Q4 2021 Overseas Shipholding Group Inc Earnings Call
Good day and welcome to the overseas Shipholding group fourth quarter and full year 2021 results conference call.
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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 Betsy.
Good morning, everyone.
Thank you all for joining <expletive> Trueblood this call for the presentation of our 2021 fourth quarter and full year results.
For allowing us to provide additional commentary and insight into the current state of our business and the opportunities and challenges that lie.
To start I would like to direct everyone to the narrative 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 of that narrative, an important part of this presentation and I urge everyone to read and consider them carefully.
We will be offering you more than just an historical perspective on <unk> today and our presentations include 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 could be affected by a variety of risk factors, including factors beyond our control.
For a discussion of those factors, we refer you to our SEC filings, particularly our Form 10-K for 2021, which.
Which we anticipate being filed later today.
Which are available at the SEC's Internet site, Www Dot FCC dot Gov, as well as our own website www dot <unk> 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 define and reconcile to the most closely comparable GAAP measures in our earnings release, which is posted on our website.
Yeah.
I think it's appropriate to start by saying that all of us although today's presentations bettered the results achieved during the final quarter of last year.
The sense that many of US here sure that 2021 already seems to be in the distant past.
There are decades, when nothing happens and there are weeks when decades happens.
Is a quote attributed to many but whose origins.
What is known however is that this phrase aptly captures what has transpired in our business since the last time, we spoke shortly before year end.
The impact of the Russian invasion of Ukraine.
Global energy markets has been perfect yes.
Yesterday, the bite into administration took steps to restrict the imported Russian crude oil and petroleum products into the United States.
Got it Kingdom has taken similar steps.
This follows on the heels of a coordinated release of strategic petroleum reserves by 30 nations, including the United States announced on March one, which.
Which will begin being drawn down in early April .
While formal sanctions against Russian providers of energy products by other countries have not yet been and may not be imposed the market is nonetheless reacted more broadly and more acutely than most would have imagined only weeks ago.
Self sanctioning of nearly all things Russian.
As had perhaps.
A more pronounced impact on market prices has caused significant disruptions in normal energy close.
We do not yet know whether this pattern will persist or what the long term impact of these developments may be.
However, if the past weeks have taught us anything it is.
Conventional wisdom in the current era of global connectivity is a minimal value.
Throughout 2021 and entering into 2022, we had been anticipating and planning for a recovery in our core markets.
We believed that this recovery was to be driven by a return of demand, resulting from an expected normalization of mobility and consumption patterns that existed in the United States before the COVID-19 pandemic.
This narrative at least for the moment remains largely in place.
Now the Russian invasion of Ukraine is layered on top of this storyline, the dimensions of disruptions in virtually all energy markets.
Cancel for secondary effects up and previous assumptions.
Our core businesses are largely insulated from the direct impact of the events on the ground in Ukraine.
It is wise to remember that international commodity markets are integrated with <unk>.
Shipping acting as the main transmission agent, enabling arbitrage of localized price differentials.
Indirect effects in our markets or invest inevitable.
Some will no doubt be beneficial generating potentially more longer voyages for the emergence of unconventional trading patterns.
Others May have opened Cadbury not featured in the United States for decades inflation energy crisis commodity shortages and Cold War to name a few.
Adjustments to our thinking and our consequent consequential plant that's required.
As is almost always the case in the shipping business does the unforeseen disruptions that have the most significant impact on outcomes.
The need to adapt quickly to changing circumstances to make in game adjustments continue in the months ahead.
I'll, just delve into where we might see a continuing impact of the current situation on <unk> businesses.
It is likely that Russian crude oil imports will be substituted with alternative crudes by our Delaware Bay lighter and customers.
Slide six provides EIA data on both aggregate crude oil imports from Russia into the United States.
Hi, charge, showing two which refineries these imports redirected during 2021.
As indicated total imports of Russian crude oil into the U S have averaged as much as 500000 barrels a day in recent years with a notable concentration amongst pad one refiners, who are our main lighter and customers.
A possible direct consequence of the concern about the need to replace Russian crude supplies.
Is the decision by one of our lighter and customers to take the overseas long Beach on a charter for five consecutive voyages beginning in early March with the intent to transport domestic crude oil to Delaware Bay in order to partially hedged your refinery against disrupted important traits.
The second potential impact observable in our markets is the possibility the domestic refined product may be substituted for Russian and European imports.
Slide seven provides a recent picture of the price advantage enjoyed by U S refineries versus European and Asian refineries due to the high price of natural gas outside of the United States.
