UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
------------------------------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------------------------------------
Commission file number 033-79220
--------------------------------------------------------
California Petroleum Transport Corporation
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 04-3232976
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incoporation or organisation)
Suite 3218, One International Place, Boston, Massachusetts, 02110-2624
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(617)951-7690
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered or to be registered pursuant to section 12(g) of the Act.
None
- --------------------------------------------------------------------------------
(Title of class)
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
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
[_] Yes [X] No
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[X]
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 Non-accelerated
filer [_] Accelerated filer [_] filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
[_] Yes [X] No
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter.
None
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of February 28, 2007.
1,000 shares of Common Stock, $1 par value
DOCUMENTS INCORPORATED BY REFERENCE: None
CALIFORNIA PETROLEUM TRANSPORT CORPORATION
FORM 10-K
TABLE OF CONTENTS
Page
PART I
Item 1. Business............................................................1
Item 1A. Risk Factors........................................................4
Item 1B. Unresolved Staff Comments...........................................7
Item 2. Properties..........................................................8
Item 3. Legal Proceedings...................................................8
Item 4. Submission of Matters to a Vote of Security Holders.................8
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities...................8
Item 6. Selected Financial Data.............................................8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................9
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.........12
Item 8. Financial Statements and Supplementary Data........................14
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...........................................23
Item 9A. Controls and Procedures............................................23
Item 9B. Other Information..................................................23
PART III
Item 10. Directors and Executive Officers of the Registrant.................23
Item 11. Executive Compensation.............................................24
Item 12. Security Ownership of Certain Beneficial Owners And
Management and Related Stockholder Matters.........................24
Item 13. Certain Relationships and Related Transactions.....................24
Item 14. Principal Accountant Fees and Services.............................25
PART IV
Item 15. Exhibits and Financial Statement Schedules.........................25
Signatures 29
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.
California Petroleum Transport Corporation (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," "expect," "anticipate," "intends," "estimate,"
"forecast," "project," "plan," "potential," "will," "may," "should" 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,
including changes in demand resulting from 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
the Company with the Securities and Exchange Commission.
Item 1. Business
The Company
California Petroleum Transport Corporation, (the "Company") was incorporated in
Delaware in 1995. We are a special purpose corporation organised solely for the
purpose of issuing, as agent on behalf of the Owners (as defined below), term
mortgage notes and serial mortgage notes (together the "Notes") as obligations
of ours and loaning the proceeds of the sale to the Owners, by means of term and
serial loans, to facilitate the funding of the acquisition of the four vessels
(the "Vessels") described below in Item 2 from Chevron Transport Corporation, or
Chevron. All of our shares are held by The California Trust, a Massachusetts
charitable lead trust formed by JH Holdings, a Massachusetts corporation, for
the benefit of certain charitable institutions in Massachusetts.
Information about revenues, profits and total assets is provided in the
financial statements included in this report.
We have no employees.
The Owners
Each of CalPetro Tankers (Bahamas I) Limited ("CalPetro Bahamas I"), CalPetro
Tankers (Bahamas II) Limited ("CalPetro Bahamas II") and CalPetro Tankers
(Bahamas III) Limited ("CalPetro Bahamas III"), was organized as a special
purpose company under the laws of the Bahamas for the purpose of acquiring and
chartering one of the Vessels. Similarly, CalPetro Tankers (IOM) Limited
("CalPetro IOM") was organised as a special purpose company under the laws of
the Isle of Man for the purpose of acquiring and chartering one of the Vessels.
Each of the foregoing companies is also referred to in this document as an
"Owner". Each Owner will only engage in the business of the ownership and
chartering of its Vessel in addition to activities resulting from or incidental
to such ownership and chartering. Each Owner is an ultimate wholly-owned
subsidiary of Frontline Ltd. or Frontline, a publicly listed Bermuda company.
None of the Owners is owned by, or is affiliated with, us and neither we nor any
Owner is owned by or is an affiliate of Chevron.
The Charters
Three of the Vessels, the Cygnus Voyager, the Altair Voyager and the Sirius
Voyager are currently chartered to Chevron under bareboat charters dated as of
the date of the original issuance of the Notes (collectively, the "Chevron
Charters") and which are due to expire on April 1, 2015. The Virgo Voyager is
currently chartered to Front Voyager Inc., for a period of two years expiring on
April 1, 2008 under a bareboat charter dated as of March 31, 2006 (the "Front
Voyager Charter"). We refer to the Chevron Charters and the Front Voyager
Charter collectively as the Charters.
Under the Chevron charters, Chevron can elect to terminate the Charter on any of
three termination dates occurring at two-year intervals that began in 2003,
2004, 2005 or 2006 as the case may be. 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. Chevron is required to pay each
Owner a termination payment (the "Termination Payment") on or prior to the
remaining termination dates as follows:
(In millions of $)
Optional Cygnus Altair Sirius
Termination Date Voyager Voyager Voyager
April 1, 2007 11.12 9.91
April 1, 2008 10.03
April 1, 2009 9.97 8.89
April 1, 2010 8.94
April 1, 2011 7.88
On April 21, 2005, one of the Owners, CalPetro Bahamas III received irrevocable
notice from Chevron regarding the termination of its bareboat charter of the
vessel Virgo Voyager on April 1, 2006 pursuant to that charter's terms. On April
1, 2006, the Virgo Voyager was redelivered to the Owner and immediately
delivered to Front Voyager Inc, a wholly owned subsidiary of Frontline for an
initial two year period (the "Initial Period") under the Front Voyager Charter
which provides for prepaid charterhire of $5.05 million for the two years ended
April 1, 2008. The Front Voyager Charter contains seven annual options to extend
the charter after April 1, 2008 and provides sufficient funds to allow CalPetro
Bahamas III to satisfy its obligations to make mandatory sinking fund payments
and to pay all related expenses.
Under the Front Voyager Charter, if Front Voyager Inc. does not exercise any
charter extension option or if the Front Voyager Charter is otherwise
terminated, Front Voyager Inc. is obligated to pay CalPetro Bahamas III an
amount, after accounting for the termination fee, Initial Period charterhire and
all expenses incurred to recharter the vessel that is sufficient to cover:
(a) the principal and interest due on the serial and term loans from
California Petroleum based on the revised sinking fund schedule that
took effect when the charter was terminated by Chevron;
(b) any recurring fees and taxes for the vessel;
(c) the management fee and technical advisor's fees allocated to the
Owner;
(d) the amount of fees and expenses of the Indenture Trustee, trustee fees
and designated representative fees allocable to the Owner; and
(e) an amount equal to at least 30% of the estimated annual amounts above
to cover miscellaneous and unexpected expenses.
If the Front Voyager Charter is extended, Front Voyager Inc. is to pay the
Owner, on or before the date of the extension, an additional amount equal to the
lesser of:
(i) the amount of principal and interest on the mortgage term loan that
will become due in the period of the extension; or
(ii) the amount that provides sufficient funds to pay in full all amounts
due under the revised sinking fund schedule after taking into account
prior amounts of prepaid charterhire, termination fees and expenses to
recharter the vessel.
If any of the charter agreements are terminated and an acceptable replacement
charter cannot be found, Frontline will solicit bids for the sale of the vessel.
