Q3 2019 Earnings Call
Through the fourth quarter of 2019 or other periods.
Estimated capital expenditures for the fourth quarter of 2019 or other periods.
Projected scheduled drydocking off hire days.
The company's consideration of strategic alternatives to.
The company's ability to achieve its financing and other objectives and other economic political and regulatory developments around the world.
Any such forward looking statements take into account various assumptions made by management based on a number of factors, including management experience and perception of historical trends current conditions expected in future developments.
And other factors that management believes are appropriate to considering the circumstances.
Forward looking statements are subject to risks uncertainties assumptions, many of which are beyond the company's control, which could cause actual results to differ materially from those implied or expressed by those statements.
Factors risks and uncertainties that could cause international Seaways actual results to differ from expectations include those described its annual report on Form 10-K for 2018. Its quarterly report on Form 10-Q for the third quarter 40, 19 and in other filings that we have made or the future may make with the Securities Exchange Commission.
With that out of the way I would like to turn the call over to our President and Chief Executive Officer, Ms. lowest abraxane loss.
Thank you very much James good morning, everyone.
Thank you for joining fee rate earnings call to discuss our third quarter 2019 resolved.
If you'll turn to slide four we view, our third quarter highlights and our recent accomplishments.
During the quarter and subsequent to the end to attend we have implemented multiple initiatives that strengthen our commercial prospect.
And optimize shareholder value.
In October we draw upon our successful and ongoing relationship with lack a lot to monetize our ownership interest in our LNG joint venture for $123 million in cash.
This is an important accomplishment as we unlocked significant value for shareholders evidenced by the approximately 100 million increase in our market cap on the day of the announcement.
In addition, this opportunistic sale enabled us to strengthen our balance sheet and advance our disciplined and accretive capital allocation approach.
Which is.
Thanks.
He's inc. third quarter 20.
See ways Inc. third quarter 2019 earnings conference call.
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I would now like to turn the conference over to James Small General Counsel. Please go ahead.
Thank you.
Good morning, everyone and welcome to International Seaways earnings release Conference call for the third quarter of 49 team before we begin I would like to start offline.
Ways Inc. third quarter 2019 earnings conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After today's presentation, there will be an opportunity to ask questions.
Asked a question you May press Star then one on your Touchtone phone.
To withdraw your question. Please press Star then too [laughter]. Please note. This event is being recorded.
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Thank you.
Good morning, everyone and welcome to International Seaways earnings release Conference call for the third quarter of 49 team.
Before we begin I would like to start off by advising everyone on the call with us today of the following.
During this call management may make forward looking statements regarding the company or the industry in which it operates.
Those statements may address without limitation the following topics.
I would look for the crude tanker and product carrier markets changing oil trading patterns.
Forecasts of World and regional economic activity and of demand for in production of oil and other petroleum products.
The company its strategy.
Purchases and sales of vessels and other investments.
Anticipated financing transactions expectations regarding revenues and expenses, including vessel charter hire and GSK expenses.
Estimated bookings and TC He writes in the fourth quarter of 2019 or other periods.
Committed capital expenditures for the fourth quarter of 2019 or other periods.
Projected scheduled dry docking off hire days.
The company's consideration of strategic alternatives.
The company's ability to achieve its financing and other objectives and other economic political and regulatory developments around the world.
Any such forward looking statements take into account various assumptions made by management based on a number of factors, including managements experience and perception of historical trends current conditions expected in future developments and other factors. The management believes are appropriate to considering the circumstances.
Forward looking statements are subject to risks uncertainties assumptions, many of which are beyond the company's control, which could cause actual results.
He's inc. third quarter 2019 earnings conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then too [laughter]. Please note. This event is being recorded.
I would now like to turn the conference over to James Small General Counsel. Please go ahead.
Thank you.
Good morning, everyone and welcome to International Seaways earnings release Conference call for the third quarter of 49 team.
Before we begin I would like to start off by advising everyone on the call with us today of the following.
During this call management may make forward looking statements regarding the company or the industry in which it operates those statements may address without limitation. The following topics outlook for the crude tanker and product carrier markets changing oil trading patterns.
Please inc. third quarter 2019 earnings conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then too [laughter]. Please note. This event is being recorded.
I would now like to turn the conference over to James Small General Counsel. Please go ahead.
Thank you.
Good morning, everyone and welcome to International Seaways earnings release conference call for the third quarter or 40 Nike.
Before we begin I would like to start off by advising everyone on the call with us today of the following.
During this call management may make forward looking statements regarding the company or the industry in which it operates.
Those statements may address without limitation, the following topics outlook for the crude tanker and product carrier markets changing oil trading patterns.
Forecasts of World and regional economic activity and if demand for in production of oil and other petroleum products the company its strategy.
Purchases and sales of vessels and other investments.
Anticipated financing transactions expectations regarding revenues and expenses, including vessel charter hire and Gionee expenses.
