International Seaways, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the International Seaway's first quarter 2021 earnings call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today, Mr. James Small, General Counsel. Please go ahead.

Thank you. Good morning, everyone, and welcome to International Seaway's earnings release conference call for the first quarter of 2021. Before we begin, I would like to start off by advising everyone with us on the call 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, changes in 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, the timing and likelihood of the completion of our announced merger with Diamond S Shipping, any plans to issue dividends, Any anticipated synergies or other benefits from the proposed transaction and the parties' respective prospects. 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 G&A expenses. Estimated bookings and TCE rates in the first quarter, second 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. Forelooking statements are subject to risks, uncertainties, and assumptions, many of which are beyond the company's control, that could cause actual results to differ materially from those implied or expressed by the statements. Factors, risks, and uncertainties that could cause international COAs actual results to differ from expectations include those described in its quarterly report on Form 10-Q for the first quarter of 2021, our 2020 annual report on Form 10-K, our recently filed registration statement on Form S-4, and then 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 Zabrocki. Lois?

Thank you very much, Gene. Good morning, everyone. Thank you for joining International Seaway's earnings call to discuss our first quarter 2021 results. The first quarter was transformational for International Seaway. We took important steps to unlock significant value for our shareholders. This includes our highly accretive merger agreement that will create an industry bellwether with enhanced scale and capabilities. we are again capitalizing on an attractive opportunity to further renew our fleet at a cyclical low point for the benefit of shareholders. If you would turn to slide four, we review the compelling value-creating transactions and our first quarter financial results. Starting with the first bullet, our all-stock merger agreement with Diamond S brings together two leading US-based diversified tanker owners with long-term customer relationships, deep cultures of achieving stringent safety, operational standards, and strong governance. With this, we expect to deliver a number of compelling strategic and financial benefits to our shareholders and to stakeholders of both companies. The combination of of international seaways in Diamond S doubles our net asset value and triples the size of our fleet to 100 vessels. We are creating the second largest U.S.-listed tanker company by vessel count and the third largest by dead weight. We expect to solidify our power alley in the large crude sector focused on Vs and Suez maxes. and to create a power alley in the MR product sector. Among other notable benefits, we expect the merger to be highly accretive to both earnings and cash flow per share, with the estimated annual cost of synergies $23 million and revenue synergies of $9 million. We will increase our equity market capitalization and our liquidity which we anticipate will provide an opportunity for a re-rating of our equity valuation. We preserve our significant financial strength and maintain one of our lowest, the lowest, net leverage ratios in global shipping. As part of this attractive transaction, we have continued to ensure the return of capital to our shareholders. This is highlighted by the 31.5 million special dividends to be paid to shareholders immediately prior to completing the merger. We reaffirm our commitment to paying the quarterly dividends and opportunistically executing on our $50 million share repurchase program following the close. On the second bullet, we highlight our dual-fuel VLCC project We have contracted to build three dual-fuel LNG VLCCs from top-tier Korean shipyard DSME for delivery in early 2023. We are executing our balanced and accretive capital allocation strategy. Adding these state-of-the-art vessels on seven-year time charters to Shell provides a strong, stable cash flow with a base rate and profit sharing that allows us to capture upside. Importantly, these tankers are well-suited to adhere to future environmental regulations throughout their life. They're 40% more fuel efficient than a 10-year-old VLCC and 20% more efficient than a modern eco VLCC. In line with our ESG principles, these are highly efficient ships that will surpass today's IMO Energy Efficiency Design Index, and they will substantially outperform the 2025 EDI targets. This builds on our signing of the first sustainability-linked refinancing in the industry, which was completed at the beginning of last year. We're proud to continue to be at the forefront of sustainability initiatives in the maritime sector. We believe the addition of these vessels at attractive prices represents a compelling