Q2 2022 Overseas Shipholding Group Inc Earnings Call
Okay.
Hello, and welcome to the overseas Shipholding group second quarter 2022 results conference call. My name is Katie and I'll be coordinating your call today, if you would like to ask a question. During the presentation. You may do you save by pressing star one on your telephone keypad.
Oh, no I never Joy, Sam Norton, President and Chief Executive Officer of overseas Shipholding group to begin some please go ahead.
Thank you Katie.
Yeah.
Well. Thank you for joining <expletive> Trueblood and me on this call for the presentation of our 2022 second quarter results.
For allowing us to offer additional commentary and insight into the current state of our business and the opportunities and challenges that lie ahead.
Start I would like to direct everyone to the narrative on page 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 are an important part of this presentation and I urge everyone to read and consider them carefully.
We will be offering you more than just the historical perspective on the OSC today and our presentation includes forward looking statements, including statements about anticipated future results.
These statements are subject to uncertainties and risks.
Actual results may differ materially from those contemplated by our forward looking statements and could be affected.
Variety of risk factors, including factors beyond our control.
For a discussion of these factors we refer you to our Form 10-Q for the second quarter of 2022, which we anticipate being filed later today and will be available at the SEC's Internet site Www Dot FCC dot Gov as well as at our own website Www Dot <unk> dot com.
Forward looking statements in this presentation speak only as of the date of these materials, we do not assume any obligations to update any forward looking statements, except as may be legally required.
In our presentation today includes certain non-GAAP financial measures.
Which we defined and reconciled to the most closely comparable GAAP measures in our earnings release, which is posted on our website.
It is gratifying to have released this morning's financial results, indicating that the long shadow COVID-19 induced the destruction in all key markets seems to have finally received it.
The recovery of demand in our conventional tanker business led to a return to profitability during the quarter.
And continued progressive quarter to quarter improvements in other important financial measures that we have witnessed witnessed over the past year.
Time charter equivalent earnings for the second quarter exceeded $100 million for the first time in two years and adjusted EBITDA of $31 5 million represents the best quarterly performance on this metric in many years.
It is worth remembering that.
For the first four months of this year, we were largely stringing together voyage fixtures for our conventional tankers.
As we were bringing tonnage out of lay up.
We took the approach of pushing spot market rates fixture the fixture to condition the market the higher rates with the hope that the tightening market supply picture would eventually induce end users to take on more duration risk and allow us to fix longer term charter commitments as.
As a reminder, this is what I said during our first quarter earnings call in early May.
For our Jones Act tankers, nearly 80% of vessel available days during the first quarter, where earnings right and affirming spot market clearer.
Clearly, having spot vessel availability and a tightening in rising market had been a good thing.
It bears remembering that our model chartering strategy is to obtain a longer term time charters at profitable rates.
Now that the market rates have risen to above breakeven levels. Our focus is gradually shifting to building some links in our charter book.
Objective remains a challenge as it evolves with trading markets continue inhibit our charter counterparts from entering into longer term commitments.
I would add that a key part of our chartering strategy coming out of the first quarter was to be patient for rates to reach levels that warranted term fixtures.
This approach was grounded in the belief that restocking low transportation fuel inventories and emerging demand for renewable diesel pointed to favorable fundamentals and the vessel longest perspective.
As is often the case when patients whose demanded things happened slowly slowly slowly and then all at once.
May June and July have seen the emergence of a truly remarkable shift a period versus spot cover.
In the past 12 weeks, we have booked over 12 vessel years of aggregate time charter period cover by extending contracts of affreightment with our lighter and customers and the government of Israel and by securing eight periods fixtures for our tankers and Atvs.
Conventional tankers fixing in the mid sixties in our ATB fixtures concluded in the mid forties. This book of new business should generate nearly $275 million of time charter equivalent revenues to be realized over the next three and a half years.
92% of available vessel days, a thousand fixed across the balance of 2022.
Close to 80% of vessel available days are now fixed for 2023.
Okay.
The sudden shift to profitable charterers amount of our conventional tankers comes on top of steady and strong earnings provided by our niche market activities.
Nick will take you through the sector specific results in a few minutes.
But when considering the trajectory of our financial performance going board. It is noteworthy to point out the benefits of having both our niche and commodity trading business is healthy and profitable at the same time.
It is important to recognize that while improving market conditions have been supportive of the chartering strategy, we have chosen to pursue.
The results achieved in recent months would not have been possible without the extraordinary work done by both shore based and so you're going to staff. It was cheap and making our operating fleet ready to respond to these opportunities.
Heavy dry docking schedule that need to install and commission ballast water treatment systems.
The challenges of bringing seven vessels out of layup in the condition to operate at the standards that we require created demanding working conditions.
