International Seaways, Inc.

Hello and welcome to the International Seaway's fourth quarter and full year 2021 results. My name is Katie and I'll be coordinating your call today. If you'd like to ask a question during the presentation, you may do so by pressing star one on your telephone keypad. I will now hand over to your host, James Small of General Counsel to begin. James, please go ahead.

Thank you. Good morning, everyone, and welcome to International Seaway's earnings release conference call for the fourth quarter and fiscal year 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 include, 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 anticipated cost savings and other synergies and benefits from our merger with Diamond S, any plans to issue dividends, our prospects, purchases and sales of vessels, construction of new-build vessels and other investments, anticipated and recent financing transactions, expectations regarding revenues and expenses, including vessel, charter hire, and G&A expenses, estimated bookings and TCE rates for periods in 2022, estimated capital expenditures for periods in 2022, 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 the statements. Factors, risks, and uncertainties that could cause International Seaway's actual results to differ from expectations include those described in our forthcoming 2021 annual report on Form 10-K and in other filings that we have made or in the future may make with the U.S. Securities and Exchange Commission. Now let me turn the call over to our President and Chief Executive Officer, Ms. Lois Zabrocki. Lois?

Thank you very much, James. Good morning, everyone. Thank you for joining International Seaway's earnings call. to discuss our fourth quarter and our full year 2021 results. As we hold this call this morning, Russia continues its invasion into the Ukraine. All of those affected by the violence and all of those in danger's way are in our thoughts this morning. Turning to seaways results, 2021 was a pivotal year for international seaways. as we strengthen our market position. We enhanced our ability to capitalize on an improving tanker market this year and to create enduring value for our shareholders. Oil demand has returned. Projections for refinery runs to increase by 4 million barrels per day from March to July of this year. This increased pull from demand feeds our optimism for an improved tanker rate environment. Our ships are employed in top performing commercial pools. With our significant operating leverage, we will take advantage of favorable market development. Inventories are now at the lowest level since 2014. And oil demand, as we mentioned, is recovering. inventory draws have continued. Oil production is expected to increase in 2022. OPEC has affirmed their April cuts will unwind at 400,000 barrels per day. This pace should continue for the remainder of 2022 with 400,000 barrels per month. Non-OPEC United States, Canada, Brazil, and Guyana should add supply in 2022 at about 1.7 million barrels per day. Please turn to slide four, where we summarize our momentous year. This is highlighted by substantial return to our shareholders, the completion of our transformational merger, and our success optimizing the fleet and strengthening our balance sheet and our capital structure. Since becoming an independent tanker company over five years ago, we have built a track record, executing an accretive and balanced capital allocation strategy in order to maximize value for our shareholders. In addition to purchasing ships at cyclical lows, a key component of our proven approach has been returning capital to our shareholders. And this is outlined in the first series of bullets. We're proud to have returned $58 million to shareholders in 2021. This reflects $17 million of share repurchases in the fourth quarter, a regular quarterly dividend of 6 cents, as well as the $31.5 million of special dividends that we paid in the third quarter. Combined with $37 million of returns in 2020, Seaways has returned nearly $95 million to shareholders over the last two years, amidst challenging tanker market conditions, and importantly, while maintaining a very strong balance sheet. Turning to the next series of bullets on the upper right of the slide, we completed our merger with Diamond S in 2021, nearly doubling our net asset value and tripling our fleet size. Seaways is now the largest US listed diversified tanker company. We expect to realize over $35 million in synergies in 2022. During our integration efforts, the team did a deep dive into cost structure and historic performance, which resulted in a refinement of our estimates. These synergies represent a permanent benefit to consolidation. After the merger, We implemented a fleet optimization program. This capitalized on healthy secondhand values and strong steel demand. This has resulted in the sale or recycling of 16 older tankers with an average age approximating 16 years. We lowered the age of our profile of our fleet to below nine years and received aggregate net proceeds of $92 million after all costs including debt repayment of approximately $74 million. We have bolstered our Panamax presence in our strong earning niche joint venture, Panamax International. Earlier this week, we took delivery of the Seaways Eagle, a 2011 built LR1, and next week we will deliver to the same counterparty a 2010 built MR. The Seaways Eagle will join the Panamax pool where we have earned over $22,000 per day in the first quarter to date. We also agreed to sell a 2004 built Panamax for recycling in February. In line with our ESG commitment to responsible recycling, all recycled vessels have been processed under our oversight and in accordance with the Hong Kong Convention. Moving to the bottom left-hand column of the slide, we have maintained a strong balance sheet, further positioning seaways for long-term success. We've made significant progress enhancing our capital structure and our financial flexibility this year, including a number of attractive financing initiatives that Jeff will get into more detail on in his portion of the call. Our net loan-to-value of 45% is balanced with largely senior debt, some leases with purchase options, and a small fixed bond. With year-end total liquidity of approximately $240 million, we have operated effectively in challenging canker markets. Turning to our financial results, our fourth quarter net loss was $29 million for $0.57 per share excluding merger-related costs and gains on vessel sales. Our full year net loss was $86 million, or $2.24 per share, excluding the same items. In a sustained weak rate environment, we generated adjusted EBITDA of $12 million for the fourth quarter and $40 million for the year. Turning to slide five, while the situation in Russia and the Ukraine is creating tremendous volatility in energy markets. We address the fundamental tanker underlying drivers, providing a broad overview of the current oil supply and demand balance. With the fading impact of the pandemic on global oil demand, projections indicate 2022 oil demand increasing at over 3 million barrels per day to nearly 101 million barrels per day in the end of 2022. Oil production is expected to increase to all-time highs in 2022. We anticipate boosted production in the West, led, as mentioned, by the United States, Canada, and Brazil and Guyana, contributing to this growth. While OPEC Plus has fallen short of its production targets by country, compliance may be challenged in a very high oil price environment as today. Incremental production based on these dynamics is likely to be moved by sea. This increases the demand for tankers. We are closely watching the outcome of negotiations as the lifting of Iranian sanctions could increase commercial oil supply by over a million barrels per day by the end of the year. And this would reduce tanker supply, which we discuss in a moment. Looking at the bottom right chart, inventories have been reduced to their lowest levels in seven years, providing 60 days of forward demand cover. With oil supplies from Russia struggling to find buyers, Western grades such as WTI and Brent are in strong demand. We are seeing U.S. crude exports to Europe and even the long hauls to the Far East that we've been missing in the marketplace. On slide six, we turn to vessel supply. As you can see in the bottom left chart, the global fleet has grown 3.8% since the start of the pandemic. At the same time, the average age of the tanker fleet has increased to nearly 12 years on average. We continue to believe recycling has the potential to limit fleet growth, particularly as we see recycled volumes increase in the latter half of 2021 and into early 2022. Recycling values are historic highs after adjusting for inflation. In terms of sanctions on Iranian oil, because the sanctioned trades are largely serviced by older vessels, we expect the removal of sanctions would lead to the recycling of these assets that are trading outside the normal international markets the overall tanker order book stands at seven percent by dead weight this is the lowest level ever relative to the size of the fleet and several factors continue to limit supply foremost With reputable shipyards filled with contracts for other shipping sectors, the earliest new building slots are often in late 2024 or in 2025. Secondarily, ordering has been tempered by uncertainty around future environmental regulations. And finally, new building prices are near all times highs, and this has also had the effect of limiting tanker owners from ordering. I would now like to turn the call over to Jeff, and he'll give us a further dive on the financial review. Jeff?