Item 1.
Business
The Company
California Petroleum Transport Corporation (the “Company”) was incorporated in Delaware in 1995. We are a special purpose corporation organized solely for the purpose of issuing, as agent on behalf of the Owners (as defined below), term mortgage notes and serial mortgage notes (together the “Notes”) as our obligations and loaning the proceeds of the sales to the Owners, by means of term and serial loans, to facilitate the funding of the acquisition of the four vessels (the “Vessels”) described below in Item 2. from Chevron Transport Corporation, or Chevron. All of our shares were held by The California Trust, a Massachusetts charitable lead trust formed by JH Holdings, a Massachusetts corporation, for the benefit of certain charitable institutions in Massachusetts. On September 14, 2009, The California Trust transferred all of the Company's shares of common stock to GSS Holdings Boston, Inc. ("Holdings"), a Delaware corporation. Global Securitization Services, LLC ("GSS") a Delaware limited liability company, an affiliate of Holdings, provides management and administrative services to the Company.
Information about revenues, profits and total assets is provided in the financial statements included in this report.
We have no employees.
The Owners
Each of CalPetro Tankers (Bahamas I) Limited (“CalPetro Bahamas I”), CalPetro Tankers (Bahamas II) Limited (“CalPetro Bahamas II”) and CalPetro Tankers (Bahamas III) Limited (“CalPetro Bahamas III”), was organized as a special purpose company under the laws of the Bahamas for the purpose of acquiring and chartering one of the Vessels. Similarly, CalPetro Tankers (IOM) Limited (“CalPetro IOM”) was organized as a special purpose company under the laws of the Isle of Man for the purpose of acquiring and chartering one of the Vessels. Each of the foregoing companies is also referred to in this document as an “Owner”. Each Owner will only engage in the business of the ownership and chartering of its Vessel in addition to activities resulting from or incidental to such ownership and chartering. Each Owner is a majority-owned subsidiary of Frontline Ltd. or Frontline, an Oslo, London and New York Stock Exchange listed Bermuda company. None of the Owners are owned by, or are affiliated with, us and neither we nor any Owner is owned by or is an affiliate of Chevron.
The Charters
Three of the Vessels, the Cygnus Voyager, the Altair Voyager and the Sirius Voyager are currently chartered to Chevron under bareboat charters dated as of the date of the original issuance of the Notes (collectively, the “Chevron Charters”) and are due to expire on April 1, 2015 assuming no termination of the Sirius Voyager charter. The Front Voyager is currently chartered to Front Voyager Inc. under a bareboat charter (the “Front Voyager Charter”) which is scheduled to expire on April 1, 2010 following the notice of termination from Front Voyager Inc. on January 5, 2010. A Memorandum of Agreement, dated March 15, 2010, has been signed regarding the sale of Front Voyager. Delivery to the buyers is expected to occur in the first half of April 2010. We refer to the Chevron Charters and the Front Voyager Charter collectively as the Charters.
Under the Chevron Charters, Chevron can elect to terminate the charter on any of three termination dates occurring at two-year intervals that began in 2003, 2004 and 2006. Non-binding notice of Chevron’s intention to terminate must be given one year prior to the termination date. Binding notice must be given seven months prior to the termination date. The final termination dates for the Cygnus Voyager and Altair Voyager have passed and Chevron did not give notice of termination. Chevron is required to pay the Owner of Sirius Voyager a termination payment of $7.88 million on the remaining termination date of April 1, 2011 if the charter is terminated. As of March 19, 2010, we have not received a termination notice with respect to Sirius Voyager.
On April 21, 2005, one of the Owners, CalPetro Bahamas III received irrevocable notice from Chevron regarding the termination of its bareboat charter of the vessel Front Voyager pursuant to the terms of that charter and received from Chevron a termination fee in the amount of $5.05 million. On April 1, 2006, the Front Voyager was redelivered to its Owner who immediately delivered it to Front Voyager Inc., a wholly owned subsidiary of Frontline, to commence employment under the Front Voyager Charter for an initial two year period (the “Initial Period”) which provided for prepaid charterhire of $5.05 million for the two years ended April 1, 2008. Front Voyager Inc. exercised options for two one year extensions and gave notice of termination on January 5, 2010 such that the charter will terminate on April 1, 2010. As a result, Front Voyager Inc. is obligated to pay CalPetro Bahamas III an amount, after accounting for the Chevron termination fee of $5.05 million, Initial Period charterhire and all expenses incurred to recharter the vessel that is sufficient to cover:
(a)
the principal and interest due on the serial and term loans from California Petroleum based on the revised sinking fund schedule that took effect when the charter was terminated by Chevron;
(b)
any recurring fees and taxes for the vessel;
(c)
the management fee and technical advisor’s fees allocated to the Owner;
(d)
the amount of fees and expenses of the Indenture Trustee, trustee fees and designated representative fees allocable to the Owner; and
(e)
an amount equal to at least 30% of the estimated annual amounts above to cover miscellaneous and unexpected expenses.
If the charter agreement for the Sirius Voyager is terminated and an acceptable replacement charter cannot be found, Frontline will solicit bids for the sale of the vessel. If there are no bids that provide net proceeds that, together with the termination payment, at least equal the allocated principal amount of the Company’s term mortgage notes plus any interest accrued, Frontline will forward to the appointed Indenture Trustee copies of all bids for the recharter of the vessel. Unless instructed by all the holders of the Term Mortgage Notes to accept a sale bid that is below the required minimum bid, Frontline will attempt to recharter the vessel on such terms as it deems appropriate provided that:
(i)
such charter is at arms length;
(ii)
such charter shall have a termination date no later than April 1, 2015; and
(iii)
charterhire payable is sufficient to make the mandatory sinking fund payments together with all related interest, recurring fees and taxes for the vessel and the cost of insurance not maintained by the charterer, management fees and technical advisor’s fees and the fees of the designated representative, the indenture trustee and the collateral trustee as defined in the prospectus for the Registrant’s 8.52% First Preferred Mortgage Notes due 2015.
The International Tanker Market
The market for international seaborne crude oil transportation services is highly fragmented and competitive. Seaborne crude oil transportation services are generally provided by two main types of operators: major oil company captive fleets (both private and state-owned) and independent shipowner fleets. In addition, several owners and operators pool their vessels together on an ongoing basis, and such pools are available to customers to the same extent as independently owned and operated fleets. Many major oil companies and other oil trading companies, the primary charterers of the vessels owned or controlled by the Owners, also operate their own vessels and use such vessels not only to transport their own crude oil but also to transport crude oil for third party charterers in direct competition with independent owners and operators in the tanker charter market. Competition for charters is intense and is based upon price, location, size, age, condition and acceptability of the vessel and its manager. Competition is also affected by the availability of other size vessels to compete in the trades in which the Owners engage.
The oil transportation industry has historically been subject to regulation by national authorities and through international conventions. Over recent years however, an environmental protection regime has evolved which could have a significant impact on the operations of participants in the industry in the form of increasingly more stringent inspection requirements, closer monitoring of pollution-related events, and generally higher costs and potential liabilities for the owners and operators of tankers.
In order to benefit from economies of scale, tanker charterers will typically charter the largest possible vessel to transport oil or products, consistent with port and canal dimensional restrictions and optimal cargo lot sizes. The oil tanker fleet is generally divided into the following five major types of vessels, based on vessel carrying capacity:
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Ultra large crude carriers “ULCC”- size range of approximately 320,000 to 450,000 deadweight tons (dwt);
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Very large crude carriers “VLCC”- size range of approximately 200,000 to 320,000 dwt;
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Suezmax-size range of approximately 120,000 to 200,000 dwt;
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Aframax-size range of approximately 60,000 to 120,000 dwt; and
·
small tankers of less than approximately 60,000 dwt.
