Q1 2024 Overseas Shipholding Group Inc Earnings Call
Okay.
Operator: Good day, and welcome to the Overseas Shipholding Group First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Sam Norton, President and CEO. Please go ahead.
Speaker Change: Good day and welcome to the overseas Shipholding Group first quarter 2024 earnings Conference call.
Speaker Change: All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
Speaker Change: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: Note. This event is being recorded.
Speaker Change: I would now like to turn the conference over to Sam Norton President and CEO. Please go ahead.
Samuel H. Norton: Thank you Danielle.
Samuel H. Norton: Welcome and thank you for joining us for our presentation on UCHI's first quarter 2024 financial results and for allowing us the opportunity to comment in more depth on those results and to provide additional context on the current state of our business and the opportunities and challenges that lie ahead. As usual, I am joined on this presentation by our CFO, Dick Trueblood. To start, I would like to direct everyone to the narrative on slides 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.
Welcome and thank you for joining our presentation.
Samuel H. Norton: First quarter 2024 financial results.
Samuel H. Norton: And for allowing us the opportunity to comment in more depth on those results and to provide additional context to the.
Samuel H. Norton: Current state of our business and the opportunities and challenges that lie ahead.
Samuel H. Norton: I am joined in this presentation by our CFO <expletive> Trueblood.
Richard L. Trueblood: To start I would like to direct everyone to the narrative on slides two and three of the Powerpoint presentation available on our website regarding forward looking statements estimates the other information that may be provided during the course of this call.
Richard L. Trueblood: The contents of that narrative, an important part of this presentation and I urge everyone to read and consider them carefully.
Samuel H. Norton: We will be offering you more than just the historical perspective on OSU today, and our presentation includes forward-looking statements, including statements about anticipated future results, performance, and opportunities. These statements are subject to uncertainties and risks. actual results may differ materially from those contemplated by our forward-looking statements and could be affected by a variety of factors, including factors beyond our control.
Richard L. Trueblood: We will be offering you more than just the historical perspective on the west you today and our presentation includes forward looking statements, including statements about anticipated future results performance and opportunities.
Richard L. Trueblood: Statements are subject to uncertainties and risks.
Richard L. Trueblood: Actual results may differ materially from those contemplated by our forward looking statements and could be affected by a variety of factors, including factors beyond our control.
Samuel H. Norton: For a discussion of these factors, we refer you to our SEC filings, particularly our Form 10-K for 2024 and our Form 10-Q for the first quarter of 2024, which we anticipate filing later today, both of which can be found at the SEC's internet site, www.sec.gov, as well as on our own website, www.osg.gov. Forward-looking statements in this presentation speak only as of today, and we do not assume any obligation 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.
Richard L. Trueblood: For a discussion of these factors, we refer you to our SEC filings, particularly our Form 10-K for 2024 and our Form 10-Q, the first quarter of 2024, which we anticipate filing later today, both of which can be found at the SEC Internet site Www Dot FCC Dot Gov.
Richard L. Trueblood: As well as on our own website www dot OSU dot com.
Richard L. Trueblood: Forward looking statements in this presentation speak only as of today and we do not assume any obligation to update any forward looking statements, except as may be legally required.
Richard L. Trueblood: 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.
Richard L. Trueblood: Before discussing our financial results for the first quarter of 2024.
Samuel H. Norton: Before discussing our financial results for the first quarter of 2024, I would like to address the status of the unsolicited non-binding indication of interest submitted to our board by Saltchuck Resources in January 2024 to acquire the OSG shares it does not already own for $6.25 per share in cash. Our board continues to carefully consider Saltchuck's indication of interest in consultation with our outside financial and legal advisors and is committed to acting in the best interests of our stockholders. Because the board's work is ongoing, we do not intend to comment further on this call or address questions regarding Solchuk's indication of interest or the possibility of any potential transaction.
Richard L. Trueblood: We'd like to address the status of the unsolicited non binding indications of interest submitted to our board by Salt Chuck resources in January 2024 to acquire the OSD shares it does not already for $6 25 per share in cash.
Richard L. Trueblood: Our board continues to carefully consider salt Chuck's indication of interest in consultation with our outside financial and legal advisors and is committed to acting in the best interest of our stockholders.
Richard L. Trueblood: Because of the Board's work is ongoing we do not intend to comment further on this call or address questions regarding salt chuck's indication of interest or the possibility of any potential transaction.
Samuel H. Norton: We respectfully ask that your questions be focused on the company's recent financial results and its ongoing business activity. We kicked off 2024, sustaining our strong performance in 2023. Our cash flow and profitability continued to steadily improve. We are particularly gratified to report a more than 35% growth in earnings per share when compared with the first quarter of 2023, rewarding our shareholders with value derived from the combined effects of the numerous initiatives that we've undertaken over the past 12 months.
Richard L. Trueblood: We respectfully ask that your questions be focused on the Companys recent financial results and its ongoing business activities.
Richard L. Trueblood: We kicked off 2020 for sustaining our strong performance in 2023.
Richard L. Trueblood: Our cash flow and profitability continued to steadily improve we.
Richard L. Trueblood: We are particularly gratified to report in more than 35% growth in earnings per share when compared with the first quarter of 2023.
Richard L. Trueblood: Rewarding our shareholders with value derived from the combined effects of the numerous initiatives that we've undertaken over the past 12 months.
Samuel H. Norton: We delivered significant increases from the prior year's first quarter in the financial metrics that we believe are important in measuring our performance, TCE revenues, and adjusted EBITDA. Dick will be sharing with you later on this call details of these as well as our other financial results for the period.
We delivered significant increases from the prior year's first quarter financial metrics that we believe are important in measuring our performance TCE revenues and adjusted EBITDA.
Speaker Change: <expletive> will be sharing with you later on this call details of these as well as our other financial results for the period.
Samuel H. Norton: Our cash flow from operations continues to build at a pace that has met our expectations, and as a result, our board declared, and the company paid in April, our second successive quarterly dividend of six cents per share, demonstrating confidence in our business plan. Our attained cash flow reflects the realized benefits of charter parties that we have fixed at escalating rates over the past several quarters, providing us with the means to make continued progress in meeting our key capital allocation goals.
Speaker Change: Our cash flow from operations continues to build at a pace that has met our expectations and as a result.
Speaker Change: <unk> declared in the company paid in April our second successive quarterly dividend of <unk> <unk> per share demonstrating confidence in our business plan.
Speaker Change: Our retained cash flow reflects the realized benefits of charter parties that we have fixed that escalating rates over the past several quarters, providing us with the means to make continued progress in meeting our key capital allocation goals.
Speaker Change: I spoke at length in our yearend earnings call about the events and circumstances that have contributed to strong market demand for our Jones Act vessels.
Samuel H. Norton: I spoke at length in our Year-End Earnings Call about the events and circumstances that have contributed to strong market demand for our Jones Act vests. The persistent influence of geopolitical tensions outside of the United States continues to severely disrupt historical trading patterns for crude oil and its refined products. Hostilities in the Red Sea, growing geopolitical tensions in the Persian Gulf, and the continuing war in Ukraine have kept international freight markets at or near historical highs. Most analysts consider this market strength to be durable, with positive implications for our Jones-Zach best.
Speaker Change: The persistent influence geopolitical tensions outside of the United States continues to severely disrupt historical trading patterns for crude oil and its refined products.
Speaker Change: Our abilities in the Red Sea growing geopolitical tensions the Persian Gulf the continuing the war in Ukraine have kept international freight markets at or near historical highs.
Speaker Change: Most analysts consider this market strength to be durable with positive implications for our Jones Act vessels.
Samuel H. Norton: High international freight rates indirectly stimulate domestically sourced fuel consumption and, by extension, Jones Act transportation demand since import substitution is constrained by comparatively high freight costs for products shipped over longer distances on foreign flag vessels. As long as international freight rates remain high, Buy America, when it comes to fuel, will have economic as well as rhetorical justification. Added to these disrupted forces, U.S. government policies and state regulations have stimulated a growing market for transporting renewable diesel and its feedstock components from production sources along the Gulf Coast to markets along the U.S. West.
Speaker Change: International freight rates indirectly stimulate domestically sourced fuel consumption and by extension Jones Act transportation demand.
Speaker Change: Imports substitution is constrained by comparatively high freight costs for products shipped over longer distances on foreign flagged vessels.
So long as international freight rates remain high by America, when it comes to fuels economic as well as rhetorical justification.
Speaker Change: Added to these disruptive forces U S government policies of state regulations have stimulated a growing market for transporting renewable diesel and its feedstock components from production sources, along the Gulf coast to markets, along the U S West coast.
Samuel H. Norton: According to the Energy Information Agency, quarterly shipments of renewable diesel from Pad 3 to Pad 5 have more than doubled over the past two years, with marine transport of renewable diesel recently approaching 50,000 barrels per day. DEIA currently expects renewable diesel production to increase by approximately 30% annually in both 2024 and 2025, a development which is likely to add further demand for tankers to move renewable diesel from the U.S. Gulf to the West Coast in the coming quarter.
