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?

Thanks, Lois, and good morning, everyone. Let's move directly to reviewing the fourth quarter results in more detail. Before turning to the deck, let me just quickly summarize our consolidated results. In the fourth quarter, we generated an adjusted EBITDA of $11.9 million. and net loss for the quarter was $34 million, or $0.68 per diluted share, compared to $116.9 million, or $4.18 per diluted share, in the fourth quarter of 2020. However, excluding the impact of the disposal of vessels, including impairments, loss and distinguishing of debt, write-up of deferred financing costs, and merger-related costs, the aggregating $5.1 million, the net loss would have been was 28.9 million or 57 cents per diluted share. Now if we could turn to slide eight. This slide summarizes the year over year results of our business segments for the fourth quarter located in the top half of the slide and full year at the bottom half of the page. The decrease in Q4 and last 12 months revenue and EBITDA primarily resulted from the impact of lower average blender rates in both crude oil and product sectors. Now if we can turn to slide nine, we provide a fourth quarter review and first quarter 2022 earnings update as of this point. For bookings in Q1 thus far, we've booked 64% of our available spot days for our VLCCs and an average of approximately $12,400 per day, 77% of our available SUISMAX spot days and an average of $12,800 per day, 68% of available AFMAX and LR2 spot days, and an average of $12,800 per day also, and 73% of available Panamax spot days and an average of approximately $22,800 per day. Turning to the product side, we booked 68% of our first quarter MR spot days and an average of approximately $12,700 per day, and 72% of our handy size spot days and an average of approximately $14,300 per day. I'd like to add that these rates should not be construed as guidance for the full quarter, with global geopolitical events evolving rapidly and the market subject to significant change in the immediate term.

Turning to slide 10. The estimated cash cost TCE break evens for the four to 12 months beginning January 1 are illustrated on this slide.

International Seaways overall break even rate is estimated to be $17,200 per day for the next 12 months. As we always provide, these are all-in daily costs that our fleet must earn to cover vessel operating costs, dry docking costs, cash G&A expense, and debt service costs, which means scheduled principal and interest expense. At this point, I'd also like to provide cost guidance for the year for your modeling purposes. This year, 2022, We expect regular daily OPEX, which includes all running costs, insurance, management fees, and similar related expenses for our various classes to be as follows. For VLCCs, $9,000 per day. For SUISMAX, $7,600. For AFRAMAX, $8,200 per day. For Panamax, $7,900. For MR, $7,200. And for Handyside, $7,200 per day also. We expect dry dock and capital capex expenses to be $41.2 million and $34.4 million, respectively. These costs are related to ballast water treatment systems and other upgrades in anticipation of 2023 EEXI energy efficiency requirements. For details on projected dry dock capex and off-hire days by quarter, you can refer to slide 17 in the appendix for an update. Continuing with cost guidance, we expect 2023 interest expense to be approximately $40 to $45 million. For the year, we expect cash G&A to be in the region of $31 million. And finally, we expect about $15 million in equity income and approximately $113 million for depreciation and amortization.

Now, if I can ask you to turn to slide 11, we highlight the $25 million in cost synergies

we expect to realize this year in connection with our merger last year with Diamond S. At the bottom of the slide, you'll see an illustration of the general administrative synergies totaling more than $20 million. This includes over $15 million in savings related to the consolidated management team and board and other public company expenses, such as audit fees, $3 million based on other office and administrative savings, and $2 million as a result of the termination of the capital shift management contract in connection with the merger. The remaining $5 million in cost synergies are related to OPEX, with $3 million in savings and technical management fees and $2 million based on consolidating insurances. These cost synergies are tangible savings to expenses that would have been incurred if the two companies were separate. There's a natural ebb and flow as to the timing of these expenses, but we are very confident in saying that these will be realized in 2022. Finally, given the historical performance of pools compared with other commercial management, we believe the pools in which we now deploy our vessels with the benefit of greater scale will generate over $10 million of revenue synergy compared to the rates earned by these vessels pre-merger. To be clear, we do not recommend anyone who models INSW to add $10 million to your TCE revenues. You've likely already captured this in your TCE estimates. We are just pointing out that there is added value in the pools versus historical performance. So this is another synergy benefit of the merger.

Now let's move to slide 12 for our cash bridge. Moving from left to right, we began the fourth quarter with total cash and liquidity of $173 million.

