International Seaways, Inc.

Hello and welcome to today's International Seaways Second Quarter 2022 results. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I would now like to hand over to James Small, General Counsel. The floor is yours. Please go ahead.

Thank you, Elliot. Good morning, everyone, and welcome to International Seaways earnings call for the second 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 and changes in training 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 company's strategy. Anticipated cost savings and other synergies and benefits from our merger with Diamond S. The effect of the ongoing coronavirus pandemic. 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 third 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 relationships with its stakeholders, the company's ability to achieve its financing and other objectives, and other economic, political, and regulatory developments globally. 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 Seaway's actual results to differ from expectations include those described in our quarterly reports on Form 10Q for the first and second quarter of 2022, our 2021 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 President and Chief Executive Officer, Ms. Lois LeBrock. Lois?

Thank you very much, James. Good morning, everyone. Thank you for joining International Seaway's second quarter earnings call to discuss our strong results. In the second quarter, we generated our highest quarterly net income since our spinoff nearly six years ago. We closed our merger with Diamond S just over a year ago. The 40 MRs gained in the merger earned incredibly well in the second quarter. And yet, they are posting TCEs that are 40% higher quarter over quarter for the book days in the third quarter. Refined product oil demand, specifically for gasoline and metal distillates, is despite rising refinery utilization. The sea waste fleet of 78 tankers is providing us with a strong foundation to capitalize on rising tanker rates as oil demand continues to recover from the negative impacts from COVID. On slide four, we summarize our second quarter highlights and our recent developments. For the second quarter, we generated net income of $71.5 million, $1.43 per share. excluding special items. Adjusted EBITDA was $112 million, led by the product carriers, with our MR revenues coming in at $15,000 per day above their breakeven levels. We have a sizable fleet and a substantial operating leverage, not only in the product, but also in the midsize crew. We expect to continue capitalizing on favorable market conditions during the remainder of the year and into 2023, including in the recovering VLCC space. With the exception of the Afromaxis, which are closely tracking the second quarter, rates booked in the third quarter on every sector are counter-seasonally outperforming the second quarter. Tanker fundamentals are anticipated to remain attractive, supported by growing demand limited fleet growth, and higher utilization from longer distances between oil supply growth in the West and demand growth coming from the East. Turning to the bottom left series of bullets, our fleet optimization program focused on monetizing our older non-core vessels. I would just like to highlight that we sold two Panamax vessels for recycling in the second quarter with an average age of 19 years old. We exited our non-core 2006-built handy fleet and sold one 14-year-old MR ahead of our third special survey and the commensurate ballast water treatment system installation and expense. The updated net proceeds reflect adjustment for positioning costs and the timing of delivery. We have sold 24 of our oldest vessels and least efficient vessels with an average age of 16 years. We've lowered our fleet age profile to below nine years old and generated aggregate net proceeds of approximately $165 million after all costs since July of last year. Asset values remain at the high end of the 10-year averages for our fleet. In July alone, Vessel values tracks our fleet appreciation at nearly $200 million or $4 per share. We will maintain our fleet discipline, including opportunistically looking to shed older tonnage to maximize returns. On the top right hand of the slide, we highlight balance sheet gains made in the quarter. We ended the quarter with a total liquidity of over $450 million. This includes $232 million of cash and a $220 million revolver capacity. Using recent values, our net loan to fleet value is extremely healthy, 34%, one of the lowest amongst the peer group. Our increasing liquidity is a direct result of actions taken during the quarter aimed at unlocking value for shareholders while enhancing our financial strength. This included successfully selling Seaway's 50% stake and our FSOs for $140 million in cash proceeds. After a process that lasted several months evaluating all of our options to monetize the joint venture, to streamline our tanker fleet We were pleased with the favorable outcome of this disposal. We captured the implied value inherent in the fixed-rate contract on the FSOs. We closed on a new credit facility that saves us $60 million in mandatory repayments in 2022. We then delevered by $95 million, making a $70 million payment on our revolver And we followed that with the $25 million redemption of our 8.5% baby bonds in August. We have continually lowered our cost of capital. This is consistent with our strong track record over the past five years. Jeff will speak more about these specific steps and actions in his portion of the call. Returning capital is a major component of Seaway's strategy. In 2021, we returned $57.6 million, or 9% of our market cap, amidst the most challenging tanker market conditions we have seen in decades. We are proud to build upon our consistent track record of returning capital to shareholders. During the quarter, we doubled our quarterly dividend to 12 cents per share. Over the last 10 quarters, we have returned over $100 million to shareholders in our regular quarterly dividend, $47 million in buybacks, and a special dividend of $32 million in connection with the conclusion of the Diamond S merger. Today, we've announced another boost in our program with the board's authorization to upsize our share repurchase program to $60 million and extend the expiration of the program to the end of 2023. We intend to use this program as one of our options to return capital to our shareholders over time. Our balanced capital allocation approach, number one, consistently returns to shareholders. Number two, allows for opportunistic fleet growth and renewal at the low point in the cycle. such as the Diamond S merger and the ordering of our three new building VLCCs. And number three, maintaining a strong balance sheet with a diversified debt portfolio that makes principal payments each quarter. Slide five, we update the current tanker rate environment relative to last year and the range of the earnings over the last 10 years. The larger chart on the left really exemplifies the significant strength on display in the MR rates since the start of the second quarter. And as mentioned, they continue to climb in the third quarter. This class of ship has not seen these types of rates since the super cycle in the mid-2000s. As energy security becomes a priority and Russia continues actions in Ukraine. We are seeing Atlantic Basin product demand soaking up tonnage with products sourced from the United States, the Middle East, India, creating long haul voyages for our vessels. Clarkson projects 2022 products ton mile demand growth to clock in at just about 10%. This is happening while South America is recovering from the COVID crisis, and demand there has been increasing in Argentina, Chile, and Colombia. With China slowly but surely coming out of its lockdowns, they have been drawing down on the inventories this summer in June and July. They are now starting to ramp up their refinery runs. Seaborne Transportation is enjoying strength in products, and building on a nascent recovery on the crude. AFRAS and Suez Max earnings are nearing their 10-year highs, while our scrub-defeated VLCCs are building to levels approaching break-even. Overall, this slide illustrates our operating leverage. Turning to slide six, we addressed underlying tanker demand drivers during a time when the situation in Russia and Ukraine continues to create volatility in energy markets. Oil demand is expected to be about 101 million barrels toward the end of 2022 and further increase in 2023 to approximately 102 million barrels per day. The IEA actually puts growth at 2 million barrels per day in 2023. Of course, slowing GDP could certainly curtail oil demand growth. However, oil production growth, particularly in the West, led by the Americas, Norway, Guyana, is supportive of long-haul trade east and is a positive for tanker markets. As evidenced by the bottom left chart, refining margins remain robust, indicating healthy demand pulling refined products leading to higher crude throughput and higher clean exports. We anticipate long-term changes to oil movements and trade patterns during this time related to Russia's invasion of Ukraine, and we continue to see cargoes moving longer distances. In the bottom right chart, OECD inventories have been reduced to their lowest levels in a decade, providing less than 60 days of forward demand cover. SPR U.S. barrels continue to be released and exported as the world scrambles for crude. Combined with the need for further replenishment, this is supportive of seaborne trade and demand for tankers. Next, on slide seven, the main drivers of tanker supply remain positive for tanker earnings. At 5%, the overall tanker order book continues at the lowest replacement level that we have seen in modern record keeping. The key net fleet growth has been just 1% since June of 2021. Over the last 10 years, the average age of the tanker fleet has increased to 12 years from the previous average of nine. The bottom left chart illustrates the increasing incentives to recycle older tonnage based upon continued high recycling values but meaningful volumes have yet to materialize in 2022. we have paired tanker new building deliveries against vessels turning 20 years old in the chart on the bottom right hand side and you can clearly see delivery deliveries are dwindling a number of factors continue to limit fleet growth. New building slots for tankers from reputable shipyards are well into 2025, as yards remain filled with contracts for other shipping sectors. Second, new orders have been tempered by uncertainty around future environmental regulations. And thirdly, new building prices are near all-time highs, limiting tanker owners from ordering. We also continue to monitor the Russian-controlled fleet, which have been sanctioned by many of governments in the West and may reduce fleet capacity by 30 APR, 20 MRs, and many from other ship classes and sectors. We don't believe that we have seen the full impact of these vessels or them being out of commercial trading, and it may take some time before the full implications on trading routes and tanker capacity are realized. I'm going to now turn the call over to Jeff Pribor, our CFO, to provide the second quarter financial review. Jeff?