Note the February natural gas price in Europe was more than $22 per million btu higher than in the United States.
Margin that has widened even further over the past week.
Disadvantage wasn't till recently expected to fade as we moved into the summer months power.
However, natural gas availability in Europe is constrained by the Russia, Ukraine situation in the months ahead.
This pricing advantage could work to support near term demand for Jones Act movements of refined product into the east coast markets.
In this context, we have seen a number of voyages fixed from the U S. Gulf coast to the northeast to northeast U S discharge locations since the middle of February .
Indicating that additional past re refined petroleum product is finding its way into pad one locations.
It is not clear of this development is a function of a reduction in Russian imports were very low product inventories on the east coast.
Or for refining economics in Europe emanating from very high natural gas prices.
Perhaps it is a combination of all of these.
Nonetheless, we are fixed for clean product voyages from the U S Gulf to New York in the past months, none of which we have seen for the past two years.
Other voyages that we have fixed recently that are atypical include avoids transporting gasoline from Houston to Puerto Rico.
Several consecutive voyages to deliver agricultural fertilizers from the U S Gulf to California over the next several months.
All of these movements are the result of trading opportunities not usually seen in the markets within which <unk> operates.
And represent incremental and unusually long ton mile demand.
As we have communicated in recent months, we consider the Jones Act market is to be in the process of progressively healing from the demand shock imposed by the rise and fall with multiple variants of COVID-19 experienced in particular in the United States over the past two years.
Evidence of this evolving recovery can be seen in the fact that we have brought five of our Jones Act tankers out of layup in the period between September and February with all of those vessels, having found work almost immediately.
We're currently evaluating options to reactivate the overseas Tampa, our last remaining laid up during the second quarter and remain hopeful that if current trends persist we can activate our ATB OSP <unk> 350 vision during the second half of this year.
Thanks to our entity consultants ESI energy slide eight provides some illustrations of what we mean by a healing market that.
That has over the last several months made its way almost completely back to normalized conditions.
Without considering the Russia, Ukraine impact the fundamentals for energy transportation of domestic markets have been improving steadily during 2021.
The charts on this slide points to a very positive mobility index picture, showing a sharp rebound coming out of the year and omicron influenced drop.
Rising jet fuel demand as the U S gets ready to travel more as the effects of Covid.
And low distillate inventories on the east coast, which will need to be replenished as we move into the summer.
Finally in the chart in the lower right hand corner Esa I conclude that the impact of the pandemic is over in terms of global oil demand.
All of these developments bode well for the domestic tanker demand.
Note that these charges will prepared before the ongoing events in Ukraine.
So uncertainty as to the actual future trajectory of the line graphs predicted.
May be affected by the dislocations in broader economic impacts of the war there.
Let's now turn to a few comments on the final accounting period of 2021.
We are pleased with the operating results achieved during the fourth quarter of last year, marking the third consecutive quarter improved sequential time charter equivalent to EBITDA performance.
Importantly, we expect this trend to extend into this year.
As noted earlier business fundamentals for our conventional Jones Act tankers continue to strengthen.
We are encouraged by the steadily improving cash flows from our businesses and the improvements realized on our balance sheet, resulting from the additional available operating days provided by our newly activated vessels improved market rates to reliably solid contribution from our niche in Alaska tanker company assets.
Before turning things over to <expletive> to provide a deeper dive into the numbers I.
I would like to mention a few additional important developments that occurred during the fourth quarter that should have increasingly greater visibility in the periods ahead.
First we delivered the overseas key west into her long term charter with Valero to move renewable diesel from the U S Gulf of Mexico to California.
Two more of our competitors vessels have been committed to that same trade in recent box one more to Valero and wanted to chevron.
As evidence of the rising importance of renewable diesel in the middle distillate pools around the country.
Chevron recently announced its intent to acquire renewable energy group and marathon announced joint venture with Mr. <unk>.
Production and distribution of renewable diesel at their Martinez, California facility.
These projects and others like them.
<unk> generated and will likely continue to generate new incremental ton mile demand for Jones Act tankers and Atvs over the next two to three years.
The emerging trade for renewable diesel has important implications for the Jones Act tanker supply demand balance.
Given the priority that California will be afforded us the preferred destination for this fuel.
To illustrate this one tanker that is regularly involved trading from the U S Gulf to California generates three times the ton mile demand as a similar vessel operating between Texas and the East coast of Florida.