ULCCs and VLCCs typically transport crude oil in long-haul trades, such as from the Arabian Gulf to Rotterdam via the Cape of Good Hope. Suezmax tankers also engage in long-haul crude oil trades as well as in medium-haul crude oil trades, such as from West Africa to the East Coast of the United States. Aframax-size vessels generally engage in both medium and short-haul trades of less than 1,500 miles and carry crude oil or petroleum products. Smaller tankers mostly transport petroleum products in short-haul to medium-haul trades.
The shipping industry is highly cyclical, experiencing volatility in profitability, vessel values and charter rates. In particular, freight and charter hire rates are strongly influenced by the supply and demand for shipping capacity.
Available Information
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, we file reports and other information with the Securities and Exchange Commission (“SEC”). These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation from 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 our principal executive offices at 114 West 47th Street, Suite 2310, New York, New York 10036 or at the offices of our manager at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, Bermuda HM 08.
Item 1A.
Item 1A. Risk Factors
Our capitalization is nominal and we have no source of income other than payments by the Owners who are foreign corporations as described above. As a result, we are exposed to the same risk factors affecting the Owners. The following is a summary of some of the risks which may adversely affect our business, financial condition or results of operations. Our potential losses due to exposure to the following risk factors are difficult to quantify.
The cyclical nature of the tanker industry may lead to volatile changes in charter rates, which may adversely affect the earnings of the Owners.
Three of the Vessels are currently operated under the Chevron Charters. The Chevron Charters each have a term expiring on April 1, 2015, subject to Chevron having an option to terminate the charters for Sirius Voyager as discussed above. On April 21, 2005, Chevron gave irrevocable notice of its intention to exercise its first termination option effective April 1, 2006 on the single hull vessel, Front Voyager. Pursuant to a bareboat charter agreement between CalPetro Bahamas III and Front Voyager Inc., Front Voyager Inc. agreed to charter the Front Voyager as of April 1, 2006 for an initial two year period with a further seven annual optional periods. On March 25, 2009, Front Voyager Inc. exercised its option to extend the charter for the second one year period beginning April 1, 2009. On January 5, 2010, Front Voyager Inc. gave notice of termination of the bareboat charter to take effect on April 1, 2010. A Memorandum of Agreement, dated March 15, 2010, has been signed regarding the sale of Front Voyager. Delivery to the buyers is expected to occur in the first half of April 2010. We refer to Chevron and Frontline as the Charterers.
Historically, the tanker industry has been highly cyclical, with volatility in profitability and asset values resulting from changes in the supply of and demand for tanker capacity. If the tanker market is depressed in the future, the Owners earnings and available cash flow may decrease. The ability to re-charter the Vessels on the expiration or termination of the Initial Charters and the charter rates payable under any renewal or replacement charter 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.
The factors affecting the supply and demand for oil tankers are outside of the Owners control, and the nature, timing and degree of changes in industry conditions are unpredictable. The factors that influence demand for tanker capacity include:
·
demand for oil and oil products;
·
global and regional economic and political conditions;
·
changes in oil production and refining capacity;
·
environmental and other regulatory developments;
·
the distance oil and oil products are to be moved by sea; and
·
changes in seaborne and other transportation patterns.
The factors that influence the supply of tanker capacity include:
·
the number of newbuilding deliveries;
·
the scrapping rate of older vessels;
·
port or canal congestion;
·
vessel casualties;
·
price of steel;
·
potential conversion of vessels to alternative use;
·
the number of vessels that are out of service; and
·
changes in environmental and other regulations that may effectively cause reductions in the carrying capacity of vessels or early obsolescence of tonnage.
The Owners may not be able to arrange further charters at rates sufficient to meet interest and principal payments due to us on the term loans. Should the Owners default on payment of this interest and principal, the value of collateral to the term loans may be insufficient to repay the Notes.
Because the Owners’ Charters may expire or be terminated, they may incur additional expenses and not be able to re-charter the Vessels profitably.
As discussed above, Chevron may elect to terminate their charter for Sirius Voyager and Front Voyager Inc has elected not to exercise its annual renewal options with respect to the charter for the Front Voyager. We cannot predict at this time any of the factors that Chevron will consider in deciding whether to exercise the remaining termination option under the Chevron Charters. It is likely, however, that Chevron would consider a variety of factors, which may include whether a vessel is suitable to their requirements and whether competitive charterhire rates are available in the open market at that time.
In the event that Chevron terminates the charter for Sirius Voyager, Chevron is required under the terms of the charter to make a termination payment of $7.88 million to CalPetro Tankers (IOM) Limited. If Chevron terminates the Charter, the Owner will attempt to arrange a replacement charter, or may sell the Vessel to satisfy its obligations under the term loans. We cannot assure you that the Owner will be able to meet these obligations upon the termination of a charter. Replacement charters may include shorter-term time charters and employing the Vessel on the spot charter market which is subject to greater fluctuation than the time charter market. Any replacement charter may bring the Owner lower charter rates and would likely require the Owner to incur greater expenses which may reduce the amounts available, if any, to pay principal and interest on the term loans due to us. Should the Owners default on payment of this interest and principal, the value of collateral to the term loans may be insufficient to repay the Notes.
Front Voyager Inc. one of our current charterers, is a wholly owned subsidiary of, Frontline, which also is our manager. To the extent the vessel’s sale is not completed, conflicts of interest might arise where Frontline would favor its own interests over ours.
Front Voyager Inc. the current charterer of the Front Voyager, is a wholly owned subsidiary of Frontline. As such, situations might arise where Frontline may favor its own interest to the detriment of the Front Voyager’s owner, CalPetro Bahamas III, or the Company’s security holders. Possible conflicts of interest may arise in re-negotiation of our charter with Front Voyager Inc. or negotiations of disputes arising from the Front Voyager Charter, where Frontline may act in its own best interests and not our best interests.
The Owners operate in the highly competitive international tanker market which could affect their position at the end of the Charters or if the charterers terminate the Charters earlier.
The operation of tanker vessels and transportation of crude and petroleum products is an extremely competitive business. During the term of the Charters with the charterers, the Owners are not exposed to the risk associated with this competition. At the end of the Charters or in the event that the charterers terminate any Charter at any of the optional termination dates, the Owners will have to compete with other tanker owners, including major oil companies as well as independent tanker companies for charters. Due in part to the fragmented tanker market, competitors with greater resources could enter and operate larger fleets through acquisitions or consolidations and may be able to offer better prices and fleets, which could result in the Owners achieving lower revenues from their Suezmax oil tankers which will reduce the amounts available, if any, to pay the principal and interest on the serial and term loans due to us. Should the Owners default on payment of this interest and principal, the value of collateral to the serial and term loans may be insufficient to repay the Notes.
Any decrease in shipments of crude oil may adversely affect the Owners financial performance at the end of the Charter or if Chevron terminates the Charter prior to that time.
The demand for our oil tankers derives primarily from demand for Arabian Gulf and West African crude oil, which, in turn, primarily depends on the economies of the world’s industrial countries and competition from alternative energy sources. A wide range of economic, social and other factors can significantly affect the strength of the world’s industrial economies and their demand for crude oil from the mentioned geographical areas. One such factor is the price of worldwide crude oil. The world’s oil markets have experienced high levels of volatility in the last 25 years. If oil prices were to rise dramatically, the economies of the world’s industrial countries may experience a significant downturn.