During the quarter, our adjusted EBITDA was $12 million. Equity income from JVs decreased cash by $5 million, and the cash distributions from the JVs were a positive $3 million from the FSO JV. We expended $33 million on dry docking and CapEx. We also paid $10 million in installments on our dual-fuel LNG new builds. The liquidity enhancements totaled $91 million, which included proceeds from vessel sales, net of debt repayments, proceeds from sale leaseback transactions, net of debt repayments, the paydown of a swap in connection with the sign-and-share facility, and voluntary payments on our revolving credit facilities. I'll discuss several of these financing initiatives in just a minute. Finally, taking into account the $53 million of debt service, the $20 million quarterly dividend, and $19 million impact from working capital and other changes, the net result is that we ended the quarter with approximately $99 million in cash and a $140 million undrawn revolver, yielding total liquidity of $239 million at December 31. Before turning to slide 13, I'd like to briefly touch on the specifics of our fourth quarter balance sheet and liquidity enhancements. As Lois mentioned, we've implemented a fleet optimization program, which yielded net proceeds of $32 million in Q4. Additionally, as discussed in our previous earning calls, last earning call, we entered into a lease financing arrangement for the six VLCCs that had collateralized our sign-insure credit facility. The proceeds of this refinancing were used to prepay the $228 million outstanding loan balance under the sign-insure facility, and therefore increased our overall liquidity by approximately $150 million, $100 million of which was used to repay our existing revolving credit facilities. Lastly, we refinanced two MRs and two AFRMAX through sale leasebacks. Three of these transactions were completed in 2021 with net proceeds of $27 million, and the fourth was completed in January. Now, I'd like to turn to slide 13 to discuss our balance sheet a little more. As of December 31st, we had $2.3 billion of assets compared to $926 million of long-term debt. In addition, as mentioned, we had $140 million of revolving credit facility remained undrawn as of December 31. As you can see on the bottom left of the slide, our net debt to total capital stands at 46%, while our net loan to value of our conventional fleet stands at 45%. The portion of our debt to fixed or hedged is 37%. Since year's end, I'd like to highlight that we completed the sale lease back of a 2010 built MR in January, which increased our liquidity by approximately $6 million. It should also be noted that our final payment on the forthcoming LNG dual fuel new builds was paid in February. These new buildings are now fully financed in the previously announced lease financing structure with BOCA. This finalizes the financing of our current new building program with vessels that are built to better the environment are attached to a fixed seven-year earnings contract with shell and as noted equality financing arrangement turning to slide 14 we look at our debt as a 1231 reflective of the completed merger as you see our total debt balance is approximately 1.12 billion with 140 million dollars of undrawn revolving capacity as we continue to maintain a healthy balance sheet our debt reflects a highly competitive cost of capital

long-term maturity profile with the vast majority of debt due in 2024 or later that concludes my remarks so i'd now like to turn the call back to lois for her closing comments thank you jeff on slide 15 we detail seaways investment highlights seaways continues to execute our disciplined and balanced capital allocation strategy which enables us to create significant and enduring value for our shareholders Since our spinoff in 2016, we have transformed the company into the largest US-based diversified tanker company. We've been acting decisively to capitalize on attractive growth opportunities. Complementing the $900 million of vessels that we purchased at cyclical lows, which was completed without issuing any equity, our merger with Diamond S last year doubled our net asset value, tripled our fleet size, and significantly enhanced our scale and our earnings power. Returning capital to shareholders remains a central component of our balanced approach to capital allocation, and we're proud to have returned $95 million to our shareholders over the last two years in dividends and repurchases. Our commitment to upholding best-in-class ESG standards is another of Seaway's key differentiators. We believe that the diversity and the independence of our board, our commitment to the environment as demonstrated by our dual fuel VLCC new building order, and our status as the first shipping company to secure sustainability-linked financing provide significant benefit to our customers, our shareholders, and our lenders. We have been ranked in the top three in the Weber Research ESG rankings for the past four consecutive years. Supporting both our ESG initiatives as well as our focus on meeting the exacting requirements of leading energy companies is our hybrid operating model, focused on safety first and flexibility. At the core of this model is an unrelenting commitment to adhering to stringent safety and environmental standards, which is made possible by Seaway's dedicated seafarers. We rely on our seafarers to ensure the safe, reliable, and efficient transportation of energy cargoes for our customers. Amidst the global pandemic, the ship's crew have done a remarkable job adhering to the highest level of not only safety, but professional standards. We're particularly proud to share that we have reached the milestone of vaccinating over 83% of our 2,500 seafarers. This is a number that we're working to increase every day. In terms of our operating model, our sector-leading commercial pools, many with INSW ownership, such as Tankers International and Panamax International Joint Venture, provide a competitive advantage to seaways. TI is one of the largest VLCC pool operators in the world, and as a founding member over 20 years ago, we have taken active role to expand the global competitiveness of the pool. In 2020, we established TI's New York City office in Seaway's headquarters. Another hallmark of Seaway's success has been our focus on maintaining balance sheet strength. We continue to take steps to enhance our balance sheet and our capital structure with one of the lowest net loan to asset values in the industry, as well as a liquidity of $240 million. We are well positioned to operate in the diverse tanker environment. I'll end my remarks by briefly discussing Seaway's significant upside potential to improving rate environment. As mentioned earlier on the call, we see a number of positive market developments that could translate to a stronger rate environment for us in the second half of 2022. Based on our sizable fleet of 84 conventional tankers, we have significant operating leverage to capitalize on this. I note that every $5,000 per day improvement in the time charter equivalent daily rate provides over $150 million to incremental EBITDA, or about $3 earnings per share per annum. Thank you very much, and we would now like to open it up to questions.

