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, 2006
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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 1LB
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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: 100 shares, par value of $1 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
INDEX TO REPORT ON FORM 20-F
Page
PART I
Item 1. Identity of Directors, Senior Management and Advisers.............3
Item 2. Offer Statistics and Expected Timetable...........................3
Item 3. Key Information...................................................3
Item 4. Information on the Company........................................7
Item 4A. Unresolved Staff Comments........................................21
Item 5. Operating and Financial Review and Prospects.....................21
Item 6. Directors, Senior Management and Employees.......................25
Item 7. Major Shareholders and Related Party Transactions................26
Item 8. Financial Information............................................26
Item 9. The Offer and Listing............................................27
Item 10. Additional Information...........................................27
Item 11. Quantitative and Qualitative Disclosures about Market Risk.......29
Item 12. Description of Securities Other than Equity Securities...........29
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies..................30
Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds..............................................30
Item 15. Controls and Procedures..........................................30
Item 16. Reserved.........................................................30
Item 16A. Audit committee financial expert.................................30
Item 16B. Code of Ethics...................................................30
Item 16C. Principal Accountant Fees and Services...........................30
Item 16D. Exemptions from the Listing Rules for Audit Committees...........31
Item 16E. Purchases of Equity Securities by the Issuer and
Affiliated Purchasers............................................31
PART III
Item 17. Financial Statements.............................................32
Item 18. Financial Statements.............................................32
Item 19. Exhibits.........................................................32
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.
PART I
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3. KEY INFORMATION
Throughout this report, the "Company," "we," "us" and "our" all refer to
Calpetro Tankers (IOM) Limited. We use the term deadweight ton, or dwt, in
describing the size of vessels. Dwt, expressed in metric tons, each of which is
equivalent to 1,000 kilograms, refers to the maximum weight of cargo and
supplies that a vessel can carry. Unless otherwise indicated, all references to
"USD" and "$" in this report are to, and amounts are presented in, U.S. dollars.
A. Selected Financial Data
The selected Statement of operations data of the Company with respect to the
fiscal years ended December 31, 2006, 2005, and 2004, and the selected balance
sheet data 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 years ended December 31, 2003 and
2002 and the selected balance sheet data at December 31, 2004, 2003 and 2002
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 U.S. dollars.
<table>
<caption>
Fiscal Years ended December 31,
2006 2005 2004 2003 2002
(in thousands of $, except share data)
Statement of operations data
Total operating revenues 2,378 2,657 3,068 3,500 3,929
Net (loss) / income (47) (107) (53) (37) 70
Per share data:
Dividends per share - - - - -
Balance sheet data:
Total assets 28,869 31,946 37,364 42,734 48,049
Current portion loans 2,984 2,984 5,210 5,210 5,210
Long-term loans 23,874 26,858 29,842 35,052 40,262
Stockholder's equity 1,394 1,441 1,548 1,601 1,638
Number of shares 2 2 2 2 2
</table>
B. Capitalization and Indebtedness
Not Applicable
C. Reason for the offer and use of proceeds
Not Applicable
D. 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 (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 Chevron's options
to terminate the charter on April 1, 2009 and April 1, 2011. Non-binding notice
of the intention to exercise the option to terminate the Charter must be given
at least seven months in advance. As at June 18, 2007, no termination notice had
been received from Chevron for the Charter in relation to the April 1, 2009
termination date.
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, we may incur additional expenses and not
be able to recharter our Vessel profitably
Chevron has the sole discretion to exercise its options to terminate the charter
and will not owe any fiduciary or other duty to the holders of the Notes,
defined below, in deciding whether to exercise the termination options, and
Chevron's decision may be contrary to our interests or those of the holders of
the Notes, defined below.
We cannot predict at this time any of the factors that Chevron will consider in
deciding whether to exercise its final termination option 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, it is required under the terms
of the Charter to make a termination payment to us. The amount of the
termination payment is not expected to be sufficient to cover our obligations
under the Term Loans, defined below. If Chevron terminates the Charter, we will
attempt to arrange a replacement charter, or we may sell the Vessel to satisfy
our obligations under the term loans. 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 Term Loans, defined below.
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. During the term of the existing
Charters with the charterers, we are not exposed to the risk associated with
this competition. At the end of the current Charter or in the event that Chevron
terminate the Charter on the remaining termination dates, 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 us achieving lower revenues from their suezmax
oil tankers which will reduce the amounts available, if any, to pay the
principal and interest on the Term Loans.
