Q3 2020 Overseas Shipholding Group Inc Earnings Call
Good day and welcome to the overseas Shipholding.
Group third quarter 2020, <unk> earnings release conference call, all participants will be in listen only mode should you.
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Now I'd like to turn the conference over to Sanborn, President and Chief Executive Officer. Please go ahead.
Thank you Jordan.
Good morning. Thank.
Thank you all for joining this call.
The presentation of our two says 2023rd quarter results and for allowing us to provide additional commentary and insight into our current state of our business and the opportunities and challenges that lie ahead.
[laughter] as usual Dick to blood Molly Rcs Princeton Mcfarland are joining me on this presentation.
Sorry, I would like to direct everyone to the narratives on pages, two and three of the Powerpoint presentation available on our website regarding forward looking statements estimates and other information that may be provided during the course of this call.
The contents that narrative are important part of this presentation.
Urge everyone to read and consider them carefully.
We will be offering you more than just an historic perspective on I wish she today and our presentation includes forward looking statements, including statements about anticipated future results. These.
These statements are subject to uncertainties and risks.
Actual results may differ materially from projections and could be affected by a variety of risk factors, including factors beyond our control.
A discussion of these factors we refer you specifically to our annual report on form 10-K for the fiscal year ended December 31st 2019.
Our form 10-Q reports for the first and second quarters of 2020 our.
Our form 10-Q for the third quarter of 2020, which we anticipate being filed later today and our other filings with the FCC, which are available P.S. He sees Internet site Www Dot FCC dotcom.
As well as on our website www dot unless you dot com.
Forward looking statements in this presentation speak only as of the date of these materials and we do not assume any obligations to update any forward looking statements, except as may be legally required.
In addition, our presentation today includes certain non-GAAP financial measures, which we defined and reconciled to the most closely comparable GAAP measures.
Our third quarter's earnings release, which is also posted on our website.
As announced earlier this morning Whiskey delivered solid financial results in the quarter just [laughter].
We continue to benefit from a high percentage of fixed revenue streams of managed pandemic related logistical health safety and other costs in line with expectations.
As a result cash flow from operations continued to be strong, particularly when considering the nearly 200 revenue days lost during the quarter to plan to dry dock operations.
The size of the stalling recovery in the main fuels markets in which we are active we've taken steps to preserve value and to strengthen our liquidity in anticipation of heightened volatility in the bumps that lie ahead.
With a strong balance sheet and prospects for a sustained economic recovery in 2021, we remain confident in our long term strategy at the fundamentals of our business.
Our niche businesses provided the core strengths to our diversified portfolio.
Shuttle tanker Lightering MSP baskins, all operated at or above expectations during the quarter. Once again, demonstrating the stabilizing impact period to period performance of these specialized vessels.
This quarter the vessel operating contribution from our niche market activities provided.
$22 million.
Adding to the solid foundation of niche vessel contributions is the emerging importance of our agency tanker fleet and the makeup of our earnings base.
As we expected the acquisition. This acquisition is proving to have been an important development for always check.
With 16 million in PC revenue earned an 8.1 million a vessel operating contribution from these assets are HTC tankers, so utilization rate of a 100% of available days during the quarter just ended.
Given the multi year time charter commitments remaining for these vessels. We expect they will continue to provide a stable and solid cash contribution base.
Delivering these results are most important management challenges have been and will remain sustaining operational readiness at all times.
Since the one shipboard case, although positive COVID-19 test experience in early July.
We have not experienced any further shipboard outbreaks I've seen no loss of revenue days or extraordinary expenses incurred as a result of COVID-19 onboard any of our vessels.
However, maintaining a virus free environment onboard operating vessels will be a continuing important focus.
That's the spread of the virus expands within our community. We remain prepared for all prior periods, resulting from managing virus related delays or increased costs associated with testing cleaning quarantine and immunization and certification.
COVID-19 continues to affect all operations and to impose risks and hardships for those charged with delivering the services that our communities rely upon us to perform.
The face of these challenges it is gratifying to highlight that our vessels operate it for 93% of available operating days during the quarter.
Testimony to the continued to respond.
All of our employees and meeting the elevated operational challenges that we currently face.
Businesses cannot function without the dedication of the individual which would bear the burden of ensuring its continued safe operation property.
A particular note is work done and completing several planned out of service periods for dry docking surveys work that is particularly challenging in a pandemic affected environment.
[noise] sense of responsibility shared by Oh, She's Mariners and shore based support team in meeting the essential need to supply transportation people to the markets that we serve is commendable.
Managing our operations very much aware of the systems within which we operate are under stress its risks and vulnerabilities that have previously not affected our performance.
Contribution made by all of our employees and in particular, our sneakers in realizing this strong financial results reported this morning should thus be applauded.
Although widely available vaccines appeared to be a more reasonable expectation in the coming months.
The bridge to normalcy will still require some work.
We are monitoring several legislative proposals that could present opportunities to recover some cool good 19 related costs or receive some assistance and adjusting to the disruptions caused by the continuing pandemic.
The prospect for further fiscal stimulus acting to accelerate demand is also of interest.
