International Seaways, Inc.

Good morning, and welcome to the International Seaway's fourth quarter 2020 earnings call. All participants will be in 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. Please note, this event is being recorded. I'd now like to turn the conference over to James Small, Chief Administrative Officer and General Counsel. Please go ahead. Thank you.

Good morning, everyone, and welcome to International Seaway's earnings release conference call for the year ended December 31st, 2020. Before we begin, I would like to start off by advising everyone on the call with us today of the following. During this call, management may make forward-looking statements regarding the company or the industry in which it operates. Those statements may address, without limitation, the following topics. Outlooks for the crude and product tanker markets, changing oil trading patterns, Forecasts of world and regional economic activity and of the demand for and production of oil and other petroleum products. The effects of the ongoing coronavirus pandemic. The company's strategy. Purchases and sales of vessels, construction of new build vessels and other investments. Anticipated financing transactions. Expectations regarding revenues and expenses, including vessel charter hire and GNA expenses. estimated bookings and TCE rates for the first quarter of 2021 or other periods, estimated capital expenditures in 2021 or other periods, projected scheduled dry dock and off-hire days, the company's consideration of strategic alternatives, the company's ability to achieve its financing and other objectives, and other economic, political, and regulatory developments around the world. Any such forward-looking statements take into account various assumptions made by management based on a number of factors, including management's experience and perception of historical trends, current conditions, expected and future developments, and other factors that management believes are appropriate to consider in the circumstances. Forward-looking statements are subject to risks, uncertainties, and assumptions, many of which are beyond the company's control, which could cause actual results to differ materially from those implied or expressed by those statements. Factors, risks, and uncertainties that could cause international seaways actual results to differ from expectations include those described in our annual report on Form 10-K for 2020 and in other filings that we have made or in the future may make with the U.S. Securities and Exchange Commission. With that out of the way, I would like to turn the call over to our President and Chief Executive Officer, Ms. Lois Abraki. Lois?