Thanks, Lois, and good morning, everyone. Let's go straight to reviewing the second quarter results in greater detail. Before turning to the slides, let me just provide a quick summary of our financial results. In the second quarter, we had an adjusted EBITDA of $111.7 million. Net income for the second quarter was $69 million, or $1.38 per share, compared to a net loss of $18.8 million, or $0.67 per share in the second quarter of 2021. When excluding one-time items, net income was $71.5 million, for $1.43 per diluted share. Now please turn to slide nine. I'll first discuss the results of our business segments, beginning with the crude tanker segment. TCE revenues for the crude tanker segment were almost $60 million for the quarter, compared to $31 million in the second quarter of last year. Crude tanker revenues doubled year over year, largely due to the Afromax and Suezmax rates, coupled with more revenue days on the Suezmax rates due to the Diamond S merger. In the product carrier segment, TCE revenues were $126 million for the quarter, which compares to $14 million in the second quarter of 2021. This very significant increase is attributable to the substantially higher spot rates for LR1 and MR sectors, combined with a substantial increase in revenue days as a result of the Diamond S merger. Looking at the right side of the slide, Adjusted EBITDA for the recent quarter was $112 million compared to just $10 million in adjusted EBITDA in the second quarter of last year and $26 million in the first quarter of last year. These significant increases from prior periods represent a clear demonstration of our significant operating leverage to the tanker markets. Now, please turn to slide 10, where we provide a second quarter review and third quarter 2022 rate and earnings update. For Q3 bookings to date, we have so far booked 62% of our spot days for the quarter for PLCCs at an average of approximately $19,500 a day. 53% of our available SUIS max spot days at an average of a little over $33,000. 50% of our available AFR max spot days at an average of about $32,000 a day. 43% of our available LR1 spot days at an average of under $31,000. On the MR side, we booked 48% of our third quarter spot days at an average of almost $43,000 a day. Naturally, we caution you that these are indications of the average fixtures in our fleet that we need to report earnings next quarter.

Please turn to slide 11.