If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you would like to remove your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. We take our first question from Randy Gervais from Jefferies. Please go ahead.

Howdy, Lois and Jeff. How's it going?

Very good, Randy. How are you today?

Hey, Randy. Oh, I'm doing well. First question, just around current rates. We're seeing some crazy jumps in the headline average rates, but most of those are being skewed by just a couple of kind of black sea routes. So are you doing any cargoes in or around Russia, Ukraine? And I guess for INSW more specifically, what levels of rates are you booking vessels at today for your various asset classes?

okay so let's just take the the first of your questions randy and since uh you know russia invaded the ukraine on the 24th so for the last week at international seaways we have not booked any fresh cargoes loading any russian ports and this is a very fluid situation you're seeing uh sanctions and trading change every day so you know the the 1st, and foremost at seaways is number 1 is safety and then making sure that we're navigating the legal labyrinth out there for sure. You have to make sure that you're able to receive payments and we understand that there are cargos now where the URLs are trading at. in the Black Sea, a $20 discount, and some of these cargoes are going wanting. So, you know, we are simply monitoring this situation extremely closely with, you know, each of our pools. Of course, all of our ships are effectively working, and, you know, we have seen, if I take it kind of from the top, you know, we have seen an increase in VLCC rates, and, you know, you're looking at trade somewhere around $25,000 per day on that sector. When you come down to the Suez Maxis and Afromaxis, this is where you're starting to see a much broader differentiation between those that are potentially trading in the Black Sea and those that are not. But even on non-Russian cargo trade, Derek, what would you say? I'm going to have Derek Salone, our chief commercial officer, just share a little bit of what you're seeing. And one thing, Randy, I just want to, you know, before Derek jumps in there and shares, you know, we're seeing this change on a daily basis and realize that, you know, some of the high levels that you see, it's very thin trading. So, you know, I think it's just very important to keep in mind the highly changeable situation. Derek?

Thanks, Lois. Randy, can you hear me? Yeah, I can. Okay, go ahead. Thanks, Randy. So, yeah, I mean, as Lois touched on, I think the uncertainty in the market, the risk in the market because of the Russian aggression in Ukraine has led to all the markets coming up from their low levels from prior to the invasion. Like Lois said, fixtures out of Russia have seen the real, real toppy rates, kind of these headline-grabbing rates, But even on the back of that, like Lois said, the VLCCs have come up to around $25,000 a day. The Afromaxes in and around the Mediterranean are earning a lot more money today, right? You know, $30,000, $40,000. And that's impacted the Afro sector across the board. Same with the Suezmax sector, right? That's coming up. That sort of pull of that Russian risk has even the West African markets coming up to around, you know, $20,000, $30,000 a day, whereas before we were fixing in kind of four-digit numbers. So this is kind of giving a lift to all ships, including the clean side.

Okay.

Does that give you some clarity?