If there are no bids that provide net proceeds that, together with the
termination payment, at least equal the allocated principal amount of the
Company's term mortgage notes plus any interest accrued, Frontline will forward
to the appointed Indenture Trustee copies of all bids for the recharter of the
vessel. Unless instructed by all the holders of the Term Mortgage Notes to
accept a sale bid that is below the required minimum bid, Frontline will attempt
to recharter the vessel on such terms as it deems appropriate provided that:
(i) such charter is at arms length;
(ii) such charter shall have a termination date no later than April 1,
2015; and
(iii) the charterhire payable is sufficient to make the mandatory sinking
fund payments together with all related interest, recurring fees and
taxes for the vessel and the cost of insurance not maintained by the
charterer, management fees and technical advisor's fees and the fees
of the designated representative, the indenture trustee and the
collateral trustee as defined in the prospectus for the Registrant's
8.52% First Preferred Mortgage Notes due 2015.
As af March 29, 2007, no termination notices have been received from Chevron for
the remaining Chevron Charters.
The International Tanker Market
The market for international seaborne crude oil transportation services is
highly fragmented and competitive. Seaborne crude oil transportation services
are generally 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, the primary charterers of the vessels owned or controlled by
the Owners, 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 the Owners 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:
o Ultra large crude carriers "ULCC" -size range of approximately 320,000
to 450,000 deadweight tons (dwt);
o Very large crude carriers "VLCC" -size range of approximately 200,000
to 320,000 dwt;
o Suezmax-size range of approximately 120,000 to 200,000 dwt;
o Aframax-size range of approximately 60,000 to 120,000 dwt; and
o 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
charter hire rates are strongly influenced by the supply and demand for shipping
capacity.
Available Information
We are 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 ("SEC"). These
materials, including this annual report and the accompanying exhibits, may be
inspected and copied at the public reference facilities maintained by the SEC at
100 F Street, N.E., Washington, DC 20549. You may obtain information on the
operation of the public reference room by calling 1 (800) SEC-0330. 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 our principal executive offices at Suite 3218,
One International Place, Boston, Massachusetts, 02110-2624 or at the offices of
our manager at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, Bermuda HM
08.
Item 1A. Risk Factors
Our capitalization is nominal and we have no source of income other than
payments by the Owners who are foreign corporations as described above. As a
result, we are exposed to the same risk factors affecting the Owners. The
following is a summary of some of the risks which may adversely affect our
business, financial condition or results of operations. Our potential losses due
to exposure to the following risk factors are difficult to quantify.
The cyclical nature of the tanker industry may lead to volatile changes in
charter rates, which may adversely affect the earnings of the Owners
Three of the Vessels are currently operated under the Chevron Charters. The
Chevron Charters each have a term expiring on April 1, 2015, subject to Chevron
having an option to terminate the Charters at earlier dates as discussed above.
On April 21, 2005, Chevron gave irrevocable notice of intention to exercise its
first termination option effective April 1, 2006 on the single hull vessel,
Virgo Voyager. Pursuant to a bareboat charter agreement between Bahamas III and
Front Voyager Inc., Front Voyager Inc. agreed to charter the Virgo Voyager as of
April 1, 2006 for an initial two year period with a further seven annual
optional periods. We refer to Chevron and Frontline as the charterers.
If the tanker industry, which has been cyclical, is depressed in the future when
the Charters expire or are terminated, the earnings and available cash flow of
the Owners may decrease. The Owners' ability to re-charter the Vessels on the
expiration or termination of the current Charters 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 petroleum and petroleum products. The
Owners may not be able to arrange further charters at rates sufficient to meet
interest and principal payments due to us on the serial and term loans. Should
the Owners default on payment of this interest and principal, the value of
collateral to the serial and term loans may be insufficient to repay the Notes.
Because the Owners' Charters may expire or be terminated, they may incur
additional expenses and not be able to re-charter the Vessels profitably
As discussed above, Chevron may elect to terminate their Chevron Charters on
certain termination dates and on April 21, 2005 irrevocable notice of Chevron's
intention to exercise its first termination option on the single hulled vessel
Virgo Voyager was received. In addition, Front Voyager Inc. may elect not to
exercise its annual renewal options.
We cannot predict at this time any of the factors that the charterers will
consider in deciding whether to exercise any of their remaining termination or
renewal options under the Charters. It is likely, however, that the charterers
would consider a variety of factors, which may include whether a vessel is
suitable to their requirements and whether competitive charterhire rates are
available in the open market at that time.
In the event that the charterers terminate any of the remaining Charters, they
are required under the terms of the Charter to make a termination payment to the
relevant vessel owner. The amount of the termination payment is not expected to
be sufficient to cover the Owners' obligations to us under the Notes. If the
charterers terminate the Charter, the Owners will attempt to arrange a
replacement charter, or may sell the Vessel to satisfy its obligations under the
serial and term loans. We cannot assure you that the Owner will be able to meet
these obligations upon the termination of a charter. 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 the Owners lower charter rates and would likely
require them to incur greater expenses which may reduce the amounts available,
if any, to pay principal and interest on the serial and term loans due to us.
Should the Owners default on payment of this interest and principal, the value
of collateral to the serial and term loans may be insufficient to repay the
Notes.
Front Voyager Inc. one of our current charterers, is a wholly owned subsidiary
of, Frontline, which also is our manager and as such conflicts of interest might
arise where Frontline would favor its own interests over ours
Front Voyager Inc. the current charterer of the Virgo Voyager, is a wholly owned
subsidiary of Frontline. As such, situations might arise where Frontline may
favor its own interest to the detriment of the Virgo Voyager's owner, CalPetro
Bahamas III, or the Company's security holders. Possible conflicts of interest
may arise in re-negotiation of our charter with Front Voyager Inc. or
negotiations of disputes arising from the Front Voyager Charter, where Frontline
may act in its own best interests and not our best interests.
The Owners operate in the highly competitive international tanker market which
could affect their position at the end of the current Charters or if the
charterers terminate the Charters earlier
As discussed in Item 1, the operation of tanker vessels and transportation of
crude and petroleum products is an extremely competitive business. During the
term of the existing Charters with the charterers, the Owners are not exposed to
the risk associated with this competition. At the end of the current Charters or
in the event that the charterers terminate any charter at any of the optional
termination dates, the Owners 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 the Owners achieving lower revenues from their suezmax oil tankers
which will reduce the amounts available, if any, to pay the principal and
interest on the serial and term loans due to us. Should the Owners default on
payment of this interest and principal, the value of collateral to the serial
and term loans may be insufficient to repay the Notes.
Safety, environmental and other governmental and other requirements expose us to
liability, and compliance with current and future regulations could require
significant additional expenditures, which could have a material adverse affect
on our business and financial results.
The Owners' operations are affected by extensive and changing international,
national, state and local laws, regulations, treaties, conventions and standards
in force in international waters, the jurisdictions in which the Vessels operate
and the country or countries in which such vessels are registered, including
those governing the management and disposal of hazardous substances and wastes,
the cleanup of oil spills and other contamination, air emissions, and water
discharges and ballast water management. These regulations include the U.S. Oil
Pollution Act of 1990, or OPA, the International Convention on Civil Liability
for Oil Pollution Damage of 1969, International Convention for the Prevention of
Pollution from Ships, the IMO International Convention for the Safety of Life at
Sea of 1974, or SOLAS, the International Convention on Load Lines of 1966 and
the U.S. Marine Transportation Security Act of 2002. In addition, vessel
classification societies also impose significant safety and other requirements
on our vessels. In complying with current and future environmental requirements,
the Owners may also incur significant additional costs in meeting new
maintenance and inspection requirements, in developing contingency arrangements
for potential spills and in obtaining insurance coverage. Government regulation
of vessels, particularly in the areas of safety and environmental requirements,
can be expected to become stricter in the future and require us to incur
significant capital expenditures on our vessels to keep them in compliance, or
even to scrap or sell certain vessels altogether.