Estimated bookings and Tc rates in the fourth quarter or 40, 19 or other periods.
That's committed capital expenditures for the fourth quarter of 40 19 or other periods.
Projected scheduled dry docking off hire days.
The company's consideration of strategic alternatives.
The company's ability to achieve its financing and other objectives.
Other economic political and regulatory developments around the world.
Any such forward looking statements take into account various assumptions made by management based on a number of factors, including management experience in perception of historical trends heard conditions expected in future developments and other factors. The management believes are appropriate to considering the circumstances.
Forward looking statements are subject to risks uncertainties assumptions, many of which are beyond the company's control, which could cause actual results to differ materially from those implied or expressed by those statements.
Factors risks and uncertainties that could cause international Seaways actual results to differ from expectations include the described it annual report on Form 10-K for 2018, its quarterly report on Form 10-Q for the third quarter 40 19.
And in other filings that we have made or the future may make with the U.S. Securities Exchange Commission.
But that out of the way I would like to turn the call over to our President and Chief Executive Officer, Ms. lowest of Rocky loss.
Thank you very much Jamie good morning, everyone.
Thank you for joining see weight earnings call to discuss our third quarter 2019 results.
If you'll turn to slide four we review our third quarter highlights and our recent accomplishments.
During the quarter and subsequent to the end to attend we have implemented multiple initiatives that strengthen our commercial prospect.
And optimize shareholder value.
In October .
We draw upon our successful and ongoing relationship with lack a lot to monetize ownership interest in our LNG joint venture for $123 million in cash.
This is an important accomplishment as we unlocked significant value for shareholders evidenced by the approximately 100 million increase in our market cap on the day of the NAFTA.
In addition, this opportunistic sale enabled us to strengthen our balance sheet and advance our discipline and accretive capital allocation approach.
Which has been a key part of our strategy since becoming a standalone public company.
Second.
In September .
We help expand tankers international footprint, which further enhances tankers international position as the leading be LCC pool worldwide.
As a founding member of T. I nearly 20 years ago, we're pleased to host T.I.s New office here in Seaways headquarters.
Expanding our relationships with customers in the western hemisphere.
Positioning us to more fully capitalize on increasing U.S. export.
[laughter] Nick.
The notable success, we've had year to date in 2019.
Strengthens our balance sheet and our liquidity position.
Following our 600 million dollar investment in big modern ships at the bottom of cycle significantly strengthening our earnings power.
We have shifted the focus of our capital allocation strategy beginning with de leveraging.
Consistent with it we pre paid $110 million of debt.
Creating an annual interest savings of $9 million and improving our pro forma net loan to value well below 40%.
Compared to 50% as of June Thirtyth.
This.
Solidifies our position as a tanker company with one of the lowest leverage profile in the business.
As of September Thirtyth, we had $124 million in cash.
Total liquidity stood at $174 million, including our Undrawn $50 million revolver.
Jeff will discuss our current capital allocation priorities and our ongoing strategy to optimize our balance sheet and lower our cost of capital later on this call.
Moving to the final bullet.
Seasonal weakness impacted rates throughout the majority of the third quarter.
The tanker market reach its inflection point during the third quarter.
As we realize the initial benefits from the IMO 2020 low sulfur regulations.
Together with geopolitical and broader macro factors. This led to significantly higher crude tanker rates at the ended the third quarter and into the fourth.
With significant operating leverage based on our strong spot exposure, we expect to continue to capitalize on favorable crude and product tanker prospects into 2020 .
We know that our fourth quarter bookings to date are significantly higher than third quarter.
Jeff will also provide a more detailed fourth quarter earnings update later in the call.
Finally, I want to highlight our upside potential in this rising market.
Every $5000 per day increase in tanker rates corresponds to a 72 million dollar increase EBITDA.
And $2.46 an earnings per share.
Now turning to slide five and highlighting the current drivers of this tanker market.
As we progressed through the fourth quarter fundamentals remain strong and we expect the favorable rate environment to continue into 2020 based on a number of factors.
On the demand side will demand growth is projected to increase.
1.6 million barrels per day in the second half of 2019 over the first half.
This supports a robust market.
In addition, with refinery maintenance now complete we have begun to see throughput increases, which we expect to continue and have an ongoing positive impact on the crude and product tanker markets.
Well, we started to see the positive impact from an initial IMO 2020 related demand surge in October .
We expect interim the incremental IMO 2020 demand to become more pronounced as we get closer to years and.
Specifically, our expectation remains that refiners will continue to produce more very low sulfur fuel oil and middle distillate.
Increasing overall crude volumes and the seaborne transportation of petroleum products due to changes in trading patterns.
[laughter] supply fundamentals also remain favorable and supportive of a strengthening market.