The cash cost TCE breakevens for the forward 12 months are illustrated on International Seaway's overall breakeven rate is estimated to be about $16,500 per year. Our breakevens are lower for the next 12 months this quarter due to the change in our amortization schedule with our first scheduled payment on the credit facility in the fourth quarter of this year. As always, these are the all-in daily rates our own vessels must earn to cover vessel operating costs, dry docking costs, cash G&A expense, and debt service costs, which means scheduled principal amortization, as well as interest and expense. At this point, as I always do, I'd also like to confirm cost guidance for the remainder of the year for modeling purposes. We expect full-year regular daily OPX, which includes all running costs, insurance, management fees, and other similar related expenses for our various classes as follows. The LCC, $9,000 per day. 2S Max, $7,600. Affinex, $8,200. LR1, $7,900. And for MRs, $7,200. We expect our dry dock and cat-back expenses to be $55 million and $65 million respectively this year. As I mentioned on our previous earnings call, these costs are related to palace water treatment systems and other upgrades and anticipation for the 2023 EEXI requirements. For a more detailed breakdown of projected dry-out capex and off-fire units by quarter, you can refer to slide 17 of the ethics. Continuing with cost guidance, we expect 2022 cash interest expense to be about $45 to $47 million, naturally higher due to increases in treasury yields. For the year, we expect cash G&A to be $33 to $36 million, up mainly due to increases in costs on shareholder matters and project costs. And finally, we expect $105 to $110 million in depreciation. Now, if we could go to slide 12 for our cash bridge. Moving from left to right, we began the second quarter with total cash and liquidity of $166 million. During the quarter, our adjusted EBITDA was $12 million. Equity income from JVs decreased $4 million. PROCEEDS FROM SALE OF THE FSOJ WAS $140 MILLION. WE EXPENDED $15 MILLION IN DRIED-UP CAPEX. WE RECEIVED $54 MILLION IN PROCEEDS FROM VESSEL SALES, $15 MILLION IN COMPLETION OF TWO SALE LEASEBACKS AFTER FEES AND NET PAYMENTS, AND 24 MILLION NET PROCEEDS FROM SWAP TERMINATION. THIS WAS OFFSET BY A $70 MILLION REVOLVER REPAYMENT, WHICH OF COURSE REQUIRES Debt service on term loans and sale effects cost us about $22 million. Increased quarterly dividend was $6 million in court. Lastly, we had a substantial negative impact on working capital and other charges of $72 million during the quarter. Most of this impact is due to the increase in receivables from pools due to rapidly rising rates, the doubling of bunker prices, and bunker payments terms tax. As this stabilizes, we expect to recoup some of these with a natural ebb and flow of capital. Combination of all these factors results in quarter-end cash balance of approximately $232 million, $220 million on drawn revolver, for a total liquidity of $452 million. Now please turn to slide 13. I'd like to briefly speak about our balance sheet. As of June 30th, we had $2.37 billion in assets, compared to $950 million in long-term. In addition, we have $220 million in credit facility that remained unfurl on June 30th. Our net loan-to-value of our conventional fleet has been reduced to 37% on June 30th, and as Lois pointed out, 34% in July. Lastly, not included in the June 30th balance sheet, we paid a total of $25 million outstanding on our 8.5% senior notes, further lowering the cost of capital. Turn to slide 14 to look at our total debt in June 30th. See, our total debt balance is $1.06 billion, with $220 million going on as well. As we've mentioned a few times, closed on a new senior secure facility in May, an aggregate capacity of $750 million, composed of a term loan of $530 million, $220 million, and a quality credit facility. The proceeds from this new facility will be used to repay three existing senior debt facilities, aggregate $575 million. Importantly, this new facility extended the maturity profile for senior debt by more than two years, reduced our average interest rate of senior debt by about 15 basis points, saving us about $1 million in quality and position payments, and approximately $60 million in 2022 through the updated schedule of regulatory payments. This facility was just about two times oversubscribed, and I'd like to very much thank our top tier bank for their continued support. It's also worth highlighting that the covenant package is similar to the existing facility's payments and sustainability-linked features, which we're very proud of. Seaways was the first New York Stock Exchange-listed shipowner and operator to link its financing to sustainability in 2020, and we remain committed to advancing initiatives that improve the environment and the lives of our seafarers. We detailed these sustainability features in the press release and our filing, so the last point I'd like to make is that our sustainability-linked features make up 95% of our senior debt, including our donor revolver, 58% of our entire debt portfolio. That concludes my remarks. I'd now like to turn the call back to Lois from the closing comments.

All right. Thank you very much, Jeff. On slide 15, we provide you with Seaway's investment highlights in detail, which I would encourage everyone to read in its entirety. I summarize them here briefly. International Seaways have proven we will build value while preserving the balance sheet. We quickly captured over $25 million in synergy cost savings from the merger in 2021. Our enlarged fleet is steadily earning at today's strengthened rates. We are good stewards of capital, balancing consistent returns to shareholders with fleet growth and healthy financial metrics. The remaining payments on our new building VLCC installments are fully funded. Our focused and flexible operating model has allowed for us to expand and contract at appropriate moments in the cycle under a disciplined approach. The company is positioned today with significant operating leverage to capitalize in what we expect to be a robust tanker cycle. Regional imbalances of oil are expected to continue and grow in distance from sources to consumers. This creates higher seaborne demand while the supply of vessels remains limited and likely will shrink as vessels age and are eventually removed from the commercial trading fleet. We are staying upfront of growing ESG imperatives, investing in the fleet to reduce our carbon footprint, keep our seafarers safe, and build a corporate culture of diversity and strong governance with appropriate checks and balances. We back this message up with transparent ESG reporting and sustainability-linked incentives in our debt portfolio. We are striving to continue to evolve these priorities and provide a meaningful platform for all stakeholders. Thank you very much for listening today. And with that, operator, we would like to open the lines up for questions.