Yeah, so we're definitely seeing some strengthening, which is understandable. But clearly we can't just use, oh, average shoe is maxed at 80. Well, that's because Black Sea is 200. So, of course, the rest of the world is going to look more elevated. Okay. Okay. That's fair. And then I guess following up on that, just a bigger picture question. In terms of disruptions from Russia, Ukraine, clearly you said yourselves have not loaded any cargoes in and around that region for the last, I don't know, week or so. Any thoughts on potential implications if this conflict persists, right, for weeks, if not months? What would be the kind of impacts to the tanker trade in your view?

You know, I think we're starting to see it. You know, WTI had been discounted to Brent like $4 or $5 per barrel, which, you know, was kind of a reestablishing of that. And now you see that blow out. You know, you see Brent this morning at $113 and WTI at $112. So I think you start to see demand for, you know, Western-based barrels just really spiking. And it's going to upend trading patterns where, you know, we, like the U.S., you know, if we can come on with another million barrels a day this year, and let's say that, you know, something like 300,000 barrels a day per quarter, you know, where do those barrels go? And I think you're going to see Europe fighting for them. And we've also seen the reemergence of, you know, some of these longer haul trades which had really been missing from the market for some time so you know you you start to put inefficiency into the marketplace and all the crude trading and the and the product trading is is a bit upended and you start to see trades uh reemerge that that haven't been there for some time so you know we we look at it that i do believe uh it can strain the oil supply, but at the same time, it incentivizes everybody in non-OPEC and even, you know, the Saudis, OPEC Plus came out and said they're going to do their 400,000 barrels per day. I do believe there will be pressure to increase those volumes.

Yep. All right, that's fair. And then, yeah, I certainly don't want to make this call about Russia. So to finish on a more positive note, Your balance sheet is in great shape. It keeps getting better. I guess what is the plan for some incremental liquidity, either from additional vessel sales or what is now and should be profitable rates in the coming quarters? I know you mentioned debt repayments. So is that the priority? And then obviously great to see the ongoing share repurchases. Is that also likely to continue as your share price clearly remains undervalued here?

Yeah, so, you know, for sure, you know, return of capital to shareholders remains a priority, Randy. I definitely, you know, we're having the constant conversations around, you know, looking at the fleet and, you know, when you start to tip into a market that has the type of volatility that we're seeing right now, you know, these turn into real cash earners in the fleet. So we look very carefully. We still continue to look at pruning vessels, but now the scales may tip the other way where you're really making a lot of cash on these ships. So I would say that from both the priority of return of capital to shareholders as well as the vessels. And then I would turn to Jeff to see if you want to add any other comments

No, I just underscore what Randy mentioned and you just said. We did a tremendous job expanding the fleet last year, and including the merger with Diamond S and the fuel new build. So we feel really good about how we have allocated enough capital to the fleet growth at the bottom of the cycle. Not to say there's not an occasional really attractive deal that will come up, but the priority is going to be debt repayment, as you said, but that's kind of taken care of in our schedule amortization profile. And then it's returning cash to shareholders. You know, at this point, there's nothing more accretive that we could do than buying shares. So it remains a very high priority.

Great. Yep, I would agree. And I'll conclude my interview there. Sorry for all the questions. Thank you. Thank you. Thanks, Ben.

We take our next question from Omar Nocta from Clarkson Securities. Please go ahead.

Thank you. Hi, guys. Yeah, and I thought Randy asked a pretty good series of questions covering everything. But I appreciate your comments about that. Yeah. Yeah, I'll go back to the queue. But I did maybe just a couple of follow-ups. You know, maybe first, you know, clearly we've seen, as you mentioned, lowest rates have spiked here over the past several trading days. But Your performance, at least thus far into the quarter from your slide on the LR1s and the 10MXs of $22,800 is pretty substantial. What was driving that that led to such a big increase in earnings power there?

You know, that sector, you know, Panamax International, that joint venture, you know, as you know, is something of a differentiator for us. I mean, that's why we're particularly proud of, you know, picking up this opportunistically, you know, the Seaways Eagle and then flipping out an MR, you know, of one year older. And we also picked up, you know, over the course of Q4, Q3, Q4, 3 time charter ends to really kind of bolster our position in that fleet. um you know those vessels tend to uh trade a lot of fuel oil uh as as well you know dpp in um you know north and south america and that you know particular trade you know the caribbean was probably uh the the stronger basin um you know to what you've seen on the on the bigger sister ships you know the bees and the suez maxis were under more pressure and i think the caribbean performed better in the first quarter. And Ecuador has come back on with more barrels in January where they had been kind of affected negatively on their volumes in Q4.