Any decrease in shipments of crude oil from the above mentioned geographical areas would have a material adverse effect on the Owners’ financial performance. Among the factors which could lead to such a decrease are:
·
increased crude oil production from other areas;
·
increased refining capacity in the Arabian Gulf or West Africa;
·
increased use of existing and future crude oil pipelines in the Arabian Gulf or West Africa;
·
a decision by Arabian Gulf or West African oil-producing nations to increase their crude oil prices or to further decrease or limit their crude oil production;
·
armed conflict in the Arabian Gulf and West Africa and political or other factors; and
·
the development and the relative costs of nuclear power, natural gas, coal and other alternative sources of energy.
The supply of vessels generally increases with deliveries of new vessels and decreases with the scrapping of older vessels, conversion of vessels to other uses, such as floating production and storage facilities, and loss of tonnage as a result of casualties. Currently there is significant newbuilding activity with respect to virtually all sizes and classes of vessels. If the amount of tonnage delivered exceeds the number of vessels being scrapped, vessel capacity will increase. As discussed below, if the supply of vessel capacity increases and the demand for vessel capacity does not, the charter rate paid for the Vessels as well as the value of the Vessels could materially decline. Such a decline in charter rate and vessel value would likely have an adverse effect on the Owners revenues and profitability at the end of the Charter or if Chevron terminates the Charter prior to that time which in turn could lead to defaults in payment.
An over-supply of tanker capacity may lead to reductions in charter rates, vessel values, and profitability when the Charters expires or is terminated by Chevron.
The market supply of tankers is affected by a number of factors such as demand for energy resources, oil, and petroleum products, as well as strong overall economic growth in parts of the world economy including Asia. If the capacity of new ships delivered exceeds the capacity of tankers being scrapped and lost, tanker capacity will increase. If the supply of tanker capacity increases and the demand for tanker capacity does not increase correspondingly, charter rates could materially decline. A reduction in charter rates may have a material adverse effect on the Owners’ results of operations if the Charters expire or are terminated.
Disruptions in world financial markets and the resulting governmental action in the United States and in other parts of the world could have a material adverse impact on the Owners results of operations, financial condition and cash flows.
Over the recent period, global financial markets have experienced extraordinary disruption and volatility following adverse changes in the global credit markets. The credit markets in the United States have experienced significant contraction, deleveraging and reduced liquidity, and governments around the world have taken highly significant measures in response to such events and may implement other significant responses in the future.
Securities and futures markets and the credit markets are subject to comprehensive statutes, regulations and other requirements. The Commission, other regulators, self-regulatory organizations and exchanges have enacted temporary emergency regulations and may take other extraordinary actions in the event of market emergencies and may effect permanent changes in law or interpretations of existing laws. Recently, a number of financial institutions have experienced serious financial difficulties and, in some cases, have entered into bankruptcy proceedings or are in regulatory enforcement actions. These difficulties have resulted, in part, from declining markets for assets held by such institutions, particularly the reduction in the value of their mortgage and asset-backed securities portfolios. These difficulties have been compounded by a general decline in the willingness by banks and other financial institutions to extend credit.
The Owners face risks attendant to changes in economic environments, changes in interest rates and instability in securities markets around the world, among other factors. Major market disruptions and the current adverse changes in market conditions and regulatory climate in the United States and worldwide may adversely affect the Owners businesses or impair their ability to borrow amounts under any future financial arrangements. We cannot predict how long the current market conditions will last. However, these recent and developing economic and governmental factors, including proposals to reform the financial system, may have a material adverse effect on the Owners results of operations, financial condition or cash flows.
Safety, environmental and other governmental and other requirements expose us to liability, and compliance with current and future regulations could require significant additional expenditures, which could have a material adverse affect on our business and financial results.
The Owners’ operations are affected by extensive and changing international, national, state and local laws, regulations, treaties, conventions and standards in force in international waters, the jurisdictions in which the Vessels operate and the country or countries in which such vessels are registered, including those governing the management and disposal of hazardous substances and wastes, the cleanup of oil spills and other contamination, air emissions, and water discharges and ballast water management. These regulations include the U.S. Oil Pollution Act of 1990, or OPA, the United States Clean Air Act and United States Clean Water Act, the United States Marine Transportation Security Act of 2002, the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended, or CLC, the International Convention for the Prevention of Pollution from Ships of 1975, the International Convention for the Safety of Life at Sea of 1974, or SOLAS, the International Convention on Load Lines of 1966 and implementing regulations adopted by the International Maritime Organization, or IMO (the United Nations agency for maritime safety and the prevention of pollution by vessels), the European Union, and other international, national and local regulatory bodies.
In addition, vessel classification societies also impose significant safety and other requirements on our vessels. In complying with current and future environmental requirements, the Owners may also incur significant additional costs in meeting new maintenance and inspection requirements, in developing contingency arrangements for potential spills and in obtaining insurance coverage. Government regulation of vessels, particularly in the areas of safety and environmental requirements, can be expected to become stricter in the future and require the Owners to incur significant capital expenditures on their Vessels to keep them in compliance, or even to scrap or sell certain vessels altogether. For example, various jurisdictions, including the United States, are considering or have enacted legislation imposing more stringent requirements on air emissions and ballast water discharges from vessels.
Many of these requirements are designed to reduce the risk of oil spills and other pollution, and compliance with these requirements can be costly. These requirements also can affect the resale value or useful lives of the Vessels’, require a reduction in cargo-capacity, ship modifications or operational changes or restrictions, lead to decreased availability of insurance coverage for environmental matters or result in the denial of access to certain jurisdictional waters or ports, or detention in, certain ports.
Under local, national and foreign laws, as well as international treaties and conventions, the Owners could incur material liabilities, including cleanup obligations, natural resource damages and third-party claims for personal injury or property damages, in the event that there is a release of petroleum or other hazardous substances from our vessels or otherwise in connection with our current or historic operations. The Owners could also incur substantial penalties, fines and other civil or criminal sanctions, including in certain instances seizure or detention of our vessels, as a result of violations of or liabilities under environmental laws, regulations and other requirements.
For example, OPA affects all vessel owners shipping oil to, from or within the United States. OPA allows for potentially unlimited liability without regard to fault for owners, operators and bareboat charterers of vessels for oil pollution in United States waters. Similarly, CLC, 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.
OPA also provides for the scheduled phase-out of all non-double-hull tankers that carry oil in bulk in United States waters. The IMO and the European Union, or EU, have adopted separate phase-out schedules applicable to single-hull tankers operating in international and EU waters, respectively. These regulations could reduce the demand for single-hull tankers, force the remaining single-hull vessels into less desirable trading routes, increase the number of vessels trading in routes open to single-hull vessels and could increase demands for further restrictions in the remaining jurisdictions that permit the operation of these vessels. As a result, single-hull vessels are likely to be chartered less frequently and at lower rates.
In recent years, the IMO and EU have both accelerated their existing non-double-hull phase-out schedules in response to highly publicized oil spills and other shipping incidents involving companies unrelated to us. Future accidents may be expected in the industry, and such accidents or other events may be expected to result in the adoption of even stricter laws and regulations, which could limit the owners operations or their ability to do business and which could have a material adverse effect on their business and financial results.
Extensive and changing environmental laws and other regulations, compliance with which may entail significant expenses including expenses for ship modifications and changes in operating procedures and therefore affect the operation of the Vessels. Although the charterers are responsible for all operational matters and bear all these expenses during the term of the current Charters, these expenses could have an adverse effect on the Owners’ business operations at any time after the expiration or termination of the Charters or in the event the charterers fail to make a necessary payment.
An acceleration of the current prohibition to trade deadlines for non-double hull tankers could adversely affect the Owners operations.
