10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2008

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934.

For the period from       to      

Commission file number: 001-32343

Arlington Tankers Ltd.

(Exact name of Registrant as specified in its charter)

Bermuda	98-0460376
(Jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

First Floor, The Hayward Building
22 Bermudiana Road
Hamilton HM 11, Bermuda
(Address of principal executive offices)

Registrant’s telephone number, including area code: (441) 292-4456

Former name, former address and former fiscal year, if changes since last report: Not applicable.

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. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No þ

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON STOCK, AS OF MAY 6, 2008: Common Stock, par value $0.01 per share: 15,500,000 shares

ARLINGTON TANKERS LTD. AND SUBSIDIARIES
INDEX

PART I:	FINANCIAL INFORMATION
ITEM 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007	3
	Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2008 and 2007	4
	Condensed Consolidated Statement of Shareholders’ Equity (unaudited) for the three months ended March 31, 2008	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2008 and 2007	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	32
ITEM 4.	Controls and Procedures	32
PART II:	OTHER INFORMATION	33
ITEM 1.	Legal Proceedings	33
ITEM 1A.	Risk Factors	33
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
ITEM 3.	Defaults Upon Senior Securities	43
ITEM 4.	Submission of Matters to a Vote of Security Holders	43
ITEM 5.	Other Information	43
ITEM 6.	Exhibits	43
SIGNATURES		44
EXHIBIT INDEX
EX-12.1 Computation of Ratio of Earnings to Fixed Charges
EX-31.1 Section 302 Certification of CEO & CFO
EX-32.1 Section 906 Certification of CEO & CFO

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Item 1. Financial Statements

     The Company’s condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The Company’s condensed consolidated financial statements are expressed in U.S. dollars. In this report, references to “dollars,” “U.S. $” or “$” are to United States dollars.

ARLINGTON TANKERS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

	March 31,			December 31,
	2008			2007
	(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	15,872		$	6,274
Short-term investments		—			12,500
Prepaid expenses and accrued income		200			184
Other receivables		847			304
Total current assets		16,919			19,262
NONCURRENT ASSETS:
Vessels, net		325,568			329,330
Deferred debt issuance costs, net		658			717
TOTAL ASSETS	$	343,145		$	349,309
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accrued expenses	$	728		$	451
Unearned charter revenue		3,294			5,693
Total current liabilities		4,002			6,144
NONCURRENT LIABILITIES:
Interest rate swap at fair value		14,568			7,453
Long-term debt		229,500			229,500
TOTAL LIABILITIES		248,090			243,097
SHAREHOLDERS’ EQUITY:
Founder shares, $1.00 par value per share, 12,000 authorized, none issued or outstanding		—			—
Preference shares, $0.01 par value per share, 4,000,000 authorized, none issued or outstanding		—			—
Common stock, $0.01 par value per share; 60,000,000 authorized; 15,500,000 shares issued and outstanding		155			155
Additional paid-in capital		98,054			106,734
Accumulated deficit		(3,154	)		(677	)
TOTAL SHAREHOLDERS’ EQUITY		95,055			106,212
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	343,145		$	349,309

See notes to condensed consolidated financial statements.

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ARLINGTON TANKERS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)

	FOR THE THREE MONTHS
	ENDED MARCH 31,
	2008			2007
OPERATING REVENUES:
Charter revenues	$	17,558		$	17,343
OPERATING EXPENSES:
Vessel operating expenses, other		5,251			4,951
Depreciation		3,762			3,777
Administrative expenses		623			528
TOTAL OPERATING EXPENSES		9,636			9,256
OPERATING INCOME		7,922			8,087
OTHER INCOME (EXPENSES):
Interest income		131			216
Interest (expense), other		(3,415	)		(3,377	)
Unrealized loss on interest rate swap		(7,115	)		(1,077	)
OTHER EXPENSES, NET		(10,399	)		(4,238	)
NET (LOSS) INCOME	$	(2,477	)	$	3,849
(Loss) Income per common share, basic and diluted	$	(0.16	)	$	0.25
Weighted average shares outstanding, basic and diluted		15,500,000			15,500,000

See notes to condensed consolidated financial statements.

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ARLINGTON TANKERS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2008
(DOLLARS IN THOUSANDS)
(UNAUDITED)

	Common		Paid-in			Accumulated
	Stock		Capital			Deficit			Total
Balance as of January 1, 2008	$	155	$	106,734		$	(677	)	$	106,212
Net loss		—		—			(2,477	)		(2,477	)
Cash dividends paid		—		(8,680	)		—			(8,680	)
Balance at March 31, 2008 (unaudited)	$	155	$	98,054		$	(3,154	)	$	95,055

See notes to condensed consolidated financial statements.

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ARLINGTON TANKERS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)
(UNAUDITED)

	FOR THE THREE MONTHS
	ENDED MARCH 31,
	2008			2007
OPERATING ACTIVITIES:
Net (loss) income	$	(2,477	)	$	3,849
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		3,762			3,777
Unrealized loss on interest rate swap		7,115			1,077
Amortization of debt issuance costs		59			58
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Other receivables		(543	)		465
Prepaid expenses and accrued income		(16	)		(73	)
Accrued expenses and other current liabilities		277			(427	)
Unearned charter revenue		(2,399	)		(73	)
Net cash provided by operating activities		5,778			8,653
INVESTING ACTIVITIES:
Sale of short-term investments		12,500			13,000
Purchase of short-term investments		—			(6,000	)
Net cash provided by investing activities		12,500			7,000
FINANCING ACTIVITIES:
Dividend payments from retained earnings		—			(4,875	)
Dividend payments from paid in capital		(8,680	)		(3,960	)
Net cash used by financing activities		(8,680	)		(8,835	)
Net increase in cash		9,598			6,818
Cash and cash equivalents, beginning of period		6,274			3,210
Cash and cash equivalents, end of period	$	15,872		$	10,028
Supplemental Cash Flow Information — Cash paid for interest	$	3,326		$	3,326

See notes to condensed consolidated financial statements.

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ARLINGTON TANKERS LTD. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. GENERAL

     Arlington Tankers Ltd. (the “Company” or “Arlington”) was incorporated in September 2004 under the laws of Bermuda for the purpose of acquiring six tanker vessels (the “Initial Vessels”) consisting of two V-MAX VLCCs from Concordia Maritime AB (“Concordia”), two Product tankers from Stena AB (“Stena”), and two Panamax tankers from subsidiaries of Stena, Concordia and two companies owned 75% by Stena and 25% by Fram Shipping Co. Ltd (“Fram”). In November 2004, the Company completed its initial public offering by issuing and selling to the public 11,450,000 common shares, par value $0.01 per share, at a price to the public of $20.00 per share, raising gross proceeds of $229 million before the deduction of underwriting discounts, commissions and expenses of approximately $17.7 million. Simultaneously, the Company issued a total of 4,050,000 common shares at a price of $20.00 per share to Stena, Concordia and Fram, for total consideration of $81 million, as part of the settlement of the purchase price of the Initial Vessels. On that date the Company also raised $135 million of secured debt (before expenses of approximately $0.8 million) as part of the financing of the Initial Vessels. On acquisition of the Initial Vessels, the excess of the purchase price of $426.5 million over the historical book value of $283.2 million at which the predecessor shareholders carried the Initial Vessels on their books was considered a deemed distribution of $143.3 million to those predecessor shareholders. An aggregate of 1,717,500 of these shares were sold in the initial public offering in connection with the underwriters’ exercise of their over-allotment option. The Company did not receive any proceeds from the sale of shares by Stena, Concordia, and Fram. Concurrent with the closing of the initial public offering, the Company completed the acquisition of the Initial Vessels.

     In December 2005, the Company entered into a five-year term loan agreement with The Royal Bank of Scotland. The term loan agreement provides for a facility of up to $229.5 million. The purpose of the term loan agreement was to (1) refinance the Company’s previous debt facility, (2) finance the purchase price of two new Product tankers from Stena and (3) general corporate purposes. The Company completed the refinancing of its previous debt facility in December 2005 and completed the acquisition of the two Stena Product tankers in January 2006. The term loan agreement matures on January 5, 2011. All amounts outstanding under the term loan agreement must be repaid on that maturity date. There is no principal amortization required prior to maturity. Borrowings under the term loan agreement bear interest at the London Inter-Bank Offer Rate (“LIBOR”) plus a margin of 75 basis points. The margin would increase to 85 basis points if the ratio of the fair market value of the Company’s Vessels to the amount outstanding under the loan facility falls below 2.0 (the “Ratio”). The increased interest margin is equivalent to approximately $229,500 per year in increased interest costs in the event the Ratio falls below 2.0. In connection with the term loan agreement, the Company entered into an interest rate swap agreement with The Royal Bank of Scotland. As a result of this swap, the Company has effectively fixed the interest rate on the term loan agreement at 5.7325%, or 5.8325% if the Ratio falls below 2.0. The net annual cash interest costs will approximate 5.38% (5.48% if the Ratio falls below 2.0) due to the cash benefit that the Company received in December 2005 from the termination of a swap with Fortis Bank of $4.8 million. That cash benefit has been designated by the Company’s Board of Directors to offset the higher annual interest costs over the life of the $229.5 million credit facility.

     On January 5, 2006, the Company entered into a series of agreements with certain Stena subsidiaries, Stena Bulk, Northern Marine Management Ltd. (“Northern Marine”), and Stena Maritime (the “Stena Parties”), pursuant to which the Company, through wholly owned subsidiaries, purchased from subsidiaries of Stena Maritime two Product tankers known as the Stena Concept and the Stena Contest (the “Additional Vessels”) for a purchase price per Additional Vessel of $46,000,000. In connection with the acquisition of the Additional Vessels, the Company and the Stena Parties also entered into certain related agreements with the Stena Parties and amended certain of its agreements with the Stena Parties related to the Initial Vessels. At the closing of this acquisition, the Company’s subsidiaries that purchased the Additional Vessels and Stena Bulk entered into new time charter party agreements with respect to the Additional Vessels. Under the new time charter parties, which are substantially similar to the time charter parties that the Company’s subsidiaries have entered into for the Initial Vessels, the Company’s subsidiaries that purchased the Additional Vessels time chartered the Additional Vessels to Stena Bulk for an initial period of three years at the fixed daily Basic Hire without any Additional Hire provision. At the end of the initial three-year period, both the Company and Stena Bulk have the option to extend the time charters on a vessel-by-vessel basis for an additional 30 months, at the fixed daily Basic Hire. If Stena Bulk exercises this option, there will be an Additional Hire provision during the 30-month period. If the Company exercises this option, there will be no Additional Hire arrangement. Furthermore, if Stena Bulk exercises the 30-month option, there will be two additional one-year options, exercisable by Stena Bulk, at the fixed daily Basic Hire set forth below, but without an Additional Hire provision.

     At the closing of the acquisition of the Additional Vessels, the time charter parties for the Company’s existing Product tankers and Panamax tankers were amended. These amendments modified the charter periods for the Company’s previously-acquired Product

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tankers and Panamax tankers and provided certain changes to the calculation of Additional Hire under these time charter parties. The amendments to the terms of the charters provided that (1) the five-year fixed term for one of the Product tankers (Stena Consul) and one of the Panamax tankers (Stena Compatriot) were extended to November 2010, followed by three one-year options exercisable by Stena Bulk and (2) the five-year fixed term for one of the Product tankers (Stena Concord) and one of the Panamax tankers (Stena Companion) were reduced so that it expired in November 2008, followed by three one-year options exercisable by Stena Bulk. The term of the charters for the V-MAX tankers was not amended. The amendments to the Additional Hire provisions provided for certain favorable adjustments to fuel consumption metrics used in the calculation of Additional Hire for the Product tankers and Panamax tankers.

     At the closing of the acquisition of the Additional Vessels, the ship management agreements for the Company’s Initial Vessels were also amended. These amendments modified the provisions relating to drydocking of the Vessels. Specifically, the amendments provided that all drydockings during the term of the ship management agreements are to be at the sole cost and expense of Northern Marine. In addition, Northern Marine agreed to conduct at least one mid-period drydocking for each Product tanker and Panamax tanker prior to redelivery of such Vessels. Under the terms of the ship management agreements, the cost of these intermediate and special surveys is covered by the vessel management fees that the Company pays to Northern Marine. Upon redelivery of the Vessels to the Company at the expiration of the ship management agreements, Northern Marine has agreed to re-pay to the Company any drydocking provision accrued, but not used, from the completion of the last drydocking during the term of the applicable Ship Management Agreement (or if no drydocking occurs during the term of such agreement, from the date of commencement of such agreement), to the date of redelivery at the daily rates specified in the ship management agreements. No amounts have been accrued for the potentially refundable portion of the management fee.

     Based on their filings with the SEC, as of November 19, 2007, Stena and Concordia directly and indirectly owned an aggregate of approximately 18.0% of the Company’s outstanding common shares. As a result of Stena’s purchase of additional common shares in 2007, Stena and Concordia may be considered “interested shareholders” for purposes of the Company’s bye-laws. Stena and Concordia’s ownership interest in the Company can have a significant influence over the Company, including the outcome of shareholder votes and the Company’s ability to conduct future business or modify existing agreements with Stena or Concordia.

     The Company’s eight vessels (the “Vessels”) are currently owned by eight wholly-owned subsidiaries of the Company (each, a “Vessel Subsidiary”). The primary activity of each of the Vessel Subsidiaries is the ownership and operation of a Vessel. The flag state of each of the Company’s Vessels is Bermuda.

     The following table sets out the details of the Vessels included in these consolidated financial statements:

						Initial Charter	Latest Charter
Vessel Type	Year Built		Dwt		Date Acquired	Expiration Date(1)	Expiration Date (1)
V-MAX
Stena Victory		2001		314,000	November 10, 2004	November 9, 2009	November 9, 2012
Stena Vision		2001		314,000	November 10, 2004	November 9, 2009	November 9, 2012
Panamax
Stena Companion		2004		72,000	November 10, 2004	November 9, 2008	November 9, 2011
Stena Compatriot		2004		72,000	November 10, 2004	November 9, 2010	November 9, 2013
Product
Stena Concord		2004		47,400	November 10, 2004	November 9, 2008	November 9, 2011
Stena Consul		2004		47,400	November 10, 2004	November 9, 2010	November 9, 2013
Stena Concept		2005		47,400	January 5, 2006	January 4, 2009	July 4, 2011
Stena Contest		2005		47,400	January 5, 2006	January 4, 2009	July 4, 2011

(1) Each of the charters contains renewal options described in greater detail below.

     Effective November 10, 2004 for the Initial Vessels and January 5, 2006 for the Additional Vessels, the Company has chartered the Vessels to subsidiaries of Stena and Concordia (the “Charterers”) under three, four and five-year fixed rate charters, increasing annually by an amount equal to the annual increase in the fees under the Company’s ship management agreements. Under the charters, in addition to the fixed rate Basic Hire, certain Vessels have the possibility of receiving Additional Hire from the Charterers through profit sharing arrangements related to the performance of the tanker markets on specified geographic routes, or from actual time charter rates. Additional Hire is not guaranteed except Additional Hire related to the Sun International sub-charter, and correlates to weighted average historical voyage rates for the specified routes. The charters contain options on the part of the Charterers to extend the terms of the charters. Stena and Concordia have each agreed to guarantee the obligations of their respective subsidiaries under the charters.

8

     Effective November 10, 2004 for the Initial Vessels and January 5, 2006 for the Additional Vessels, the Company has also entered into ship management agreements with Northern Marine. The ship management agreements provide for the technical management of the Vessels.

     The Basic Hire rate for each of the Vessels is payable to the Company monthly in advance and will increase annually by an amount equal to the annual increase in the fee payable under the applicable ship management agreement.