And the Ecuadorian barrels are staying closer, staying within the hemisphere as opposed to going increasingly on bigger ships trans-Pacific. So that's helped with Panamax though.

Perfect.

Thank you. Thanks for that. And uh you know the different topic and randy asked this uh just jeff you know about the liquidity clearly you've tapped into a bunch of different uh you know new sources of capital and that the big sale lease back from on the vlcc was you know unlocked a lot of cash i guess how do you feel i guess at this point clearly you're in a much you know healthier and stronger position i mean you've generally been in a good position but now even more so and with earnings now coming up potentially you know even stronger liquidity but do you feel there's more to do on unlocking liquidity slash doing more debt refinance and then the second i guess would be related to that is any any thoughts about the the fso uh joint venture any discussions there i know it's brought up quarterly almost but you know that with that contract starting up soon that 10-year contract starting up soon any securitization of that revenue stream on the horizon

So, before Jeff jumps in there to answer that, I would start with, you know, we noted it on the call and the remaining CapEx payments or new building payments on the three VLCCs are fully funded at this juncture. So, I think that's one thing. We have no unfunded new building payments on our horizon. So, that's one thing that, you know, just one of the things the team did in 2021 to really kind of set us up for 2022. And then I'll turn to Jeff to answer the question about, is there more to be done on debt and refinancing? Go ahead.

Yeah, sure. Well, just to give you a little window on the way things work, I mean, what we did is immediately post-merger in July of last year is to say, we selected a program of financings and refinancings that would have the dual benefit of diversifying our sources of financing, which is important because as great as our banks are, and we really appreciate the support from the traditional shipping banks, we know you have to source more financing from the East and build the relationships there. And it also enhanced our liquidity when we did a number of those financing at a higher loan to value. So we selected a program, and we basically executed the program. We've got two, I think, small transactions and smaller shifts that sort of remain. They'll probably have to be announced at the next quarterly call. But that's sort of the completion of the program, Omar. So it doesn't mean we're not always looking and thinking, yeah, is there something else? We certainly can look at optimizing our balance sheet, you know, whether that's the secure facilities we have. There's always things that can be done just to make things a little better. But basically, we put in place a program and we execute the program. So I think we're pretty satisfied with where we find ourselves now. And on the FSO, I'll say it's just the same as last quarter and the quarter before that is that it's under close evaluation with our partner. And it's a very good asset that gives very good cash flow to us and our partner. But if we can find an appropriate monetization, that will you know, benefit our shareholders, you know, and fully reflects the correct value, we expect to do that. But I can't tell you more than just it continues to be a priority of ours to look hard at that along with our partner.

So stay tuned. Thanks, Jeff. Okay. We'll stay tuned. Thanks, Jeff. Appreciate the color there. And thanks, Lois. I'll turn it over.

Thank you.

We have a question from Ben Nolan from Stifel. Please go ahead, Ben.

Thanks. You guys in the release series are very helpful in sort of highlighting a year into, closer to a year into the Diamond Dust transaction, the effect of synergies. And I mean, it's real money, as you point out. my thesis into the deal i was very constructive on it and and uh thought that hey you know more liquidity more free flow was really going to help close the gap from a relative basis with respect to your peers so far that hasn't really happened at least as much as i thought it would have um i don't know jeff if you can you know take a Monday morning quarterback and look at this and say, okay, well, it did not happen yet, or how are you thinking about sort of that thesis now that we're a year into the transaction?

So, you know, Ben, I think that, you know, I would go with that. It's starting to happen, and the market is starting to happen. So, you know, I think that, you know, once the tanker market heads into recovery, everybody, investors take a much closer look and then start to differentiate and get interested in tanker stocks. So, you know, I think that we're just starting to see, you know, those types of benefits that will come through in 2022. Absolutely.

Well, I just would say it this way, then. Take a look at the average daily trading volume. That's step one. You know, it was in the 300,000 shares a day level, more or less, pre-merger, it's over 500,000. I'm not saying how you measure it.

Yesterday it was a million.