Speaker Change: According to the energy information agency quarterly shipments of renewable diesel from pad III pad five more than doubled over the past two years with marine transport of renewable diesel recently approaching 50000 barrels per day.
Speaker Change: Yeah, I currently expect renewable diesel production to increase by approximately 30% annually in both 2024 and 2025.
Speaker Change: Development, which is likely to add further demand for tankers to move renewable diesel from the U S Gulf to the west coast in the coming quarters.
Samuel H. Norton: The strong demand signals evident in the Jones Act trades have led our core customers to seek out extensions to vessels on charter for both longer periods and well in advance of contractual renewal. This has allowed us to extend our committed charter book with increasingly attractive rates. Examples of this trend during the first quarter include the Nikitsky being extended to its current charter for three years from October 2024, and the OSG 205 Courageous being extended for three years from December 2024.
Speaker Change: The strong demand signals evident in the Jones Act trades, let our core customers to seek out extension as the vessels on charter for both longer periods and well in advance of contractual renewal date.
Speaker Change: This has allowed us to extend our committed charter book with increasingly attractive rates.
Speaker Change: Examples of this trend during the first quarter included the overseas modjeski being extended to its current charter for three years from October 2024, and the OSD Tusa Tusa 205 courageous being extended for three years from December 2024.
Samuel H. Norton: During the first quarter, we also exercised an option to extend the bareboat charter of the Overseas Tampa with its Vesalona for a period of five years, commencing June 2025 until June 2030. Meanwhile, updating on the progress of bringing the Alaskan Frontier, sister to our other three ATC-operated crude oil tankers, into service, we still anticipate the vessel being ready for service in the fourth quarter of 2024. This week we signed a towage contract to move the vessel from Labuan, Malaysia, to Singapore.
Speaker Change: During the first quarter, we also exercised an option to extend the bareboat charter of the overseas Tampa with its that's a Walmart for a period of five years commencing June 2025 until June 2013.
Speaker Change: Updating on the progress of bringing the Alaskan frontier sister to our other three ATC operated crude oil tankers into service.
Speaker Change: We still anticipate the vessel being ready for service in the fourth quarter of 2024.
Speaker Change: This week, we have signed the towage contract to move the vessel from Labuan, Malaysia, Singapore.
Samuel H. Norton: The vessel is scheduled to enter a shipyard in Singapore during early June where we will carry out both a comprehensive reactivation scope of work, as well as previously announced lifecycle upgrades on each of her four engines. The engine upgrades will improve performance and fuel efficiency and also prepare the engines for possible use of methanol fuel in the future. In parallel to shipyard activities, we are currently fielding employment inquiries for the vessel and are optimistic that we will fix the vessel on time for charter at attractive rates in the next couple of months. I will now turn the call over to Dick to provide you with further details on our first quarter results for 2024.
The vessel is scheduled to enter a shipyard in Singapore. During early June where we will carry out both the comprehensive reactivation scope of work as well as previously announced lifecycle upgrades on each of her four engines.
Speaker Change: The engine upgrades will improve performance and fuel efficiency and also prepare the answers for possible use of methanol fuel in the future.
Speaker Change: In parallel to the shipyard activities. We are currently fielding deployment inquiries for the vessel and are optimistic that we will fix the vessel on time charter at attractive rates in the next couple of months.
Speaker Change: I will now turn the call over to <expletive> to provide you with further details on our first quarter results for 2020 for <expletive>.
Speaker Change: Thank you Sam.
Speaker Change: If you could turn to slide number seven please.
Richard L. Trueblood: Vessel demand continues to be strong, and during the quarter, we extended two charters and entered into one new charter for vessels whose existing charters were scheduled to end in 2024. Customers continue to show interest in longer-term time charters and entering into new contracts and continuation of their existing contracts, often well in advance of scheduled maturities. Rates currently are in the mid $80,000 per day for Jones Act MR tankers, while ATB rates are in the upper $50,000 per day.
Speaker Change: Vessel demand continues to be strong and during the quarter, we extended two charters and entered into one new charter for vessels, who exist whose existing charters.
Speaker Change: We're scheduled to end during 2024.
Speaker Change: Customers continue to show interest in longer term time charters and entering into new contracts in direct continuation of their existing contracts often well in advance of scheduled maturities.
Speaker Change: Rates currently are in the mid $80000 per day for Jones Act tankers, well ATB rates are in the upper $50000 per day.
Richard L. Trueblood: At this time, we are working on obtaining business for the Alaskan Frontier when she returns to service in 2.4 and for the Explorer when her current time charter is completed. Sources of earnings variability at this point are vessels that participate in the tanker security program, which, by design, trade in the spot market internationally, and our Lightering ATB, whose earnings can fluctuate upwards when volumes exceed the contract minimum, taking into account the two contract extensions and one new contract.
Speaker Change: At this time, we are working on obtaining business to the Alaskan frontier once you've returned to service in Q4 and for the explore whenever Kurt time charter is completed.
Speaker Change: Sources of earnings variability at this point are vessels that participate in the tanker security program by design trade in the spot market internationally.
And our wider and ATB, whose earnings can fluctuate upwards when volumes exceed the contract minimums.
Speaker Change: Taking into account the two contract extensions and one new contract.
Richard L. Trueblood: We have continued to extend the maturities of our book of business, so that 2024 is essentially fully booked. Looking at the chart in 2024, we have two vessels with charters entering before 12-31-24. One of these, the Mykonos, has a series of one-year options with the Military Sealift Command, which, if all are exercised, will keep her on charter through August 2028. Two vessels becoming available at the end of 2024 will participate in the Tanker Security Program.
Speaker Change: We have continued to extend the maturities of our book of business.
Speaker Change: 2024 is essentially fully booked.
Speaker Change: Looking at the chart in 2024, we have two vessels with charters entering before 12 31 24.
Speaker Change: One of these the Meeker knows there's a series of one year options with the military Sealift command, which if all are exercised will keep her on charter through August 2028.
Speaker Change: Two vessels, becoming available at the end of 'twenty 'twenty four participate in the tanker security program.
Speaker Change: The Alaskan legend, and Alaskan navigator or subject to extension options that if exercised.
Richard L. Trueblood: The Alaskan Legend and Alaskan Natica Gator are subject to extension options that, if exercised, will continue their charters for years into the future. Frontier, a sister ship to our three Alaskan tankers, will shortly be towed from Malaysia where she has been in cold layup for approximately five years. Singapore will commence their TRIDOC period in June.
Speaker Change: We'll continue their charters for years into the future.
Speaker Change: The frontier a sister ship to our three Alaskan tankers.
Speaker Change: We'll shortly be towed from Malaysia, where she has been on cold lay up for approximately five years to Singapore to commensurate Drydock period in June and.
Richard L. Trueblood: In addition to preparing her to return to service, we will also perform engine life cycle upgrades and install a ballast water treatment system. Our total resource commitment, including the purchase price, is expected to be $50 million.
In addition in addition to preparing her to return to service. We will also perform engine lifecycle upgrades and install a ballast water treatment system.
Speaker Change: Our total resource commitment, including the purchase price.
<unk> to be $50 million.
Speaker Change: If we could turn to slide eight please.
Richard L. Trueblood: We have 7,134 available days in 2024, of which 96% are currently contracted. This gives us a very high degree of visibility into our operational and financial performance and represents a continuous improvement from the low point of 2021, years prior to 2023, which include the three vessels that were re-delivered at the end of 2022. Please turn to slide nine. Our quarterly performance continued the performance trends of 2023, and we are very pleased with our start in 2024. All elements of our fleet continue to perform well.
Speaker Change: We have 7134 available days in 2024 of which 96% are currently contracted.
This gives us a very high degree of visibility into our operational and financial performance.
Speaker Change: And represents a continuous improvement from our low point of 2021.
Speaker Change: Years prior to 2023.
Speaker Change: Include the three vessels that were re delivered at the end of 2022.
Speaker Change: Please turn to slide nine.
Speaker Change: Our quarterly performance continued the performance trends of 2023, if we are very pleased with our start in 2024.
Speaker Change: All elements of our fleet continued to perform well.
Richard L. Trueblood: We had some fluctuations in the quarter due to planned dry dock days and vessel repositioning prior to commencement of a new time charter. First quarter revenues increased to $110.7 million from $110.1 million in the fourth quarter. During the quarter, we repositioned the Alaskan Explorer from Alaska to the Gulf of Mexico for her to commence her new time charter in late February.
Speaker Change: We had some fluctuations in the quarter due to planned dry dock days and vessel repositioning prior to commencement of.
Speaker Change: A new time charter.
Speaker Change: First quarter revenues increased.
Speaker Change: The $110 7 million from $110 1 million in the fourth quarter.
Speaker Change: During the quarter, we repositioned the Alaskan explore from Alaska to the Gulf of Mexico for commenced for her to commence her new time charter in late February.
Richard L. Trueblood: This off-hire period, coupled with off-hire days, to a dry dock, and Dry Dock Schedules moderated the revenue increase. However, revenue increased 5.7% from the year-ago quarter as the impact of higher rates for contracts entered into after Q1 2023 benefited the first quarter of 2024. First quarter adjusted EBITDA was $43.9 million, compared to the prior year's first quarter of $40.9 million. Our trailing 12-month adjusted EBITDA was $178.8 million. Please turn to slide 10.