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.
Our 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 our Vessel operates and the
country in which our vessel is 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. In addition, vessel classification societies also impose
significant safety and other requirements on our vessel. In complying with
current and future environmental requirements, we 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
vessel to keep it in compliance, or even to scrap or sell the vessel 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 our vessel,
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, we 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 vessel or otherwise in connection with our current or
historic operations. We could also incur substantial penalties, fines and other
civil or criminal sanctions, including in certain instances seizure or detention
of our vessel, 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
Vessel. Although Chevron is responsible for all operational matters and bear all
these expenses during the term of the 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 the existing charter is
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 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 Term Loans, defined
below, that we will adequately insure against all risks or in the event the
Charter expires or 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, defined
below, 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
Currently, we 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 Loan 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 Term Loans, defined below.
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 and therefore impact our ability to service our
debt.
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, defined below 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 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, 2006, we had $26.9 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
A History and Development of 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 was incorporated in the Bahamas. Together these companies
are referred to as the "Owners". Each of the Owners was organized as a special
purpose company for the purpose of acquiring one of four oil tankers (each a
"Vessel", together the "Vessels") from Chevron. We are wholly-owned by
California Tankers Investments Limited, a company organized 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.
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, as described below. We engage in no business
other than the ownership and chartering of our Vessel and activities resulting
from or incidental to such ownership and chartering.
Our principal executive offices are located at 15-19 Athol Street, Douglas, Isle
of Man IM1 1LB.
B Business Overview
Our Vessel is a 150,000 dwt Suezmax oil tanker, called the Sirius Voyager, 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 rights to terminate the Initial Charter
on April 1, 2009 and April 1, 2011. For this optional termination date a
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
to 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 date Termination payment
April 1, 2009 8.89
April 1, 2011 7.88
As at June 18, 2007, no termination notice had been received from Chevron for
the Charter.
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
Isle of Man 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 a double-hull design patented by one of Chevron
Corporation's subsidiaries. The builder of Sirius Voyager was Ishikawajima
Harima Heavy Industries Co., Ltd.
Management
On March 31, 1999, Frontline became our Manager and Technical Advisor to the
Company, 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 recharter of the
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.
Industry Conditions
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 changes in global crude oil production;
o demand for oil and production of crude oil and refined petroleum
products;
o changes in oil production and refining capacity;
o global and regional economic and political conditions;
o the distance oil and oil products are to be moved by sea;
o environmental and other regulatory developments; and
o changes in seaborne and other transportation patterns, including
changes in the distances over which cargo is transported due to
geographic changes in where commodities are produced, oil is refined
and cargoes are used.
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 for other purposes;
o port or canal congestion;
o the number of vessels that are out of service; and
o national or international regulations that may effectively cause
reductions in the carrying capacity of vessels or early obsolescence
of tonnage.
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.
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 Societies
The classification society certifies that the vessel is "in-class," signifying
that the vessel has been built and maintained in accordance with the rules of
the classification society and complies with applicable rules and regulations of
the vessel's country of registry and the international conventions of which that
country is a member. In addition, where surveys are required by international
conventions and corresponding laws and ordinances of a flag state, the
classification society will undertake them on application or by official order,
acting on behalf of the authorities concerned.
The classification society also undertakes on request other surveys and checks
that are required by regulations and requirements of the flag state. These
surveys are subject to agreements made in each individual case and/or to the
regulations of the country concerned.
For maintenance of the class, regular and extraordinary surveys of hull,
machinery, including the electrical plant, and any special equipment classed are
required to be performed as follows:
o Annual Surveys. For seagoing ships, annual surveys are conducted for
the hull and the machinery, including the electrical plant and where
applicable for special equipment classed, at intervals of 12 months
from the date of commencement of the class period indicated in the
certificate.
o Intermediate Surveys. Extended annual surveys are referred to as
intermediate surveys and typically are conducted two and one-half
years after commissioning and each class renewal. Intermediate surveys
may be carried out on the occasion of the second or third annual
survey.
o Class Renewal Surveys. Class renewal surveys, also known as special
surveys, are carried out for the ship's hull, machinery, including the
electrical plant and for any special equipment classed, at the
intervals indicated by the character of classification for the hull.
At the special survey the vessel is thoroughly examined, including
audio-gauging to determine the thickness of the steel structures.