During a time when the overall tanker order book is at its lowest level in over 20 years vessel supply has been reduced as a result of increased out of service time subscriber installations ahead of the IMO 2020 regulations going into effect.
We have seen up to 30, Vlccs lead global fleet to store various grades of crude and fuel oil and Singapore further reducing vessel supply.
Moving to the chart at the bottom of the page we can see how the market reacted to two recent geopolitical triggers wouldn't be LTC rate briefly reaching record levels in October .
Specifically, a sharp rise and tanker rates was precipitated by the attack on Saudi oil processing facilities on September 14th.
And with further boosted with the announcement of sanctions on a number of Chinese tanker companies, including any Tasco subsidiary on September 25.
In addition to the strong supply and demand drivers that I described earlier.
Tightly balanced market geopolitical events can drive retire.
Creating additional upside on top of already strong market.
[noise] briefly an update on our 2020 compliance initiative.
For our scrubber program.
All of our equipment has been delivered to our two shipyard sites well in advance of the 10 Vlccs scheduled a rival dates.
Engineering and procurement are complete and our site teams are in place to oversee pre fabrication of the new structures.
We are grateful to our project partners Hyundai Global services, Queen Marine packs Ocean and weighing tone for working with us So ably.
The first ship is on schedule to ride in the shipyard at the end of this month.
In October with market conditions strong, we pushed back to scrubber installations from the fourth quarter two the first quarter.
Both of these shifts were subsequently fixed at high time charter equivalent rates.
Well our ships that will burn very low sulfur fuel we have them working more than 18 months to prepare for January 1st.
Our ship implementation plans are in place.
Our tank cleaning program is largely complete.
And we are now in the logistics phase.
This includes working with pool partners to carefully monitor the status of each fund for tank on each ship.
Seeking potential bunkering opportunities and buying both high and low sulfur fuel strategically to manage our supplies to the end of year and going forward.
Oh sure side teams and our crews onboard the vessels have done a great job.
I will now turn the call over to Jeff.
He will provide additional details on the third quarter recalls.
Thanks, Lois and good morning, everyone [noise].
Let's move directly to reviewing the third quarter results in more detail.
Before turning to slide seven let me quickly summarize our consolidated results.
We achieved the highest adjusted EPS EBITDA at 23.8 million that we've ever had yes, it's becoming a public company.
Net loss for the third quarter was 11.1 million or 38 cents per diluted share compared with a net loss of 47.8 million $4 64 per per diluted share in the third quarter of 2018.
Now getting specifics on slide seven.
[noise] I'll first discuss the results of our business segments, beginning with the crude tanker segment.
Tcs for the crude tanker segment were $49 million for the quarter.
Fair to $40 million in the third quarter last year. This increase reflects our success improving the age profile and increasing the capacity of the fleets that primarily resulted from the impact of higher average blended rates in the VLCC suezmax and aframax sectors.
Turning to the product carrier segment.
Ccs revenues were $16 million.
For the quarter compared to $11 million in the third quarter last year.
This increase primarily results resulted from the impact of higher average daily blended rates earned Buddy LR one.
Our two MRF fleets with spot rates rise and do approximately 13500 70300 $11400 per day, respectively.
This increase in overall revenue occurred even though EMR revenue days were down as we sold for older MRC.
In doing so completing our program to sell all six older remarks.
[laughter] overall as reflected in the chart top left consolidated TC revenues for the third quarter 2019, $65 million compared to $51 million in the third quarter 2008.
Again, this increase was primarily driven by higher average daily rates earned across the crude and product carrier for this quarter compared to last year.
Looking at the chart a top right as a page adjusted EBITDA was $2400 for the quarter compared to 6 million for the same period last year.
Again increased primarily driven by higher daily rate.
On the bottom have the case was like a result.
Hi quarter to quarter.
Consolidated Tc revenues and adjusted EBITDA for the third quarter were up in the second quarter, both increasing by $3 million.
Now turning to slide eight.
We provide a Q3 review and Q4 earnings update [noise].
Spot rates are broken out for a modern vlccs and then vlccs in that part of the which is overseas.
As I mentioned on almost all of our previous calls regarding spot rates for Vlccs.
Particularly lower points to the tanker cycle modern vlccs, earning higher rates as the market recovers its capital now significantly.
It's from obviously sees more closely reflect goes on both the overall VLCC group and we've seen evidence of this during the recent market strengthening.
Now turning to bookings for Q4, thus far which are significantly higher relative third quarter based on the scatter market fundamentals the lowest just spoke about earlier.
We booked 69% of our available Q4 spot days for monitoring Vlccs at an average of approximately $15000 today and would note that this number is consistent with the pool points. That's the basis with the rate supported by our T.I. pool partners.
46%.
Of the available VLCC days.
Before.
Those assets 50 years are older averaged $44000 day, 54% of Suezmax spot days and an average of $50900 per day, 47% of available Aframax tell our to spot days and an average $30800 per day.