Speaker Change: So off hire periods, coupled with off hire days to a dry dock.
Speaker Change: To dry dock scheduled.
Moderated the revenue increase.
Revenue increased five 7% from the year ago quarter as the impact of higher rates or contracts entered into after Q1 2023 have benefited the first quarter of 2024.
Speaker Change: First quarter, adjusted EBITDA was $43 9 million compared to the prior year's first quarter $40 9 million.
Speaker Change: Our trailing 12 months adjusted EBITDA was $178 $8 million.
Speaker Change: Please turn to slide 10.
Speaker Change: Jones Act candy sized tanker revenues decreased one 7 million from the prior quarter.
Richard L. Trueblood: Jones Act handy-sized tanker revenues decreased $1.7 million from the prior quarter. ATV revenues increased $400,000, and Specialized Business Revenues increased $1.9 million. Please turn to slide 11. Lightering volumes increased substantially from the fourth quarter with a corresponding increase in revenues. However, non-Jones Act TANCR revenues decreased $2 million from the fourth quarter due to lower utilization during this quarter. Joan Jack's shuttle tanker revenues increased $1.2 million as both vessels were in service during the quarter. The Chinook Scheduled Dry Dock was completed in December 2023.
Speaker Change: <unk> revenues increased 400000, and specialized business revenues increased one 9 million.
Speaker Change: Please turn to slide 11.
Speaker Change: Lighter volumes increased substantially from the fourth quarter with a corresponding increase in revenues.
Speaker Change: Non Jones Act tanker revenues decreased $2 million from the fourth quarter due to lower utilization during this quarter.
Speaker Change: Jones Act shuttle tanker revenues increased 1 million or $1.2 million both vessels were in service during the quarter.
Speaker Change: Sure. It shouldn't have scheduled dry dock was completed in December 2023.
Richard L. Trueblood: Alaskan tanker revenues decreased $700,000, as the Alaskan Explorer was off hire until mid-February due to her repositioning. Partially offsetting this was the AlaskaLegends return to service for the full quarter after her scheduled dry dock. Please turn to slide 12. The special operating contribution was $51.8 million, a $1.6 million increase from the fourth quarter. Jones Act handy size tanker's contribution decreased $2.4 million due to increased dry dock days during the quarter.
Speaker Change: Alaskan tanker revenues decreased 700000, as the Alaskan explore was off higher until mid February due to her repositioning.
Speaker Change: Partially offsetting this was the Alaska legends returned to service for the full quarter after her schedule dry dock.
Speaker Change: Please turn to slide 12.
Speaker Change: That's all operating contribution was $51 8 million a $1.6 million increase from the fourth quarter.
Speaker Change: Jones Act candy sized tankers contribution decreased $2 4 million due.
Speaker Change: Due to increased dry dock days during the quarter.
Speaker Change: Specialized business.
Richard L. Trueblood: Specialized Business, Special operating contribution increased $3.2 million. The increased lightening volumes, coupled with the completion of the Chinook's fourth quarter dry dock period, drove the increase, which was moderated by the repositioning of the Explorer. The contribution from our ATVs increased $800,000 as the impact of higher rates continued to be felt.
Speaker Change: So operating contribution increased $3 2 million.
Speaker Change: Increased lighter volumes, coupled with the completion of the chips fourth quarter Drydock period drove the increase which was moderated by the repositioning off hire of the explore.
Speaker Change: The contribution from our ATV each increased $800000 as the impact of higher rates continued to be so.
Richard L. Trueblood: Please turn to slide 13. First quarter adjusted EBITDA was $43.9 million, up from $40.3 million in 2023's first quarter. Return to slide 14. First quarter net income was $14.6 million, up $2.5 million from the first quarter of 2023. Fully diluted earnings per share increased from $0.15 to $0.20 per share in the current quarter. The increase was driven by improved operating results, coupled with a reduction in the outstanding shares from last year. Turning to slide 15.
Speaker Change: Please turn to slide 13.
Speaker Change: First quarter adjusted EBITDA was $43 9 million up from $40 3 million in.
In 2023, each first quarter.
If we turn to slide 14.
Speaker Change: First quarter net income was $14 6 million up two and a half million dollars from the first quarter of 2023.
Speaker Change: Fully diluted earnings per share increased from 15 cents to <unk> 20 per share in the current quarter.
Speaker Change: The increase was driven by improved operating results coupled with a reduction in the outstanding shares from last year.
Speaker Change: Turning to slide 15.
Speaker Change: We had total cash of $76 million at December 2023.
Richard L. Trueblood: We had total cash of $76 million at December 2023. During the first quarter, we generated $44 million in adjusted EBITDA, and working capital used $11 million of cash. We invested $14 million in Vessel Dry Dock and other capital costs, and we paid $13 million in debt service. As a result, we ended the quarter with $82 million of cash plus $15 million of liquid investments, resulting in total liquidity of $97 million. Please turn to slide 16.
Speaker Change: During the first quarter, we generated $44 million of adjusted EBITDA.
Speaker Change: Working capital used $11 million of cash.
Speaker Change: Invested $14 million in vessel dry dock and other capital costs, and we paid $13 million in debt service.
Speaker Change: As a result, we ended the quarter with $82 million of cash plus $15 million of illiquid investments, resulting in total liquidity.
Speaker Change: $97 million.
Speaker Change: Please turn to slide 16.
Speaker Change: Continuing our discussion of cash and liquidity as mentioned on the previous slide we get $82 million of cash at the end of the quarter.
Richard L. Trueblood: Continuing our discussion of cash and liquidity, as mentioned on the previous slide, we had $82 million of cash at the end of the quarter. Our total debt is $398 million. This represents a decrease of $6 million in outstanding indebtedness since December 2023. With $363 million of equity, our net debt to equity ratio is 0.9 times. This concludes my comments on the financial statements, and I'd like to turn the call back to Sam. Okay? Thank you, Dick.
Speaker Change: Total debt was $398 million. This represents a decrease of $6 million in outstanding indebtedness since December 2023.
Speaker Change: With $363 million of equity our net debt to equity ratio is <unk> nine times.
Samuel H. Norton: This concludes my comments on the financial statements I would like to turn the call back to Sam Sam.
Samuel H. Norton: Thank you, Vic. I would now like to take a few minutes to review some key developments in our efforts to lead OSD to a more sustainable future. First, we will be publishing next week our 2023 Sustainability Report. This will be the fourth iteration of this report, and I am pleased to highlight elements of that report which reflect ongoing efforts OST has made to invest in our collective future. I ask that you turn to slide 8.
Sam: Thank you <expletive>.
Sam: I would now like to take a few minutes to review some key developments in our efforts to lead you to a more sustainable future.
Sam: Yeah.
Sam: First we will be publishing next week or 2023 sustainability report.
Sam: This will be the fourth iteration of this report and I'm pleased to highlight elements of that report, which reflect ongoing efforts you've made to invest in our collective future.
Sam: As you turn to slide 18.
Samuel H. Norton: Reducing greenhouse gas emissions produced by our vessels continues to be a driving force in how we operate and maintain our fleet. OSG is focused on achieving efficiencies in our fleet operations, including those potentially obtained through mechanical and operational improvements, new fuels, and decarbonization systems such as onboard carbon capture. Rapidly growing economic, social, and public pressure to reduce the human impact on climate change underpin these efforts.
Sam: Reducing greenhouse gas emissions produced by our vessels continues to be a driving force in how we operate and maintain our fleet.
Sam: She is focused on achieving efficiencies in our lead operations <unk>.
Sam: Including those potentially obtained through mechanical and operational improvements new fuels and de carbonization systems, such as onboard carbon capture.
Sam: Rapidly growing economic social and public policy pressure to reduce the human impact on climate change underpinning these efforts.
Samuel H. Norton: In 2022, we made a commitment to reduce our fuel use by 10% by 2025 and to reduce our overall emissions by 15% by 2030 as compared to 2018 levels. Over the past two years, we've been testing a number of ways to improve our fleet's operational efficiency, working diligently to achieve these targets by testing and implementing cost-effective measures to attain incrementally measurable enhancements to our fleet performance. For example, we are using more efficient and environmentally friendly robotic hole cleaning methods to reduce drag. We are also installing graphene-based coatings on our propellers and silicon-based paints on our hulls to improve resistance to fouling and enhance durability.
Sam: In 2022, we made a commitment to reduce our fuel used by 10% by 2025 and reduce our overall emissions by 15% by 2030 as compared to 2018 months.
Sam: Over the past two years, we've been testing a number of ways to improve Michelin efficiency working diligently to achieve these targets by testing and implementing cost effective measures to attain incrementally measurable enhancements to our fleet performance.
Sam: For example, we are using more efficient and environmentally friendly robotic hole cleaning methods to reduce drag we are installing graphene based coatings to our propellers and silicon based paints to our hollister to improve resistance to following an enhanced durability.