One of the Vessels is a single hull tanker. The United States, the European Union and the International Maritime Organization, or IMO, have all imposed limits or prohibitions on the use of these types of tankers in specified markets after certain target dates, depending on certain factors such as the size of the vessel and the type of cargo. In the case of our single hull tanker, these phase out dates range from 2010 to 2015. As of April 15, 2005, the Marine Environmental Protection Committee of the IMO has amended the International Convention for the Prevention of Pollution from Ships to accelerate the phase out of certain categories of single hull tankers, including the types of vessel in our fleet, from 2015 to 2010 unless the relevant flag states extend the date. This change could result in non-double hull tankers being unable to trade in many markets after 2010. The phase out of single hull tankers will also reduce the demand for single hull tankers, force the remaining single hull tankers into employment on less desirable trading routes and increase the number of tankers trading on those routes. As a result, single hull tankers are likely to be chartered less frequently and at lower rates. Moreover, the IMO may still adopt regulations in the future that could adversely affect the useful life of the non-double hull vessel as well as the Owner’s ability to generate income which will affect the Owner’s ability to service its debt to us.
The Owners may not have adequate insurance in the event existing charters are terminated.
There are a number of risks associated with the operation of ocean-going vessels, including mechanical failure, collision, property loss and cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labour strikes. In addition, the operation of any vessel is subject to the inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. Under the Charters, the charterers bear all risks associated with the operation of the Vessels including the total loss of the Vessels. However, we cannot assure holders of the Notes that the Owners will adequately insure against all risks or in the event the Charters expire or are terminated. The Owners may not be able to obtain adequate insurance coverage at reasonable rates for the Vessels in the future and the insurers may not pay particular claims.
Acts of piracy on ocean-going vessels have recently increased in frequency, which could adversely affect the Owners business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea and in the Gulf of Aden off the coast of Somalia. Throughout 2008 and 2009, the frequency of piracy incidents against commercial shipping vessels increased significantly, particularly in the Gulf of Aden off the coast of Somalia. For example, in November 2008, the M/V Sirius Star, a tanker vessel not affiliated with any of the Owners, was captured by pirates in the Indian Ocean while carrying crude oil estimated to be worth $100 million. If these pirate attacks result in regions in which the owners Vessel are deployed being characterized as “war risk” zones by insurers, as the Gulf of Aden temporarily was in May 2008, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including due to employing onboard security guards, could increase in such circumstances. The Owners may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, any of these events may result in loss of revenues, increased costs and decreased cash flows to Chevron and Front Voyager Inc, which could impair its ability to make payments to the Owners under Charter.
The Owners are highly dependent on Chevron and Chevron Corporation and Frontline.
The Owners are highly dependent on the performance by Chevron and, if the sale is not completed, Front Voyager Inc., a subsidiary of Frontline, of their obligations under the Charters and by Chevron’s guarantor, the Chevron Corporation, of its obligations under its guarantee. A failure by Chevron, Chevron Corporation or Front Voyager Inc to perform their obligations could result in the inability of the Owners to service the term loans. If the Notes holders had to enforce the mortgages securing the Notes, they may not be able to recover the principal and interest owed to them.
The Owners may not be able to pay down their debt in the future.
Currently, the Owners must dedicate a large portion of their cash flow from operations to satisfy their debt service obligations to us. Their ability to pay interest on, and other amounts due in respect of, the term loans will depend on their future operating performance, prevailing economic conditions and financial, business and other factors, many of which are beyond their control. There can be no assurance that their cash flow and capital resources will be sufficient for payment of their indebtedness in the future. If the Owners are unable to service their indebtedness or obtain additional financing, as needed, this could have a material adverse effect on the holders of the Notes.
Governments could requisition the Vessels during a period of war or emergency, resulting in a loss of earnings.
A government could requisition for title or seize the Vessels. Requisition for title occurs when a government takes control of a vessel and becomes her owner. Also, a government could requisition the Vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes her charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. This amount could be materially less than the charterhire that would have been payable otherwise. In addition, the Owners would bear all risk of loss or damage to their vessels under requisition for hire Government requisition of the Vessels would negatively impact the revenues of the Owners and therefore impact their ability to service the debt due to us.
The Owners operations outside the United States expose them to global risks that may interfere with the operation of their Vessel.
The Owners are international companies and primarily conduct their operations outside of the United States. Changing economic, regulatory, political and governmental conditions in the countries in which they are engaged in business or where their Vessel is registered affect them. Hostilities or other political instability in regions where their Vessels trade could affect their trade patterns and adversely affect their operations and performance. The terrorist attacks against targets in the United States on September 11, 2001 and the military response by the United States has increased the likelihood of acts of terrorism worldwide. Acts of terrorism, regional hostilities or other political instability, as shown by the attack on the Limburg in Yemen in October 2002, attacks on oil pipelines during and subsequent to the Iraq war in 2003 and attacks on expatriate workers in the Middle East could adversely affect the oil trade and reduce the Owners revenue or increase our expenses.
The Vessels may call on ports located in countries that are subject to restrictions imposed by the United States government.
The Charters are bareboat charters and, from time to time, the Vessels may call on ports located in countries subject to sanctions and embargoes imposed by the United States government and countries identified by the United States government as state sponsors of terrorism. Although these sanctions and embargoes do not prevent their Vessel from making calls to ports in these countries, potential investors could view such port calls negatively, which could adversely affect their reputation and the market for their Notes. Investor perception of the value of the Notes may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
The Notes may not be as liquid as other securities with established trading markets, which may affect the value of the Notes and your ability to trade them.
The Notes are not listed on any national securities exchange and have no established trading market. Consequently, the Notes could trade at prices that may be higher or lower than their principal amount or purchase price, depending on many factors, including prevailing interest rates, the market for similar notes and warrants, and our financial performance. The placement agents for the Notes currently make a market for the Notes, but are not obligated to do so and may discontinue their market making activity at any time. In addition, their market making activity is subject to the limits imposed by the Securities Act and the Exchange Act. We cannot assure you that an active trading market exists for the Notes or that any market for the Notes will be liquid.
Item 1B.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Item 2.
Properties
We have no property. The Notes are our obligations and we loaned the proceeds of the sales to the Owners, by means of term and serial loans, to facilitate the funding of the acquisition of the Vessels. Other than the Vessels described below, the Owners have no property.
Owner
Vessel
Construction
Delivery Date
Approximate dwt.
CalPetro Tankers (Bahamas I) Limited
Cygnus Voyager
Double Hull
March
150,000
CalPetro Tankers (Bahamas II) Limited
Altair Voyager
Double Hull
August
130,000
CalPetro Tankers (Bahamas III) Limited
Front Voyager*
Single Hull
February
150,000
CalPetro Tankers (IOM) Limited
Sirius Voyager
Double Hull
October
150,000
*Sold per Memorandum of Agreement, dated March 15, 2010.
Item 3.
Item 3.
Legal Proceedings
We are not a party to any material pending legal proceedings other than ordinary routine litigation incidental to our business, to which we are a party. In the future, we may be subject to legal proceedings and claims in the ordinary course of business which, even if lacking merit, could result in the expenditure by us of significant financial and managerial resources.
Item 4.
Item 4.
(Removed and Reserved)
PART II
Item 5.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a)
There is no established trading market for our Common Stock.
(b)
As of March 19, 2010, there was one (1) holder of record of our Common Stock.
(c)
There were no repurchases of our Common Stock.
Item 6.
Item 6.
Selected Financial Data
The selected statement of operations and retained earnings data of the Company with respect to the fiscal years ended December 31, 2009, 2008 and 2007, and the balance sheet data as at December 31, 2009 and 2008 have been derived from the Company’s audited financial statements included herein and should be read in conjunction with such statements and the notes thereto. The selected statement of operations and retained earnings data with respect to the fiscal years ended December 31, 2006 and 2005 and the selected balance sheet data as at December 31, 2007, 2006 and 2005 have been derived from audited financial statements of the Company not included herein.
