International Seaways, Inc.

Good day and thank you for standing by. Welcome to the International Seaways First Quarter 2022 Results Conference Call. At this time, all participants are in 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 1 on your telephone. Please be advised that this conference is being recorded. If you require any further assistance, please press star zero. It is now my pleasure to turn the call over to Mr. James Moll, General Counsel. Please go ahead.

Thank you. Good morning, everyone, and welcome to International Seaway's earnings call for the first quarter of 2022. 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 conflict between Russia and Ukraine, 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, our business prospects, expectations regarding revenues and expenses, including vessel, charter hire, and G&A expenses, estimated bookings, TCE rates, and or capital expenditures in the second quarter of 2022, the remainder of 2022, or any other period, projected scheduled dry dock and off-hire days, purchases and sales of vessels, construction of new build vessels, and other investments, the company's consideration of strategic alternatives, anticipated and recent financing transactions, and any plans to issue dividends, 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, that could cause actual results to differ materially from those implied or expressed by the statements. Factors, risks, and uncertainties that could cause International Seaways' actual results to differ from expectations include those described in our forthcoming quarterly report on Form 10Q for the first quarter of 2022, our annual report on Form 10K, 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 present Chief Executive Officer, Ms. Lois LeBrock. Lois?

Thank you very much, James. Good morning, everyone. Thank you for joining International Seaway's earnings call to discuss our first quarter results. Following a year of significant growth during which we strategically expanded our fleet through both a transformational merger and a well-timed new building project. We advanced important strategic objectives in the first quarter as well. We further solidified our balance sheet. We completed our exit from the older handy-sized product sector. We expect our scale, our capabilities, and sustained operating leverage will serve us well as the rate environment continues to improve. We've seen near-term catalysts driving tanker rates higher while longer-term positive fundamentals remain fully intact. This is based on historically low oil inventories, growing oil demand, and expectations of increased oil production in the second half of the year. Specifically, as the product tanker market has gathered momentum in recent weeks, we're benefiting greatly on our 40 spot MRs. Rates on both products and mid-size cruise carriers have responded positively to changing trade patterns as ton miles have increased. We have not achieved this strategic positioning by accident. We have transformed the company through fleet renewal at cyclical lows, including $900 million invested at the bottom of the cycle, and most recently, the Diamond S merger doubled our net asset value, tripled our fleet size, and enhanced our earnings power, We created power alleys and crude end products, positioning us well to capitalize on strengthening market conditions. Before reviewing the quarter, I'd like to briefly address Russia's invasion of the Ukraine. Since the outset of the violence in late February, Seaways has not booked any Russian cargoes loading any Russian ports. The safety of our seafarers and our stakeholders and their families, as well as our duty to preserve human life, have been and continue to be our highest priority. On to the quarter, where on slide four, we summarize our Q1 highlights in our recent developments. First, consistent with our balanced and accretive capital allocation strategy, which has been a hallmark of our success since becoming an independent public tanker company over five years ago, we continue to return capital to shareholders. This remains a priority as evidenced by nearly $100 million returns since the start of 2020, including our regular quarterly dividend of $0.06 per share, $47 million in buybacks, and the $32 million special dividend that we paid in connection with the Diamond S merger. We are proud of our track record, providing returns to shareholders amidst challenging tanker market conditions, and importantly, while maintaining a very strong balance sheet. Turned to the top right series of bullets, we provided an update on our fleet optimization program. After last year's transformative merger, which nearly doubled our net asset value, we embarked an initiative to monetize older non-core ships, capitalizing on healthy secondhand asset values and strong steel demand. We have sold or recycled 24 older tankers with an average age of 16 years. We've lowered the age profile of our fleet to below nine years old and expect to have generated aggregate net proceeds of $165 million after all costs. In March, we completed a vessel swap, exchanging a 2010 built MR for a 2011 built LR1. The addition of the Seaways Eagle was welcomed in our strong earning niche joint venture, Panamax International, where we generated the strongest earnings of any of our asset classes during the first quarter. With our focus on further optimizing our sizable fleet of crude and product carriers, we recycled two Panamax vessels