Q2 2021 Overseas Shipholding Group Inc Earnings Call
Good day and welcome to the overseas Shipholding Group second quarter 2021 earnings release Conference call all participants will be in listen only mode.
And do you need assistance. Please signal conference specialist by President and MS. Darcie followed by zero.
After today's presentation there'll be an opportunity to ask questions.
To ask a question you May Press Star then 1 on your Touchtone phone.
To withdraw your question. Please press star 2.
Please note this event is being recorded.
I would now like to turn the conference over to Sam Norton President and CEO. Please go ahead.
Thank you Sir.
Morning.
Thank you all for joining <expletive> Trueblood and me on this call for the presentation of our 2021 second quarter result for allowing us to provide additional commentary and insight into the current state of our businesses and the opportunities and challenges that lie ahead.
As usual Molly RCA and Princeton Mcfarland are participating with us on this presentation.
To start I would like to direct everyone to the narrative on pages, 2 and 3 a powerpoint presentation available on our website regarding forward looking statements estimates the other information that may be provided during the course of this call.
The contents of that narrative are an important part of this presentation and I urge everyone to read and consider them carefully.
We will be offering you more than just a historical perspective OFC today.
And our presentation includes forward looking statements, including statements about anticipated future results.
These statements are subject to uncertainties and risks.
Actual results may differ materially from those contemplated by our forward looking statements and could be affected by a variety of risk factors, including factors beyond our control.
For a discussion of these factors we refer you specifically to our annual report on form 10-K for the fiscal year ended December 31, 2020, our form 10-Q for the quarter ending March 31.2021.
Form 10-Q for the second quarter of 2021, which we anticipate being filed later today and there are.
Other filings with the SEC, which are available at <unk> website, Www dot SEC dot Gov as well as on our own website www Dot dot com.
Forward looking statements and this presentation speak only as of the date of these materials and we do not assume any obligation to update any forward looking statements, except as may be legally required.
In addition, our present today's presentation today includes certain non-GAAP financial measures from which we defined and reconciled for the most closely comparable GAAP measures and our second quarter earnings release, which is posted on our website.
The progression back to a healthy domestic energy transportation market has been and will likely continue to be in the short term uneven.
Demand for conventional tanker US has remained subdued affected by a combination of volatile market forces.
A significant percentage of Jones Act tankers remains underutilized, including 6 OFC tankers that were in lay up throughout the quarter.
Nonetheless, though st's financial performance. This quarter offers evidence of improving fundamentals and our core markets and progress towards restoring earnings potential of our full fleet.
Our ATB is Alaska.
Alaskan tankers niche market assets achieved results approaching or exceeding historical norms.
Outside of our conventional tanker trades, we've seen increasing chartering interest and emerging new trades.
Overall, we are pleased with the progress we have made and the cash flow is delivered which exceeded anticipated EBITDA during the quarter.
Evident and the markets that we serve as the continuing impact of the ongoing global coronavirus pandemic conditions.
Conditions of heightened uncertainty persisted and our core markets.
Radick recovery profiles outside of the United States, and the resulting drag and economic activity internationally, Xactly do and EBIT rebound and international tanker markets.
Weakened demand for refined products overseas, coupled with very low international freight rates and led to a meaningful increase and petroleum product imports over the first half of this year dampening demand for specialty Convention and Jones Act tankers.
Similarly, compressed crude oil price spreads and restrained international crude oil production has led to a very soft crude tanker market.
Such while demand for transportation fuels in the United States has recovered strongly from year ago Loews.
Local recovery and domestic marine transportation demand has been flatter than what we had expected earlier in the year.
Overall market conditions that led us to lay up 6 tankers and 1 of our lighter and ATB is early this year have only marginally improved.
It remains clear to us that we are still in the early stages of what we considered to be and emerging recovery.
The pace and trajectory of <unk>.
Demand recovery continues to be influenced by many factors, including importantly progress and moving beyond the pandemic.
Given this operating environment. The results announced this morning are satisfying and once again point to the benefit of having a diversified asset portfolio.