Well, yeah, okay. But I'm looking not at just the last couple of days, but it's like 30-day averages. So it comes up on my app. So that's step one, that there is more liquidity in the stock. And then I've always said this, as Lola just said, you don't get a re-rating in your stock typically at the bottom of the market. You know, so what we would expect, and what I've, based on just doing this for a lot of years, what I would say to expect is that, you know, when all the stocks move significantly, a stock like ours that is subsequently more highly discounted than, in our opinion, we ought to be, you're saying the same, thank you, we'll move, we would logically move more. But it's easier to get that re-rating, that closer move to, in this case, if we talk about AAV, that's going to happen more easily when everybody's moving up. That could well be the case pretty soon. So we're just having patient events. I think the thesis is we're still bullish on the merger and the benefits of the merger, and we're patient.

Well, I mean, clearly, from a profitability standpoint, there are benefits. It's just when does that get recognized? And I think you guys both make good points there. Switching gears a little bit, my second question, this is just something that occurred to me. You were talking about it earlier, Lewis. you are recycling Panamax, have done a number of those already, although are effectively overseeing the process yourself, the sound of it, which making sure that all of the environmental restrictions and regulations and everything are done as they should be. Just out of curiosity, is there a big monetary gap between doing that and then sort of doing it the maybe less scrupulous way of just selling it to somebody who, you know, maybe doesn't follow those same standards?

You know, then the yards that are Hong Kong compliant are all in India. And, you know, that is where we, you know, have been selling the vessels. There is a differential. It is $50 per ton, probably, you know, maybe a little bit more than that. And we think that's well worthwhile to make sure that the hazardous materials are being taken care of properly and disposed of with quality vendors and that there's a floor underneath these guys when they're working and disassembling the vessels, right? So for that, we think that actually the Hong Kong Convention is driving actual change in safety on the ground and increased certifications to actually improve the conditions of the recycling of these vessels.

That's great. I agree with you. It's well worth it. I mean, literally saving people's lives. But I just didn't know. Putting some context to that is helpful. I appreciate it. Yes. That's it for my questions, though. Thanks a lot.

Thank you, Ben. Thanks, Ben. The next question comes from Magnus here from HC Wainwright. Please go ahead.

Good morning, Lois and Jeff. Just a couple of questions. The vessel optics jumped in the fourth quarter. I know you had a very busy dry docking quarter. Can you provide some breakdown on what was capitalized versus expense? I know you had laid out the dry docking expense versus the capex.

Yeah, I you know you're you're clearly magazine looking at the appendix and indeed in the fourth quarter it was a very heavy dry docking and ballast water installation period. And you'll notice we've given you the also 2022 where you know in this you know what would have been, you know. Very low rate environment Q1 and into Q2. That's where we have our heavy. Dry dock and capex. As far as what is actually capitalized, I think I might have to have Jeff take that on an offline to give you an exact breakdown of that, unless you're able to do that.

Well, I mean, we have a certain amount that all Dry Dock and CapEx are capitalized. They're not part of CapEx, so it doesn't really break them out. and then later depreciate it. So there was no change particularly.

The ballast water is capitalized over the remaining life.

Exactly. So I think all you're seeing is just a heavy capex period in Q4, and there were some expenses in the quarter that you get on a quarter-by-quarter basis sometimes, a little variation in expenses. But I don't think anything's systemic, I guess.

Right, right. No, I just wanted, you know, on the OPEX, should we just assume that the difference there was mostly dry docking or on the jump in OPEX? I mean, you provided guidance for 2022, which was significantly lower than the OPEX in the quarter.

Absolutely. We're going to hear from Bill Nugent.

Yeah, there are some of the spares that we consume during the dry dock periods. you know, our practice has been to include those in OPEX. And I think with the number of dockings that we saw and the ships coming into the fleet, you know, you'll see a pop in OPEX as we get, you know, some of the practices and policies between the two organizations as we merge cleaned up, right? So you'll see a little bit of a jump there. And I really think that's where the OPEX pop came from. But it's a short term.

All right. And, you know, you laid out the 2022 dry docking schedule. You also painted a pretty bullish picture of the market. I guess the 3Q dry dockings, how do you feel about them? And also, how do you think about the seasonality this year playing out as far as the market recovery? I know there's a lot of moving parts with what's going on now, but just get your thoughts on that.

Yeah. Yeah, lots of moving parts on the market recovery. But I think, you know, that the number that I gave there of refinery runs increasing, you know, by 4 million barrels a day from March to July, I think is, you know, really tells the story where, you know, this is a, you know, a year where you're just seeing the demand increasing. That was that was a number that came from rice at our projection. And I think that's just very significant where you're just seeing that demand pull coming. So, you know, you have your seasonality and you're in a year where, you know, demand is increasing each quarter. And I think that is what is going to really drive the tanker market recovery. I guess that's kind of where I would leave that.