These and other challenges have been met.
Allowing all of our vessels to return to work seamlessly with no material operating issues and no off hire.
Thanks to the hard work and commitment of OSB employees July marked the first time in nearly two years that every one of our vessels was working and contributing operating revenues.
Turning briefly to the state of the global energy markets.
Can you effects of Russia's invasion of Ukraine have yet to be fully realized or understood.
The data to date suggests that Russian exports of both crude and refined products has largely continued at pre invasion levels.
Hours of crude oil in Asia replace reduced EU demand, while restrictions on the import of Russia produced refined products had been delayed.
However, assuming the announced EU ban on waterborne imports of Russian crude and products he enforced and effective next year.
More significant dislocations of energy close to what had been evident today it can be expected.
Further steps to replace Russian gas with imports of LNG and fuel switching to diesel and fuel oil will likely alter energy trading patterns, even more significantly next year.
These developments should combine to increase ton mile demand for international tankers and support a healthy global tanker market in the year ahead.
According to Clarksons research the international M. Our tanker market has in particular benefited from disrupted trade patterns with products ton mile trade forecast to expand by over 8% this year to stand at 7% above the 2019 level.
Average time charter equivalent rates earned by Emaar tankers in June , but close to $50000 per day versus a historical average of less than $15000 per day.
A strong international tanker market is supportive of demand within the Jones Act trades, that's competing sources for domestically consumed crude oil and refined products sourced outside of the U S.
It's more expensive on a delivered cost basis.
Domestically inventory levels, particularly in the middle distillate products on the East coast continued to sit well below historical averages higher.
High refining utilization rates are still elevated margins should continue with strong had three refining production generating sustained transport demand for refined product over the near term.
Recent data indicate high gasoline prices have impacted U S driving patterns, resulting in a drop of about 1 million barrels per day of gasoline demand in the United States.
Despite this the consensus view is the demand for all transport fuels globally should continue to increase leading to robust refining margins for the foreseeable future.
On balance healthy refining output means more product to be shipped which should sustain elevated demand for international and domestic shipping.
Before turning things over to <expletive> to provide a deeper dive into the numbers I would like to once again highlight two developments that we feel will offer opportunities in the quarters ahead.
First and most significantly has been the continued emergence of renewable diesel is an increasingly important driver of domestic marine transport demand.
Two of the charter contracts fixed at the end of the quarter.
Which will both commence early next year or with new customers engaged in the renewable diesel trade.
There are currently fielding inquiries for one and possibly two more vessels to join the two already fixed in this trade scaling from the Gulf of Mexico to the U S West Coast.
Added to the overseas key west, which has been transporting a renewable diesel to California since last November .
Possible that OSB could by the middle of next year. She as many as five of its vessels dedicated to this new trade.
It is important to note that avoids the transport renewable diesel or its related feedstocks from the U S. Gulf of California has a duration of 35 to 40 days roughly three to five times the duration of the standard boys from Texas to Florida.
The increase ton miles generated by this trade can best be understood as a <unk>.
Mythical boosting domestic shipping demand.
They could ultimately account for 10% to 15% of all available capacity.
New business with further growth opportunities in the Jones Act does not often been seen in recent years.
We're excited about the role that OSC is and will continue to play in these emerging business.
Second prospects for an expanded U S flag fleet operating outside of the Jones Act trade or solidify.
The congressionally approved and funded tanker security program is expected to be stood up during the first half of next year.
Consideration being given to expand the approved 10 ship program.
Absolutely It 20 ship program for.
The U S Department of Defense has indicated interest in chartering at as many as six additional U S flag tankers.
Our overseas, making those overseas Santorini and overseas Sun coast are well positioned to benefit from these programs depending on the pace and extent of the growth of these programs opportunities to add additional vessels to our current fleet could well arise.
Our prime objective is these programs is to deepen and broaden the pool of domestic merchant Mariners, who possess the requisite skills and experience to support our right sized U S flag tanker fleet.
Keeping the skull requires all constituents tanker owner operators labor and the government agencies will ultimately benefit to plan for and commit resources beyond those currently required for normal operations.
A common approach to the pace of expansion and to meet startup needs is important to ensure long term viability OSB.
She has taken a leadership role in working with its industry labor and government partners to make this vision a reality.
I will now turn the call over to <expletive> to provide you with further details on our second quarter results for 2022.
Thanks Sam.
Please turn to slide seven.
TCE revenues exceeded $103 million in Q2 and continued the trend of sequential quarterly revenue increases.
The year over year revenue increase was 31 5 billion.
Adjusted EBITDA for the quarter was 31 5 million, an increase of $21 3 million from the comparable year ago quarter.