And 49% of are available Panamax or one segment spot days were kind of very impressive $28700 per day.
On the Amar side, we booked.
37% of fourth quarter spot days in an average of approximately 12800, but here I would point out that recent bookings have been more in a $20000 range. So we'd expect that number to go up.
Now if we turn to slide nine.
[noise] the cash costs PC breakeven is for the 12 months ended September 32019 are illustrated on this slide.
International Seaways overall breakeven rate was $23300 for the 12 months ended September Thirtyth 2019.
These rates or are the all in daily rates are owned vessels must earn to cover operating costs Drydocking GE, an expensive debt service costs.
Oh, that's service cost schedule, which principal amortization as well with interest expense of note taking into consideration distributions from our episode JV. The overall break even today for the company drops to $20500.
At this time I'd like to also reaffirm an update cost guidance for the year for modeling purposes.
First we expect regular daily Opex, which includes all running costs insurance management fees and other similar and related expenses for our various classes to be at the levels previously provided so no change there.
For details on forget the dry dock capex costs and off hire days by quarter. You can please refer to slide seven.
Fair enough.
Continuing with cost guidance for your modeling, we expect fourth quarter interest expense.
To be $14.3 billion.
Include amortization of deferred finance costs, non cash costs of 1.6 million.
This is about $2 million lower than Q3, reflecting the return repayment on our debt.
Additionally, our debt costs were 11.4 million in principle repayments scheduled in the fourth quarter.
[laughter] was you had a fourth quarter, we expected to be approximately 6.3 million all in including nine.
0.9.
Ladies chart noncash charges, so 5.4 million in cash DNA for the quarter. We also expect about 5.4, many equity income before the impact of a 2.9 million dollar cash gain on sale of our interest in the LNG joint venture.
On cash Reclass of approximately 21 million, representing the companys share of the unrealized losses associated with the interest rate swaps held by the LNG JV that is already reflected in the September thirtyth carrying value of the investment into earnings from accumulated other comprehensive loss.
Finally, we expect about $19 million for depreciation and amortization in the fourth quarter.
[noise] now if we could go to slide 10 for cash bridge.
[noise] moving from left to right.
We began to third quarter with total cash.
And liquidity of $200 million.
During the quarter, we generated $24 million of adjusted EBITDA.
This amount includes $8 million, an equity income for the Jvs, which is non cash. So therefore, we deducted could lead to cash figure that add back the cash distributions.
JV, which were $3 million an episode JV.
The proceeds from vessel sales were 7 million.
In addition, we expanded seven megawatt drydocking in Capex [laughter] cash interest and principal Paydowns that was 37 million.
Excluding our 2017 terminal.
Panda, which which total another 10 million.
The net result of these various cash equivalents, what's that we ended the quarter with US approximately 124 million of cash at $50 million Undrawn revolver on total liquidity of $174 million.
[noise] now if you please turn to slide 11.
I'd like to next talk about our balance sheet.
As discussed earlier, we made a prepayment of $10 million lie and a further prepayment of $100 million.
Over on our 2017 term loan B facility, which has a current interest rate in excess of 8%.
These prepayments resulted in a $9 million leasing cash interest expense on an annual basis and $1.9 million specifically in the fourth quarter.
T.
Sure.
Third quarter based on current interest rate as well as a reduction in future quarterly amortization payments from $6.1 million to $4.6 million per quarter.
Having completed these prepayments and significantly lowered our interest expense, we believe there's still an opportunity to further optimize our balance sheet and lower our cost of capital in the future.
As low as mentioned, we remain well positioned it further implement our disciplined and accretive capital allocation strategy in a spread to the market.
[noise] turns the balance sheet specific as of September Thirtyth, we had $1.8 billion of assets compared to $717 million with long term debt, which again is before the October prepayment up $190.
[noise]. In addition, we have as as mentioned that $50 million revolving credit facility remains undrawn as of September Thirtyth 2019.
As you can see on the right hand column pro forma sales on LNG and other going into our debt prepayment.
Total debt to capital city under 41% or net loan to value stands at 36%.
On the bottom of slide we outlined the face amount of our debt facilities.
Having pro forma affected the 100 million prepayment all of which importantly mature in 2022 or later.
Lastly, turning.
Slide 12.
Illustrate again, our strong earnings power or fleet as we head into a market recovery.
On the far left we show 2018 spot rates earned by NIS, seven vessels, which we view as a trough in the market on the tanker market and in order to demonstrate impact of a rising rate environment relative to these 2018 lows. We present three specific scenarios to the right person is mid cycle by which to me 15 year average rates second.
It is a recent peak represented by 2015 average rate and last underwriters.
Great has experienced in 2008.
I see that based on a mid cycle average rates are currently would generate annualized EBITDA of 241.
$3 to 65 cents per share S. If rates were turned to grow 15 levels that would represent 400 $3800 adjusted EBITDA and $10.31 Cps.
