recorded as the gross investment in the
lease. The difference between the gross investment in the lease and the sum of
the present values of the two components of the gross investment is recorded as
unearned income which is amortised to income over the lease term as finance
lease interest income to produce a constant periodic rate of return on the net
investment in the lease.
Trend Information
It is expected that as the Vessel ages, the charter income will be reduced. In
line with this effect, the interest payable on the Serial and Term Loans
financing the ship will also be reduced as the principal is repaid. Thus, there
is a consistent reduction in income, expenses and net assets employed by us.
However, cash flows should be adequate to service the debt load. Clearly there
will always be some uncertainty within the business because of the nature of the
tanker business, however, over the past few years the charter rates have been at
a level such that we have been able to service our debt. The structure of debt
and charterhire agreements, including provision for early termination, provides
us with a clear future.
Recently Issued Accounting Standards
There were no recently issued accounting standards that would have an impact on
our results.
Item 6. Directors, Senior Management and Employees
Directors and Executive Officers of CalPetro Tankers (IOM) Limited
Age Position
Tor Olav Troim 43 Director and President
Kate Blankenship 41 Director and Secretary
John Michael Killip 61 Director
Tor Olav Troim has been a Director of CalPetro Tankers (IOM) Limited since
October 31, 2001. He has been Vice-President and a director of Frontline since
November 3, 1997. He previously served as Deputy Chairman of Frontline from July
4, 1997. Mr. Troim has also served as a director and Chairman of Ship Finance
International Limited, a Bermuda company listed on the New York Stock Exchange,
since May 2000, has been a director and Vice-Chairman of Knightsbridge Tankers
Limited ("Knightsbridge"). He is a director of Aktiv Inkasso ASA a Norwegian
Oslo Stock Exchange listed company and Golden Ocean Group Limited, a Bermuda
company listed on the Oslo Stock Exchange. Mr. Troim has served as a director of
Golar LNG Limited since May 2001. Prior to his service with Frontline, from
January 1992, Mr. Troim served as Managing Director and a member of the Board of
Directors of DNO AS, a Norwegian oil company.
Kate Blankenship has been a Director of CalPetro Tankers (IOM) Limited since
October 31, 2001. She has been Chief Accounting Officer and Company Secretary of
Frontline and resigned from these positions in October 2005, and since 2003 she
has been a director of Frontline. Mrs Blankenship also serves as a director of
Ship Finance International Limited. Mrs. Blankenship has been Chief Financial
Officer of Knightsbridge since April 2000 and Secretary of Knightsbridge since
December 2000. Mrs. Blankenship has been a director of Golar LNG Limited since
2003.She is a member of the Institute of Chartered Accountants in England and
Wales.
John Michael Killip has been a non-executive Isle of Man resident Director since
October 31, 2001. Mr. Killip is a manager with Equity Limited, the corporate
service provider owned by Cains Advocates Limited, Isle of Man, who are legal
advisers to the Company and as such are entitled to charge for professional
advice and services. He has been in a managerial capacity with Cains Advocates
Limited/Equity Limited for over 10 years.
Compensation
During the year ended December 31, 2005, the Company paid no compensation to its
directors and officers.
Board Practices
The directors have no fixed date of expiry of their term of office. The details
of their service are shown above. The directors have no entitlement to any
benefits on termination of their office.
The Company has neither an audit nor a remuneration committee.
Employees
The Company does not have any employees involved in the management of the
Vessel. Frontline manages the company as described below in Item 7- Related
Party Transactions.
Share Ownership
The directors have no interest in the share capital of the Company, nor do they
have any arrangements for involvement in the Company's capital.
Item 7. Major Shareholders and Related Party Transactions
Major Shareholders
The Company is a wholly-owned subsidiary of California Tankers Investments
Limited, a company organised under the laws of the Bahamas, which is a
wholly-owned subsidiary of ITC. Frontline ultimately controls the Company as
described in more detail in Item 4. All the issued and outstanding shares of
capital stock of the Company are beneficially owned by ITC and have been pledged
to JPMorgan, formerly the Chase Manhattan Trust Company of California (the
"Collateral Trustee") as part of the collateral for the Notes. ITC has full
voting control over the Company subject to the rights of the Collateral Trustee.
Significant changes in ownership have been disclosed in Item 4, there are no
known arrangements, which may lead to a change in control of the company.
Related Party Transactions
As discussed in Item 4, Frontline, the ultimate parent, manages the Company.
Pursuant to a management agreement, Frontline is the Manager and the Technical
Advisor. Under the management agreement, Frontline is entitled to a Management
Fee and a Technical Advisor's Fee.
Under the terms of the management agreement, the Management Fee consists of a
fee of $13,625 initially per annum for each Vessel, along with a fee of $3,000
covering all four Vessels, payable semi-annually in arrears for the period until
the third anniversary of the closing of the Notes issue then increasing by 4% on
each subsequent anniversary of the closing of the issue of the Notes.
