Q4 2021 International Seaways Inc Earnings Call
To the international Seaways fourth quarter and full year 2021 results my.
My name is Katie and I'll be coordinating your call today.
If you'd like to ask a question during the presentation you may do so by pressing star one on your telephone keypad.
I'll now hand over to your host James small general counsel to begin James. Please go ahead.
Thank you.
Good morning, everyone and welcome to International Seaways earnings release conference call for the fourth quarter and fiscal year 2021.
Before we begin I would like to start off by advising everyone with us on the call today are the following.
During this call management may make forward looking statements regarding the company or the industry in which it operates.
Those statements may include without limitation the following topics.
Outlooks for the crude and product tanker markets.
Changes in oil trading patterns.
Forecasts of World and regional economic activity and if the demand for and production of oil and other petroleum products.
The effects of the ongoing coronavirus pandemic.
The company's strategy.
The anticipated cost savings and other synergies and benefits from our merger with Diamond S.
Any plans to issue dividends or prospects.
Purchase purchases and sales of vessels construction of Newbuild vessels and other investments.
Anticipated and recent financing transactions.
Expectations regarding revenues and expenses, including vessel charter hire and G&A expenses.
Okay.
Estimated bookings and TCE rates for periods in 2022.
Estimated capital expenditures for periods in 2022.
Projected scheduled dry dock and off hire days.
The company's consideration of strategic alternatives.
The company's ability to achieve its financing and other objectives and.
And other economic political and regulatory developments around the world.
Any such forward looking statements take into account various assumptions made by management based on a number of factors, including management's experience and perception of historical trends current conditions expected and future developments and other factors that management believes are appropriate to consider in the circumstances.
Forward looking statements are subject to risks uncertainties and assumptions many of which are beyond the company's control.
Could cause actual results to differ materially from those implied or expressed by those statements.
Factors risks and uncertainties that could cause international Seaways actual results to differ from expectations include those described in our forthcoming 2021 annual report on Form 10-K and in other filings that we have made or in the future may make with the U S Securities and Exchange Commission.
Now, let me turn the call over to our President and Chief Executive Officer, Ms. Lois <unk> Lewis.
Thank you very much James good morning, everyone. Thank you for joining international Seaways earnings call to discuss our fourth quarter and our full year 2020 results.
As we hold this call this morning.
Russia continues its invasion into the Ukraine.
All of those affected by the violence.
And all of those in dangerous way are in our thoughts this morning.
Okay.
Turning to <unk> results.
2021 was a pivotal year for international Seaways.
As we strengthen our market position.
We enhanced our ability to capitalize on an improving tanker market this year.
And to create enduring value for our shareholders.
Oil demand has returned.
Projections for refinery runs to increase by 4 million barrels per day from March to July of this year.
This increase Paul from demand feeds our optimism for an improved tanker rate environment.
Our ships are employed and top performing commercial pool.
With our significant operating leverage we will take advantage of favorable market development.
Inventories are now at the lowest level.
Since 2014.
And oil demand as we mentioned is recovering.
Inventory draws.
Have continued.
Oil production is expected to increase in 2022.
OPEC has affirmed their April cuts will unwind at 400000 barrels per day.
This pace should continue for the remainder of 2022 with 400000 barrels per month.
Non OPEC, United States, Canada, Brazil, and Guyana should add supply in 2022 at about one 7 million barrels per day.
Please turn to slide four where we summarize our momentous year.
This is highlighted by substantial return to our shareholders.
The completion of our transformational merger.
And our success optimizing the fleet and strengthening our balance sheet and our capital structure.
Since becoming an independent tanker company over five years ago, we have built a track record executing an accretive and balanced capital allocation strategy in order to maximize value for our shareholders.
In addition to purchasing ships at cyclical lows a key component of our proven approach has been returning capital to our shareholders.
And this is outlined in the first series of bullets.
We're proud to have returned $58 million to shareholders in 2021.
This reflects $17 million of share repurchases in the fourth quarter.
Our regular quarterly dividend of <unk> <unk>.
As well as the $31 $5 million of special dividends that we paid in the third quarter.
Combined with $37 million of returns in 2020, Seaways has returned nearly $95 million to shareholders over the last two years admit challenging tanker market conditions, and importantly, while maintaining a very strong balance sheet.
Turning to the next series of bullets on the upper right of the slide we completed our merger with Diamond in 2021, nearly doubling our net asset value and tripling our fleet size.
<unk> is now the largest U S listed diversified tanker company.
We expect to realize over $35 million in synergies in 2022.
During our integration efforts the team did a deep dive into cost structure and historic performance.
Which resulted in a refinement of our estimates.
These synergies represent a permanent benefit to consolidation.
After the merger we implemented a fleet optimization program this capitalized unhealthy secondhand values and strong steel demand.
This has resulted in the sale or recycling of 16 older tankers with an average age approximating 16 years.
We lowered the age of our profile of our fleet to below nine years.