Each new contract to move renewable diesel to the West coast will thus have a leveraged effect and tightening tanker supply available in the U S. Gulf.
New production of renewable diesel coming on stream on the West Coast will also generate new distribution demand offering further reason to believe maritime transportation renewable diesel will be a strong catalyst for new business opportunities in the years ahead.
Second I would like to highlight progress made in advancing the establishment of the tanker security program.
This project is long featured in my regular comments.
We have had to be patient and working through the legislative and political obstacles prevented the funding of this program, which was authorized in the 2020 National Defense Authorization Act.
We are now more optimistic than ever that this program will commence this year with $60 million allocated to provide stipends with 10 U S flag tankers.
Once this program is operational Osd's current MSP vessels the overseas mykonos in overseas Santorini will move over to participate in the tanker security program with the resulting step up in annual statement amounts to be received.
<unk> will also propose the overseas Sun coast to be entered into this program.
Approved the overseas Suncoast would be converted to a U S flag and be manned by U S persons in the future.
Net increase of nearly 50 superior jobs that we can look forward to later this year and the source of expanded Mitch activity revenues.
Establishing the tanker security program has been one of our key long term objectives in recent years and it is gratifying to see this project getting close to becoming a reality.
Third I would like to highlight the meaningful contribution but.
But the Alaskan tanker company in our two newly built atvs to our results over the past year.
These new investments made in 2019 and 2020.
Contributed over 70% of <unk> net vessel operating contribution during 2021 and outcome that validates our confidence in the long term future of these businesses.
And the benefit of investing in that future even during challenging times.
It is frankly difficult to imagine where we would've been in 2021 had we not made these investments.
Finally, I would like to draw attention to the extraordinary efforts that were made by our shore based staff and seafarers. During what was clearly one of the most challenging operational years in recent memory.
We have continued to manage operations in the face of Covid with no disruptions to service and have met our safety and environmental Kpis, while maintaining operating cost discipline.
It is often the case that the things that don't happen are what matter the most but at least recognize.
Everyone, who has a stake in <unk> G should pause and reflect on just how hard it is to keep everything in our business moving forward without incident.
And the stress that many if not most of our employees have been under.
To achieve these results.
We owe them all a strong expression of our deep appreciation and gratitude for everything they do to put this company in a position to succeed financially.
I will now turn the call over to <expletive> to provide you with further details on our fourth quarter and full year results for 2022 fixed thanks Sam.
Please turn to slide 10.
During the fourth quarter, we experienced experienced a continuing increase in TCE revenues from the prior 2021 quarters.
Q4, TCE revenues increased 22% from 22021 first quarter rising to $80 million.
Adjusted EBITDA is also reflected a significant improvement since Q1, 2021, rising $6 2 million to $16 6 million in the fourth quarter.
Spot market activity continued to increase fourth quarter.
Along with the strengthening of rates.
These trends reflect the continuing improvement in transportation demand property and the return to service of vessels from <unk>.
The overseas key west and overseas Boston, both completed their dry dock periods as the fourth quarter and began their time charters approximately halfway through the quarter.
You will receive the Anacortes returned to service in December reducing the number of vessels in lay up to four as of December 31.
Subsequently, we returned two more vessels to service in January and February 2022, reducing the number of vessels remaining in lay up to two by the end of February .
Please turn to slide 11.
<unk> volumes increased compared to the third quarter, driving higher TCE venues and better utilization levels.
Revenues from our two <unk> both of which are on time charter remains stable as the two units continued to operate as contracted.
<unk> and Santa <unk> continue to participate in the Maritime security program and provide services to the government of Israel.
During the quarter, we performed one voyage and one voyage for the military Sealift command in each case, a slight decrease from third quarter activity.
We recognized an increase in rates on our non U S flag tanker during the quarter and TCE revenues on a net basis decreased $1 8 million.
Our Alaskan tanker revenues increased slightly due to us small increase in average rates.
Jones Act handy size tanker revenues increased $4 8 million principally due to a reduction in <unk>.
Vessels in lay up which was partially offset by the off higher write off periods for the Boston and key west.
Please turn to slide 12.
This slide looks at for our Jones Act conventional tankers only activities levels for Q3 2020 to the fourth quarter of 2021.
The total number of days in each quarter that are 10 Jones act conventional tankers could be employed without any off hire days are shown by the blue bars.
Employee days represented by the Orange line declined by 260 days in the fourth quarter of 2020 and the <unk>.
First quarter of 2021.
This was followed by relatively stable employment levels through third quarter of 2021 with a pronounced increase in Q4 as the impact of improving demand led to the return of vessels to service.