So should we ever experienced supercycle levels again, if we generate over $600 million.
Yes.
I'd like to highlight that our.
Past success implementing our fleet growth in monetization strategy has come.
Everybody has their upside potential capitalize in a market recovery.
Both the product and crude tanker sector.
Continue to made maintain significant operating leverage as a reminder, $5000 increases spot rates and every vessel class would result in about $72 million, an additional cash flow for 2046.
Additional earnings per share.
Adam.
I'd now like to.
[noise] trying to call back the lowest for closing comments. Thank you very much Jeff.
Please turn to summary, slide on page 15 during the third quarter and as we have for all of 2019, we executed initiatives it strengthened a prospect and unlocked significant value for shareholders.
Monetizing our LNG joint venture $423 million, we significantly strengthened our balance sheet, enabling us to further implement our disciplined and accretive capital allocation strategy to the benefit of shareholders.
Following our success capitalizing on attractive asset values at the bottom of the market to grow the fleet and our earnings power. We have used a portion of the proceeds from the LNG joint venture sale to pre pay $110 million the debt saving $9 million an annual interest expense.
We remain in a strong position to further optimize our balance sheet.
As we continue lowering our cost of capital.
In addition, our accretive and disciplined approach to capital allocation has been a hallmark of our strategy since becoming a standalone public company three years ago, and we remain committed to further implementing this approach.
On the commercial side, the opening of tankers International office in International Seaways headquarters brings us closer to our customers in the Western Hemisphere, which is particularly important given the increasing U.S. Gulf exports.
In the 2019 year to date, we have further strengthened our financial position and are pleased to continue to have one of the lowest leverage profiles in the industry.
We ended the quarter with $174 million and liquidity and following the recent debt repayment.
Prepayments, we improved our pro forma net loan to value to the low 40% compared to 50% at June Thirtyth.
[laughter] progressing through the fourth quarter the tanker market environment is undergoing a significant upturn. We expect this robust market to continue into the fourth quarter and into 2020 with the order book being at the lowest level. Since 1997 continued strong oil demand growth.
Decreasing vessel supply and the impact of IMO 2020 , becoming more pronounced as we get closer to the January 1st 2020 deadline.
In addition to IMO 2020 , we continue to expect the increasing U.S. Gulf exports will be a game changer for the tanker industry.
Importantly international Seaways is this is in a strong position to capitalize on these favorable conditions and the tanker market strong prospects.
Based on our sizable spot exposure, our operating leverage is substantial with every $5000.
The increase in rate corresponding $72 million in EBITDA to our bottom line and $2.46 in our annual earnings per share.
Before we open up the call to questions. Yeah, I would just like to turn this Jeff again go back to page eight I may have missed spoken other they put it pages correct. The modern Q4 VLCC rates booked in the fourth quarter is $57000 day, so to see clear. Thank you very much Jeff and now we open up the call for.
Question operator.
We will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone phone. If you were using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Randy, giving dance with Jefferies. Please go ahead.
Oh, the lowest Jeff did how real.
Good how are you get ready right say a few quick questions for me, it's starting with your quarter to date rates, you're vlccs slightly below peers, your suezmaxes well above peers, but honing in on the these what was your kind of most recent fixture kind of current fixture levels I'm, assuming above the 57000 a day both quarter.
Today, just trying to get to a run rate for the rest of the quarter and then also how many of these are going to be off hire or for the rest of the quarter or in fourth quarter.
Randy I'll take the first part of your question there so the prevailing spot market as you could see on the T. <unk>, whether we published with pictures every day, although no rates are being sick somewhere around $65000 per day presently.
The second part of your question.
We don't believe that we are fixed below our peers and we are all on par with our pool partners in Tinkers International and we think we posted strong results there and then to the third party. Good question. One we're looking at off hire days in the fourth quarter there.
In the appendix.
The auto service date projected for Q4 at around 150 days for RV, LTC and that would or scrubber installations.
Yeah, I'm trying to sensitize as that five vessels 30 days three vessels 50 days.
So.
And Okay that is includes our tonami, which is undergoing a dry dock that is just to her routinely schedule period and as far as I mean, we have five vessels that are going into the yard in Q4, prescribers and five in Q1 and.
What we can do Randy is is slice those days out for you I think offline might be better yeah, but it's basically what he said, it's it's a five vessels.
One of which makes a slide a little bit already completion into Q1. So it sort of your five times 30 Bucks a ton of kind of gets you to 150 in Q4, so you're right there.
Okay.
That's fair and then yeah looking at your divestiture, obviously, the 123 million for the LNG joint venture was above our estimate so those a positive surprise in that regard good use of the cash obviously paying that.
At a high priced term on down what about kind of further divestitures. Obviously this episode joint venture not really core.
