This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
Operator
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.
James Moll
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?
Lois LeBrock
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?
James
Thanks, Lois, and good morning, everyone. Let's go straight to reviewing the first quarter results in greater detail. Before turning to the slides, let me provide a quick summary of our financial results. In the first quarter, we had an adjusted EBITDA of $26 million. Net loss for the first quarter was $13 million, 26 cents per diluted share compared to a net loss of 13.4 million or 48 cents per diluted share in the first quarter of 2021. Now please turn to slide eight. I'll first discuss the results of our business segments, beginning with the crude tanker segment. TCEs for the crude tanker segment were $36 million for the quarter compared to the same amount in the first quarter of last year. When we turn to the product carrier segment, We note that TCE revenues were $62 million for the quarter compared to $9.2 million in the first quarter of 2021. This large increase is attributable to an increase of over 3,400 revenue days as a result of the merger with Diamond S, as well as higher average rates earned by our LR1 and MR fleets. Looking at the right side of the slide, adjusted EBITDA of the recent quarter was $26 million compared with an adjusted EBITDA of $11 million in the first quarter last year. Now turning to slide nine, we provide a first quarter review and second quarter 2022 earnings update. For Q2 bookings to date, we've booked 51% of our spot VLCCs at an average of approximately $15,100 per day. 40% of our available SUAS MAX spot days and an average of $24,600 per day, 39% of our available AFR MAX dollar two spot days and an average of $43,700 per day, and 27% of our Panamax and LR1 spot days and an average of approximately $31,100 per day. On the MR side, we have booked 41% of our second quarter spot days at an average of approximately $24,500 per day. I would like to add that, more so than ever, these rates should not necessarily be construed as guidance for the full quarter, with geopolitical events evolving rapidly and the market subject to significant changes in the immediate term. Now, if you could turn to slide 10. The cash cost TCE breakeven for the 12 months ended March 31, 2022 are illustrated on this slide. International seaways overall breakeven rate is estimated to be $17,400 per day for the next 12 months. As always, these are all in daily rates. Our owned vessels must earn the cover. Vessel operating costs, dry docking costs, cash and expense, and debt service costs, which means scheduled principal amortization as well as interest expense. At this point, I'd also like to confirm cost guidance for the remainder of the year for modeling purposes. We expect full year regular daily OPEX, which includes all running costs, insurance, management fees, and other similar related expenses for our various classes, to be as follows. For VLCCs, $9,000 per day. For SUISMAX, $7,600 per day. For AFIMAX, $8,200. For Panamax and R01, $7,900 per day. And for MRs, $7,200 today. We expect our dry dock and capex expenses to be $47.8 million and $56 million respectively for the year. As mentioned on our previous earnings call, our last earnings call, these costs are related to ballast water treatment systems and other upgrades in anticipation of 2023 EEXI energy efficiency requirements. For a more detailed breakdown on projected dry dock, capex, and off-hire days by quarter, please refer to slide 16 in the appendix. Continuing with cost guidance, we expect 2021 cash interest expense to be about $40 to $45 million. For the year, we expect cash G&A to be between $30 and $32 million. And finally, we expect about $14 to $15 million in equity income and $105 to $110 million for depreciation and amortization. Now, if we can go to slide 11, We have our cash bridge. Moving from left to right, we began the first quarter with total cash and liquidity of $239 million. During the quarter, our adjusted EBITDA was $26 million. Equity income from JVs decreased $6 million, and the cash distributions from JVs were positive $2 million. We expended $27 million on dry docking and CapEx. Installments on our dual fuel LG VLCCs and the net effect of the vessel swap involving the Seaway Eagle and Alpine Maya totaled $8 million. This was offset by gain of $6 million attributable to the completion of sale leaseback transaction, net of debt repayments, and a $50 million revolver drawdown. Debt service on term loans and sale leasebacks was $56 million. And finally, taking into account the $3 million quarterly dividend, and a negative impact of working capital and other charges of $8 million, the net result was that we ended the quarter with approximately $76 million of cash and a $90 million undrawn revolver, yielding total liquidity of $166 million. Now, please turn to slide 12. I'd like to briefly talk about our balance sheet. As of March 31, we had $2.37 billion of assets compared to $943 million of long-term debt. In addition, we have a $90 million revolving credit facility drawn as