Although our conventional Jones act tankers experience losses, this quarter time charter equivalent earnings from these assets saw improvements.
Over our first quarter results for this year.
In addition, we are encouraged by progress made and a number of business initiatives, which fall outside of the core MLR petroleum transport trades.
And so our last communication, we have secured contract extensions with each of our 2 remaining lighter and customers.
Total of each contract is 12 months commencing July 1.2021.
Each contract provides for minimum take or pay volumes and volume commitments higher than expiring contract periods.
Given current expectations, 1 littering ATB USD $3.51 horizon will be sufficient to serve these contracts.
We have received notice from the government of Israel of its decision to exercise its option to extend.
Our current contracted and Freightliner served by our MSP vessels through the end of calendar 2022 O.
<unk> will continue to have 2 vessels available in order to provide scheduling flexibility predicated on a minimum of 7 annual voyages during the contract year.
With this expansion we can expect our 2 MSP vessels to maintain historic TCE contribution rates consistent with years passed over the full calendar year of 2022.
We have fixed the overseas key west for delivery with a window within a window of 15th November 15th December with and intended trade of shipping renewable diesel from the Mississippi River to California.
The contract period is 26 months.
We will take the vessel through Drydock and you didn't mediate survey prior to entering into this contract to allow for uninterrupted service over the full 26 months.
This fixture is significant and highlighting and the emerging trade and renewable diesel moving from new production units, and Louisiana, and Texas, and California, a trade, but appears ready to expand significantly and the next 2 to 3 years.
We have reached agreement with the current charterer of USD, 2 O clock courageous to extend the vessels employment and direct continuation for a period of 3 years commencing in early December 2021.
This fixture will generate just under $39 million and time charter income and an estimated $8.5 million a year and EBITDA over the extended period of employment.
We have reached agreement on the principal commercial terms to extend the current charter of the Alaska and explore smoothie and a 2023.
This extension will generate an estimated 12 million of incremental EBITDA above the original charter pure degrees.
The overseas Martinez has been extended by her current charter for the first 2.3 months options included and the original fixture.
The 3 month periods with effect from mid September and will keep the vessel firmly employed for the middle of December.
Finally, and a significant positive development for the prospects of the tanker security program.
Hence departments delivered a long overdue reported the house affirming the critical importance of and expanded U S flag tanker fleet and the interest of National security.
The heels of this report the house transportation housing and urban development and Appropriations Committee has approved the full $60 million annual funding for its recently passed appropriations Bill.
And that approval is likely and the following weeks to come.
Each of these steps is a significant milestone and the efforts to stand up the tanker security program.
Moving now to our plans to restore 2 regular employment 6 conventional tankers and 1 later and ATB and lay up.
Near term uncertainty will continue to impact a wide spectrum of possible vessel reactivation outcomes as we move through the balance of this year.
We continue to believe that to the extent, our customers visibility and confidence for the future returns and more typical customer behavior and <unk>.
And charter activity will rebound and leading to improved financial performance for O S. G.
And this context, expanding vaccine penetration rates and progressive lifting of COVID-19 restrictions.
And resulted in greater mobility, and restored U S consumption of gasoline and diesel fuel and.
Hopefully these trends will continue.
Our latest energy information agency data indicate and fuel demand patterns consistent with historical levels for these products have largely recovered and the United States.
With gasoline and diesel inventories below average levels for this time of year.
And this normalization of consumption patterns should stimulate more domestic marine transportation demand as we move into what is historically the seasonal high demand winter months and once import substitution subsides and.
And that note recent import data is encouraging with gasoline imports last week, having dropped to 845000 barrels per day from over 1.3 million barrels per day as recently as a month ago.
Also encouraging us that international MRO rates have been rising over the past 10 days.
I will now turn the call over to <expletive> to provide you with further details on our second quarter results for 2021, <expletive> Thanks Sam.
Second quarter results achieved in a difficult market reflected an improvement over our first quarter results.
Domestic transportation fuel consumption levels increased this vaccine penetration and improved over the first quarter and economic activity continued to increase.