All right. And just the last question, follow up on that. You've been very busy with your fleet optimization program. And I guess it sounds like you're pretty happy with the fleet. Now you have significant operating leverage through the vessels that you have working in the spot market. Any thoughts on chartering in vessels? Or do you think you're pretty happy with the operating leverage that you currently have?

I mean, we like to often opportunistically, you know, bring in vessels into the fleet and that's where we really did that is where you saw us dispose of those older Panamaxes. We loathed to see them go and then we were happy to bring in three time charters as well as uh you know purchase that uh seaways eagle right so you know really just kind of um filling back in there and that pool in a place where we have high confidence that that we're going to um have differentiated earnings and just one last question if i may uh on the merger um you know you you're more than half a year into it and uh

What's your most positive surprise and the negative over the last six months and where do you think you can improve on that?

I think our most positive, and I wouldn't say a surprise, but just really pleasurable is integrating the teams and to see the high level of quality from the commercial, operational, you know, investor relations, you know, all across the finance space and just really accounting. I mean... bringing these teams together and uh you know uh knock on wood you know our external auditors said you know this this um the smoothness of this merger they have not seen in um in their career which which is a multi-decade so that just really pleases us very much um i i think you know negative surprises i mean there's always things that um you know end up uh you know, being more challenging or, you know.

It's hard work.

It's hard work. It's hard work. That's what I would say. It's hard work. That doesn't surprise us, and we kind of like hard work, so that works for us.

You know what's great is we're here at the office, man. We're in New York. Our old office has opened up on an expanded basis, including what we call Legacy Seaways people and Legacy Simon S. employees here together literally for the first day. And it's just super. It's really, really good to see the fruits of this integration bringing people together under one roof, so to speak, here in New York. So we're really pumped. All right, great. That's all I had.

Thank you.

Thank you.

Thank you.

The next question comes from Liam Burke from B Reilly. Please go ahead, Liam.

Thank you. Good morning, Lois. Good morning, Jeff.

Hey, Liam.

Lois, understanding there are lots of moving parts as we stage first quarter through the second half of 2022, in terms of your fleet, do you see any more need for any kind of adjustments in the fleet as you see the recovery in the second half of 2022?

Let me take that, Liam. Really, no. We feel really good about uh the fleet as it's come together uh across the various sectors you know we have strength in large crude deals and suez are pretty interchangeably changeable commercially you know that so we have a strong position there obviously we have a very strong position in mrs now with uh with the diamond legacy diamond s fleet and the niche lr1 panamax fleet that we discussed at you know on on the call you know, we feel really good about. So I think that, oh, and most notably, that the augmentation we'll have from the LNG dual fuel new buildings that are coming, you know, basically a year from now, but it's going to be soon. So we feel we've done, doesn't mean we won't find other moves to make. We're always looking, always open. But, you know, we feel like we put ourselves in a pretty good position to take advantage of the tank recovery and rally that's coming.

Just to touch on that, Jeff, then, I mean, you talk pretty specifically about your capital allocation, but when you talk about you can make the moves if you see them, what do you see out there? I mean, are there potential opportunities?

Look, there's always something, so that's why we're always looking. But I would note that vessel asset values are significantly higher now than they were a year ago. That's why it was important to make the moves that we made when we did. The cost of the dual-fuel LNGs, for example, was $96 million each. That today would be 15% higher. So that's the challenge in looking at other assets today is you're going to have to really scratch to find the kind of return that that we found by doing this earlier. That said, you get the opportunities like the one where the lowest for the Eagle that's going to go into that Pemex International pool, the returns pencil out for that one, especially being able to do a swap where we take one in and send one out at the same time. That's a particularly creative transaction, we think. But by and large, we'll evaluate. I mean, the calls come in. Derek's very busy fielding and lowest fielding calls. There's always something to evaluate, but we're pretty happy with where we are.

Great. Thanks, Jeff.

Thanks, Liam.

We have no further questions, so I'll hand it back to our speaker team for any closing remarks.

We'll just say thank you very much for... being with us here on our first day back in the office. And we look forward to speaking with you, the analysts and investors and potential investors in the quarter and the year as we go forward. Thanks very much, Operator.

Thank you all for joining. This now concludes today's call. Please disconnect your lines.