Should the thickness be found to be less than class requirements, the
classification society would prescribe steel renewals. The
classification society may grant a one year grace period for
completion of the special survey. Substantial amounts of money may
have to be spent for steel renewals to pass a special survey if the
vessel experiences excessive wear and tear. In lieu of the special
survey every four or five years, depending on whether a grace period
was granted, a ship owner has the option of arranging with the
classification society for the vessel's hull or machinery to be on a
continuous survey cycle, in which every part of the vessel would be
surveyed within a five year cycle. At an owner's application, the
surveys required for class renewal may be split according to an agreed
schedule to extend over the entire period of class. This process is
referred to as continuous class renewal.
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 our
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 Regulations and Other Regulations
Government regulations and laws 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
</table>
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. Our
vessel and its operator have received ISM certification. Chevron is required to
renew these documents of compliance and safety management certificates
periodically.
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 defences. 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 defence 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 like 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.
C Organizational 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 in Item 4.
D Property, Plant 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
Overview
The following discussion should be read in conjunction with Item 3 "Selected
Financial Data" and the Company's audited Financial Statements and Notes thereto
included herein.
Our strategy has been to acquire a Vessel and charter this to Chevron under a
bareboat charters which is expected to provide:
a) charterhire payments we expect will be sufficient to pay, so long as the
Charter is in effect:
i. the obligations under the loans for acquiring the Vessel,
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 Vessel;
b) termination payments sufficient to make sinking fund and interest payments
on the Term Loans, 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 Vessel will be maintained in accordance with the good commercial
maintenance practices required by the Charter and to arrange for vessel
management and remarketing services to be available in case the Charter is
terminated by Chevron, or the Vessel is for any other reason returned to our
possession and use.
As of June 18, 2007, notice had not been received from Chevron regarding the
termination of the Charter.
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 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 the Company. However we
expect that cash flows will be adequate to service the debt load, although there
will always be uncertainty related to this 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.
Market Overview
The tanker market proved its strength in 2006 and it was the demand side which
had the greatest influence on the rates. The year started at average daily time
charter equivalent ("TCE") rates of approximately $70,000 thereafter following
the traditional seasonal pattern by softening to TCEs of about $25,000 by
mid-April. From this point markets firmed against most market predictions up to
TCEs of about $75,000 at the end of August. The fear of another active hurricane
season in the US Gulf combined with geopolitical uncertainty and increased risk
of supply disruptions gave strong incentives to build oil stocks throughout the
summer. On-land storage capacity was in some regions filled to the brim, driven
by an extraordinary strong contango, with a wide use of tankers for storage
purposes as the consequence.
Gradually the oil market picked up on the very strong stockbuilding which
triggered a sharp drop in crude prices, from $76 per barrel in early August to
$56 in early October. This subsequently made markets weaken and TCEs of $30,000
were reached mid-December. At the very end of the year markets firmed providing
one steep spike to TCEs of approximately $90,000 for a short period. Depending
on the source of information, the average TCE for the year was $50,000 for a
double hulled Suezmax with a single hull earned about 60 percent of this.
For OPEC it was of great importance to prevent an uncontrolled price decline so
it decided in October to cut production with by 1.2 million barrels per day from
November. It was reported by the International Energy Agency ("IEA") an average
OPEC Oil production, including Iraq but not Angola, of approximately 29.7
million barrels per day during 2006, a 0.02 million barrels per day decrease
from 2005. Even if OPEC crude production was unchanged from 2005 to 2006 there
was a noticeable shift from Nigeria and Venezuela to the Middle East.
IEA further estimate an average world oil demand at 84.5 million barrels per day
in 2006, a 1.0 percent increase from 2005. For 2007 a 1.8 percent or 1.55
million barrels per day growth is forecasted in world oil demand with North
America, China and the Middle East as the main drivers.
The total Suezmax fleet increased by 7.5 percent in 2006 from 322 to 346 vessels
according to industry sources. The same source stipulates that a total of 25 new
vessels were delivered to owners during 2006 while 77 new orders were made. The
majority of these are set to be delivered in 2009. The total order book amounted
to 123 vessels at the end of the year which represented approximately 35 percent
of the existing fleet.
The tanker market looks healthy also for 2007 and it was possible to sell
freight futures at the end of 2006 for the calendar year 2007 at a level that
equated to TCEs for the Suezmax segment at approximately $40,000.