Thank you very much, Gene. Good morning, everyone, and thank you for joining International Seaway's earnings call to discuss our fourth quarter and our full year 2020 results. 2020 was a pivotal year for International Seaway. We benefited from our earnings power and our timely chartering decisions early in the year. During the period that started out very strong and became challenging and volatile for tankers, we locked in significant cash flows, by extending our fixed employment on our FSO joint venture through 2032. We transformed our capital structure in 2020. We significantly delevered our balance sheet. We repurchased 5% of our outstanding shares, and we implemented a dividend during 2020. If you turn to slide four, I review specific fourth quarter highlights and our year-to-date 2021 development. Starting with the first bullet, we increased our financial strength in the fourth quarter, even during a weakening tanker market. We signed a 10-year contract extension on our FSOs, both custom-built, high-specification units. These are the FSO Asia and the FSO Africa. This contract is in direct continuation of the current five-year deal, and the 10-year extensions produce significant locked-in revenue, and it crystallized their commercial value. The extensions generate approximately $20 million annually in cash flow to Seaway through 2032 for a total of more than $320 million in revenue over the life of the contract extension. We look forward to continuing to support North Oil Company on the field. This is a joint venture of Tatar Petroleum and Total. During the fourth quarter, we generated in excess of $60 million in cash proceeds from the sale of our three unencumbered vessels, further improving our fleet age profile. These sales included two older VLCCs and one older APROMAC. This leaves us with 11 unencumbered ships in our seaways fleet. We ended the quarter with $199 million in unrestricted cash. This includes, including our $40 million revolver, which is undrawn, our total unrestricted liquidity was $239 million, representing a quarter-over-quarter increase of more than $60 million in the fourth quarter. As further evidence of our financial strength and our flexibility, our net loan-to-value of 33% is still one of the lowest in the shipping sector. If you move, please, to the second bullet, we are so excited to announce our agreement this week to contract to build three LNG-fueled dual-fuel VLCCs from top-tier Korean shipyard DSME for delivery in early 2023. This project puts seaways on our future path. It enables us to achieve a number of critical strategic objectives. First, adding these vessels to our fleet on seven-year time charters to market-leading customer shell provides strong, stable cash flows with added upside. We are pleased to once again renew our fleet at the cyclical low and to access very competitive financing combined with a favorable payment schedule, which Jeff will detail further on the call. Second, these VLCCs being 40% more efficient than a 10-year-old vessel and 20% more efficient than the most modern ECHO VLCCs on the water today. We expect they will remain well-suited to adhere to future environmental regulations throughout their life. Importantly, These are highly efficient ships that will not just surpass today's IMO Energy Efficiency Design Index, but also substantially outperform the 2025 EEDI targets. The environmental benefits of these three ships substantially reduces our carbon footprint and are in keeping with our commitment to ESG-focused corporate citizenship. We're proud to continue to be at the forefront of sustainability initiatives in the maritime sector, This builds on our last year's signing of the first sustainability linked refinancing in the industry. Moving to the next bullet, we continue to implement our disciplined and accretive capital allocation strategy. During 2020, we repurchased nearly 5% of our outstanding shares while paying 24 cents per share in quarterly dividends, including a fourth quarter dividend of 6 cents. As we mentioned last quarter, our board has authorized the increase of our share buyback program to $50 million. It is C-Way's intention to continue to return cash to shareholders in 2021. If you'll turn to the last bullet, in 2020, we had a net loss of $5.5 million, or 20 cents per share. Excluding one-time non-cash items, we generated a record net income profit of $125 million. In a weakening rate environment, our fourth quarter net loss was $15 million, taking into account $86 million in vessel impairments and $16 million in non-cash charges related to the FSO extensions. It's important to note that our success executing four very favorable VLCC time charters earlier in 2020 helped us to optimize revenue later in the year when oil inventory destocking adversely impacted tanker demand. In addition to generating strong cash flows from two of these time charters into 2021, the extensions of our FSO joint venture contracts in the fourth quarter bolsters our contracted cash flows through 2032. Further, we concentrated many of our dry docking during the latter half of 2020 and into early 2021 during the challenging market period This bodes well for the year ahead as our ability to capitalize on the coming tanker market recovery. Turning to slide five, we provide an update on oil supply and demand. Based on its February forecast, the IEA estimates oil demand to increase 5.4 million barrels per day, recovering about 60% of the volumes that were lost in 2020. The IEA expects demand will increase to 99 million barrels a day by the fourth quarter of 2021. The EIA expects a further 3.5 million barrels per day of growth in 2022. While demand is recovering and rising, global oil stocks are 62.8 million barrels below the May 2020 peak, according to the IEA. We continue to believe that stock drawdowns are needed to set the stage for a tanker market recovery. While the decision by OPEX Plus not to significantly increase production quotas, we know that this is putting pressure on inventory levels. Floating crude storage has already decreased to pre-pandemic levels. If you'll turn to slide six, we talk about ship supply. As we have mentioned, on former calls, the overall tanker order book remains at historic lows. Only 31 Vs were ordered in 2019, 41 ordered in 2020, and 10 orders were canceled recently. We believe that the uncertainty regarding the market as well as decarbonization regulations, higher steel input costs, and already increasing new building prices is tempering the ordering. Moving to the bottom half of the slide, Regarding the potential for recycling, the number of candidates based on the aging global fleet exceeds the VLCC order book by dead weight in the coming years. As you can see in the chart on the right hand of the slide, a quarter of the existing VLCC fleet is now at least 15 years old and 8% is already over, is at least 20 or over, representing the entire VLCC order book. Another 13 bees will reach 20 years old in 2021. As we have highlighted consistently, once vessels reach the age of 15, they're more expensive to operate, they have significant investment requirements to continue to trade. As ships reach their ballast water treatment deadline, even greater capital investment is required to keep them trading. Based on these dynamics, the potential for recycling has been building. Only four Vs were recycled in both of 2019 and 20. Recycling is likely to increase, particularly given the current low spot rate environment and increasing recycle prices. Lastly, before I hand the call off to Jeff, I would like to take a moment to thank our seafarers. Amidst this global pandemic, our ship's crews continue to adhere to the highest levels of standards. We're very grateful for their remarkable efforts. With seafarers playing an essential role in making global trade possible, we have shared responsibility to their health and their safety. In January, we signed the Neptune Declaration on Seafarer Well-Being and Crew Changes in a worldwide call to action. The goal is to end the unprecedented crew change crisis caused by COVID-19. At Seaways, we have taken important steps to repatriate our crews, things like deviating ship to more convenient ports for our seafarers, implementing extra measures to prevent the spread of the virus, and arranging for private charter flights where it's necessary. As the production and the distribution of vaccines increases globally, we look forward to seafarers' contribution as essential workers being recognized and getting them priority access to these critical medicines. I'm going to turn the call over to Jeff, who will provide additional details on our fourth quarter results.