Thank you for our Q&A. If you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Omar Nocta from Jefferies. Your line is open. Please go ahead.

Thank you. Hey, guys. Good morning. Yeah, congrats on a really nice, strong quarter. The Diamond S merger clearly looks like it's paying off very nicely. And you guys have been really streamlining the business here over the past several years, and most recently, obviously, with the sale of the FSOs. You know, Lois, in your earlier comments, you were discussing the reasoning behind the sale of it. And just, would you mind just maybe expanding on that just a touch? I wanted to know how you came to that decision. You know, on the one hand, it's non-core relative to your focus on the tanker business. But on the other hand, it did offer a good amount of long-term revenue visibility. So I just wanted to kind of get a sense from you what drove the decision to ultimately monetize it.

Thank you very much, Omar. So, you know, first of all, congratulations on your new posting and, you know, addressing the decision making on the FSO. Indeed, it was non-core. It is a fixed rate contract in inflationary environment. But I really think the transaction was, you know, very much a win-win situation. International Seaways was not technically managing the assets that was being handled by our joint venture partner. And therefore, you know, we did not have control of all of the elements. And we felt that we were not getting shareholder value for that. And being able to realize a price that really satisfied, you know, I think, and provided an excellent return for us, all of those components went into why we divested the FSO.

Got it. Okay. Thanks, Lois. That makes sense. And then just thinking more about maybe streamlining the business and maybe not so much streamlining, but potential rejuvenation. Clearly, the product fleet, you guys coming together with Diamond Desk is clearly well-timed. Looking back, but as we think about that part of your fleet, it's a bit on the older side. It's obviously earning very well today, and its age really isn't a problem, quote unquote, just based off of what you've reported thus far and with your results for the second quarter, guidance for the third quarter. But how do you think about this fleet going forward? It's what, 12, 13 years average age. Do you take advantage of this incoming cash flow and move quickly or somewhat quickly to modernize the fleet? So maybe you sort of come out the other side of this with a stronger, younger fleet.

Well, you know, the first thing that I would say is, you know, we have three new building VLCCs that we'll be delivering. And, you know, the merger with Diamond S, we now have over 9 million deadweight tons, and we're under 9 years old. You know, overall, you know, we've been steadily improving the fleet profile. And then, you know, I would say that, you know, the 24 vessels that we sold, you know, over the last 18 months, You know, we did not raise any equity when the markets were very poor and we were able to realize strong values on our resales. And we will continue to have that type of discipline and really look at, you know, constantly and continually the discounted cash flows of holding or selling on our vessels. So, you know, I would say, you know, you can expect us to continue the same approach that we have had. in making sure that our, our ships are, you know, able to earn optimally. And I would say today we're in a pretty good possession, uh, position considering.

Yeah. Yeah. Let me just, uh, underscore that. I mean, talk about fleet renewal. If you talk, you think of doubling our dead weight times, tripling the units, selling over 20 vessels, still having, you know, 75 vessels and a fleet is under nine years of age. I think we're in pretty good shape in terms of fleet renewal. I think the fleet optimization program that Lois referred to has been really taking care of that. So I think we feel pretty good about where we are.

Yeah. No, I agree. You guys are definitely in a very, very strong situation with a good operating platform. I guess just sort of thinking now that you've sort of bolstered your product exposure and you've seen the the benefits of having exposure to that market. And obviously, we've seen the Suez and the Nafras do fairly well here recently. How are you guys thinking about, you know, you have asked you this before, and you've gotten this question many times, but in general, as you look ahead, in terms of deploying capital, whether it's from your, you know, liquidity that you've got, as you fine tune the business to focus on crude end product, where do you put that incremental dollar when you're ready to spend? Do you focus more on the crude side or more on product?