The Technical Advisor's Fee was initially $10,000 per annum for each Vessel,
payable semi-annually in arrears, during the initial first three-year period as
described above. On each subsequent anniversary of the closing of the issue of
the Notes, the fee will increase by 4%. In addition, the Technical Advisor is
entitled to be reimbursed for the fees, costs and expenses of conducting
periodic inspections of the Vessels.
Pursuant to a Designated Representative Agreement, CalPetro Holdings Limited
(the "Designated Representative") was appointed to represent California
Petroleum as its Designated Representative to act on its behalf with respect to
certain administrative matters such as the filing of periodic reports and
financial statements with the Securities and Exchange Commission. The fee
payable to the Designated Representative (the "Designated Representative Fee")
during the initial three-year period described above was $15,000 per annum with
a 4% increase on each subsequent anniversary of the closing of the issue of the
Notes.
In 2005, a total of $38,120 was paid under the Management and Designated
Representative Agreements.
Item 8. Financial Information
Consolidated Statements and Other Financial Information
See Item 18 below.
Legal Proceedings
We are not party to any material pending legal proceedings. In the future, we
may be subject to legal proceedings and claims in the ordinary course of
business. Those claims, even if lacking merit, could result in the expenditure
by us of significant financial and managerial resources.
Item 9. The Offer and Listing
Not applicable.
Item 10. Additional Information
Memorandum and Articles of Association
The Company is No. 68060 in the Isle of Man register.
Directors may be interested in Company transactions but such interest should be
disclosed to the other directors or Company members prior to agreement by the
board or Company meeting as appropriate. The director concerned may not vote on
the transaction. The directors may borrow on behalf of the Company as they think
fit. There are no stated age limits for directors and directors need not be
stockholders. They do not retire by rotation.
All shares issued are unclassified, there is no authorisation in force to issue
other classes of share. Consequently all shares have equal entitlement to voting
rights, dividends, profit shares and other rights and duties. Should any
dividend be declared and not claimed the directors may, after a period of three
years, resolve that such dividends are forfeit for the benefit of the Company.
There are no provisions for changes to the rights of stockholders contained in
the articles, except that by resolution of the directors the authorised capital
may be increased and that the Company may divide or combine shares within the
same class.
Company meetings may be convened by the directors or held on request of members
holding 50% of the voting shares. Annual meetings are held according to Isle of
Man law. Members, their properly appointed proxies and corporate members
representatives are entitled to attend.
There are no limits to ownership of Company securities or to the exercise of
voting rights. Disclosure of ownership is governed by Isle of Man law and any
laws operative in the jurisdictions pertaining to the owners of the securities.
The directors of the Company may, without giving a reason, decline to register a
transfer of shares.
Material Contracts
The Company has no material contracts apart from those pertaining to its normal
business.
Exchange Controls
The Company was registered under the Isle of Man Income Tax (Exempt Companies)
Act 1994 (the "Exempt Companies Act") in May 1994. Interests in the Registered
Securities may be freely transferred among non-residents of the Isle of Man
under Isle of Man Law. There are no Exchange Control regulations in the Isle of
Man.
There are no restrictions upon the payment of foreign currency dividends
interest or other payments in respect of the Registered Securities.
None of the Company's Articles of Association, Memorandum of Association or any
other document, nor any Isle of Man law or, to the knowledge of the Company, any
foreign law, imposes limitations on the right of non-residents or foreign owners
to hold the Company's share of common stock.
Taxation
Under the Exempt Companies Act, the Company is exempt from any Isle of Man
income tax, or any other tax on income of distributions accruing to or derived
for the Company, or in connection with any transactions with the Company, or any
shareholders.
No estate, inheritance, succession, or gift tax, rate, duty, levy or other
charge is payable in the Isle of Man with respect to any shares, debt
obligations or other securities of the Company.
There is no reciprocal tax treaty between the Isle of Man and the United States.
Documents on Display
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with these requirements we file
reports and other information with the Securities and Exchange Commission. These
materials, including this annual report and the accompanying exhibits may be
inspected and copied at the public reference facilities maintained by the
Commission at 100 F Street, NE, Room 1580, Washington D.C. 20549. You may obtain
information on the operation of the public reference room by calling 1 (800)
SEC-0330, and you may obtain copies at prescribed rates from the Public
Reference Section of the Commission at its principal office in Washington, D.C.
20549. The SEC maintains a website (http://www.sec.gov.) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. In addition, documents referred to in
this annual report may be inspected at the office of the Manager at Par-la-Ville
Place 4th Floor, 14 Par-la-Ville Road, Hamilton, Bermuda and at 15-19 Athol
Street, Douglas, Isle of Man.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Quantitative information about market risk
Quantitative information about market risk instruments at December 31, 2005 is
as follows:
The final principal repayment on the Serial Loans was made in April 1, 2005.