To your business some older tankers that you can still kind of divest so not only the strategy around that the possibility around that but also the use of those proceeds going to be further kind of term loan repayments or possible share repurchases are kind of what would you do that incremental cash.
Again, Randy I'll take the first part and throw the second part to Jeff. So you know that there are some differences between the epic, though and the LNG.
Notably on the Apis. So we will have basically gotten about $20 million true to international Seaways from that joint venture in 2019, we expect to receive around $14 million cash from our 50% interest in 2020 .
We are two years into the five year charter that goes through 2020 too on those episodes and they are ideal for the field on which they are operating so as we move forward, we expect to engage in conversations with our customer or charterer and we'll keep every every one.
Updated on our progress all guarding me up that though and then on on the second part of that you know Oh.
When you know when and as we are able to secure additional charter on that vessel and look to monetize it.
Your second part of the question is really around capital allocation.
[noise], yes, heavy Randy I, it's too early to speculate what would happen with epitope was it because thats as it down the road, but I think the playbook you know we don't do this season pass ride the playbook, which all by what we did with with LNG when you have extra cash.
You look at what's the right places boy, we found having done our 600 million dollar.
[noise] fleet renewal in advance of this upturn that we're experiencing now and I would note those vessels that were significantly north of $600 million today.
We find their priorities for.
Capital allocation will be.
Yes, first do everything as we have done, but then most likely returning cash to shareholders in one form or another.
So thats really the next step.
Okay, that's fair well I'll turn over from there. Thanks, so much of the time.
Thank you Randy.
The next question is from Greg Lewis with B T. G. Please go ahead.
Yes, Thank you and good morning, Lois I, just wanted to talk a little bit about your comments around increasing production out of the U.S. gold and really what that could mean in terms of bottleneck and logistics and how we should be thinking about that potentially.
Back to be on the Lightering business.
As we look out over the next year ahead of or the next couple of years ahead of.
Potential infrastructure build out that we keep hearing about.
Thank you Greg So you know in maybe the I'll divide that into two pieces as of the question as well and say you know the U.S. Gulf exports were a stunning I think 3.2 million barrels per day on a rolling over the last month now last week they were.
<unk> oddly up 2.3 million barrels a day, but we expect those exports to continue to increase and you know within the next.
First half a 2020 , we expect them to go up at least.
Between 250000 to 500000 barrels per day of exports.
And the benefit of what we're really seeing there is that that it those cargos I'd be export it not only to.
Korea, and Japan in far eastern locations on the Lccs, but also on the mid sized vessels, athersys, suezmaxes, which are benefiting or the middle of our fleet.
To Europe .
And when when we look at it on Lightering you know, we do have Lightering operations. It is predominantly in U.S. golf, but we also cover the U.S. with posed Panama and Bahama.
So the deepening of the channels in Corpus are a really not fully expected to be.
Realized until around 2020 too and the interim you are seeing a just a heavy load of a reverse lightering as well as the Lightering, we continue to do with the Vlccs coming in from Saudi.
Okay, Great and then just one more for me [laughter] yeah.
The Chinese there's the Chinese vessel sanctions, obviously won't work or big Big headline news I'm a month month two months ago in September just as we as we think about what impact that having on the market has.
Well I guess I guess I'm trying to understand or is are those vessels still being discriminated against are those vessels trading like any kind of color you can give around the some of these vessels that have been sanctioned by the U.S. would be helpful.
Absolutely you know the way that the market spikes was really just a sign of how tightly balanced we are now and the fundamentals and the picture over what is or is not a sanctioned cosco tanker is not still fully transparent in the marketplace and it does lead to reduce supply as.
Orders are careful with the ships or fixing the industry is watching everything very closely but as long as these sanctions are in place on these tasco entities. It is impossible tanker rates and I also think the second part of that is you know the additional clauses that have been bought into the mark.
Good on the other vessels that have loaded in Venezuela, and you're just going to increasingly see that highlight it going forward.
Yeah that just makes it in the even murkier marketplace, which is a better for owners.
Okay, and just just just really like a quick follow up to that now. These vessels are sanctioned I guess by the U.S. and U.S. partners, but this does I mean, they were doing things. They shouldn't have been doing anyway is the right way to think about these vessels well they're out there, they're just being underutilized or they are out there and they're just.
Not doing anything.
More the first a unit you know.
I doubt in this marketplace that this anyone sitting fully idle it will just be that there are suboptimized.
Okay perfect. Thank you very much for the time everybody.
Thanks, Greg.
The next question comes from Omar Nokta with Clarksons Platou Securities. Please go ahead.
Okay.
Thank you guys.
Just maybe my questions, maybe a bit more operational or commercial kind of just thinking about it.
Finally, let's see ways, you're investing in scrubbers.
And your partner anti is the Euronav is not just thinking about there's those have any effect or any impact on how.
The pool earnings are set up the do you guys share.