Well, you know, I think one of the, you know, we're seeing, you know, the beauty and the balance of the fleet right now, you know, being led by the products and then following, you know, following what's accrued. And, you know, that's something that we just, you know, constantly, you know, we have our strategic meetings as management team and we sit with the board. And, you know, I think that what we're witnessing right now is a bit of a step change. And what was true before is not necessarily true for tomorrow. And I think that, you know, we have that toehold in each of these sectors, you know, big crude, mid-sized crude, MRs, and we can strengthen any one of the legs on the table based on the scale that we already have in each of those sectors. So I'm not going to limit us, Omar.

Great.

Thank you. And the other thing to add, Omar, is that, you know, a lot of people have been talking about, oh, ships have gotten expensive for investments. And that's quite understandable in terms of speculative investment in ships. But, you know, if you look at projects like our three dual fuel vessels with Shell coming next year, you know, if there's more of those such projects in any sector that you know, we'll be well positioned to be looking at those based on our liquidity that we have.

Yeah, thanks, Jeff. No, no, that's it for me. Thanks, Lois. Thanks, Jeff. Very helpful. I'll turn it over.

Thank you.

Thanks, Omar.

Our next question comes from Ben Nolan from Stiefel. Your line is open. Please go ahead.

Hey, guys. I have a handful. Number one, I wanted to just check in on the chartering strategy, both chartering in, chartering out. Higher market, we've seen a few competitors put some of their vessels on, time charter them out, lock in some of those cash flows. The other side of that is you guys do have, specifically on the LR1, some – some charters that are rolling off. Are you thinking about sort of keeping your market presence there and just paying up for them, or does it feel a little frothy in terms of locking in time chartering capacity?

Okay. So, you know, just kind of taking it from the start, Ben, so, you know, the commercial department, has indeed you know secured a one-year time charter a two-year time charter on different sectors and you know as the market uh comes into itself we'll continue looking at uh you know locking up high level rates and then on the charter inside you know uh the panamax international pool i mean you know uh pretty steady. You know, you see them out in all our other sectors and pretty much everybody in Q1 was over 20 a day. And then, you know, the way they're looking in Q2 and Q3, you know, we will look for those opportunities to extend the vessels that we have if we can, you know, if that's something we can make happen.

Okay. Could you maybe provide a little bit more color on the one and two-year time charter that you've locked in there?

Yeah, we, you know, we haven't, I don't think we've talked about, you know, where those rates are at. You know, one of those time charters is an extension on an oil company major for a couple of years on a Suez Max with a scrubber, and that is, you know, for two years, I think, you know, ticked probably about the strongest that we've seen in the sector. And You know, the other one is on an MR, and that would commence, you know, in the fourth quarter. So, you know, putting out the actual rates, I'm sure we would do that in due course. I don't think we've done that at this juncture. Yes.

That's fine. Well, just even the ship types is somewhat helpful. Okay. Thank you. I appreciate that. If I have a follow-up, and this goes to, Well, I guess there's maybe two things here. First of all, Lois, for you, we've seen the VLCCs underperform in a weird market, usually when things are tight to the bigger ships that do better. Russia, obviously, is a dynamic in there. Do you think that at the moment what we're seeing with Vs coming back is structural and this is just part of how things normally play out or the inverse of that is, Do you think those ones might be in a place where it's just going to be tough to play catch up given everything that's going on? And then similarly, how are you thinking about the share price? I mean, we certainly have seen product tanker equities really outperform. And you guys are more than half product tankers just from a fleet count perspective, but haven't quite done quite as well there. Do you think? I guess, do you chalk that up to just having crude, or is there something to having a crude and product fleet? Any updated thoughts on that?