of March 31st. As you can see in the bottom left of this slide, our net debt to total capital stands at 47%, while our net loan to asset value for a conventional fleet stands at 45%. As shown at the bottom right of the slide, I'd also like to highlight that since the end of the first quarter, the following. We've agreed to refinance a 2000 built MR with a Japanese leasing company through a sale-leaseback arrangement. generating a net increase in liquidity of approximately $5.4 million. We've also sold our final two Panamax vessels, both unencumbered, for a net increase in liquidity of approximately $16 million. We've sold our last four remaining Handy vessels in two separate transactions, providing a total net increase to liquidity of approximately $24 million. And we've agreed to sell an MR generating additional liquidity and savings on upcoming dry dock and ballast water treatment system expenditures. Finally, turning to slide 13, we take a look at our net debt as of March 31. As you see, our total debt balance is approximately $1.1 billion with $90 million of undrawn revolving capacity. As we continue to maintain a healthy balance sheet, our debt reflects a highly competitive cost of capital and 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. Thanks a lot, Jeff.
Lois LeBrock
On slide 15, we detail Seaway's investment highlights. We are focused on executing our disciplined and balanced capital allocation strategy. This enables the company to create significant and enduring value for shareholders. Since our spinoff in 2016, we've transformed Seaway into the largest U.S.-based international tanker company with a diversified fleet and a market cap of nearly $1.1 billion. Complementing the 900 million of Duffels we purchased at cyclical lows, our merger with Diamond S last year, also at a cyclical low, tripled our fleet size and significantly enhanced our scale and our earnings power. All of this has been accomplished without issuing any equity at any point in our independent history. At the same time, we're proud of our consistent track record, returning capital to shareholders. We've returned nearly $100 million in share repurchase and dividends over the past two years. We also differentiate ourselves based on Seaway's commitment to upholding the best in class ESG standards. We believe that the diversity and independence of our board, the focus on our environmental impact, as demonstrated by our dual fuel VLCC order, and our status as the first shipping company to secure sustainably linked financing provides significant benefits to customers, shareholders, and lenders. We have been ranked in the top three in the Weber Research ESG ranking for the past four consecutive years. Our mission to exceed customers' expectations and to deliver value to all of our stakeholders is supported by our hybrid operating model focused on environmental performance as well as safety and flexibility. We have indicated in the past 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 crews have done a remarkable job adhering to the highest levels of not only safety, but professionalism standards. In terms of our operating model, Our sector-leading commercial pools, many with international seaways ownership, such as Tankers International, 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 an active role in developing and expanding the global presence of the pool. In 2020, we established TI's New York office in seaways headquarters. Another hallmark of Seaway's success has been our focus on maintaining financial strength with attractive leverage ratios and an enhanced balance sheet throughout the cycle. We have one of the lowest net to loan to asset values in the industry, as well as liquidity at the first quarter of $166 million. This positions us to operate effectively in diverse rate environments. I'll end my remarks by briefly reiterating Seaway's significant upside potential as the improving rate environment unfolds. As I discussed, we see positive market developments that could translate to a sustained, stronger rate environment moving forward, and based on our sizable fleet, we have significant operating leverage to capitalize on this. I note that every $5,000 improvement in the TCE equivalent daily rate provides over $150 million in incremental EBITDA, or about $3 per share, on an annual basis. Thank you very much, and we'll open it up for questions.
Operator
Thank you. And as a reminder, to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press the pound key. Your first question comes from Magnosphere from HC Wainwright. Your line is open.
Lois
Yeah, good morning, Lois and Jeff. Congrats to a good improvement there in the quarter and good bookings for second quarter. My first question related to your capital allocation strategy. With first quarter turning cash flow positive and based on the guidance you gave, if you extrapolate that into the whole quarter, you could make more than a dollar in earnings per share in the second quarter and $100 million of EBITDA. Can you kind of talk a little bit how you're thinking about your capital allocation strategy going forward? How that will evolve as you start playing offense in 2022?