Vessel lay up days the gold line.
Or the reverse image of employee days, we've placed vessels in lay up to minimize costs.
This reduction in lay up days has continued in Q1 of 2022 as we returned two additional vessels to service.
Unemployed days were relatively constant across all periods.
Please turn to slide 13.
Our niche businesses continue to perform consistently with a slight decline in TCE revenues for the third quarter.
Again lighter revenues increased as volumes increase from the third quarter our.
Our shuttle tanker revenues decreased slightly due to a brief off hire repair period for one of the vessels.
Non Jones Act tanker revenues decreased due to the fewer voyage and MLC carloads during the quarter.
Please turn to slide 14.
Vessel operating contribution increased $2 4 billion from Q3, 2021% to $19 million in the current quarter.
Jones Act candy sized tankers reduce their vessel operating losses to $8 $7 million from $12 million in the previous quarter.
Higher demand levels general improvement in rates, all coupled with an increase in vessels available for hire resulted in 140 more employee days.
The niche market activities declined very slightly from the third quarter as MSP activity decreased.
And the shovel activities experienced their increase in off hire repair days.
Wider in contribution increased Gan on volumes higher volumes.
Combined vessel operating contribution of our niche market activities Atvs in the Alaska crude oil anchored provided the vessel operating contribution in the current quarter of $27 7 million compared to $28 6 million in third quarter, continuing our consistent performance.
Please turn to slide 15.
Adjusted EBITDA continued to sequentially improve price of $12 12 million in third quarter to $16 6 million in the current quarter.
Compared to the first quarter of 2021. This represents a $10 4 million increase.
We believe this reflects the improving fundamentals of our business.
The Jones Act conventional tanker market continues to recover but nevertheless continues to negatively impact adjusted EBITDA.
Please turn to slide 16.
Our fourth quarter net loss of $3 7 million the lowest quarterly loss in 2021.
As a reminder, the third quarter included a $7 9 million pre tax loss associated with our refinancing.
<unk> from prepayment fees and the write off of previously deferred financing costs.
Additionally, we recognized a $1 million impairment charge related to the right of use assets.
Associated with two <unk>.
Both charter tankers.
Please turn to slide 17.
At December 31, 2020, we had total cash of $70 million, which included $100000 of restricted cash.
During 2021, we generated $445 million of adjusted EBITDA and realized $32 million of cash proceeds from the sale of the overseas Gulf Coast in June .
We entered into a $325 million term loan and used $278 million to pay off two loans and partially prepay two additional bonds.
We incurred $6 million of bond issuance amendment prepayment fees.
Working capital used $19 million of cash.
We experienced expanded $19 million on dry docking and improvements to our vessels.
We further invested $8 million in vessel and other capex.
Interest expense was $26 million.
During the year, we repaid $33 million of debt through scheduled amortization.
The result, we ended the year with $83 million of cash, including $100000 of restricted cash.
Please turn to slide 18.
Continuing our discussion of cash and liquidity as we mentioned on the previous slide we get $83 million of cash on December 31, 2021.
Our total debt was $450 million.
Representing an increase of $14 million in outstanding indebtedness since January 2020.
Scheduled loan amortization is 20 in 2020 to $22 2 million.
With $339 million of equity our net debt to equity ratio was one one times.
This concludes my comments on the financial statements I would like to turn the call back to Sam.
Thank you Nick.
Recent chartering activity for our vessels as a sinus the significant shifts.
Very least short term market sentiment.
We believe observable factors continued to build momentum in our markets.
OSB is fleet has been and remains well positioned to participate in an anticipated recovery of transportation fuel demand as well as to facilitate many of the emerging trading opportunities, resulting from currently disrupted energy markets.
All of our available vessel operational base have now been covered for the balance of the first quarter.
As of this morning, 80% of available days during the second quarter have also now been fully fixed at improved rates.
Race obtain for recent spot voyages have exceeded $60000 per day and time charter period rates have been fixed in the $55 to $60000 per day range.
All of this activity gives us good visibility towards the results expected for the first quarter of 2022.
We expect both TCE and EBITDA to increase sequentially over fourth quarter results with TCE for the first quarter, we're likely to exceed $90 million and adjusted EBITDA estimated to approach $25 million for the quarter.
Looking further ahead the picture is less clear.
Improved fundamentals offer the prospect for new opportunities and continued gains in TCE cash flow delivered but risks and uncertainties remain.