     The following table sets forth the daily Basic Hire, daily base operating costs and operating margin for the Company’s two V-MAX vessels, the Stena Vision and the Stena Victory. The operating margin is calculated by subtracting the amount of the base operating costs from the amount of Basic Hire.

Period	Basic Hire		Base Operating Costs		Operating Margin
Nov. 11, 2007 — Nov. 10, 2008	$	36,882	$	8,682	$	28,200
Nov. 11, 2008 — Nov. 10, 2009		37,316		9,116		28,200
Nov. 11, 2009 — Nov. 10, 2010 (Option Year 1)(1)		37,772		9,572		28,200
Nov. 11, 2010 — Nov. 10, 2011 (Option Year 2)		38,251		10,051		28,200
Nov. 11, 2011 — Nov. 10, 2012 (Option Year 3)		38,753		10,553		28,200

(1) The Charterer has the option to extend these Charters on a vessel-by-vessel basis for 3 additional 1 year terms. There can be no assurance that the Charterer will exercise any such option.

     The following table sets forth the daily Basic Hire, daily base operating costs and operating margin for two of the Company’s vessels, the Stena Companion and the Stena Concord, with initial charter expiration dates in 2008.

	Stena Companion						Stena Concord
			Base Operating		Operating				Base Operating		Operating
Period	Basic Hire		Costs		Margin		Basic Hire		Costs		Margin
Nov. 11, 2007 — Nov. 10, 2008	$	18,306	$	6,656	$	11,650	$	16,335	$	6,135	$	10,200
Nov. 11, 2008 — Nov. 10, 2009 (Option Year 1)(1)		18,639		6,989		11,650		16,642		6,442		10,200
Nov. 11, 2009 — Nov. 10, 2010 (Option Year 2)		18,989		7,339		11,650		16,964		6,764		10,200
Nov. 11, 2010 — Nov. 10, 2011 (Option Year 3)		19,356		7,706		11,650		17,303		7,103		10,200

(1) The Charterer has the option to extend these Charters on a vessel-by-vessel basis for 3 additional 1 year terms. In May 2008, the Company announced that the Charterer exercised the first of these one-year options for both vessels. There can be no assurance that the Charterer will exercise any additional options.

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     The following table sets forth the daily Basic Hire, daily base operating costs and operating margin for two of the Company’s vessels, the Stena Compatriot and the Stena Consul, with initial charter expiration dates in 2010.

	Stena Compatriot						Stena Consul
									Base
			Base Operating		Operating				Operating		Operating
Period	Basic Hire		Costs		Margin		Basic Hire		Costs		Margin
Nov. 11, 2007 — Nov. 10, 2008	$	18,306	$	6,656	$	11,650	$	16,335	$	6,135	$	10,200
Nov. 11, 2008 — Nov. 10, 2009		18,639		6,989		11,650		16,642		6,442		10,200
Nov. 11, 2009 — Nov. 10, 2010		18,989		7,339		11,650		16,964		6,764		10,200
Nov. 11, 2010 — Nov. 10, 2011 (Option Year 1)(1)		19,356		7,706		11,650		17,303		7,103		10,200
Nov. 11, 2011 — Nov. 10, 2012 (Option Year 2)		19,741		8,091		11,650		17,658		7,458		10,200
Nov. 11, 2012 — Nov. 10, 2013 (Option Year 3)		20,145		8,495		11,650		18,031		7,831		10,200

(1) The Charterer has the option to extend these Charters on a vessel-by-vessel basis for 3 additional 1 year terms. There can be no assurance that the Charterer will exercise any such option.

     The following table sets forth the daily Basic Hire, daily base operating costs and operating margin for the Company’s two Additional Vessels, the Stena Concept and the Stena Contest.

			Base Operating
Period	Basic Hire		Costs		Operating Margin
Jan. 5, 2007 — Jan 4, 2008	$	20,043	$	5,843	$	14,200
Jan. 5, 2008 — Jan. 4, 2009		20,335		6,135		14,200
Jan. 5, 2009 — Jan. 4, 2010 (Option Period 1)(1)		17,942		6,442		11,500
Jan. 5, 2010 — Jan. 4, 2011 (Option Period 1)		18,264		6,764		11,500
Jan. 5, 2011 — July 4, 2011 (Option Period 1)		18,603		7,103		11,500
July 5, 2011 — July 4, 2012 (Option Period 2) (2)		21,158		7,458		13,700
July 5, 2012 — July 4, 2013 (Option Period 3)		21,531		7,831		13,700

(1)	In May 2008, the Company announced that the Charterer exercised its option to extend these Charters for an additional 30-month period expiring on July 4, 2011. As a result, the Company will be eligible to earn Additional Hire in addition to Basic Hire during this 30-month period.
(2)	This period is the first for which the Charterer has the option to extend these Charters as a result of exercising the option described in Footnote 1 above. The Company would not be eligible to earn Additional Hire over the term of any extension. There can be no assurance that the Charterer will exercise any such option.

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     In addition to the Basic Hire, the Charterers may pay the Company quarterly in arrears an Additional Hire payment for the Initial Vessels. Under the charters, the Additional Hire, if any, in respect of each Initial Vessel, is payable on the 25th day following the end of each calendar quarter.

     The Additional Hire, if any, payable in respect of an Initial Vessel, other than the V-MAX tankers as described below, for any calendar quarter is an amount equal to 50% of the weighted average hire, calculated as described below, for the quarter after deduction of the Basic Hire in effect for that quarter. The weighted average hire is a daily rate equal to the weighted average of the following amounts:

• a weighted average of the time charter hire per day received by the Charterer for any periods during the calculation period, determined as described below, that the Initial Vessel is sub-chartered by the Charterer under a time charter, less ship broker commissions paid by the Charterer in an amount not to exceed 2.5% of such time charter hire and commercial management fees paid by the Charterer in an amount not to exceed 1.25% of such time charter hire; and

• the time charter equivalent hire for any periods during the calculation period that the Vessel is not sub-chartered by the Charterer under a time charter.

     The calculation period is the twelve-month period ending on the last day of each calendar quarter, except that in the case of the first three full calendar quarters following the commencement of the Company’s charters, the calculation period is the three, six and nine month periods, respectively, ending on the last day of such calendar quarter and the first calendar quarter also includes the period from the date of the commencement of the Company’s charters to the commencement of the first full calendar quarter.

     At the time the Company acquired its two V-MAX Vessels, these Vessels were sub-chartered by Concordia to Sun International. The sub-charter with Sun International relating to the Stena Victory expired on October 20, 2007. The sub-charter with Sun International relating to the Stena Vision is due to expire within 30 days of July 31, 2008.

     As a result of Stena Bulk exercising its option to extend the Charters for the Additional Vessels, the Company will become eligible to earn Additional Hire for those Vessels during the 30-month period commencing January 5, 2009.

     The sub-charter rate that Concordia received from Sun International with respect to the Stena Victory, and the sub-charter rate that Concordia continues to receive from Sun International with respect to the Stena Vision, is greater than the Basic Hire rate that the Company receives from Concordia. Therefore, the Company earned Additional Hire revenue while the Stena Victory was sub-chartered to Sun International, and the Company continues to earn Additional Hire revenue while the Stena Vision is sub-chartered to Sun International. The amount of this Additional Hire is equal to the difference between the amount paid by Sun International under its sub-charters with Concordia and the Basic Hire rate in effect, less ship broker commissions paid by the Charterer in an amount not to exceed 2.5% of the charterhire received by the Charterer and commercial management fees paid by the Charterer in an amount not to exceed 1.25% of the charterhire received by the Charterer. The Additional Hire revenue associated with the ongoing Sun International sub-charter of the Stena Vision is guaranteed, meaning that the Company is paid the Additional Hire revenue by Concordia whether or not the Vessel is in service during the term of the Sun International sub-charter.

     Immediately following the expiration of the sub-charter of the Stena Victory with Sun International, on October 20, 2007, the Vessel commenced operating under a new two-year sub-charter agreement between Concordia and Eiger Shipping, S.A., an affiliate of the shipping branch of LukOil commonly known as Litasco. In addition, immediately following the expiration of the sub-charter of the Stena Vision with Sun International, we expect the Vessel to commence operating under a new two-year sub-charter agreement between Concordia and Eiger Shipping. The sub-charter rate that Eiger Shipping is obligated to pay to Concordia is greater than the Basic Hire rate that the Company will receive from Concordia. Therefore, the Company expects to earn Additional Hire revenue while the V-MAX vessels are under the Eiger Shipping sub-charters in addition to the guaranteed Basic Hire. The Additional Hire revenue will not be exposed to fluctuations in spot market rates. Additional Hire for the V-MAX tankers under the Eiger Shipping sub-charters will be based on the time charter hire received by Concordia under the sub-charters. Additional Hire revenues under the Eiger Shipping sub-charters are not guaranteed, meaning that the Company will earn Additional Hire only when the Vessels are in service. In the event that the V-MAX tankers are off-hire, the Company will not be eligible to earn Additional Hire revenue from the profit sharing provisions on the days that the Vessel is off-hire. Based on the time charter rates under the Eiger Shipping sub-charters and assuming that both V-MAX vessels operate for 90 days per quarter, the Company expects the V-MAX tankers to generate Additional Hire revenues of approximately $350,000 per Vessel per quarter in addition to the guaranteed Basic Hire levels, while the Vessels are sub-chartered to Eiger Shipping.

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     The Vessel Subsidiaries have entered into fixed-rate ship management agreements with Northern Marine. Under the ship management agreements, Northern Marine is responsible for all technical management of the Vessels, including crewing, maintenance, repair, drydockings, vessel taxes and other vessel operating and voyage expenses. Northern Marine has outsourced some of these services to third-party providers. The Company has agreed to guarantee the obligations of each of the Company’s Vessel Subsidiaries under the ship management agreements.

     Under the ship management agreements, Northern Marine has agreed to return the Vessels in-class and in the same good order and condition as when delivered, except for ordinary wear and tear.

     Northern Marine is also obligated under the ship management agreements to maintain insurance for each of the Company’s Vessels, including marine hull and machinery insurance, protection and indemnity insurance (including pollution risks and crew insurances), war risk insurance and off-hire insurance. Under the ship management agreements, the Company pays Northern Marine a fixed fee per day per Vessel for all of the above services, which increases 5% per year, for so long as the relevant charter is in place. Under the ship management agreements, Northern Marine has agreed to indemnify the Company for the loss of the Basic Hire for each of the Vessels in the event, for circumstances specified under the charters, the Vessel is off-hire or receiving reduced hire for more than five days during any twelve-month period, net of amounts received by us from off-hire insurance. Stena has agreed to guarantee this indemnification by Northern Marine. Both the Company and Northern Marine have the right to terminate any of the ship management agreements if the relevant charter has been terminated.

     Tables setting forth the daily base operating costs, which are payable by the Company monthly in advance, for each of the Company’s Vessels are set forth above. For the Initial Vessels, the first charter year commenced on November 10, 2004 and ended on November 10, 2005. Each subsequent charter year will begin on November 11 of the applicable year and end on the subsequent November 10. For the Additional Vessels, the first charter year commenced on January 5, 2006 and ended on January 4, 2007. Each subsequent charter year will begin on January 5 of the applicable year and end on the subsequent January 4. As a result of the exercise of the 30-month charter extension options for the Additional Vessels, the final six months of the 30-month option term will expire on July 4, 2011. If subsequent extension options are exercised, charter years will begin on July 5 and end on July 4.

     The Company has also agreed to pay to Northern Marine an incentive fee for each day a Vessel is on hire in excess of 360 days during any twelve-month period following the date the applicable Vessel was delivered to the Company in amount equal to the daily Basic Hire for such Vessel. If the Company terminates its ship management agreements with Northern Marine because Northern Marine has failed to perform its obligations under such agreements, Stena has agreed to provide a replacement ship manager to perform the obligations set forth in the ship management agreements on the same terms and for the same fixed amounts payable to Northern Marine.

     Northern Marine provides technical and crewing management and payroll and support services to the Stena Sphere shipping divisions and several other clients, including ChevronTexaco Corporation, Technip Offshore UK and Gulf Marine Management. Northern Marine has offices in Glasgow, Aberdeen, Mumbai, Kiel, Houston, Manila, Rotterdam and Singapore and has over 4,400 seafarers employed on approximately 90 vessels.

2. ACCOUNTING POLICIES

Basis of accounting and presentation

     The unaudited condensed consolidated interim financial statements are prepared in accordance with accounting principles generally accepted in the United States and the Securities and Exchange Commission’s instructions to Form 10-Q. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. The results of operations for the interim period ended March 31, 2008, are not necessarily indicative of the results for the entire year ending December 31, 2008. The condensed consolidated financial statements include the assets and liabilities, results of operations and cash flows of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

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Cash and cash equivalents and short-term investments

     The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less as of the date of purchase to be cash equivalents. The Company considers all demand and time deposits and all highly liquid investments with an original maturity of greater than three months as of the date of purchase to be short-term investments. Cash and cash equivalents of $15.9 million as of March 31, 2008 are pledged as described in Note 8 and are held at a single financial institution with a Standard & Poor’s rating of A-1+. The carrying value of cash and cash equivalents approximates its fair value. The Company had no short-term investments as of March 31, 2008.

Drydocking provisions

     In addition to vessel acquisition, other major expenditures include funding the Company’s maintenance program of regularly scheduled intermediate surveys or special surveys necessary to preserve the quality of the Company’s Vessels as well as to comply with international shipping standards and environmental laws and regulations. Management anticipates that the Vessels will undergo intermediate surveys 2.5 years after special surveys and that the Vessels will undergo special surveys every five years. In the three months ended March 31, 2008, no vessels completed an intermediate survey or a special survey. Under the terms of the Company’s ship management agreements with Northern Marine, the cost of these intermediate and special surveys is covered by the vessel management fees that the Company pays to Northern Marine. During the duration of these intermediate and special surveys, the Company will not have the opportunity to earn Additional Hire revenues from profit-sharing arrangements other than for the Stena Vision while it remains on sub-charter to Sun International.

Estimates and concentrations

     The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates.

     The Company operates in the shipping industry which historically has been cyclical with corresponding volatility in profitability and vessel values. Vessel values are strongly influenced by charter rates which in turn are influenced by the level and pattern of global economic growth and the world-wide supply and demand for vessels. The spot market for tankers is highly competitive and charter rates are subject to significant fluctuations. Dependence on the spot market may result in lower utilization. Each of the aforementioned factors are important considerations associated with the Company’s assessment of whether the carrying amount of its owned Vessels are recoverable. The Company seeks to mitigate the effect of such factors by various means such as by obtaining long term charter contracts. There is a concentration of credit risk because all revenues are due solely from the Charterers. See Note 4.

Earnings (loss) per share

     Earnings (loss) per share are based on the weighted average number of common shares outstanding for the period presented. For all periods presented, the Company had no potentially dilutive securities outstanding and therefore basic and diluted earnings per share are the same.

Distributions to shareholders

     The Company has paid a quarterly cash distribution denominated in U.S. dollars to the holders of its common shares in amounts substantially equal to the charter hire received from the Charterers, less cash expenses and less any cash reserves established by the

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Company’s Board of Directors. The Company has generally declared those dividends in January, April, July and October of each year and paid those dividends in the subsequent month. Distributions to shareholders are applied first to retained earnings. When retained earnings are not sufficient, distributions are applied to additional paid-in capital.