Samuel H. Norton: We participate in voluntary speed reduction programs that minimize the risk of our vessels harming endangered species and also reduce our carbon intensity. We've also invested considerable time and effort to join the emerging alternative fuel transportation market, with four of our vessels transporting renewable diesel and renewable diesel feedstock. While these smaller incremental improvements are the central component of OSD's near-term environmental sustainability strategy, we have also made investments that I consider to represent a much larger commitment to achieving our CO2 emissions goal.
Sam: We participate in voluntary speed reduction programs that minimize the risk of our vessels harming endangered species and also reduce our emissions.
Sam: We are leveraging voyage optimization software and working with our customers to reduce wait.
Sam: Wait times, which can measurably improve the vessel's carbon intensity indicator.
Sam: We've also invested considerable time and effort to join the emerging alternative fuel transportation market with four of our vessels transporting renewable diesel and renewable diesel feedstocks.
Sam: While these smaller incremental improvements are the central component Posties near term environmental sustainability strategy we.
Sam: We have also made investments that I consider it could represent a much larger commitment to achieving our C O two emissions goals.
Samuel H. Norton: In 2023, we committed over $60 million to install life cycle engine upgrades to our largest vessels, the Alaskan class fleet, with the Alaskan Frontier, as previously mentioned, being the first vessel to undergo these. With expected 15 to 20% fuel savings as compared to these vessels' current engine performance, this investment will go much further in reducing our carbon output while continuing to provide quality services to our customers. We expect that these engine upgrades will allow us to operate these vessels for longer periods of time and with lower maintenance costs.
In 2023, we committed over $60 million of installed lifecycle engine upgrades to our largest vessels the Alaskan class fleet with the Alaskan frontier as previously mentioned being the first festival to undergo these upgrades.
Sam: With expected, 15% to 20% fuel savings that's compared to these vessels current engine performance. This investment will go much further in reducing our carbon output, while continuing to provide quality services to our customers.
Sam: We expect that these engine upgrades will allow us to operate these vessels for longer periods of time and with lower maintenance costs.
Samuel H. Norton: Sustainability-driven investments are a critical component of our future, and we believe no greater asset exists than the men and women who serve on our vessels. Over the past two years, we have pledged and awarded a combined total of $240,500 in scholarships focused on supporting women in our industry. Women will likely play a meaningful role in addressing the seafarer shortage that our industry faces.
Sam: Sustainability, driven investments are a critical component of our future and we believe no greater asset exist and the men and women who serve on our back.
Sam: Over the past two years, we have pledged and awarded a combined total of $240500 in scholarships focused on supporting women in our industry.
Sam: Women will likely play a meaningful role in addressing the seafarer shortage that our industry faces and we hope that by reducing financial barriers to entry.
Sam: We'll build a stronger more inclusive pool of mariners for our industry.
Sam: We are also focused on addressing the needs of our seafarers today.
Samuel H. Norton: And we hope that by reducing financial barriers to entry, we will build a stronger, more inclusive pool of mariners for our industry. We are also focused on addressing the needs of our seafarers today. We listened to our concerns and installed Starlink on our entire fleet, enabling our seafarers to stay connected with the world while at sea and to reach their loved ones and family. We have also made strides in enhancing our policies on sexual assault and sexual harassment, also known as SASH, to bring more awareness to the issues and increase training to identify and prevent SASH on board our ships. Please now turn to slide 19.
Sam: We listen to our marriage and installed Starlink on our entire fleet, enabling our seafarers to stay connected with the world Wallets C and to reach their loved ones and family.
Sam: We've also made strides in enhancing our policies on sexual assault and sexual harassment also known as dash to bring more awareness to the issues and increased training to identify and prevent SaaS onboard our vessels.
Sam: Please now turn to slide 19.
Turning to our longer term vision for contributing to mitigating the effects of climate change I would like to spend some time describing in more detail. The projects, we are calling T rich the Tampa Tampa regional intermodal carbon hub and coast 'twenty for carbon ocean storage and transport.
Samuel H. Norton: Turning to our longer-term vision for contributing to mitigating the effects of climate change, I would like to spend some time describing in more detail the projects we are calling T-RICH, the Tampa Regional Intermodal Carbon Hub, and COAST20 for Carbon Ocean Storage and Transport. Through Tea, Rich, and Coast 20, we are evaluating the opportunity to expand OSD's transportation business, which has historically focused on liquid bulk petroleum cargo, to other liquid bulk, [inaudible] Our focus on achieving efficiencies in our fleet operations in those areas that I highlighted for OSC's sustainability efforts, along with Key Ridge and Coast 20 projects, all reflect the rapidly changing policy, economic, and technology environment within which the current transportation sector and the global economy Let me back up for a moment to provide some background on what led us to begin the development of these projects.
Sam: T Rich and coast 'twenty, we are evaluating the opportunity to expand Osd's transportation business, which has historically focused on liquid bulk petroleum cargo.
Sam: Other liquid bulk car.
Sam: Cargoes are emerging in the new energy economy.
Sam: Our focus on achieving efficiencies in our lead operations in those areas that I highlighted are always see sustainability efforts.
Sam: Along with Pea Ridge and coast 20 projects, all reflect the rapidly changing policy economic and technology environment within which the current transportation sector and the global economy must operate.
Sam: Please turn to slide 20.
Sam: Let me back up a moment to provide some background on what led us to begin development of these projects.
Samuel H. Norton: Our evaluation of the forces shaping the future of energy led us to conclude that there is a real and potentially substantial business opportunity in emerging carbon emissions reduction. A Confluence of Technological Developments, Economic Support, Global Political Acceptance, and increasing recognition that carbon capture is a necessary part of any plan to successfully mitigate the effects of anthropogenic climate change has led to a rapid acceleration of interest in the capture, transportation, and geological sequestration and storage of CO2, TCS starts with the capture of carbon emissions before they leave the smokestack from power generation and other industrial emissions.
Our evaluation of the forces shaping the future of energy led us to conclude that there was a real and potentially substantial business opportunity in your emerging carbon emissions reduction industry.
Sam: A confluence of technological developments economic support global political acceptance and increasing recognition that carbon capture is a necessary part of any plans to successfully mitigate the effects of anthropogenic climate change has led to a rapid acceleration of interest and the capture.
Sam: <unk> geological sequestration and storage of C O two known as Ccs.
Sam: Tcs starts with the capture of carbon emissions before they leave the smokestack from power generation and other industrial emitters.
Samuel H. Norton: The carbon captured must then be transported from the emitter's capture location to a permanent storage location. There are two basic segments to this transportation phase, the movement of captured carbon to a location where it can be combined with other emitters' captured carbon, and the shipment of the aggregated captured carbon to a permanent storage location. The final stage of CCS is the placement of captured carbon into permanent geological storage locations underground. Now please turn to slide 21.
Sam: Carbon captured must then be transported from the emitters capture location to a permanent storage location.
Sam: There are two basic segments of this transportation phase.
Sam: The movement of captured carbon to a location where it can be combined with other emitters, capturing carbon and the shipment of the aggregated captured carbon to a permanent storage location.
Sam: The final stage of Ccs is the placement of captured carbon into permanent geological storage locations underground.
Sam: Now please turn to slide 21.
Sam: C O two emissions are a primary contributor to global warming finding solutions to reducing these nations is a priority for governments across the globe.
Samuel H. Norton: CO2 emissions are a primary contributor to global warming, so finding solutions to reduce these emissions is a priority for governments across the globe. CCS is one of the three principal strategies that have been adopted to reduce carbon emissions. It is believed that CCS could account for 30% of the CO2 emission reductions needed to achieve net zero by 2005. The United States, following international agreements that include the Paris Agreement and the Kyoto Protocol, has adopted legislation supporting the technology for the commercialization of CCS.
Sam: Ccs is one of the three principal strategies that has been adopted to reduce carbon emissions.
Sam: This belief that Ccs could account for 30% of the C. O two emission reductions needed to achieve net zero by 2050.
Sam: The United States following international agreements, which include the Paris agreement and the Kyoto Protocol has adopted legislation supporting the technology for commercialization of Ccs.
Samuel H. Norton: During 2021, the White House issued Executive Order 14008 entitled Tackling the Climate Crisis at Home and Abroad and Executive Order 14057 titled Catalyzing Clean Energy Industries and Jobs through Federal Sustainability. These orders state that the climate crisis is placed at the center of U.S. foreign policy and national security, establish a National Climate Task Force to deploy a government-wide approach to combat the climate crisis, and set the goal to achieve net zero emissions by 2050.
Sam: During 2021, the White House issued executive order, 14th 008, entitled tackling the climate crisis at home and abroad, and executive order 14057, titled Catalyzing Clean energy industry that jobs through federal sustainability.
Sam: These orders state that the climate crisis is placed at the center of U S. Foreign policy and National Security established a national climate Task force to deploy government wide approach to batting the climate crisis and set the goal to achieve net zero emissions by 2050.