Currently the only loan outstanding is the Term Loans, these bear interest at a
rate of 8.52% per annum. Interest is payable semi-annually on April 1 and
October 1. Principal is repayable on the Term Loans in accordance with a
twelve-year sinking fund schedule.
The table below provides the revised scheduled sinking fund redemption amounts
and final principal payment of the Allocated Principal Amount of the Term Loans
following termination of the related Initial Charter on each of the optional
termination dates.
Scheduled payment date Charter Charter Charter Charter
not terminated terminated terminated
terminated 2007 2009 2011
$'000 $'000 $'000 $'000
April 1, 2006 2,984 2,984 2,984 2,984
April 1, 2007 2,984 2,984 2,984 2,984
April 1, 2008 2,984 1,560 2,984 2,984
April 1, 2009 2,984 1,690 2,984 2,984
April 1, 2010 2,984 1,830 1,470 2,984
April 1, 2011 2,984 1,990 1,590 2,984
April 1, 2012 2,984 2,160 1,730 1,090
April 1, 2013 2,984 2,340 1,880 1,180
April 1, 2014 2,984 2,540 2,030 1,280
April 1, 2015 2,986 9,764 9,206 8,388
--------------------------------------------------------------------------
29,842 29,842 29,842 29,842
==========================================================================
Qualitative information about market risk
The Company was organised solely for the purpose of the acquisition of one
Vessel and subsequently entered into a long-term agreement between the Company
and Chevron.
Item 12. Description of Securities Other than Equity Securities
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
None.
Item 15. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
As of the balance sheet date, the Company carried out an evaluation, under
the supervision and with the participation of the Company's manager
Frontline Ltd, including the Company's President and Principal Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.
Based upon that evaluation, the President and Principal Financial Officer
concluded that the Company's disclosure controls and procedures are
effective in alerting them timely to material information relating to the
Company required to be included in the Company's periodic SEC filings.
(b) Changes in internal controls
There have been no significant changes in our internal controls or in other
factors that could have significantly affected those controls subsequent to
the date of our most recent evaluation of internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
The Company's equity is neither listed nor publicly traded. The equity is held
by one beneficial holder, California Tankers Investments Limited. The Company's
obligations toward its bondholders are set out in detail in covenants contained
in the Indenture for their Notes. Accordingly the Company's Board of Directors
has determined that the role played by an audit committee would have no
applicability to the Company.
Item 16B. Code of Ethics
The Company's equity is neither listed nor publicly traded. The equity is held
by one beneficial holder, California Tankers Investments Limited. The Company's
obligations toward its bondholders are set out in detail in covenants contained
in the Indenture for their Notes. Accordingly the Company's Board of Directors
has determined that the role played by a code of ethics would have no
applicability to the Company.
Item 16C. Principal Accountant Fees and Services
a) Audit Fees
Our principal accountant for 2005 and 2004 was Grant Thornton. The
following table sets forth the aggregate fees billed for professional
services rendered and services provided in connection with statutory and
regulatory filings or engagements for the two most recent fiscal years.
Fiscal year ended December 31, 2005 $19,425
Fiscal year ended December 31, 2004 $18,000
b) Audit Related Fees
There have been no assurance and related services rendered by Grant
Thornton in 2005 and 2004 related to the performance of the audit or review
of the Company's financial statements.
c) Tax Fees
There have been no tax related services rendered by Grant Thornton in 2005
and 2004 related to tax compliance (i.e., preparation of original and
amended tax returns), tax advice (i.e., assistance with tax audits and
appeals), and tax planning.
d) All Other Fees
There have been no aggregate fees billed for professional services rendered
by Grant Thornton in 2005 and 2004 for services other than Audit Fees, as
set forth above.
The Company's Board of Directors has assigned responsibility for the engagement
of the auditors to the Company's manager.
Item 16D. Exemptions from the Listing Rules for Audit Committees
Not Applicable
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not Applicable
PART III
Item 17. Financial Statements
Not applicable.
Item 18. Financial Statements
The following financial statements and notes, together with the reports of Grant
Thornton Independent Registered Public Accounting Firm and Ernst & Young,
Independent Registered Public Accounting Firm, thereon, are filed as part of
this annual report
Page
Report of Independent Registered Public Accounting Firm..............F-1
Report of Independent Registered Public Accounting Firm..............F-2
Statements of Operations and Retained Earnings for the Years Ended
December 31, 2005, 2004 and 2003.....................................F-3
Balance Sheets as of December 31, 2005 and 2004......................F-4
Statements of Cash Flows for the Years Ended
December 31, 2005, 2004 and 2003.....................................F-5
Notes to the Financial Statements....................................F-6
Item 19. Exhibits
1.1* Certificate of Incorporation and Memorandum of Association of CalPetro
Tankers (IOM) Limited, incorporated by reference to Exhibit 3.3 in the
Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
1.2* Articles of Association of CalPetro Tankers (IOM) Limited, incorporated by
reference to Exhibit 3.4 in the Registration Statement of CalPetro Tankers
(Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers
(Bahamas III) Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994
on Forms S-3, S-1 and F-1, Registration No. 33-79220.