Many of these requirements are designed to reduce the risk of oil spills and
other pollution, and our compliance with these requirements can be costly. These
requirements also can affect the resale value or useful lives of the Owners
vessels', require a reduction in cargo-capacity, ship modifications or
operational changes or restrictions, lead to decreased availability of insurance
coverage for environmental matters or result in the denial of access to certain
jurisdictional waters or ports, or detention in, certain ports.
Under local, national and foreign laws, as well as international treaties and
conventions, the Owners could incur material liabilities, including cleanup
obligations, natural resource damages and third-party claims for personal injury
or property damages, in the event that there is a release of petroleum or other
hazardous substances from our vessels or otherwise in connection with our
current or historic operations. The Owners could also incur substantial
penalties, fines and other civil or criminal sanctions, including in certain
instances seizure or detention of our vessels, as a result of violations of or
liabilities under environmental laws, regulations and other requirements.
For example, OPA affects all vessel owners shipping oil to, from or within the
United States. OPA allows for potentially unlimited liability without regard to
fault for owners, operators and bareboat charterers of vessels for oil pollution
in United States waters. Similarly, the International Convention on Civil
Liability for Oil Pollution Damage, 1969, as amended, which has been adopted by
most countries outside of the United States, imposes liability for oil pollution
in international waters. OPA expressly permits individual states to impose their
own liability regimes with regard to hazardous materials and oil pollution
incidents occurring within their boundaries. Coastal states in the United States
have enacted pollution prevention liability and response laws, many providing
for unlimited liability.
Compliance with extensive and changing environmental laws and other regulations
may entail significant expenses including expenses for ship modifications and
changes in operating procedures and therefore affect the operation of the
Vessels. Although the charterers are responsible for all operational matters and
bear all these expenses during the term of the current Charters, these expenses
could have an adverse effect on the Owners' business operations at any time
after the expiration or termination of the Charters or in the event the
charterers fail to make a necessary payment.
An acceleration of the current prohibition to trade deadlines for non-double
hull tankers could adversely affect the Owners operations
One of the Vessels is a non-double hull tanker. The United States, the European
Union and the International Maritime Organization, or IMO, have all imposed
limits or prohibitions on the use of these types of tankers in specified markets
after certain target dates, depending on certain factors such as the size of the
vessel and the type of cargo. In the case of our non-double hull tankers, these
phase out dates range from 2010 to 2015. As of April 15, 2005, the Marine
Environmental Protection Committee of the IMO has amended the International
Convention for the Prevention of Pollution from Ships to accelerate the phase
out of certain categories of single hull tankers, including the types of vessels
in our fleet, from 2015 to 2010 unless the relevant flag states extend the date.
This change could result in non-double hull tankers being unable to trade in
many markets after 2010. The phase out of single hull tankers will also reduce
the demand for single hull tankers, force the remaining single hull tankers into
employment on less desirable trading routes and increase the number of tankers
trading on those routes. As a result, single hull tankers are likely to be
chartered less frequently and at lower rates. Moreover, the IMO may still adopt
regulations in the future that could adversely affect the useful life of the
non-double hull vessel as well as the Owner's ability to generate income which
will affect the Owner's ability to service its debt to us.
The Owners may not have adequate insurance in the event existing charters are
terminated
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 Charters, the charterers
bear all risks associated with the operation of the Vessels including the total
loss of the Vessels. However, we cannot assure holders of the Notes that the
Owners will adequately insure against all risks or in the event the Charters
expire or are terminated. The Owners may not be able to obtain adequate
insurance coverage at reasonable rates for the Vessels in the future and the
insurers may not pay particular claims.
The Owners are highly dependent on Chevron and Chevron Corporation and Frontline
The Owners are highly dependent on the due performance by Chevron and Front
Voyager Inc. of their obligations under the Charters and by Chevron's guarantor,
the Chevron Corporation, of its obligations under its guarantee. A failure by
Chevron, Chevron Corporation or Front Voyager Inc. to perform their obligations
could result in the inability of the Owners 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.
The Owners may not be able to pay down their debt in the future
Currently, the Owners must dedicate a large portion of their cash flow from
operations to satisfy their debt service obligations to us. Their ability to pay
interest on, and other amounts due in respect of, the serial and term loans will
depend on their future operating performance, prevailing economic conditions and
financial, business and other factors, many of which are beyond their control.
There can be no assurance that their cash flow and capital resources will be
sufficient for payment of their indebtedness in the future. If the Owners are
unable to service their indebtedness or obtain additional financing, as needed,
this could have a material adverse effect on the holders of the Notes.
Governments could requisition the Vessels during a period of war or emergency,
resulting in a loss of earnings
A government could requisition for title or seize the Vessels. Requisition for
title occurs when a government takes control of a vessel and becomes her owner.
Also, a government could requisition the Vessels 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 the Vessels would
negatively impact the revenues of the Owners and therefore impact their ability
to service the debt due to us.
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 exists for the Notes or that any market for
the Notes will be liquid.
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
We have no property. The serial and term loans granted to the Owners are
collateralised by first preferred mortgages over the property of the Owners as
outlined below. The Owners paid approximately $80.7 million for each
double-hulled Vessel and $40.0 million for the single-hulled Vessel in 1995.
Other than the Vessels described below, the Owners have no property.
- --------------------------------------------------------------------------------
Vessel Construction Registration Delivery Date Approximate dwt.
- --------------------------------------------------------------------------------
Cygnus Voyager Double-hull Bahamas March 1993 150,000
- --------------------------------------------------------------------------------
Altair Voyager Double-hull Bahamas August 1993 130,000
- --------------------------------------------------------------------------------
Sirius Voyager Double-hull Bahamas October 1994 150,000
- --------------------------------------------------------------------------------
Virgo Voyager Single-hull Bahamas February 1992 150,000
- --------------------------------------------------------------------------------
Item 3. Legal Proceedings
We are not a party to any material pending legal proceedings other than ordinary
routine litigation incidental to our business, to which we are a party or of
which our property is the subject. In the future, we may be subject to legal
proceedings and claims in the ordinary course of business which, even if lacking
merit, could result in the expenditure by us of significant financial and
managerial resources.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of the fiscal year ended
December 31, 2006.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
(a) There is no established trading market for the Common Stock of the
Registrant.
(b) As of February 28, 2007, with respect to the Common Stock, there was one
(1) holder of record of the Registrant's Common Stock.
(c) There were no repurchases of the Common Stock of the Registrant.
Item 6. Selected Financial Data
The selected statement of operations and retained earnings data of the Company
with respect to the fiscal years ended December 31, 2006, 2005 and 2004, and the
balance sheet data as at December 31, 2006 and 2005 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 fiscal years ended
December 31, 2003 and 2002 and the selected balance sheet data as at December
31, 2004, 2003 and 2002 have been derived from audited financial statements of
the Company not included herein.
