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spk01: Good day and welcome to the Overseas Ship Holding Group fourth quarter and full year 2021 results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Sam Norton, President and CEO. Please go ahead.
spk04: Sam Norton Thank you, Betsy. Good morning, everyone. Thank you all for joining Dick Kublud and me on this call for the presentation of our 2021 fourth quarter and full year results, and for allowing us to provide additional commentary and insight into the current state of our business and the opportunities and challenges that lie ahead. I would like to direct everyone to the narrative on pages two and three of the PowerPoint presentation available on our website regarding forward-looking statements, estimates, and other information that may be provided during the course of this call. The contents of that narrative are an important part of this presentation, and I urge everyone to read and consider them carefully. We will be offering you more than just an historical perspective on OSG today, and our presentations include forward-looking statements, including statements about anticipated future results. These statements are subject to uncertainties and risks. Actual results may differ materially from those contemplated by our forward-looking statements and could be affected by a variety of risk factors, including factors beyond our control. For discussion of those factors, we refer you to our SEC filings, particularly our Form 10-K for 2021, which we anticipate being filed later today, which are available at the SEC's Internet site, www.sec.gov. as well as our own website, www.osg.com. Forward-looking statements in this presentation speak only as to the date of these materials, and we do not assume any obligations to update any forward-looking statements, except as may be legally required. In addition, our presentation today includes certain non-GAAP financial measures, which we define and reconcile to the most closely comparable GAAP measures in our earnings release, which is posted on our website. I think it's appropriate to start by saying that although today's presentation is centered on the results achieved during the final quarter of last year, the sense that many of us here share is that 2021 already seems to be in the distant past. There are decades when nothing happens, and there are weeks when decades happens. It's a quote attributed to many, but whose origin is unknown. What is known, however, is that this phrase aptly captures what has transpired in our business since the last time we spoke shortly before year end. The impact of the Russian invasion of Ukraine on the global energy markets has been profound. Yesterday, the Biden administration took steps to restrict the import of Russian crude oil and petroleum products into the United States. The United Kingdom has taken similar steps. This follows on the heels of a coordinated release of strategic petroleum reserves by 30 nations, including the United States, announced on March 1st, which will begin being drawn down in early April. While formal sanctions against Russian providers of energy products by other countries have not yet been and may not be imposed, the market has nonetheless reacted more broadly and more acutely than most would have imagined only weeks ago. Self-sanctioning of nearly all things Russian has had perhaps a more pronounced impact on market prices and has caused significant disruptions in normal energy flows. We do not yet know whether this pattern will persist or what the long-term impact of these developments may be. However, if the past weeks have taught us anything, it is that conventional wisdom in the current era of global connectivity is of minimal value. Throughout 2021 and entering into 2022, we hadn't been anticipating and planning for a recovery in our core markets. We believed that this recovery was to be driven by a return of demand resulting from an expected normalization of mobility and consumption patterns that had existed in the United States before the COVID-19 pandemic. This narrative, at least for the moment, remains largely in place. Now, the Russian invasion of Ukraine has layered on top of this storyline the dimensions of disruptions in virtually all energy markets and the potential for secondary effects to upend previous assumptions. Our core businesses are largely insulated from the direct impact of the events on the ground in Ukraine. It is wise to remember that international commodity markets are integrated, with shipping acting as the main transmission agent, enabling arbitrage of localized price differentials. Indirect effects in our markets are thus inevitable. Some will no doubt be beneficial, generating potentially more or longer voyages or the emergence of unconventional trading patterns. Others may evoke vocabulary not featured in the United States for decades. Inflation, energy crisis, commodity shortages, and Cold War, to name a few. Adjustments to our thinking and our consequential planning are thus required. As is almost