James
Yeah. Hi, Magnus, and thanks. Yeah, it's nice to be in that position with rates improving. We consistently tell you that we review capital allocation strategies decisions every quarter based on liquidity and the conditions in the market. As Lois said in her remarks, we're really proud of the fact that we were able to return as much as $100 million of capital to shareholders over two years in one of the worst markets that any of us have ever seen. So you can imagine, but I'll confirm, that with the markets improving, that aspect of capital allocation, returning cash to shareholders remains a very high priority for us.
Lois
I mean, the balance sheet is pretty good, 45% net to LTV. Would you say that you'd like to get that down a little bit more before maybe starting paying a higher dividend?
James
You know, this is something I always come back to. We can... We do more than one type of capital allocation at one time. It's not like this quarter is deleveraging, next quarter is return cash to shareholders, next quarter is buy a ship. You look at them all the time. And we have a healthy amortization schedule built into our debt. So we're repaying about $45 million a quarter just from the existing debt plus the In our fleet optimization program, when we sold a few of our older non-core vessels, we pay off some debt. So when you combine those two, we've been allocating capital to and will continue to do leveraging in a healthy fashion. So that will continue and that will work that net loan to value down naturally, especially as values are going up, Magnus, right? So that's going to develop in a nice way. And so that is also a priority, but it's kind of happening naturally along with looking at returning cash to shareholders.
Lois
Thank you. Just on my second question, you have a great track record in making counter-cyclical acquisitions. I think the diamond has finally started to gain this ability with a significant cash flow generation in the first quarter. My question is, how do you balance the fleet renewal going forward? You sold at 2008 MR ahead of a special survey. And, you know, strong cash flow generation now. How do you look at the rest of the fleet since you have a lot of 2007, 2008 vessels that would face, you know, special service going forward?
Lois LeBrock
Yep. So, Magnus, I'll jump in there. And, you know, we developed a program when we completed the merger with Diamond, and we executed the majority of that. And specifically, if I touch on the four handy-sized vessels that we have under contract for sale, you know, we strategically wanted to exit that, you know, MR1 or handy-sized sector due to the age of the profile. And also that, you know, you're kind of reliant on that market has a lot of exposure to the Russian Black Sea. And that was a sector that, you know, we – are now completely removed from, right? So when we look at the initial program we had developed at the time of the merger, we've largely completed that. And then, you know, we look at the rest of our fleet and, you know, on balance, you know, we'll do everything very selectively. So, you know, we appreciate the very strong cash flow generation, you know, across our MR fleet that we have, and we're thrilled that, you know, you know, have now a very significant footprint in the MRs. So, you know, we'll be very selective going forward and balancing that.
Lois
All right. But if current, the market persists, we should expect you to continue to run those vessels to generate, you know, significant cash flows.
Lois LeBrock
That's correct.
Lois
Thank you. That's all I have.
James
Thanks, Magnus.
Operator
Your next question comes from Ben Nolan from Stifel.
Ben Nolan
Hey, Lois and Jeff. So I've got a couple things, but one, Lois, maybe for you, just as, you know, you talked a lot and gave a lot of color, which I appreciate, on sort of how the Russian dynamic is playing out. I guess my question is, in your view, does it feel like we've sort of reached a new sort of new normal equilibrium Guys kind of have it figured out. The trades that we're seeing, as long as things don't change materially from where they are now, are what they are. And volumes are going to the places that they would naturally go. Or is it still very much a work in progress, do you think?
Lois LeBrock
Or still a work in progress, Ben? And when we wake up this morning and we see the EU ever inching forward here to cease importing Russian crude and products by the end of 2022, and that's not finalized yet. But if that happens, we're going to continue to see displacement of barrels because that would mean that the pipelines, you know, it's not only the waterborne barrels that we see today, but also the pipelines that deliver into Europe, you know, they would no longer be accepting that cruder product. So I think that we're going to continue to see this situation evolve, you know, certainly until the war ends. And I think even beyond, because now the conversation has shifted to energy security beyond just, energy transition. So, you know, all of these complexities, I think we're going to continue to see this evolve then.