Year ended December 31,
($'000s except per share data) 2006 2005 2004 2003 2002
- ------------------------------ ---- ---- ---- ---- ----
Total operating revenues 8,798 9,793 10,922 12,450 13,808
Net income - - - - -
Net income per share - - - - -
Total assets 100,625 112,905 127,483 144,090 162,618
Long term liabilities 88,381 98,477 110,533 124,815 141,120
Cash dividends declared per share - - - - -
The following table sets forth a summary of quarterly unaudited results of
operations for the years ended December 31, 2006 and 2005.
($'000s) First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2006
Operating revenues 2,390 2,142 2,120 2,146
Expenses (2,390) (2,142) (2,120) (2,146)
Net income 2005 - - - -
Operating revenues 2,643 2,398 2,376 2,376
Expenses (2,643) (2,398) (2,376) (2,376)
Net income - - - -
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Business Strategy
California Petroleum
We were organised to issue, as agent on behalf of the Owners, the Notes and
subsequently loan the proceeds of the sale to the Owners. Our only sources of
funds with respect to the Notes are receipts of principal and interest on the
related loans receivable from each Owner. General and administrative expenses
comprising trustee fees, legal fees, agency fees and other costs incurred by us
are billed to the Owners. The net result for the year is neither a gain nor a
loss, the detail relating to such result is set forth in the Statement of
Operations and Retained Earnings included herein.
The Owners
The Owners' strategy has been to acquire the Vessels and charter them to Chevron
and Frontline under bareboat charters which are expected to provide:
a) charterhire payments which we and the Owners expect will be sufficient to
pay, so long as the Charters are in effect:
i. the Owners' obligations under the loans for acquiring the
Vessels,
ii. management fees and technical advisor's fees,
iii. recurring fees and taxes, and
iv. any other costs and expenses incidental to the ownership and
chartering of the Vessels that are to be paid by the Owners;
b) termination payments sufficient to make sinking fund and interest payments
on the term mortgage notes, to the extent allocable to the Vessel for which
the related Charter has been terminated, for at least two years following
any such termination, during which time the Vessel may be sold or
rechartered; and
c) that the Vessels will be maintained in accordance with the good commercial
maintenance practices required by the Charters; and to arrange for vessel
management and remarketing services to be available in case any Charter is
terminated by Chevron or Frontline, or any Vessel is for any other reason
returned to the possession and use of the Owners.
As of February 28, 2007, notice had not been received from Chevron regarding the
termination of the remaining Charters.
Results of Operations
Year ended December 31, 2006 compared to the year ended December 31, 2005
Interest income
(in thousands of $) 2006 2005
Interest income 8,729 9,771
- --------------------------------------------------------------------------------
Interest income has decreased in 2006 compared to the same periods in 2005
primarily due to a decrease in the principal balance of loans receivable. On
April 1, 2006 the Owners repaid a total principal of $12.1 million on the Loans.
As of December 31, 2006 the Serial Loans were fully paid.
Expenses reimbursed
(in thousands of $) 2006 2005
Expenses reimbursed 69 22
- --------------------------------------------------------------------------------
Administrative expenses are higher in 2006 as a result of increased audit fees.
Interest expense
(in thousands of $) 2006 2005
Interest expense (8,641) (9,681)
- --------------------------------------------------------------------------------
Interest expense has decreased compared to 2005 primarily due to a decrease in
the principal balance of the Notes. On April 1, 2006 we repaid a total principal
of $12.1 million on the Notes. As of December 31, 2006 the Serial Notes were
fully paid.
Administrative expenses
(in thousands of $) 2006 2005
Administrative expenses (69) (22)
- --------------------------------------------------------------------------------
General and administrative expenses comprising trustee fees, audit fees and
other costs incurred by us are billed to the Owners. Refer to the discussion
above on administrative expenses reimbursed.
Year ended December 31, 2005 compared to the year ended December 31, 2004
Interest income
(in thousands of $) 2005 2004
Interest income 9,771 10,865
- --------------------------------------------------------------------------------
Interest income has decreased in 2005 compared to the same periods in 2004
primarily due to a decrease in the principal balance of loans receivable.
Expenses reimbursed
(in thousands of $) 2005 2004
Expenses reimbursed 22 57
- --------------------------------------------------------------------------------
Administrative expenses are higher in 2004 as compared to 2005 as 2004 includes
an additional billing for audit fees in respect of the 2003 year of $25,000.
Interest expense
(in thousands of $) 2005 2004
Interest expense (9,681) (10,609)
- --------------------------------------------------------------------------------
Interest expense has decreased compared to 2004 primarily due to a decrease in
the principal balance of the Notes.
General and Administrative Expenses
(in thousands of $) 2005 2004
General and Administrative expenses (22) (57)
- --------------------------------------------------------------------------------
General and administrative expenses comprising trustee fees, audit fees and
other costs incurred by us are billed to the Owners. Refer to the discussion
above on administrative expenses.
Liquidity and Capital Resources
We are a passive entity, and our activities are limited to collecting cash from
the Owners and making repayments on the Notes. We have no source of liquidity
and no capital resources other than the cash receipts attributable to the serial
and term loans.
Critical Accounting Policies
Our principal accounting policies are described in Note 2 to the financial
statements included in Item 8 of this Form 10-K.
Recently Issued Accounting Standards
In September 2006, the United States Securities and Exchange Commission ("SEC")
issued SAB No. 108 "Considering the Effects of Prior Year Misstatements When
Quantifying Misstatements in Current Year Financial Statements", which provides
interpretative guidance on how registrants should quantify financial statement
misstatements. Under SAB 108 registrants are required to consider both a
"rollover" method, which focuses primarily on the income statement impact of
misstatements, and the "iron curtain" method, which focuses primarily on the
balance sheet impact of misstatements. The effects of prior year uncorrected
errors include the potential accumulation of improper amounts that may result in
material misstatement on the balance sheet or the reversal of prior period
errors in the current period that result in a material misstatement of the
current period income statement amounts. Adjustments to current or prior period
financial statements would be required in the event that after application of
various approaches for assessing materiality of a misstatement in a current
period financial statements and consideration of all relevant quantitative and
qualitative factors, a misstatement is determined to be material. We adopted the
provisions of SAB 108 as of December 31, 2006. The adoption of SAB 108 did not
have a material effect on the Company's results of operations or financial
position.
There were no new accounting standards that would have an impact on our results.
Tabular disclosure of contractual obligations
As at December 31, 2006, we had the following contractual obligations and
commitments:
Payments due by period
Less than 1-3 3-5 More than
(in $'000) 1 year years years 5 years Total
- --------------------------------------------------------------------------------
Term Mortgage Notes
Notes (8.52%) 10,096 20,342 20,572 47,467 98,477
- --------------------------------------------------------------------------------
Total contractual
obligations 10,096 20,342 20,572 47,467 98,477
- --------------------------------------------------------------------------------
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
None of the instruments issued by us are for trading purposes. We are exposed to
business risk inherent in the international tanker market as outlined in Risk
Factors.
Quantitative information about the instruments as at December 31, 2006 is as
follows:
Term Loans
The principal balances of the term loans made to the Owners earn interest at a
rate of 8.52% per annum and are to be repaid over a remaining ten-year period
beginning April 1, 2006. The loans are reported net of the related discounts,
which are amortised over the term of the loans.
The table below provides the final principal payments on the term loans if none
of the Charters is terminated and if all of the Charters are terminated on the
earliest remaining termination dates.