opportunity to once again renew our fleet at the bottom of the cycle. New building VLCC prices have risen by close to 10% subsequent to our contract date. This purchase is consistent with our track record of opportunistically deploying capital for growth since becoming an independent public company more than four years ago. On the final bullet of this slide, our first quarter net loss was $13 million, or 48 cents per share. In a weakened rate environment where oil inventory destocking adversely impacted tanker demand, we generated an adjusted EBITDA of $11 million. It's important to note that as of the end of the quarter, we had ample total liquidity of $212 million, including $172 million in cash. On slide five, we discussed our disciplined and accretive capital allocation track record. This chart highlights our success investing over $900 million to renew our fleet at the low points in the tanker cycle. As the chart on the slide shows, the nine ships acquired at the bottom of the cycle, which includes six VLCCs acquired in 2018 for $434 million, and two Suez Maxis and one VLCC acquired in 2017 for a combined $169 million, have materially appreciated in value since their acquisition on an age-adjusted basis. Most importantly, these nine shifts contributed a cumulative $225 million in operating income through the end of the first quarter. Further illustrating our ability to adeptly identify attractive fleet renewal opportunities, you can see that we ordered our Shell Project new buildings at a cyclical low point as well. And as I just mentioned, new building prices are on the rise. If you'll turn to slide six, we provide an update on oil supply and demand. OPEC has announced increased production, and Saudi Arabia will roll back its voluntary cuts. This will amount to an additional 600,000 barrels per day in May, 700 in June, and 800,000 barrels per day in July. Based on its April forecast, the IEA estimates that 2021 oil demand will be up by 5.7 million barrels per day. This is actually an increase from the last report of 300,000 barrels per day. The EIA's 2021 demand forecast is even more robust. They expect demand to average 97.7 million barrels per day this year. Consistent with this recovery in demand, the EIA expects global oil inventories will fall by 1.8 million barrels per day in the first half of 2021. We believe that this continued drawdown is what was needed to set the stage for tanker market recovery. And when combined with the OPEC Plus production increases, a surge in demand for oil as the world begins to open up and vaccinations are administered globally, this all signals improvements in the tanker market. Our positive view of the long-term outlook for crude and product tanker demand is one of the major reasons that we are so excited for our merger with Diamond S. On slide seven, we examined development in the clean product market. Due to the COVID-19 slowdown in global demand during the first half of 2020, Refinery outages globally approached almost $12 million per day, recovered somewhat in the second half of the year. Record cold temperatures in the United States in the first quarter led to a similar increase in refinery outages. These outages have since decreased, and refineries are running close to five-year highs. The U.S. Gulf refinery utilization rate only yesterday popped over 90%. This is a very strong indicator. This allows for increased diesel oil exports from the U.S. Gulf, and we're also seeing increases in gasoline demand in the United States, where we're very close to 9 million barrels per day. We've been seeing over a million barrels a day of gasoline imports into the East Coast. All of these recent moves bodes very well for the MR sector and we see that the spot market is starting to increase. Turning to slide eight, we take a look at ship supply. We've mentioned this previously and it continues to be the case that overall tanker order books remains at historic lows. This is reflected in the 31 VLCC orders in 2019 same amount in 2020, and 27 ordered to date this year. We believe that uncertainty regarding the market as well as decarbonization regulations and higher steel input costs and increasing new building prices are tempering the orders. On the bottom half of the slide, we take a look at the potential for recycling There's a number of candidates based on the aging global fleet. You can see in the chart on the right-hand side of the slide, nearly 20% of the existing VLCC fleet is now at least 17 and a half years old, and 8% are 20 or older, representing the majority of the VLCC order book. Another nine of these will reach 20 years old in 2021. As these ships reach these deadlines, the expenses increase and ballast water treatment installations loom. This greater capital investment is required to keep them trading. Based on these combined dynamics, the potential for recycling has been building. Only four VLCCs were recycled in 2019 and 2020. We expect to see recycling increase, particularly given the current low spot rate environment and the increase in recycling prices. I would now like to turn it over to Jeff to give the financial review. Jeff?