Ben Nolan
Yeah, and I agree, although I guess I was asking more about, like, things like ship placement and things being in the right places at the right times, and, you know, obviously this caused a pretty substantial logistics shift I guess barring other things, is that shift in logistics now happened or is it still things trying to reposition to the right places and that kind of thing?
Lois LeBrock
You know, I think the shift has largely happened. You know, you're seeing, you know, roughly half of the SPR barrels are anticipated to go up to Europe. you know, some fewer barrels from the U.S. actually going east right now. You know, the big shifts have kind of been left out in the cold, the Vs, and then the Afro-Suez on down have taken advantage of these changed trading patterns. And, you know, now the world is really crying out for diesel, and, you know, that's pulling and causing those refinery margins to spike. On the MR fleet, you know, you're seeing, and the LR1s and LR2s, but I mean, we're heavy on the MRs, you know, you're seeing that market strengthen now in the east. It had been, it was initiated in the west, but now you're seeing it strengthen in the east. So, you know, you're always going to see some chasing of the returns, but I think that for now, the trading patterns are kind of stable.
Ben Nolan
Okay, I appreciate it. And if I can shift, Jeff, to you, you've been... You've been doing this for quite a while now, not to, not to overemphasize that in fact, but, uh, it's given sort of your, your background and, and, and history and knowledge of this space. Uh, you know, lately there's been a lot of noise about consolidation and mergers and all of this, uh, from your view, do you think the industry is well positioned for that or. Is this not ordinarily the time or the place that you would expect that to happen? Just curious how, given your background, how you think where we are fits into that mind frame.
James
Look, I think as long as I've been in the business, people talk about consolidation. I think there's always a level of activity, maybe more than people appreciate. I go back to Lois' comment. We're happy about the Diamond S acquisition or merger and what it's done for us in terms of executing our strategy. I don't think it's particularly, I think it's the same as it always has been. It's just part of the landscape. Okay.
Ben Nolan
That's good color. I appreciate it. And then last, hopefully I'm not overstaying my welcome, just real quick, it came up, you know, well, when you have a big fleet, there's always going to be a lot of dry dockings and special surveys and so forth. Any thoughts about installing scrubbers on any of the Vs or Sues, Max, if they don't already have them?
Lois LeBrock
So Q1 was our heaviest quarter this year, and we do have the chart in the back. The Vs already have all of our 10 on-the-water Vs have scrubbers, and then the three new buildings that will come in Q1 of 23 will be dual fuel, of course, and therefore won't have scrubbers. Intention will be for those to burn LNG. And on our sewage max fleet, we're just installing one scrubber that Diamond happened to have, and we are putting it on. In addition to that, Ben, I would say no, we're not going to chase that. The differentials between heavy sulfur and low sulfur crude have really been strong this year. But, you know, with all the volatility that we're seeing in oil prices and the fluctuating margins and a recovering market, I'm thinking that additional project and time out of service at this point, you know, may not pay off. And we're pretty satisfied with where we're at.
Ben Nolan
Okay. All right. Appreciate it. Thank you.
Lois LeBrock
Thank you, Ben.
Operator
Your next question comes from Chris Robertson from Jefferies.
Chris Robertson
Lewis and Jeff, how are you? Good. Thank you, Chris. Good. So, Seaways is ahead of the game in terms of ESG and environmental reporting. So, along those lines, I'm going to ask a question kind of Magnus and Ben brought up here. So, how are you thinking about the fleet in terms of the age segments as we head into IMO 2023 and beyond, not necessarily due to special surveys or anything like that, but how many vessels do you consider kind of future sales candidates to help with getting on the path of IMO 2023 versus how many are going to be upgraded to kind of be IMO ready? And what kind of capital outweighs do you think it will require to get the fleet prepped for that?