Oh, we're not expecting any material impact on either our liquidity position or our financial results arising out of the application up already enacted provisions.
Hopeful that post election developments will be more supportive.
Turning now to the impact of the virus on our conventional Jones Act trades it's.
Its becoming apparent that the glide path afforded us by the strong time charter book achieved at the end of last year aided by the Tailwinds with the successful completion of our APC acquisition about.
About two incurred encounter some turbulence.
These factors have to date kept us largely immune from the pandemic related business shocks experienced by others.
Yet as we approach the end of what has been one of the most unusual years of our lifetimes is becoming more apparent demand destruction arising out of behavioral changes caused by the called the pandemic lingering longer than it had been initially anticipated.
Our principal customers U.S. based refiners and distributors.
Turning to be heavily impacted by reduced levels of domestic transportation fuel demand, which having picked up in the summer months had SAGD again as we move into the fall.
Gasoline consumption has retreated back to levels and the 12% below year ago norms and jet fuel consumption remains about 50% below year ago levels.
Yea Statistics released this past week show refining operation capacity still below 70% in pad one and.
Just over 75% and pad three.
Recovery of global oil demand is nearly 4 million barrels per day lower than expectations issued in early July.
In addition to flagging demand middle distillate lot has been the biggest obstacle to the recovery of refining margins increased output and improved crude demand.
Let and we maybe get some good spreads have reduced refining margins underlining crude demand and crude oil prices.
Finer isn't distributors of transportation fuel [laughter] felt staying up these energy market developed.
Layoffs at our principal customers are widespread marathon shell PBF and Phillips 66 have already or will serve to reduce U.S. operating refining capacity.
Cost cutting in the face of reduced demand inflated inventories and poor refining margins is foremost in our customers' lives.
These circumstances, we considered the pendulum our customers risk aversion as having swung to an extreme.
Focus is concentrated only on the immediate future with one outcome being their reluctance to commit to long term time charters.
Notwithstanding these so sobering datapoints, we in many analysts that we follow continue to see the demand shock is being virus co dependent.
And then a sharp recovery on the back of a vaccine availability can be reasonably expected.
The timing of this recovery is to our mine the only material there.
Independent of vaccine news there has been an encouraging recent trend in inventory reductions across the board, but notable continuing draws in both domestic crude oil distillate stocks in recent weeks.
Even a gradual demand recovery in an environment of reduced inventories should positively impact chartering demand.
Our short term forward planning takes into consideration and anticipates a return of increased demand for time charter transportation capacity during the first half of next year.
As we've noted frequently in comments in past quarters. Our principal end user base is vulnerable to any potential marine transportation supply shortage.
That's the marine link between production and distribution points is not easily replicated.
This is particularly true in the market for refined product distribution.
Attaining the stability of cash flow offered by time charters and multi year contracts of affreightment remains a fundamental objective of our chartering approach.
Material demand recovery and supply in a supply constrained market should encourage our customer base to secure greater visibility of axis. The forward transportation capacity.
A return to normal in this context would be a favorable development in helping us achieve our long term chartering objectives.
And awaiting this development and in response to the sharp Cottrell net of immediate activity by our customers. We have kept two of our Jones Act tankers and one Lightering ATP currently trading as a conventionally TB in lay up we.
We consider it unlikely that at least one more vessel lay up prior to the end of this year.
This time, we continue to maintain the operational availability of the overseas Martinez for potential spot market moves.
Future developments in the demand for coast wide crude oil transportation will continue to feature the balancing of available supply in our conventional Jones Act trades.
Always relative price of domestic versus international crudes remains a critical variable from our perspective.
Relative price differentials should not be looked at in isolation. However, international shipping rates also factor into the equation looking at comparable delivered cost economics.
Bears repeating that although rates in the international markets Act only indirectly and domestic market conditions lower international rates have been marginal effect of creating more competition for our vessels when considering cargo movements on the delivered cost per barrel basis.
Before handing things over handing things over to Dick to take you through the numbers I would like to note that our current fleet profile consists of three actively trading large crude oil tankers being operated by a DC.
One conventional ATP two lightering 80, these three shuttle tankers TNM, our tankers and two non Jones Act EMR tankers that participate in the U.S. Maritime Security program.
She also currently owns and operates to Marshall Islands flags, Mark anchors, which trade internationally.
Well she has on order one Jones Act compliant barge schedule for delivery at the end of this month, which will be paired with one of our existing tux.
One year time charter for this ATP has been secured upon its delivery.
I will now turn the call over to Dick to provide you further details of our third quarter results for 2020 Dick.
Thanks, Dan.
If we could turn to slide seven please.
We were pleased with our third quarter operating results, which were in line with our expectations year to date adjusted EBITDA.
Exceeds $104 million.
As is typical the third quarter was a slow period, which this year was exacerbated by the Cove at 19 pandemic.
Yes, there were even fewer than usual spot cargo movements those were for 80 days.
You overseas long Beach was redelivered to us during the quarter and shortly thereafter, we performed are required Drydocking and survey.