Samuel H. Norton: The Infrastructure Investment and Jobs Act appropriated $62 billion to the Department of Energy for use in emission reduction programs, including $2.1 billion for CO2 transport infrastructure to connect industrial sources of CO2 emissions with permanent underground geologic storage locations. We believe these energy-based domestic and international policies are generating an increasingly reasonable commercial opportunity for early adopters in the storage and transportation of captured carbon. The U.S. government, through three successive administrations, has on a bipartisan basis approved more than $25 billion to support the technological and commercial development of all parts of the CCS industry, in addition to grants in federal law.
Sam: Infrastructure investment and jobs Act appropriated $62 billion to department of energy for use in emission reduction programs, including $2 1 billion for C. O two transport infrastructure to connect industrial sources of C. O two emissions with permanent underground geologic storage locations.
Sam: We believe these energy base domestic and international policies are generating an increasingly reasonable commercial opportunity for early adaptors in the storage and transportation of captured carbon.
Sam: U S government through three successive administrations has on a bipartisan basis approve more than $25 billion to support the technological and commercial development of all parts of the Ccs industry.
Sam: In addition to grants and federal laws in 2020 to the U S government adopted a direct cash subsidy payment of $85 per ton for the capture transport geological storage of C 022 provisions and the inflation reduction Act.
Samuel H. Norton: In 2022, the U.S. government adopted a direct cash subsidy payment of $85 per ton for the capture, transport, and geological storage of CO2 through provisions in the Inflation Reduction Act. This subsidy is intended to de-risk part of the supply chain costs.
Sam: This subsidy is intended to de risk part of the supply chain costs for the permanent disposal of carpeting and is the start but not likely be in the development of the U S carbon price structure.
Samuel H. Norton: Permanent Disposal of Cargo is the start, but not likely the end, of the development of a U.S. carbon price structure. This cash subsidy, known as the Section 45Q tax credit, has stimulated considerable private sector commercial investment in CCS and directly encouraged our initial steps toward designing a carbon storage and transport system. Please turn to slide 22. In this context, we have been focused on how best to leverage OSG's skillsets in transporting liquid bulk commodities to gain a first mover advantage to play a leading role in Florida in the submerging industry.
Sam: This cash subsidy known as the section 45 tax credits.
Sam: Related considerable private private sector commercial investments, yes, and.
Sam: And directly encouraged our initial steps towards designing a carbon storage and transport system.
Sam: Please turn to slide 22.
Sam: With this context.
Sam: We have been focused on how best to leverage with Gs skills, that's been transporting liquid bulk commodities. The gain first mover advantage to play a leading role in Florida in this emerging industry.
Samuel H. Norton: This has led to the creation of the T-RICH and COASST20 projects with a vision of developing a viable end-to-end takeaway capacity serving industrial emitters of CO2 in the state. Key Rich, the Tampa Regional Intermodal Carbon Hub, will collect captured carbon from large emitters across the state of Florida for temporary storage at Port Tampa Bay. The captured carbon would then be transported by our newly designed CO2 vessel, Coast 20, across the Gulf of Mexico to permanent underground sequestration sites in approved pore space on or offshore in Louisiana or Texas, where the geology has been confirmed safe for injection into wells. Vessel Project Coast 20 envisions a 20,000 deadweight ton capacity design to serve as the marine transport medium for this system. Now, please turn to slide 23.
Sam: This has led us to the creation of the T Rich and coast 20 projects with the vision of developing viable end to end takeaway capacity, serving industrial emitters of C O two in the state.
Sam: T rich the Tampa regional intermodal carbon hub, we will collect captured carbon from large emitters across the state of Florida temporary storage at Port Tampa Bay.
Sam: <unk> carbon would then be transported by our newly designed C. O two vessel post 'twenty across the Gulf of Mexico to permanent undergo underground sequestration sites.
Sam: Proved poor space on or offshore in Louisiana, or Texas, where the geology has been confirmed safe for injection into the well site.
Sam: The vessel project post 'twenty envisions, a 20000 deadweight ton capacity designed to serve as the marine transport medium for this system.
Sam: Now please turn to slide 23.
Samuel H. Norton: Last year, OSG submitted applications for grants available from the U.S. Department of Energy to assist with designing large-scale infrastructure projects for the storage and transport of captured CO2. In December 2023, the DOE selected OSG to receive a $400,000 grant for the T-Ridge Hubsite, and then in April of 2024, the DOE notified OSG that it had been selected to receive a further $3 million grant for the design of the Coast 20 dedicated CO2 vessel and the load and discharge terminal design.
Sam: Last year <unk> submitted applications for grants available from the U S Department of energy to assist with designing large scale infrastructure projects for the storage and transport captured C O two.
Sam: In December 2023 D. O E selected always for you to receive a $400000 grant for the Pea Ridge hub side and then in April of 2020 for the deal we notified us that it had been selected to receive a further $3 million Grant for design Coast 20 dedicated C O two vessel and.
Sam: To load and discharge terminals or not.
Samuel H. Norton: These projects have allowed OSG to further explore the CCS market, as well as to collaborate with other parties, such as the Port of Tampa Bay, Acra Solutions, and Corbin Energy. We see these grants as validating our vision for developing a carbon storage and transport system to support the new energy economy and are excited to be a leader and a participant in this promising business and look forward to sharing more with you on this topic in the future as these projects that are now underway become more mature. Danielle, we can now open up the call to.
Sam: These projects have allowed <unk> to further explore the ccs market as well as collaborate with other parties such as the board of Tampa Bay Opera solutions and corporate energy, we see these grants as validating our vision for developing and carbon storage and transport systems to support the new energy economy.
Sam: We're excited to be a leader dissipated this promising business and look forward to sharing more with you on this topic in the future as these projects.
Sam: We're now underway become more mature.
Sam: Danielle we can now open up the call to questions.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. The first question comes from Ryan Vaughan from Needham; please go ahead.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If you're using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: At any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: The first question comes from Ryan Vaughan from Needham. Please go ahead.
Ryan Vaughan: Thank you Hi, Sam hijacked called you guys are doing well.
Ryan Vaughan: Thank you. Hi, Sam. Hi, Dick. Hope you guys are doing well. Good morning. I guess, good morning.
Ryan Vaughan: I guess morning, So I think first things it was great to hear about them their kids ski 205, and he said 2024 is essentially fully booked you guys are always very good about this.
Ryan Vaughan: So, first things first, it was great to hear about the Nikitski 205. I think Dick said 2024 is essentially fully booked. You guys are always very good about this.
Ryan Vaughan: About where are we for 2025? And even if you want to stay into 2026, that would be helpful. As far as days booked go, it just looks like most of it is spoken for, but any sort of percentages would be helpful. Number two, Sam, can you just update us on where things stand, how things are going with the Alaska frontier? I know you initially targeted to have everything completed by the fourth quarter. That's still on track. And then, I know it's early, but any sort of thoughts on use cases?
Ryan Vaughan: Where are we at for 2025, and even if you want to stay into 2026 that would be helpful. As far as a days booked it just looks like most of it is spoken for but any sort of percentages would be helpful. Number to Sam can you just update us on where things stand.
Sam: Things are going with the Alaska Frontier I know you had initially targeted to have everything completed by the fourth quarter. That's still on track and then I know, it's early but any sort of thoughts on use cases.
Speaker Change: For the for the Frontier and then yeah. Just lastly, thanks for all the carbon capture transportation information very interesting. Thank you.
Samuel H. Norton: Thanks. Thanks, Ryan, percentages of forward cover. You know, I don't have the exact numbers; you have the chart in front of you. Since the last time I looked at it.
Speaker Change: Thanks Ryan.
Speaker Change: Percentages of forward cover.
Speaker Change: I don't have the exact numbers you have the chart in front of you from the last time I looked at it.
Samuel H. Norton: We're effectively 70-75% covered for 2025 and probably on like 50% for 2026. We can get back to you on the exact percentages on that, but you have to look at dry dock days and other factors to try and run those numbers. But I think the general feeling is that we're extremely comfortable with the forward book that we have.
Speaker Change: We're effectively 70, 75% covered for 2025.
Speaker Change: And probably at like 50% for 2026.
Speaker Change: We can get back to you on the exact percentages on that you have to look at dry dock days in another other factory to try and run those numbers.
I think I think the general feeling is that we are.
Speaker Change: Extremely comfortable with the forward book that we have and frankly, we could be extending that Ford book, even now as I mentioned in my comments, we've we've been fixing ships a year in advance pretty much has been done has been to the program over the last six months or so.
Samuel H. Norton: And frankly, we could be extending that forward book even now. As I mentioned in my comments, you know, we've been fixing ships a year in advance. Pretty much, that has been the program over the last six months or so. And so as the renewal dates of ships that come open in 2025 begin to fall within that kind of one-year window, I think we're pretty optimistic that we'll be able to fix those ships, you know, 10 to 12 months in advance of the renewal date. As far as the Alaskan frontier is concerned, we're super optimistic about that ship right now. I just came back from Alaska.
Speaker Change: And so as as our.
Speaker Change: As the renewables renewable dates of ships that come open in 2025 began to.
Speaker Change: Fall within that kind of a one year window.
Speaker Change: I think we're pretty optimistic that we'll be able to fix those ships 12.