3. RECENTLY ISSUED ACCOUNTING STANDARDS

           In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 establishes a single definition of fair value and a framework for measuring fair value, sets out a fair value hierarchy to be used to classify the source of information used in fair value measurements, and requires new disclosures of assets and liabilities measured at fair value based on their level in the hierarchy. This statement applies under other accounting pronouncements that require or permit fair value measurements. In February 2008, the FASB issued Staff Positions (FSPs) No. 157-1 and No. 157-2, which, respectively, remove leasing transactions from the scope of SFAS 157 and defer its effective date for one year relative to certain nonfinancial assets and liabilities. As a result, the application of the definition of fair value and related disclosures of SFAS 157 (as impacted by these two FSPs) was effective for the Company beginning January 1, 2008 on a prospective basis with respect to fair value measurements of all financial assets and liabilities. This adoption did not have a material impact on the Company’s consolidated results of operations or financial condition. The remaining aspects of SFAS 157 for which the effective date was deferred under FSP No. 157-2 are currently being evaluated by the Company. Areas impacted by the deferral relate to nonfinancial assets and liabilities that are measured at fair value, but are recognized or disclosed at fair value on a nonrecurring basis. This deferral applies to items such as long-lived asset groups measured at fair value for an impairment assessment. The effects of the remaining aspects of SFAS 157 are to be applied by the Company to fair value measurements prospectively beginning January 1, 2009. The Company does not expect them to have a material impact on its consolidated results of operations or financial condition. See Note 10 for disclosures required by this new pronouncement.

          In February 2007 the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The Company adopted SFAS 159 on January 1, 2008. The Company does not believe that the adoption of SFAS 159 will have a material impact on its financial position, results of operations or cash flows.

          In December 2007 the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No.51” (“SFAS 160”). SFAS 160 is intended to improve the relevance, comparability and transparency of financial information that a reporting entity provides in its consolidated financial statements with reference to a noncontrolling interest in a subsidiary. Such a noncontrolling interest, sometimes called a minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to the parent entity. SFAS 160 is effective for fiscal years beginning on or after December 15 2008. The Company does not expect the adoption of SFAS 160 to have a material impact on its financial statements.

          In December 2007 the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). The objective of SFAS 141R is to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. To accomplish this, SFAS 141R establishes principles and requirements for how the acquirer a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree, b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain price, and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for fiscal years beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS 141R to have a material impact on its financial statements.

4. CHARTER REVENUES

     The future revenues that the Company expects to receive under the time charters in effect as of March 31, 2008, are $299.5 million. This estimate represents the Basic Hire under the time charters in effect between the Company and Stena and Concordia that expire in November 2008 with respect to two of the Company’s Vessels, in 2009 with respect to four of the Company’s Vessels and in 2010 with respect to two of the Company’s Vessels. This estimate also includes future revenues that the Company may receive if the Charterers exercise all of their options to extend the charters and forecasted Additional Hire revenue related to Concordia’s sub-charters of the two V-MAX vessels to Sun International and Eiger Shipping. As discussed further in Note 1, the sub-charter relating to the Stena Victory expired on October 20, 2007 and the sub-charter relating to the Stena Vision is due to expire within 30 days of July 31, 2008. Immediately following the expiration of the sub-charter of the Stena Victory with Sun International, the Vessel

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commenced operating under a new two-year sub-charter agreement with Eiger Shipping. In addition, immediately following the expiration of the sub-charter of the Stena Vision with Sun International, the Company expects that Vessel to commence operating under a new two-year sub-charter agreement with Eiger Shipping. During the term of these new sub-charters, the Company will continue to earn guaranteed Basic Hire from Concordia and will also earn Additional Hire under the profit sharing provisions of the Charters. The table below assumes that Additional Hire of approximately $350,000 per Vessel per quarter is paid on the V-MAX Vessels upon commencement of the Eiger Shipping sub-charters, and assumes that the V-MAX Vessels operate for 90 days per quarter.

	Minimum Future
Year	Charter Revenue
	(In thousands of $)
2008		52,712
2009		68,818
2010		68,062
2011		59,747
2012		38,142
Thereafter		11,987

5. OTHER RECEIVABLES

	March 31,		December 31,
	2008		2007
	(In thousands of $)
Additional hire revenue due from Stena and Concordia	$	847	$	304
	$	847	$	304

     As of March 31, 2008 and December 31, 2007 other receivables represent amounts due under the Additional Hire profit share arrangement. These amounts are calculated quarterly in arrears.

6. VESSELS, NET

	March 31,			December 31,
	2008			2007
	(In thousands of $)
Vessels
Cost	$	402,426		$	402,426
Accumulated depreciation		(76,858	)		(73,096	)
Net book value at end of period		325,568			329,330
Spare parts		—			—
Vessels, net	$	325,568		$	329,330

     There have been no drydocking costs capitalized through March 31, 2008.

7. DEFERRED DEBT ISSUANCE COST

     Deferred debt issuance cost represents debt arrangement fees that are capitalized and amortized on a straight-line basis to interest expense over the term of the relevant debt. Amortization is included in other interest expense. As of March 31, 2008 and December 31, 2007 the balance relates entirely to the Company’s $229.5 million secured credit facility with The Royal Bank of Scotland. Deferred debt issuance cost is comprised of the following amounts.

	March 31,		December 31,
	2008		2007
	(In thousands of $)
Debt arrangement fees	$	1,200	$	1,200
Accumulated amortization		542		483
Deferred debt issuance cost	$	658	$	717

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8. DEBT

	March 31,		December 31,
	2008		2007
	(In thousands of $)
Secured credit facility	$	229,500	$	229,500
Total debt	$	229,500	$	229,500

     As of March 31, 2008 and December 31, 2007, the Company had $229.5 million in debt outstanding under its facility with The Royal Bank of Scotland plc. In December 2005, the Company entered into a five-year term loan agreement with The Royal Bank of Scotland for a facility of $229.5 million. The term loan agreement is secured by first priority mortgages over each of the eight Vessels, assignment of earnings and insurances and the Company’s rights under the time charters for the Vessels and the ship management agreements, a pledge of the shares of the Company’s wholly-owned subsidiaries and a security interest in certain of the Company’s bank accounts. The term loan agreement with The Royal Bank of Scotland matures on January 5, 2011. All amounts outstanding under the term loan agreement must be repaid on that maturity date. There is no principal amortization prior to maturity. Borrowings under the term loan agreement bear interest at LIBOR plus a margin of 75 basis points. The margin would increase to 85 basis points if the Ratio falls below 2.0. The increased interest margin is equivalent to approximately $229,500 per year in increased interest costs in the event the Ratio falls below 2.0. In connection with the term loan agreement, the Company has entered into an interest rate swap agreement with The Royal Bank of Scotland. As a result of this swap, the Company has effectively fixed the interest rate on the term loan agreement at 5.7325%, or 5.8325% if the ratio falls below 2.0.

     The term loan agreement provides that if at any time the aggregate fair value of the Company’s Vessels that secure the obligations under the Loan Agreement is less than 125% of the loan amount, the Company must either provide additional security or prepay a portion of the loan to reinstate such percentage. The term loan agreement also contains financial covenants requiring that at the end of each financial quarter (1) the Company’s total assets (adjusted to give effect to the market value of the Vessels) less total liabilities is equal to or greater than 30% of such total assets and (2) the Company has positive working capital. At March 31, 2008 and December 31, 2007 the Company was in compliance with the financial covenants of the loan agreement.

9. FINANCIAL INSTRUMENTS

Derivative instruments and hedging activities

          SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of each derivative is recorded each period in current earnings or other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction.

          As of March 31, 2008 and December 31, 2007 the Company had not designated any derivatives as part of a hedge transaction.

          In December 2005, the Company entered into a $229.5 million secured credit facility with The Royal Bank of Scotland. In conjunction with the credit facility, the Company entered into an interest rate swap to change the characteristics of the interest payments on its secured debt facility from LIBOR to a fixed rate of 5.7325%, or 5.8325% if the Ratio falls below 2.0. The interest rate swap agreement was not designated nor qualified as a cash flow hedge pursuant to SFAS 133, accordingly changes in the fair value of this swap are recorded in current earnings. The fair value of the swap at March 31, 2008 was a liability of $14.6 million. The fair value of the swap at December 31, 2007 was a liability of $7.5 million. Accordingly, the Company recorded a non-cash decrease in the fair value of the interest rate swap of $7.1 million in current earnings as an unrealized loss in the first quarter of 2008. The fair market value of the Company’s interest rate swap will generally fluctuate based on the implied forward interest rate curve for the 3-month LIBOR. If the implied forward interest rate curve decreases, the fair market value of the interest rate swap will decrease which will result in an unrealized loss in current earnings. If the implied forward interest rate curve increases, the fair market value of the interest rate swap will increase and result in an unrealized gain in current earnings. If the implied forward interest rate curves increase above the fixed rate of 5.7325%, the fair market value of the swap will increase and result in an unrealized gain on the swap. In either case, changes in the unrealized gain or loss as a result of fluctuations in the fair value of the interest rate swap did not impact the Company’s cash dividend payments.

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     The base floating rate of LIBOR plus margin of 75 basis points for the quarters ended March 31, 2008 and 2007 were 5.58% and 6.11375%, respectively. For the quarter ended March 31, 2008 the Company had approximately $89,000 of reclassifications to increase interest expense. For the quarter ended March 31, 2007 the Company had approximately $221,000 of reclassifications to decrease interest expense. These reclassifications did not impact the Company’s obligations under its credit facility. These amounts represent the net payments made under the swap agreement that represent interest costs paid in excess of the variable interest incurred or interest benefit realized under the interest rate swap agreement. The following table summarizes interest expense incurred under the Company’s credit facility and interest rate swap agreement for the three months ended March 31, 2008 and March 31, 2007, exclusive of amortized deferred debt issuance costs and other interest costs:

	Three months ended		Three months ended
	March 31, 2008		March 31, 2007
	(In thousands of $)
Interest related to floating rate debt facility	$	3,237	$	3,547
Interest cost (benefit) related to swap agreement		89		(221	)
Total interest incurred under debt facility and interest rate swap	$	3,326	$	3,326

     Except for the interest rate swap, the Company had no other outstanding derivative instruments as of March 31, 2008 and December 31, 2007.

     The Company is exposed to credit risk in the event of non-performance by the counter-parties to its swap contracts. The Company minimizes its credit risk on these transactions by endeavoring to only deal with credit-worthy financial institutions, and therefore the Company views the risk of non-performance by the counter-parties as low.

10. FAIR VALUE MEASUREMENT

     Under SFAS 157, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. SFAS 157 also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.

     Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

     For the Company, effective January 1, 2008, fair value under SFAS 157 (as impacted by FSP Nos. 157-1 and 157-2) principally applied to a certain derivative instrument, namely the interest rate swap. Interest rate swaps were previously and will continue to be marked-to-market at each reporting period; however, the definition of fair value used for these marks-to-market are now applied using SFAS 157.

     The Company considers interest rate swaps as level 2 measurements. For level 2 derivatives, Arlington uses inputs other than quoted prices that are observable for the asset or liability. The level 2 derivative positions are valued using standard calculations/models that use as their basis readily observable market parameters. The resulting valuations are validated through counterparty and third party quotes on a quarterly basis. As discussed in Note 9, the fair value of the swap at March 31, 2008 was a liability of $14.6 million.

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11. SHARE CAPITAL

     As of March 31, 2008 and December 31, 2007, the Company’s authorized share capital is comprised of 12,000 founder shares, par value $1.00 per share, which have been authorized but not issued, 60,000,000 common shares, par value $0.01 per share, and 4,000,000 undesignated preference shares, par value $0.01 per share.

     As of March 31, 2008 and December 31, 2007, the Company had 15,500,000 common shares issued, outstanding and fully paid. There were no founder or preference shares issued and outstanding.

12. COMMITMENTS AND CONTINGENCIES

	March 31, 2008		December 31, 2007
	(In thousands of $)
Ship mortgages	$	229,500	$	229,500

     As of March 31, 2008 and December 31, 2007, ship mortgages represent first mortgages on the eight Vessels as collateral for amounts outstanding under the secured credit facility with a maturity date of January 11, 2011.

     The minimum future Vessel operating expenses to be paid by the Company under the ship management agreements in effect as of March 31, 2008 that will expire in 2008, 2009, and 2010, and which increase 5% per year on November 9^th, and assuming that the charter options will be exercised through 2011, 2012, and 2013 is $96.5 million. Below is a summary by year of the minimum future Vessel operating expenses:

	Minimum Future Vessel Operating
Year	Expenses
	(In thousands of $)
2008		15,294
2009		21,275
2010		22,339
2011		20,093
2012		12,379
Thereafter		5,126

     The Company has guaranteed the obligations of each of the Vessel Subsidiaries under the charters and ship management agreements described in Note 1.

     The Company has entered into a registration rights agreement with subsidiaries of Stena and Concordia and the companies owned by Stena and Fram pursuant to which the Company has agreed to register the shares owned by such companies for sale to the public. The Company’s expenses under this agreement are limited to the first $0.5 million and 50% of the expenses thereafter. As of March 31, 2008 no such expenses had been incurred.

          Effective July 12, 2005, the Company adopted a tax-qualified employee savings plan (the “Savings Plan”). Pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended, eligible employees of the Company are able to make deferral contributions, subject to limitations under applicable law. Participants’ accounts are self-directed and the Company bears all costs associated with administering the Savings Plan. The Company matches 100% eligible compensation deferred by employees. All of the Company’s employees are eligible to participate in the Savings Plan. The Company has elected to operate the Savings Plan under applicable safe harbor provisions of the Code, whereby among other things, the Company must make contributions for all eligible employees and all matches contributed by the Company immediately vest 100%. For the three months ended March 31, 2008 the Company’s matching contribution was $12,000.

13. RELATED PARTY TRANSACTIONS

     As described in Note 1, the Company was formed for the purpose of acquiring the six Initial Vessels from subsidiaries of Stena, Concordia and companies owned jointly by Stena and Fram. The acquisition was completed in November 2004. In January 2006 the Company acquired the two Additional Vessels from Stena. Prior to their acquisitions, the Vessels were traded in the spot market. The

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Company has entered into time charters for the eight Vessels with subsidiaries of Stena and Concordia that expire in 2008 with respect to two of the Vessels, in 2009 with respect to four of the Vessels and in 2010 with respect to two of the Vessels. The revenue received from Stena and Concordia for the three months ended March 31, 2008 under these contracts was $17.5 million.

     The Company has also entered into ship management arrangements with a subsidiary of Stena that expire in 2008, 2009, and 2010. The amounts charged by this Stena subsidiary under these agreements for the three months ended March 31, 2008 was $5.2 million.

14. SUBSEQUENT EVENTS

     On April 22, 2008, the Company declared a cash dividend of $8,680,000, or $0.56 per share, and paid that dividend on May 6, 2008 to shareholders of record as of May 2, 2008.

     On May 6, 2008, the Company announced that Stena Bulk has exercised its options to extend the Charters for four of the Company’s Vessels. Specifically, Stena Bulk has exercised the first of its three one-year options effective on November 11, 2008 for the Stena Companion and the Stena Concord. Stena Bulk has also exercised its 30-month option effective on January 5, 2009 for the Stena Contest and the Stena Concept. See Note 1 for the basic hire, base operating costs and operating margin for each such Vessel during such option periods.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

     This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to us that are based on beliefs of our management as well as assumptions made by us and information currently available to us, in particular in this “Item 2. Management’s Discussions and Analysis of Financial Condition and Results of Operations.” When used in this document, words such as “believe,” “intend,” “anticipate,” “estimate,” “project,” “forecast,” “plan,” “potential,” “will,” “may,” “should,” and “expect” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. All statements in this document that are not statements of historical fact are forward-looking statements. Forward-looking statements include, but are not limited to, such matters as:

• future operating or financial results;

• future payments of quarterly dividends and the availability of cash for payment of quarterly dividends;

• statements about future, pending or recent acquisitions, business strategy, areas of possible expansion, and expected capital spending or operating expenses;

• statements about tanker market trends, including charter rates and factors affecting vessel supply and demand;

• expectations about future revenues from sub-charters;

• expectations about the availability of vessels to purchase, the time which it may take to construct new vessels, or vessels’ useful lives; and

• our ability to repay our secured credit facility at maturity, to obtain additional financing and to obtain replacement charters for our Vessels.

     Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, the factors described in Part II, Item 1A below under the heading “Risk Factors” and the factors otherwise referenced in this report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statements included herein. We do not intend, and do not assume any obligation, to update these forward-looking statements.

     You should read this information together with our consolidated financial statements and related notes included in “Item 1. Financial Statements.”

OVERVIEW

     We are an international seaborne transporter of crude oil and petroleum products. We were incorporated in September 2004 under the laws of Bermuda.

     In November 2004, we completed our initial public offering by issuing and selling to the public 11,450,000 common shares, par value $0.01 per share, at a price to the public of $20.00 per share, raising gross proceeds of $229 million before the deduction of underwriting discounts, commissions and expenses of approximately $17.7 million. Affiliates of Stena, Concordia and Fram sold an additional 1,717,500 shares in the initial public offering in connection with the underwriters’ exercise of their over-allotment option. We did not receive any proceeds from the sale of these shares by Stena, Concordia, and Fram. Concurrently with the closing of our initial public offering, we completed the acquisition of our six initial vessels, which we refer to as the Initial Vessels. In order to fund a portion of the purchase price of our Initial Vessels, we issued a total of 4,050,000 common shares at a price of $20.00 per share to Stena, Concordia and Fram, for total consideration of $81 million. We financed the remainder of the purchase price of our Initial Vessels through a secured debt financing of $135 million, before expenses of approximately $0.8 million, which we terminated in December of 2005. On the date that we purchased our Initial Vessels, we made a deemed distribution of $143.3 million to Stena,

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Concordia and Fram which consisted of the difference between the $426.5 million purchase price of our Initial Vessels and the historical book value of $283.2 million at which Stena, Concordia and Fram carried the Initial Vessels on their books.

     Stena and Concordia continue to be shareholders of the Company and, based on their filings with the SEC, purchased an additional 3.6% of our outstanding common shares in 2007 such that, as of November 19, 2007, they directly and indirectly owned an aggregate of approximately 18.0% of our outstanding common shares. As a result of Stena’s purchase of additional common shares in 2007, Stena and Concordia may be considered “interested shareholders” for purposes of our bye-laws. Please see “Part II. Item 1A. Risk Factors — Company Specific Risk Factors – Stena and Concordia’s ownership interest in our company can have significant influence over our company, including the outcome of shareholder votes and our ability to conduct future business or modify existing agreements with Stena or Concordia.”

     In December 2005, we entered into a five-year term loan agreement with The Royal Bank of Scotland in order to (1) refinance our indebtedness under our prior debt facility, (2) finance the purchase price of our two additional vessels, which we refer to as the Additional Vessels, from Stena and (3) general corporate purposes. We completed the refinancing of our previous debt facility in December 2005 and completed the acquisition of the Additional Vessels in January 2006. The term loan agreement provides for a credit facility of $229.5 million. The term loan agreement matures on January 5, 2011. All amounts outstanding under the term loan agreement must be repaid on that maturity date. There is no principal amortization prior to maturity. Borrowings under the term loan agreement bear interest at LIBOR plus a margin of 75 basis points. The margin would increase to 85 basis points if the ratio of the fair market value of our Vessels to the amount outstanding under the loan facility falls below 2.0, which we refer to as the Ratio. The increased interest margin is equivalent to approximately $229,500 per year in increased interest costs in the event the Ratio falls below 2.0. In connection with the term loan agreement, we entered into an interest rate swap agreement with The Royal Bank of Scotland. As a result of this swap, we have effectively fixed the interest rate on the term loan agreement at 5.7325%, or 5.8325% if the Ratio falls below 2.0. The net annual cash interest costs will approximate 5.38%, or 5.48% if the ratio described above falls below 2.0, due to the benefit that we received in December 2005 from a swap associated with our prior debt facility. That cash benefit has been designated by our Board of Directors to offset the interest cost over the life of the new $229.5 million term loan facility.

     On January 5, 2006, we entered into a series of agreements with Stena Maritime, certain subsidiaries of Stena, Stena Bulk and Northern Marine, pursuant to which we, through our wholly-owned subsidiaries, purchased two Additional Vessels, the Stena Concept and the Stena Contest, from subsidiaries of Stena Maritime for a purchase price per Additional Vessel of $46 million. In connection with the acquisition of our Additional Vessels, we also entered into certain related agreements with the Stena Parties relating to our Additional Vessels and amended certain of our prior agreements with the Stena Parties relating to our six Initial Vessels which are described in greater detail below under the headings “Our Charters” and “Our Ship Management Agreements”.

     Our eight Vessels are currently owned by eight subsidiaries that we wholly own. The primary activity of each Vessel Subsidiary is the ownership and operation of a Vessel. The flag state of each of our Vessels is Bermuda.

     The following table sets out certain details relating to our Vessels:

						Initial Charter	Latest Charter
Vessel Type	Year Built		Dwt		Date Acquired	Expiration Date(1)	Expiration Date (1)
V-MAX
Stena Victory		2001		314,000	November 10, 2004	November 9, 2009	November 9, 2012
Stena Vision		2001		314,000	November 10, 2004	November 9, 2009	November 9, 2012
Panamax
Stena Companion		2004		72,000	November 10, 2004	November 9, 2008	November 9, 2011
Stena Compatriot		2004		72,000	November 10, 2004	November 9, 2010	November 9, 2013
Product
Stena Concord		2004		47,400	November 10, 2004	November 9, 2008	November 9, 2011
Stena Consul		2004		47,400	November 10, 2004	November 9, 2010	November 9, 2013
Stena Concept		2005		47,400	January 5, 2006	January 4, 2009	July 4, 2011
Stena Contest		2005		47,400	January 5, 2006	January 4, 2009	July 4, 2011

(1) Each of the charters contains renewal options described in greater detail below.

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OUR CHARTERS

     Effective November 10, 2004 for the Initial Vessels and January 5, 2006 for the Additional Vessels, we have chartered our Vessels to subsidiaries of Stena and Concordia, who we refer to as the Charterers, under fixed rate charters with initial periods of three, four and five-years.

     At the closing of the purchase of the Additional Vessels, our subsidiaries that purchased the Additional Vessels and Stena Bulk entered into new time charter party agreements with respect to the Additional Vessels. Under the new time charter parties, which are substantially similar to the time charter parties that our subsidiaries have entered into for the Initial Vessels, our subsidiaries that purchased the Additional Vessels time chartered the Additional Vessels to Stena Bulk for an initial period of three years at a fixed daily Basic Hire without any Additional Hire provision. In May 2008, we announced that Stena Bulk exercised its option to extend the time charters for both Additional Vessels for an additional 30 months, at the fixed daily Basic Hire. As a result, there will be an Additional Hire provision during the 30-month period. Furthermore, as a result of Stena Bulk exercising the 30-month option, there are two additional one-year options, exercisable by Stena Bulk, at the fixed daily Basic Hire set forth below, but without an Additional Hire provision.

     At the closing of the acquisition of the Additional Vessels, we also amended the time charter parties for our four previously acquired Product tankers and Panamax tankers. These amendments modified the charter periods for these four Vessels and made changes to the calculation of Additional Hire under these time charter parties. The amendments to the terms of the charters provided that (1) the initial five-year fixed term for one of the Product tankers (Stena Consul) and one of the Panamax tankers (Stena Compatriot) was extended to November 2010, followed by three one-year options exercisable by Stena Bulk and (2) the initial five-year fixed term for one of the Product tankers (Stena Concord) and one of the Panamax tankers (Stena Companion) was reduced so that it expired in November 2008, followed by three one-year options exercisable by Stena Bulk. The term of the charters for the V-MAX tankers was not amended. The amendments to the Additional Hire provisions provided for certain favorable adjustments to fuel consumption metrics used in the calculation of Additional Hire for the Product tankers and Panamax tankers.

     Basic Hire under Our Charters

     The Charters provide for the payment of Basic Hire fees that increase annually by an amount equal to the annual increase in the fees under our ship management agreements, which are described below under the heading “Our Ship Management Agreements.” The Basic Hire rate for each of the Vessels is payable monthly in advance and will increase annually by an amount equal to the annual increase in the fee payable under the applicable ship management agreement. Stena and Concordia have each agreed to guarantee the obligations of their respective subsidiaries under the Charters.

     The following table sets forth the daily Basic Hire, daily base operating costs and operating margin for our two V-MAX vessels, the Stena Vision and the Stena Victory. The operating margin is calculated by subtracting the amount of the base operating costs from the amount of Basic Hire.

Period	Basic Hire		Base Operating Costs		Operating Margin
Nov. 11, 2007 – Nov. 10, 2008	$	36,882	$	8,682	$	28,200
Nov. 11, 2008 – Nov. 10, 2009		37,316		9,116		28,200
Nov. 11, 2009 – Nov. 10, 2010 (Option Year 1)(1)		37,772		9,572		28,200
Nov. 11, 2010 – Nov. 10, 2011 (Option Year 2)		38,251		10,051		28,200
Nov. 11, 2011 – Nov. 10, 2012 (Option Year 3)		38,753		10,553		28,200

(1) The Charterer has the option to extend these Charters on a vessel-by-vessel basis for 3 additional 1 year terms. There can be no assurance that the Charterer will exercise any such option.

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     The following table sets forth the daily Basic Hire, daily base operating costs and operating margin for two of our vessels, the Stena Companion and the Stena Concord, with initial charter expiration dates in 2008.

	Stena Companion						Stena Concord
			Base Operating		Operating				Base Operating		Operating
Period	Basic Hire		Costs		Margin		Basic Hire		Costs		Margin
Nov. 11, 2007 – Nov. 10, 2008	$	18,306	$	6,656	$	11,650	$	16,335	$	6,135	$	10,200
Nov. 11, 2008 – Nov. 10, 2009 (Option Year 1)(1)		18,639		6,989		11,650		16,642		6,442		10,200
Nov. 11, 2009 – Nov. 10, 2010 (Option Year 2)		18,989		7,339		11,650		16,964		6,764		10,200
Nov. 11, 2010 – Nov. 10, 2011 (Option Year 3)		19,356		7,706		11,650		17,303		7,103		10,200

(1) The Charterer has the option to extend these Charters on a vessel-by-vessel basis for 3 additional 1 year terms. In May 2008, we announced that the Charterer exercised the first of these one-year options for both vessels. There can be no assurance that the Charterer will exercise any additional options.

     The following table sets forth the daily Basic Hire, daily base operating costs and operating margin for two of our vessels, the Stena Compatriot and the Stena Consul, with initial charter expiration dates in 2010.

	Stena Compatriot						Stena Consul
									Base
			Base Operating		Operating				Operating		Operating
Period	Basic Hire		Costs		Margin		Basic Hire		Costs		Margin
Nov. 11, 2007 – Nov. 10, 2008	$	18,306	$	6,656	$	11,650	$	16,335	$	6,135	$	10,200
Nov. 11, 2008 – Nov. 10, 2009		18,639		6,989		11,650		16,642		6,442		10,200
Nov. 11, 2009 – Nov. 10, 2010		18,989		7,339		11,650		16,964		6,764		10,200
Nov. 11, 2010 – Nov. 10, 2011 (Option Year 1)(1)		19,356		7,706		11,650		17,303		7,103		10,200
Nov. 11, 2011 – Nov. 10, 2012 (Option Year 2)		19,741		8,091		11,650		17,658		7,458		10,200
Nov. 11, 2012 – Nov. 10, 2013 (Option Year 3)		20,145		8,495		11,650		18,031		7,831		10,200

(1) The Charterer has the option to extend these Charters on a vessel-by-vessel basis for 3 additional 1 year terms. There can be no assurance that the Charterer will exercise any such option.

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     The following table sets forth the daily Basic Hire, daily base operating costs and operating margin for our two Additional Vessels, the Stena Concept and the Stena Contest.

			Base Operating
Period	Basic Hire		Costs		Operating Margin
Jan. 5, 2007 – Jan 4, 2008	$	20,043	$	5,843	$	14,200
Jan. 5, 2008 – Jan. 4, 2009		20,335		6,135		14,200
Jan. 5, 2009 – Jan. 4, 2010 (Option Period 1)(1)		17,942		6,442		11,500
Jan. 5, 2010 – Jan. 4, 2011 (Option Period 1)		18,264		6,764		11,500
Jan. 5, 2011 – July 4, 2011 (Option Period 1)		18,603		7,103		11,500
July 5, 2011 – July 4, 2012 (Option Period 2) (2)		21,158		7,458		13,700
July 5, 2012 – July 4, 2013 (Option Period 3)		21,531		7,831		13,700

(1)	In May 2008, we announced that the Charterer exercised its option to extend these Charters for an additional 30-month period expiring on July 4, 2011. As a result, we will be eligible to earn Additional Hire in addition to Basic Hire during this 30-month period.
(2)	This period is the first for which the Charterer has the option to extend these Charters as a result of exercising the option described in Footnote 1 above. We would not be eligible to earn Additional Hire over the term of any extension. There can be no assurance that the Charterer will exercise any such option.

     Additional Hire under Our Charters

     Under the Charters, in addition to the fixed rate Basic Hire, each Initial Vessel has the possibility of receiving Additional Hire from the Charterers through profit sharing arrangements related to the performance of the tanker markets on specified geographic routes, or from actual time charter rates. The Additional Hire, if any, in respect of each Initial Vessel, is payable on the 25th day following the end of each calendar quarter. Additional Hire is not guaranteed under our Charters.

     The Additional Hire, if any, payable in respect of an Initial Vessel, other than the V-MAX tankers as described below, for any calendar quarter is an amount equal to 50% of the weighted average hire, calculated as described below, for the quarter after deduction of the Basic Hire in effect for that quarter. The weighted average hire is a daily rate equal to the weighted average of the following amounts:

• a weighted average of the time charter hire per day received by the Charterer for any periods during the calculation period, determined as described below, that the Initial Vessel is sub-chartered by the Charterer under a time charter, less ship broker commissions paid by the Charterer in an amount not to exceed 2.5% of such time charter hire and commercial management fees paid by the Charterer in an amount not to exceed 1.25% of such time charter hire; and

• the time charter equivalent hire for any periods during the calculation period that the Vessel is not sub-chartered by the Charterer under a time charter.

     The calculation period is the twelve-month period ending on the last day of each calendar quarter, except that in the case of the first three full calendar quarters following the commencement of our Charters, the calculation period is the three, six and nine month periods, respectively, ending on the last day of such calendar quarter and the first calendar quarter also includes the period from the date of the commencement of our charters to the commencement of the first full calendar quarter.

     As a result of Stena Bulk exercising its option to extend the Charters for the Additional Vessels, we will become eligible to earn Additional Hire for those Vessels during the 30-month period commencing January 5, 2009.

     At the time we acquired our two V-MAX tankers, these Vessels were sub-chartered by Concordia to Sun International Limited Bermuda, which we refer to as Sun International, an indirect wholly owned subsidiary of Sunoco, Inc.

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     The sub-charter with Sun International relating to the Stena Victory expired on October 20, 2007. The sub-charter with Sun International relating to the Stena Vision is due to expire within 30 days of July 31, 2008.

     The sub-charter rate that Concordia received from Sun International with respect to the Stena Victory, and the sub-charter rate that Concordia continues to receive from Sun International with respect to the Stena Vision, is greater than the Basic Hire rate that we receive from Concordia. Therefore, we earned Additional Hire revenue while the Stena Victory was sub-chartered to Sun International, and we continue to earn Additional Hire revenue while the Stena Vision is sub-chartered to Sun International. The amount of this Additional Hire is equal to the difference between the amount paid by Sun International under its sub-charters with Concordia and the Basic Hire rate in effect, less ship broker commissions paid by the Charterer in an amount not to exceed 2.5% of the charterhire received by the Charterer and commercial management fees paid by the Charterer in an amount not to exceed 1.25% of the charterhire received by the Charterer. The Additional Hire revenue associated with the ongoing Sun International sub-charter of the Stena Vision is guaranteed, meaning that we are paid the Additional Hire revenue by Concordia whether or not the Vessel is in service during the term of the Sun International sub-charter.