with an average age of 19 years old in April. We took advantage of historically high recycle values agreed to sell our four remaining handy-sized product carriers built in 06, as well as a 14-year-old MR. Combined with enhancing our balance sheet, the additional liquidity provided by these sales give Seaway's further capital allocation flexibility. Moving to the bottom left-hand column of the slide, we have maintained a strong balance sheet. We've advanced initiatives that support a diversified capital structure and significant financial flexibility for the benefits of shareholders. With current total liquidity of $166 million, including $90 million in revolver capacity, and a net loan to value of 45%, we are capable of operating effectively in diverse tanker markets and capitalizing on attractive opportunities as they arise. During the year, we've made further progress diversifying our loan portfolio with recent refinancing activities which Jeff will highlight in his comments. Turning to our financial results, our first quarter net loss was $13 million, or 26 cents per share, excluding special items. In a sustained weak rate environment, we had generated adjusted EBITDA of $26 million. As I will outline on the subsequent slides, the fundamental backdrop remains favorable for tankers. Turning to slide five, While the situation in Russia and Ukraine continues to create volatility in energy markets, we address underlying tanker demand drivers. 2022 oil demand is projected to grow by around 3 million barrels per day to about 100 million barrels per day, with much of the growth back loaded in the second half of the year. While China's oil demand has been slowed based on its COVID zero strategy, Oil production increases are anticipated with growth, particularly in the West, led by the United States, Canada, and Brazil. Looking at the bottom left chart, inventories have been reduced to their lowest levels in a decade, providing less than 60 days of forward demand cover. As the world scrambles for crude to replace Russian cargoes, strategic U.S. barrels are being released and exported This, combined with the need for further replenishment, is supportive of seaborne trade and demand for tankers. As evidenced by the right bottom chart, refining margins have strengthened significantly, more than doubling since the start of the year, which indicates healthy demand pulling refined product, leading to higher crude throughput and higher clean exports. We anticipate permanent changes to oil movements and trade patterns related to Russia's invasion of the Ukraine. We see cargoes moving longer distances in the first few months following the invasion. As a result of government sanctions and due to self-sanctioning of commercial interactions with Russia's oil and transportation industries by many of the nations in the West, we've seen Russian crude exports bound for Asia as opposed to the more natural trade to Europe. We've seen these moves increase by 27% in the months immediately following the invasion compared to January. At the same time, we've seen a 17% increase in crude oil exports from key Atlantic Basin producers, such as the United States, West Africa, and Brazil, to Europe. Both shifts in trade are additive to ton-mile, and lead to strong rates at the back of the first quarter heading into the second quarter for Afros and Suez Maxis in the crude sector. We see similar alterations to trading patterns in the clean side, which has helped in already strengthening MR sector. Middle distillate exports from Russia to Europe decreased at the start of the second quarter by 28%, while charters looking for a more stable source of imports to Europe led this category of clean products exports from the US to Europe, increasing nearly fivefold when compared to the start of the year. Turning to slide six, we talk about vessel supply. The global fleet size has grown about 3.8% since the start of the pandemic. However, the average age of the tanker fleet has increased to nearly 12 years old on average. The bottom right chart illustrates the increasing incentive to recycle older tonnage based on historically high recycle values. But substantial volumes have yet to materialize. In terms of sanctions on Iranian and Venezuelan oil, because the sanctioned trades are largely serviced by older, large VLCCs, we expect the removal of sanctions would lead to the recycling of these ships. which are trading outside the normal international markets. The overall tanker order book stands at 7% by dead weight. This is the lowest level order book basically since statistics have been tracked by Clarkson's 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 billing slots are in 2025. Secondarily, ordering has been tempered by uncertainty around future environmental regulations. And third, new building prices are near all-time highs, limiting tanker owners from ordering. Another factor limiting the fleet supply stems from sanctions imposed by many governments prohibiting trade with Russian-controlled ships. This will lead to an artificial fleet reduction impacting 30 AFRAs, 20 MRs, and several ships for the various other tanker sectors. Displacement of Russian oil has the potential to necessitate more tankers for longer haul voyages. We're closely watching the longer-term fallout from the war and the implications for our trading routes and our tankers. I want to turn it over to Jeff Pribor to give the financial review for the first quarter. Jeff?