Internationally, we continued to see pandemic related restrictions, which are limited.
Economic activity and delayed and recover.
And global transportation fuel demand.
International tanker rates during the quarter remains significantly depressed.
International Petroleum product flows and tanker rates.
And the impact the domestic transportation fuel markets.
Iron levels of gasoline and deploy the United States from Europe and the eco.
Amit at this tree and augmented by the very low tanker rates.
Hello.
Our customers accordingly.
And do their reluctance to make longer term transportation commitments.
Spot market activity increased during the second quarter, the overseas Houston download a series of spot voyages and direct continuation and kept her busy for the majority of the quarter and year overseas Boston operated under a short term time charter during the quarter.
There were 2 other short term time charters available and the market fueled by other vessels.
The remaining spot voyages during the quarter were smaller in size and generally satisfied with atvs.
As Sam has described we had a more active quarter and developing new business for extensions of existing business that was the case during the first quarter.
Nevertheless, the number of vessels in lay up remained constant.
We continue to manage our costs by maintaining these shifts and lay up for which there is no current demand.
Daily operating savings per vessel of approximately $15000.
As we indicated during our fourth quarter 2020 call our expectation was for breakeven adjusted EBITDA and the first quarter of 2021 with a modest improvement and the second quarter.
Our second quarter 2021, adjusted EBITDA was $10.2 billion.
$4 million increase from the first quarter, resulting in first half adjusted EBITDA of $16.4 million.
The impact to the overall domestic <unk>.
Amit recovery on the Ria channel.
Transportation sector has been somewhat muted to date.
We firmly believe that the recovery and our markets. It's only a question of time.
We expect to see demand return during the second half of 2021 and with the expectation.
And significant improvements and our operating performance.
Please turn to slide 7.
TCE revenues Q2 were $71.7 million 95 per cent increase from the first quarter, which were driven in large measure for our niche businesses.
TCE revenues, however declined 28, 6% when compared to the second quarter of 2020.
We had 6 tankers and 1 wire and barge and lay up for both the first and second quarters for 2021.
And Q1 of 2020 vessels were either on time charters for Boyd and other contracts of affreightment.
There were no vessels in lay up from the prior year.
We had 2 vessels redelivered to us towards the end of the first quarter and they operated in the spot market during the second quarter 1 and.
The previously mentioned series of voyage charters and the other on short term time charters through mid April and then again on another short term time charter later in the quarter.
Adjusted EBITDA for 2021 second quarter increased 64, and 5% for the first quarter of 2021.
For $2 million due to the increase in revenue levels.
Comparatively adjusted EBITDA declined significantly from the year ago quarter when for vessel for more fully employed.
Dry dock days increased during the quarter to 45 from 43 and the first quarter of 2021.
And the year ago quarter, we had 56 Drydock days.
Let's turn to slide 8.
The increase and TCE revenue for the first quarter of 2021 was led by improved performance for our niche businesses.
While you are for revenues increased $1.2 billion $8 million from the first quarter of 2021 and increased $2.6 million from the second quarter of 2020.
And with wider and barges were operating and the year ago quarter, while only 1 was operating debt.
During this year's second quarter.
Increased lighter and volumes during the second quarter drove the revenue gain and average TCE daily revenues increased to 92000 and $500 a day from $74600 per day, and the year ago quarter and debt.
First quarter and I'm sorry.
Both of our Newbuild Atvs were and operation under time charters during the first and second quarters of 2021 generating consistent revenues.
During the second quarter as previously announced we sold the overseas Gulf Coast and delivered her to the new owners and mid June.
Prior to the sale we operated for non Jones Act tankers, the overseas Sun Coast and Gulf Coast October sale continued to operate and internationally and Mark on a time charter arrangement and.
Realized rates of decline due to the international market conditions.
The santorini and continue to participate and maritime security program and provide services to the government of Israel.
During the quarter, we performed to Gol voyages and 2 voyages from the military Sealift command.
Resulting revenues increased $3.6 million.
Our Alaskan tankers all operate on long term time charters and continued to perform in line with expectations.