     Immediately following the expiration of the sub-charter of the Stena Victory with Sun International, that Vessel commenced operating under a new two-year sub-charter agreement between Concordia and Eiger Shipping S.A., an affiliate of the shipping branch of LukOil commonly know as Litasco. In addition, immediately following the expiration of the sub-charter of the Stena Vision with Sun International, we expect the Vessel to commence operating under a new two-year sub-charter agreement between Concordia and Eiger Shipping. The sub-charter rate that Eiger Shipping is obligated to pay to Concordia is greater than the Basic Hire rate that we will receive from Concordia. Therefore, we expect to earn Additional Hire revenue while the V-MAX vessels are under the Eiger Shipping sub-charters in addition to the Basic Hire. The Additional Hire revenue will not be exposed to fluctuations in spot market rates. Additional Hire for the V-MAX tankers under the Eiger Shipping sub-charters will be based on the time charter hire received by Concordia under the sub-charters. Additional Hire revenues under the Eiger Shipping sub-charters are not guaranteed, meaning that we will earn Additional Hire only when the Vessels are in service. In the event that the V-MAX tankers are off-hire, we will not be eligible to earn Additional Hire revenue from the profit sharing provisions on the days that the Vessel is off-hire. Based on the time charter rates under the Eiger Shipping sub-charters and assuming that both V-MAX vessels operate for 90 days per quarter, we expect the V-MAX tankers to generate Additional Hire revenues of approximately $350,000 per Vessel per quarter in addition to the Basic Hire levels, while the Vessels are sub-chartered to Eiger Shipping.

OUR SHIP MANAGEMENT AGREEMENTS

     Our Vessel Subsidiaries have entered into fixed-rate ship management agreements with Northern Marine. Under the ship management agreements, Northern Marine is responsible for all technical management of the Vessels, including crewing, maintenance, repair, drydockings, vessel taxes and other vessel operating and voyage expenses. Northern Marine has outsourced some of these services to third-party providers. We have agreed to guarantee the obligations of each of our Vessel Subsidiaries under the ship management agreements.

     At the closing of the acquisition of the Additional Vessels, the ship management agreements for our Initial Vessels were amended. These amendments modified the provisions relating to drydocking of the Vessels. Specifically, the amendments provided that all drydockings during the term of the ship management agreements are to be at the sole cost and expense of Northern Marine. In addition, Northern Marine agreed to conduct at least one mid-period drydocking for each Product tanker and Panamax tanker prior to redelivery of such Vessels. Under the terms of the ship management agreements, the cost of these intermediate and special surveys is covered by the management fees that we pay to Northern Marine. Upon redelivery of the Vessels to us at the expiration of the ship management agreements, Northern Marine has agreed to re-pay to us any drydocking provision accrued, but not used, from the completion of the last drydocking during the term of the applicable Ship Management Agreement (or if no drydocking occurs during the term of such agreement, from the date of commencement of such agreement), to the date of redelivery at the daily rates specified in the ship management agreements.

     Under the ship management agreements, Northern Marine has agreed to return the Vessels in-class and in the same good order and condition as when delivered, except for ordinary wear and tear.

     Northern Marine is also obligated under the ship management agreements to maintain insurance for each of our Vessels, including marine hull and machinery insurance, protection and indemnity insurance (including pollution risks and crew insurances), war risk insurance and off-hire insurance. Under the ship management agreements, we pay Northern Marine a fixed fee per day per Vessel for all of the above services, which increases 5% per year, for so long as the relevant charter is in place. Under the ship management agreements, Northern Marine has agreed to indemnify us for the loss of the Basic Hire for each of the Vessels in the event, for circumstances specified under the charters, the Vessel is off-hire or receiving reduced hire for more than five days during any twelve-

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month period, net of amounts received by us from off-hire insurance. Stena has agreed to guarantee this indemnification by Northern Marine. Both we and Northern Marine have the right to terminate any of the ship management agreements if the relevant charter has been terminated.

     Tables setting forth the daily base operating costs for each of our Vessels can be found above in the section entitled “—Basic Hire under Our Charters.”

     We have also agreed to pay to Northern Marine an incentive fee for each day a Vessel is on hire for over 360 days during any twelve-month period following the date the applicable Vessel was delivered to us in amount equal to the daily Basic Hire for such Vessel. If we terminate the ship management agreements with Northern Marine because Northern Marine has failed to perform its obligations under such agreements, Stena has agreed to provide a replacement ship manager to perform the obligations set forth in the ship management agreements on the same terms and for the same fixed amounts payable to Northern Marine.

     Northern Marine provides technical and crewing management and payroll and support services to the Stena Sphere shipping divisions and several other clients, including ChevronTexaco Corporation, Technip Offshore UK and Gulf Marine Management. Northern Marine has offices in Glasgow, Aberdeen, Mumbai, Kiel, Houston, Manila, Rotterdam and Singapore and has over 4,400 seafarers employed on approximately 90 vessels.

DIVIDEND POLICY

     We have paid quarterly cash dividends on our common shares since our initial public offering in November 2004 in amounts substantially equal to the charterhire received by us under the Charters, less cash expenses and any cash reserves established by our Board of Directors. We have generally declared these dividends in January, April, July and October of each year and made payments in the subsequent month. Distributions to shareholders are applied first to retained earnings. When retained earnings are not sufficient, distributions are applied to additional paid-in capital.

     There are restrictions that limit our ability to declare dividends, including those established under Bermuda law and under our existing secured term loan agreement. The terms of any future indebtedness we may enter into, including indebtedness that refinances our existing secured credit facility, may have stricter restrictions on our ability to pay dividends. Furthermore, higher interest rates or different repayment terms of future indebtedness, such as principal amortization requirements, may reduce the amount of cash that we would have available to pay future dividends. In addition to the discussion below, please see “Part II. Item 1A. Risk Factors — Company Specific Risk Factors – We cannot assure you that we will pay any dividends,” “— If we cannot refinance our secured credit facility, or in the event of a default under the facility, we may have to sell our Vessels, which may leave no additional funds for distributions to shareholders” and “—We may not be able to re-charter our Vessels profitably after they expire, unless they are extended at the option of the Charterers.”

     Under Bermuda law a company may not declare or pay dividends if there are reasonable grounds for believing either that the company is, or would after the payment be, unable to pay its liabilities as they become due, or that the realizable value of its assets would thereby be less than the sum of its liabilities and its issued share capital, which is the par value of our shares and share premium accounts, which is the amount of consideration paid for the subscription of shares in excess of the par value of those shares. As a result, in future years, if the realizable value of our assets decreases, our ability to pay dividends may require our shareholders to approve resolutions reducing our share premium account by transferring an amount to our contributed surplus account.

     The declaration and payment of any dividends must be approved by our Board of Directors. Under the terms of our credit facility, we may not declare or pay any dividends if we are in default under the credit facility.

     There can be no assurance that we will not have other cash expenses, including extraordinary expenses, which could include the costs of claims and related litigation expenses. There can be no assurance that we will not have additional expenses or liabilities, that the amounts currently anticipated for the items set forth above will not increase, that we will not have to fund any required capital expenditures for our Vessels or that our Board of Directors will not determine to establish cash reserves. The vessel operating expenses payable under our ship management agreements are fixed over the periods specified in those agreements. However, our cash administrative expenses, primarily related to salaries and benefits, travel and entertainment expenses, office costs, general insurance and other administrative costs, are not fixed, and may increase or decrease each year based on the factors described above in this paragraph.

     The table below sets forth amounts that would be available to us for the payment of dividends for each of the fiscal years set forth below assuming that:

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• the Basic Hire is paid on all of our Vessels, all of our Vessels are on hire for 360 days per fiscal year and the options to extend the charters are exercised by the Charterers;

• no Additional Hire is paid on our two Panamax Tankers or our two Product Tankers that are eligible to earn Additional Hire other than the $231,000 earned in the first three months of 2008;

• the Additional Hire continues to be paid in connection with the sub-charter of the Stena Vision to Sun International, which is expected to expire within 30 days of July 31, 2008;

• Additional Hire of approximately $350,000 per Vessel per quarter is paid on the V-MAX Vessels in connection with the Eiger Shipping sub-charters, assuming that the V-MAX Vessels operate for 90 days per quarter (the Eiger Shipping sub-charger for the Stena Victory commenced on October 20, 2007 and the Eiger Shipping sub-charter for the Stena Vision is expected to commence within 30 days of July 31, 2008);

• the V-MAX Vessels are returned on the notional termination dates of the sub-charter within the 60-day delivery window;

• we have no cash expenses or liabilities other than the ship management agreements, our current directors’ fees, the current salaries and benefits of our employees, currently anticipated administrative and other expenses and interest under our secured credit facility;

• we pay no U.S. federal income taxes and minimal U.S. and state payroll taxes;

• we have no requirement to fund any required capital expenditures with respect to our Vessels;

• we do not suffer the loss or constructive loss of any of our Vessels;

• no material cash reserves or requirements are established by the actions of our Board of Directors or management;

• we remain in compliance with our secured credit facility which requires, among other things, that the fair market value of our Vessels exceeds 140% of our borrowings under the facility (or 125% if the loan amount at the time of such dividend all of our Vessels are on time charter for a remaining period of at least 12 months) in order to pay dividends; and

• we do not issue any additional common shares or other securities or borrow any additional funds.

     The table below does not reflect non-cash charges that we will incur, primarily depreciation on our Vessels. The timing and amount of dividend payments will be determined by our Board of Directors and will depend on our cash earnings, financial condition, cash requirements and availability and the provisions of Bermuda law affecting the payment of dividends and other factors. The table below does not take into account any expenses we will incur if the subsidiaries of Concordia and Stena and the two companies owned by Stena and Fram exercise their rights to have us register their shares under the registration rights agreement.

     We cannot assure you that our dividends will in fact be equal to the amounts set forth below. The amount of future dividends set forth in the table below represents only an estimate of future dividends based on the list of assumptions set forth above. The amount of future dividends, if any, could be affected by various factors, including the loss of a Vessel, required capital expenditures, cash reserves established by our Board of Directors, increased or unanticipated expenses, a change in our dividend policy, increased borrowings, more restrictive debt covenants, higher interest rates, principal amortization requirements or future issuances of securities, many of which will be beyond our control. As a result, the amount of dividends actually paid may vary from the amounts currently estimated and such variations may be material. There can be no assurance that any dividends will be paid. See “Part II. Item 1A. — Risk Factors — Company Specific Risk Factors – We cannot assure you that we will pay any dividends,” “— If we cannot refinance our secured credit facility, or in the event of a default under the facility, we may have to sell our Vessels, which may leave no additional funds for distributions to shareholders” and “—We may not be able to re-charter our Vessels profitably after they expire, unless they are extended at the option of the Charterers.”

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     The following table sets forth:

• the amount of cash that was available for dividends in the fiscal year ended December 31, 2007; and

• based on the assumptions and the other matters in the preceding paragraphs, our estimate of the amount of cash likely to be available for dividends for each of the 2008, 2009, and 2010 fiscal years.

	2007			2008			2009			2010
	(In millions of dollars, except per share amounts)
Basic Hire(1)	$	65.9		$	66.3		$	65.3		$	66.4
V-MAX Additional Hire – Sun International sub-charters(2)		2.0			.5			—			—
V-MAX Additional Hire – Eiger Shipping sub-charters(3)		.3			2.2			2.6			.8
Additional Hire – Panamax and Product tankers(4)		2.0			.2			—			—
Vessel operating expenses		(20.0	)		(20.3	)		(21.2	)		(22.3	)
Cash administrative expenses(5)		(2.2	)		(2.4	)		(2.5	)		(2.5	)
Cash interest costs(6)		(12.0	)		(12.3	)		(12.3	)		(12.3	)
Cash available for dividends		36.1			34.2			31.8			30.1
Estimated dividends per share(7)	$	2.32		$	2.21		$	2.05		$	1.94

(1)	Basic Hire revenues for 2008, 2009 and 2010 assume that all options available under the charter contracts are exercised by the Charterer. Basic Hire reflected in the above table includes $700,000 of revenue in 2008, $28.8 million of revenue in 2009, and $56.0 million of revenues in 2010 arising from such option exercises.
(2)	The sub-charter with Sun International for the Stena Victory expired on October 20, 2007. The Additional Hire revenue associated with the ongoing sub-charter of the Stena Vision to Sun International is guaranteed, meaning that we will be paid the Additional Hire revenue by Concordia whether the V-MAX tanker is in service or not in service, during the term of the sub-charter. The sub-charter with Sun International for the Stena Vision is due to expire within 30 days of July 31, 2008. Our estimate above reflects guaranteed V-MAX Additional Hire revenue from Sun International sub-charter through July 31, 2008.
(3)	Immediately following the expiration of the sub-charter of the Stena Victory with Sun International, that Vessel commenced operating under a new sub-charter agreement with Eiger Shipping. In addition, immediately following the expiration of the sub-charter of the Stena Vision with Sun International, we expect that Vessel to commence operating under a new sub-charter agreement with Eiger Shipping. During the term of these new sub-charters, we will continue to earn guaranteed Basic Hire from Concordia and we will also earn Additional Hire under the profit sharing provisions of the Charters. Additional Hire for the V-MAX tankers under the new sub-charters will be based on a fixed time charter hire payable by Eiger Shipping to Concordia under the sub-charters and the Additional Hire is not exposed to fluctuations in spot market rates. Additional Hire revenues under these sub-charters are not guaranteed, meaning that we will earn Additional Hire only if the Vessel is in service. The sub-charter for Eiger Shipping related to the Stena Victory commenced on October 20, 2007. Our estimated cash available for dividends includes our estimated Additional Hire for the Stena Victory, based on the October 20, 2007 commencement date. Our estimated cash available for dividends includes our estimated Additional Hire for the Stena Vision, assuming that the Eiger Shipping sub-charter for that Vessel begins on August 1, 2008. While the V-MAX Vessels are sub-chartered to Eiger Shipping, the profit sharing provisions in the Concordia charters are expected to result in Additional Hire revenue of approximately $350,000 per Vessel per quarter, based on the time charter rates under the sub-charters and assuming the Vessels operate 90 days per quarter, in addition to the guaranteed Basic Hire.
(4)	Reflects Additional Hire revenues actually earned in 2007 and in the three months ended March 31, 2008 by our two Panamax tankers and our two Product tankers that are eligible to earn Additional Hire. No estimates have been made for the remainder of 2008, or for 2009 and 2010, as these Additional Hire revenues are not determinable due to volatility and unpredictability of various factors, including spot market rates which are used to compute Additional Hire revenues.
(5)	General and administrative expenses for 2008 through 2010 do not include any cost for executive bonuses, which are primarily performance based.
(6)	Cash interest costs are adjusted to reflect a benefit of approximately $1.0 million per year from the 2005 termination of an interest rate swap. The gain recorded on the termination of this swap is being distributed from cash to reduce the effect on dividends from refinancing of the debt at a higher interest cost. The gross interest expense for each year will be approximately $13.3 million ($229.5 million at 5.7325%).
(7)	Based on 15,500,000 issued and outstanding common shares.