In recognition of the lack of spot market activity, we decided to place are in lay up.
As we've discussed in prior quarters, we had a significant amount of drydocking activity. This quarter. We had 193 days in which we were off fire, resulting in $9.9 billion and lost revenues during the quarter.
In 2000, Nineteens third quarter, there was no dry dock activity.
Year over year, TC revenue grew 21% to 92.3 billion.
While adjusted EBITDA increased 35% 16.1.
21.8 million.
Sequentially Tc revenues decreased $8.1 billion.
Turning to slide eight.
Although dampened by our Drydocking activity, we continue to realize the positive impact of our fleet operating principally under time charters and approve rate environment.
We offered operated 24 vessels for the full third quarter of 2020 and 19 in the third quarter 20 Nike.
During the quarter, we sold the O.S.G. to 44, our final rebuilt barge for scrap.
Rages, the tub, formerly coupled with U.S. GQ 44 has completed her dry dock and just in Oregon.
Waiting the delivery deal with GE to worldwide.
Just the third quarter of last year, we added the three Alaskan tankers as well as the Gulf Coast Southern Coast, Key_west Indio SG Jewel War.
We did not operate any rebuilds atps in the current quarter.
The Alaskan tanker acquisitions contributed $16.2 million GE Si revenues during their second full quarter of operations.
Revenues from our Jones Act Handysize tanker decreased.
$8.8 million decrease was principally driven by.
I lost revenue due to dry dock related off hire days.
Also contributing were the lay up the key west and very late in the quarter the long Beach.
Effective daily rate for fixed earnings increased over $3900 per day from last year.
GE Si revenues from our four non Jones Act tankers increased 4.8 million from last year's quarter golf.
The Gulf Coast, and Suncoast, both of which were on long term time charters contributed $2.9 million of the increase.
We conducted two voyages for the government of Israel this year compared to one last year.
Revenue days approximately doubled in comparison to last year.
Effective day rates for fixed earnings increased slightly less than $3000 was spot market rates were almost flat in comparison to last year.
Eightv Tc revenues decreased by 8.9 billion from 2019 third quarter.
The O.S.G. tool for in its first full quarter of operations contributed all of the third quarter 2020 revenues last.
Last year to rebuild 80 destock rated in our third quarter.
Total revenue days decreased from 180 during last year's quarter to 146 this year's quarter.
Lightering revenues decreased 2.8 million in the third quarter of 2019.
Both of our Lightering 80 days were in dry dock during the third quarter of 2020 for a combined 90 off hire days.
Service demand continued to be lower than the prior year refinery runs remain at reduced levels.
Effective day rates during the quarter increased from 2019.
Sequentially TC revenues decreased 8.1 billion, principally due to a net 8.2 billion dollar increase in off hire lost revenues over the second quarter.
Jones Act Handysize tanker revenues.
Decreased approximately $12.7 million.
The decline was driven by increased dry dock related off hire days and to a lesser extent.
The impact of the key west in lay up during the quarter.
Lightering.
AGD and the non Jones Act tankers, all reflected increases in revenues when compared to the prior quarter.
Hi, Jones Act tankers had additional revenue days.
Their dry docks were completed during Q2.
The Agb operations reflect the first quarter.
The impact from the O.S.G. tool for.
Lightering revenues were lower than the prior quarter due to reduced volumes.
Turn to slide nine.
The spread between fixed.
Slide earnings narrowed slightly as the portion of our fleet operating on time charters decline somewhat during the quarter due to both dry dock activity and the Redelivery of long Beach.
Please turn to slide 10.
Conventional tanker spot market Tc revenues.
Represented Minimis portion.
Of our total tanker revenues in the quarter.
The decrease in fixed revenues during the quarter were as previously discussed driven by increased dry dock off hire days.
We classify short term time charters and spot market activity.
Please turn to slide 11.
Our niche businesses continue to provide earnings stability, which serves to underpin our overall operations.
During the third quarter 2020 lighter revenues increased for the reasons previously described.
During the quarter, both U.S.G. 350, 351 went through required drydocking.
And during the time when the oil she 351 was in the shipyard. The 350 operated in the Delaware Basin meet our service commitments.
Non Jones Act tanker revenues increased from both the prior year due to an increase in revenue days in Q3 2019, when we operated only two ships.
Shuttle tanker revenues were essentially flat from the prior quarters.
Please turn to slide 12.
Vessel operating contribution which is defined as TC revenues less vessel operating expenses in charter hire expenses.
Increased 34.5% from Q3 19 to 26.5 billion in the current quarter.
Our Alaskan tanker right at $6.2 million of the increase.
The Jones Act tanker loss increased 2.6 million from the year ago quarter, primarily due to drydocking activity.
Our niche market contribution increased 1.7 million from last year as we added the Gulf coast and Suncoast to our fleet.
Eightv vessel operating contribution during the quarter results solely from the introduction of U.S.G. tool works and her initial time charter which commenced in early July.
We will take delivery of the C. Five later this month that which time she will commence for initial time charter.
Sequentially vessel operating contribution decreased 9.8 million from Q2 2020.