Operating results
Year ended December 31, 2006 compared with the year ended December 31, 2005
Total Revenues
(in thousands of $) 2006 2005 % Change
Finance lease interest income 2,378 2,657 (11)%
- -------------------------------------------------------------------------------
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 lease.
Expenses
(in thousands of $) 2006 2005 % Change
Interest expense 2,352 2,642 (11)%
Amortization of loan discount 26 73 (64)%
- -------------------------------------------------------------------------------
Interest expense has fallen in line with expectations, with interest expense
falling in line with the principal loan outstanding each year. The Company
amortizes the discount over the life of the Term Loans. Amortization of loan
discount has fallen as the serial loan discount was fully amortized in 2005.
Year ended December 31, 2005 compared with the year ended December 31, 2004
Total Revenues
(in thousands of $) 2005 2004 % Change
Finance lease interest income 2,657 3,068 (13%)
- ------------------------------------------------------------------------------
Refer to explanation for 2006.
Expenses
(in thousands of $) 2005 2004 % Change
Interest expense 2,642 3,028 (13%)
Amortization of loan discount 73 73 -
- ------------------------------------------------------------------------------
Refer to explanation for 2006 for interest expense. The loan discount remained
the same between 2005 and 2004 as both the Serial and Term Loans were being
amortized.
Liquidity and Capital Resources
As set forth above, revenues from the Charter are currently sufficient to pay
our obligations under the Term Loans. Chevron may elect to terminate the Charter
on the remaining specified termination dates, April 1, 2009 or April 1, 2011. 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
None
Tabular disclosure of contractual obligations
As at December 31, 2006, we had the following contractual obligations and
commitments:
<table>
<caption>
Payments due by period
Less than 1 year More than 5 years
(in thousands of $) 1-3 years 3-5 years Total
Term Loans (8.52%) 2,984 5,968 5,968 11,938 26,858
- ------------------------------------------------------------------------------------------------------------------
Total contractual obligations 2,984 5,968 5,968 11,938 26,858
- ------------------------------------------------------------------------------------------------------------------
</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 Financing lease and revenue recognition
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 amortized 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.
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. The Company
adopted the provisions of SAB 108 as of December 31, 2006 and this did not have
a material effect on the Company's results of operations or financial position.
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Executive Officers of CalPetro Tankers (IOM) Limited
Name Age Position
Tor Olav Troim 44 Director and President
Kate Blankenship 42 Director and Secretary
John Killip 62 Director
Tor Olav Troim has been a Director of CalPetro Tankers (IOM) Limited since
October 31, 2001. Mr. Troim graduated as M.Sc Naval Architect from the
University of Trondheim, Norway in 1985. His careers include Portfolio Manager
Equity in Storebrand ASA (1987- 1990), and Chief Executive Officer for the
Norwegian Oil Company DNO AS (1992-1995). Since 1995 Mr. Troim has been a
Director of SeaTankers Management in Cyprus. In this capacity he has acted as
Chief Executive Officer for the public companies Frontline and Golar LNG Limited
(NASDAQ). Mr. Troim was also the Chief Executive Officer of Seadrill Ltd. until
the recent takeover and intergration of Smedvig ASA. Mr. Troim is currently Vice
Chairman of these three companies and in addition is a director and Chairman of
Ship Finance International Limited (NYSE) and a member of the Boards in the
public companies Golden Ocean Group Limited (OSE), Aktiv Kapital ASA (OSE) and
PanFish ASA (OSE).
Kate Blankenship has been a Director of CalPetro Tankers (IOM) Limited since
October 31, 2001. Mrs. Blankenship has been a director of the Manager since
March 2000. Mrs. Blankenship served as the Chief Accounting Officer and
Secretary of Frontline between 1994 and October 2005. Mrs. Blankenship also
serves as Chief Financial Officer of Knightsbridge Tankers Limited and director
of Golar LNG Limited, Ship Finance International Limited, Seadrill Limited and
Golden Ocean Group Limited. 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 entitles to change for professional
advice and services. He has been in a managerial capacity with Cains Advocates
Limited/Equity Limited for over 18 years.
B. Compensation
During the year ended December 31, 2006, we paid no compensation to our
directors and officers.
C. 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.
We have neither an audit nor a remuneration committee.
D. Employees
We do not have any employees involved in the management of the Vessel.
Frontline is our Manager as described below in Item 7 - Related Party
Transactions.
E. Share Ownership
The directors have no interest in the share capital of the Company, nor do they
have any arrangements for involvement in our capital.