Speaker Change: 12, 10 to 12 months in advance of their renewal date.
Speaker Change: As far as the Alaska.
Speaker Change: Alaskan frontier is concerned.
Speaker Change: We're super optimistic on that ship right now I just came back from Alaska.
Samuel H. Norton: Alaskan production going forward looks very promising. I know in the medium term, the Santos Repsol project is slated to come on stream in the fourth quarter of 2025 or early 2026, ramping up to about 80,000 barrels per day. 80,000 barrels per day is the equivalent of one, it's a little bit more than one, Alaska tanker class vessel on a consistent, you know, round voyage basis. So we see that in the medium term as being an attractive increase in demand for crude oil transportation out of Alaska.
Speaker Change: Alaska production look going forward.
Speaker Change: It looks very promising.
Speaker Change: I know in the medium term.
Speaker Change: Santos Repsol project.
Speaker Change: <unk> is slated to come on stream in the fourth quarter of 2025 early 2026 ramping up to about 80000 barrels per day.
Speaker Change: 80000 barrels per day is equivalent of one little bit little bit more than one Alaska tanker class vessel on Oklahoma.
Speaker Change: Consistent and a round voyage basis.
Speaker Change: So we see that the medium term as being an attractive.
Samuel H. Norton: And we also believe that our Alaskan tanker vessels offer the most cost-effective transport method for moving North Slope crude out of Valdez, even in comparison to shipments internationally, given the size, benefit that our ships have at 1.3 million barrels versus the conventional million barrel ship that would be doing international voyages, as well as a shorter duration of the voyage to the West Coast. So, we think in the medium term there's a lot of demand for these ships.
Speaker Change: Increase in demand for crude oil transportation out of Alaska.
We also believe that our Alaskan tanker vessels offer the most cost effective transport method for moving.
Speaker Change: North slope crude out about this.
Speaker Change: Even in comparison to two shipments internationally.
Speaker Change: Given the.
Speaker Change: <unk> benefits that our ships have at one 3 million barrels versus the conventional million barrels shipped that we'd be doing international voyages as well as the shoulder.
Speaker Change: Duration of voyage to the West coast. So.
Speaker Change: We think medium term, there's a lot of demand for these ships, but willow project that Conoco has on is scheduled to come on in 2028.
Samuel H. Norton: The Willow project that Conoco has on is scheduled to come online in 2028. You know, I spoke to the director of the Alaska Pipeline when I was in Alaska, and they feel quite strongly that current production out of the North Slope is about 480,000 barrels per day. By the end of this decade, that should be up close to 750,000 barrels per day. So, in the medium term, that looks like really supportive data to give us confidence that these ships will have a role to play and continue to play in moving Alaskan crude oil.
Speaker Change: I spoke to the to the director of the Alyeska pipeline when I was in Alaska and they they feel quite strongly that.
Speaker Change: Production out of the north slope is about 480000 barrels per day.
Speaker Change: By the end of this decade that should be up close to 700 750000 barrels per day, so medium term.
Speaker Change: That looks like a really supportive.
Speaker Change: Data to give us confidence that these ships will we will have a role to play in.
Speaker Change: Her role to play in and moving Alaskan crude oil.
Samuel H. Norton: In the shorter term, as we now know, we moved the Alaska Explorer to the Gulf Coast of Mexico. She's now regularly trading from Texas to the Delaware Bay. We think there's other demand for Gulf Coast and East Coast operations. We have two or three conversations ongoing right now surrounding those kinds of opportunities, and particularly given a lot of the geopolitical uncertainty and what I would characterize as a shrinking availability of Atlantic basin crudes, the production of U.S. crude and availability of U.S. crude at attractive prices is, I think, stimulating quite a bit of inquiry into how to move that crude to production centers outside of Pad 3.
Speaker Change: The shorter term as you now know we moved the Alaska explorer to the Gulf Coast of Mexico.
She is regularly now trading income from Texas to the Delaware Bay.
Speaker Change: We think there's a there's other demand for Gulf coast to the East coast.
Speaker Change: So the operations we.
Speaker Change: We have a two or three conversations ongoing right now so how many of those kinds of opportunities.
And.
Speaker Change: Particularly given a lot of the geopolitical uncertainty and.
Speaker Change: I would I would characterize a shrinking availability of Atlantic Basin crudes.
Speaker Change: That production of U S crude and availability of U S crude at attractive prices I think is stimulating quite a bit of inquiry into into how to move that crude to.
Speaker Change: Two production centers outside of pet pet, but excuse me Patrick.
Speaker Change: So as.
Speaker Change: As I said, we're optimistic that in the next month or two as the date.
Samuel H. Norton: So, as I said, we're optimistic that in the next month or two, as the dates for availability become narrowed to a matter of weeks or days rather than a month or two, we'll be able to fix that ship with a specific window to be able to start to trade.
Speaker Change: Poor availability become narrowed to a matter of weeks rather than days rather than.
Speaker Change: A month or two.
Speaker Change: Be able to fix that chip.
Speaker Change: With a specific window to be able to start to trade.
That's great. Thank you guys.
Ryan Vaughan: That's great. Thank you, guys.
Speaker Change: Thank you.
Operator: As a reminder, if you have a question, please press star 1. Operator. The next question comes from Climent Molins from Value Investors Edge. Please go ahead.
Speaker Change: As a reminder, if you have a question please press star one.
Unknown Attendee: The next question comes from comment Mullins from value Investor's edge. Please go ahead.
Good morning, Thank you for taking my questions.
Climent Molins: Good morning. Thank you for taking my questions.
Mullins: I wanted to start by asking about the overall Jones Act market could you provide some insight on recent trends in the renewable diesel trade and on your expectation going forward.
Climent Molins: I wanted to start by asking about the overall Jones Act market. Could you provide some insight on recent trends in the renewable diesel trade and on your expectations going forward? And, secondly, there are no Jones Act MRs on order, but could you provide an indication of how much it would cost to order one?
Mullins: Secondly, there are no Jones Act Mr's in order there, but when you provide any indication of how much it would cost.
Samuel H. Norton: I'll take the second question first. I think there is, you know, only speculation about what a new MR tanker might cost. I understand that indications for new construction, and not even firm orders, have been in excess of $200 million, and that the earliest delivery dates that are being indicated for U.S.-built MR tankers are in the 2028 to 2029 range. I am not aware of any active discussions ongoing about the construction of new MR tankers.
Speaker Change: I'll take the second question first.
I think there is only speculation about what the new EMR tanker by cost.
Speaker Change: I understand that that.
Speaker Change: Indications are for new construction and not even firm offers the indications had been in excess of $200 million.
Speaker Change: And at the earliest delivery days.
Speaker Change: <unk> that are being indicated for a U S built edmar.
Speaker Change: Mr tankers.
Speaker Change: In the 2028 to 2029 range.
Speaker Change: I am not aware of any active discussions ongoing about.
Speaker Change: The construction of new EMR tankers.
Speaker Change: But those are the levels that the market is cause tended to to talk about when looking at possible replacement capacity.
Speaker Change: Renewable diesel.
Samuel H. Norton: But those are the levels that the market has tended to talk about when looking at possible replacement capacity, such as renewable diesel. There is a considerable amount of data that is out there now talking about renewable diesel. The EIA is producing quite a bit of granulated data. The levels of production have grown considerably from sort of a low in 2018 and I think they are scheduled to reach as much as 7.2 million gallons a year. I can't remember the actual number. I can look those up, but if you go to the EIA website, you can find a lot of data on that.
Speaker Change: There is a considerable amount of data that is out there now are talking about renewable diesel the EIA is producing.
Speaker Change: Quite a bit of a granulated data.
Speaker Change: The AR levels of production.
Speaker Change: Have grown considerably from sort of a low of 2018.
Speaker Change: And I think they are scheduled to reach as much as $7 2 million gallons a year I can't remember what the actual number I can I can I can look those up but if you go to the website you can find a lot of data on that.
Samuel H. Norton: The most important element that we look at is the Production Centers in the Gulf of Mexico and existing and expansion programs that are announced and underway for Gulf of Mexico production will take renewable diesel production in the Gulf Coast to about 100,000 barrels per day by the end of this year. Were it all to go on ships, it would be the equivalent of roughly 10 MR tankers. But it doesn't all go on ships.
The most important element that we look at it or the production centers in the Gulf of Mexico.
Speaker Change: And existing and expansion programs that are that are.
Speaker Change: Announced and underway for Gulf of Mexico production.
Speaker Change: We will take our renewable diesel production in the Gulf Coast to ABA.
Speaker Change: 100000 barrels per day by the end of this year.
Speaker Change: 100000 barrels per day were at all to go on ships would be the equivalent of roughly 10 edmar tankers.
Samuel H. Norton: The data provided by the EIA suggests that between 15 and 20,000 barrels per day have historically moved by rail. But the increase in marine transport over the last, Unknown Attendee, Climent Molins, Ryan Vaughan, Douglas Wheat, Climent Molins, between six and eight and possibly as many as 10 vessels will ultimately be committed to the renewable diesel transport trade. That's significant in the context of an overall market for JOZAK MR tankers of roughly 45 vessels. So again, that's been a very strongly stimulated Unknown Attendee, Climent Molins, Ryan Vaughan, Douglas Wheat, and Climent Molins will continue to be a strong demand force for the foreseeable future.