The following table sets forth a summary of quarterly unaudited results of operations for the years ended December 31, 2009 and 2008.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Strategy
California Petroleum
We were organized to issue, as agent on behalf of the Owners, the Notes and subsequently loan the proceeds of the sale to the Owners. Our only sources of funds with respect to the Notes are receipts of principal and interest on the related loans receivable from each Owner. General and administrative expenses comprising trustee fees, legal fees, agency fees and other costs incurred by us are billed to the Owners. The net result for the year is neither a gain nor a loss, the detail relating to such result is set forth in the Statement of Operations and Retained Earnings included herein.
The Owners
The Owners’ strategy has been to acquire the Vessels and charter them to Chevron and Frontline under bareboat charters which are expected to provide:
(a)
charterhire payments which we and the Owners expect will be sufficient to pay, so long as the Charters are in effect:
i.
the Owners’ obligations under the loans for acquiring the Vessels;
ii.
management fees and technical advisor’s fees;
iii.
recurring fees and taxes; and
iv.
any other costs and expenses incidental to the ownership and chartering of the Vessels that are to be paid by the Owners.
(b)
termination payments sufficient to make sinking fund and interest payments on the term mortgage notes, to the extent allocable to the Vessel for which the related Charter has been terminated, for at least two years following any such termination, during which time the Vessel may be sold or rechartered; and
(c)
that the Vessels will be maintained in accordance with the good commercial maintenance practices required by the Charters; and to arrange for vessel management and remarketing services to be available in case any Charter is terminated by Chevron or Frontline, or any Vessel is for any other reason returned to the possession and use of the Owners.
Results of Operations
Year ended December 31, 2009 compared to the year ended December 31,
Interest income
Interest income decreased in 2009 compared to 2008 primarily due to a decrease in the principal balance of loans receivable. On April 1, 2009, the Owners repaid total principal of $9.9 million on the Loans.
Expenses reimbursed
General and administrative expenses which are incurred by us are billed to the Owners. Refer to the discussion on administrative expenses below.
Interest expense
Interest expense decreased compared to 2008 primarily due to a decrease in the principal balance of the Notes. On April 1, 2009, we repaid total principal of $9.9 million on the Notes.
Administrative expenses
General and administrative expenses which comprise trustee fees, audit fees and other costs incurred by us are billed to the Owners.
Year ended December 31, 2008 compared to the year ended December 31,
Interest income
Interest income decreased in 2008 compared to 2007 primarily due to a decrease in the principal balance of loans receivable. On April 1, 2008, the Owners repaid total principal of $9.5 million on the Loans.
Expenses reimbursed
General and administrative expenses which are incurred by us are billed to the Owners. Refer to the discussion on administrative expenses below.
Interest expense
Interest expense decreased compared to 2007 primarily due to a decrease in the principal balance of the Notes. On April 1, 2008, we repaid total principal of $9.5 million on the Notes.
Administrative expenses
General and administrative expenses which comprise trustee fees, audit fees and other costs incurred by us are billed to the Owners. Administrative expenses are lower in 2008 as a result of a reduction in audit fees and an over accrual in 2007.
Liquidity and Capital Resources
We are a passive entity, and our activities are limited to collecting cash from the Owners and making repayments on the Notes. We have no source of liquidity and no capital resources other than the cash receipts attributable to the Term Loans.
Critical Accounting Policies
Our principal accounting policies are described in Note 2 to the financial statements included in Item 8 of this Form 10-K.
Recently Issued Accounting Standards
There were no new accounting standards implemented in 2009 that had an impact on our results or new accounting standards to be implemented in the future that we expect to have an impact on our results when adopted.
Tabular disclosure of contractual obligations
As at December 31, 2009, we had the following contractual obligations and commitments:
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
None of the instruments issued by us are for trading purposes. We are exposed to business risk inherent in the international tanker market as outlined in “Item 1A. Risk Factors.”
Quantitative information about the instruments as at December 31, 2009 is as follows:
Term Loans
The principal balances of the Term Loans made to the Owners earn interest at a rate of 8.52% per annum and are to be repaid over a remaining ten-year period beginning April 1, 2006. The loans are reported net of the related discounts, which are amortized over the term of the loans.
The table below provides the final principal payments on the term loans if none of the Charters are terminated and if the charter for Sirius Voyager is terminated in 2011. The information in the column entitled “Charters not terminated” takes into consideration the effect of the termination of the bareboat charter between CalPetro Tankers Bahamas III and Chevron, which was terminated with effect from April 1, 2006.
The outstanding amount of Term Loans at December 31, 2009 was $68.0 million.
Item 8.
Item 8.
Financial Statements and Supplementary Data
Page
Report of PricewaterhouseCoopers AS, Independent Registered Public Accounting Firm
Report of Grant Thornton LLP, Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2009 and 2008
Statements of Operations and Retained Earnings for the years ended December 31, 2009, 2008 and 2007
Statements of Cash Flows for the years ended December 31, 2009, 2008 and
Notes to Financial Statements
Report of Registered Public Accounting Firm
To the Board of Directors and Stockholder
California Petroleum Transport Corporation
We have audited the accompanying balance sheets of California Petroleum Transport Corporation (the “Company”) as of December 31, 2009 and December 31, 2008, the related statements of operations and retained earnings, and cash flows for each of the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Company as of December 31, 2007 and for the year then ended were audited by other auditors whose report dated March 28, 2008 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of California Petroleum Transport Corporation as of December 31, 2009 and December 31, 2008 and the results of its operations and retained earnings and cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers AS
PricewaterhouseCoopers AS
Oslo, Norway
March 19,
Report of Independent Registered Public Accounting Firm
To the Board of Directors
California Petroleum Transport Corporation
We have audited the accompanying statements of operations and retained earnings, and cash flows of California Petroleum Transport Corporation for the year ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of California Petroleum Transport Corporation for the year ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
Grant Thornton LLP
New York, New York
March 28,
California Petroleum Transport Corporation
Balance Sheets as of December 31, 2009 and 2008
(in thousands of US$)
See accompanying notes to the financial statements.
California Petroleum Transport Corporation
Statements of Operations and Retained Earnings for the years ended December 31, 2009, 2008 and 2007
(in thousands of US$)
See accompanying notes to the financial statements.
California Petroleum Transport Corporation
Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007
(in thousands of US$)
See accompanying notes to the financial statements.
California Petroleum Transport Corporation
Notes to Financial Statements
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
California Petroleum Transport Corporation (the “Company”), which is incorporated in Delaware, is a special purpose corporation that was organized solely for the purpose of issuing, as agent on behalf of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited and CalPetro Tankers (IOM) Limited (each an “Owner” and, together the “Owners”), serial mortgage notes and the term mortgage notes (together, “the Notes”) as full recourse obligations of the Company and loaning the proceeds of the sale of the Notes to the Owners by means of serial loans (“Serial Loans”) and term loans (“Term Loans”), to facilitate the funding of the acquisition of four vessels (the “Vessels”) from Chevron Transport Corporation (“Chevron”).
The Owners have chartered three of the Vessels to Chevron until 2015 under bareboat charters that are expected to provide sufficient payments to cover the Owners’ obligations to the Company. Chevron can terminate a charter at specified dates prior to the expiration of the charter, provided that it gives the Owner the requisite notice.