2.1* Form of Term Indenture between California Petroleum Transport Corporation
and Chemical Trust Company of California, as Indenture Trustee, incorporated by
reference to Exhibit 4.1 in the Registration Statement of CalPetro Tankers
(Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers
(Bahamas III) Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994
on Forms S-3, S-1 and F-1, Registration No. 33-79220.
2.2* Form of Term Mortgage Notes, incorporated by reference to Exhibit 4.2 in
the Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro
Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and
CalPetro Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
2.3* Form of Bahamian Statutory Ship Mortgage and Deed of Covenants by [CalPetro
Tankers (Bahamas I) Limited], [CalPetro Tankers (Bahamas II) Limited] to
California Petroleum Transport Corporation (including the form of assignment of
such Mortgage to Chemical Trust Company of California, as Collateral Trustee, by
California Petroleum Transport Corporation), incorporated by reference to
Exhibit 4.4 in the Registration Statement of CalPetro Tankers (Bahamas I)
Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III)
Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994 on Forms S-3,
S-1 and F-1, Registration No. 33-79220.
2.4* Form of Assignment of Initial Charter Guarantee by [CalPetro Tankers
(Bahamas I) Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers
(IOM) Limited] [CalPetro Tankers (Bahamas III) Limited] to California Petroleum
Transport Corporation (including the form of Collateral Assignment of such
Initial Charter Guarantee to Chemical Trust Company of California, as Collateral
Trustee, by California Petroleum Transport Corporation), incorporated by
reference to Exhibit 4.7 in the Registration Statement of CalPetro Tankers
(Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers
(Bahamas III) Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994
on Forms S-3, S-1 and F-1, Registration No. 33-79220.
2.5* Form of Assignment of Earnings and Insurances from [CalPetro Tankers
(Bahamas I) Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers
(IOM) Limited] [CalPetro Tankers (Bahamas III) Limited] to California Petroleum
Transport Corporation, incorporated by reference to Exhibit 4.8 in the
Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
2.6* Form of Assignment of Initial Charter from [CalPetro Tankers (Bahamas I)
Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM)
Limited[ [CalPetro Tankers (Bahamas III) Limited] to California Petroleum
Transport Corporation (including the form of Collateral Assignment of such
Initial Charter to Chemical Trust Company of California, as Collateral Trustee,
by California Petroleum Transport Corporation), incorporated by reference to
Exhibit 4.9 in the Registration Statement of CalPetro Tankers (Bahamas I)
Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III)
Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994 on Forms S-3,
S-1 and F-1, Registration No. 33-79220.
2.7* Form of Management Agreement between P.D. Gram & Co., A.S., and [CalPetro
Tankers (Bahamas I) Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro
Tankers (IOM) Limited] [CalPetro Tankers (Bahamas III) Limited], incorporated by
reference to Exhibit 4.10 in the Registration Statement of CalPetro Tankers
(Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers
(Bahamas III) Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994
on Forms S-3, S-1 and F-1, Registration No. 33-79220.
2.8* Form of Assignment of Management Agreement from [CalPetro Tankers (Bahamas
I) Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM)
Limited] [CalPetro Tankers (Bahamas III) Limited], incorporated by reference to
Exhibit 4.11 in the Registration Statement of CalPetro Tankers (Bahamas I)
Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III)
Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994 on Forms S-3,
S-1 and F-1, Registration No. 33-79220.
2.9* Form of Serial Loan Agreement between California Petroleum Transport
Corporation and [CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers
(Bahamas II) Limited] [CalPetro Tankers (IOM) Limited] [CalPetro Tankers
(Bahamas III) Limited], incorporated by reference to Exhibit 4.12 in the
Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
2.10* Form of Term Loan Agreement between California Petroleum Transport
Corporation and [CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers
(Bahamas II) Limited] [CalPetro Tankers (IOM) Limited] [CalPetro Tankers
(Bahamas III) Limited], incorporated by reference to Exhibit 4.13 in the
Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
2.11* Form of Collateral Agreement between California Petroleum Transport
Corporation [CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers (Bahamas
II) Limited] [CalPetro Tankers (IOM) Limited] [CalPetro Tankers (Bahamas III)
Limited], the Indenture Trustee under the Serial Indenture, the Indenture
Trustee under the Term Indenture and Chemical Trust Company of California, as
Collateral Trustee, incorporated by reference to Exhibit 4.14 in the
Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
2.12* Form of Issue of One Debenture from [CalPetro Tankers (Bahamas I) Limited]
[CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM) Limited]
[CalPetro Tankers (Bahamas III) Limited] to California Petroleum Transport
Corporation, incorporated by reference to Exhibit 4.15 in the Registration
Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II)
Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro Tankers (IOM)
Limited filed November 9, 1994 on Forms S-3, S-1 and F-1, Registration No.