The second quarter of 2021 contains 45 off hire days for dry dock activities for the Alaska legend.
The first quarter of 2021 day, and 1 month of dry dock qualifier for the Alaskan navigator.
The slight increase and second quarter Drydock days accounts per day were slight revenue decline first quarter.
And the year ago quarter, there were no dry dock days.
Conventional tanker revenues increased $1.2 million from the first quarter.
Resolving this increase resulting from the first quarter was due to a full quarter of time charter operations for the overseas Martinez.
Partially offset by the impact for the re delivery of the Houston and Boston during the first quarter.
We had 6 conventional tankers and lay up and both Q1 and Q2 this year.
The impact of vessels in lay up and the addition of 2 vessels for the spot market and Q2.2021 resulted in a TCE revenue decline of.
$33.6 million.
<unk> achieved in Q2.2020.
Please turn to slide 9.
Revenues from our niche businesses increased $5.2 million from the first quarter of 2021.
And this was driven by an increase and wider and volumes and an increase and Gol voyage is pointing to as well as the impact of the MSC voyages during the current quarter.
TCE revenue declined by $1.8 million from the year ago quarter, and which 1 shuttle tanker and operating as a conventional tanker and is now currently in lay up.
Widening and non Jones Act tanker revenue, both increased compared to last year due to the volume increases and the mix of business from the U S flag and non Jones Act tankers.
Revenues from shuttle tankers, providing shuttle tanker services were as expected essentially flat from the prior quarter and year.
Please turn to slide 10.
Vessel operating contribution which is defined as TCE revenues less vessel operating expenses charter hire expenses.
Increased $3.7 million for Q1, and 2021 to $15.1 million and the current quarter.
And each market activities contributed for $6 million of an increase from the prior quarters.
For the ATB contribution remained stable.
You ask and tanker contribution declined due to the increase and off higher dry dock days.
Jones Act tankers loss decrease from $12.3 million to 11.5 improvement principally resulting from the overseas part D. This operating under time charter for the full period and the acquired current quarter.
Partially offset by the contribution change, resulting from the re delivery of 2 tankers into the spot market.
The number of lay up days was essentially flat between the 2 quarters.
Goodbye and vessel operating contribution of our niche businesses.
And the Alaska crude oil tankers and provided the vessel operating contribution and the current quarter of $26.7 million compared to $23.6 million and the first quarter.
Vessel operating contribution decline for the first quarter 2020 by $21.2 billion.
The Jones day candy sized tanker contribution decreased $21.4 million year.
Year over year, just market contribution was flat contribution from our new ATB decreased 3.6 million is only 1 of the new ATB operating for a brief period of Q2, 2020.
The current quarter reflects a full quarter of operations for each and Q2.2020, all Alaskan tankers were in operation for the full quarter, while in the current quarter. The legend was and dry dock for half of the quarter.
Please turn to slide 11.
Second quarter 2021, adjusted EBITDA increased $4 million from the first quarter of 2021.
This resulted from increased contributions from our niche market activities and stable operations of our Adv.
Alaskan tankers reflected the decline due to the increased dry dock days.
Adjusted EBITDA continued to be negatively impacted by the 6 Jones Act tankers and lay up and.
Lower utilization of the 2 shifts and the spot market.
Adjusted EBITDA decreased $19.2 million for the second quarter of 2020. The decrease again was driven by the reduction and tanker appointment and between the 2 periods.
<unk> has been placed and lay ups and Seth.
Please turn to slide 12.
Net loss for the second quarter of 2021 was $10.7 million compared to a net loss of $15.9 million and the first quarter of 2021.
Range was principally driven by improved performance of our niche businesses.
For the year ago quarter, we recorded net income of $6.4 million as our fleet was primarily operating on time charters.
Please turn to slide 13.
By early in Q3.2021, we completed all scheduled dry dock work for 2021.
The total 21.
Investment to date, including amounts extended in July 2021 was approximately $24 million.
We will be activating the overseas key west to editor time charter.
And in order to make are available without interruption to her charter during the 26 month charter period, we have accelerated her dry dock. It would have been due and second quarter of 2022 to occur prior to the commencement of her charter in November 2021.