On April 21, 2005, pursuant to Clause 2 (a) (ii) of the bareboat charter dated April 5, 1995 between CalPetro Tankers (Bahamas III) Limited and Chevron, the Owner received irrevocable notice from Chevron regarding the termination of the bareboat charter of the vessel Front Voyager, a single hulled vessel on April 1, 2006. Under the terms of the bareboat charter between Chevron and Calpetro Tankers (Bahamas III) Limited, Chevron paid a termination fee of $5,050,000. As manager to CalPetro Tankers (Bahamas III) Limited, Frontline Ltd (“Frontline”) was obligated to find an acceptable replacement charter as defined by the indenture governing the issue of the Notes that were issued on behalf of the Calpetro Tankers (Bahamas III) Limited and three affiliated companies. Pursuant to a bareboat charter agreement between CalPetro Tankers (Bahamas III) Limited and Front Voyager Inc., a wholly owned subsidiary of Frontline, Front Voyager Inc. agreed to charter the Front Voyager as of April 1, 2006 for an initial two year period (the “Initial Period”) with a further seven annual optional periods. The charterhire payable for the Initial Period was $5,050,000 which was prepaid in full on March 31, 2006. The Initial Period expired on April 1, 2008 and Front Voyager Inc exercised the option to extend the charter for an additional year. On March 25, 2009, Front Voyager Inc. exercised its option to extend the charter for the second one year period beginning April 1, 2009. On January 5, 2010, Front Voyager Inc. exercised its option to terminate the charter on April 1, 2010. Front Voyager Inc. is required to pay a termination fee calculated in accordance with the bareboat charter, which will enable Bahamas III to satisfy its estimated obligations. A Memorandum of Agreement, dated March 15, 2010, has been signed regarding the sale of Front Voyager. Delivery to the buyers is expected to occur in the first half of April 2010.
The Front Voyager is a single hull vessel. The United States, the European Union and the International Maritime Organization, or the IMO, have all imposed limits or prohibitions on the use of these types of tankers in specified markets after certain target dates which range from 2010 to 2015. In December 2003, the Marine Environmental Protection Committee of the IMO adopted a proposed amendment to the International Convention for the Prevention of Pollution from Ships to accelerate the phase out of single hull tankers from 2015 to 2010 unless the relevant flag states extend the date to 2015. Management does not know whether the non-double hull vessel will be subject to this accelerated phase-out, but this change could result in the Vessel being unable to trade in many markets after 2010. Moreover, the IMO may still adopt regulations in the future that could adversely affect the useful life of the non-double hull vessel as well as the Owner’s ability to generate income which will affect the Owner’s ability to service its debt to the Company.
The Company’s only source of funds with respect to the Notes is the payment of the principal and interest on the loans by the Owners. The Company does not have any other source of capital for payment of the Notes. The Owners’ only sources of funds with respect to its obligation to the Company are the payments by Chevron and Frontline, including termination payments and investment income. The Owners do not have any other source of capital for payment of the loans.
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These statements reflect the net proceeds from the sale of the Term Mortgage Notes together with the net proceeds from sale of the Serial Mortgage Notes having been applied by way of long-term loans to the Owners to fund the acquisition of the Vessels from Chevron.
2. PRINCIPAL ACCOUNTING POLICIES
(a) Revenue and expense recognition
Interest receivable on the Serial Loans and on the Term Loans is accrued on a daily basis. Interest payable on the Term Mortgage Notes is accrued on a daily basis. The Owners reimburse the Company for general and administrative expenses incurred on their behalf.
(b) Deferred charges
Deferred charges represent the capitalization of debt issue costs. These costs are amortized over the term of the Notes to which they relate on a straight line basis, which is not materially different to the effective interest rate method.
(c) Reporting and functional currency
The reporting and functional currency is the United States dollar.
(d) Use of estimates
The preparation of financial statements in accordance with US GAAP requires the Company to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities on the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
(e) Recently Issued Accounting Pronouncements
There were no new accounting standards implemented in 2009 that had an impact on our results or new accounting standards to be implemented in the future that we expect to have an impact on our results when adopted.
3. TERM LOANS
The principal balances of the Term Loans earn interest at a rate of 8.52% per annum and are to be repaid over a remaining ten-year period beginning April 1, 2006. The loans are reported net of the related discounts, which are amortized over the term of the loans.
4. TERM LOANS COLLATERAL
The Term Loans are collateralized by first preferred mortgages on the Vessels to the Company. The earnings and insurance relating to the Vessels subject to the charters with Chevron have been collaterally assigned pursuant to an assignment of earnings and insurance to the Company, which in turn has assigned such assignment of earnings and insurance to The Bank of New York Mellon as the collateral trustee (the “Trustee”). The charters with Chevron and the Chevron Guarantees (where the obligations of Chevron are guaranteed by Chevron Corporation) relating to the Vessels have been collaterally assigned pursuant to the assignment of initial charter and assignment of initial charter guarantee to the Company, which in turn has assigned such assignments to the collateral trustee. The capital stock of each of the Owners has been pledged to the Company pursuant to stock pledge agreements which have also been collaterally assigned to the Trustee.
The Front Voyager was bareboat chartered to Front Voyager Inc. as of April 1, 2006 upon its redelivery from Chevron by virtue of a bareboat charter dated March 31, 2006 by and between CalPetro Tankers (Bahamas III) Limited and Front Voyager Inc. (the “Front Voyager Charter”). The earnings and insurance relating to the Front Voyager Charter have been collaterally assigned pursuant to an assignment of earnings and insurance to the Company, which in turn have assigned such assignment of earnings and insurance to the Trustee. The Front Voyager Charter has been collaterally assigned pursuant to an assignment of charter to the Company, which in turn has assigned such assignment to the Trustee.
5. DEFERRED CHARGES
6. TERM MORTGAGE NOTES
The outstanding debt as of December 31, 2009 is repayable as follows:
The term mortgage notes bear interest at a rate of 8.52% per annum. Principal is repayable on the term mortgage notes in accordance with a remaining ten-year sinking fund schedule beginning April 1, 2006. Interest is payable semi-annually. The term mortgage notes include certain covenants such as restriction on the payment of dividends and making additional loans or advances to affiliates. At December 31, 2009 and 2008, the Company was in compliance with these covenants.
As of December 31, 2009, the effective interest rate for the Notes of the Company was 8.52%.
The term mortgage notes are subject to redemption through operation of the mandatory sinking fund on April 1 of each year, commencing on April 1, 2006, to and including April 1, 2015, according to the applicable schedule of sinking fund payments set forth herein. The sinking fund redemption price is 100% of the principal amount of term mortgage notes being redeemed, together with interest accrued to the date fixed for redemption. If a Charter is terminated, the scheduled mandatory sinking fund payments on the term mortgage notes will be revised so that the allocated principal amount of the term mortgage notes for the related Vessel will be redeemed on the remaining sinking fund redemption dates on a schedule that approximates level debt service with an additional principal payment on the maturity date of $7,000,000, for any of the double-hulled Vessels, or $5,500,000 for the single hulled Vessel.
The table below provides the final principal payments on the term loans if none of the Charters are terminated and if the charter for Sirius Voyager is terminated in 2011. The information in the column entitled “Charters not terminated” takes into consideration the effect of the termination of the bareboat charter between CalPetro Tankers Bahamas III and Chevron, which was terminated with effect from April 1, 2006.
7. SHARE CAPITAL
8. FINANCIAL INSTRUMENTS
Fair values
The carrying value and estimated fair value of the Company’s financial instruments at December 31, 2009 and 2008 are as follows:
The methods and assumptions used in estimating the fair values of financial instruments are as follows:
The carrying value of cash and cash equivalents, which are highly liquid, is a reasonable estimate of fair value.
The estimated fair value of the mortgage notes is based on the quoted market price of these or similar notes when available.
Concentrations of risk
The Company’s only source of funds for the repayment of the principal and interest on the Notes are the repayments from the Owners. The Owners only source of funds for the repayment of the principal and interest on the loans from the Company are from charterhire payments from Chevron and Front Voyager Inc as well as investment income and the proceeds, if any, from the sale of any of the Vessels. Accordingly, the Company’s ability to service its obligations on the Notes is wholly dependent upon the financial condition, results of operations and cash flows from the Owners.