Scheduled No initial All initial
payment date charters charters
terminated terminated
$'000 $'000
April 1, 2007 10,942 8,609
April 1, 2008 10,942 5,850
April 1, 2009 10,942 6,350
April 1, 2010 10,942 6,890
April 1, 2011 10,942 7,480
April 1, 2012 10,942 8,110
April 1, 2013 10,942 8,800
April 1, 2014 10,942 9,550
April 1, 2015 10,941 36,838
- --------------------------------------------------------------------------------
98,477 98,477
================================================================================
The outstanding amount of term loans at December 31, 2006 was $98,477,000.
Serial Loans
The principal balance of the serial loan made to the Owners earned interest at
7.62% and matured on April 1, 2006.
Item 8. Financial Statements and Supplementary Data
Page
Report of Registered Public Accounting Firm 15
Balance Sheets as of December 31, 2006 and 2005 16
Statements of Operations and Retained Earnings
for the Years Ended December 31, 2006, 2005 and 2004 17
Statements of Cash Flows for the Years Ended
December 31, 2006, 2005 and 2004 18
Notes to Financial Statements 19
Report of Registered Public Accounting Firm
To the Board of Directors
California Petroleum Transport Corporation
We have audited the accompanying balance sheets of California Petroleum
Transport Corporation as of December 31, 2006 and 2005 and the related
statements of operations and retained earnings, and cash flows for each of the
three years in the period ended December 31, 2006. 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 audits 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. The Company is not required to
have, nor were we engaged to perform an audit of its 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, as well as evaluating the overall
financial statement presentation. We believe that our audits provide 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 California Petroleum Transport
Corporation as of December 31, 2006 and 2005 and the results of its operations
and cash flows for each of the three years in the period ended December 31, 2006
in conformity with accounting principles generally accepted in the United States
of America.
Grant Thornton LLP
New York, New York
April 11, 2007
California Petroleum Transport Corporation
Balance Sheets as of December 31, 2006 and 2005
(in thousands of US$)
2006 2005
ASSETS
Current assets:
Cash and cash equivalents 1 1
Current portion of serial loans receivable - 2,530
Current portion of term loans receivable 10,096 9,526
Interest receivable 2,098 2,349
Other current assets 49 22
- --------------------------------------------------------------------------------
Total current assets 12,244 14,428
Term loans receivable, less current portion 87,651 97,659
Deferred charges and other long-term assets 730 818
- --------------------------------------------------------------------------------
Total assets 100,625 112,905
================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accrued interest 2,098 2,349
Current portion of serial mortgage notes - 2,530
Current portion of term mortgage notes 10,096 9,526
Other current liabilities 49 22
- --------------------------------------------------------------------------------
Total current liabilities 12,243 14,427
Term mortgage notes, less current portion 88,381 98,477
- --------------------------------------------------------------------------------
Total liabilities 100,624 112,904
Stockholder's equity
Share capital 1 1
- --------------------------------------------------------------------------------
Total liabilities and stockholder's equity 100,625 112,905
================================================================================
See accompanying notes to the financial statements.
California Petroleum Transport Corporation
Statements of Operations and Retained Earnings for the years ended December 31,
2006, 2005 and 2004
(in thousands of US$)
2006 2005 2004
Revenue
Interest income 8,729 9,771 10,865
Expenses reimbursed 69 22 57
- --------------------------------------------------------------------------------
Total operating revenues 8,798 9,793 10,922
- --------------------------------------------------------------------------------
Expenses
General and administrative expenses (69) (22) (57)
Amortization of debt issue costs (88) (90) (256)
Interest expense (8,641) (9,681) (10,609)
- --------------------------------------------------------------------------------
(8,798) (9,793) (10,922)
- --------------------------------------------------------------------------------
Net income - - -
Retained earnings, beginning of year - - -
- --------------------------------------------------------------------------------
Retained earnings, end of year - - -
================================================================================
See accompanying notes to the financial statements.
California Petroleum Transport Corporation
Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004
(in thousands of US$)
2006 2005 2004
Net income - - -
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred debt issue costs 88 90 256
Changes in operating assets and liabilities:
Interest receivable 251 286 309
Other current assets (27) 10 (7)
Accrued interest (251) (286) (309)
Other current liabilities 27 (10) 7
- --------------------------------------------------------------------------------
Net cash provided by operating activities 88 90 256
- --------------------------------------------------------------------------------
Cash flows from investing activities
Collections on loans receivable 12,056 14,192 16,049
- --------------------------------------------------------------------------------
Net cash provided by investing activities 12,056 14,192 16,049
- --------------------------------------------------------------------------------
Cash flows from financing activities
Repayments of mortgage notes (12,144) (14,282) (16,305)
- --------------------------------------------------------------------------------
Net cash used in financing activities (12,144) (14,282) (16,305)
- --------------------------------------------------------------------------------
Net change in cash and cash equivalents - - -
Cash and cash equivalents at beginning of year 1 1 1
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of year 1 1 1
- --------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid 8,892 9,968 11,173
See accompanying notes to the financial statements.
California Petroleum Transport Corporation
Notes to Financial Statements
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
California Petroleum Transport Corporation (the "Company"), which is
incorporated in Delaware, is a special purpose corporation that was organised
solely for the purpose of issuing, as agent on behalf of CalPetro Tankers
(Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers
(Bahamas III) Limited and CalPetro Tankers (IOM) Limited (each an "Owner" and,
together the "Owners"), serial mortgage notes and the term mortgage notes
(together, "the Notes") as full recourse obligations of the Company and loaning
the proceeds of the sale of the Notes to the Owners by means of serial loans
("Serial Loans") and term loans ("Term Loans"), to facilitate the funding of the
acquisition of four vessels (the "Vessels") from Chevron Transport Corporation
("Chevron").
The Owners have chartered three of the Vessels to Chevron until 2015 under
bareboat charters that are expected to provide sufficient payments to cover the
Owners' obligations to the Company. Chevron can terminate a charter at specified
dates prior to the expiration of the charter, provided that it gives the Owner
the requisite notice.
On April 21, 2005, pursuant to Clause 2 (a) (ii) of the bareboat charter dated
April 5, 1995 between CalPetro Tankers (Bahamas III) Limited and Chevron, the
Owner received irrevocable notice from Chevron regarding the termination of the
bareboat charter of the vessel Virgo Voyager a single hulled vessel on April 1,
2006. Under the terms of the bareboat charter between Chevron and Bahamas III,
Chevron paid a termination fee of $5,050,000. As manager to CalPetro (Bahamas
III), Frontline Ltd ("Frontline") was obligated to find an acceptable
replacement charter as defined by the indenture governing the issue of the Notes
that were issued on behalf of the Bahamas III and three affiliated companies.
Pursuant to a bareboat charter agreement between CalPeto (Bahamas III) and Front
Voyager Inc, a wholly owned subsidiary of Frontline, Front Voyager Inc agreed to
charter the Virgo Voyager as of April 1, 2006 for an initial two year period
(the "Initial Period") with a further seven annual optional periods. The
charterhire payable for the Initial Period was $5,050,000 which was prepaid in
full on March 31, 2006.