33-79220.
4.1* Form of Initial Charter Guarantee by Chevron Corporation, incorporated by
reference to Exhibit 10.1 in the Registration Statement of CalPetro Tankers
(Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers
(Bahamas III) Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994
on Forms S-3, S-1 and F-1, Registration No. 33-79220.
4.2* Form of Bareboat Initial Charter between [CalPetro Tankers (Bahamas I)
Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM)
Limited] [CalPetro Tankers (Bahamas III) Limited] and Chevron Transport
Corporation, incorporated by reference to Exhibit 10.2 in the Registration
Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II)
Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro Tankers (IOM)
Limited filed November 9, 1994 on Forms S-3, S-1 and F-1, Registration No.
33-79220.
4.3* Form of Vessel Purchase Agreement between [CalPetro Tankers (Bahamas I)
Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM)
Limited] [CalPetro Tankers (Bahamas III) Limited] and Chevron Transport
Corporation (including the form of Assignment of such Vessel Purchase Agreement
to California Petroleum Transport), incorporated by reference to Exhibit 10.3 in
the Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro
Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and
CalPetro Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
10.1* Powers of Attorney for directors and certain officers of CalPetro Tankers
(Bahamas II) Limited, incorporated by reference to Exhibit 24.1 in the
Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
12.1 Ceritification of Principal Executive Officer pursuant to rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as amended
12.2 Ceritification of Principal Financial Officer pursuant to rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as amended
13 Certification pursuant to 18 USC Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
* Incorporated by reference to the filing indicated.
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Calpetro Tankers (IOM) Limited
We have audited the accompanying balance sheets of Calpetro Tankers (IOM)
Limited (the "Company") as of December 31, 2005 and 2004 and the related
statements of operations and retained earnings and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Calpetro Tankers (IOM) Limited
at December 31, 2005 and 2004 and the results of its operations and cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
Grant Thornton LLP
New York, New York
June 22, 2006
Report of Independent Registered Public Accounting Firm
To the Board of Directors
CalPetro Tankers (IOM) Limited
We have audited the accompanying statements of operations, cashflows and
retained earnings of CalPetro Tankers (IOM) Limited for the year ended December
31, 2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cashflows of CalPetro
Tankers (IOM) Limited for the year ended December 31, 2003, in conformity with
United States generally accepted accounting principles.
Ernst & Young LLC
Chartered Accountants
Douglas, Isle of Man
June 8, 2004
CalPetro Tankers (IOM) Limited
Statements of Operations and Retained Earnings For the Years Ended December 31,
2005, 2004 and 2003 (in thousands of US$)
2005 2004 2003
Operating revenues
Finance lease interest income 2,657 3,068 3,500
- ---- --------------------------------------------------- ----------- ----------
Total operating revenues 2,657 3,068 3,500
- ---- --------------------------------------------------- ----------- ----------
Operating expenses
Administrative expenses (95) (74) (79)
- ---- -------------------------------------------------------------------------
Total operating expenses (95) (74) (79)
- ------------------------------------------------------------------------------
Net operating income 2,562 2,994 3,421
- ------------------------------------------------------------------------------
Other operating income (expenses)
Interest income 46 54 55
Interest expense (2,642) (3,028) (3,440)
Other financial items (73) (73) (73)
- ---- -------------------------------------------------------------------------
Net other expenses (2,669) (3,047) (3,458)
- ---- -------------------------------------------------------------------------
Net loss (107) (53) (37)
Retained earnings at the start of year 1,547 1,600 1,637
- ------------------------------------------------------------------------------
Retained earnings at the end of year 1,440 1,547 1,600
=============================================================================
See accompanying Notes that are an integral part of these Financial Statements
CalPetro Tankers (IOM) Limited
Balance Sheets as of December 31, 2005 and 2004
(in thousands of US$)
2005 2004
ASSETS
Current Assets
Cash and cash equivalents 1,837 2,951
Current portion of net investment in finance lease 3,094 4,204
Interest receivable 608 694
Other current assets 6 20
- -------------------------------------------------------- ---------- ------------
Total current assets 5,545 7,869
Net investment in finance lease, less current portion 26,186 29,207
Deferred charges 215 288
- -------------------------------------------------------- ---------- ------------
Total assets 31,946 37,364
======================================================== ========== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Short-term debt and current portion of long-term
debt 2,984 5,210
Accrued interest 636 735
Other current liabilities 27 29
- -------------------------------------------------------- ---------- ------------
Total current liabilities 3,647 5,974
Long-term debt 26,858 29,842
- ---- --------------------------------------------------- ---------- ------------
- -------------------------------------------------------- ---------- ------------
Total liabilities 30,505 35,816
- -------------------------------------------------------- ---------- ------------
- ---- --------------------------------------------------- ---------- ------------
Commitments and Contingencies - -
Minority Interest - -
Stockholder's equity
Unclassified stock: 2 shares of $500 par value 1 1
Retained earnings 1,440 1,547
- ---- --------------------------------------------------- ---------- ------------