Contributing to the decrease was an 8 million.
Dollar increase in off hire watch revenues and the key west layout.
This was partially offset by a 6.6 million dollar increase in contribution from our Alaskan tankers.
Please turn to slide 13.
Third quarter adjusted EBITDA increased 5.7 million from 18 up from 16.1 million in the third quarter 2019 to 21.8 million.
The increase resulted from an increase in the number of vessels operated including the Alaska tankers effective increased rates across the fleet.
Improved utilization due to the shift to time charters.
This was partially offset by 193 off hire days due to dry dock activities in the current quarter compared to.
Last year.
Adjusted EBITDA was $21.8 million in the quarter compared to 29.8 million in the prior 2020 quarter.
Quarterly decrease.
Was driven by the significant increase in loss higher revenues.
Please turn to slide 14.
Net loss for the third quarter Twentytwenty was $700000 compared to a net loss of 3.8 million in the third quarter 2019.
Operationally the increase TC Jones Act tanker revenues and new age non Jones Act tankers as well as the addition of the Alaskan tankers broke the reduction in net loss.
Please turn to slide 15.
During each year, we perform scheduled maintenance is required by regulation.
That's what maintenance requirements are based on the original construction date at intervals of approximately two and a half years.
As a result, we have years in which the volume of Drydock activities are substantially greater than other years.
This slide provides information for scheduled maintenance at ballast water treatment system installations.
It does not include unplanned repairs, which should they occur could impact the schedule.
Oh vessels are in dry dock or otherwise on available for use their off hire even if otherwise weighed on the time charter.
We work to minimize the number of off hire days to reduce the revenue was we sustain.
This year because of COVID-19, estimating the timing of dry dock activities on a quarterly basis has been particularly challenging.
Shipyards are deferring scheduled dry docks because of staffing issues related to cope with 19 markdowns.
Technical personnel and third party vendors necessary to accomplish certain aspects of the maintenance process have been and are unable to travel to the repair locations.
This has resulted in a series of backlogs throughout the industry.
Slide presents our best estimates of the timing of dry dock activity for the remainder of the year, which has changed from prior estimates.
It's possible that these estimates will continue to change as to timing.
We expect that although the timing may shift the annual tools will remain reasonable estimates.
Please turn to slide 16.
This comparative graphical depiction of 2020, and 20000 or 2019 dry dock activities.
Shows how active a dry dock year 2020 years.
We estimate which includes the three recently acquired to US Alaskan tankers that our investment will be 34.7 million dry dock expenses and $18.6 million for ballast water treatment systems in 2020.
We will experience approximately $19 million and lost revenue for the full year.
Resulting from 392 off hire days.
Changes from prior quarter estimates result, both actual cost for work completed.
And timing differences.
In all cases, we endeavor to work through this process expeditiously to minimize the cost incurred in the number of days off hire.
As you can see there were no dry dock days in the third or fourth quarters of 2019.
Our.
That is that in total we will experience 266 off hire days in the second half of 2020 with a related revenue loss of approximately $14 million.
Please turn to slide 17.
The U.S.G. tool five is scheduled to deliver in late November we have invested through the end of the third quarter $45.9 million to five.
Remaining payments, including those due on delivery.
$5.1 million.
We have secured financing commitments for the U.S.G. to apply which we expect to close in the next two weeks.
We will capture approximately 20 million to $28 million of our equity currently invested in the barge.
Please turn to slide 18.
At the beginning of the third quarter, we had total cash of $94 million, which included $20.1 million of restricted cash.
During the third quarter 2020, we generated $22 million of adjusted EBITDA and working capital provided of $3 billion cash.
We expanded $11 million on dry docking in improvements to our vessels.
And we invested $16 million in new vessel construction and other capex.
We expended $24 million of cash.
Fully repay the loan secured by the overseas Gulf Coast.
$20 million of that was the previously restricted cash.
We incurred $5 million in interest expense and made debt repayments of $9 million.
Result was we ended the quarter with $54 billion of cash, including $100000 of restricted cash.
Please turn to slide 19.
Continuing our discussion of cash and liquidity.
You mentioned on the previous slide we had $54 million of cash at September 32020, including $100000, which was restricted.
Our total debt was $412 million. This represents a decrease of $34 billion outstanding indebtedness since the end of June.
Our $325 million term loan has an annual amortization requirement, a $25 million or six in a quarter million dollars per quarter.
With $374 million of equity or debt debt to equity ratio is one times.
Finally.
We havent included the MSC profit share slide in this presentation.
We do not expect any profit share obligation to MSC.
An action with our bareboat charters will be created either 2024 2021.
This includes concludes my comments on the financial statements and I'd like to turn the call back to Sam Yeah.
Yeah. Thank you. Thank you Dick.
Largely speaking we can be pleased with the financial results achieved thus far in 2020.
Looking ahead to the fourth quarter, we do anticipate that the turbulence experienced during the third quarter were likely pick up.
We will benefit from fewer planned drydocking days, and we anticipate improvement in our niche business performance.
We are thus anticipating Tc revenues of between 86 and 90 day.
Okay.