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major Shareholders
We are a wholly owned subsidiary of California Tankers Investments Limited, a
company organized under the laws of the Bahamas, which is a wholly-owned
subsidiary of ITC. Frontline ultimately controls us as described in more detail
in Item 4. All the issued and outstanding shares of our capital stock have been
pledged by us to California Petroleum Transport Corporation ("CPTC) pursuant to
the stock pledge agreement between us and CPTC and are being held by the Bank of
New York, formerly the Chase Manhattan Trust Company of California and JP Morgan
Chase (the "Collateral Trustee") as part of the collateral for the Notes.
Significant changes in ownership have been disclosed in Item 4 and there are no
known arrangements that may lead to a change in control of the company.
Related Party Transactions
As discussed in Item 4, Frontline, the ultimate parent, is our Manager. 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 four
percent 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 four percent. 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 four percent increase on each subsequent anniversary of the closing of the
issue of the Notes.
In 2006, a total of $39,260 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
To the best of the Company's knowledge, there are no legal or arbitration
proceedings existing or pending which have had or may have significant effects
on the Company's financial position or profitability and no such proceedings are
pending or known to be contemplated by governmental authorities.
Item 9. THE OFFER AND LISTING
The company does not have any shares outstanding other than those owned by
California Tankers Investments Limited, which are not traded on any exchange.
Item 10. ADDITIONAL INFORMATION
A. Share Capital
Not Applicable
B. 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 authorization 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.
C. Material Contracts
The Company has no material contracts apart from those pertaining to its normal
business.
D. Exchange Controls
The Company was registered under the Isle of Man Income Tax (Exempt Companies)
Act, 1994 (the "Exempt Companies Act") 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 nor, 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 shares of common stock.
E. 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
shareholder.
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.
F. Dividends and Paying Agents
Not Applicable
G. Statement by Experts
Not Applicable
H. Documents on Display
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 15-19 Athol
Street, Douglas, Isle of Man IM1 1LB or at the offices of our manager at
Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, Bermuda HM 08.
I. Subsidiary Information
Not Applicable
Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative information about market risk
Quantitative information about market risk instruments at December 31, 2006 is
as follows:
The Term Loans bear interest at a rate of 8.52% per annum. Interest is payable
on April 1 and October 1 of each year. Principal is repayable on the Term Loans
in accordance with a remaining ten-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 last termination date.
Scheduled payment date Charter not Charter terminated Charter terminated
terminated 2009 2011
(in thousands of $) $'000 $'000 $'000
April 1, 2007 2,984 2,984 2,984
April 1, 2008 2,984 2,984 2,984
April 1, 2009 2,984 2,984 2,984
April 1, 2010 2,984 1,470 2,984
April 1, 2011 2,984 1,590 2,984
April 1, 2012 2,984 1,730 1,090
April 1, 2013 2,984 1,880 1,180
April 1, 2014 2,984 2,030 1,280
April 1, 2015 2,986 9,206 8,388
- -------------------------------------------------------------------------------
26,858 26,858 26,858
==============================================================================
As at June 18, 2007, no termination notice had been received from Chevron for
the Charter.
Qualitative information about market risk
We were organised solely for the purpose of the acquisition of one Vessel and
subsequently entered into a long-term agreement with 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.
Management assessed the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Rule 13a-15(e) of the
Securities Exchange Act of 1934, as of the end of the period covered by this
annual report as of December 31, 2006. Based upon that evaluation, the Principal
Executive Officer and Principal Financial Officer concluded that the Company's
disclosure controls and procedures are effective as of the evaluation date.
(b) Changes in internal controls
There were no changes in our internal controls over financial reporting that
occurred during the period covered by this annual report that have materially
effected or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
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. 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. 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
Our principal accountant for 2006 and 2005 was Grant Thornton. The following
table sets forth for the two most recent fiscal years the fees paid or accrued
for audit and services provided by Grant Thornton.
(in thousands of $) 2006 2005
Audit fees (a) 20 19
Audit related fees (b) - -
Tax fees (c) - -
All other fees (d) - -
- --------------------------------------------------------------------
Total 20 19
- --------------------------------------------------------------------
a) Audit Fees
Audit fees represent professional services rendered for the audit of the
Company's annual financial statements and services provided by the principal
accountant in connection with statutory and regulatory filings or engagements.
b) Audit Related Fees
Audit-related fees consist of assurance and related services rendered by the
principal accountant related to the performance of the audit or review of the
Company's financial statements which have not been reported under Audit Fees
above.
c) Tax Fees
Tax fees represent fees for professional services rendered by the principal
accountant for tax compliance, tax advice and tax planning.
d) All Other Fees
All other fees include services other than audit fees, audit-related fees and
tax fees 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 report of Grant
Thornton Independent Registered Public Accounting Firm are filed as part of this
annual report.