always the case in the shipping business, It is the unforeseen disruptions that have the most significant impact on outcomes. The need to adapt quickly to changing circumstances and to make in-game adjustments will continue in the months ahead. Let us delve into where we might see a continuing impact of the current situation on OSG's businesses. It is likely that Russian crude oil imports will be substituted with alternative crudes by our Delaware Bay Lightering customers. Slide 6 provides EIA data on both aggregate crude oil imports from Russia into the United States, and a pie chart showing to which refineries these imports were directed during 2021. As indicated, total imports of Russian crude oil into the U.S. have averaged as much as 500,000 barrels a day in recent years, with a notable concentration amongst Pad 1 refiners, who are our main mitre and customers. A possible direct consequence of the concern about the need to replace Russian crude supplies is a decision by one of our lighter customers to take the overseas Long Beach on a charter for five consecutive voyages beginning in early March with the intent to transport domestic crude oil to Delaware Bay in order to partially hedge their refinery against disrupted import trades. A second potential impact observable in our markets is the possibility that domestic refined product may be substituted for Russian and European imports. Slide seven provides a recent picture of the price advantage enjoyed by U.S. refineries versus European and Asian refineries due to the high price of natural gas outside of the United States. Note the February natural gas price in Europe was more than $22 per million BTU higher than in the United States, a margin that has widened even further over the past week. This advantage was until recently expected to fade as we moved into the summer months. However, if natural gas availability in Europe is constrained by the Russian-Ukraine situation in the months ahead, this pricing advantage could work to support near-term demand for Jones Act movements of refined product into the East Coast markets. In this context, we have seen a number of voyages fixed from the U.S. Gulf Coast to the Northeast to Northeast U.S. discharge locations since the middle of February, indicating that additional Pad 3 refined petroleum product is finding its way into Pad 1 locations. It is not clear if this development is a function of a reduction in Russian imports or very low product inventories on the East Coast or poor refining economics in Europe emanating from very high natural gas prices. Perhaps it is a combination of all of these. We have fixed four clean product voyages from the U.S. Gulf to New York in the past month, none of which we have seen for the past two years. Other voyages that we have fixed recently that are atypical include a voyage transporting gasoline from Houston to Puerto Rico and several consecutive voyages to deliver agricultural fertilizers from the U.S. Gulf to California over the next several months. All of these movements are the result of trading opportunities not usually seen in the markets within which OSG operates and represent incremental and unusually long 10-mile demand. As we have communicated in recent months, we consider the Jones Act markets to be in the process of progressively healing from the demand shock imposed by the rise and fall of multiple variants of COVID-19 experienced in particular in the United States over the past two years. Evidence of this evolving recovery can be seen in the fact that we have brought five of our Jones Act tankers out of layup in the period between September and February, with all of those vessels having found work almost immediately. We are currently evaluating options to reactivate the overseas Tampa, our last remaining laid-up tanker, during the second quarter and remain hopeful that if current trends persist, we can activate our ATB OSG 350 vision during the second half of this year. With thanks to our energy consultants, ESI Energy, slide eight provides some illustrations of what we mean by a healing market that has over the last several months made its way almost completely back to normalized conditions. Without considering the Russian Ukraine impact, the fundamentals for energy transportation and domestic market have been improving steadily during 2021. The charts in this slide point to a very positive mobility index picture. showing a sharp rebound coming out of the year-end Omicron-influenced drop, rising jet fuel demand as the U.S. gets ready to travel more as the effects of COVID fade, and low distillate inventories on the East Coast, which will need to be replenished as we move into the summer. Finally, in the chart in the lower right-hand corner, ESAI concludes that the impact of the pandemic is over in terms of global oil demand. All of these developments bode well for the domestic tanker demand, Note that these charts were prepared before the ongoing events in Ukraine. So uncertainty as to the actual future trajectory of the line graphs predicted may be