And received aggregate net proceeds of $92 million.
After all costs, including debt repayment of approximately $74 million.
We have bolstered our panamax presence and our strong earning nice joint venture.
Panamax International earlier. This week, we took delivery of the Seaways Eagle or 2011 built LR, one and next week, we will deliver to the same counterparty a 2010 built emaar.
The Seaways Eagle will join the Panamax pool, where we have earned over $22000 per day in the first quarter to date.
We also agreed to sell a 2004 built panamax for recycling in February .
In line with our ESG commitment.
Responsible recycling all recycled vessels have been processed under our oversight and in accordance with the Hong Kong Convention.
Yeah.
Moving to the bottom left hand column of the slide.
We have maintained a strong balance sheet further positioning <unk> for long term success.
We've made significant progress enhancing our capital structure and our financial flexibility this year, including a number of attractive financing initiatives.
That Jeff will get into more detail on in his portion of the call.
Our net loan to value of 45% is balanced with largely senior debt some leases.
With purchase options and a small fixed bond.
With yearend total liquidity of approximately $240 million.
We have operated effectively in challenging kinker markets.
Turning to our financial results are.
Our fourth quarter net loss was $29 million for <unk> 57 per share excluding merger related costs and gains on vessel sales.
Our full year net loss was $86 million or $2 24 per share.
Excluding the same items.
In a sustained weak rate environment, we generated adjusted EBITDA of $12 million for the fourth quarter and $40 million for the year.
Turning to slide five.
While the situation in Russia, and the Ukraine is creating tremendous volatility in energy markets, we address the fundamental tanker underlying drivers.
Providing a broad overview of the current oil supply and demand balance.
With the fading impacts of the pandemic on global global oil demand projections indicate 2022 oil demand increasing at over 3 million barrels per day.
To nearly 101 million barrels per day, and the end of 2022.
Oil production is expected to increase to all time highs in 2022.
We anticipate boosted production in the west, but as mentioned by the United States, Canada, and Brazil in Guyana.
Contributing to this growth.
While OPEC plus has fallen short of its production targets by country compliance may be challenged in a very high oil price environment as today.
Yeah.
Incremental production based on these dynamics is likely to be moved by sea.
This increases the demand for tankers.
We are closely watching the outcome of negotiations as the lifting of Iranian sanctions could increase commercial oil supply by over $1 million million barrels per day by the end of the year.
And this would reduce tanker supply, which we discuss in a moment.
Looking at the bottom right chart inventories have been reduced to their lowest levels in seven years.
Providing 60 days of forward demand cover.
With oil supplies from Russia struggling to find buyers western grades such as <unk> and Brent are in strong demand.
We are seeing U S crude exports to Europe , and even the long hauls to the far east that we've been missing in the marketplace.
On slide six.
We turned to vessel supply.
As you can see in the bottom left chart. The global fleet has grown three 8% since the start of the pandemic.
At the same time the average age of the tanker fleet has increased to nearly 12 years on average.
We continue to believe recycling has the potential to limit fleet growth, particularly as we see recycled volumes increase in the latter half of 2021 and into early 2022.
Recycling values, our historic highs after adjusting for inflation.
In terms of sanctions on Iranian oil.
Because of the sanction trades are largely serviced by older vessels.
We expect the removal of sanctions would lead to the recycling of these assets that are trading outside the normal international markets.
The overall tanker order book stands at 7% by deadweight. This is the lowest level ever relative to the size of the fleet and several factors continue to limit supply.
Foremost with.
With reputable shipyards filled with contracts for other shipping sectors.
The earliest new building slots.
We're often in late 2024 or in 2025.
Secondarily.
Ordering has been tempered by uncertainty around future environmental regulations.
And finally, new building prices are near all time highs.
And this is also had the effect of limiting tanker owners from ordering.
I would now like to turn the call over to Jeff and he will give us a further dive on the financial review Jeff.
Thanks, Ross and good morning, everyone, let's move directly to reviewing the fourth quarter results in more detail.
Before turning to the deck, let me just quickly summarize our consolidated results in the fourth quarter, we generated an adjusted EBITDA of $11 $9 million and net loss for the quarter was 34 million or <unk> 68 per diluted share compared to $116 9 million.
Or $4 <unk> per diluted share in the fourth quarter of 2020.
However, excluding the impact of the disposal of vessels, including impairments loss on extinguishment of debt write off of deferred financing costs and merger related costs. The aggregate aggregating $5 1 million. The net loss would have been was $28 9 million or <unk> 57 per diluted share.
Now if we could turn to slide eight.
This slide summarizes the year over year results of our business segments.
For the fourth quarter located in the top half of the slide and full year at the bottom half of the page.
The decrease in Q4 and last 12 months' revenue.
EBITDA, primarily resulted from the impact of lower average blended rates for both crude oil and product sectors.
Now if we can turn to slide nine.
We provide a fourth quarter review and first quarter 2022 earnings update as of this point.