The Virgo Voyager is a single hull vessel. The United States, the European Union
and the International Maritime Organisation, or the IMO, have all imposed limits
or prohibitions on the use of these types of tankers in specified markets after
certain target dates which range from 2010 to 2015. In December 2003, the Marine
Environmental Protection Committee of the IMO adopted a proposed amendment to
the International Convention for the Prevention of Pollution from Ships to
accelerate the phase out of single hull tankers from 2015 to 2010 unless the
relevant flag states extend the date to 2015. Management do not know whether the
non-double hull vessel will be subject to this accelerated phase-out, but this
change could result in the Vessel being unable to trade in many markets after
2010. Moreover, the IMO may still adopt regulations in the future that could
adversely affect the useful life of the non-double hull vessel as well as the
Owner's ability to generate income which will affect the Owner's ability to
service its debt to us.
The Company's only source of funds with respect to the Notes is the payment of
the principal and interest on the loans by the Owners. The Company does not have
any other source of capital for payment of the Notes. The Owners' only sources
of funds with respect to its obligation to the Company are the payments by
Chevron and Frontline, including termination payments and investment income. The
Owners do not have any other source of capital for payment of the loans
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP). These
statements reflect the net proceeds from the sale of the Term Mortgage Notes
together with the net proceeds from sale of the Serial Mortgage Notes having
been applied by way of long-term loans to the Owners to fund the acquisition of
the Vessels from Chevron.
2. PRINCIPAL ACCOUNTING POLICIES
(a) Revenue and expense recognition
Interest receivable on the Serial Loans and on the Term Loans is accrued on
a daily basis. Interest payable on the Serial Mortgage Notes and on the
Term Mortgage Notes is accrued on a daily basis. The Owners reimburse the
Company for general and administrative expenses incurred on their behalf.
(b) Deferred charges
Deferred charges represent the capitalisation of debt issue costs. These
costs are amortized over the term of the Notes to which they relate on a
straight line basis.
(c) Reporting currency
The reporting and functional currency is the United States dollar.
(d) Use of estimates
The preparation of financial statements in accordance with US GAAP 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 those estimates.
In September 2006, the United States Securities and Exchange Commission
("SEC") issued SAB No. 108 "Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year Financial
Statements", which provides interpretative guidance on how registrants
should quantify financial statement misstatements. Under SAB 108
registrants are required to consider both a "rollover" method, which
focuses primarily on the income statement impact of misstatements, and the
"iron curtain" method, which focuses primarily on the balance sheet impact
of misstatements. The effects of prior year uncorrected errors include the
potential accumulation of improper amounts that may result in material
misstatement on the balance sheet or the reversal of prior period errors in
the current period that result in a material misstatement of the current
period income statement amounts. Adjustments to current or prior period
financial statements would be required in the event that after application
of various approaches for assessing materiality of a misstatement in a
current period financial statements and consideration of all relevant
quantitative and qualitative factors, a misstatement is determined to be
material. We adopted the provisions of SAB 108 as of December 31, 2006. The
adoption of SAB 108 did not have a material effect on the Company's results
of operations or financial position.
3. SERIAL LOANS
The final tranche of the principal balances of the Serial Loans earned
interest at 7.62% and matured on April 1, 2006.
4. TERM LOANS
The principal balances of the Term Loans earn interest at a rate of 8.52%
per annum and are to be repaid over a remaining ten-year period beginning
April 1, 2006. The loans are reported net of the related discounts, which
are amortised over the term of the loans.
5. TERM LOANS COLLATERAL
The Term Loans are collateralised by first preferred mortgages on the
Vessels to the Company. The earnings and insurance relating to the Vessels
subject to the charters with Chevron have been collaterally assigned
pursuant to an assignment of earnings and insurance to the Company, which
in turn has assigned such assignment of earnings and insurance to JP Morgan
Trust Company, National Association (formerly the Chemical Trust Company of
California) as the collateral trustee (the "Trustee"). The charters with
Chevron and Chevron Guarantees (where the obligations of Chevron are
guaranteed by Chevron Corporation) relating to the Vessels have been
collaterally assigned pursuant to the assignment of initial charter and
assignment of initial charter guarantee to the Company, which in turn has
assigned such assignments to the collateral trustee. The Capital stock of
each of the Owners has been pledged to the Company pursuant to stock pledge
agreements which have also been collaterally assigned to the Trustee.
The Virgo Voyager was bareboat chartered to Front Voyager Inc. as of April
1, 2006 upon its redelivery from Chevron by virtue of a bareboat charter
dated March 31, 2006 by and between CalPetro Bahamas III and Front Voyager
Inc. (the "Front Voyager Charter"). The earnings and insurance relating to
the Front Voyager Charter has been collaterally assigned pursuant to an
assignment of earnings and insurance to the Company, which in turn has
assigned such assignment of earnings and insurance to the trustee. The
Front Voyager Charter has been collaterally assigned pursuant to an
assignment of charter to the Company, which in turn has assigned such
assignment to the trustee.
6. DEFERRED CHARGES
Deferred charges represent the capitalization of debt issue costs. These
costs are amortized on a straight line basis over the term of the Notes to
which they relate. The deferred charges are comprised of the following
amounts:
(in thousands of $) 2006 2005
Debt arrangement fees 3,400 3,400
Accumulated amortization (2,670) (2,582)
---------------------------------------------------------------------------
730 818
===========================================================================
7. DEBT
(in thousands of $) 2006 2005
7.62% Serial Mortgage Notes due 2006 - 2,530
8.52% Term Mortgage Notes due 2015 98,477 108,003
---------------------------------------------------------------------------
Total debt 98,477 110,533
Less: short-term portion (10,096) (12,056)
---------------------------------------------------------------------------
88,381 98,477
===========================================================================
The outstanding debt as of December 31, 2006 is repayable as follows:
(in thousands of $)
Year ending December 31,
2007 10,096
2008 10,146
2009 10,196
2010 10,256
2011 10,316
2012 and later 47,467
---------------------------------------------------------------------------
Total debt 98,477
===========================================================================
The term mortgage notes bear interest at a rate of 8.52% per annum.
Principal is repayable on the term mortgage notes in accordance with a
remaining ten-year sinking fund schedule beginning April 1, 2006. Interest
is payable semi-annually. The term mortgage notes include certain covenants
such as restriction on the payment of dividends and making additional loans
or advances to affiliates. At December 31, 2006 and 2005, the Company was
in compliance with these covenants.
As of December 31, 2006, the effective interest rate for the Notes of the
Company was 8.52%.
The term mortgage notes are subject to redemption through operation of the
mandatory sinking fund on April 1 of each year, commencing on April 1,
2006, to and including April 1, 2015, according to the applicable schedule
of sinking fund payments set forth herein. The sinking fund redemption
price is 100% of the principal amount of term mortgage notes being
redeemed, together with interest accrued to the date fixed for redemption.
If a Charter is terminated, the scheduled mandatory sinking fund payments
on the term mortgage notes will be revised so that the allocated principal
amount of the term mortgage notes 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 $7,000,000, for any of the double-hulled Vessels, or
$5,500,000 for the single hulled Vessel.
The table below provides the revised scheduled sinking fund redemption
amounts and final principal payments on the term mortgage notes following
termination of the related charters on each of the optional termination
dates.