Page
Report of Independent Registered Public Accounting Firm F-1
Statements of Operations and Retained Earnings for the Years Ended F-2
December 31, 2006, 2005 and 2004
Balance Sheets as of December 31, 2006 and 2005 (as restated) F-3
Statements of Cash Flows for the Years Ended December 31, F-4
2006, 2005 (as restated) and 2004 (as restated)
Notes to the Financial Statements F-5
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 (IOM) 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 Certification of the Principal Executive Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
12.2 Certification of the Principal Financial Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
13.1 Certification of the Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
13.2 Certification of the Principal Financial Officer pursuant to 18 U.S.C.
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, 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 audits.
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 audits 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. Our audits 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, 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 Calpetro Tankers (IOM) Limited
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.
As discussed in Note 2 the Company has restated its balance sheet as of December
31, 2005 and its statements of cash flows for the years ended December 31, 2005
and 2004.
/s/ Grant Thornton LLP
New York, New York
June 22, 2007
CalPetro Tankers (IOM) Limited
Statements of Operations and Retained Earnings
For the years ended December 31, 2006, 2005 and 2004
(in thousands of $)
2006 2005 2004
Operating revenues
Finance lease interest income 2,378 2,657 3,068
- -------------------------------------------------------------------------------
Total operating revenues 2,378 2,657 3,068
- -------------------------------------------------------------------------------
Operating expenses
General and administrative expenses (110) (95) (74)
- -------------------------------------------------------------------------------
Total operating expenses (110) (95) (74)
- -------------------------------------------------------------------------------
Net operating income 2,268 2,562 2,994
- -------------------------------------------------------------------------------
Other operating income/(expenses)
Interest income 63 46 54
Interest expense (2,352) (2,642) (3,028)
Amortization of deferred charges (26) (73) (73)
- -------------------------------------------------------------------------------
Net other expenses (2,315) (2,669) (3,047)
- -------------------------------------------------------------------------------
Net loss (47) (107) (53)
===============================================================================
Retained earnings at the start of the year 1,440 1,547 1,600
- -------------------------------------------------------------------------------
Retained earnings at the end of the year 1,393 1,440 1,547
===============================================================================
The accompanying notes are an integral part of these financial statements
CalPetro Tankers (IOM) Limited
Balance Sheets as of December 31, 2006 and 2005
(in thousands of $)
2006 2005
(As
restated)
ASSETS
Current assets:
Restricted cash 1,867 1,837
Current portion of net investment in finance lease 3,096 3,094
Interest receivable 545 608
Other current assets 8 6
- -------------------------------------------------------------------------------
Total current assets 5,516 5,545
Net investment in finance lease, less current portion 23,164 26,186
Deferred charges 189 215
- -------------------------------------------------------------------------------
Total assets 28,869 31,946
===============================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accrued interest 572 636
Current portion of term loans 2,984 2,984
Other current liabilities 45 27
- -------------------------------------------------------------------------------
Total current liabilities 3,601 3,647
Long-term loans 23,874 26,858
- -------------------------------------------------------------------------------
Total liabilities 27,475 30,505
- -------------------------------------------------------------------------------
Commitments and contingencies
Stockholder's equity:
Unclassified stock: 2 shares of $500 par value 1 1
Retained earnings 1,393 1,440
- -------------------------------------------------------------------------------
Total stockholder's equity 1,394 1,441
- -------------------------------------------------------------------------------
Total liabilities and stockholder's equity 28,869 31,946
===============================================================================
The accompanying notes are an integral part of these financial statements
CalPetro Tankers (IOM) Limited
Statements of Cash Flows for the years ended
December 31, 2006, 2005 and 2004
(in thousands of $)
2006 2005 2004
(As (As
restated) restated)
Net loss (47) (107) (53)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization of discount on loans 26 73 73
Changes in assets and liabilities:
Interest receivable 63 86 108
Other current assets (2) 14 13
Accrued interest payable (64) (99) (107)
Other current liabilities 18 (2) -
- --------------------------------------------------------------------------------
Net cash/(used in) provided by operating
activities (6) (35) 34
- --------------------------------------------------------------------------------
Investing activities:
Finance lease payments received 3,020 4,131 5,179
(Placement) maturity of restricted cash (30) 1,114 (3)
- --------------------------------------------------------------------------------
Net cash provided by investing activities 2,990 5,245 5,176
- --------------------------------------------------------------------------------
Financing activities:
Repayments of debt (2,984) (5,210) (5,210)
- --------------------------------------------------------------------------------
Net cash used in financing activities (2,984) (5,210) (5,210)
- --------------------------------------------------------------------------------
Net increase in cash and cash equivalents - - -
Cash and cash equivalents at start of the year - - -
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of the year - - -
================================================================================
Supplemental disclosure of cash flow information:
Interest paid 2,415 2,740 3,136
================================================================================
The accompanying notes are an integral part of these financial statements
CalPetro Tankers (IOM) Limited
Notes to the Financial Statements
1. Description of Business
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 organized 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 "Term Loans" and "Serial Loans" respectively) to fund the
acquisition of the Vessels from Chevron. The final tranche of the principal
balances of the Serial Loans payable by the Company to California Petroleum
Transport Corporation matured on April 1, 2005.