These expectations are that that we will deliver a full year adjusted EBITDA of between $120 million to $125 million essentially at the high end of the full year guidance, we provided in our first quarter earnings call.
Although our forward planning contemplates lay up of several vessels in the immediate future we.
We consider the prospects for a sharp and robust demand recovery during the first half of next year to be a reasonable expectation assuming continued progress on vaccines and other measures to contain the spread of the virus.
Although our restoration of jet fuel demand will likely lag the other transportation fuels.
A return of a healthy gasoline markets spurred by stimulus and a return to more normalized levels of mobility.
Be considered more likely than not.
Demand for crude oil marine movements domestically remains difficult to predict.
Nice differentials pipeline developments refinery operating conditions in the politics.
All act to constantly modify the decision trees that ultimately influence crude price and production outcomes.
Current crude price differentials are at the low end of recent spreads and they're not overly supportive of substituting international crudes with domestic sources.
Conversely, if the multiple variables affecting refinery sourcing decisions shifts a favorite domestic over international crude purchases.
Additional crude transportation demand could serve to significantly tightened the market with favorable implications on employment prospects for our conventional tankers.
Above all we take comfort in the strong contributions that we can expect next year when the APC vessel on charter as well as the expected revenue streams from our niche businesses in particular, our two active shuttle tankers.
Our existing MSP vessels.
We have extended our contract of affreightment with the government of Israel for another year or 2021 that taken steps to enhance the utilization rates of all of our international trading tankers in.
In 2021, we will have committed revenue streams for the full year and the other see tool for what we see two or five and the APC vessels that were only partially president during 2020.
These cash flow stabilizers, coupled with our healthy levels of available liquidity provide confidence that we will ride out the short term market weakness and carry through to what we believe to be fundamentally promising medium and long term futures.
Challenges remain as new opportunities.
We have a strong balance sheet and a renewed fleet profile of assets, which has reduced the average age of our fleet substantially we.
We continue to achieve lower costs and material improvements in our key safety and operational performance measures there.
We are focused on achieving high health and safety performance in the COVID-19 environment.
Well, we foresee greater uncertainty in the immediate future we remain confident in the long term success of our business model and I've always team's ability to maintain its position as the leading us flag vessel operator in the years to come.
Jordan, we can now open up the line for questions.
We will now begin the question answer session to ask a question Press Star then one on your Touchtone phone. If you are using a speaker phone. Please pick up your handset or pressing the keys if today.
Timing a question has been addressed than you would like to withdraw. Your question. Please press Star then two at this time, we will pass momentarily to assemble roster.
Our first question comes from Joe Radigan with architect. Please go ahead.
Hi, and thanks for taking my question how are you.
Very good how are you.
I'm good thanks.
I have a couple of questions regarding rates.
Can you give us an update on the most recent spot market fixtures and sensor rate levels and also you have a few vessels coming off contract in the coming months could this be charter out some news Tc contracts and if so what would be the the current level, let's say medium to long term charters.
Joe This is Sam it's really difficult to answer that question for two reasons. The first is that there there has been virtually no spot movements that are in the open market for probably last four or five months no.
The underlying cause of that I addressed in my initial comments regarding sort of operational a levels at refineries and and large.
Large inventory levels that have been been drawing down over the course of that period.
What we've seen in the spot market largely TB fixtures, one or two a month.
Virtually no spot market fixtures to be able to in any kind of the rates.
At least from from looking at the available critical data.
You know there are brokers it trying to make assessments of where the spot market rates or maybe my to my opinion those are educated guesses.
But you know you can you can probably pick that if you have access to some of the broker some some of the broker assessments.
As far as far as next year is concerned.
You know my my my allegorical.
Responses is is analogous to the election activity that's going on here in the United States everybody wants that everybody wants to know what the answer is.
But frankly, it's impossible to determine.
What that will be at this time.
Just we just think we have to wait and see how the how the market develops.
As I as I indicated in my initial comments.
We think that the pit.
General attitude among customers right now is extreme risk aversion.
No that's understandable in the context of what's going on inside many of the oil companies.
Finally, as are being shut down people being laid off there's tremendous cost.
Cutting pressure being put on.
Even though that major integrated oil companies have been losing a lot of money.
That that creates an environment of extreme uncertainty.
In our view, that's that's a short term phenomenon.
We will I look at China for instance, as an example of what what a post coded economy might look like.
The recent data out of China has shown that both that economic activity in sort of normalize mobility data is has already recovered at levels beyond where they were last year. So.
Well, that's that's maybe a unique example.
World, where coded continues to spread.
But it is heartening to us to look at that as an example of a likelihood of a return to normalcy.
There was no recoveries of prior year as activities.
Once we get to post coded environment when that will be.
You know that that's something that I'm not able to forecast, but it's it's something that available information certainly gives us gives us confidence that it's really a matter of when not if and we will just position ourselves to.
To respond once that once that development occurs.
That's fair and then thanks for explaining and then well not loose for me.
It could be new build and can you provide any any terms on that.
I'm, saying.
Not yet.
I mean it'd be so.