In particular labor shortages in general, especially visible in our industry will pose challenges to sustaining the quality and consistency of vessel availability as we work towards fully activating our fleet.
Traders have remained reluctant to commit vessels on time charter for more than three months rent.
Remnants of concerns of the impact of Covid continue and there is still a lot of uncertainty around what will be the longer term impact of high commodity prices and rising inflationary pressures on broader economic activity and energy consumption patterns in particular.
Conflict in Ukraine will impose conditions of broad uncertainty at all levels.
Nonetheless outside the inherent volatility of pure commodity trades that we participate in we see the stabilizing aspects of our niche businesses are emerging even more fully as we plan for the future.
Renewable diesel trades improved prospects for increased Alaskan oil production and the important role that ATC will play in that trade and the prospects of fleet growth offered by the tanker security program offer real and likely near term catalysts for achieving revenue growth in these specialty markets.
Higher oil prices also bode well for the long term future of our shuttle tankers.
With the prospect of better future cash flows adding to the improved liquidity position achieved through the completion of our recent refinancing.
<unk> is well positioned to pursue opportunities that we see emerging out of the transition towards a less carbon intensive energy future.
While we are still in the early days of determining which opportunities will prove to be the most attractive and best suited to <unk> core strength, we have begun committing human and capital resources towards answering these questions informing our long term strategies.
Let's see we will now open up the call for questions. Please.
We will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
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At this time, we will pause momentarily to assemble our roster.
The first question today comes from Ryan Vaughan with Needham. Please go ahead.
Thank you operator, Hi, Sam Hi, Derek good to hear from you guys. Good morning, good morning.
First off yes.
I'd say the same praises pay credit to the team for getting through 2021, and then it will say I'm, especially being able to capitalize this year and beyond just as the market is returning and tightening.
Tightening up here.
I mean, you touched on I have a few questions, but you touched on a couple of these things.
One just as far as I know.
It's a fluid market that we're in today.
Notice that some of the charters that you are getting done like the key west happened to be done on a longer duration. Some of them are being done on a few months. Just how are you thinking about that it seems like it's somewhat staggered I am sure. Some of that some of it is on your side some of us on the <unk>.
Higher side, but just what's ideal for you.
Again, just knowing that you are a big player here things are really tightening up appear to be recovering with COVID-19 as well as some of these other external factors, but just first question around how youre thinking about the duration of time charters going forward.
So thanks for that Ryan.
You know, we say in our in our published materials.
Frequently repeat that.
Our our core business operating strategy is to be on time charter with our key customers in the United States, We consider our business services to be.
Really part of the distribution infrastructure of our customers.
We don't think the.
International market propensity for spot trading is really appropriate in United States given the short duration of most of the voyages in the spot.
And the relatively small number of tankers that are available to be able to serve those trades.
So.
We prefer to be on time charter at we prefer those time charters to be of longer duration, because they offer greater stability for us and greater visibility to allow us to plan for growth in our business.
But we also say that.
There are periods in the market, where time charters or are neither available nor if theyre available available at rates that we think are the managers and during those periods, we need to be able to take decisions to remain in the spot market or need as we saw last year lay up vessels.
Wait for the market to recover and correct itself to allow for.
The emergence of reemergence of time charter contracts at rates that we think are acceptable.
We basically have transitioned through that whole cycle in the last 12 months.
We had to lay up ships.
We are even though the second half of last year.
We did fix a couple of ships on time charter for a year or two and in certain cases at rates that we were not really happy about that we needed to take some defensive positioning to keep keep.
Cash flow flowing.
Recent.
Since the beginning of this year a lot of that has changed the market has tightened for reasons I've talked about we've seen rates come back up into levels that we think are remunerative for the services that we provide.
We at the moment would be happy to see.
The contracts that were fixing begin to see some extended duration year two years at these sorts of levels that we're currently fixing at I think would be very healthy for our business and very very very healthy for our customers frankly to give them the assurance of distribution capacity.
As I noted in my comments, there's still a reluctance in the market to try and go for that kind of duration recent charter fixtures that we have done.
Basically been in the two to three months range.
We have we have seen a little bit of longer activity.
The longest fixture that we've seen in the last three or four months has been a year by one of our competitors. So the trading desks of our customers seem still to be reluctant to make the kind of commitments that we think would be indicative of a truly healthy market for us.
But the progression has been health has been positive we've gone from lots of ships in the spot market.
One one month time charters to two months' time charter is the three month time charters.
We're hopeful that as we progress through the rest of this year that that will start to see some links in the duration of the charters that we can obtain.