We anticipate that the expenditure will be approximately $6 million, which includes installation of the ballast water treatment system.
At March 31, and 2021, we get total cash of $45 million, including $100000 of restricted cash.
During the quarter, we generated $10 million of adjusted EBITDA and.
And we received net proceeds from the sale and the overseas Gulf coast of $32 million.
Working capital used $1 billion of cash and we extended $6 million.
And on Drydocking and improvements to our vessels. Additionally.
Additionally, we invested $2 million and industrial and other capex.
During the quarter, we incurred $6 million and interest expense and repaid $10 million of debt.
The result, we ended the quarter was $62 million of cash including 100000.
For restricted cash.
Please turn to slide 14.
Continuing our discussion of cash and liquidity as we mentioned on the previous slide we at $62 million of cash at June 32021.
Our total debt was $417 million.
Representing a decrease of $10 million and outstanding indebtedness since March 2021.
We will amortize and additional $20 million of our loans over the remainder of 2021.
With $354 million of equity our net debt to equity ratio was 1 times.
This concludes my financial.
Financial statements and I'd like to turn the call back over to Sam Sam. Thank you Nick.
And the quarters that lie ahead, we were looking to several catalysts to drive improved operating conditions and our core markets first and as noted earlier low domestic inventory levels of key refined products and a steady normalization of fuel demand patterns consistent with historic levels and consumption Shouldnt.
It should encourage continued improvement and refinery utilization rates and.
And create strong underlying conditions to stimulate more domestic marine transportation demand.
Second as we know the state of the international economic conditions significantly impacts the domestic market for demand for oil.
As the international markets progressively heal from the lingering effects for the pandemic should be expected that the us will experience a reduction and a significant import volumes that we've seen over the first half of this year and <unk>.
Particular international tanker rates increase from the back of higher product and outside in the United States.
When this occurs we should see as a result of rise and demand for our services.
Third.
<unk> crude price spreads and domestic versus international crude oil increase.
More favorable conditions for coastwise domestic crude oil movements should occur and <unk>.
Particular shifting availability of Nigerian crude oil once the new domestic refinery there begins operation early next year bears watching.
The final catalyst that would drive improved operating conditions and the emerging demand for transporting and renewable diesel.
Both new and expanding production facilities and the U S Gulf coast with moving.
And the renewable diesel to the consuming markets on the us West coast, which should generate both more and longer voyage demand for Jones Act tankers.
With availability of acceptable vessels and the Jones ecstatic at worse.
Incremental demand from these emerging product flows of renewable diesel and potentially other alternative fuels should add progressively to the debt to the domestic base load transportation needs for crude oil and refined products.
Patients and waiting these developments to generate and improved operating environments for our tankers as necessary.
In the meantime, our near term focus remains squarely on sustaining sufficient liquidity to ensure a clear path to a sustainable future.
We have taken steps to defer capital expenses expenses, where appropriate and to reduce vessel operating and shore based overhead spend and ways that will not compromise our commitment to safe and reliable transportation.
Incremental gains achieved through these efforts we remain important and the months ahead and acknowledgements should be given to all who have worked hard to bring about these results.
As seen from the results of our just completed quarter, we expect continuing strong contributions from the ATC vessels on charter as well as the expected revenue streams from our niche businesses, which were outlined earlier in my presentation.
These cash flow stabilize us provide confidence that we will be able to ride out the current market weakness expressed and our conventional tanker performance and <unk>.
And through to what we believe to be a fundamentally promising medium and long term future.
Sarah we can now open the call for questions.
Thank you we will now.
And I'll begin the question and answer session.
To ask a question you May Press Star then 1 on your Touchtone phone.
And if youre using a speakerphone please pick up your handset before pressing and keen.
To withdraw your question. Please press Star then Kim.
At this time, we will pause momentarily to assemble items.
Our first question comes from Jay and then <unk> with value Investor's edge. Please go ahead.
Hi, Good morning, Sam Good morning, Thanks for taking my questions today.