Seven seven year period.
Bob.
16, and a half year amortization profile.
[music].
Rate isn't set yet.
Okay. Good thanks for that.
It is it will be a competitive rate relationship to today's environment.
Yeah, I, Oh I see.
That's all from me have a great Friday.
Thank you Joe.
[laughter].
Our next question comes from Ryan John with Needham. Please go ahead.
Thank you, Hey, Sam Hey, Derek.
Ryan Good morning, everyone.
Hey.
So so just kind of thinking back over the last couple of years. Obviously you guys are all set up and excited going into the year for 2020 and a lot of that was just because the industry was finally right sized as far as kind of supply and demand. So no. One really saw this comment.
And certainly had a major effect then it kind of push things out but my question is really just along those industry fundamentals as far as you know call. It seven eight months into this I'm not really going to even ask what the right equilibrium is that's probably too unknown, but do you have a.
Strong fleet you're retired a lot of your old vessels Im just wondering are you seeing out there are you expecting more retirements just for for some of those particularly older vessels that or even even companies that don't have as strong of a liquidity and cash flow profile diversification like you guys have just more vessels.
Coming out of the system I have a few others, but if you're about to start there.
Yeah, I'll take that one Dick.
Okay.
I think our current assessment is absent.
You know a material change in the in and what we currently know a.
Further removal of capacity.
Is unlikely in the foreseeable future.
There's.
From our perspective disappointingly, there's been there's been a move by some customers to extend older vessels.
HM that's clearly related to the fact that older vessels can deeply discount the market.
We know we have a view on that obviously, we think that maintaining a younger vessels meat.
Leading career.
Environmental and safety requirements is a responsibility is.
Of of our although I see in our industry competitors.
Apparently not everybody thinks the same way so.
Specifically there are three older tankers that we are aware that will likely continue to operate for the foreseeable future.
And that that I would say it was a bit of an unexpected development, but one that were that were adapting to.
Older a tedious.
It's too early to say.
You know we had the you know the lion's share of the older ATP is that came out of the market.
Other cohort of ATP is were owned by a company called Bouchard.
As you probably are aware of that company is currently reorganize reorganizing under chapter 11, and the view is that the older cars.
[noise] cohort of the of the entities in that fleet will not likely come back to the market. So.
They are already out of the market in essence, and so that that factor is already.
Already priced into what we're saying is supplied.
Got it that's helpful.
On the the Jones Act tankers, you said two in lay up expect another we've been kind of expecting three ourselves, but just for the remaining I know you have several a time charters coming up.
Yeah, just wondering should we expect that obviously.
Obviously totally understand your customers a lot of uncertainty should we expect those to be on some sort of time charter or whether it's a very short term or what you have been doing one years or or do you expect to just run the others on on spot.
I think but I think that the right way to answer that question is to again.
Emphasize that the.
The immediate future is is clouded too and.
And you know an extraordinary degree.
No. If you look at recent refinery runs a refinery.
Well the the statistic.
On Wednesday.
Gulf Coast refineries were running it.
About 75% of installed capacity.
A year ago, they were running at 96%.
The you know the sort of average normalized levels of defining output or in the upper Eightys for you know for the add one pad pad three.
And on the East Coast refineries are running 60, 65%.
That is too that has two implications one is that you have less crude oil moving to supply those refineries and secondly, you are less product output that needs to be moved around all of that is is influenced by two factors. One is a real a reduction in demand.
Across the barrel slate of products.
And and.
And that's.
That's that's something that is that is observable the the.
Our feeling is that no the lower refinery levels. Some of it was hurricane impacted some of it was intentional to try and see a draw down inventories and that we've started to see.
Ah so logically.
As inventory levels get drawn down.
And if there is that a subsequent pickup in demand, which we know as I said, we anticipate we just don't know when.
And that should result in a pretty sharp.
Returned to.
To shipping needs across the the principal Jones Act market.
Hello.
That could happen tomorrow, it could happen two or three months from now I don't know and I'm not going to speculate on that but.
It is our it is our firm belief that boasting about consumption point of view.
That the levels of the transportation fuel Consumptions are are not likely to remain at the levels that they are now in the face of it.
They have a more of a more normalized economic level of activity.
And more importantly, it is highly unlikely that operating the refinery operating capacity will remain at this 60% to 70% range and once those factors shift then it'll be a lot easier to be able to understand what the what I'll call. It.
The second real signal the meat of medium term demand is right.
Right now, there's just a lot of noise and you know it's just.
It's just not responsible for us to try predict where that.
Let's call it supply demand balance will fall out the.
The other thing the other thing that is.
The factor here is.
International crude oil price differentials, the two relative U.S. prices have come in quite a bit. We also don't think thats sustainable.
U.S. production is continuing probably has bottomed and is continuing to show signs of recovery.
And and logic.
Pipeline takeaway capacity from Midland for instance has increased and so the price differentials.
In Houston versus Midland that's come in.
In this lower oil that's going to be available on the water and the U.S. Gulf coast in order to move that around the world, it's logical to assume that.