affected by the dislocations and broader economic impacts of the war there. Let's now turn to a few comments on the final accounting period of 2021. We are pleased with the operating results achieved during the fourth quarter of last year, marking the third consecutive quarter improved sequential time charter equivalent and EBITDA performance. Importantly, we expect this trend to extend into this year. As noted earlier, business fundamentals for our conventional Jones Act tankers continue to strengthen. We are encouraged by the steadily improving cash flows from our businesses and the improvements realized on our balance sheet resulting from the additional available operating days provided by our newly activated vessels, improved market rates, and a reliably solid contribution for our niche and Alaska tanker company assets. Before turning things over to Dick to provide a deeper dive into the numbers, I would like to mention a few additional important developments that occurred during the fourth quarter that should have increasingly greater visibility in the periods ahead. First, we delivered the overseas Key West into her long-term charter with Valero to move renewable diesel from the U.S. Gulf of Mexico to California. Two more of our competitors' vessels have been committed to that same trade in recent months, one more to Valero and one to Chevron. As evidence of the rising importance of renewable diesel in the middle distillate pools around the country, Chevron recently announced its intent to acquire a renewable energy group, and Marathon announced a joint venture with Neste Oil for production and distribution of renewable diesel at their Martinez, California facility. These projects, and others like them, have generated and will likely continue to generate new incremental ton-mile demand for Jones Act tankers and ATBs over the next two to three years. The emerging trade for renewable diesel has important implications for the Jones Act tanker supply-demand balance, given the priority that California will be afforded as the preferred destination for this fuel. To illustrate this, One tanker that is regularly involved trading from the U.S. Gulf to California generates three times the ton-mile demand as a similar vessel operating between Texas and the east coast of Florida. Each new contract to move renewable diesel to the west coast will thus have a leveraged effect in tightening tanker supply available in the U.S. Gulf. New production of renewable diesel coming on stream on the west coast will also generate new distribution demand. offering further reason to believe maritime transportation and renewable diesel will be a strong catalyst for new business opportunities in the years ahead. Second, I would like to highlight progress made in advancing the establishment of the tanker security program. This project has long featured in my regular comments. We have had to be patient in working through the legislative and political obstacles that prevented the funding of this program, which was authorized in the 2020 National Defense Authorization Act. We are now more optimistic than ever that this program will commence this year, with $60 million allocated to provide stipends for 10 U.S. flag tankers. Once this program is operational, OSG's current MSP vessel, the overseas Mykonos and overseas Santorini, will move over to participate in the Tanker Security Program with the resulting step-up in annual stipend amounts to be received. OSG will also propose the overseas Suncoast to be entered into this program. If approved, the overseas Suncoast would be converted to a U.S. flag and be manned by U.S. persons in the future, a net increase of nearly 50 seafarer jobs that we can look forward to later this year, and a source of expanded niche activity revenues. Establishing the Tanker Security Program has been one of our key long-term objectives in recent years, and it is gratifying to see this project getting close to becoming a reality. Third, I would like to highlight the meaningful contribution that the Alaskan Tanker Company and our two newly built ATBs to our results over the past year. These new investments made in 2019 and 2020 contributed over 70% of OSD's net vessel operating contribution during 2021, an outcome that validates our confidence in the long-term future of OSD's businesses and the benefit of investing in that future, even during challenging times. It is frankly difficult to imagine where we would have been in 2021 had we not made these investments. Finally, I would like to draw attention to the extraordinary efforts that were made by our shore-based staff and seafarers during what was clearly one of the most challenging operational years in recent memory. We have continued to manage operations in the face of COVID with no disruptions to service and have met our safety and environmental KPIs while maintaining operating cost discipline. It is often the case that the things that don't happen are what matter the most, but are the least recognized. Everyone who has a stake in OSG should pause and reflect on just how hard it has been to keep everything in our business moving forward without incident and the stress that many, if not most, of our employees have been under to achieve these results. We owe them all a strong expression of our deep appreciation and gratitude for everything they do to put this company in a position to succeed financially. I will now turn the call over to Dick to provide you with further details on our fourth quarter and full year results for 2022. Dick?