For bookings in Q1, thus far we booked 64% of our available spot days for our Vlccs at an average of approximately $12400 per day.
97% of our available Suezmax spot days at an average of $12800 per day 60.
68% of available Aframax and <unk> spot days at an average of $12800 per day also in 73% of available Panamax spot days at an average of approximately $22800 per day.
Turning to the product side, we booked 68% of our first quarter MLR spot days at an average of approximately $12 $700 per day, and 72% of our handy sized spot days at an average of approximately $14300 per day.
I would like to add that these rates should not be construed as guidance for the full quarter with global geopolitical events evolving rapidly and the market is subject to significant change in the immediate term.
Okay.
Turning to slide 10.
Okay.
The estimated.
Cash cost TCE breakeven is for the forward 12 months beginning January one are illustrated on this slide.
International Seaways overall breakeven rate is estimated to be $70200 per day for the next 12 months.
As we always provide these are all in daily costs that our fleet must earn to cover vessel operating costs dry docking costs cash G&A expense and debt service costs, which means scheduled principal and interest expense.
At this point I'd also like to provide cost guidance for the year for your modeling purposes.
This year 2022, we expect regular daily Opex, which includes all running costs insurance management fees similar related expenses for our various classes to be as follows.
<unk> $9000 per day for Suezmax 7600 <unk>.
Sure.
<unk> $8200 per day for Panamax, 7900, <unk> 7200, and for handy sized seven 200.
Per day also.
We expect Drydock and capital Capex expenses to be $41 2 million at $34 4 million respectively.
These costs are related to ballast water treatment systems and other upgrades in anticipation of 2023.
Site energy efficiency requirements for.
For details on projected Drydock capex and off hire days by quarter, you can refer to slide 17 in the appendix for an update.
Continuing with cost guidance, we expect 2023 interest expense to be.
Approximately 40% to $45 million.
For the year, we expect cash G&A to be in the region of $31 million and finally, we expect about $15 million in equity income and approximately $113 million for depreciation and amortization.
Now if I can ask you to turn to slide 11.
We highlighted $25 million in cost synergies, we expect to realize this year in connection with our merger last year with Diamond S.
At the bottom of the slide you'll see an illustration of the general and administrative synergies totaling more than $20 million.
This includes over $15 million in savings related to the consolidated management team and board and other public company expenses, such as Odyssey's $3 million based on other office and administrative savings and $2 million as a result of the termination of the capital ship management contracts in connection with the merger.
The remaining $500 in cost synergies related to opex with $3 million in savings and technical management fees $2 million based on consolidating insurances.
These cost synergies are tangible savings to expenses that would have been incurred the two companies were separate.
There is a natural ebb and flow as the timing of these expenses, but we are very confident.
Saying that these will be realized in 2022.
Okay.
Finally, given the historical performance of pools compared with other commercial management, we believe the pools in which we now deploy our vessels.
With the benefit of greater scale will generate over $10 million of revenue synergies compared to the rates earned by these vessels pre merger.
To be clear, we do not recommend anyone who <unk> is subject to add $10 million to your TCE revenues is likely already captured this in your TCE estimates. We are just pointing out that there is added value of the pools versus historical performance. So this is another synergy benefits of the merger.
Yes.
Now, let's move to slide 12 for our cash bridge.
Moving from left to right, we began the fourth quarter with total cash and liquidity of $177 million.
During the quarter, our adjusted EBITDA was $12 million.
Equity income from Jbs decreased cash by $5 million and the cash distributions from the JV were a positive $3 million from the episode JV, We expanded $33 million on dry docking and Capex. We also paid $10 million in installments on our dual fuel LNG LNG newbuild.
Yeah.
Liquidity enhancements totaled $91 million, which included proceeds from vessel sales net of debt repayments and proceeds from sale leaseback transactions net of debt repayments to pay down of a swap in connection with the cynosure facility and voluntary payments on our revolving credit facilities.
<unk> several of these financing initiatives with just two months.
Finally, taking into account the $53 million of debt service, the $20 million quarterly dividends and $90 million impact from working capital and other changes.
The net result was that we ended the quarter with approximately $99 million in cash and a $140 million undrawn revolver, yielding total liquidity of $239 million at December 31.
Before turning to slide 13, I'd like to briefly touch on the specifics of our fourth quarter balance sheet and liquidity enhancements.
As Lois mentioned, we've implemented a fleet optimization program, which yielded net proceeds of $32 million in Q4. Additionally, as discussed in our previous earnings calls.
Last call, we entered into a lease financing arrangements for the six vlccs that had collateralize, our cynosure of credit facility.
The proceeds of this refinancing were used to prepay the $228 million outstanding loan balance under the cynosure facility and therefore increase our overall liquidity by approximately $150 million and $100 million of which was used to repay our existing revolving credit facilities.
Lastly, we refinanced two <unk> and two aframax through sale leasebacks.
Three of these transactions were completed in 2021 with net proceeds of $27 million and the fourth was completed in January .