- -------------------------------------------------------- ---------- ------------
Total stockholder's equity 1,441 1,548
- -------------------------------------------------------- ---------- ------------
- -------------------------------------------------------- ---------- ------------
Total liabilities and stockholder's equity 31,946 37,364
======================================================== ========== ============
See accompanying Notes that are an integral part of these Financial Statements
CalPetro Tankers (IOM) Limited
Statements of Cash Flows For the Years Ended
December 31, 2005, 2004 and 2003
(in thousands of US$)
2005 2004 2003
Net loss (107) (53) (37)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Amortisation of deferred charges 73 73 73
Changes in operating assets and liabilities, net
of effect of acquisitions:
Interest receivable 86 108 108
Other current assets 14 13 35
Accrued interest payable (99) (107) (90)
Other current liabilities (2) - 22
- --------------------------------------------------------------------------------
Net cash (used in)/provided by operating activities (35) 34 111
- --------------------------------------------------------------------------------
- ---- ---------------------------------------------------------------------------
Investing activities
Finance lease payments received 4,131 5,179 5,141
- ---- ---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 4,131 5,179 5,141
- --------------------------------------------------------------------------------
- ---- ---------------------------------------------------------------------------
Financing activities
Repayments of debt (5,210) (5,210) (5,210)
- ---- ---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (5,210) (5,210) (5,210)
- --------------------------------------------------------------------------------
- ---- ---------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,114) 3 42
Cash and cash equivalents at beginning of year 2,951 2,948 2,906
Cash and cash equivalents at end of year 1,837 2,951 2,948
================================================================================
==== ===========================================================================
Supplemental disclosure of cash flow information:
Interest paid 2,740 3,136 3,530
==== ===========================================================================
==== ===========================================================================
See accompanying Notes that are an integral part of these Financial Statements
1. GENERAL
CalPetro Tankers (IOM) Limited (the "Company") was incorporated in the Isle
of Man on May 13, 1994 with three other entities: CalPetro Tankers (Bahamas
I) Limited, CalPetro Tankers (Bahamas II) Limited and CalPetro Tankers
(Bahamas III) Limited, each of which was incorporated in the Bahamas. These
entities (the "Owners") were organised as special purpose companies for the
purpose of acquiring one of four oil tankers (each a "Vessel", together the
"Vessels") from Chevron Transport Corporation ("Chevron") which were
concurrently chartered on long-term charter agreements back to Chevron.
California Petroleum Transport Corporation, acting as agent on behalf of
the Owners, issued as full recourse obligations Term Mortgage Notes and
Serial Mortgage Notes (the Serial and Term Notes) and subsequently loaned
the proceeds to the Owners in the form of Term Mortgage Loans and Serial
Mortgage Loans (the "Serial and Term Loans") to fund the acquisition of the
Vessels from Chevron.
The Owners only source of funds with respect to the Serial and Term Loans
is payments from Chevron, including termination payments as discussed in
Note 5. The Owners do not have any other source of funds for payment of the
Serial and Term Loans.
2. ACCOUNTING POLICIES
Basis of presentation
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP).
Certain comparative figures have been reclassified to conform to the
presentation adopted in the current period.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires the
Company to make estimates and assumptions in determining the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities on the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from these estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity date of
three months or less when purchased to be cash equivalents.
Investment in finance leases
The Company charters out its vessel under an agreement that is classified
as a direct financing lease. The minimum payments under the charter
agreement are recorded as the gross investment in the finance lease. The
difference between the gross investment in the finance lease and the cost
of the vessel is recorded as unearned income. Throughout the term of the
charter agreement, the Company records as revenue interest income and
unearned income. Unearned income is amortised to income over the life of
the charter agreement to produce a constant periodic rate of return on the
net investment in the finance lease.
Deferred charges
Deferred charges comprise expenses incurred in connection with the
structuring of the financing transactions and issuance of debt. Such
expenses are being amortised over the life of the debt.
Revenue and expense recognition
Revenues and expenses are recognised on the accrual basis. Revenue is
substantially generated from bareboat charter hires and is recorded over
the term of the charter as service is provided. Interest payable on the
Serial and Term Loans is accrued on a daily basis.
Financial Instruments
In determining the fair value of its financial instruments, the Company
uses a variety of methods and assumptions that are based on market
conditions and risks existing at each balance sheet date. For the majority
of financial instruments, including long-term debt, standard market
conventions and techniques are used to determine fair value. All methods of
assessing fair value result in a general approximation of value, and such
value may never actually be realised.
3. TAXATION
The Company is exempt from United States Federal, state and local income
taxes on its interest income and has been granted exemptions from the
statutory 18% tax on profits required to be assessed against Isle of Man
companies.