TCE revenues increased nine 9% from Q1, 2022, and adjusted EBITDA Rose 5.9 billion or 24% from the prior quarter.
The market remains active in an increasing rate environment.
During the quarter, we saw a shift away from shore short duration charters to increased duration commitments.
Contract durations in some cases have reached three years.
As Sam mentioned, there has been an increasingly active market for renewable diesel transportation, both the feedstock and refined product.
Principal trade is from the Gulf of Mexico to the U S West Coast.
Please turn to slide eight.
We returned to two vessels remaining in lay up at the end of the first quarter the overseas Tampa and USG $3 50 vision to service during May.
Each providing additional revenue days their reactivation.
Our fleet is now fully active.
And the two vessels that returned to service during 2020 twos first quarter provided a full quarter of operations during Q2.
Our Jones Act conventional tankers continue their upward trend and employ days, reaching 841 days in Q2.
Comparatively we had 379 employ days in Q3 2021, when we began to return ships to service.
Our employee days for this component of our fleet rose to 92% of total available days from 42% appointment in Q2 'twenty one.
The overseas Tampa, let's lay up in early May and underwater require dry dock period.
Ballast water treatment system installation before she commenced operations.
G. III 50 vision returned to service in late May.
In total we had 82 days in lay up during the second quarter.
Please turn to slide nine.
Lighting volumes declined declined slightly during the quarter with lower average rates as our customers surpassed their minimum volume commitments.
The revenue increase here was driven by the OSC <unk> returned to service.
Revenues from our two Atvs both of which are on time charter remains stable as the two units continue to operate as contracted.
The median OS and Sandra Raining continue to participate in the Maritime security program and provide services to the government of Israel.
During the quarter, we performed to complete G O Y voyages and one voice for the military Sealift command.
Additionally, as the quarter concluded we were performing one MSC voyage and one government of Israel voyage.
As a result, Joan non Jones Act tanker revenues increased $1.100 million from the prior quarter.
Jones Act handy size tanker revenues increased $7 million from Q1 'twenty two based on the previously described increase and employ days, coupled with a stronger rate environment.
Revenues from our Jones Act shuttle tankers, and the Alaskan tankers were consistent with the first quarter.
Please turn to slide 10.
The niche businesses registered a $2 $1 million increase in revenues driven by the increase in non Jones Act product tanker revenues at.
As previously mentioned government of Israel voyages, MSC voyages and higher international rates all contributed.
Lighting revenues increased as the O S. G. III 50 returned to service.
Turning to slide 11.
Vessel operating contribution increased $5.600 million from Q1, 2022 to $36 7 million in the current quarter.
Jones Act candy sized tankers performance continued to improve based on more vessels in service.
Our utilization in an improved rate environment.
Vessel operating contribution was $7 7 million, an increase from 1 million five in the prior quarter.
Niche market activities contribution decreased slightly from the first quarter, principally due to costs associated with the return of the overseas Tampa and OS OSC $3 50 to service.
The ATB contribution in Alaska tanker contribution remained constant between the quarters as all vessels were committed on time charters.
The combined vessel operating contribution of our niche market activities, Atvs and Alaskan crude oil tankers.
Provided vessel operating contribution in the current quarter of $29 million compared to $29 $6 million in the first quarter continuing their consistent performance.
Please turn to slide 12.
Adjusted EBITDA, continuing sequential improvement rose $6 $1 million from the first quarter of 2022 to 31 $5 million in the current quarter.
Compared to the second quarter of 2021. This represents a $21 3 million dollar increase.
Reflecting improved market conditions and increased rates as well as the return of vessels to service.
Please turn to slide 13.
Second quarter net income was $3 7 million compared to a first quarter net loss of.
One 5 million and a $10 $7 million loss in the year ago quarter.
This results from the continuing improvement in operations as we return vessels to service if demand has returned from the COVID-19 lows.
Please turn to slide 14.
As our results continue to improve we wanted to provide information concerning the profit sharing arrangement that exists for the vessels, we bareboat charter from American shipping company.
This chart provides information for 2022 through 2024.
The 2022 information reflect all 10 vessels. We currently chartered from a N S. C. While subsequent years reflect the seven vessels, we will continue to bare boat after re delivery of three vessels in December 2022.
The calculation, which is governed by the terms of the contract between a and the C and O S. G.
Provides for specific deductions to be taken into account in determining whether there is any profit as defined to.
To share between us.
These deductions include among other items and OSD management fee and OSD profit layer and deductions for dry dock costs.
All of which are prior to determination of the existence of any profit share.
Shareable profit if any is split evenly between the parties.
We look here, what the profit share picture might be for average TCE rates based on estimated future market rates.