spk03: Thanks, Sam. Please turn to slide 10. During the fourth quarter, we experienced a continuing increase in TCE revenues from the prior 2021 quarters. Q4 TCE revenues have increased 22% from 2021's first quarter, rising to $80 million. Adjusted EBITDA has also reflected a significant improvement since Q1 2021, rising from $6.2 million to $16.6 million in the fourth quarter. Spot market activity continued to increase in fourth quarter, along with a strengthening of rates. These trends reflect the continuing improvement in transportation demand, prompting the return to service of vessels from layup. The overseas Key West and overseas Boston both completed their dry dock periods in the fourth quarter and began their time charters approximately halfway through the quarter. The overseas Anacortes returned to service in December, reducing the number of vessels in layup to four as of December 31. Subsequently, we returned two more vessels to service in January and February 2022, reducing the number of vessels remaining in layup to two by the end of February. Please turn to slide 11. Flight ring volumes increased compared to the third quarter, driving higher TCE revenues and better utilization levels. Revenues from our two ATVs, both of which are on time charter, remain stable as the two units continue to operate as contracted. The Mykonos and Santorini continue to participate in the maritime security program and provide services to the government of Israel. During the quarter, we performed one GOI voyage and one voyage for the Military Sealift Command, in each case, a slight decrease from third quarter activity. We recognized an increase in rates on our non-US flag tanker during the quarter, and TCE revenues on a net basis decreased $1.8 million. Our Alaskan tanker revenues increased slightly due to a small increase in average rates. Jones Act handy-sized tanker revenues increased $4.8 million, principally due to a reduction in vessels in layup, which was partially offset by the higher dried-off periods for the Boston and Key West. Please turn to slide 12. This slide looks at, for our Jones Act conventional tankers only, activities levels from Q3 2020 to the fourth quarter of 2021. The total number of days in each quarter that our 10 Jones Act conventional tankers could be employed without any off-hire days are shown by the blue bars. Employee days represented by the orange line declined by 260 days from the fourth quarter of 2020 to the first quarter of 2021. This was followed by relatively stable employment levels through the third quarter of 2021 with a pronounced increase in Q4 as the impact of improving demand led to the return of vessels to service. Vessel layup days, the gold line, are the reverse image of employee days as we place vessels in layup to minimize costs. This reduction in layup days is continued in Q1 of 2022 as we return two additional vessels to service. Unemployed days were relatively constant across all periods. Please turn to slide 13. Our niche businesses continue to perform consistently with a slight decline in TCE revenues from the third quarter. Again, lightering revenues increased as volumes increased from the third quarter. Our shuttle tanker revenues decreased slightly due to a brief off-fire repair period for one of the vessels. Non-Jones Act product tanker revenues decreased due to the fewer GOI voyage and MSD car loads during the quarter. Please turn to slide 14. Vessel operating contribution increased $2.4 million from Q3 2021 to $19 million in the current quarter. Jones Act handy-sized tankers reduced their vessel operating loss to $8.7 million from $12 million in the previous quarter. Higher demand levels, general improvement rates, all coupled with an increase in vessels available for hire resulted in 140 more employed days. Niche market activities declined very slightly from the third quarter as MSP activity decreased and the shuttle activities experienced their increase in off-hire repair days. Slidering contribution increased again on volumes, higher volumes. Combined vessel operating contribution of our niche market activities ATVs in the Alaska crude oil tanker provided a vessel operating contribution in the current quarter of $27.7 million compared to $28.6 million in the third quarter, continuing their consistent performance. Please turn to slide 15. Adjusted EBITDA continued to sequentially improve, rising from $12.12 million in the third quarter to $16.6 million in the current quarter. Compared to the first quarter of 2021, this represents a $10.4 million increase. We believe this