4. CASH AND CASH EQUIVALENTS
The cash accounts were established and are maintained by JPMorgan Chase as
the Collateral Trustee who maintain the accounts as collateral agent for
the equal and ratable benefit of the holders of the Serial and Term Notes.
Charterhire payments are deposited into a revenue account and these funds
can only be used to fund the principal and interest due on the Serial and
Term Notes and any operating costs in relation to operating the Owners.
5. INVESTMENT IN FINANCE LEASE
The Company has chartered its vessel on a long term bareboat charter (the
"Charter") to Chevron which has a term expiring on April 1, 2015 subject to
Chevron's right to terminate the Initial Charter on certain specified
dates. Chevron can elect to terminate the Charter on any of four
termination dates occurring at two-year intervals beginning in April 1,
2005. Non-binding notice of Chevron's intention to exercise the first
option to terminate must be given at least 12 months prior to the
termination date and irrevocable notice must be given at least nine months
prior to the first optional termination date. For subsequent optional
termination dates, notice of Chevron's intention to terminate must be given
seven months prior to the termination date. The option to terminate has
already lapsed for two of these dates. Chevron is required to pay the
Company a termination payment (the "Termination Payment") on or prior to
the remaining termination dates as follows:
(In millions of $)
Optional Termination
Termination Date Payment
April 1, 2009 8.89
April 1, 2011 7.88
Chevron has the option to purchase the vessel for $1 on April 1, 2015
provided the Initial Charter is still in place.
The following schedule lists the components of the net investment in
finance lease:
(in thousands of $) 2005 2004
Total minimum lease payments to be received 41,673 48,547
Less: Unearned income (12,393) (15,136)
------------------------------------------------------------------------
Net investment in finance lease 29,280 33,411
========================================================================
Lease payments under the charter agreement for each of the five succeeding
years are as follows: $5,463,000 in 2006, $5,209,000 in 2007, $4,955,000 in
2008 $4,701,000 in 2009 and $4,447,000 in 2010.
6. DEFERRED CHARGES
Deferred charges represent the capitalisation of debt issue costs. These
costs are amortised over the term of the Notes to which they relate. The
deferred charges are comprised of the following amounts:
(in thousands of $) 2005 2004
Debt arrangement fees 1,006 1,006
Accumulated amortisation (791) (718)
-----------------------------------------------------------------------
215 288
=======================================================================
7. DEBT
(in thousands of $) 2005 2004
7.60% Serial Loan maturing April 1, 2005 - 5,210
8.52% Mortgage Term Loans due 2015 29,842 29,842
-----------------------------------------------------------------------
Total Debt 29,842 35,052
Less: current portion (2,984) (5,210)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
26,858 29,842
=======================================================================
The outstanding debt as of December 31, 2005 is repayable as follows:
(in thousands of $)
Year ending December 31,
2006 2,984
2007 2,984
2008 2,984
2009 2,984
2010 2,984
2011 and later 14,922
-----------------------------------------------------------------------
Total debt 29,842
=======================================================================
The serial loans matured on April 1, 2005 with interest being paid on April
1 and October 1, 2005.
The Term Loans bear interest at a rate of 8.52% per annum. Interest is
payable semi-annually on April 1 and October 1. Principal is repayable on
the Term Loans in accordance with a ten-year sinking fund schedule.
If an Initial Charter is terminated, the scheduled mandatory sinking fund
payments on the Term Loans will be revised so that the allocated principal
amount of the Term Loans for the related Vessel will be redeemed on the
remaining sinking fund redemption dates on a schedule that approximates
level debt service with an additional principal payment on the maturity
date of $7m.
The table below provides the revised scheduled sinking fund redemption
amounts and final principal payment of the Allocated Principal Amount of
the Term Loans following termination of the related Initial Charter on each
of the remaining optional termination dates.
Scheduled payment date Charter Charter Charter Charter
not terminated terminated terminated
terminated 2007 2009 2011
$'000 $'000 $'000 $'000
April 1, 2006 2,984 2,984 2,984 2,984
April 1, 2007 2,984 2,984 2,984 2,984
April 1, 2008 2,984 1,560 2,984 2,984
April 1, 2009 2,984 1,690 2,984 2,984
April 1, 2010 2,984 1,830 1,470 2,984
April 1, 2011 2,984 1,990 1,590 2,984
April 1, 2012 2,984 2,160 1,730 1,090
April 1, 2013 2,984 2,340 1,880 1,180
April 1, 2014 2,984 2,540 2,030 1,280
April 1, 2015 2,986 9,764 9,206 8,388
--------------------------------------------------------------------------
29,842 29,842 29,842 29,842
==========================================================================
The Term and Serial Loans are collateralised by a first preference mortgage
on the Vessel to California Petroleum Transport Corporation. The earnings
and insurance relating to the Vessel have been collaterally assigned
pursuant to an Assignment of Earnings and Insurance to California Petroleum
Transport Corporation, which in turn has assigned such Assignment of
Earnings and Insurance to the Collateral Trustee. The Initial Charter and
Chevron Guarantee relating to the Vessel have been collaterally assigned
pursuant to the Assignment of Initial Charter and Assignment of Initial
Charter Guarantee to California Petroleum Transport Corporation, which in
turn has assigned such Assignment to the Collateral Trustee. The Capital
Stock of the Company has been pledged to California Petroleum Transport
Corporation pursuant to the Stock Pledge Agreement.