Now I.
I would like to turn to slide 13 to discuss our balance sheet a little more.
As of December 31, we had $2 $3 billion of assets compared.
Compared to $926 million of long term debt.
In addition, as mentioned we had one.
$140 million revolving credit facility remains undrawn as of December 31.
As you can see on the bottom left of the slide our net debt to total capital stands at 46% well.
Our net loan to value of our conventional fleet stands at 45%.
A portion of our debt is fixed or hedged as 37%.
Since years and I'd like to highlight that we completed the sale leaseback of a 2010 built MLR January we increased our liquidity by approximately $6 million.
It should also be noted that our final payment in the forthcoming LNG dual fueled yogurt newbuild was paid in February .
These new buildings are now fully financed and the previously announced lease financing structure with Bocom.
This finalizes the financing of our current new building program with vessels that are built to better the environment and our tests of six seven year earnings contract with shell.
And as noted a quality financing arrangement.
Turning to slide 14, we look at our debt as of 12 31 reflective of the completed merger.
As you see our total debt balance is approximately $1 2 billion with a $140 million of undrawn revolving capacity.
Okay.
As we continue to maintain a healthy balance sheet, our debt reflects a highly competitive cost of capital and long term maturity profile with the vast majority of debt due in 2024 or later.
That concludes my remarks, I'd now like to turn the call back to Lois for her closing comments. Thank you Jeff.
On slide 15, we detail Seaways investment highlights.
<unk> continues to execute our disciplined and balanced capital allocation strategy, which enables us to create significant and enduring value for our shareholders.
Since our spinoff in 2016, we have transformed the company into the largest U S based diversified tanker company.
We've been acting decisively to capitalize on attractive growth opportunities.
Complementing the $900 million of vessels that we purchased at cyclical lows, which was completed without issuing any equity or merger with diamond S. Last year doubled our net asset value tripled our fleet size and significantly enhanced our scale and our earnings power.
Returning capital to shareholders remains a central component of our balanced approach to capital allocation and we're proud to have returned $95 million to our shareholders.
Over the last two years in dividends and repurchases.
Our commitment to upholding best in class ESG standards is another of <unk> key Differentiators, we believe that the diversity and the independence of our board our commitment to the environment as demonstrated by our dual fuel VLCC, New building order and our status as the first shipping company to secure sustainability linked financing.
<unk> provides significant benefit to our customers our shareholders and our lenders.
Okay.
We have been ranked in the top three in the Webber research ESG rankings for the past four consecutive years.
Supporting both our ESG initiatives as well as our focus on meeting the exacting requirements of leading energy companies is our hybrid operating model focused on safety first and flexibility.
At the core of this model is an unrelenting commitment to adhering to stringent safety and environmental standards.
Which is made possible by <unk> dedicated seafarers.
We rely on our seafarers to ensure the safe reliable and efficient transportation of energy cargoes for our customers.
The global pandemic the ship's crew have done a remarkable job adhering to the highest level of not only safety but.
<unk> standards.
We're particularly proud.
To share that we have reached the milestone of Vaccinating over 83% of our 2500 seafarers. This is the number that we are working to increase every day.
In terms of our operating model our sector, leading commercial pools, many with ion SW ownership, such as tankers International and Panamax International joint venture provide a competitive advantage to see ways.
<unk> is one of the largest VLCC pool operators in the world and as a founding member over 20 years ago, we have taken an active role to expand the global competitiveness of the pool in 2020, we established <unk>, New York City office in Seaways headquarters.
Another hallmark of <unk> success has been our focus on maintaining balance sheet strength, we continue to take steps to enhance our balance sheet and our capital structure.
With one of the lowest net loan to asset values in the industry.
As well as the liquidity of $240 million.
We are well positioned to operate in the diverse tanker environment.
I'll end my remarks by briefly discussing seaways significant upside potential to improving rate environment as mentioned earlier on the call. We see a number of positive market developments that could translate to a stronger rate environment for us in the second half of 2022.
Based on our sizable fleet of 84 conventional tankers, we have significant operating leverage to capitalize on this.
Note that every $5000 per day improvement in the time charter equivalent daily rate provides over $150 million to incremental EBITDA or about $3.
Earnings per share per annum.
Thank you very much and we would now like to open it up to questions.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
If you would like to remove your question. Please press star followed by T y.
We're preparing to ask a question. Please ensure you'll find us Amit you typically.
We take our first question from Randy <unk> from Jefferies. Please go ahead.
Howdy, Louis and Jeff How's it going.
Very good Randy how are you today.
Im doing well.
First question just around current rates right, we're seeing some crazy jumps in the headline average rates, but most of those are being skewed by just a couple of kind of black sea routes. So are you doing any cargos and are around Russia, Ukraine, and I guess for ion SW more specifically.
What levels of rates are you booking vessels that today for your various asset classes.
Okay. So, let's just take the first of your questions Randy and since <unk>.