J J.
So we talked last quarter, just a few months ago about turning this corner and hopefully that was going to happen.
Right after Q2 into Q3.
But now it seems delta us push things back maybe a little bit I know we've seen some.
And perhaps disappointing status on the fleets you mentioned 7 ships and lay ups.
As of Q2, and you mentioned the key west coming out of lay up is that going to be 6 net debt and lay up during Q3 is there anything more to report on that front.
The key West is us will come out of lay up.
And your contract in November so that's actually Q4.
We are looking at the possibility of activating 1 of our vessels towards the backend of Q3 that would be in addition to the key west.
And we need to just monitor.
Conditions as we move through the through the third quarter into the fourth quarter I would say.
Typically what we've seen in the past in the third quarter is the softest quarter from a demand point of view.
And the expectations that we would see and all are already halfway through the quarter expectations that we set a significant jump and demand this quarter probably needs to be tempered.
But as I said in the past.
The demand for our product flows and in the fourth quarter has historically been.
Higher than in the third quarter, and we look to the pretty subdued inventory levels and an increase in demand patterns.
As a hopeful indicator of.
Increased demand and the fourth quarter and that's our expectation.
Okay. Thanks for that so it sounds like a little bit other goalposts pushed Q4, there I'm curious on just kind of looking quarter to quarter on EBITDA, because I think at least I was pleasantly surprised at the Q2 number for EBITDA, but I wanted to kind of think about Q3, and and how thats going to look relative to Q2 and I'm also curious how do your covenants.
Come into play because I know when you had to push that debt back a few months ago, you had a basically breakeven EBITDA for Q2 was requirements and then you have to show accelerating EBITDA and the Q3 and Q4.
Has there been any progress on those covenants is there any sort of risk that you're going to run into that from Q3.
So Q3.
From what we can see right now our expectations would be.
Top line performance and EBITDA performance likely largely in line with what we saw in Q2.
There is some scope for a little bit of upside potential a little bit of risk on the downside the betting out certain things play out but.
As I said, where we're seeing softer lighter and volumes this quarter than we did last quarter and some of that is related to turnarounds at refineries.
But we would expect that to come back towards the back end of the quarter.
We are doing.
As well on our MSP vessels this quarter, we picked up another MSC voyage and July.
All of our ATB excuse me all of our Atvs to conventional ATB is back on charter are on charter.
The OSD tool for having delivered into a new charter at higher rates and were in play during the second quarter.
All of the <unk>.
ATC vessels are back and we lost about another 10 days I think at the beginning and recorded a dry dock, but after that now all 3 vessels will be back earning.
So all of those things are.
<unk>.
Stable from stable to slightly improved from the second quarter.
And there's still uncertainty and and the performance of our conventional tankers, we have the Houston and Boston kind of work and the spot market we've had.
Less.
Utilization to date and this quarter and we did it and the second quarter.
But there are some signs and we'll see it pick up at the back end of the quarter on those 2 vessels. So.
All of that leads us to believe we're kind of looking at the same performance for the.
For the second quarter excuse me, the third quarter as compared to the second quarter.
Hello, and how Thats lines us up with our covenants that's a conversation.
That's ongoing.
We think debt.
Looked at.
And a N a.
From a slightly broader perspective.
Pick and quarter to quarter results is kind of difficult. The principal driver of our covenants was focused on maintaining sufficient liquidity to continue to allow us runway to to realize a recovery.
And so if you look at sort of $2 million for the first and second quarter, sorry was target we exceeded that.
As I said, we're kind of looking at the same levels for the for the third quarter. So if you aggregate second and third quarter.
Likely to exceed what our targets have been and our covenant structures and.
And the outcome of that is a long answer to your question the outcome of that and so on the Kobe liquidity levels will be at or above the levels that we were looking for at the end of the third quarter.
So we think Thats us.
Sets us up well for our continuing conversations with our lenders to to achieve that objective of maintaining runway to allow ourselves to access and recovery that we think is forthcoming.
Pretty comfortable with the liquidity levels that we currently have and.
As always and we work on.