This slide provides an estimate of anticipated profit share under the a M best see bareboat charters for 'twenty two through 'twenty four.
The underlying information used to develop 2023 and 2024 estimates is based on our assessment of the market in each year as informed by current market conditions.
There will not be any profit sharing payments in 2022 due to the carryforward of losses sustained on the MSC vessels in 2021.
In 2023, if we were to achieve an average TCE rate of $62300 per day across the seven of MSC vessels, there would be no profit sharing.
In 2024, if we achieved an average rate of $63500 per day, there will not be any profit share.
Finally, it is worth noting that a certain costs are recovered the minimum average rate that will result in profit share declines in the future.
Calculations are complex and have a variety of factors involved.
This chart is meant to be indicative of possible outcomes based on the assumptions made.
Please turn to slide 15.
At March 31.
2022, we had total cash of $77 million.
During the quarter, we generated $31 million of adjusted EBITDA.
Working capital used $5 million of cash.
We extended $5 billion on dry docking and improvements to our vessels and we made $13 million of debt service payments.
The result was we ended the quarter with 18 with $84 million of cash.
Please turn to slide 16.
Our total debt at June 30 was $439 million.
This represents a decrease of $6 million in outstanding indebtedness since March 2022.
Scheduled loan amortization in the second half is $11 2 million.
With $343 million of equity our net debt to equity ratio is one time.
This concludes my comments on the financial statements and I'd like to turn the call back to Sam.
Sam Thank.
Thank you Dave.
Our second quarter results evidenced healthy operating conditions in our core markets.
S T as fleet remains well positioned to respond to changing patterns of domestic and international transportation fuel shipments as well as to facilitate many of the emerging trading opportunities that we see.
This leads us to anticipate continuing improvement in all important financial metrics and a gradual build and available cash balances over the next several quarters as profitable time charters at higher utilization rates are realized.
As noted earlier, 92% of our available vessel operating days are covered for the balance of 2022 and 80% of available days. During 2023 are also fully fixed.
Rates obtained for recent tanker fixtures exceed $65000 per day.
In the current time charter period rates for Atvs have been concluded and the mid Forty's.
<unk> fixed range from 6% to 36 months with several contracts fixed for delivery next year.
All of this activity gives us good visibility towards the results expected for the second half of 2022 and into 2023.
For the third quarter healthy fundamentals should produce continued quarter to quarter sequential improvement in TCE and strengthening cash flows.
We expect both TCE at EBITDA to increase sequentially over the first and second quarter results.
For the final two quarters of 2022 combined we now expect to achieve time charter equivalent earnings of about $210 million and for adjusted EBITDA to approach $70 million for the six month period.
Attaining these targets should result in 20% to $25 million of free cash flow over the second half of this year before changes in working capital and before accounting for the deferred payment obligations due to American shipping company upon the re delivery of vessels in December .
Year end cash balance of approximately $100 million is now forecast.
Looking further ahead to 2023 absent changes in the trajectory of current market trends, we believe healthy fundamentals will offer the prospect for continued solid financial performance throughout 2023.
Our current forecast is time charter equivalent earnings for 2023 approaching 400 million on a reduced fleet size due to re delivery of vessels with expiring bear load contracts fat.
Factoring in some allowance for anticipated cost increases.
This top line result to generate adjusted EBITDA of $130 million to $135 million across all of 2023.
After deducting debt service and capital expenses, we anticipate free cash flow for the year should be between 50, and 55 million U S dollars.
More stability in our financial profile translates to positive free cash flow in the quarters ahead and improvements in our balance sheet.
As stated on prior calls use of surplus cash flow should it arise will be a regular topic of conversation with our board.
Investment in growth opportunities reduction of outstanding debt and the continued acquisition of shares under our share repurchase program will all be part of this conversation.
Of course, now that we've removed a good deal of the volatility in forward earnings the corresponding truth is that we have set a ceiling on what we can achieve on the topline.
Operational execution now becomes the key performance factor has any off hire other loss of time will only serve to reduce our expected earnings with inflationary pressures evident virtually everywhere. We look an extraordinarily tight marine labor market that is set to get tighter with.
Hi, there still with the advent of the tanker security program and a regulatory environment that will continue to add layers of operational requirements in our shore based on seagoing stabs challenge a fully realized in cash flow that our book is fixed revenue per tonnes will be significant.
Looking ahead, I listen now shifts to execution and operational excellence and to a focus on UA and using OSB is unique franchise position ourselves for a better future.
They do we can now open up the call to questions that may be forthcoming.
What are you.
Thank you. So if you would like to ask a question. Please press star followed by one on your telephone keypad now.
If you'd like to remove your question. Please press star followed by T. M. When comparing to ask a question. Please can you show your phone is on mute it locally.