Working capital and fuel cost and whatnot is that part of the pool or is it completely separate.
So already and tankers international we have the main pool and then we have a 15 year plus pool and the scrubber pool will sit right alongside of these these other two pools from an accounting perspective, but from a marketing and operational faith.
Customers will see no differentiation between scrubber announced partnerships all the baffles will be available for charter and then the division a happens backing the accounting Department, where we have a scrubber and non scribbled breakout.
Okay, and then and does is each company responsible for fuel separately.
Or is known as.
No takers international performs all commercial functions for the buses, including fuel procurement.
Okay and does that so.
How does that you know what do you are not having bought the you LTC worth of bunker fuel that's sitting off Singapore, how does that play into your the pools earnings does that create some sort of drag on on earnings just due to I don't know if its interest costs are just that money that does that play play a role in the in the earnings power the of the pool.
Absolutely not tankers international will buy fuel at a market levels and any tools that are used by tankers international and provided by.
The you all see see would be priced at market levels, and you're now balance sheet remains their own.
Okay, all right. Thanks, thanks for that clarity.
I have just a follow up and maybe a broader and I know you addressed and a bit and the comments and some of the questions, but Jeff you've talked about refinancing the term loan b here in the near term.
Well some other debt U prepaid the term loan are ready with the proceeds of the LNG.
Sale as things are now.
Once you do that refinancing how do you think about seaways.
From a growth perspective.
Flash more focused on debt repayment and also with respect to shareholder awards, and and I'm asking that because obviously you know growth is not necessarily not been there you've been more focused on selling some of the older assets do you have talked about selling the jvs.
It was we think about how seaway stands today and looking ahead, where do you think.
The capital is going to be deployed.
Based on where the company is.
Big picture.
Yeah. Thanks, Omar hit a little bit of that was randy's question, but but you theres a number of aspects of until I'm happy to.
Span.
First of all I think we've been clear that they LNG.
[noise] joint venture Divesture and other cash is can then Doug.
Clear the path to the ability to do and optimization of our balance sheet, which as you quite rightly pointed out it could well gain refinancing.
Among other things up our term lumpy.
That does two things or at least.
First of all lowers our overall cost of capital, but equally importantly, doing that would would give us more flexibility to make capital allocation decisions in 2020 that that we presently have that's really important now that flexibility.
So as you said jump ahead to assume that's done.
What do we do as I said before with the playbook from here first of all Martin say.
We haven't focused on growth right, we did spend $600 million and shift that's eight years as appreciation in two years of operation plus the denies the capex that topic. So we.
We often use afraid we high graded or fleet. It's you were in bigger so we don't feel we need to do any other growth just to say we've done it right. We've we've already.
That box so that's not to say that there couldn't be acquisitions in the future began we look at this thing to a very disciplined capital allocation less if theres an acquisition that that meets our return hurdles and leverage hurdles that is a possibility.
Especially tactically here and there but.
As we said before I think you've heard us, but I'd like happy to be clear on the call you know as we as we go into this market was the additional cash from selling non core assets, which will also include older assets were filled selectively Peru.
Our our emphasis is likely to be on continued de leveraging and returning cash to shareholders and that former returning cash to shareholders is going to depend on where hepatitis C. How share prices well below Navy.
Back to see share repurchase.
If not you would be less share repurchase and in any of that I think we will look into a dividend, but not as of this time, but thats something of course are we looking into as a method to return cash to shareholders. So I hope that that covers.
Covers that that's the alternatives.
Also.
Or something I will say, it's not just ever picking one thing you know these are all really good capital allocation alternatives that we Fortunately I'm gonna have to utilize in enough turning market like we've got right.
Thanks, Jeff and I didn't mean to overlook the the six vlccs because obviously that was it was quite significant.
Yeah.
Does that as you guys stand today your Leverages, we estimate sub 40%.
The value of fleet value basis, So clearly there's a lot of flexibility.
Okay, maybe as you think about the fleet expansion potentially.
Yes, you've been scaling down on the M. ours and selling some of those older ships the.
You've become increasingly much more crude focus is that sort of is up by design is that the plan is maybe to just invest more on the on the crude size relative to product.
Well, we definitely put our $600 million to to work on the Suezmaxes and the Vlccs in advance of this market recovery, which which we felt we would see about the highest and earliest return on those assets. The lightening up on me M. ours has largely been around specific.
DCF as of the 2004 series of six M. ours came up on their 15 years and the sale of them avoided ballast water and.
Coding upgrades to the tanks right. So we do think the fundamentals on the products are strong we think that they will come right along with the crude and we're not abandoning product. We just put our capital investment where we felt we get the highest returns burst yeah and then the get just underscore that we.
Comfortable with diversification it really it looked like how the IMO 2020 stores played out a lot of people expected products to run first but it turned out that crude picked up first that was great now products or are having their day, while crude continues to be very strong.