Well, I'll take the first part of that, and I'll give Jeff notice to start thinking on the second part. So, you know, speaking specifically about the VLCCs, China – Right, China. So, you know, you had pretty intense COVID lockdowns this summer. And, you know, you have the lowest amount of imports of crude that we've had in quite, you know, several years into China. They were also drawing down inventories of, from what we understand, somewhere around a million and a half barrels a day. And knock on wood, you're seeing the COVID restrictions relaxed. and refineries in China and Asia starting to ramp up toward the end of the year. So I think that's part of it on the bees. Part of it is also that some of the Western crude has been pulled into Europe, displacing some of that long haul that we had previously seen going east. Recently, U.S. Gulf exports over 3.5 million barrels a day for the rolling July averages, right, and expect it to continue because the U.S. is producing, you know, 12 million barrels a day and expecting those exports to continue and to increase. So that element of additional barrels going along the haul we think will start to reenter the space. So, you know, we do see the VLCCs coming along to the party in due course. And in the meantime, the APRAs and the Suez Maxis have been the star beneficiaries of the trades in the Western Hemisphere, more staying in the Western Hemisphere. And one of the things that our chief commercial man, Derek, mentioned yesterday is just the inefficiencies that are happening in the market right now. are really moving things because there's a little bit of unsettled market with a lot of volatility and barrels moving to unusual places. So these are all elements of that. But I do think that the VLCCs will come along and will come along to the party. Biden got a hard time going to Saudi Arabia. They only said they're going to increase OPEC plus 100,000 barrels for September. However, between Saudi and the UAE combined, increased very quietly, close to a million barrels a day from what we understand in July of their crude production. So, you know, I think all of these elements will dovetail into to help out the Vs. And then, Jeff, if you can talk about the share price.

Love to. So, yeah, I've been to your point. I think that maybe because Before Diamond S, we were a bit weighted towards crude. Some of the research you see sort of may lump us in that area, or at least kind of overlooked us a little bit when the product tankers were ripping this quarter and they focused a little bit on others. And maybe some investors didn't see it yet. So we're glad about our stock price appreciation this year, but yeah, it could have been more. My reaction to that, what an opportunity for investors. We're sitting here with almost half a billion dollars of liquidity, 34% net loan to value, a fleet that's already been renewed, as I was saying to Omar, and lots of optionality for investors, including ourselves. I mean, to look at our shares at a tremendous, still large discount to NAV. So we think that's a good opportunity for investors, including ourselves.

All right. I appreciate you guys tackling my convoluted questions this morning.

No, thank you.

Our next question comes from Liam Burke from B Reilly. Your line is open.

Thank you. Good morning, Lois. Good morning, Jeff. Good morning. Lois, you talked about regional imbalance. Obviously, Russia is a driver of that. But on the product side, how much has the redistribution of global refinery capacity help the rates on the MRs?

You know, I would say, Liam, that largely a huge piece of the strength in the MRs is the exports from the U.S. Gulf. You're seeing diesel exports over 1.4 million barrels a day. You see gasoline approaching You know, out of the Gulf, a million barrels a day, you're still bringing in gasoline into the U.S. East Coast. So, you know, we are seeing, you know, product coming from the Middle East and India to Europe. You know, largely that's going to be on LRs. And that also... you know, helps to buoy the MRs, right? Because overall Clarkson says that product trade going up by nearly 10% this year in ton miles, right? So all of those elements give the product areas and our MRs, you know, a real lift.

Okay. And then on the Cruz Tanker's side, there's a fair amount of capacity came online the first quarter of 22. Understanding there's been disruptions in trade routes by mid-year, do you think the capacity sort of leveled out on a normal basis? I understand what the order book looks like, but right now do you see more stabilization after capacity came online earlier?

Yes, I would say so. I mean, You know, once you get into the fourth quarter, you tend to see owners be very reluctant to take deliveries in the fourth quarter and, you know, tend to push them forward. And, you know, the deliveries next year in 2023 are lighter than what they have been in 2022. So, indeed, we are starting to see that level out, Liam.

This could be the last year of any net fleet growth in tankers for a while. You know, you're looking at flat to negative as you look out to 23 and beyond. Most observers would say. Great. Thank you, Lois.