Russia invaded the Ukraine on the 24th so for the last week at International Seaways, we have not booked any fresh cargos loading any Russian ports and this is a very fluid situation you are seeing.
Sanctions and trading change everyday so.
First and foremost at Seaways is number one is safety.
And then making sure that we're navigating the legal a labyrinth out there.
For sure you have to make sure that.
Youre able to receive payments and we understand that there are cargoes now where the euros are trading at in the Black Sea, a $20 discount and some of these cargoes are going wanting so.
We are simply monitoring the situation extremely closely with.
Each of our pools of course, all of our ships are effectively working and we have seen if I if I take it kind of from the top we have seen an increase in VLCC rates.
And Youre looking at.
<unk> somewhere around $25000 per day.
On that sector.
When you come down to the Suezmax is an effort aframax assesses where youre starting to see.
A much broader differentiation between those that are potentially trading in the black sea and those that are not but even on non Russian cargo trade.
Eric what would you say I'm going to have Derek Salone, our chief commercial officer, just share a little bit of what Youre seeing and and one thing Randy I just wanted to.
Derek jumped in there and shares.
Where we're seeing this change on a daily basis and realize that.
Some of the high levels that you're seeing it's very thin trading so.
I think it's just very important to keep in mind that the highly changeable situation Derrick. Thanks.
So Randy.
Can you hear me.
Yes.
Okay go ahead, I'm, sorry, so yes.
<unk> has touched on I think.
The uncertainty in the market the risk in the market because of the Russian aggression in Ukraine.
<unk> has led to all the market is coming up.
From their low levels from prior to the invasion like Louis said.
Fixtures out of Russia has seen the real real toffee rates kind of headline grabbing rates, but even on the back of that like most of the vlccs have come off to around $25000. A day. The aframax is in and around the Mediterranean are earning a lot more money today right $3 $40000.
And that's impacted that the after sector across the board sitting with the Suezmax sector right that's coming up.
And sort of pull of all of that that Russian risk has even the west African market is coming up to around 23.
$30000 a day, whereas before we were fixing in kind of four digit numbers. So this is kind of giving a lift to all ships.
On the clean side.
Okay.
Some of you are meeting.
Yes, so we're definitely seeing some strengthening which is understandable but.
Clearly, we can't just use average suezmax at 80, while that's because black Sea 200. So of course, the rest of the world is going to look.
Okay.
That's fair and then I guess following up on that just a bigger picture question in terms of disruptions from Russia, Ukraine. Clearly you said yourself have not loaded any cargos in and around that region for the last I don't know a week or so any thoughts on potential implications. If this conflict persist for weeks if not months.
What would be the kind of impacts to the tanker trade in your view.
Yes, I think we are starting to see it.
WT I had been discounted to Brent like four or $5 per barrel, which.
No.
Kind of a reestablishing of that and now you see that blow out you know you see Brent this morning at $113 and <unk> at 112, So I think you'll start to see demand for western based barrels just really spiking.
And it's going to up and trading patterns, where.
We like the U S. If we can come on with another million barrels a day this year and let's say that looks something like 300000 barrels a day per quarter.
Where the barrels go and I think youre going to see Europe fighting for them and we've also seen the reemergence of.
Some of these longer haul trades, which had really been missing from the market for some time so.
You you start to put inefficiency into the marketplace.
And.
All the crude trading in the brand the product trading is a bit up ended and you start to see trades reemerge that haven't been there for some time. So we look at it that I do believe.
It can strain.
Oil supply, but at the same time it incentivizes.
Everybody in non OPEC and even.
Salaries.
OPEC plus came out and said they're going to do their 400000 barrels per day I do believe there will be pressure to it.
Increase those volumes.
Yes.
Alright, that's fair and then yes, certainly I want to make this call about Russia. So to finish on a more positive note. Your balance sheet is in great shape. It keeps getting better I guess, what is the plan for some incremental liquidity either from additional vessel sales for what is now and should be profitable rates in the coming quarters I know you meant.
Debt repayments. So is that the priority and then obviously great to see the ongoing share repurchases is that also likely to continue as your share price clearly remains undervalued here.
Yes so.
For sure.
Return of capital to shareholders remains a priority Randy I definitely.
We're having the constant conversations around.
Looking at the fleet and.
When you start to tip into a market that.
Has the type of volatility that we're seeing right now.
These turn into real cash earners.
In the fleet, so we look very carefully.
Still continue to look at pruning vessels, but.
Now the.
The scales may tip, the other way, where youre really making a lot of cash on these ships. So.
I would say that from.
Both the priority of return of capital to shareholders as well as the vessels and then I would turn to Jeff to see if you want to add.
Add any other comments no I'd just underscore what what.
Andy mentioned and you just said we did a tremendous job of expanding the fleet last year. So.
And to do including the merger with Diamond SM, the dual fuel newbuild. So we feel really good about.
We have allocated enough capital too.