That's that the discount to international prices were wide and there was a lot of variables and trying to look at that in terms of what OPEC will do whether they sustain there.
They are priced the their their production cuts what happens in Libya, what happens in Venezuela. All of these things ultimately have an impact.
But if we look back again.
912 months ago for.
For the preceding 24 months, there was a sustained and and visible.
Visible discount of domestic crude oil to international crude prices and we think that we go back to that level, if not tomorrow, we think in the in the near term.
And that that will again stimulated more movement of crude oil along the coast of the United States both those factors.
It's it, particularly if they come together well.
Phil will result in a significant.
Increase in demand for Jones Act transportation and we.
We think will then simulate a very active chartered market.
Okay makes sense and just when that recovery that you talk about just the timing, whether it's uh huh over many months away. It is but do you expect those are laid up vessels to return it that way. When you say you know a sharp recovery or you're talking about having a all of your vessels back in or you're talking about the the existing.
And then kind of assess call it mid year that would bring some of those other ones Bakken.
Okay.
I I think I can help guide going on that are we have taken a decision.
For all for the vessels that have gone into is gone and recently or or anticipate going into in the lab.
We've taken the decision to take those vessels through dry dock and special survey.
Even though we know that there is no immediate demand for them.
We've done that because we want those vessels to be ready to be.
Reactivated put back into service on short notice.
Because we think the timing and let's call it the slope of that recovery.
We'll likely be sharp.
We don't want to be in a situation, where there's a turn in the market and we then have to arrange for and take a vessel through a dry dock and then then the availability to that data would be 45, 60 75 days forward.
We think that would be a mistake and so although.
There would be an argument to say well you can defer your dry docks until later and save the cash and capital expenditure you know our decision to expend that cash take the vessels in dry dock now and have them ready on a short notice to be available for responding to the turn in demand that we anticipate I think is indicative of our of our.
Attitude as to where we things we think things are going to go.
No I really I remind you I remind you that nine months ago every single Jones Act tanker.
It was on time charter.
It wasn't it wasn't a three or four or five vessels that were laid up waiting to come every single vessels on time charter and that was in an environment.
Where are you know I wouldn't call. It extraordinary right. It was a it was a an environment of normalized distribution demand for both crude and product.
Right. The other thing Brian Yes, the other thing I.
We probably want to.
Consider is that roughly half of our revenue days for next year are committed at this point.
For time charters that will continue through next year.
Including the.
So.
It's.
You know, we can't lose sight of what's already on the books for next year.
As well as looking at yeah.
You know what the uncertainties may be with those vessels that are coming off of Timecharter late.
Late this year.
Yeah, well there.
Just the last one for me just a this was obviously a big Capex year, you had the lowest G two or five the water expenses.
Just stick out for for next year, plus or minus 25 30 million of interest and then I want to say, there's what 25, maybe 30 million or so plus or minus of a maybe a little bit more of amortization.
Those are <unk>.
Maybe a little bit Capex can you just help clarify that you know call it 60 million plus or minus of fixed cash obligations for 2021.
Hey.
I'm not quite sure. What your question is honestly Ryan [laughter] I'm, just trying to get to what your fixed cash obligations look like for 2021. This.
This was a big Capex year for you guys and I think it steps down meaningfully next year.
Just trying to get a better idea where you sit today.
What kind of interest.
Gosh, it was actually a capex. Thanks.
Amortization next year, low 30 ish billion 30 32 million.
Interest expense you got right it would be about that number.
Uh huh.
Capex next year will be.
Significantly lower than this year you know.
Probably 20 ish million dollars total.
Great dogs.
The other thing too.
The is the reduction of dry dock days is going to is going to fall away next year as well so.
No I think Dick said this quarter alone. We know we had 193 days of.
Oh revenue days that were that were not realized.
No not because of anything that we did wrong or any mistake <unk> plan.
Planned regulatory surveys that we need to do.
You know that highlighted the fact that last year in the third quarter, we had zero days.
And even in spite of that we saw a year on year increase in our cash flow. So it.
As we move into next year, not only do we have a reduced capital expenditure.
<unk> burden.
But we have more active revenue days.
Implicitly if on the fact that we're going to be in a lighter drydocking certainly here.
Thank you very much.
Again, if you would like to ask a question. Please press Star then one.
Our next question comes from Alexander Joe's with architect. Please go ahead.
Hi, Thank you for taking my questions.
I have a couple one.
On the dry docking expenses, you postpone mining capex or was it simply.
Bert to dry dock the vessel.
Compared to your initial estimates.
I also.
With regards to the vessels that you're laying out or what kind of opex should we expect.
For those vessels.
[noise] I'll take the second question first there can you can think about the first market.
So when we lay up a vessel the principal cost savings that we would look to achieve would be a reduction of of crew costs.
We still have to ensure the vessels are there are costs associated with.
Basically paying for the paying for the acute side rental, but we need to be able to put the vessels alongside.
There is a there is some.
Maintenance that we continue to do on the vessels when they are in lay up.
And the other thing is consideration for the type of lay up that we're looking at whether its.
To to look at a complete reduction of crew costs too.