The Owners only source of funds with respect to the Term Loans is payments from
Chevron, including Termination Payments. The Owners do not have any other source
of funds for payment of the Term Loans.
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP).
2. Principal Accounting Policies
A summary of the Company's accounting policies is set out below.
(a) Financing lease and revenue recognition The long-term charter agreement
between the Company and Chevron transfers to Chevron all the risks and
rewards associated with ownership, other than legal title, and contains a
bargain purchase option. As such, it is classified as a direct financing
lease in accordance with Statement of Financial Accounting Standards No.
13.
Accordingly, 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 which is amortized 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.
(b) Interest payable recognition Interest payable on the Serial and Term Loans
is accrued on a daily basis.
(c) Discount on loans
Discount on issue of the long-term debt is being amortized to maturity of
the debt on a straight line basis.
(d) 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.
(e) Reporting currency
The reporting currency is United States dollars. The functional currency is
United States dollars.
(f) Use of estimates
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.
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.
Restatement of balance sheet and statement of cash flow
The balance sheet for the year ended December 31, 2005 and the statement of cash
flows for the years ended December 31, 2005 and 2004 have been restated. The
Company had incorrectly classified Restricted Cash as Cash and Cash Equivalents,
therefore a restatement was required to correct the classification.
The effect of this restatement on the balance sheet is such that the Cash and
Cash Equivalents line item is now classified as Restricted Cash.
The following condensed statements of cash flows for the years ended December
31, 2005 and 2004 set forth the effects of these restatements:
Year ended December 31, 2005
As previously Adjustments As restated
reported
(in thousands of $)
Net cash provided by operating activities (35) -- (35)
Net cash provided by investing activities 4,131 1,114 5,245
Net cash used in financing activities (5,210) -- (5,210)
Net increase in cash and cash equivalents (1,114) 1,114 --
Cash and cash equivalents at start of the year 2,951 (2,951) --
Cash and cash equivalents at end of the year 1,837 (1,837) --
Year ended December 31, 2004
As previously Adjustments As restated
reported
(in thousands of $)
Net cash provided by operating activities 34 -- 34
Net cash provided by investing activities 5,179 (3) 5,176
Net cash used in financing activities (5,210) -- (5,210)
Net increase in cash and cash equivalents 3 (3) --
Cash and cash equivalents at start of the year 2,948 (2,948) --
Cash and cash equivalents at end of the year 2,951 (2,951) --
3. Restricted Cash
The restricted cash accounts were established and are maintained by Bank of New
York (formerly the Chase Manhattan Trust Company of California and JPMorgan
Chase) as the Collateral Trustee who maintains the accounts as collateral agent
for the equal and ratable benefit of the holders of the 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 Term Notes and any operating costs
in relation to operating the Owners.
4. Finance Lease
The Company has chartered its Vessel on a long term bareboat charter (the
"Charter") to Chevron Transport Corporation (the "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 did not elect to terminate the
Charter on the first two specified dates April 1, 2005 and April 1, 2007. The
remaining specified dates are April 1, 2009 and April 1, 2011. For these
remaining optional termination dates a 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 to be given seven months prior to the
termination date. Chevron is required to pay the Company termination payments
(the "Termination Payment") of $8.89 million and $7.88 million respectively, on
or prior to the remaining termination.