Great that's helpful.
It was great to hear that.
Youre working on Tampa as well as the.
The $3 50.
Can you just talk about what some of the variables are I know you said Tampa all things go well to queue in the back half or for the vision just what are the driving variables to make that happen.
But the two principal constraints that we face right now and getting vessels activated are not market related we think the businesses there in the market.
But we still face certain obstacles in terms of getting equipment back on the water.
The first is frankly something that everybody is dealing with these days, which are supply chain logistics.
For the Tampa, specifically, we have a ballast water treatment system that we have to install we purchase that equipment from Europe .
We have seen significant delays in container shipping out of Europe , We just recently.
Finishing up the dry dock on the overseas Houston of the unit that we installed the ballast water treatment system that we installed on the overseas Houston was delayed by 10 weeks coming out of Europe .
We sort of seeing similar delays.
And the equipment that we ordered for the Tampa.
So at this time.
We can't put the vessel into dry dock until probably the end of May.
And it's a little bit tight as to whether or not the ballast water treatment system that we ordered it is going to get there in time to be able to afford us to get that dry dock completed by within the second quarter of this year.
The other thing that is that is really notable is labor shortages in our business are right now acute.
We have.
We have officer issues.
Particularly junior officers.
And we have unlicensed crew members.
Both of those pools of employees have been severely impacted by Covid.
The schools for the unlicensed offices during much of the Covid period with closed down so the normal.
Graduates of those schools that would've been coming into the market over the last 18 months are not available and.
And you still have your sort of normal level of retirees and people that are going out of the market. So that's.
That's created.
A lot of a lot of tightness in the labor market also the other shipping markets that.
That are outside of the tanker market, including most notably the container market.
Their businesses have been booming so the demand for labor there has been significant as well.
That's really crimped, our access to immediate availability of Av.
Seafarers to put on our shifts we've.
We've seen that through the activation of the shifts that we brought out.
In January February and March of this year.
There was.
Frankly, a heroic effort by our by our staffs.
Our shore based staff to be able to go out and recruit and hire the people to put those ships back in service.
And we're really grateful for the work that they've done in doing that but those labor shortages will continue.
And could have an impact on the timing of bringing those ships out of layup.
Okay.
Just thinking one more if that's okay.
The commentary on <unk>.
Sounds great, especially the $90 25.
Heading in the right direction for sure and getting back to I know before all this started this.
Covid started I know you guys were looking to be.
Probably $35 million on EBITDA per quarter.
Just maybe just.
Totally understanding that there's still quite a quite a few factors in the market and shorter.
Spot voyages that Youre doing right now, but the biggest variable and I don't need to tell you guys. This is necessarily it's just that the Jones Act tanker segment on the contribution side it was negative $44 million.
'twenty, one I don't mean to rub salt in the wound necessarily but but really more to highlight what that segment can do this year.
It seems positive with if you had 567 vessels idle last year, that's that's down to a one on one right now, but just any kind of broad strokes just to help us out.
What we should be looking for in and thinking about for that one segment that said another way if it was zero youre business looks significantly different last year versus.
What you reported but just any sort of helpful idea of what to be thinking about for 2022. Thank you.
The.
The commentary that we gave at the end of last year about rationale for why we elected not to renew three of the tankers that we have on bareboat lease from ATC I think is applicable to be repeated.
As you have.
The.
Conventional tanker market is very volatile and it's.
Susceptible to swings and changes in the underlying demand and two exogenous shocks and other factors that are totally beyond our control.
I'd like to think that things as I said in my comments, we had the narrative.
And improving tanker market and getting back to normal but that was our script for this year.
I think thats still the same and so I think that we remain pretty optimistic that that's going to play out over the balance of this year.
But everything has changed in the last couple of weeks and I think we're still in a stage of trying to understand what all of those.
All of the implications of the energy shifts that emerge out of the Russian Ukrainian conflict.
How that's going to impact our markets.
In one sense.
Dislocation of energy movements is probably positive for the tanker markets globally as as the markets adjust to changing supply patterns.
But the flip side of that is if inflation and higher commodity prices trigger a recession.
That could have an offsetting or potentially.
Asymmetrical impact on consumer.
Consumer confidence and the other factors that go into general demand for transportation fuels.
So I think that's that's the narrative that's reflected in our and our customers' reluctance to try and go beyond a month or two in terms of their commitments for ships.
And I think we still need to see that.
That play out.