8. SHARE CAPITAL
Authorised share capital:
2005 2004
2 shares of $500 par value 1,000 1,000
======================================================================
Issued and outstanding share capital:
2005 2004
2 shares of $500 par value 1,000 1,000
======================================================================
9. FINANCIAL INSTRUMENTS
Fair values
The carrying value and estimated fair value of the Company's financial
instruments at December 31, 2005 and 2004 are as follows:
<table>
2005 2005 2004 2004
(in thousands of $) Carrying Fair Carrying Fair
Value Value Value Value
Cash and cash equivalents 1,837 1,837 2,951 2,951
7.60% Serial Loans maturing April 1, 2005 - - 5,210 5,256
8.52% Mortgage Loans due 2015 29,842 33,423 29,842 34,206
</table>
The methods and assumptions used in estimating the fair values of financial
instruments are as follows:
The carrying value of cash and cash equivalents, which are highly liquid,
is a reasonable estimate of fair value.
The estimated fair value for fixed rate debt is based on the quoted market
price of these or similar debt when available.
Concentrations of risk
The Company's only source of funds for the repayment of the principal and
interest on the Loans are from charterhire payments from Chevron,
investment income and the proceeds, if any, from the sale of the Vessel.
Accordingly, the Company's ability to service its obligations on the Loans
is wholly dependent upon the financial condition, results of operations and
cash flows from Chevron.
10. COMMITMENTS AND CONTINGENCIES
The Term and Serial Loans are collateralised by a first preference mortgage
on the Vessel to California Petroleum Transport Corporation. The earnings
and insurance relating to the Vessel have been collaterally assigned
pursuant to an Assignment of Earnings and Insurance to California Petroleum
Transport Corporation, which in turn has assigned such Assignment of
Earnings and Insurance to the Collateral Trustee. The Initial Charter and
Chevron Guarantee relating to the Vessel have been collaterally assigned
pursuant to the Assignment of Initial Charter and Assignment of Initial
Charter Guarantee to California Petroleum Transport Corporation, which in
turn has assigned such Assignment to the Collateral Trustee. The Capital
Stock of the Company has been pledged to California Petroleum Transport
Corporation pursuant to the Stock Pledge Agreement.
As at December 31, 2005, Chevron holds an option to purchase the Vessel for
$1 on April 1, 2015 provided the Initial Charter is still in place.
11. RELATED PARTY TRANSACTIONS
Pursuant to a management agreement, Frontline is the Company's Manager and
Technical Advisor. Under the management agreement, Frontline is entitled to
a Management Fee and a Technical Advisor's Fee.
Under the terms of the management agreement, the Management Fee consists of
a fee of $13,625 initially per annum for each Vessel, along with a fee of
$3,000 covering all four Vessels, payable semi-annually in arrears for the
period until the third anniversary of the closing of the Notes issue then
increasing by 4% on each subsequent anniversary of the closing of the issue
of the Notes.
The Technical Advisor's Fee was initially $10,000 per annum for each
Vessel, payable semi-annually in arrears, during the initial first three
year period as described above. On each subsequent anniversary of the
closing of the issue of the Notes, the fee will increase by 4%. In
addition, the Technical Advisor is entitled to be reimbursed for the fees,
costs and expenses of conducting periodic inspections of the Vessels.
Pursuant to a Designated Representative Agreement, CalPetro Holdings
Limited (the "Designated Representative") was appointed to represent
California Petroleum as its Designated Representative to act on its behalf
with respect to certain administrative matters such as the filing of
periodic reports and financial statements with the Securities and Exchange
Commission. The fee payable to the Designated Representative (the
"Designated Representative Fee") during the initial three year period
described above was $15,000 per annum with a 4% increase on each subsequent
anniversary of the closing of the issue of the Notes.
Management fee expenses and management fee payable as of December 31, 2005,
2004, and 2003 are as follows:
2005 2004 2003
Management fee expenses 38,120 36,654 43,800
Management fee payable 9,622 9,253 8,897
SIGNATURES
Subject to the requirements of Section 13 or 15(d) 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 authorised.
CalPetro Tankers (IOM) Limited
/s/ Kate Blankenship
----------------------------
Kate Blankenship
Director and Secretary
Date: June 30, 2006
SK 02089 0006 682077