Lots of things to be able to give us greater flexibility.
As facts.
Present themselves.
Yeah. Thanks, Thanks for addressing that and then sort of the elephant in the room and you Didnt mentioned and in the press release and I didn't hear anything on the call about it but you have a takeover offer out there $3. Even today right. Your stock is like $2.60.
So it doesn't seem like the market is pretty much stock and that offer.
We've been on these calls for 2 years now kind of from both of US He is and <unk>.
And do you as management.
Owning the ridiculous valuation.
Your stock has and how your business doesn't even trade at half of the enterprise value to EBITDA as some of your peers.
Is there any commentary that you wanted to share at this moment regarding the takeover offer regarding any other potential suitors, whether or not and youre going to reject it or anything like that.
I think you appreciate Jay that ownership of the businesses.
Above my pay grade to some extent the board of directors are the ones that are responsible for managing that process. There is a.
There is a transaction committee that has been appointed by the board they have taken.
What I believe to be our.
Professional and capable advisors, both sales from investment Bank point of view and also legal advice.
The transaction committee is being well served by those advisors and they are judiciously and.
Systematically reviewing the.
And the different opportunities that are.
And being surfaced through this non binding.
Especially and of interest.
And as you can appreciate but that takes time.
Want to make sure that they do their job properly.
And and they're at it.
At this time.
Not if youre, if youre asking me for when I think there'll be a resolution and that process.
I could only speculate I don't know.
Bill.
And that our job as management is to run the business and to maximize the value of the business from a cash flow point of view.
And that the ownership question.
Is 1 that's best handled by the board.
Alright, Sam I appreciate your at least trying to dance around that 1 a little bit and thank you gentlemen, and for your time and look forward to upcoming results.
Thanks Jay.
Our next question comes from Ryan Vaughan with Needham. Please go ahead.
Great. Thank you, Hey, Sam Hey, Derik.
Hey, Ryan.
Good morning.
So 2 questions from me.
First 1 Sam you mentioned in your prepared remarks, the new routes opening and then went into a little bit of detail on key west could you just.
Elaborate a little bit more it sounds very interesting and something that.
We haven't really heard too much about but potential future opportunity for other vessels as well and I'm curious about the number too.
We've talked many times I think we talked about it last quarter as well.
It certainly feels like the the.
And the recovery has been delayed largely due to the international markets. Just curious are you seeing anything there I know you said this is kind of a quieter period or <unk> and general, but just any thoughts or any any sort of green shoots recent improvements anything on the international front.
That would be great. Thanks.
Yes.
So I'll take the second 1 first.
Our national market has been.
I think disappointing would be an understatement for people that are operating and that business. If you look at other marine markets.
They have never been more frothy and they are today and the container sector is us.
<unk> is out of control in terms of.
The rates and values that are being achieved.
The dry bulk for the dry bulk market has also.
And extreme highs.
A handy size bulk carrier internationally is earning in excess of $30000 a day.
And you look at container vessels 15 year old container vessel, which could have been bought for.
Scrap effectively.
15 months ago.
Was sold for in excess of 2700 Teu vessels for for in excess of $40 million last week.
Those conditions are just are just mind blowing in terms of the turnaround.
That occurred during the course of the pandemic and.
And as the markets are the standout.
The exception with us they have been flat.
And worse and flat in virtually every.
Sub sector of the international tanker market today.
And as our former colleagues at <unk>.
NSW.
Demand of our.
Our operating at below operating costs.
And they've been that way for us.
And since really since the beginning of the year.
And what's going to turn that around.
And you probably know better than I do you read the same things that I do you need to see sustained economic recovery in Europe and Asia.
Need to see and increase in production from OPEC, plus it could be and it takes some of that.
Some excess of transportation capacity off the market with more product flowing.
Is that going to happen though.
A month ago, I would say to your free people were pretty optimistic today and Delta variant China's got problems and he has got problems.
Southeast Asia countries, Indonesia has got problems Latin America Europe.
It was looking a little better but still.
No.
Yeah.
<unk> and trajectory I think as the us.