(in thousands of $)
Scheduled
payment Charter not Charter Charter Charter Charter Charter
date terminated terminated terminated terminated terminated terminated
2007 2008 2009 2010 2011
2007 10,942 6,339 3,187 6,339 3,187 2,984
2008 10,942 3,390 3,187 6,339 3,187 2,984
2009 10,942 3,680 1,690 6,339 3,187 2,984
2010 10,942 3,990 1,830 3,240 3,187 2,984
2011 10,942 4,330 1,990 3,510 1,510 2,984
2012 and 43,767 35,326 16,794 31,288 14,420 11,938
later
---------------------------------------------------------------------------
98,477 57,055 28,678 57,055 28,678 26,858
===========================================================================
8. SHARE CAPITAL
(in thousands of $) 2006 2005
Authorized, issued and fully paid share capital:
1,000 shares of $1.00 each 1 1
9. FINANCIAL INSTRUMENTS
Fair values
The carrying value and estimated fair value of the Company's financial
instruments at December 31, 2006 and 2005 are as follows:
2006 2006 2005 2005
Fair Carrying Fair Carrying
(in thousands of $) Value Value Value Value
Cash and cash equivalents 1 1 1 1
Serial Mortgage Notes 7.62% - - 2,530 2,530
maturing through 2006
8.52% Term Mortgage Notes 105,001 98,477 120,963 108,003
due 2015
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 of the mortgage notes is based on the quoted
market price of these or similar notes when available
Concentrations of risk
The Company's only source of funds for the repayment of the principal and
interest on the Notes are the repayments from the Owners. The Owners only
source of funds for the repayment of the principal and interest on the
loans from the Company are from charterhire payments from Chevron and
Frontline Voyager Inc. as well as investment income and the proceeds, if
any, from the sale of any of the Vessels. Accordingly, the Company's
ability to service its obligations on the Notes is wholly dependent upon
the financial condition, results of operations and cash flows from the
Owners.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
Item 9a. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's management, including the Company's President and Treasurer, with
the participation of the Company's manager, Frontline Ltd, has evaluated the
effectiveness of the Company's disclosure controls and procedures as of December
31, 2006. Based on that evaluation, the Company's President and Treasurer
concluded that the Company's disclosure controls and procedures were effective
as of December 31, 2006.
Changes in Internal Controls
There were no m9aterial changes in the Company's internal control over financial
reporting during the year.
Item 9b. Other Information
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The Company does not have any employees. The following table sets forth the
name, age and principal position with the Company of each of its directors and
executive officers.
Name Age Position with Company
Nancy I. DePasquale 40 Director and President
Geraldine St-Louis 31 Vice President
Louise E. Colby 59 Director and Assistant Secretary
R. Douglas Donaldson 65 Treasurer
Franklin P. Collazo 27 Secretary
Officers are appointed by the Board of Directors and will serve until they
resign or are removed by the Board of Directors.
Nancy I. DePasquale has been a Director and the President of California
Petroleum since 1994. She joined JH Management Corporation, a Massachusetts
business corporation that engages in the management of special purpose
corporations for structured financial transactions, in 1993 as its President and
is currently the Vice President of JH Management Corporation. From 1991 to 1992,
she was a legal secretary at Ropes & Gray, a law firm in Boston, MA. From 1992
to 1993, she was a personal assistant to Bob Woolf Associates, Inc.
Geraldine St-Louis has been the Vice President of the Company since March 2001.
She joined JH Management Corporation in March 2001 as the vice president. From
1999 to 2001, she was an Executive Secretary in the Health Systems Group at
Harvard University School of Public Health, specialising in the field of health
studies in Third World countries.
Louise E. Colby has been a Director of the Company since 1994. She was the
Secretary and Treasurer in 1994 and has served as an Assistant Secretary from
1995 to present. She is a former Director, Secretary and Treasurer of JH
Management Corporation beginning in 1989 and currently serves as its Assistant
Secretary. She has also served as the Trustee of the Cazenove Street Realty
Trust since 1983 and formerly served as a Trustee of The 1960 Trust, a
charitable trust for the benefit of Harvard University.
R. Douglas Donaldson has been the Treasurer of the Company since 1995. He has
been President of JH Management Corporation since 1994. He was the Vice
President of a sibling management corporation, JH Holdings Corporation, from
1994 to early 1999, when he was promoted to President of that corporation as
well. Prior to 1994, he was a bank officer (primarily at Bank of New England)
for over twenty-five years in the field of personal trust and estate planning.
He is also the sole trustee of two charitable trusts for the benefit of Harvard
University.
Franklin P. Collazo has been the Secretary of the Company since July 2006. He is
currently a corporate paralegal at the law offices of Ropes & Gray in Boston.
From August 2003 to June 2006, he worked as a Jurisdictional Field
Representative and Customer Service Representative at Corporation Service
Company, principally in the areas of UCC/Corporate searching and filing
requirements and corporate audits.
The Company's equity is neither listed nor publicly traded. The equity is held
by one beneficial holder, The California Trust. The Owners obligations toward
their bondholders are set out in detail in covenants contained in the Indenture
for their Notes. For the above stated reasons, the Company has not adopted a
business code of ethics or appointed a financial expert.
Item 11. Executive Compensation
None of the directors or executive officers of the Company receive any
compensation in connection with their respective positions. The Company has not
entered into any affiliate transactions, other than the original agency
agreement for the issuance of the notes.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following table provides information as of February 28, 2007 with respect to
the ownership by each person or group of persons, known by the registrant to be
a beneficial owner of 5% or more of the Common Stock.
Except as set forth below, the Registrant is not aware of any beneficial owner
of more than 5% of the Common Stock as of close of business on February 28,
2007.
Beneficial Ownership
Name and address Percent
Class of shares of beneficial owners Number of shares of Class
- --------------- ---------------------------- ----------------- ---------
Ordinary Shares The California Trust 1,000 100%
C/O JH Holdings Corporation
Room 3218
One International Place
Boston, MA 02110-2624
The Company does not have an equity compensation plan.
Item 13. Certain Relationships and Related Transactions
N/A
Item 14. Principal Accountant Fees and Services
We have engaged Grant Thornton as our principal accountant. The following table
summarises fees we have paid Grant Thornton for independent auditing, tax and
related services for each of the last two fiscal years:
2006 2005
Audit fees (1) $71,995 $15,500
Audit-related fees (2) n/a n/a
Tax fees (3) n/a n/a
All other fees (4) n/a n/a
(1) Audit fees represent amounts billed for each of the years presented for
professional services rendered in connection with (i) the audit of our annual
financial statements, (ii) the review of our quarterly financial statements or
(iii) those services normally provided in connection with statutory and
regulatory filings or engagements including comfort letters, consents and other
services related to SEC matters. This information is presented as of the latest
practicable date for this annual report on Form 10-K.
(2) Audit-related fees represent amounts we were billed in each of the years
presented for assurance and related services that are reasonably related to the
performance of the annual audit or quarterly reviews. This category primarily
includes services relating to internal control assessments and
accounting-related consulting. Grant Thornton rendered no such services during
the last two years.
(3) Tax fees represent amounts we were billed in each of the years presented for
professional services rendered in connection with tax compliance, tax advice and
tax planning. Grant Thornton rendered no such services during the last two
years.
(4) All other fees represent amounts we were billed in each of the years
presented for services not classifiable under the other categories listed in the
table above. Grant Thornton rendered no such services during the last two years.