As witnessed by particular, you know results that we saw in that Pemex or one segment, so and others as well. So we were comfortable with having a fleet that covers both crude and product.
Got it. Thank you. Thanks, thanks for that color, maybe just one more if you don't mind.
It was g. the your predecessor, and lowest I know you were very active.
You had a fairly large in charter portfolio it.
What or thoughts on is that something you'd look to grow.
With this outlook here in the medium term or do you are you comfortable with just the fleet size as it is now when it comes from just looking to take advantage of the market today.
That's actually a you know where you've seen us take exposure in on 'em that the products market. We have three m. ours in on a in charters with Optionality on all of those vessels and we recently chartered in to L.R. ones, albeit they are treating dirty and our Panamax international pool and they are.
So have options on their period. So we continue to look for value on in charters and up to Opportunistically. We do look for that will enhance the overall returns.
Okay and I saw the in the are released or is another vessel today disclosed.
Okay.
Well the lowest thank you Jeff thanks, Thanks for answering my questions.
Thank you thanks Omar.
Again, if you have a question. Please press Star then one the next question comes from Tucker along with Stifel. Please go ahead.
Actually this is Ben infer Tucker, please let me sit and for a minute.
The.
I've got I wanted to follow it little bit on the episodes that Randy was talking about earlier and those.
Maybe you would sell maybe not but one of the things that we saw out of the LNG sale is you got price actually a little bit better than what you had on your books.
Certainly was a surprise to the market in terms of I think the price that you got there you're left with by my math, a little bit under $150 million worth of book value on those episodes and they're sort of you. They are very much unique assets. It is that.
In your view is that fair way to think about it around $150 million that does that really wasn't worth or you have any idea what they.
With a market value for those might be.
Thank you so I'm one of the differences between the episode in the LNG of course is that the LNG had basically life of the vessel charter potentially up to 35 years and that that would be the ideal of what we could ultimately achieve on the Apis. So because they really are great on the.
Field and had zero off hire us since 2010, and when you're thinking of the value of the episodes I don't think you're far off the Mark Ben you know our Ah, we do disclose our book value on those which is right around as of September Thirtyth 135 million, but somewhere in.
In that range between that and 150 that you mentioned is is roughly where we ascribe value in our Mike.
Okay. That's helpful.
And then.
Sure well sort of again following on with some of the other questions about capital allocation and potential growth or whatever.
And paying down debt.
One other things that hasn't really come up and is not unique to you guys is the possibility of building new ships.
We've certainly seen that second hand asset values and the tanker market appreciate a little bit here lately, there has not been paired with higher newbuilding prices.
Is that something that again, given all the various factors that have been discussed would you consider maybe placing orders I don't know for product tankers or something else.
Given the sort of the price disparity.
Well, we've been very disciplined as you know we have not a in a as a international Seaways independent company ordered any new buildings, we've been very.
Very selective in our purchases.
Buying a modern resales and we found a much better value proposition on those that pool.
However, that's not to say that that cannot be a new billing component in a in our future and in particular, you know you do see some certain big oil companies starting to look at alternative proposals and this is something that will be followed closely.
Okay.
All right well it I'll I'll leave it with that and we'll just see what develops but lastly for me is on the refinancing and first of all.
It's certainly been one of the things that I thought.
Low hanging fruit in terms of paying down some of that debt and the impact that it can have on on your income statement actually bid.
As you look at that term loan or as you look at any of the debt and the fact that now the leverages a lot less than it was.
How.
It just maybe if you could remind me Jeff how much of that is available to be called back early and refinanced.
And any kind of sense of timeframe.
That some of that Mike Mike could happen.
Yeah sure Ben.
And then glad you could fill in for Tucker.
Yeah.
Yeah. The term loan B is as publicly is well known.
It is has a call premium on now that goes to callable at par a January so that's the primary instrument that has sort of it.
A change that is really suggestive of a timeframe and then I think the outstanding at yearend would be about $331 million.
So that's a significant.
The cynosure dad is a long term debt at LIBOR, plus two that that's not going anywhere right. So.
The the Blackrock and node and the 8.5% notes, so called baby bond or our call or June next year.
They're not really call will.
Before that so at the I think primarily a term loan b.
There's a bilateral loan.
On one vessel the Raffles, that's callable at any time and the Blackrock does have a make whole combined so there's obviously you guys still you do that both those are the ones that were sort of or in the mix for for studies in terms of off balance sheet optimization.
Well, there's very detailed appreciate it.
It would be and again, thanks for Tucker for.
Second space from here.
Okay. Thank you all right. Thanks Pat.
This concludes our question and answer session I would like to turn the conference back over to lower Sip Rocky for the CEO for closing remarks.
Thank you very much we really appreciate everyone joining international Seaways call and we look forward to see ways, taking advantage of the increase building rates into the holiday season. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.