9. SUBSEQUENT EVENTS
On January 5, 2010, Front Voyager Inc. gave notice that it would terminate the charter of the Front Voyager. The termination will take effect April 1, 2010. Front Voyager Inc. is required to pay a termination fee calculated in accordance with the bareboat charter, which will enable Bahamas III to satisfy its estimated obligations. On March 2, 2010, the Company received approval from the bondholders through a consent solicitation to amend and clarify certain indenture and related collateral agreement provisions and definitions to provide for the sale of Front Voyager, and its release from collateral agreements (‘Sale and Release’). As part of the Sale and Release, the charter for the vessel will be amended to permit sale prior to the current charter expiration date of April 1, 2010 if certain bid conditions are met, as well as to permit the mandatory redemption of approximately $10,884,000 in aggregate principal amount of the CPTC 8.52% First Preferred Mortgage Term Notes in connection with the Sale and Release as soon as possible. A Memorandum of Agreement, dated March 15, 2010, has been signed regarding the sale of Front Voyager. Delivery to the buyers is expected to occur in the first half of April 2010.
Item 9.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On August 13, 2008, the Board of Directors dismissed Grant Thornton LLP (“Grant Thornton”) as the Company’s independent registered public accounting firm. Also on August 13, 2008, the Board approved the engagement of PricewaterhouseCoopers AS (“PricewaterhouseCoopers”) as the Company’s independent registered public accounting firm for the year ending December 31, 2008. The Board determined to dismiss Grant Thornton and engage PricewaterhouseCoopers in order to realize economies and efficiencies, since PricewaterhouseCoopers acts as the independent registered public accounting firm for Frontline Ltd. and other companies connected with the Company.
The report of Grant Thornton on the financial statements of the Company as of December 31, 2007 did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with the audit of the Company’s financial statements for the fiscal year ended December 31, 2007, and through the period ended August 13, 2008, there were no disagreements with Grant Thornton on any matters of accounting principles or practices, financial statement disclosure, or auditing scope and procedures which, if not resolved to the satisfaction of Grant Thornton, would have caused Grant Thornton to make reference to the matter of such disagreements in their reports.
Item 9A(T).
Item 9A(T). Controls and Procedures
Disclosure Controls and Procedures
Our management, including our President and Treasurer, with the participation of our manager, Frontline Ltd., 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 amended, as of December 31, 2009. Based upon that evaluation, our President and Treasurer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2009.
Management’s Report on Internal Controls over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended.
Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, our President and Treasurer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that:
·
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
Our management, including our President and Treasurer with the participation of our manager, Frontline Ltd., conducted the evaluation of the effectiveness of the internal controls over financial reporting using the control criteria framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) published in its report entitled Internal Control-Integrated Framework. Based upon that evaluation, our President and Treasurer with the participation of our manager, Frontline Ltd. concluded that our internal controls over financial reporting were effective as of December 31, 2009.
The annual report does not include an attestation report of the Company’s current registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s current registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Change in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B.
Item 9B.
Other Information
None.
PART III
Item 10.
Item 10.
Directors and Executive Officers of the Registrant
The Company does not have any employees. The following table sets forth the name, age and principal position with the Company of each of its directors and executive officers.
Name
Age
Position with Company
Frank B. Bilotta
Timothy O’Connor
Christopher Thompson
Director, President, Treasurer and Assistant Secretary
Director, Secretary, Vice President and Assistant Treasurer
Director, Vice President, Assistant Secretary and Assistant Treasurer
Officers are appointed by the Board of Directors and will serve until they resign or are removed by the Board of Directors.
Frank B. Bilotta, serves as the Company's Director, President, Treasurer and Assistant Secretary. Mr. Bilotta is Principal Executive Officer and Principal Financial Officer of the Company. Mr. Bilotta is a principal at GSS and has served as its President and Treasurer since August 2005. Mr. Bilotta served as Vice President of GSS from December 2001 to August 2005.
Timothy O'Connor, serves as the Company's Director, Secretary, Vice President and Assistant Treasurer. Mr. O'Connor is a principal at GSS and has served as its Vice President since April 2002.
Christopher Thompson, serves as the Company's Director, Vice President, Assistant Secretary and Assistant Treasurer. Mr. Thompson is a principal at GSS and has served as its Vice President since May 2002.
The Company’s equity is neither listed nor publicly traded. The equity is held by one beneficial holder, The California Trust. The Owners obligations toward their bondholders are set out in detail in covenants contained in the Indenture for their Notes. For the above stated reasons, the Company has not adopted a business code of ethics or appointed an audit committee or financial expert.
Item 11.
Item 11.
Executive Compensation
None of the directors or executive officers of the Company receive any compensation in connection with their respective positions. The Company has not entered into any affiliate transactions, other than the original agency agreement for the issuance of the notes.
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides information as of March 19, 2010 with respect to the ownership by each person or group of persons, known by the registrant to be a beneficial owner of 5% or more of the Common Stock.
Except as set forth below, the Registrant is not aware of any beneficial owner of more than 5% of the Common Stock as of close of business on March 19, 2010.
Class of shares
Name and address of beneficial owners
Number of shares
Percent of Class
Common Stock
GSS Holdings Boston, Inc.
West 47th Street, Suite 2310
New York, NY 10036
1,000
100%
The Company does not have an equity compensation plan.
Item 13.
Item 13.
Certain Relationships and Related Transactions
None.
Item 14.
Item 14.
Principal Accountant Fees and Services
The following table summarizes fees we have paid to our principal accountant for independent auditing, tax and related services for each of the last two fiscal years:
(1) Audit fees represent amounts billed for each of the years presented for professional services rendered in connection with (i) the audit of our annual financial statements, (ii) the review of our quarterly financial statements or (iii) those services normally provided in connection with statutory and regulatory filings or engagements including comfort letters, consents and other services related to SEC matters. This information is presented as of the latest practicable date for this annual report on Form 10-K.
(2) Audit-related fees represent amounts we were billed in each of the years presented for assurance and related services that are reasonably related to the performance of the annual audit or quarterly reviews. This category primarily includes services relating to internal control assessments and accounting-related consulting.
(3) Tax fees represent amounts we were billed in each of the years presented for professional services rendered in connection with tax compliance, tax advice and tax planning.
(4) All other fees represent amounts we were billed in each of the years presented for services not classifiable under the other categories listed in the table above.
The Company’s Board of Directors has assigned responsibility for the engagement of the auditors to the Company’s manager.
PART IV
Item 15.
Item 15.
Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report under Item 8. Financial Statements and Supplementary Data:
Financial Statements
Report of Registered Public Accounting Firms
Balance Sheets at December 31, 2009 and 2008
Statements of Operations and Retained Earnings for the Years Ended December 31, 2009, 2008 and 2007
Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007
Notes to Financial Statements
(b) Exhibits Note brackets in some of the exhibits highlighted below.
3.1
Certificate of Incorporation of California Petroleum Transport Corporation (filed as Exhibit 3.1 to Registrant’s Registration Statement on Form S-1, Commission File Number 33-79220, and incorporated herein by reference).
3.2
Bylaws of California Petroleum Transport Corporation (filed as Exhibit 3.2 to Registrant’s Registration Statement on Form S-1, Commission File Number 33-79220, and incorporated herein by reference).
3.3
Certificate of Incorporation and Memorandum of Association of CalPetro Tankers (Bahamas I) Limited (filed as Exhibit 3.3 to Registrant’s Registration Statement on Form, Commission File Number 33-79220, and incorporated herein by reference).