Again, our basic game plan for this year is a pretty positive we think when you look at the look at the overall inventory levels. You look at the you look at the refining utilization rates that are coming up.
You add on top of that but likely probability of increased.
Air travel and increased jet fuel, which has been the principal missing part of the consumption barrel over the last six to eight months.
General Covid post Covid demand.
Explosion and people that just pent up demand that want to get out and do stuff all of that we thought was setting up pretty well for a good 2022.
I think we still believe that that's the base case, but.
Recent activities in Europe .
Have have increased uncertainty in recent weeks I think that's the best way to think about it.
We have just to help you answer your question. We have now all of our tankers are out and operating.
Except for the Tampa.
We're pretty confident the Tampa will join that operating fleet by the end of the second quarter.
And our rates right now are close to $60000 a day.
If you take 10 chips on a $60000 a day.
If you can achieve that over the balance of the year.
That's a pretty good outcome.
The question is how much.
Downtime may we take because of uncertain demand and how successful we will be as we roll through the <unk>.
The conclusions of current contracts that we have on the books are successful will we be in redeploying those ships at equal or better rates as we move through the balance of the year.
And that.
You have to wait and see.
Thank you for that makes sense and I have one more but I'll see if jay or anybody else has any questions.
As a reminder, if you have a question. Please press Star then one do we joined into the queue.
Next question comes from Ben Nolan with Stifel. Please go ahead.
Hey, Sam.
I thought I'd ask.
I'd follow up on a quick question actually you were just talking about it.
$60000 a day, that's a pretty good number.
Two things there.
Is that I assume that the spot market I'm curious if there's a big delta between that and where are you able to contract at.
And how how do we frame that from let's say, where we started the year where.
Alright.
The last two plus months, where have we come from that 60000 number.
So remember the Jones Act I know, you're usually covering the international market, where theres, probably 50 fixtures a day.
Market fixed.
Period fixtures happen.
One or two a month or a lot sometimes you go months without any.
So take that as a caveat at the end of last year.
There was a.
One year period fixture that was done in the low fifties.
By one of our competitors fixed the vessel.
So call that November December low.
<unk> for 12 months.
In.
In.
January later January early February let's call. It another fixture that was done in the mid fifties.
And what we've seen in recent weeks this past 10 days.
Not 12 months, although I think the rate the asking rate out there for 12 months is probably the same but we've seen fixtures for three to four months time charter at $60000 a day.
Spot rates.
Are approaching $70000 a day.
So and they were in November or October of last year, they were probably.
Low fifties, yes.
Yes.
Lots of good faith.
Sort of along the well.
Correlated obviously.
Obviously, you talked about having all but I guess the Tampa.
Up and running and any sense of.
Where utilization is across the <unk>.
Entire fleet beyond your own vessels, how close are we to kind of.
Every ship or ATB being.
And in service and operating.
Pretty close.
Tankers again, if you look at tanker is the only tanker that is not currently working is the Tampa and.
And as I said Theres business for her today, we just can't get her out because of the constraints of labor and supply chain logistics.
On the barge side.
Thank you are aware there was a company called Bouchard that went through bankruptcy liquidation in the second half of last year.
Some of those assets have been put back to work some of them still are not working so there's little bit of overhang on the barge side at least theoretical overhang that those barges could come back to service.
And there may be one or two other barges.
Not specifically aware of that are still kind of not fully utilized.
But if the if the general Universe of Jones Act Atvs and tankers are ATB is greater than 150000 barrels.
It's kind of a defined market by people that look at our markets.
The number of ships is.
About 80 788 vessels in total.
I would say.
Certainly 80 580 485 of those vessels are currently work.
That's pretty good number.
Great.
Great color and good news so thanks.
Thanks, I appreciate that.
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And then one to join the question queue.
The next question is a follow up from Ryan Vaughan with Needham. Please go ahead.
Yes, thank you operator.
So just one more from me.
For salmon deck as we're thinking about 2022 and clearly your EBITDA trajectory is substantially better than what we were looking at last year, maybe for <expletive> in particular, how are you thinking about.
Swinging now too to burning cash to generating free cash.
Obviously, I think you've made it pretty clear you want to Delever the balance sheet, where do you start there is is it just kind of widespread with the airports and then targeting specific.
Loans in particular, but any sort of update when you expect to officially kind of swing over to that free cash flow positive.
And is it too can make more cash or is it let's go down that's really starting to pay down this debt.
The debt that we have.
Thanks.
I mean I think.
We should given the performance that we're seeing now in the first quarter.
I would expect that.