The Company's Board of Directors has assigned responsibility for the engagement
of the auditors to the Company's manager.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report under Item
8. Financial Statements and Supplementary Data:
Financial Statements
Report of Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Balance Sheets at December 31, 2006 and 2005
Statements of Operations and Retained Earnings for the Years Ended December 31,
2006, 2005 and 2004
Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004
Notes to Financial Statements
(b) Exhibits
3.1 Certificate of Incorporation of California Petroleum Transport
Corporation (filed as Exhibit 3.1 to Registrant's Registration
Statement on Form S-1, Commission File Number 33-79220, and
incorporated herein by reference).
3.2 Bylaws of California Petroleum Transport Corporation (filed as
Exhibit 3.2 to Registrant's Registration Statement on Form
S-1, Commission File Number 33-79220, and incorporated herein
by reference).
3.3 Certificate of Incorporation and Memorandum of Association of
CalPetro Tankers (Bahamas I) Limited (filed as Exhibit 3.3 to
Registrant's Registration Statement on Form F-1, Commission
File Number 33-79220, and incorporated herein by reference).
3.4 Articles of Association of CalPetro Tankers (Bahamas I)
Limited (filed as Exhibit 3.4 to Registrant's Registration
Statement on Form F-1, Commission File Number 33-79220, and
incorporated herein by reference).
3.5 Certificate of Incorporation and Memorandum of Association of
CalPetro Tankers (Bahamas II) Limited (filed as Exhibit 3.5 to
Registrant's Registration Statement on Form F-1, Commission
File Number 33-79220, and incorporated herein by reference).
3.6 Articles of Association of CalPetro Tankers (Bahamas II)
Limited (filed as Exhibit 3.6 to Registrant's Registration
Statement on Form F-1, Commission File Number 33-79220, and
incorporated herein by reference).
3.7 Certificate of Incorporation of CalPetro Tankers (IOM) Limited
(filed as Exhibit 3.7 to Registrant's Registration Statement
on Form F-1, Commission File Number 33-79220, and incorporated
herein by reference).
3.8 Memorandum and Articles of Association of CalPetro Tankers
(IOM) Limited (filed as Exhibit 3.8 to Registrant's
Registration Statement on Form F-1, Commission File Number
33-79220, and incorporated herein by reference).
3.9 Certificate of Incorporation and Memorandum of Association of
CalPetro Tankers (Bahamas III) Limited (filed as Exhibit 3.9
to Registrant's Registration Statement on Form F-1, Commission
File Number 33-79220, and incorporated herein by reference).
3.10 Articles of Association of CalPetro Tankers (Bahamas III)
Limited (filed as Exhibit 3.10 to Registrant's Registration
Statement on Form F-1, Commission File Number 33-79220, and
incorporated herein by reference).
4.1 Form of Serial Indenture between California Petroleum
Transport Company and Chemical Trust Company of California, as
Indenture Trustee (filed as Exhibit 4.1 to Registrant's
Registration Statement on Form S-3, Commission File Number
33-56377, and incorporated herein by reference).
10.1 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 Corporation by CalPetro Tankers (Bahamas
I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro
Tankers (IOM) Limited, CalPetro Tankers (Bahamas III) Limited)
(filed as Exhibit 10.3 to Registrant's Registration Statement
on Form S-3, Commission File Number 33-56377, and incorporated
herein by reference).
10.2 Form of Bareboat 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 (filed as Exhibit 10.2 to
Registrant's Registration Statement on Form S-3, Commission
File Number 33-56377, and incorporated herein by reference).
10.3 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) (filed as Exhibit 4.08 to Registrant's
Registration Statement on Form S-3, Commission File Number
33-56377, and incorporated herein by reference).
10.4 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 (filed as Exhibit 4.09 to Registrant's
Registration Statement on Form S-3, Commission File Number
33-56377, and incorporated herein by reference).
10.5 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) (filed
as Exhibit 4.10 to Registrant's Registration Statement on Form
S-3, Commission File Number 33-56377, and incorporated herein
by reference).
10.6 Form of Management Agreement between P.D. Gram & Co., and
[CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers
(Bahamas II) Limited] [CalPetro Tankers (IOM) Limited]
[CalPetro Tankers (Bahamas III) Limited] (filed as Exhibit
4.10 to Registrant's Registration Statement on Form S-3,
Commission File Number 33-56377, and incorporated herein by
reference).
10.7 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] to California Petroleum Transport
Corporation (filed as Exhibit 4.11 to Registrant's
Registration Statement on Form S-3, Commission File Number
33-56377, and incorporated herein by reference).
10.8 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 (Bahamas III) Limited] (filed
as Exhibit 4.12 to Registrant's Registration Statement on Form
S-3, Commission File Number 33-56377, and incorporated herein
by reference).
10.9 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 (Bahamas III) Limited] (filed
as Exhibit 4.13 to Registrant's Registration Statement on Form
S-3, Commission File Number 33-56377, and incorporated herein
by reference).
10.10 Form of Collateral Agreement between California Petroleum
Transport Corporation, the Indenture Trustee under the Serial
Indenture, the Indenture Trustee under the Term Indenture and
Chemical Trust Company of California, as Collateral Trustee
(filed as Exhibit 4.14 to Registrant's Registration Statement
on Form S-3, Commission File Number 33-56377, and incorporated
herein by reference).
10.11 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 (filed
as Exhibit 4.15 to Registrant's Registration Statement on Form
S-3, Commission File Number 33-56377, and incorporated herein
by reference).
10.12 Form of First Preferred Ship Mortgage by [CalPetro Tankers
(Bahamas III) Limited] [CalPetro Tankers (IOM) 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) (filed as Exhibit 4.3 to Registrant's
Registration Statement on Form S-3, Commission File Number
33-56377, and incorporated herein by reference).
10.13 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) (filed as
Exhibit 4.4 to Registrant's Registration Statement on Form
S-3, Commission File Number 33-56377, and incorporated herein
by reference).
10.14 Form of Bermudian Statutory Ship Mortgage and Deed of
Covenants by CalPetro Tankers (IOM) 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) (filed as Exhibit 4.5 to Registrant's
Registration Statement on Form S-3, Commission File Number
33-56377, and incorporated herein by reference).
10.15 Bareboat Charter Agreement by and between Calpetro Tankers
(Bahamas III) Limited and Front Voyager Inc. entered into as
of March 31, 2006.*
10.16 Assignment of Charter by and between California Petroleum
Transportation Corporation and Calpetro Tankers (Bahamas III)
Limited entered into as of March 31, 2006.*
10.17 Collateral Assignment of Charter by and between California
Petroleum Transport Corporation and J.P. Morgan Trust Company,
National Association entered into as of March 31, 2006.*
31.1 Certification of Principal Executive Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act,
as amended.
31.2 Certification of Principal Financial Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act,
as amended.
32.1 Certification of Principal Executive Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Financial Officer pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Filed Herewith
SIGNATURES
Pursuant 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.
California Petroleum Transport Corporation
(Registrant)
Date April 16, 2007 By /s/ Nancy I. DePasquale
------------------------------------------
Nancy I. DePasquale
President
Pursuant to the requirements of the
Securities Exchange Act of 1934, this
report has been signed below by the
following persons on behalf of the
registrant and in the capacities and on
the dates indicated.
Date April 16, 2007 By /s/ Nancy I. DePasquale
------------------------------------------
Nancy I. DePasquale
Director and President
Date April 16, 2007 By /s/ R. Douglas Donaldson
------------------------------------------
R. Douglas Donaldson
Treasurer
SK 02089 0006 760650 v4