Oil continues to be the world’s primary energy source as it has been for a number of decades, with consumption of oil currently accounting for approximately 40% of global energy consumption. The EIA expects daily global oil consumption to increase from an average of approximately 84 million barrels in 2005 to approximately 98 million barrels in 2015.

Deepwater oil production is one of the fastest growing areas of the global oil industry and is replacing shallow water as the main focus of offshore oil field development. Deepwater oil production is characterized by wells located in water depths of more than 1,000 feet and has developed as countries have searched for alternative sources of oil and as exploration and production technologies have advanced.

Over the last decade, deepwater exploration and production has become increasingly important because it represents the only significant opportunity for large conventional reserve additions for oil companies outside Russia and the Middle East. Douglas-Westwood forecasts that deepwater oil production will increase from approximately three million barrels per day in 2005 to over eight million in 2015.

As a result, Douglas-Westwood forecasts that nearly 25% of offshore oil will come from deep waters in 2015, compared to approximately 12% in 2005, and expects that all global offshore oil production growth after 2010 will be from deep waters, compensating for declining output from shallow waters, as shown in the graph below:

According to Douglas-Westwood, global expenditures to explore, develop and operate offshore oil and gas fields were approximately $163 billion in 2005, and it currently estimates that this spending will increase to approximately $247 billion in 2010.

The Company owns and operates the world’s largest fleet of shuttle tankers. All the shuttle tankers in the fleet are double-hulled tankers equipped with DP systems. The fleet consists of 24 shuttle tankers that are owned fully or jointly and 12 shuttle tankers that are chartered-in.

All of the shuttle tankers are subject to fixed-rate time charter or bareboat contracts for specific offshore oil fields or under fixed-rate contracts of affreightment for various fields, with payments under the contracts of affreightment based on the volume of oil transported.

The majority of the contract of affreightment volumes are life-of-field, which, according to data provided by WoodMac, have a weighted-average remaining life of 16 years. The time charter and bareboat charters have an average remaining contract term of approximately 6 years.

The fleet of owned shuttle tankers is of Norwegian and Bahamian registry, while the chartered-in fleet is of Norwegian, Bahamian and Isle of Man registry.

The Company has a fleet of four FSO units. All of the FSO units operate under fixed-rate time charters or bareboat charters. The average remaining contract term is approximately 5 years. Two of the FSO units are single-hulled and two are double-hulled. The FSO units are located in the North Sea, Australia and Thailand. The FSO units are of Bahamian, Australian and Liberian registry.

The Company has a fleet of nine conventional Aframax-class oil tankers that have fixed-rate time charter contracts with Teekay Shipping Corporation with terms of approximately 5 to 12 years. The average term is approximately 8 years. All of these tankers have double hulls. Eight are of the Bahamian registry and one, the Scotia Spirit, is of Norwegian registry.

Total vessel operating expenses remained unchanged at $52.9 million for the six months ended June 30, 2006 and 2005.

Interest expense increased 21.9% to $24.5 million for the six months ended June 30, 2006, from $20.1 million for the same period in 2005.

Interest income increased 44.9% to $3.3 million for the six months ended June 30, 2006, from $2.3 million for the same period in 2005.

Net loss was $16.8 million for the six months ended June 30, 2006, compared to net income of $69.2 million for the same period in 2005.