Fleet growth at the bottom of the cycle not to say there has not been occasional really attractive deal will come up but the priority is going to be debt repayment as you said, but thats kind of taken care of in our scheduled amortization profile and then returning cash to shareholders.
At this point Theres nothing more accretive that we could do that's been buying shares so.
This remains a very high priority.
Great Yes.
I would agree and I'll conclude my interview there sorry for all the questions. Thank you.
Thanks, Dan.
We take our next question from Manav Gupta from Clarksons <unk> Securities. Please go ahead.
Thank you hi, guys, Yeah, I thought Randy asked a pretty good series of questions covering everything.
But I appreciate the comments about.
Yes.
Okay, that's fair.
Alright.
Yes.
I will go back into queue.
I did it maybe just a couple of follow ups.
Maybe first clearly we've seen as you mentioned lowest rates have spiked here over the past several trading days.
But.
Your performance at least thus far into the quarter from your slide.
Once the Panamax as of 2800, <unk>, it's pretty substantial.
And what was driving that.
That led to such a big increase in earnings power there.
Yes.
That sector Panamax International joint venture.
As you know is something of a differentiator for us I mean, that's why we're particularly proud of.
Picking up this opportunistically.
Seaways Eagle and then putting out an EMR.
One year older and we also picked up.
Over the course of.
Q4, 23243 time charter ins to really kind of bolster our position in that fleet.
Those vessels tend to trade a lot of fuel oil.
DPP in.
North and South America.
And that.
<unk> trade the Caribbean was probably the stronger basin.
To what you've seen on the on the bigger sister ships. The bees in the Suezmax is one under more pressure and I think the Caribbean performed better in the first quarter in Ecuador has come back on with.
More barrels in January where they had been kind of affected negatively on their volumes in.
Q4.
The equity the Ecuadorian barrels or.
Staying closer spacing within the hemisphere as opposed to going.
Recently on bigger ships transpacific, so thats helped us out of Mexico.
Okay.
Perfect. Thank.
Thank you alright, thanks for that.
Different topic and Randy I.
Just Jeff about the liquidity clearly you've tapped into a bunch of different.
New sources of capital and that the big sale leaseback from on the Vlccs have unlocked a lot of cash I guess.
How do you feel I guess at this point clearly youre in a much.
Healthier and stronger position I mean, you've generally been in a good position, but now even more so and with earnings now coming up potentially even stronger liquidity, but do you feel there is more to do an unlocking.
Liquidity slashed doing more debt refinance.
And then the second I guess would be.
Related to that is any any thoughts about the episode joint venture any discussions there I know, it's brought up quarterly almost but with that contract starting up soon that 10 year contract starting up soon any securitization of that revenue stream on the horizon.
So before Jeff jumps in there too to answer that.
I would start with.
Noted it on the call and the remaining capex payments or new building payments on the three vlccs are fully funded at this juncture. So I think that's one thing we have no unfunded.
New building payments on our horizon. So that's one thing that.
Uh huh.
One of the things the team did in 2021.
To really kind of set us up for 2022, and then I'll turn to Jeff to answer. The question about is there more to be done on debt and refinancing.
Yes, sure well desk.
Just to give you a little window the way things work I mean, what we did was immediately post merger.
But July of last year is to say, what we selected a programme.
Financings and refinancings that woods.
Have the dual benefit of diversifying our sources of financing, which is important because as great as our banks are.
And we really appreciate the support from traditional shipping banks. We know you have to source more financing from the Easter build relationships there.
And it also enhanced our liquidity.
And under those financings at a higher loan to values that we had.
Picked up probably selected the program and we basically executed program. So we've got to I think small.
Sure.
Transactions of smaller shifts that sort of remain they'll probably have announced at the next quarterly call, but that's sort of the completion of the program Omar. So it doesn't mean, we're not always looking at thinking is there something else there.
We certainly can look at optimizing our balance sheet.
The secured loan.
So as we have.
As always things that can be done just to make things a little better, but basically we put in place a program and we execute the program. So I think we're pretty satisfied with where we find ourselves now and on the <unk> I'll say is this the same as last quarter and the.
Quarter four that is that it's under close evaluation with a partner and it's a very good asset that gives very good.
Cash flow to us and our partners.
If we can find the appropriate monetization.
That will.
Benefit our shareholders.
And fully reflects the correct value.
We expect to do that but.
I tell you more than just it continues to be.
Alrighty.
Of our suite along with our partner.
Okay.
So stay tuned thanks, Doug.
Okay, we'll stay tuned.
Thanks, I appreciate the color there.
Thanks, Laura I'll turn it over.
Thank you.
Okay.
We have a question from Ben Nolan from Stifel. Please go ahead Ben.
Okay.
Okay.
You guys on the when the relationship is a very helpful sort of highlighting a year into close to year end.
A stronger team.
Okay.
And I mean, it's real money as you point out.
My thesis into the deal that was very constructive on it and I thought that hey.