Okay.
We take our first question from Ryan Vaughan from Needham. Please go ahead.
Thank you operator, I'd say in my deck, congrats on the great quarter.
Thank you. Thank you.
So just just if you've covered a lot there Sam you took a lot of questions from me towards you and I appreciate that but will still probably follow up on a couple of things you said, there, but maybe just first things first just.
You've obviously been working hard to position the company in your view.
To that in your prepared remarks about being in the spot market and ultimately shifting to duration just a couple of questions. There. One you mentioned anything from six months to 36 months and then you also mentioned just the renewable diesel two additional vessels that could be up to five what do you first of all what what's what's kind of driving the six months.
Versus the 36 months.
We know what you did with the key west before which are a little bit longer I think it was two plus years are you getting some longer duration on some of the renewable diesel trades.
What drives People's choice of duration really I think is better than the risk appetite of the desks that are taking these chips in on charter.
I think it is generally true that our chartering customers sense today.
The tightness that we've said for some time.
And are therefore leaning more towards securing visibility of transportation capacity over optimizing maybe there they're trading results.
We've seen that clearly.
And as I said, we fixed eight.
Fixtures six tankers two atvs.
Ah the longest fixture we have recently concluded.
For three years commencing in the first quarter of next year, So taking us all the way through to the end of.
2025.
We've had a number of fixtures of two years' duration.
And then a handful or a handful of pictures of one year in six months.
The renewable diesel fixtures.
Are there new players in the market for us or new customers.
A lot of that is is tied to.
Two things one is the emerging production capacity for new renewable diesel in the Gulf of Mexico.
Vertex a little energy groups.
The Darling.
Valero joint venture all are expanding capacity.
There are a couple of other plants that are kind of alluded as being potentially coming online as well.
There's also been some movement to shifting.
Oh, not only renewable diesel the feedstock for renewable diesel coming out of the Mississippi River sort of gathering areas and moving that to the west coast for refining on the west coast into renewable diesel so that was.
Also a factor in and the increased demand that we've seen.
As far as the conventional or trades or concern for conventional refined product.
RCI.
Ourselves and some of our competitors, we've seen a pretty steady beat them.
Of one to two to three year fixtures for the for the key players in that trade again in my view is driven by a sense of Oh shortening capacity that.
Traders don't Wanna be left without <unk>.
Some visibility to be able to move their product going forward.
That is helpful. Thank you.
And then also thank you for all the.
Free cash flow I guess, the time charter revenue and.
EBITDA and free cash flow just to that to that point I mean love seeing these these bar charts in the presentation just heading in the right direction continue. Thank you for the <unk>, but also just love seeing that that's going down every quarter. Your cash is going up you alluded to ending the year at around 100 million, you're going to generate another 50 plus.
Next year again, that's at least where where you're what you're seeing today. That's 150 million plus you know your debt service with the M works, It's 20 to 30 million Bucks a year.
Just just talk to us I mean, there's been a sea change here and again huge credit to the team for being in this position and waiting out and working through those challenging quarters of late 2020 and O olive last year, but just just talk to US we did see that excuse me that $5 million.
Our share buyback go in place in June but.
You know it really seems like things are going up.
Meaningfully from the balance sheet perspective, just fast forwarding towards the end of next year with that probably closer to something in the three hundreds and in cash in the you know $150 million.
Yeah, I mean look that.
That's what we hope certainly and as I said in my.
Excuse me in my prepared remarks, we know we certainly have a lot more visibility given our operational execution.
Let's see how that cash are.
Development is going to going to build over the next six quarters.
And as I said, we really have three three focuses.
For use of that cash.
Investing in increasing our opportunities to earn a reasonable rates of return on our capital that's something that we always want to look at.
We think that the expansion of the non U S. Non Jones Act U S flag fleet.
Obviously, some opportunities there and if we see.
That program the tanker security program and then as I said some of the defense Department programs.
Pick up at the at this at the speed and the trajectory that has been discussed in Washington, I think that offers some opportunity.
For us to expand our non Jones Act U S flag fleet at reasonable rates of return.
There continue to be opportunistic single type.
Asset <unk>.
Possibilities in the Jones Act trade.
We look at.
And we've we've thought about some maybe some other areas.
Of opportunities that could arise as I've said often in the past through.
Emergence of other types of of sustainable energy.
Markets, whether its hydrogen or or or ammonia or carbon C. O to transport. These things are things that we're looking at pretty carefully right now.
Absent absent.
Clear attractive.
Attractive investment opportunities.
The other two areas that we continue to focus on our Oh with reduction of overall debt levels and a return of capital to shareholders through share repurchase or.