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     In January 2008, we declared a dividend of $0.56 per share, and paid that dividend on February 12, 2008 to shareholders of record as of February 8, 2008. The January 2008 dividend was based on our operating results for the fourth quarter ended December 31, 2007. In that period, we earned Additional Hire of $900,000, including Additional Hire on our V-MAX vessels of approximately $600,000 and Additional Hire of approximately $300,000 on our two Product tankers and our two Panamax tankers that are eligible to earn Additional Hire. In April 2008, we declared a dividend of $0.56 per share and paid that dividend on May 6, 2008 to shareholders of record as of May 2, 2008. The April 2008 dividend was based on our operating results for the first quarter ended March 31, 2008. In that period, we earned Additional Hire of $800,000, including Additional Hire on our V-MAX vessels of approximately $600,000 and Additional Hire of approximately $200,000 on our two Product tankers and our two Panamax tankers that are eligible to earn Additional Hire.

     In January 2007, we declared a dividend of $0.57 per share, and paid that dividend on February 12, 2007 to shareholders of record as of February 9, 2007. The January 2007 dividend was based on our operating results for the fourth quarter ended December 31, 2006. In that period, we earned Additional Hire of $1.0 million, including Additional Hire on our V-MAX vessels of $600,000 and Additional Hire of $400,000 on our Product and Panamax tankers. In April 2007, we declared a dividend of $0.58 per share, and paid that dividend on May 7, 2007 to shareholders of record as of May 4, 2007. The April 2007 dividend was based on our operating results for the first quarter ended March 31, 2007. In that period, we earned Additional Hire of $1.1 million, including Additional Hire on our V-MAX vessels of $539,000 and Additional Hire of $514,000 on our two Product tankers and our two Panamax tankers that are eligible to earn Additional Hire. In July 2007, we declared a dividend of $0.59 per share, and paid that dividend on August 6, 2007 to shareholders of record as of August 3, 2007. The July 2007 dividend was based on our operating results for the second quarter ended June 30, 2007. In that period, we earned Additional Hire of $1.3 million, including Additional Hire on our V-MAX vessels of $545,000 and Additional Hire of $751,000 on our two Product tankers and our two Panamax tankers that are eligible to earn Additional Hire. In October 2007, we declared a dividend of $0.59 per share, and paid that dividend on November 6, 2007 to shareholders of record as of November 2, 2007. The October 2007 dividend was based on our operating results for the third quarter ended September 30, 2007. In that period, we earned Additional Hire of $1.0 million, including Additional Hire on our V-MAX vessels of approximately $600,000 and Additional Hire of approximately $400,000 on our two Product tankers and our two Panamax tankers that are eligible to earn Additional Hire.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2008 Compared to the Three Months Ended March 31, 2007

Total operating revenues, net

     Total operating revenues were $17.5 million for the three months ended March 31, 2008 compared to $17.3 million for the three months ended March 31, 2007. Revenues for the three months ended March 31, 2008 consisted of $16.7 million of Basic Hire and approximately $800,000 of Additional Hire. During the three months ended March 31, 2008, the Charterers operated our two Panamax tankers and our two Product tankers that are eligible to earn Additional Hire in the spot market, resulting in payment to us of approximately $200,000 of Additional Hire. In addition, the two V-MAX tankers generated approximately $600,000 of Additional Hire during that quarter.

     We expect that total operating revenues for 2008, including anticipated Additional Hire revenues from our V-MAX tankers in 2008, and March 2008 year-to-date Additional Hire revenues from our profit sharing arrangements for the two Product and two Panamax tankers, will be approximately $69.2 million.

     The Vessels had 0.3 days off-hire during the three months ended March 31, 2008 and 2007.

Total vessel operating expenses

     Total vessel operating expenses were $5.2 million for the three months ended March 31, 2008 compared to $5.0 million for the three months ended March 31, 2007. The increase in vessel operating expenses reflects the increase in the vessel management fees under the vessel management agreements with Northern Marine. We expect vessel operating expenses in 2008 to be approximately $20.3 million principally due to the annual increases in vessel management fees to Northern Marine.

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Depreciation

     Depreciation was $3.8 million for the three months ended March 31, 2008 and 2007. We estimate that depreciation in 2008 will be approximately $15.6 million.

Administrative expenses

     Administrative expenses were $623,000 for the three months ended March 31, 2008 compared to $528,000 for the three months ended March 31, 2007. The general and administrative expenses in the first quarter of 2008 were slightly higher than the first quarter of 2007 due to higher professional services fees. We estimate that administrative expenses for 2008 will be between approximately $2.4 million to $2.5 million, exclusive of the cost for an executive bonus, which is primarily performance based.

Net Other Expense

     Net other expense represents interest expense, net of interest income and other financial items. Net other expense was $10.4 million for the three months ended March 31, 2008, compared to net other expense of $4.2 million for the three months ended March 31, 2007. For the three months ended March 31, 2008, the net other income includes $7.1 million of unrealized loss on our interest rate swap and $3.4 million in interest expense related to our credit facility with The Royal Bank of Scotland, which matures in January 2011, partially offset by $131,000 of interest income. Net other expense of $4.2 million for the three months ended March 31, 2007 reflects an unrealized loss of $1.0 million on our interest rate swap and interest expense of $3.4 million on our credit facility with The Royal Bank of Scotland, offset by $216,000 of interest income.

     With respect to our $229.5 million term loan credit facility, by entering into an interest rate swap agreement, we have effectively fixed the interest rate under the facility at 5.7325% (5.8325% if the ratio of the value of our Vessels to the amount outstanding under the loan facility falls below 2.0) for the five-year term. The interest rate swap agreement was not designated nor qualified as a cash flow hedge pursuant to SFAS No. 133. Accordingly changes in the fair value of this swap are recorded in current earnings. The fair value of the swap at March 31, 2008 was a liability of $14.6 million. The fair value of the swap at December 31, 2007 was a liability of $7.5 million. Accordingly, we recorded a non-cash decrease in the fair value of the interest rate swap of $7.1 million in current earnings as an unrealized loss in the first quarter of 2008. In the first quarter of 2007, we recorded a non-cash decrease in the fair value of the interest rate swap of $1.0 million in current earnings as an unrealized loss.

     Based upon the effectively fixed interest rate under the terms of the swap agreement, we estimate that interest expense under the $229.5 million secured credit facility with The Royal Bank of Scotland plc, which matures in January 2011, will be approximately $13.2 million per year.

Liquidity and Capital Resources

     We operate in a capital intensive industry. Our liquidity requirements relate to our operating expenses, including payments under our ship management agreements, quarterly payments of interest and the payment of principal at maturity under our $229.5 million secured credit facility and maintaining cash reserves to provide for contingencies.

     In December 2005, we entered into a five-year term loan agreement with The Royal Bank of Scotland. The term loan agreement provides for a facility of $229.5 million. The purpose of the term loan agreement was to (1) refinance our existing indebtedness, (2) finance the purchase price of two Product tankers from Stena and (3) general corporate purposes. We completed the refinancing of our indebtedness in December 2005 and completed the Additional Vessel acquisition in January 2006. The term loan agreement matures on January 5, 2011. All amounts outstanding under the term loan agreement must be repaid on that maturity date. There is no principal amortization prior to maturity. Borrowings under the term loan agreement bear interest at LIBOR plus a margin of 75 basis points. The margin would increase to 85 basis points if the ratio of the fair market value of our Vessels to the amount outstanding under the credit facility, which we refer to as the Ratio, falls below 2.0. The increased interest margin is equivalent to approximately $229,500 per year in increased interest costs in the event the Ratio falls below 2.0. In connection with the term loan agreement, we have entered into an interest rate swap agreement with The Royal Bank of Scotland. As a result of this swap, we effectively fixed the interest rate on the term loan agreement at 5.7325%. The annual cash interest costs will approximate 5.38% due to the cash benefit that we received in December 2005 from the $4.8 million termination of a prior swap. That cash benefit has been designated by our Board of Directors to offset the higher interest costs over the life of the $229.5 million credit facility. The term loan agreement provides that if at any time the aggregate market value of our Vessels that secure the obligations under the Loan Agreement is less than 125% of the loan amount, we must either provide additional security or prepay a portion of the loan to reinstate such percentage.

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The term loan agreement also contains financial covenants requiring that at the end of each financial quarter (1) our total assets (adjusted to give effect to the market value of the Vessels) less total liabilities is equal to or greater than 30% of such total assets and (2) we have positive working capital.

     We had outstanding long term debt of $229.5 million as of March 31, 2008 and December 31, 2007. This amount reflects outstanding borrowings under our secured credit facility, which matures in January 2011. By entering into an interest rate swap agreement, we have effectively fixed the interest rate under the facility at approximately 5.7325% per year.

     We anticipate that we will seek to refinance our secured credit facility at or prior to its maturity. There can be no assurance that we will be able to do so on acceptable terms. Interest rates may be higher than current rates at the time we seek to refinance our secured credit facility and the prevailing market terms for loans such as the type we would need to refinance our secured credit may require periodic payments to amortize the outstanding principal. Such higher rates, principal amortization requirements or other terms could prevent our ability to complete a refinancing or could adversely impact our future results, including the amount of cash available for future dividends. Please see “Part II. Item 1A. Risk Factors — Company Specific Risk Factors – We cannot assure you that we will pay any dividends,” “— If we cannot refinance our secured credit facility, or in the event of a default under the facility, we may have to sell our Vessels, which may leave no additional funds for distributions to shareholders” and “— We may not be able to recharter our Vessels profitably after they expire, unless they are extended at the option of the Charterers.”

     As of March 31, 2008, we had cash and cash equivalents of $15.9 million. Net cash provided by operating activities for the three months ended March 31, 2008 was $5.8 million.

     Net cash provided by investing activities for the three months ended March 31, 2008 was 12.5 million. This amount relates to the sale of $12.5 million in marketable securities during the three months ended March 31, 2008 with original maturities greater than 90 days. We did not purchase any marketable securities during the first quarter of 2008.

     Net cash used in financing activities for the three months ended March 31, 2008 was $8.7 million, which consisted solely of a dividend payment made in February 2008.

     We collect our Basic Hire monthly in advance and pay our ship management fees monthly in advance. We receive Additional Hire payable quarterly in arrears. We expect charter revenues will be sufficient to cover our ship management fees, interest payments, administrative expenses and other costs and to continue to pay quarterly dividends as described above under the caption “Dividend Policy”.

     We believe that our cash flow from our Charters will be sufficient to fund our interest payments under our secured credit facility and our working capital requirements for the short and medium term. To the extent we pursue additional vessel acquisitions, we will need to obtain additional debt or equity capital. Our longer term liquidity requirements include repayment of the principal balance of our secured credit facility in January 2011. We anticipate requiring new borrowings, issuances of equity, or funds from a combination of these sources to meet this repayment obligation.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Our accounting policies are more fully described in Note 2 to the Notes to Condensed Consolidated Financial Statements included elsewhere in this report. As disclosed in Note 2 to the Notes to Consolidated Financial Statements, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic and industry conditions, present and expected conditions in the financial markets, and in some cases, the credit worthiness of counterparties to contracts. We regularly reevaluate these significant factors and make adjustments where facts and circumstances dictate. The following is a discussion of the accounting policies that we apply and that we consider to involve a higher degree of judgment in their application.

Revenue Recognition

     Revenues are generated from time charters and the spot market. Charter revenues are earned over the term of the charter as the service is provided. Probable losses on voyage charters are accrued in full at the time such losses can be estimated.

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Vessels, Depreciation and Impairment

     Our Vessels represent our most significant assets and we state them at cost less accumulated depreciation. Depreciation of our Vessels is computed using the straight-line method over their estimated useful lives of 25 years. This is a common life expectancy applied in the shipping industry. Significant vessel improvement costs are capitalized as additions to the vessel rather than being expensed as a repair and maintenance activity. Should certain factors or circumstances cause us to revise our estimate of vessel service lives, depreciation expense could be materially lower or higher. If circumstances cause us to change our assumptions in making determinations as to whether vessel improvements should be capitalized, the amounts we expense each year as repairs and maintenance costs could increase, partially offset by a decrease in depreciation expense.

     We review long-lived assets used in our business on an annual basis for impairment, or whenever events or changes in circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable. We assess recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future undiscounted net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and its fair value. We estimate fair value based on independent appraisals, sales price negotiations, active markets, if available, and projected future cash flows discounted at a rate determined by management to be commensurate with our business risk. The estimation of fair value using these methods is subject to numerous uncertainties which require our significant judgment when making assumptions of revenues, operating costs, selling and administrative expenses, interest rates and general economic business conditions, among other factors.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     We are exposed to market risk arising from changes in interest rates, primarily resulting from the floating rate of our borrowings. We use interest rate swaps to manage such interest rate risk. We have not entered into any financial instruments for speculative or trading purposes.

     At March 31, 2008 and December 31, 2007, we had $229.5 million outstanding under our debt facility. The borrowings under our debt facility bear interest at LIBOR (reset quarterly) plus a margin of 0.75%, or 0.85% if the Ratio falls below 2.0. We have entered into an interest rate swap agreement that has effectively fixed the interest rate under the facility at approximately 5.7325% per year. Periodic cash settlements under the swap agreements occur quarterly corresponding with interest payments under the secured credit facility. The fair value of the interest rate swap agreement as of March 31, 2008 was a liability of $14.6 million. The fair value of the interest rate swap agreement as of December 31, 2007 was a liability of $7.5 million.

Item 4. Controls and Procedures

     Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2008. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2008, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

     No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION

Item 1. Legal Proceedings

     The nature of our business, i.e., the acquisition, chartering and ownership of our Vessels, exposes us to the risk of lawsuits for damages or penalties relating to, among other things, personal injury, property casualty and environmental contamination. Under rules related to maritime proceedings, certain claimants may be entitled to attach charterhire payable to us in certain circumstances. There are no actions or claims pending against us as of the date of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

Risk Factors

     The following important factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this report or presented elsewhere by management from time to time.

Company Specific Risk Factors

 We cannot assure you that we will pay any dividends

     We currently intend to pay dividends on a quarterly basis in amounts determined by our Board of Directors. We believe our dividends will be substantially equal to the charterhire received by us under the Charters, less cash expenses and any cash reserves established by our Board of Directors. Such expenses consist primarily of fees under our ship management agreements, directors’ fees, salaries and benefits of our employees, payment of interest under our secured credit facility, and other administrative costs and other expenses. There can be no assurance that we will not have other cash expenses, including extraordinary expenses, which could include the costs of claims and related litigation expenses. There can be no assurance that we will not have additional expenses or liabilities, that the amounts currently anticipated for the items set forth above will not increase, that we will not have to fund any required capital expenditures for our Vessels or that our Board of Directors will not determine to establish additional cash reserves or change our dividend policy. Other than the fees under our ship management agreements, none of our fees or expenses is fixed.

     The amount of potential future dividends set forth in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Dividend Policy” represents only an estimate of future dividends based on our charter contracts, ship management agreements, an estimate of our other expenses and the other matters and assumptions set forth therein and assumes that other than our ship management expenses, none of our expenses increase during the periods presented in the table. The amount of future dividends, if any, could be affected by various factors, including the loss of a Vessel, the number of days a Vessel is off-hire, the timing of the commencement or expiration of any sub-charters for our Vessels, the effect of global demand for tanker capacity on Additional Hire calculations, required capital expenditures, cash reserves established by our Board of Directors, increased or unanticipated expenses, a change in our dividend policy, increased borrowings, more restrictive debt covenants, higher interest rates, principal amortization requirements or future issuances of securities, many of which are beyond our control. As a result, the amount of dividends actually paid may vary from period to period and such variations may be material.

     The amount of dividends we may be able to pay can also be affected by the terms of our current, or any future, indebtedness. Our existing secured credit facility provides that we may not pay dividends if an event of default under the facility agreement has occurred and continues or if the market value of our Vessels is less than 140% of our borrowings under the facility (or, if at the time of the proposed dividend, all of our Vessels are on time charter for a remaining period of 12 months, less than 125% of the loan amount). The terms of any future indebtedness we may enter into, including indebtedness that refinances our existing secured credit facility, may have stricter restrictions on our ability to pay dividends. Furthermore, higher interest rates or different repayment terms of future indebtedness, such as principal amortization requirements, may reduce the amount of cash that we would have available to pay future dividends.