Lois LeBrock
So, you know, our team is, you know, constantly monitoring our existing fleet, you know, and, you know, every time we put the vessels into dry dock, you know, we are, you know, upgrading and seeking those incremental efficiency improvements so that we stay on track. And we're monitoring our ships all the time and our fleet, This fleet is in good shape to head into the regulatory environment. So, you know, we don't have, oh, this ship has to go right here. You know, there will be continued efficiency improvements that we will implement on the fleet as we go forward. But overall, you know, we think we're in pretty good shape.
James
And I would just add, Chris, if you look at the dry dock and CAPEX schedule that's in the deck, you know, that amount of money, as I was mentioning, kind of a little front-end loaded with this quarter, but spread out over the year, that includes in there some of the half of the Panamax MR swap we did, so you have to sort of back that up, but a lot of the capex there is related to being prepared for that. Not a lot, but a chunk of the capex.
Lois LeBrock
Absolutely, and all the Suez Maxis we're putting on the upgraded hull coatings, you know, to make them more efficient, you know, in the water and consume less fuel and therefore emit less CO2.
James
Yeah, and then finally, to part of your question, as a result, you know, the entire fleet is, we expect to be in compliant and in good shape for working for us through 2023 and beyond, right?
Chris Robertson
Okay, great. My second question is related to LNG fuel economics. So I guess with the same higher natural gas prices in Europe and Asia now, how are you guys thinking about LNG as fuel on those ships being built? How did the economics change with the prices? And if you know offhand, what's the MMBTU equivalent needed to replace a metric ton of fuel oil.
Lois LeBrock
I see you're filling big shoes very quickly here. So, you know, on our dual-fuel VLCCs, those vessels will be on time charter to Shell, and, you know, Shell will be responsible for the bunkering. And they are really, like, the leader, I would say, in the space for – first of all, they have a lot of their own natural gas, and they are a leader in that bunkering space. Now, that having been said, we've been watching daily the fluctuations of price, and I can tell you that for a period here, really probably the last six months, LNG was significantly more expensive to burn than conventional fuel would be. However, you're seeing those differentials narrow again, and I'm thinking in the longer term, you know, when you're not in, you know, a real, you know, energy where energy is becoming so dear and you're in a little bit of an energy crisis, if I could say, you know, you're going to see those differentials narrow significantly, and it will be suitable or, you know, pricing-wise. And you also see really large pricing variance. You know, in the U.S., it's still significantly lower. It's cheaper if you, you know, want to do LNG bunkering than it is in many other parts of the world, such as the East. And, you know, offline, I'll, oh, Bill, the second part of that question, do you want to take it or do you want to, you know, on the BTU there, or do you want to do that offline?
spk04
I'll admit, Lois, I don't have that number right at my fingertips this morning, but we can get that to everybody offline.
Lois LeBrock
Yeah, absolutely. You know, if you check in with Bill, we'll do that after the call.
Chris Robertson
Okay, Lois. Hey, guys, thank you very much for your time. I appreciate it.
Lois
Thank you. Thanks, Chris, and welcome.
Chris Robertson
Thank you.
Operator
Your next question comes from Lee Embert from B. Riley. Your line is open.
Lee Embert
Morning, Lois. Morning, Jeff.
Operator
Morning. Hi.
Lee Embert
Robert Marlayson, Lois, directionally the product tanker rates are getting stronger and you've indicated that in the prepared comments. Do you see any opportunity or any need to basically fix some longer term charters at certain rate levels?
Lois LeBrock
Our commercial team is watching all of that right now, and we think we're in the early innings of a market that's building there, especially on that product side. So you first see people want to lock up six months or a year. If you're going to do something strategic and try to layer it into the portfolio, we will look at – those types of time charters, but then we would take that portfolio approach and try to get some longer deals in as the market strengthens into itself here as we move forward.
Lee Embert
Okay. And Jeff, I know capital allocation is always something you love talking about, but looking at the returning cash to shareholders, would you be more inclined just to maintain the dividend at current levels and then look at buybacks opportunistically? Or is there any thought as markets become more stable to look at the dividend policy?
James
I think it's early to say that. So I think that's part of what I say that we look at the entire capital allocation spectrum, you know, every quarter. And when we talk about returning cash to shareholders as part of that, you know, you're right. It could be share buyback. It will be a regular dividend. We're going to maintain that. But whether we would increase that or not, it's too early to say at this point, but certainly it's something that you would, you know, it's in the mix to be thought about.