Potentially in the future or some sort of dividend if that if that looks like.
As a way to return capital to shareholders.
Having surplus cash flow is a good problem.
We are we haven't enjoyed that problem for some time, but look forward to having a much more robust conversation around those opportunities.
As we go through the balance of this year and into next year.
Great that's helpful and then.
Then just to touch a little bit more I know, we'll probably see it better in the Q, but that $5 million buyback.
Can you just.
Maybe just describe a little bit.
How that came into place and certainly a huge vote of confidence in what you're seeing is there.
Are you happy with $5 million for now or is it do you think there's some get through that and then evaluate after.
And then sorry, just to jump back you said, you're 80% through next year, leaving leaving 20%.
You are shifting the model for more spot to duration.
Where would you where do you want to be let's just say by the end of the year or do you want to be fully you know call. It closer to 95 100, just any sort of update on that as we approach toward the end of the year looking into next year. Thanks.
So I will try and try to take both those questions.
5 million share repurchase.
I think that our view right now is that probably is sufficient for the foreseeable future.
You know without going into too much detail. There there are limitations on how many shares we can purchase in any given day or week.
And given the overall level of volume of the shares that are traded every day that does set some upper limits on how quickly we can deploy capital to be able to acquire shares for our own account.
But you know we're steadily.
To my knowledge, we're steadily applying.
Share repurchase program and expect to be continuing to do so.
Given current price structure and current market volume conditions.
For how much do we want to have on term charter versus pure charter.
You know a lot of that depends on on really on the circumstances of where where things sit.
No.
Would we put 100% of our of our fleet on time charter I think we would at the right levels.
There is no no there's still risk and.
In the economy, there's risks of other as we've seen in the past risk of unforeseen shocks that come from from external forces.
You know to the extent that we see are removed rates that we think are representative of at or near the levels that we think our profit for the market.
Yeah, we might put 100% of our vessels on time charter I don't think that's going to happen because we just have.
We have a kind of rolling maturity structure right now with our ships and you know from one period to the next there's probably going to be gaps in between.
We also have.
Frankly, we have are our non Jones act trading vessels that.
Make no sense to answer in a pretty much have to stay in the spot market because we have to trade around that.
Government of Israel contract.
No in theory, we could put those out on time charter and try and work with a partner to to give us the flexibility to have them operate in that.
In that.
Contracts of a freight moved the government of Israel.
I don't I don't really see that happening certainly on the near term and with the international rates quite firm right now having in that spot market exposure was not a bad thing.
The overseas.
[noise] coast traded in a pool and has spot market exposure, we could fix that away on time charter as well, but given our plans to transfer that vessel into the U S flag.
And then.
Had that vessel participated in the tanker security program no.
The limits of our ability to fix that or I'll, probably defined it bumps. So it wouldn't really achieve that much security.
So that's kind of that's kind of where our spot market exposure is concentrated in our non Jones Act fleet.
But we do have some as I said, some Jones act vessels that are maturing off their current contracts in the first half of next year and.
We do have a little bit of spot exposure.
In the fourth quarter of this year as ships come off existing charters and position into entering into charters next year. So there's a bit of a gap there that gives us some spot.
We think the fourth quarter should be historically, a pretty strong month, so having that spot exposure probably would be a good thing.
But time will tell on that.
That's great great.
No that was great and thank you for all Dod and.
Best of luck.
Third quarter. Thank you.
Thank you Ryan.
The next question comes from John Conrad from GE Captain. Please go ahead Sean.
Yes, Hello, guys. Thank you so much I just hearing great great things about your chartering.
Chartering Department Andrew over there just doing wonderful work throughout the industry just shared a great thing so good job on that guys.
Thank you appreciate the support.
But my question is are you.
We monitor the news in the AR.
And the ongoing military situation.
A year ago, two years ago, there was not much talk about the merchant fleet and now a number of think tanks from Georgetown to Harvard and brands are talking about are the.
A lack of seamless capacity and some of them are even saying that the biggest national security problem now since the closure of the Navy's Redhill.
And add gas fuel facility in Hawaii is tankers product tankers specifically.
But we're not saying despite all of this price and really pushing that maybe.
We're not hearing much from the navy itself or from nothing to Maryann at all so I just was wondering what that processes.
As these things continue to push how do you close out on those contracts and provide the navy with with halt.
Thanks for that question John I think you are correct in.
Identifying a lead.
Tailwind of support for.
Domestic marathon sector debt.
Has arisen in Washington and around the <unk>.
Yeah.
Intellectual community that supports Washington.
And I I really think it's.
Uh huh.
At this juncture it it's a matter of months before.
Before we start to see real action on that.
I read in their testimony to Congress.