     The declaration of dividends is subject to current and future debt covenants, compliance with Bermuda law and is subject at all times to the discretion of our Board of Directors. There can be no assurance that dividends will be paid in the amounts anticipated or at all.

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 We are highly dependent on the Charterers and their guarantors, Stena and Concordia

     All of our Vessels are chartered to the Charterers, which are subsidiaries of Stena and Concordia. The Charterers’ payments to us under these Charters are our sole source of revenue. We are highly dependent on the performance by the Charterers of their obligations under the Charters and by their guarantors, Stena and Concordia, of their obligations under their respective guarantees. Any failure by the Charterers or the guarantors to perform their obligations would materially and adversely affect our business and financial position. Our shareholders do not have any recourse against the Charterers or the guarantors.

If we cannot refinance our secured credit facility, or in the event of a default under the facility, we may have to sell our Vessels, which may leave no additional funds for distributions to shareholders

     Under the terms of the Loan Agreement providing for our secured credit facility, we are required to repay the total amount outstanding at maturity, January 5, 2011. Borrowings under the facility are guaranteed by each of our Vessel Subsidiaries and are secured by mortgages over all of our Vessels; assignments of earnings, insurances and requisition compensation with respect to our Vessels; and assignments of our interests in the Charters and our ship management agreements. Whether or not the Charterers renew the Charters, the Loan Agreement will mature in January 2011 and we will be obligated to repay or refinance the total amount due under the loan at that time. There is no assurance that we will be able to repay or refinance this amount. In addition, even if the Charterers renew the Charters for one or more of our Vessels, if we are unable to refinance our secured credit facility on acceptable terms, we may be forced to attempt to sell some or all of our Vessels. Interest rates may be higher than current rates at the time we seek to refinance our secured credit facility and the prevailing market terms for loans such as the type we would need to refinance our secured credit may require periodic payments to amortize the outstanding principal. Such higher rates, principal amortization requirements or other terms could prevent our ability to complete a refinancing or could adversely impact our future results, including the amount of cash available for future dividends. In such event, we may conclude that such a refinancing is not on acceptable terms. In addition, in the event of a default under our secured credit facility all of our Vessels could be sold to satisfy amounts due to the lender under our secured credit facility. Depending on the market value for our Vessels at the time, it is possible that after payment of the amounts outstanding under our secured credit facility there would not be any funds to distribute to our shareholders. In addition, under our bye-laws, any sale of a Vessel would require the approval of at least a majority of our shareholders voting at a meeting. Furthermore, our current Charters provide that we may not sell the related Vessel without the Charterer’s consent, which consent may be withheld in the Charterer’s sole discretion. Accordingly, there can be no assurance that we would be able to sell a Vessel at a time when we would need to do so to satisfy the obligations under our secured credit facility.

     Because we currently intend to distribute dividends to our shareholders in an amount substantially equal to our charterhire, less cash expenses and any cash reserves established by our Board of Directors, we do not believe we will be able to repay our secured credit facility in January 2011 without either refinancing our debt or selling some or all of our Vessels. As a result, we anticipate that we will seek to refinance our secured credit facility at or prior to its maturity. There can be no assurance that we will be able to do so on acceptable terms.

We may not be able to re-charter our Vessels profitably after their Charters expire, unless they are extended at the option of the Charterers

     Two of our Charters have initial expiration dates in 2008, four have initial expiration dates in 2009 and two have initial expiration dates in 2010. The Charterers have options to extend the terms of the Charters for each of our Vessels. In May 2008, we announced that the options for four of our Vessels had been exercised. The Charterers have the sole discretion as to exercising their options. Notice that the Charterer is exercising its option to extend the term of a Charter is required to be delivered no later than six months prior to the expiration of the charter period in effect at that time. We cannot predict whether the Charterers will exercise any additional extension options under one or more of the Charters. The Charterers do not owe any fiduciary or other duty to us or our shareholders in deciding whether to exercise their extension options, and the Charterers’ decision may be contrary to our interests or those of our shareholders.

     We cannot predict any of the factors that the Charterers will consider in deciding whether to exercise any of their extension options under the Charters. It is likely, however, that the Charterers would consider a variety of factors, which may include the age and specifications of the particular Vessel, whether a Vessel is surplus or suitable to the Charterers’ requirements and whether competitive charterhire rates are available to the Charterers in the open market at that time.

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     If the Charterers decide not to extend our current Charters, we may not be able to re-charter our Vessels with terms similar to the terms of our Charters, or at all. We may also directly employ the Vessels on the spot charter market, which is subject to greater rate fluctuation than the time charter market.

     Under our ship management agreements, Northern Marine, a wholly owned subsidiary of Stena, is responsible for all of the technical and operational management of our Vessels for a fixed management fee that increases 5% annually. Northern Marine has also agreed to indemnify us against specified off-hire and reduced hire for our Vessels in excess of five days per year. However, this indemnification only extends to the amount payable to us as Basic Hire and would not extend to any amounts that would otherwise be payable to us as Additional Hire if the Vessels were not off-hire. Our ship management agreements with Northern Marine may be terminated by either party if the relevant Charter is terminated or expires. If our ship management agreements with Northern Marine were to terminate, we may not be able to obtain similar fixed rate terms or indemnification for off-hire and reduced hire periods from another ship manager.

     If we receive lower charter rates under replacement charters, are unable to re-charter all of our Vessels or we incur greater expenses under replacement management agreements, the amounts available, if any, to pay distributions to our shareholders may be significantly reduced or eliminated.

     Under our Charters, there is no obligation to pay Additional Hire, during any period when the obligation to pay Basic Hire is suspended under the Charter if due to technical reasons the Vessel is off-hire, unless the Vessel is off-hire as a result of a class condition or recommendation determined by the Vessel’s classification society during the inspection of the Vessel undertaken by us in connection with the purchase of the Vessel and such condition or recommendation cannot be remedied or complied with during a regularly scheduled drydocking without increasing the duration of such drydocking.

Stena and Concordia’s ownership interest in our company can have significant influence over the Company, including the outcome of shareholder votes and our ability to conduct future business or modify existing agreements with Stena or Concordia

     Based on their filings with the SEC, as of November 19, 2007, Stena and Concordia directly and indirectly owned an aggregate of approximately 18.0% of our outstanding common shares. As a result of their share ownership and for so long as either Stena or Concordia directly or indirectly owns a significant percentage of our outstanding common shares, Stena and Concordia are able to influence us, including the outcome of any shareholder vote, such as the election of directors. In addition, as a result of Stena’s purchase of additional common shares in 2007, Stena and Concordia may be considered “interested shareholders” for purposes of our bye-laws. Under our “interested shareholder” bye-law, in addition to any other approval that may be required by applicable law, any “business combination” with an interested shareholder within a period of three years after the date of the transaction in which the person became an interested shareholder must be approved by our board and authorized at an annual or special general meeting by the affirmative vote of at least 66 2/3% of our issued and outstanding voting shares that are not owned by the interested shareholder, unless:

• prior to the date of the transaction that resulted in the shareholder becoming an interested shareholder, our board of directors approved either the business combination or the transaction that resulted in the shareholder becoming an interested shareholder; or

• upon consummation of the transaction that resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of our issued and outstanding voting shares at the time the transaction commenced.

     For purposes of these provisions, “business combinations” include specified mergers, amalgamations, consolidations and specified sales, leases, exchanges, mortgages, pledges, transfers and other dispositions of assets having an aggregate market value equal to 10% or more of either the aggregate market value of all of our assets determined on a consolidated basis or the aggregate market value of all of our issued and outstanding shares. Accordingly, our interested shareholder bye-law may make it more difficult for us to conduct future business or modify existing agreements with Stena or Concordia.

We are leveraged and subject to restrictions in our financing agreements that impose constraints on our operating and financing flexibility

     We have a secured credit facility under which we have borrowed $229.5 million as of December 31, 2007, to finance a portion of the cash purchase price for our Additional Vessels and refinance pre-existing debt. We are required to apply a substantial portion of

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our cash flow from operations to the payment of interest on borrowings under the facility. Our facility, which is secured by, among other things, mortgages on our Vessels, pledges of our time charters and assignments of earnings, insurances and requisition compensation in respect to our Vessels, requires that we comply with various operating covenants and maintain certain financial ratios including that the market value of our Vessels exceeds 125% of the total facility amount outstanding and that the market value of our Vessels exceeds 140% of our borrowings (or 125% if the loan amount at the time of such dividend all of our Vessels are on time charter for a remaining period of at least 12 months) in order for us to pay dividends. The facility also requires that Northern Marine remain as technical manager for our Vessels.

     We have a floating rate of interest under our secured credit facility. However, we have entered into an interest rate swap agreement that effectively fixes the interest rate at 5.7325%, or 5.8325% per year, based upon the ratio of the fair market value of the Company’s Vessels to the amount outstanding under the loan facility, through maturity of the facility in January 2011. By utilizing this interest rate swap, we potentially forego benefits that might result from declines in interest rates.

We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial and other obligations

     We are a holding company, and have no significant assets other than the equity interests in our subsidiaries. Our subsidiaries own all of our Vessels, and payments under our Charters are made to our subsidiaries. As a result, our ability to pay dividends depends on the performance of our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by a claim or other action by a third party, including a creditor, or by Bermuda law which regulates the payment of dividends by companies. If we are unable to obtain funds from our subsidiaries, we will not be able to pay dividends unless we obtain funds from other sources. We cannot assure you that we will be able to obtain funds from other sources.

U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders

     A foreign corporation will be treated as a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income.” U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.

     Based on our method of operation, we do not believe that we were a PFIC for our most recent taxable year or that we will become a PFIC with respect to any future taxable year. In this regard, we treat the gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, we believe that our income from our time chartering activities does not constitute “passive income,” and the assets that we own and operate in connection with the production of that income do not constitute passive assets.

     There is, however, no direct legal authority under the PFIC rules addressing our method of operation. Accordingly, no assurance can be given that the U.S. Internal Revenue Service, or IRS, or a court of law will accept our position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if there were to be changes in the nature and extent of our operations.

     If the IRS were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders would face adverse U.S. tax consequences. Under the PFIC rules, unless those shareholders make an election available under the Internal Revenue Code of 1986, as amended, or the Code, such shareholders would be liable to pay U.S. federal income tax at the then prevailing income tax rates on ordinary income plus interest upon certain distributions and upon any gain from the disposition of our common shares, as if the distribution or gain had been recognized ratably over the shareholder’s holding period of our common shares. In addition, a step-up in the tax basis of our shares may not be available upon the death of an individual shareholder, and the preferential U.S. federal income tax rates currently applicable to qualified dividend income of certain U.S. investors would not apply.

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Our operating income could fail to qualify for an exemption from U.S. federal income taxation, which would reduce our cash flow

     A foreign corporation is subject to U.S. federal income taxation at a rate of 4% on its U.S. source shipping income, including, unless exempt as income from the international operation of ships, 50% of its shipping income that is attributable to transportation that begins or ends in the United States. Under Code Section 883 and applicable U.S. Treasury regulations, a foreign corporation’s U.S. source income from the international operation of ships is exempt from U.S. federal income taxation if: (1) the corporation is organized in a foreign country that grants an “equivalent exemption” from taxation to U.S. corporations and (2) either (A) its common shares are “primarily and regularly traded on an established securities market” in that same foreign country, in the United States or in another country that grants an “equivalent exemption” to U.S. corporations or (B) more than 50% of the value of its shares is treated as owned, directly or indirectly, for at least half of the number of days in the taxable year by one or more “qualified shareholders.”

     Bermuda, our country of organization, is a foreign country that grants an “equivalent exemption” from taxation to U.S. corporations with respect to income from the international operation of ships. In addition, our common shares are currently “primarily and regularly traded” on the New York Stock Exchange, which is an established securities market in the United States. Therefore, we believe that our time chartering income qualifies for the exemption from U.S. federal income taxation.

     Our qualification for the exemption, however, is based upon certain complex factual determinations that are not completely within our control and, therefore, there can be no assurance that we will qualify for the exemption either now or in the future. If we were not to qualify for the exemption, our income from the international operation of ships, to the extent characterized as U.S. source income, would be subject to a 4% U.S. federal income tax on a gross basis without allowance for deduction. In addition, if we were to generate U.S. source income of a type that does not qualify for the exemption, such as income that is attributable to transportation that both begins and ends in the United States, it would also be subject to U.S. federal income taxation. If we were subject to U.S. federal income taxation, our cash available for distributions to shareholders would be correspondingly reduced.

U.S. investors who own our common shares may have more difficulty in protecting their interests than U.S. investors who own shares of a Delaware corporation

     The Companies Act 1981 of Bermuda, which applies to us, differs in certain material respects from laws generally applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant provisions of the Companies Act which differ in certain respects from provisions of Delaware corporate law. Because the following statements are summaries, they do not discuss all aspects of Bermuda law that may be relevant to us and our shareholders.

     Interested Directors. Bermuda law and our bye-laws provide that if a director has an interest in a material contract or proposed material contract with us or any of our subsidiaries or has a material interest in any person that is a party to such a contract, the director must disclose the nature of that interest at the first opportunity either at a meeting of directors or in writing to the directors. Our bye-laws provide that, after a director has made such a declaration of interest, he is allowed to be counted for purposes of determining whether a quorum is present and to vote on a transaction in which he has an interest, unless disqualified from doing so by the chairman of the relevant board meeting. Under Delaware law such transaction would not be voidable if:

• the material facts as to such interested director’s relationship or interests were disclosed or were known to the Board of Directors and the board had in good faith authorized the transaction by the affirmative vote of a majority of the disinterested directors;

• such material facts were disclosed or were known to the stockholders entitled to vote on such transaction and the transaction was specifically approved in good faith by vote of the majority of shares entitled to vote thereon; or

• the transaction was fair as to the corporation as of the time it was authorized, approved or ratified.

     Under Delaware law, the interested director could be held liable for a transaction in which the director derived an improper personal benefit.

     Shareholders’ Suits. Class actions and derivative actions are generally not available to shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given

37

by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actually approved it.

     When the affairs of a company are being conducted in a manner which is oppressive or prejudicial to the interests of some part of the shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company.

     Our bye-laws contain a provision by virtue of which our shareholders waive any claim or right of action that they have, both individually and on our behalf, against any director or officer in relation to any action or failure to take action by such director or officer, except in respect of any fraud or dishonesty of such director or officer.

     Class actions and derivative actions generally are available to stockholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court has discretion to permit the winning party to recover attorneys’ fees incurred in connection with such action.

     Indemnification of Directors. Section 98 of the Companies Act provides generally that a Bermuda company may indemnify its directors, officers and auditors against any liability which by virtue of any rule of law would otherwise be imposed on them in respect of any negligence, default, breach of duty or breach of trust, except in cases where such liability arises from fraud or dishonesty of which such director, officer or auditor may be guilty in relation to the company. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them in defending any proceedings, whether civil or criminal, in which judgment is awarded in their favor or in which they are acquitted or granted relief by the Supreme Court of Bermuda pursuant to section 281 of the Companies Act.

     We have adopted provisions in our bye-laws that provide that we shall indemnify our officers and directors in respect of their actions and omissions, except in respect of their fraud or dishonesty. Our bye-laws provide that the shareholders waive all claims or rights of action that they might have, individually or in right of the company, against any of the company’s directors or officers for any act or failure to act in the performance of such director’s or officer’s duties, except in respect of any fraud or dishonesty of such director or officer. Section 98A of the Companies Act permits us to purchase and maintain insurance for the benefit of any officer or director in respect of any loss or liability attaching to him in respect of any negligence, default, breach of duty or breach of trust, whether or not we may otherwise indemnify such officer or director. We have purchased and maintain a directors’ and officers’ liability policy for such a purpose.