More liquidity more free flow it was really going to help close the gap.
Relative.
Relative basis with respect to your peers, so far that hasnt.
At least as much as I thought it would have.
I don't know, Jeff if you can.
Take a Monday morning quarterback and look at this and say, okay, well, if not happened yet or how are you thinking about sort of that.
Pieces.
Now that we're a year into that.
Transaction.
So.
Ben I think that.
I would go with that.
It's starting to happen.
And the market is starting to happen so.
I think that.
The tanker market heads into recovery everybody investors take a much closer look and then start to differentiate and get interested in tanker stocks. So I.
I think that we are just starting to see.
Those types of benefits that will come through in 2022.
Absolutely I was just and just would say it. This way then take a look at the average daily trading volume that's step one.
And the 300000.
Theres, a day level more or less pre merger is over $500, depending how you measure it yesterday it was well yes okay.
Im looking not just for the last couple of days, but that's like 30 day averages and what comes up on my App. So that's step one that there is more liquidity in the stock and then I've always said this is with all this just that you don't get a re rating your stock typically at the bottom of the market.
So while we would expect.
Based on doing this for a lot of years, but what I would say to expect is that.
When all the stocks move significantly a satellite yards that has substantively more highly discounted than in our opinion the Odyssey.
Thank you, we'll move we would logically move more but it is easier to hit that re rating net debt.
Closer moved to in this case since we talked about that's going to happen more easily when everybody's moving off that could well be the case pretty soon.
So we're excited to patient.
I think the thesis is we're still we're still bullish on the on the merger and the benefits of merger and we're patient.
Alright, well I mean clearly from a.
Hum.
Profitability standpoint.
There are benefits.
When does that get recognized and I get it let's see I think you guys spoke about your points there.
Switching gears a little bit my second question is just something that occurred to me that you were talking about earlier.
You are recycling the panamax have done a number of those already.
Although our effectively overseeing the process yourself the sound of it which.
Making sure that all of the environmental restrictions and regulations and everything I've done as they should be.
Just out of curiosity.
Is there a big monetary gap between doing that and then you're sort of doing it.
Maybe less scrupulous way of just selling it to somebody.
Maybe it doesn't call of those same standards.
Yes.
Ben.
Our that our Hong Kong compliant are all in India.
Yes.
That is where we have been selling the vessels there is a differential it is.
$50 per ton, probably make me a little bit more than that.
And we think that's well worthwhile to make sure that the hazardous materials are being taken care of properly and disposed of.
With quality vendors and.
And that there is a floor underneath these guys when they're working and.
Dissembling the vessels right so.
For that we think that.
Actually the Hong Kong Convention is driving actual change in safety on the ground and increased certifications to actually improve the conditions.
The recycling of these vessels.
Okay.
I agree with you, it's well worth it.
I mean literally saving People's lives so.
But.
Just didn't know putting some context you that's helpful. I appreciate it.
That's it for my questions. Thanks, a lot guys.
Thank you Ben.
The next question comes from Mark Nausea from H C. Wainwright. Please go ahead.
Yes, good morning, Louis and Jeff.
Couple of questions.
<unk>.
Vessel Opex jumped in the fourth quarter I know you had a very busy.
Drydocking quarter can you provide some breakdown on what was.
Capitalized versus expense I know you had.
You laid out to dry docking expense versus the capex.
Yes.
Youre clearly I guess youre looking at the appendix and indeed in the fourth quarter. It was a very heavy drydocking and ballast water installation period and Youll notice we are giving you the.
Also 2022 were.
In this one.
It would have been.
Very low rate environment in Q1 and into Q2, that's where we have our heavy.
Dry dock in Capex as far as what is actually capitalized I think I might have to have Jeff take that.
On an offline to give you an exact breakdown of that unless you are able to do that Jim offerings.
I mean, we.
Have a certain amount that all dry dock and capex are capitalized.
That part of Opex of social play break them out.
And then later depreciate it but so there was no change, particularly ballast water is capitalized over the remaining life exactly so.
So I think all of you.
We're seeing is just a heavy capex period in Q4 and.
And there were some expenses in the quarter.
That you get on a quarter by quarter basis, sometimes.
A little variation in expenses, but I don't think anything systemic.
Right right no I just wanted to.
Sure.
The Opex should we just assume that the difference there was mostly dry docking or on the jump in opex something you'd provided guidance for 2022, which was significantly lower than the opex in the quarter.
Absolutely, we're going to hear from Bill Nugent.
Yes, there are some of the spares that we consumed during the dry dock periods.
Yes.
Our practice has been to include those in Opex and I think with the the number of dockings that we saw in the ships coming into the fleet.
Youll see a pop in Opex as we get some of the practices and policies between the two organizations as we merge cleaned up right. So youll see a little bit of a jump there and I really think thats, where the opex pop came from.
Our term.
Term.
Alright.
You'd laid out for 2022 Drydocking schedule.