Speaker Change: Does it all go on ships.
Speaker Change: Data provided by.
Speaker Change: The EIA suggests that it's between 15 and 20000 barrels per day has historically moved by rail.
Speaker Change: But the increase of Oh.
Speaker Change: Marine transport over the last.
Speaker Change: 12 to 18 months has gone from roughly 20000 barrels per day to as I said close to 50000 barrels per day in the latest and the latest data point.
Speaker Change: Uh huh.
Speaker Change: My expectation is across the industry, it's likely that between six and eight and possibly as many as 10 vessel.
Speaker Change: We will ultimately be committed to to the renewable diesel transport trade.
Speaker Change: That's significant in the context of an overall market for of Jones Act.
Speaker Change: Tankers of roughly 45 vessels.
Speaker Change: So again, that's been a it's been a very strong stimulated.
Speaker Change: Factor and in.
Speaker Change: And the recovery of the Jones Act market and I think.
We will continue to be a strong a demand for us.
Speaker Change: For the for the foreseeable future.
Climent Molins: That's very helpful. Thank you. Turning to the international MRs, the realized spot average was a bit weaker than expected, considering how strong the market has been over the past few months. Was this attributable to vessel repositioning?
That's very helpful. Thank you.
Speaker Change: Turning to international empowers the realized both direct was weaker than expected considering how strong the market has been over the past few months with these attributable vessel repositioning.
Climent Molins: There are tanker security vessels; is that your comment?
Samuel H. Norton: [inaudible]
Speaker Change: There are broad tanker security level, because that would cause that your comps.
Speaker Change: Exactly but the explosion in these vessels.
Speaker Change: The.
Speaker Change: The principal.
Samuel H. Norton: The principal factors that contributed to maybe less than optimal earnings on TSP vessels were we had The Overseas Suncoast on Timeshark for the MSC in the fourth quarter of last year, that time the charter ended, and that gave re-delivery of the Overseas Suncoast on the West Coast of the United States. So we had to reposition that vessel from the West Coast of the U.S. into the Gulf of Mexico in order to do a scheduled lifting under our Government of Israel contract, fuel cost, and effectively zero earnings of that voyage from the West Coast to the Corpus Christi loading area. That depressed earnings to some extent.
Speaker Change: Uh huh.
Speaker Change: The factors that contributed to maybe less than optimal earnings hubs TSP vessels, we had.
Speaker Change: The overseas Sun Coast onshore.
Speaker Change: Two the MFC in the fourth quarter of last year that time charter ended and then Gabe re delivery of the overseas Sun coast on the West coast, the United States. So we had to reposition that vessel.
Speaker Change: The West coast of the U S into the Gulf of Mexico in order to do a.
Speaker Change: A schedule.
Speaker Change: Lifting under our government of Israel contract.
Speaker Change: Because the fuel costs and effectively zero earnings of that voyage from the West coast too.
To the Corpus Christi loading area.
Speaker Change: That depressed earnings to some extent and then the second event has been.
Samuel H. Norton: And then the second event has been... We have seen a relatively concentrated number of voyage nominations under the Government of Israel contract during the first half of this year. That is, you know, probably related to stuff that's going on in Israel in terms of military activity. And so for at least one, and I think a couple of the voyages that may have been accounted for in the first quarter, we had to ballast back from Israel in order to meet the laycan for this next subsequent voyage.
Speaker Change: <unk>.
Speaker Change: We have seen.
Speaker Change: A relatively concentrated number of voyage nominations under the government of Israel contract.
Speaker Change: During the first half of this year.
Speaker Change: That is <unk>.
Speaker Change: Probably related to stuff that's gone on in Israel.
Speaker Change: Terms of military activity.
Speaker Change: And so for at least one and I think a couple of the voyages that that may have had.
Speaker Change: <unk> been accounted for in the first quarter.
Speaker Change: Had the ballast back from from Israel in order to to.
Speaker Change: To meet the Les can for the next subsequent voyage.
Samuel H. Norton: And normally, we're able to pick up a cargo and then get backhaul on those types of front haul voyages, but the timing of those voyages necessitated that we actually ballast back, and then the last thing that has contributed to a less, let's say, decline in earnings compared with previous quarters is that we didn't do any MSC preference cargo during the quarter. And there's been a relative lack of opportunity for those types of cargoes, which is something that is a topic of conversation amongst OSG and other companies that are participating in the Tanker Security Program, looking for ways to understand why cargo availability has been relatively low and ways to stimulate that cargo availability.
Speaker Change: Normally we're able to to.
Speaker Change: Pick up pick up a cargo and then get it back.
Speaker Change: Backhaul on those types of upfront.
The front haul voyages, but the timing of those voyages.
Speaker Change: Potatoes that we that we actually bounced back.
Speaker Change: And then.
Speaker Change: The last thing is.
Speaker Change: That has contributed to less most let's say the decline in earnings is to compared with previous quarters.
Speaker Change: We didn't do any MSE preference cargoes during the quarter and theres been a relative lack of opportunity for those types of cargos.
Speaker Change: Which is something that is a topic of conversation amongst those.
Speaker Change: OSB and other companies that are participating in the tanker security program.
Speaker Change: Looking for ways to understand why cargo availability has been relatively low and ways to stimulate that cargo availability in the future.
Speaker Change: Makes sense. Thank you final question from me general and administrative expenses increased quite significantly quarter over quarter.
Climent Molins: Make sense to you. Thank you.
Climent Molins: Final question from me: general administrative expenses increased quite significantly quarter over quarter. What were the key drivers behind that? I'm assuming it's a mixture of fees to assess SALTCUC's offer and higher spending on CO2 feasibility studies, but how should we think about the run rate going forward?
Speaker Change: What were the key drivers behind that I'm, assuming it's a mixture of fees to SaaS touch them sulfur and higher spending on <unk> feasibility studies, but how should we think about the run rate going forward.
Samuel H. Norton: You should think that the first quarter's DNA expenses are not likely to be the go-forward level.
Speaker Change: You should think that the first quarter.
Speaker Change: G&A expenses.
Speaker Change: We're not likely to be the go forward level.
Samuel H. Norton: We had a couple of relatively unique circumstances in the first quarter. First of all, compensation. Compensation payment. The way that we account for employee compensation is that we accrue at 100% of target during the year. Unknown Attendee, Climent Molins, Ryan Vaughan, Douglas Wheat, Climent Molins, beneficiaries of performance-based compensation, including principally the executive officers, attained performance at above target and therefore the performance compensation was paid out at above 100% of target. And that then was expensed in the first quarter of 2024 as per our policy. So, you won't see that repeated in the second, third, and fourth quarters of this year.
Speaker Change: We had a couple of.
Speaker Change: Relatively unique circumstances in the first quarter.
Speaker Change: First of all.
Speaker Change: Compensation.
Speaker Change: Compensation payment.
Speaker Change: The way that we account for.
Speaker Change: Employee compensation.
Speaker Change: Is the is we accrue at 100% of target during the during the year.
But if there is a premium to target that's accounted for when the awards are made.
Speaker Change: Due to the.
Speaker Change: The strong performance of always see last year.
Speaker Change: A number of.
Speaker Change: The beneficiaries of a performance based compensation, including principally the executive officers.
Speaker Change: Attained.
Speaker Change: Hum.
Speaker Change: Attained performance at above target and therefore the <unk>.
Speaker Change: Compensation.
Speaker Change: <unk>.
Speaker Change: Compensation was paid out at above 100% of our target.
Speaker Change: That then was expensed in the first quarter.
Speaker Change: 2024 as per our policy.
Speaker Change: So you won't see that.
Speaker Change: Repeated in the second third fourth quarter of this year.
Samuel H. Norton: The second contributing factor, as you have noted, is the professional fees that have been incurred in the evaluation of the non-binding indication of interest received in January. The continuation of those fees is subject to the outcome of those conversations. But they are not related to our ongoing business expenses in terms of running the business. The quantum of those fees and the impact of that going forward are still a little bit up in the air.
Speaker Change: The second contributing factor as you have noted.
Speaker Change: There have been professional fees would have been incurred in the evaluation of our of the.
Speaker Change: Nonbinding indications of interest received in January.
The continuation of those fees is subject to the outcome of those conversations.
They are not related to our I would call it our ongoing business expenses in terms of running the business.
The.
Speaker Change: The quantum of those fees.
Speaker Change: Impact of that going forward, it's still a little bit sooner, but it up in the air.
Samuel H. Norton: But I would suggest that as a modeling function and leaving those kinds of transaction fees out for the balance of this year, you can look at last year's figures, and there's probably a 3% to 5% increase in last year's figures that we would be expecting for the balance of the year.
Speaker Change: But I would I would suggest that.
Speaker Change: As a as a modeling function and leaving those kinds of transactions these out.
For the balance of this year, you can look through last year's figures and theirs.
Speaker Change: Robert Lee of 3% to 5%.