Free cash flow after before Capex will be positive.
And I think that again on the current trajectory will continue through the year.
Obviously to bring the Tampa back into service, we're going to spend several millions of dollars to take her through drydock.
Ballast water treatment system, although some of that comes back to us.
So there is.
There'll be some of those costs, but this is not a particularly intensive year from us.
Ship oriented capital.
Requirements. So I would expect that we will be cash flow positive.
Probably after capex as we start to get into the third quarter.
And then and then we can look at what do we do with it what are the best opportunities to pay it back I mean, we're certainly obviously the payback.
$22 million of.
Scheduled amortization.
<unk>.
We will look at opportunities that are out there the economics of what we want to prepay anything keep in mind that obviously most of these longevity.
Prepayment penalties in place.
Costs that would be associated with.
Reducing the indebtedness in advance of the normal amortization curve.
But we'll look at what the economics are and what are the other alternatives for uses of cash.
I think I can Ryan I can add a little color to that.
I think youre correct it.
Deleveraging the business is certainly.
Part of our game plan is something that we look at.
Not every day, we look at pretty regularly.
But we don't turn away from looking at growth opportunities.
The Jones Act market is small.
Opportunities in U S flag market, while expanding because of the tanker security program. There also not great.
But there are little things that we see from time to time that we think afford us.
And ability to invest more capital in.
In areas that are that are not as commoditized as our conventional tanker business.
And then offer the kind of stability admits returns that we see in our shuttle tanker ATC.
By doing business.
Debt.
We keep our eyes open for.
There is still some consolidation that's going on in the industry. So we may see one or two assets that come up that would look interesting there. So.
I said in my remarks, if you look at the capital investments that we made in 2019 to 2020.
Those were.
Those were not easy decisions to make at the time.
We bought ATC literally as Covid came down on top of <unk>.
Thanks, <expletive> we got some financing rates at the last minute to be able to pull that off.
In the ATB that we built.
They were built they were decisions to build those were done at a time when the market was not as strong as it is at least looking today in the new building that we built that we positioned for the security program.
All of those things.
Contributed meaningfully in 2021.
I think give us.
Some scope for increased niche market revenues as we go forward so.
Although the Jones Act U S flag opportunities to invest capital in growth assets.
It's not maybe it is readily available in the international markets. It's still an important part of our game plan and something that we look forward to having some some surplus cash to be able to think about in the future.
Okay.
So just along those lines and since you mentioned it I mean, you have several different segments and definitely getting the ATC done was huge and especially at the time that you did you have the ATB is if the niche businesses if the Jones.
I mean, you do have a lot for a $600 million company today are there.
Would you ever think about.
Investing more heavily in one or two or three of those and maybe leading one of the other ones go just to be a little bit more concentrated or do you like being this diversified again, it's a $600 million business today spread out between call. It 456 different.
Assets.
I'm not certainly we have a lot of choice in the matter.
Yes.
Pretty small.
I think I think the answer to that question, we've given in the decisions that we've taken in the last couple of years right.
We pivoted away from Atvs towards tankers.
And we pivoted away from an overly heavy concentration in the commodity side of our tankers towards.
The business is that.
Are more niche businesses that afford us greater stability in what we do.
I don't think there's a there's a scenario in which we exit the tanker or a TV market notwithstanding its volatility because it's an important part of our business and.
You know, it's a cyclical business you want to have some exposure I think too.
The tightening markets as we're starting to see now because that can that can provide you with some outsized returns for at least brief periods, where those tight conditions exist.
So I think the mix of the stability provided by our niche businesses.
And the and the upside possibilities that are afforded to us by our conventional tanker and ATB businesses right now.
That that's a pretty good mix to have.
And if we see opportunities to add too.
That mix of assets I think we'd give first priority to more niche type businesses.
But we wouldn't exclude commodity type assets.
Okay.
A lot of like assets.
If the opportunities presented themselves.
Okay, great well. Thank you for all the questions I appreciate it Jonathan.
Yes.
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 Betsy Thanks, again to everyone for participating on today's call.
I read in the New York Times today.
The piece about the 50th anniversary of the screening of the godfather.
Which is pretty amazing, it's alpha chinos, making commentary on the godfather, but one of the things that it was in there was.
A recollection of the greatest lines of the movie and <expletive> and I, both recall that our favorite line in the movie was.
We need to take the cannoli so.
With that as we go off for can only launched in celebration of the godfather and look forward to speaking to you again.
Next quarter as our business continues to improve.
Good day everyone.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.