And you also painted a pretty bullish picture of the market I guess, the <unk> dry dockings. So.
How do you feel about them.
And also how you.
Think about the seasonality this year playing out as far as the market recovery I know theres a lot of moving parts with what's going on now, but just get your thoughts on that yeah.
Yes lots of moving carton.
Parts on the market recovery, but I think.
The number that I gave there of refinery.
Runs increasing.
By 4 million barrels a day from March to July I think is really tells the story where this this is a.
You know a year, where you're just seeing the demand increasing that was that was the number that came from right that our projection.
And I think Thats, just very significant where you're just seeing that demand pull coming so you have your seasonality and youre in a year, where demand is increasing each quarter and I think that is what is going to really drive the tanker market recovery.
I guess, that's kind of where I would leave that.
Alright.
Last question.
Follow up on that.
You've been very busy with your fleet optimization program and I guess are you pretty it sounds like you're pretty happy with the fleet now you have significant operating leverage through the vessels that you have.
Working in the spot market any thoughts.
Chartering in vessels or do you think you're pretty happy with the operating leverage that you currently have.
I mean, we like to alternate opportunistically bring in vessels into the fleet and Thats, where we really did that is where you saw us dispose of those older Panamaxes, We love to see them go and then we were happy to bring in.
Three time charters as well as.
Purchased at Seaways ego, right, so really just kind of.
Filling back in there in that pool in a place where we have high confidence that we that we're going to have differentiated earnings.
And just one last question if I may.
On the merger.
More than half a year into it and.
Whats your most the most positive surprise the negative over the last six months and where do you think you can improve on that.
I think our most positive I wouldn't say a surprise, but just really pleasurable as is integrating the teams and to see the high level of quality from the commercial operational.
Investor Relations all across the finance space, and just really accounting I mean.
Bringing these teams together and.
No.
Mac onward external auditors said this.
The smoothness of this merger they have not seen in.
In their career, which is a multi decade, so that just really pleased with us very much.
I think.
Negative surprises I mean, theres always things that end.
<unk>.
Being more challenging or hardware.
Hardware, it's hard work, it's hard work.
What I would say its hard work that doesn't surprise us and we kind of like hard work. So that works for us it's great.
We're here at the office.
We're in New York Office was opened up of expanded basis, including what we call legacy <unk> and legacy Diamond at some point Youre right together literally on the first day.
And it's just super it's really really good.
To see the fruits of this integration bringing.
Bringing people together under one roof socially here in New York, So we're really fast.
Alright, great Thats, all I had thank you.
Thank you.
The next question comes from Liam Burke from B Riley. Please go ahead ma'am.
Good morning, Louis Good morning, Jeff.
Yes.
Yes.
Understanding there are lots of moving parts as we stage first quarter through this for the second half of 2022.
In terms of your fleet.
You see any more need for any kind of adjustments in the fleet as you see the recovery in the second half of 'twenty two.
Let me pick up.
Really no.
Feel really good about.
The fleet as it's come together across the various sectors, we have strength in large crude deals and Suez pretty interchangeably tangible commercially.
So we have a strong position there obviously, we have a very strong position in <unk> now with with the Diamond legacy Diamond is weak and the niche LR one panamax fleet that we discuss.
On the call we feel really good about so I think that OLED and most notably.
With the.
Augmentation will have on the <unk>.
LNG dual fuel newbuild rigs that are coming.
A year from now, but it's going to be soon so we feel we've done it doesn't mean, we won't find other moves to make we're always looking always open but we feel like we've put ourselves in pretty good position to take advantage of the recovery.
Rally that that's coming.
Just to touch on that Jeff.
You talked pretty specifically about your capital allocation, but when you're talking about you can make the moves that you see them.
Do you see out there I mean are there are potential opportunities.
Look there's always something.
So that's why we're always looking but I would note that vessel asset values are significantly higher now than they were.
A year ago, that's why it was important.
<unk> two.
To make the moves that we made.
When we did the cost of the dual fuel LNG for example was $96 million.
Each.
That today would be 15% higher so that's the challenge.
And looking at other assets today is you're going to have this does it really scratched define the kind of return.
We found by doing this earlier that said you get you get the opportunities like the one we're.
The lowest for the Eagle that's going to go into that Panamax International pool.
Returns pencil out for that one, especially being able to do a swap where we can take one in San Juan out at the same time, that's particularly creative transaction, we think but.
But by and large we'll evaluate.
The call has commenced.
Derek is very busy feeling fielding and lowest fielding calls, there's always something to evaluate but we're pretty happy with where we are.
Great. Thanks, Jeff.
Thanks Ian.
We have no further questions. So I'll hand back to <unk> for any closing remarks.
We'll just say thank you very much for being with US here on our first day back in the office and we look forward to.
Speaking with you the analysts and investors and potential investors in the quarter and the year as we go forward. Thanks very much operator.
Okay.
Thank you for joining this now concludes today's call. Please disconnect your lines.
Okay.
Yes.