Speaker Change: Increase in last year's figures that we would be expecting for the balance of the year.
Speaker Change: Thanks for the color that's all for me. Thank you for taking my questions.
Climent Molins: Thanks for the cover. That's all from me. Thank you for taking my questions.
Operator: Operator: The next question comes from Josh Kehoe, a private investor. Please go ahead.
Speaker Change: The next question comes from Josh <unk>, a private Investor. Please go ahead.
Joshua Kehoe: Yeah, hi Sam. Hi Dick.
Josh: Yeah, Hi, Sam Hi, Thanks for taking my call just a follow up a little bit on the renewable diesel I know vertex.
Josh: In mobile, Alabama yesterday announced they were no longer be producing renewable diesel theyre going to take that unit and move it back to traditional petroleum refining.
Josh: If I remember correctly O S T Martinez.
Josh: Contracted are chartered to.
Josh: Renewable diesel and Theres just been a lot of movement in the renewable diesel markets.
Josh: For a number of reasons, but I'm, just saying if I'm curious if you're hearing anything from number one your your charterers about continuing to do that business, whether it's going up or down and number two if theres going to be any effects on what.
Joshua Kehoe: Thanks for taking my call. Just to follow up a little bit on renewable diesel. I know Vertex, you know, in Mobile, Alabama yesterday announced they were no longer going to be producing renewable diesel. They're going to take that unit and move it back to traditional petroleum refining. If I remember correctly, OSG Martinez is contracted or chartered to do renewable diesel, and there's just been a lot of movement in the renewable diesel markets for a number of reasons, and I'm just curious if you're hearing anything from, number one, your charter is about continuing to do that business, whether it's going up or down, and number two, if there's going to be any effects on what...
Joshua Kehoe: Unknown Attendee, Climent Molins, Ryan Vaughan, Douglas Wheat, Unknown Attendee, Climent Molins, Ryan Vaughan, That's the end of the question. Sorry, more of a statement. Apologies.
Josh: Martinez is going to do I know I can't believe it's chartered out through February 2026.
Speaker Change: That's the end of the question sorry more of a statement apologies.
Speaker Change:
Samuel H. Norton: Look, you know, our charter is an intermediate with Vertix, and so they have an obligation to continue to charter the vessel. I would say to you, Josh, there's tremendous demand for MR tankers right now, so I believe that if they're not able to find use for the vessel themselves, they'll be able to sub-charter that vessel out. I can also share with you that the customers that we do business with right now that are involved in the renewable diesel trade still seem to want more capacity.
Speaker Change: You know, our charterers and intermediate.
Speaker Change: With vertex.
And so they have an obligation to continue to charter the vessel are I would say to you Josh Theres tremendous demand for EMR tankers right now so I believe that.
Speaker Change: If they're not find use for the vessels themselves will be able to sub charted that vessel out Ah I can also do that.
Speaker Change: The customers that we do do business with right now that are.
Speaker Change: Involved with the renewable diesel trade.
Speaker Change: They still seem to want more capacity.
Samuel H. Norton: So, you know, that gives me some indication or some insight into the fact that there's no retreat from their commitment to being in this business. And you know, for now, the ships that we have on charter that were intended to be utilized in these trades don't come in for renewal for, you know, a year in the future. So we're watching it. But again, the sort of feedback that we're getting is that there is no retreat from commitment at this juncture.
Speaker Change: So that gives me some indication or some insight into the fact that.
Speaker Change: There's no retreat from their commitment to to being in this business.
Speaker Change: And piano for now.
Speaker Change: The ships that we have on charter.
Speaker Change: Were intended to be utilized in these trade.
Speaker Change: They don't come up for renewal for a year.
Speaker Change: Future. So we're watching it but again you know the.
Speaker Change: The feedback that we're getting is is there is no retreat from commitment at this time Sir.
Joshua Kehoe: All right. No, thank you. Thank you. That's very useful to hear.
Speaker Change: Alright perfect.
Thank you that's very useful to hear and then my second question kind of relates to that having to do with California, and California Air Resources Board in this.
Joshua Kehoe: And then my second question kind of relates to that having to do with California and the California Resources Board and this. We've discussed the commercial harbor craft rules on this before, and you may not even be able to answer this, but just say, for instance, the car doesn't back down, and suddenly the Jones Act ATVs operating in Pad 5 suddenly have to relocate to the Gulf Coast. Obviously, that would create quite a bit of consternation for at least a short time.
Speaker Change: As we've discussed before the commercial harbor crafts rules around this.
Speaker Change: You may not even be able to answer this but just say for instance, the car doesn't back down and suddenly the Jones Act Atv's operating in pad five suddenly have to relocate to the Gulf Coast, obviously that would.
Speaker Change: Create quite a bit of consternation for at least a short time.
Joshua Kehoe: Do you get a sense of how flexible the MR tanker fleet might be to move to the West Coast to replace those ATVs should this happen? Or would Pad 5 just suddenly find itself dramatically short of Jones Act tonnage?
Speaker Change: Do you get a sense of how.
Speaker Change: Flexible the MLR tanker fleet might be to move to the west coast to replace those ATB should this happen or pad.
Speaker Change: <unk> five just suddenly find itself dramatically short Jones Act tonnage.
Joshua Kehoe: Sorry, that was sort of a complicated question. Thank you very much.
Speaker Change: Alright, I was sort of a complicated question.
Speaker Change: No look as questions, but thank you very much.
Speaker Change: Aye.
Samuel H. Norton: I believe that if the scenario that you painted, which is that CARB doesn't back down, insisting that ATBs that currently operate on the West Coast have Tier 4 engines, those vessels will reposition to the Gulf Coast, and I think that will create sufficient capacity to allow repositioning of MR tankers to the West Coast to backfill that, you know, the vacancy or the void that those repositioning ATBs will create I think what's interesting is in the medium term, that'll, you know, in the short term, that'll create some certainly some inefficiencies. Cargo lot sizes on the West Coast have tended to be smaller than full MRR capacity vessels. That's one of the, you know; it may be a chicken and egg situation.
Speaker Change: I believe that.
Speaker Change: That if the scenario that you paid it.
Speaker Change: Which is that carb doesn't back down.
Speaker Change: Insisting that.
Speaker Change: The T V's that currently operate on the West coast have tier four engines.
Speaker Change: I think those vessels will repositioned to the Gulf Coast, and I think that will create.
Speaker Change: Sufficient capacity to allow repositioning of MLR tankers to the west coast backfill.
Speaker Change: That you know the vacancy or the void that those repositioning a T b's will create.
Speaker Change: What's interesting is.
Speaker Change: In the medium term.
Speaker Change: In the short term that will create some certainly some inefficiencies.
Speaker Change: Cargo a lot sizes on the west coast have tended to be smaller that pool MLR capacity vessels.
Speaker Change: One of them it it may be a chicken and egg may because of the atvs or smaller lot sizes.
Speaker Change: Our smaller once the AR or if the tankers replace ACB is on the West coast.
Samuel H. Norton: It may be because the ATBs are smaller and lot sizes are smaller. Once the, or if the tankers replace ATBs on the West Coast, I think it'll take some time, a little bit of time for the traders to readjust to having more capacity in the form of larger ships. In a similar way, the repositioning of those ATBs to the Gulf Coast will be a reduction in efficiency because smaller lot sizes will be moving.
Speaker Change: I think it'll take some a.
Speaker Change: A little bit of times for the traders to readjust to having more capacity.
Speaker Change: And in the form of larger ships.
Speaker Change: In a similar way.
Speaker Change: The repositioning of those Atvs to the Gulf Coast will will be you know.
Speaker Change: A reduction in efficiency, because smaller lot sizes will be moving in.
Samuel H. Norton: and the implied cost of care.
The implied.
Samuel H. Norton: The cost of transportation on a unit basis will probably go up. I think the market will solve that problem over time in the short term. Yeah, there will be some disruptions as ships reposition from one place to another, but the market signals, I think, will direct a solution to that over time, with, as I said, probably a decline in efficiency and maybe an increase in unit cost delivery.
Joshua Kehoe: Great, thank you very much.
Speaker Change: Cost of transportation on a unit basis will probably go up.
Speaker Change: But I think the market solves that problem over time in the short term, yes, there will be some disruptions as ships repositioned from one place to another.
Speaker Change: But the market signals I think will direct our.
Speaker Change: Our solution to that overtime.
Speaker Change: With as I said probably declining.
Speaker Change: The decline in efficiency, maybe increase in unit cost deliveries.
Speaker Change: Great. Thank you very much.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Sam Norton for closing remarks.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Sam Norton for closing remarks.
Samuel H. Norton: Thank you, Danielle, and thanks, everybody, for joining in today. We appreciate your participation and your continuing interest in OSG, and we look forward to speaking to you again, sir. Have a good morning.
Samuel H. Norton: Thank you Danielle and thanks, everybody.
Samuel H. Norton: For joining in today.
Samuel H. Norton: We appreciate your participating in and your continuing interest in <unk> and we look forward to speaking to you again Sir.
Samuel H. Norton: Good morning.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.