Chevron has the option to purchase the vessel for $1 on April 1, 2015 provided
the Initial Charter is still in place. As at June 18, 2007, no termination
notice had been received from Chevron for the Charter.
The following schedule lists the components of the net investment in finance
lease:
(in thousands of $) 2006 2005
Total minimum lease payments to be received 36,210 41,673
Less: Unearned income (9,950) (12,393)
- --------------------------------------------------------------------------------
Net investment in finance lease 26,260 29,280
================================================================================
Lease payments under the charter agreement for each of the five succeeding years
are as follows: $5,209,000 in 2007, $4,955,000 in 2008, $4,701 ,000 in 2009,
$4,447,000 in 2010 and $4,193,000 in 2011.
5. Deferred Charges
Deferred charges represent the capitalization of debt issue costs. These costs
are amortized over the term of the Loans on a straight line basis. The deferred
charges are comprised of the following amounts:
(in thousands of $) 2006 2005
Debt arrangement fees 1,006 1,006
Accumulated amortization (817) (791)
- --------------------------------------------------------------------------------
189 215
================================================================================
6. Debt
(in thousands of $) 2006 2005
8.52% Term Loans due 2015 26,858 29,842
Less: current portion (2,984) (2,984)
- --------------------------------------------------------------------------------
23,874 26,858
================================================================================
The outstanding debt as of December 31, 2006 is repayable as follows:
(in thousands of $)
Year ending December 31,
2007 2,984
2008 2,984
2009 2,984
2010 2,984
2011 2,984
2012 and later 11,938
- --------------------------------------------------------------------------------
Total debt 26,858
================================================================================
The Term Loans bear interest at a rate of 8.52% per annum. Interest is payable
semi-annually on April 1 and October 1 each year. Principal is repayable on the
Term Loans in accordance with a remaining nine 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 $7
million.
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. The Company did not receive any notification from the Initial
Charter of their intention to terminate the Charter on April 1, 2005 or April 1,
2007; therefore the Charter remains in place with the remaining Optional
Termination Dates being April 1, 2009 and April 1, 2011.
Charter Charter
Scheduled payment date Charter not terminated terminated
terminated 2009 2011
(in thousands of $) $'000 $'000 $'000
April 1, 2007 2,984 2,984 2,984
April 1, 2008 2,984 2,984 2,984
April 1, 2009 2,984 2,984 2,984
April 1, 2010 2,984 1,470 2,984
April 1, 2011 2,984 1,590 2,984
April 1, 2012 2,984 1,730 1,090
April 1, 2013 2,984 1,880 1,180
April 1, 2014 2,984 2,030 1,280
April 1, 2015 2,986 9,206 8,388
- --------------------------------------------------------------------------------
26,858 26,858 26,858
================================================================================
The Term Loans are collateralized by 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.
7. Share Capital
(in $) 2006 2005
Authorized share capital:
2 shares of $500 each 1,000 1,000
=========================================================================
Issued and outstanding share capital:
2 shares of $500 each 1,000 1,000
=========================================================================
8. 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
Restricted cash 1,867 1,867 1,837 1,837
8.52% Term Loans due 2015 28,637 26,858 33,423 29,842
The methods and assumptions used in estimating the fair values of financial
instruments are as follows:
The carrying value of restricted cash, which is 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 Term Loans are from charterhire payments from Chevron,
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 Term Loans
is wholly dependent upon the financial condition, results of operations and cash
flows from Chevron.
9. 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 the Vessel, along with a fee of $3,000
covering all four Vessels in the California Petroleum Group, payable
semi-annually in arrears for the period until the third anniversary of the
closing of the Notes issue then increasing by four percent 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 the 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 four percent. In addition, the Technical
Advisor is entitled to be reimbursed for the fees, costs and expenses of
conducting periodic inspections of the Vessel.
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 four percent 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, 2006,
2005, and 2004 are as follows:
(in thousands of $) 2006 2005 2004
Management fee expenses 40 38 37
Management fee payable 10 10 9
10. Commitments and Contingencies
The Term Loans are collateralized 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, 2006, Chevron holds an option to purchase the Vessel for $1
on April 1, 2015 provided the Initial Charter is still in place.
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 authorized.
CalPetro Tankers (IOM) Limited
/s/ Kate Blankenship
------------------------------
Kate Blankenship
Director and Secretary
Date: June 26, 2007