3.4
Articles of Association of CalPetro Tankers (Bahamas I) Limited (filed as Exhibit 3.4 to Registrant’s Registration Statement on Form, Commission File Number 33-79220, and incorporated herein by reference).
3.5
Certificate of Incorporation and Memorandum of Association of CalPetro Tankers (Bahamas II) Limited (filed as Exhibit 3.5 to Registrant’s Registration Statement on Form, Commission File Number 33-79220, and incorporated herein by reference).
3.6
Articles of Association of CalPetro Tankers (Bahamas II) Limited (filed as Exhibit 3.6 to Registrant’s Registration Statement on Form, Commission File Number 33-79220, and incorporated herein by reference).
3.7
Certificate of Incorporation of CalPetro Tankers (IOM) Limited (filed as Exhibit 3.7 to Registrant’s Registration Statement on Form, Commission File Number 33-79220, and incorporated herein by reference).
3.8
Memorandum and Articles of Association of CalPetro Tankers (IOM) Limited (filed as Exhibit 3.8 to Registrant’s Registration Statement on Form, Commission File Number 33-79220, and incorporated herein by reference).
3.9
Certificate of Incorporation and Memorandum of Association of CalPetro Tankers (Bahamas III) Limited (filed as Exhibit 3.9 to Registrant’s Registration Statement on Form, Commission File Number 33-79220, and incorporated herein by reference).
3.10
Articles of Association of CalPetro Tankers (Bahamas III) Limited (filed as Exhibit 3.10 to Registrant’s Registration Statement on Form, Commission File Number 33-79220, and incorporated herein by reference).
4.1
Form of Serial Indenture between California Petroleum Transport Company and Chemical Trust Company of California, as Indenture Trustee (filed as Exhibit 4.1 to Registrant’s Registration Statement on Form S-3, Commission File Number 33-56377, and incorporated herein by reference).
10.1
Form of Vessel Purchase Agreement between CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (IOM) Limited, CalPetro Tankers (Bahamas III) Limited, and Chevron Transport Corporation (including the form of Assignment of such Vessel Purchase Agreement to California Petroleum Transport Corporation by CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (IOM) Limited, CalPetro Tankers (Bahamas III) Limited) (filed as Exhibit 10.3 to Registrant’s Registration Statement on Form S-3, Commission File Number 33-56377, and incorporated herein by reference).
10.2
Form of Bareboat Charter between CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (IOM) Limited, CalPetro Tankers (Bahamas III) Limited and Chevron Transport Corporation (filed as Exhibit 10.2 to Registrant’s Registration Statement on Form S-3, Commission File Number 33-56377, and incorporated herein by reference).
10.3
Form of Assignment of Initial Charter Guarantee by CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (IOM) Limited, CalPetro Tankers (Bahamas III) Limited to California Petroleum Transport Corporation (including the form of Collateral Assignment of such Initial Charter Guarantee to Chemical Trust Company of California, as Collateral Trustee by California Petroleum Transport Corporation) (filed as Exhibit 4.08 to Registrant’s Registration Statement on Form S-3, Commission File Number 33-56377, and incorporated herein by reference).
10.4
Form of Assignment of Earnings and Insurances from CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (IOM) Limited, CalPetro Tankers (Bahamas III) Limited to California Petroleum Transport Corporation (filed as Exhibit 4.09 to Registrant’s Registration Statement on Form S-3, Commission File Number 33-56377, and incorporated herein by reference).
10.5
Form of Assignment of Initial Charter from CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (IOM) Limited, CalPetro Tankers (Bahamas III) Limited to California Petroleum Transport Corporation (including the form of Collateral Assignment of such Initial Charter to Chemical Trust Company of California, as Collateral Trustee by California Petroleum Transport Corporation) (filed as Exhibit 4.10 to Registrant’s Registration Statement on Form S-3, Commission File Number 33-56377, and incorporated herein by reference).
10.6
Form of Management Agreement between P.D. Gram & Co., and [CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM) Limited] [CalPetro Tankers (Bahamas III) Limited] (filed as Exhibit 4.10 to Registrant’s Registration Statement on Form S-3, Commission File Number 33-56377, and incorporated herein by reference).
10.7
Form of Assignment of Management Agreement from [CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM) Limited] [CalPetro Tankers (Bahamas III) Limited] to California Petroleum Transport Corporation (filed as Exhibit 4.11 to Registrant’s Registration Statement on Form S-3, Commission File Number 33-56377, and incorporated herein by reference).
10.87
Form of Serial Loan Agreement between California Petroleum Transport Corporation and [CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM) Limited] [CalPetro (Bahamas III) Limited] (filed as Exhibit 4.12 to Registrant’s Registration Statement on Form S-3, Commission File Number 33-56377, and incorporated herein by reference).
10.9
Form of Term Loan Agreement between California Petroleum Transport Corporation and [CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM) Limited] [CalPetro (Bahamas III) Limited] (filed as Exhibit 4.13 to Registrant’s Registration Statement on Form S-3, Commission File Number 33-56377, and incorporated herein by reference).
10.10
Form of Collateral Agreement between California Petroleum Transport Corporation, the Indenture Trustee under the Serial Indenture, the Indenture Trustee under the Term Indenture and Chemical Trust Company of California, as Collateral Trustee (filed as Exhibit 4.14 to Registrant’s Registration Statement on Form S-3, Commission File Number 33-56377, and incorporated herein by reference).
10.11
Form of Issue of One Debenture From [CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM) Limited] [CalPetro Tankers (Bahamas III) Limited] to California Petroleum Transport Corporation (filed as Exhibit 4.15 to Registrant’s Registration Statement on Form S-3, Commission File Number 33-56377, and incorporated herein by reference).
10.12
Form of First Preferred Ship Mortgage by [CalPetro Tankers (Bahamas III) Limited] [CalPetro Tankers (IOM) Limited] to California Petroleum Transport Corporation (including the form of assignment of such Mortgage to Chemical Trust Company of California, as Collateral Trustee by California Petroleum Transport Corporation) (filed as Exhibit 4.3 to Registrant’s Registration Statement on Form S-3, Commission File Number 33-56377, and incorporated herein by reference).
10.13
Form of Bahamian Statutory Ship Mortgage and Deed of Covenants by [CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers (Bahamas II) Limited] to California Petroleum Transport Corporation (including the form of assignment of such Mortgage to Chemical Trust Company of California, as Collateral Trustee by California Petroleum Transport Corporation) (filed as Exhibit 4.4 to Registrant’s Registration Statement on Form S-3, Commission File Number 33-56377, and incorporated herein by reference).
10.14
Form of Bermudian Statutory Ship Mortgage and Deed of Covenants by CalPetro Tankers (IOM) Limited to California Petroleum Transport Corporation (including the form of assignment of such Mortgage to Chemical Trust Company of California, as Collateral Trustee by California Petroleum Transport Corporation) (filed as Exhibit 4.5 to Registrant’s Registration Statement on Form S-3, Commission File Number 33-56377, and incorporated herein by reference).
10.15
Bareboat Charter Agreement by and between CalPetro Tankers (Bahamas III) Limited and Front Voyager Inc. entered into as of March 31, 2006.
10.16
Assignment of Charter by and between California Petroleum Transportation Corporation and JP Morgan Trust Company, National Association entered into as of March 31, 2006.
10.17
Collateral Assignment of Charter by and between California Petroleum Transportation Corporation and CalPetro Tankers (Bahamas III) Limited entered into as of March 31, 2006.
21.1
The Company does not have any subsidiaries.
31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.*
31.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.*
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
*
Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date
March 19, 2010
By
Frank B. Bilotta
Director and President
Date
March 19, 2010
By
Frank B. Bilotta
Treasurer
SK 02089 0006