     Under Delaware law, a corporation may indemnify a director or officer of the corporation against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in defense of an action, suit or proceeding by reason of such position if such director or officer acted in good faith and in a manner he or she reasonably believed to be in or not be opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, such director or officer had no reasonable cause to believe his or her conduct was unlawful.

Bermuda law and our bye-laws permit our Board of Directors to establish preference shares having terms which could reduce or eliminate dividends payable to our common shareholders

     Bermuda law and our bye-laws permit our Board of Directors to issue preference shares with dividend rates, relative voting rights, conversion or exchange rights, redemption rights, liquidation rights and other relative participation, optional or other special rights, qualifications, limitations or restrictions as may be determined by resolution of the board without shareholder approval. Such preference shares could have terms that provide for the payment of dividends prior to the payment of dividends in respect of the common shares. As a result, the issuance of these preference shares could reduce or eliminate dividends payable to common shareholders.

Our bye-laws restrict shareholders from bringing certain legal action against our officers and directors

     Our bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.

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We have anti-takeover provisions in our bye-laws that may discourage a change of control

     Our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors. These provisions provide for:

• a classified Board of Directors with staggered three-year terms, elected without cumulative voting;

• directors can only be removed for cause and only with the affirmative vote of holders of at least 80% of the common shares issued and outstanding;

• advance notice for nominations of directors by shareholders and for shareholders to include matters to be considered at annual meetings;

• our Board of Directors to determine the powers, preferences and rights of our preference shares and to issue the preference shares without shareholder approval; and

• a requirement that amalgamations, sales of assets and certain other transactions with persons owning 15% or more of our voting securities, which we refer to as interested shareholders, be approved by holders of at least 66 2/3% of our issued and outstanding voting shares not owned by the interested shareholder, subject to certain exceptions.

     These provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many shareholders. As a result, shareholders may be limited in their ability to obtain a premium for their shares.

Industry Specific Risk Factors

The highly cyclical nature of the tanker industry may lead to volatile changes in charter rates and vessel values which may adversely affect our earnings

     If the tanker industry, which has been highly cyclical, is depressed in the future when our Charters expire or at a time when we may want to sell a Vessel, our earnings and available cash flow may decrease. Our ability to re-charter our Vessels on the expiration or termination of the Charters and the charter rates that we may receive under any renewal or replacement charters will depend upon, among other things, economic conditions in the tanker market at that time.

     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. For example, charter rates and vessel values were at a high level during 2004. Charter rates declined from that high level during 2005 and 2006, and have remained at these lower rates during 2007 and 2008. There can be no assurance that charter rates and Vessel values will not decline further in the future.

     Our Vessels are operated under time charters with the Charterers. We receive a fixed minimum daily base charter rate and may receive Additional Hire under the Charters. Additional Hire is not guaranteed under our Charters. Additional Hire, if any, is paid quarterly in arrears. The amount of Additional Hire is subject to variation depending on the charterhire received by the Charterers under time charters, spot charters and on general tanker market conditions. The amount of Additional Hire that we may earn is based on a formula of notional voyages and expenses on routes that we agreed to with the Charterers. The payment of Additional Hire, if any, has no correlation to our potential future time charter equivalent earnings. If a Vessel is off-hire, that Vessel is not eligible to earn Additional Hire during the off-hire period. We cannot assure you that we will receive Additional Hire for any quarter, except during the remaining term of the Sun International sub-charter for the Stena Vision which is due to expire within 30 days of July 31, 2008.

Factors beyond our control may adversely affect the value of our Vessels

     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 and may adversely affect the value of our Vessels. The factors that influence the demand for tanker capacity include:

• demand for oil and oil products, which affect the need for tanker capacity;

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• global and regional economic and political conditions which among other things, could impact the supply of oil as well as trading patterns and the demand for various types of vessels;

• changes in the production of crude oil, particularly by OPEC members and other key producers, which impact the need for tanker capacity;

• developments in international trade;

• changes in seaborne and other transportation patterns, including changes in the distances that cargoes are transported;

• environmental concerns and regulations;

• weather; and

• competition from alternative sources of energy.

The factors that influence the supply of tanker capacity include:

• the number of newbuilding deliveries;

• restrictions on vessels from entering into certain trades based upon their age, safety or other factors;

• the scrapping rate of older vessels; and

• the number of vessels that are out of service.

An over supply of new vessels may adversely affect charter rates and vessel values

     If the number of new ships delivered exceeds the number of tankers being scrapped and lost, tanker capacity will increase. In addition, according to Clarkson Research Studies Ltd. in a report published at the end of 2007, the total newbuilding order book for vessels with capacity of 20,000 dwt or more scheduled to enter the fleet through 2010 currently equals 29% of the existing fleet and we cannot assure you that the order book will not increase further in proportion to the existing fleet. If the supply of tanker capacity increases and the demand for tanker capacity does not increase correspondingly, charter rates could materially decline and the value of our Vessels could be adversely affected.

Terrorist attacks and international hostilities can affect the tanker industry, which could adversely affect our business

     Additional attacks like those of September 11, 2001 or longer-lasting war or international hostilities, including those currently underway in Iraq and the Middle East, could damage the world economy, adversely affect the availability of and demand for crude oil and petroleum products and adversely affect our ability to re-charter our Vessels on the expiration or termination of the Charters and the charter rates payable under any renewal or replacement charters. We conduct our operations outside the United States, and our business, financial condition and results of operations may be adversely affected by changing economic, political and government conditions in the countries and regions where our Vessels are employed. Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political instability, terrorist or other attacks, war or international hostilities.

The value of our Vessels may fluctuate and adversely affect our liquidity and may result in breaches under our secured credit facility

     Tanker values have generally experienced high volatility. Investors can expect the fair market value of our tankers to fluctuate, depending on 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, although our Panamax and Product tankers were built in 2004 and 2005 and our V-MAX tankers were built in 2001, they generally decline in value as they age. These factors will affect the value of our Vessels at the termination of their Charters or earlier at the time of any sale, which during the term of the Charters will require the consent of the Charterer and the lenders under our secured credit facility. Borrowings under our credit agreement bear interest at LIBOR plus a 75 basis points margin, which would increase to 85 basis points if the ratio of the fair market value of the Company’s Vessels to the amount outstanding under the loan facility falls below 2.0. The increased interest margin is equivalent to

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approximately $229,500 per year in increased interest costs in the event the ratio falls below 2.0. In the event of the sale or loss of a Vessel, we might be required to repay a percentage of the loan earlier than we planned or increase our payments under the facility, which could affect our financial condition and ability to make payments to our shareholders. Declining tanker values could adversely affect our ability to refinance our secured credit facility at its maturity in January 2011 and thereby adversely impact our business and operations and liquidity. Due to the cyclical nature of the tanker market, if for any reason we sell tankers at a time when tanker prices have fallen, the sale may be at less than the tanker’s carrying amount on our financial statements, with the result that we would also incur a loss and a reduction in earnings.

We operate in the highly competitive international tanker market which could affect our position if the Charterers do not renew our Charters

     The operation of tanker vessels and transportation of crude oil and petroleum products are extremely competitive. Competition arises primarily from other tanker owners, including major oil companies, as well as independent tanker companies, some of which have substantially larger fleets and substantially greater resources than we do. Competition for the transportation of oil and oil products can be intense and depends on price, location, size, age, condition and the acceptability of the tanker and its operators to the charterers. During the term of our Charters with the Charterers we are not exposed to the risk associated with this competition. However, if the Charterers do not exercise their options to renew the Charters, we will have to compete with other tanker owners, including major oil companies and independent tanker companies for charterers. 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 than us, which could result in our achieving lower revenues from our Vessels.

Compliance with environmental laws or regulations may adversely affect our business

     The shipping industry is affected by numerous regulations in the form of international conventions, national, state and local laws and national and international regulations in force in the jurisdictions in which such tankers operate, as well as in the country or countries in which such tankers are registered. These regulations include the U.S. Oil Pollution Act of 1990, or OPA, the International Convention on Civil Liability for Oil Pollution Damage of 1969, International Convention for the Prevention of Pollution from Ships, the IMO International Convention for the Safety of Life at Sea of 1974, or SOLAS, the International Convention on Load Lines of 1966 and the U.S. Marine Transportation Security Act of 2002. In addition, vessel classification societies also impose significant safety and other requirements on our Vessels. We believe our tankers, two of which were built in 2005, four of which were built in 2004 and two of which were built in 2001, are maintained in compliance with present regulatory and class requirements relevant to areas in which they operate, and are operated in compliance with applicable safety and environmental laws and regulations. However, regulation of tankers, particularly in the areas of safety and environmental impact, may change in the future and require significant capital expenditures be incurred on our Vessels to keep them in compliance. Although the Charterers will be responsible for all capital expenditures required due to changes in law, classification society or regulatory requirements in an amount less than $100,000 per year per Vessel, all other required capital expenditures during the charter period will be split between us and the applicable Charterer based on the remaining charter period and the remaining depreciation period of the Vessel, which is calculated as 25 years from the year the Vessel was built.

The shipping industry has inherent operational risks, which may not be adequately covered by insurance

     Our tankers and their cargoes are at risk of being damaged or lost because of events such as marine disasters, bad weather, mechanical failures, human error, war, terrorism, piracy and other circumstances or events. In addition, transporting crude oil across a wide variety of international jurisdictions creates a risk of business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts, the potential for changes in tax rates or policies, and the potential for government expropriation of our Vessels. Any of these events may result in loss of revenues, increased costs and decreased cash flows to the Charterer, which could impair its ability to make payments to us under our Charters.

     In the event of a casualty to a vessel or other catastrophic event, we will rely on our insurance to pay the insured value of the vessel or the damages incurred. Under our ship management agreements, Northern Marine is responsible for obtaining insurance for our fleet against those risks that we believe the shipping industry commonly insures against. These insurances include marine hull and machinery insurance, protection and indemnity insurance, which includes pollution risks and crew insurances and war risk insurance. Northern Marine has also obtained off-hire insurance in respect of each of our Vessels. Currently, the amount of coverage for liability for pollution, spillage and leakage available to us on commercially reasonable terms through protection and indemnity associations and providers of excess coverage is $1 billion per vessel per occurrence. We cannot assure you that we will be adequately insured against all risks. Under the ship management agreements, Northern Marine performs all technical management, including crewing and

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providing insurance for a fixed management fee. However, we may not be able to obtain adequate insurance coverage at reasonable rates for our fleet in the future in the event our existing Charters are not renewed at the expiration of their terms. Additionally, our insurers may refuse to pay particular claims. Any significant loss or liability for which we are not insured could have a material adverse effect on our financial condition. In addition, the loss of a Vessel would adversely affect our cash flows and results of operations.

Maritime claimants could arrest our tankers, which could interrupt the Charterers’ or our cash flow

     Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against that vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our Vessels could interrupt the Charterers’ or our cash flow and require us to pay a significant amount of money to have the arrest lifted. In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel which is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert “sister ship” liability against one vessel in our fleet for claims relating to another vessel in our fleet.

Governments could requisition our Vessels during a period of war or emergency without adequate compensation

     The government of the United Kingdom, the country under which our Bermuda flagged Vessels would fall, could requisition or seize our Vessels. Under requisition for title, a government takes control of a vessel and becomes its owner. Under requisition for hire, a government takes control of a vessel and effectively becomes its charterer at dictated charter rates. Generally, requisitions occur during periods of war or emergency. Although we would be entitled to compensation in the event of a requisition, the amount and timing of payment would be uncertain.

Rising or high oil prices may affect demand for oil, and subsequently demand for oil tankers may fall.

     Crude oil and oil products are commodities that experience price volatility. Prices for these commodities are set in an open market. We are an independent transporter of cargoes of crude oil and oil products and have no control over the price of the cargoes that we carry. We depend on circumstances where there are suitable cargoes available for our Vessels to transport. In a rising or high oil price environment, demand for crude oil and oil products may be reduced, which could reduce demand for our tanker Vessels. Such a reduction in demand for our tanker Vessels could adversely affect our results of operations, possibly materially.

Risks Related To Our Common Shares

If a significant number of our common shares are sold in the market, the market price of our common shares could significantly decline, even if our business is doing well

     The market price of our common shares could decline due to sales of a large number of shares in the market including sales of shares by our large shareholders, or the perception that these sales could occur. These sales or the perception that these sales could occur could also make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate.

     Stena, Concordia and Fram were not eligible to sell the remaining shares that they held after our initial public offering until their lock-up agreements expired on August 1, 2005. We have entered into registration rights agreements with them that entitle them to have all or a portion of their remaining shares registered for sale in the public market following that lock-up period. In addition, these shares became eligible for sale into the public market pursuant to Rule 144 under the Securities Act on November 10, 2005. Any sales under Rule 144 would be subject to certain volume and manner of sale limitations prescribed by the Rule.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

     Not applicable.

Item 3. Defaults Upon Senior Securities.

     Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders.

     Not applicable.

Item 5. Other Information.

     Not applicable.

Item 6. Exhibits.

     (A) Exhibits:

Exhibit
Number	Description of Exhibit(1)
12.1	Statement re: Computation of Ratio of Earnings to Fixed Charges
31.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002

(1)   Unless otherwise noted, each exhibit is filed herewith.

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SIGNATURES

Pursuant to the requirements 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.

ARLINGTON TANKERS LTD.
By:	/s/ EDWARD TERINO
	Name:	Edward Terino
	Title:	Chief Executive Officer, Chief Financial Officer and President

Date: May 9, 2008

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Exhibit
Number	Description of Exhibit(1)
12.1	Statement re: Computation of Ratio of Earnings to Fixed Charges
31.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002

(1)   Unless otherwise noted, each exhibit is filed herewith.

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EX-12.1

EXHIBIT 12.1

RATIO OF EARNINGS TO FIXED CHARGES

     Our consolidated ratio of earnings to fixed charges for each of the periods indicated is set forth below:

	THREE MONTHS
	ENDED		YEAR ENDED DECEMBER 31,
	MARCH 31, 2008			2007		2006		2005		2004			2003
	(DOLLARS IN THOUSANDS)
FIXED CHARGES:
Interest costs	$	3,415		$	13,696	$	13,620	$	6,766	$	6,711		$	4,692
Capitalized interest		—			—		—		—		260			1,558
Total fixed charges	$	3,415		$	13,696	$	13,620	$	6,766		6,971			6,250
EARNINGS:
Net income (loss)	$	(2,477)		$	11,707	$	21,464	$	21,913	$	20,351		$	5,913
Add fixed charges per above		3,415			13,696		13,620		6,766		6,971			6,250
Less capitalized interest per above		—			—		—		—		(260	)		(1,558	)
Total earnings, as adjusted	$	938		$	25,403	$	35,084	$	28,679	$	27,062		$	10,605
RATIO OF EARNINGS TO FIXED CHARGES		0.27			1.85		2.58		4.24		3.88			1.70

EX-31.1

Exhibit 31.1

 

CERTIFICATION

I, Edward Terino, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 of Arlington Tankers, Ltd.;  

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;  

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;  

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;  

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and  

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and  

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):  

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and  

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.  

	/s/ EDWARD TERINO
	Name:	Edward Terino
Date:  May 9, 2008	Title:	Chief Executive Officer and Chief Financial Officer

EX-32.1

Exhibit 32.1
 

Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002
 

In connection with Arlington Tankers Ltd.’s (the “Company”) quarterly report on Form 10-Q for the three months ending March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Edward Terino, Chief Executive Officer and Chief Financial Officer, hereby certifies pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ EDWARD TERINO
	Name:	Edward Terino
Date: May 9, 2008	Title:	Chief Executive Officer and Chief Financial Officer