And as the as the lexicon and I was trying to convey.
All of that is the big question.
And how long.
The U K saw a surge and Delta and then a sharp decline and afterwards, so are we going to see the same kind of trajectory here and the states and internationally that would accelerate economic recovery. That's a big question and I think that's on everybody's mind.
So I think I think we've got to be patient.
And there is.
Our fundamental belief from our perspective debt.
Freight rates at below operating cost is not sustainable and the long run and has to adjust at some point.
And we think the economic activity.
Given the very loose monetary conditions that are continuing around the world.
And have to come back at some point.
And once the pandemic is brought under control.
As we said earlier and the year vaccines are.
And the sort of.
Pathway to.
And reaching that and the proliferation of vaccines and hopefully.
And so that more broadly across the world.
And should lead us to a better time.
And we just we just have to be patient.
Renewable diesel.
To me renewable diesel offers a really sharp insight into.
How markets can change and how and.
How the promise of evolving.
Evolving thought.
The mix of transportation fuels and this country is going to.
Regressed.
I think it's really interesting and California is ahead of the rest of the country and putting their low carbon fuel standards and to place.
From the research that I've done.
Electrical vehicle penetration and it's going to be too slow.
To be able to allow the refinery distributors and in California to meet their goals.
Through just through substitution of electrical vehicles.
The principle pathway to meeting those low carbon standard fuel standards is through substitution of diesel with renewable diesel.
And you can go and do your own research there is a number of new plants that have been.
And have been announced.
For marathon, the West Coast Marathon.
P 66.
For potentially Holly frontier and the acquisition of the shell refinery and out of quarters have all signaled that they are moving towards transforming their facilities to produce renewable diesel.
But even with those are additive.
And that added capacity on the west coast Theres not enough.
Production on the west coast to be able to meet the ultimately the level of demand that would be necessary for substitution of standard diesel with renewable diesel.
And so then you turn to the for the Gulf Coast.
The Gulf Coast and my view has.
And.
Advantages over production and the west coast because of that better access to feedstock through the for the agricultural sector that runs up to the central part of the United States and all of that feedstock and slowdown and Mississippi River to feed those refineries and Louisiana.
Diamond Green Valero.
Are going to complete a 450 million barrel capacity plant and.
The fourth quarter of this year.
Overseas key west and has been chartered by Valero to begin to move product out of that expanded facility.
They have <unk> announced that they are advancing the phase III of their expansion from the second half of 2023 to the first half of 2023.
That's another 450 million gallon per year production.
PBF is exploring converting part of their channel net Louisiana refinery to an 18.5000 barrel per day.
Renewable diesel fuel facility.
And then you have the renewable energy group, who have an existing facility and Geismar, Louisiana have announced and expansion.
Their facility, which is now under construction debt will increase.
And with 15000.
Barrels per day on top of your existing facility by the end of next year.
All told us about 100000.
Barrels per day of potential.
Production coming out of Louisiana, and Texas over the next couple of years.
That's a lot of renewable diesel and needs to be moved and the market is and the west Coast, It's California and years out includes probably Washington, and Oregon, as well and stepping up there.
Garments renewable diesel.
That's a really interesting market.
And 1 that we're looking.
Very carefully at right now in terms of the promise that it.
And that it presents in terms of long haul.
Consistence transportation demand for our tankers.
Thank you for questions.
Question.
[laughter].
Barry do we have any more for anthrax.
Showing no further questions. This concludes our question and answer session I would like to turn the conference back over to Sam Norton for any closing remarks.
Thank you Sarah and and.
Thanks, everybody for taking time out from your summer break.
We continue to look.
To drive growing better than and.
Happier news about our markets.
It's taken longer than we had hoped.
But we really feel we're making some progress and.
As Ryan alluded to we do see Green shoots we do see.
Significant new areas of interest outside of our conventional tanker trades that gives us a lot of hope for.
We'll keep working at it and look forward to talking to you again and a couple of months.
And with what we hope are continued sign.
Signs of improvement and our business. Thanks again enjoy the rest of your summer holidays and good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.