Essence leave the vessel totally on NAND.
Or whether we have a skeleton crew onboard.
For example, on the key west and and La long Beach that have been in lay up a this past quarter.
We kept a skeleton crew onboard the vessel and in light of the fact it was hurricane season, we wanted to have available people onboard and respond the good thing that we did because that we've.
We've laid those vessels up and.
In.
Eastern Texas, and it's been an act in Hurricane season. So it's been a it's been a good decision for us to keep some people around to to manage the vessels during during high wind and rain and surged peptide surgeons that are.
So there's a little bit of a.
Little bit of a of a variable.
Whatever.
There's a range of costs that we can anticipate.
At all and then there was also the period of a lay up that you're looking at it in the initial periods the sort of costs that flow through to the income statement are going to be higher because of costs associated with preparing the vessel.
For lay up and and the one time costs it but that we book at that time also when you bring a vessel out of lay out the up some reactivation costs.
So it's hard to kind of pick a real you know if you wanted to have a day rate. If you will a because as long as the purity and lay up a the lower that rate gets I would you know if you're looking for a number.
Well I think it's it's something that we work on in the.
And the next presentation if it if it continues to be a.
To do something that features a as I said in my earlier comments.
We've guided you on fourth.
Fourth quarter results that we can so I can see right now and those incorporate lay up a assumptions.
You know if those so let's continue.
Beyond the fourth quarter.
I think we'll have it will have a better sense of being able to give you kind of day rates there.
But as I said, if you wanted to start the principal cost reduction is is looking at the crew component cost as we reduce the manpower onboard vessels.
You know and that that number does that cost reduction number.
Gets it for increases along with the lay up here because there's the whatever there's costs associated with laying people up and sending them home and bringing them back and other other.
One off type expenses.
My Oh, my artificially or not ours that might optically slate that number on the day rate basis, and the initial month or two.
But would flatten out over time.
Dick I think there was a first question on on whether we deferred capex.
Or whether there was just differences in estimates versus actual returns.
Yeah, I mean I think.
You know, it's really sort twofold, one is obviously.
We have the experience of looking at the actual costs, which on a net basis were lower than we had.
Anticipated budgeted.
We have a little bit that will trickle into very early next year.
Just because of.
Timing considerations with the shipyards, so a little bit will drift into next year that we had thought we would spend this year.
That'd be a few million dollars.
I mean sort of sub five but.
But it will nevertheless, you know <unk>, probably the month of January next year.
At those that's really the sort of principal difference between.
The estimates that we had made when we did our.
Q do call yes.
Where we see ourselves today.
There's there's a little bit of margin, while shifting or you.
I'll give you an example.
Yes, the ballast water treatment installation.
It's a capital expenditure we go out we buy.
Equipment that needs to be installed we have to construct deck houses and make the modification to piping for the vessels to allow this new system to work.
Largely speaking we were able to complete.
Most of that work during scheduled dry docks that we did.
But for virtually all the systems that we've installed in the last six months. The commissioning of these systems has not yet been completed that's a function of the fact that the technicians that.
Our necessary to do the commissioning work and to certify the operational suitability and these new systems are they have been unable to travel.
Either.
Because there have been travel restrictions from Europe to the United States.
Or there have been travel restrictions from the United States to two places within and outside the United States, where we have done dry docks.
So there is a there.
There is a a I'll call it a anticipated additional costs that will be associated with.
Ultimately conditioning those systems.
But as Dick has alluded to those numbers are not material in the context of the size of our business.
And I'll just to give you a rough rough indication I would say no order of magnitude a couple hundred thousand dollars.
Additional costs that would be associated with conditioning nodes dry dock excuse me this ballast water treatment systems.
And and there are a handful of analogous situations, where again technicians have been unable to travel and where we have done work.
That could be done, but there remains a small scope.
Scope of Oh, what's called scope of repairs, mostly associated with a technician attendance to verify all commission or.
Install new software these types of things.
That that have not yet been recognized but again.
Order of magnitude not large numbers, but there are you know.
There have been logistical.
Hurdles to completely dry docks that should not be ignored or the.
The work that.
I alluded. This in my comments the work that has been done to allow us to actually get vessels in drydock get them completed and get them back in service.
In in an environment of of severe resource constraint has been I think there is a really good job by our team.
And and you know as you can see the out of service days I've been contained.
Very well in my opinion.
Thank you for those questions that was all for me.
There are no more questions at this time. This concludes the question answer session I would like to turn the conference back over to Sam Norton for any closing remarks.
Thank you Jordan and thanks, everyone for joining in it's a it's a challenging period for us, but as I have said, we consider the results that weve been able to achieve and logistically and operationally difficult environment.
To be really something that we're quite proud of.
Look forward to to a return to normalcy as I'm sure everybody does.
We're optimistic that that were closer to the to the end than we are to be getting and ER and we think we're well positioned to benefit from positive developments in the pandemic environment.
And we look forward to talking to you again in the early part of next year and hopefully we'll have better visibility of how next year will shape up in the context of positive developments in the bars.
Thanks, again, everybody and we'll be in touch.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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