Lee Embert
Great. Thank you, Lars. Thank you, Jeff. Thanks, William.
Operator
Your next question comes from Greg Lewis from VTIG. Your line is open.
Greg Lewis
Yeah, hey, thank you, and good morning, everybody. You know, I do think it's worth mentioning, and I think, you know, Ben was kind of alluding to it. You know, obviously, you have a new shareholder that built a position last month. I believe the filing is just like a silent. I mean, it's just a regular shareholder filing, but I'm just kind of curious.
Lois LeBrock
Yeah, we speak with our shareholders on a regular basis, and we maintain an open dialogue, and we welcome communication. As a matter of policy, we don't comment on our discussions or their status. So we're focused on executing our strategy and generating cash flow across our expanded fleet.
Greg Lewis
Okay, and then Lois, could you talk a little bit about, like you laid out the bullish case for VLCCs in the recovery market. I mean, can we kind of gauge maybe where utilization is of the VLCC fleet and kind of the thought is, you know, hey, OPEC, Saudi production is up 3 million barrels year over year. The disruption in Russia pushed Suez max rates up $100,000 to $100,000, and the V market didn't really blink. Is there any kind of way to think about where we are and understanding that the backdrop from supply for VLCCs looks really good, you know, there can be an argument for 10 miles, but is there any, like, what needs to still happen to get VLCCs to more of a mid-cycle type level from, you know, where they've been languishing?
Lois LeBrock
You know, we need China, right? And, you know, it's looking like even though we're under their zero policy and they have very strong restrictions right now, it's looking like that should lift in the second half of May or heading into June. And we really, they're very affected right now where you're seeing levels that were seen in April of 2020 when this started, right? So we really need for that to, fall away and for China to be there taking in barrels. And that will really drive things. And then the other thing is really that even though OPEC is authorizing 400,000 barrels a month, there are at least a million, if not a million and a half, below that in actual production. We need to see production coming back online. With Libya, where they're at, they don't really have restrictions from OPEC, but they're down. They're down 500,000 barrels. West Africa's been having a challenge cranking out their barrels. We need to see production coming. We're definitely going to be helped by the United States doing the 180 million barrel release and couple weeks here, you know, we're seeing exports out of the US, you know, one was over 4 million barrels a day. And, you know, we need to see a lot of that we need to see China coming back online. I, you know, I'm not confident just based on, you know, what I'm reading that the Iranian barrels are going to come back online real quickly. I do believe that there are conversations, you know, between the United States and Venezuela, which would be certainly helpful, you know, if if those Venezuelan barrels came back on the market. You know, that would be helpful. Some would go short to the Gulf, but also a good volume would go legitimately to China, and I think that that could help us tip the balance.
James
All of which, Greg, tells you that products are carrying things right now, likely to be a bridge to the big crew. It's just a question of timing, and that's based on factors you can't predict exactly. When does aviation in China come back, you know? Right. when the lockdowns and what happens with sanctions, et cetera. You can't quite predict it, but the credible thesis is product now, who to follow.
Lois LeBrock
I mean, and I guess, you know, and I'm hoping that it's also available in China, and my assumption is that it is. You know, the COVID numbers, you know, even here, you know, bounce up, but the hospitalization rates are not up, right? The duration is longer and less intense for period. People knock on wood. you know, that we continue to move from pandemic to endemic and everybody is still conducting business. So our hope is that China will get through this as quickly as possible.
Greg Lewis
Okay. Hey, that was super helpful. Thank you for that, Lois. Have a great day, guys.
Operator
Thank you.
Lois LeBrock
Take care.
Operator
All right. And if there's no further questions this time, you may continue.
Lois LeBrock
Okay, thank you all for joining us for International Seaway's first quarter earnings results. And everybody stay healthy, and we're going to get back to work trying to create shareholder value and stakeholder value. Thank you so much.
Operator
Thank you. And this concludes today's conference call. Thank you all for joining. We now disconnect.
Disclaimer