Stated that they expect to be begin applications for the tanker security program at by the end of this year.
We're in a rule writing.
Process right now, which is probably why you're not hearing much from them because they have to write the rules before they go out to seek public comment.
But again.
In public testimony the Merit administrator gave Congress a end of the year timeline for getting this program up and running.
State with confidence that theres quite a bit of interest amongst the U S flag tanker operators to participate in that program.
Fully foresee.
Does that program, we'll get.
We'll get a lot of support and be populated pretty quickly after the application processes commenced.
And as I said in my in my.
Prepared remarks.
There has been.
Some discussion.
On Capitol Hill about.
The next phase, which would take.
Take the current 10 ship program.
It has been authorized and fully funded by Congress and look to try and increase that perhaps as many as 20 ships.
Timeline for that is unclear, but the.
I would say the support for it or before that.
Mentum for trying to build a larger fleet.
Is just helped in my view by many of the geopolitical.
Events that are going on around the world today and as you have noted.
A perception of.
That.
Particularly when it comes to moving fuel.
The assets that are under the control or potentially under the control of the Navy.
May not be adequate to meet the mission.
You made a comment about Red Hill.
Yes, Red Hill, our stores needs to be shut down.
And as I said, our sense is that we're are not our sense all the information that we've received from the department of defense.
Is that their strategy is to then instead of rebuilding.
The fuel storage capacity.
Pearl Harbor.
To disperse that fuel storage using a combination of.
Mr tankers, and some smaller tankers.
Listen.
Core fuel capability around around the Pacific and also to enhance.
The those assets by providing.
Ship to ship transfer capabilities on those shifts that would be suitable for navy vessels.
All of that is in the future, but not in the far future in my view.
There is a there was quite a bit of pressure on the navy or on the department of defense to be able to resolve the problem that Red Hill.
So I think I think all things being equal that we should see as I said resolution of the of how this is going to play out within the next several months.
Excellent. Thank you so much and is there anything else you want to add to the geopolitical but also the ESG you see the closure of our coal burning facility in Hawaii for electricity.
And there they're going to they don't have enough solar panels now so they're going to have to move to diesel potentially biodiesel.
With this energy Crunch, and the wind and solar are not there yet and LNG being exported.
What's your thought on that that market dynamic there and potentially more use of the <unk>.
Biodiesel.
I can't really speak to Hawaii in terms of what you know what their biodiesel plants would be my sense is.
From what I know there are two refineries in Hawaii are one of them at least until recently has not been aspirational. So my sense is if there's a if there was an increase in demand for diesel or other other fuels to substitute for coal burning.
That the refineries there would probably satisfy that need and you might see some increase in crude oil imports into Hawaii.
But I don't think that would have a material impact on Jones Act demand most of the most of the crude that goes into Hawaii comes from outside of the U S.
Great. Thank you guys. So much and I appreciate all your good work congratulations on Atlanta.
Have a good day.
As a reminder to ask a question. Please press star followed by one on I'm trying to think keep up next.
Our next question comes from Kevin Mullins from Fannie investors. Please go ahead.
Good morning. Thank you for taking my questions I want to start by following up on the range question on the share repurchase authorization.
It was instituted in mid June you didn't repurchase some shares before quarter end could you provide some commentary in your sense youre going to be additional buybacks going forward.
And should volumes become a limitation is it then thereafter is something that could be considered.
If you want to take that one.
Okay.
The amount of shares we continue to buy shares every trading day.
Uh huh.
And that that has been at a fairly steady rate we are as Sam just mentioned.
<unk> by the rules to how many shares we can buy per day, which is predicated on an actual volumes.
And I think you know I think we are.
Comfortable with the way it is operating currently.
The.
Interest in doing something different I think.
Be part of a future discussion, but it isn't anything that's on the table currently.
Yeah, we certainly stand prepared as volumes increase to buy more shares and would do so.
But there's you know there's only a certain amount of liquidity, that's really available on a daily basis.
The market for our stock.
That's very helpful. Thank you your shares are trading at a significant scope and Emily valuations so repurchase that are very attractive.
I also wanted to ask about what kind of organic capex requirements.
Looking at the second half of the year and into 2023.
<expletive> do you have those numbers handy.
Okay.
I mean, much as much of the Drydock activity has either occurred or is occurring as we speak now.
A couple of ships that are.
In or getting ready to go into dry dock.
Uh huh.
A couple in the balance of the year I would not say that the actual dry dock costs would be much different from the second half of the year that which we experienced in the first half of the year.
Yeah.
Yeah.
Slightly heavier than they would have otherwise anticipated because we had deferred to.
Dry docking at the Tampa from last year to this year. So we had to do that when we brought her back into service.