Thank you, Jeff.

Thanks, Liam.

Take care.

Thank you.

Our next question comes from Greg Lewis from BTIG. Your line is open. Please go ahead.

Yeah, thank you and good morning, and thanks for taking my question. You know, Lois, I kind of had a broader, bigger picture question for you. Understanding that the company continues to look and be in the energy transition with the dual fuel vessels, I may be dating myself, but I remember conversations about potential opportunities in LNG for INSW. And so just kind of curious, just given what's going on in the global gas markets, there's a lot of conversations about, not even conversations, but I guess, you know, Qatar's in the market looking to charter LNG vessels. There's probably going to be a lot more liquid faction coming online in the U.S. that probably needs the vessels. Is that a sector that the company continues to kind of, track on the periphery where maybe we could see an investment at some point or is it at this point we're really just focused in maximizing the crude and product segments of our business?

I like how you phrased that, tracking it on the periphery. One thing that our team has been heavily engaged in Bill, talk a little bit about the LNG course. Bill Nugent is our head of operations. The LNG course is that our team and the sailors are undergoing for the delivery of our three new VLC teams.

Sure. Well, you know, we did operate those ships with NACOLAT and CounterGas, the four QFLEC ships, for a long time, and that expertise is still in-house, so we retain that. You know, we're now with the new team that's joined us through the merger. You know, we're expanding that in preparation for taking these three dual fuel vessels with training here. There's actually some going on today and then working out in Phila and elsewhere. So the crews, so we've got ample crews ready to take on those ships. And, you know, I think, you know, we are ready to do whatever Lois asked us to do.

So thank you, Bill. You know, what I would say is that, you know, we are definitely keeping track of, you know, the gas markets as well as tankers. And, you know, we never count that out. So I wouldn't say, oh, you know, we would only be tankers forever because we know that, you know, even the dual fuel Vs is a step toward pivoting to decarbonization.

We are energy transport. Yeah, we move energy.

Okay, great. And then just as I think about strategy, I guess I'll ask it this way. It seems like the company, and maybe it's just a function of some M&A, it seems like the company is very willing to go out and order new builds on the large crude side, right? Should we be thinking about... Sale and purchase and portfolio management, different between the product and the crude, i.e., hey, crude, you know, sometimes we need to make new building opportunities, but as we look at the product side, that's going to be more of, you know, secondhand portfolio management, whether we're, if we're looking to, you know, I guess renew, I guess has come up a few times on the call, or, I mean, and I get it's never say never. but is it kind of safe to say the probability of INSW ordering MR new builds is a lot lower than it ordering crude new builds?

No, you know, we look for our opportunities, and being able to partner with Shell on the seven-year time charter is what really, you know, enabled that choice, right? So when we are able, you know, in particular, when we're able to find an oil company partner, you know, a very strong chartering name, you know, that is interested in moving forward on, you know, dual fuel, decarbonization, you know, we definitely will look to make that partnership on either crude or product.

Yeah, I mean, Greg, we've been saying since 2020 that we're not in the market for new buildings, speculative new buildings with conventionally fueled engines, period, right? And so the significant thing about the Shell fuel fuels is not that they're VLCCs, it's that they're in partnership with a major customer like Shell and long-term charter. So, and something that Bill was talking about before, the in-house intellectual capital we've developed from previous experience, for example, with the LNGs with NACLAS and the current experience with the fuel fuels is invaluable and it's going to really help us so that we look towards projects, as I said to an earlier question, you know, we'll look towards projects that are working with customers more likely than specular new boys at the current prices. But as Lois just said, it could be across the board in terms of weight and size.

Okay, perfect. Great to hear, guys. Thank you very much.

Thank you. Thanks, Greg.

This concludes our Q&A. I'll now hand back to Lois Zabrocki, CEO, for final remarks.

Thank you, everyone, for joining International Seaways in our second quarter. And, you know, stay tuned to this space. We're looking for an exciting Q3. Thank you very much.

Today's call is now concluded. Let's thank you for your participation. You may now disconnect your lines.