Yeah. Thank you for the color. Thank you for taking my questions and congratulations for this quarter.
Thank you.
We have a question from a private investor Joshua <unk>. Please go ahead Joshua.
Yeah, Hi, Sam Hydro can you guys hear me.
Yes, very well.
Right you're right early first off just wanted to.
I congratulate both.
Both of you on the whole OSC team for navigating probably a rather hair raising last few years with COVID-19. So first off.
Congrats on that and sort of see in this quarter.
Sort of where you should have been in the second quarter of 2020 were it not for Covid. So once again congratulations there I just have two.
Fairly specific questions the first.
Has to do with Delaware Bay lighter and I know that PDF, just recently announced they're going to restart the crude distillation unit.
Paul's burrow do you ever see.
My notes.
Lighter ring.
Business to ever bringing the vision back to Delaware Bay or do you think the horizon is probably going to be adequate for that.
You know.
Never say never.
Is it.
But it's an unlikely I would say I think we continue to have continued to report the OSC 350 vision as part of our library.
Niche sector.
<unk> kind of been done because.
Consistent with past reporting I think going forward.
Part of our conversations maybe shifting that vessel out of a lighter in mix of revenue.
EBITDA.
Bucket into the conventional ATB she has been big for us.
A little over a year or two.
Transporting crude oil in a conventional ATB trade and I think that's probably.
But more likely scenario going forward.
To do that we have fixed the vessel in a way that allows us flexibility to use the vessel for littering.
That.
Need to rise.
But.
Practically speaking to leave a vessel hanging around so to speak to pick up extra incremental 10 or 15% of volume.
We are better off trading the basketball as is conventional ATB, so unless theres really.
Significant increase in volumes.
I think that 180 excuse me one vitamin vessel probably are sufficient to meet the needs of the two remaining.
Our refining customers that we have and.
In the Delaware Bay, I remind you that.
Yes previously Sunoco.
That was really the flywheel for the library operations they had at a minimum commitment of three.
From memory 3 million barrels a month.
Our two two of off take commitments on that.
Refinery went down that took you know half of the volume more than half the volume out of out of that service.
So again, even if we got a little bit more volume out of the Delaware Bay, the remaining customers, it's kind of hard to put.
Two vessels ethane and service that would make economic sense.
Sure.
Oh, great. Thank you that makes a lot of folks you have Pete philosophy, Yes, I think tad one as a whole is starting to realize what that's meant for them they're getting on to the next question. I mean, you mentioned actually transporting and once again congratulations on I think it was about this time last year that I heard you mentioned renewable diesel and clearly you guys have been on top of that in.
Foresaw that market emerging maybe before others did.
You mentioned feedstock that's I know, there's the renewable diesel product from pad III pad five but.
Did I hear you mentioned that you might actually transport feedstock.
If so can you give me a little idea of what that might be would that be soy oil or <unk>.
Marathon and <unk>, both have really large projects that are going to be coming online in 2023.
Yeah on the San Francisco Bay area.
And that's my congratulations.
Congratulations and thank you.
So feedstock was a little bit of a surprise for us as well what what.
Going into too much detail of what we have began to perceive is that.
The increase of renewable diesel production on the West coast.
Is also creating demand for feedstock, that's coming down out of the agricultural centers and up the Mississippi River.
So we haven't as I said. These are these one of these fixtures is commencing next year.
So we haven't seen the actual cargos that would be loaded but looking at the types of cargos that were contemplated by the charter party.
Youre looking at Palo in fat agricultural products waste products.
Our restaurant Greece.
Collections.
That sort of thing.
Agriculture, soy and that's what I think could be carried.
The part of the.
Hum.
Approves cargo list on the charters that we've that we've signed.
But my sense is it's kind of lean more towards fats tallow and.
And that sort of product rather than sort of its oil or other agricultural byproducts.
Byproducts, that's my sense.
Alright, Thank you very much.
Yeah.
We currently have nice on the questions on the line so I'll hand, it back to Oscar teams any closing remarks.
Thank you Katie and thank you all for joining US again, we look forward to continuing to report improving earnings and improving opportunities for us as we move into the future.
And again look forward to speaking with you again soon in the future. Thank you all again and good day.
Okay.
Thank you for joining this now concludes today's call. Please disconnect your line.
Uh huh.
Okay.
Yeah.
Yeah.
Okay.
Okay.
Uh huh.
Okay.
Yeah.
Right.
[music].
Okay.
Okay.
[music].
Okay.
Okay.
Yes.
Yeah.
Yeah.
Okay.
Okay.
Okay.
Yeah.
Okay.
Okay.
Okay.
Yeah.
Yeah.
Okay.
Yeah.
Okay.
Okay.
Okay.