reflects the improving fundamentals of our business. The Jones Act conventional tanker market continues to recover, but nevertheless continues to negatively impact adjusted EBITDA. Please turn to slide 16. Our fourth quarter net loss was $3.7 million, the lowest quarterly loss in 2021. As a reminder, the third quarter included a $7.9 million pre-tax loss associated with our refinancing, resulting from pre-payment fees and the write-off of previously deferred financing costs. Additionally, we recognize a $1 million impairment charge related to the right of use assets associated with two of our airboat chartered tankers. Please turn to slide 17. At December 31, 2020, we had total cash of $70 million, which included $100,000 of restricted cash. During 2021, we generated $45 million of adjusted EBITDA and realized $32 million of cash proceeds from the sale of the overseas Gulf Coast in June. We entered into a $325 million term loan and used $278 million to pay off two loans and partially prepay two additional loans. We incurred $6 million of loan issuance amendment and prepayment fees. Working capital used $19 million of cash. We expended $19 million on dry docking and improvements to our vessels. We further invested $8 million in vessel and other CapEx. Interest expense was $26 million. During the year, we repaid $33 million of debt through scheduled amortization. The result? we ended the year with $83 million of cash, including $100,000 of restricted cash. Please turn to slide 18. Continuing our discussion of cash and liquidity, as we mentioned on the previous slide, we had $83 million of cash on December 31, 2021. Our total debt was $450 million, representing an increase of $14 million in outstanding indebtedness since January 2020. Scheduled loan amortization in 2022 is $22.2 million. With $339 million of equity, our net debt-to-equity ratio is 1.1 times. This concludes my comments on the financial statements. I'd like to turn the call back to Sam.
spk04: Thank you, Dick. Recent chartering activity for our vessels is a sign of a significant shift, at the very least, in short-term market sentiment We believe observable factors continue to build momentum in our markets. OSG's fleet has been and remains well positioned to participate in an anticipated recovery of transportation fuel demand as well as to facilitate many of the emerging trading opportunities resulting from currently disrupted energy markets. All of our available vessel operational days have now been covered for the balance of the first quarter. As of this morning, 80% of available days during the second quarter have also now been fully fixed at improved rates. Rates obtained for recent spot voyages have exceeded $60,000 per day, and time charter period rates have been fixed in the $55,000 to $60,000 per day range. All of this activity gives us good visibility towards the results expected for the first quarter of 2022. We expect both TCE and EBITDA to increase sequentially over fourth quarter results, with TCE for the first quarter likely to exceed $90 million and adjusted EBITDA estimated to approach $25 million for the quarter. Looking further ahead, the picture is less clear. Improved fundamentals offer the prospect for new opportunities and continued gains in TCE and cash flow delivered, but risks and uncertainties remain. In particular, labor shortages in general, especially visible in our industry, will pose challenges to sustaining the quality and consistency of vessel availability as we work towards fully activating our fleet. Traders have remained reluctant to commit vessels on time charter for more than three months. Remnants of concerns of the impact of COVID continue, and there is still a lot of uncertainty around what will be the longer-term impact of high commodity prices and rising inflationary pressures on broader economic activity and energy consumption patterns in particular. The conflict in Ukraine will impose conditions of broad uncertainty at all levels. Nonetheless, outside the inherent volatility of the pure commodity trades that we participate in, we see the stabilizing aspects of our niche businesses emerging even more fully as we plan for the future. Renewable diesel trades, improved prospects for increased Alaskan oil production, and the important role that ATC will play in that trade, and the prospects of fleet growth offered by the tanker security program, offer real and likely near-term catalysts for achieving revenue growth in these specialty markets. Higher oil prices also bode well for the long-term future of our shuttle tankers. With the prospect of better future cash flows adding to the improved liquidity position achieved through the completion of our recent refinancing, OSG is well-positioned to pursue opportunities that we see emerging out of the transition towards a less carbon-intensive energy future. While we are still in the early days of determining which opportunities will prove to be the most attractive and best suited to OSG's core strengths, we have begun committing human and capital resources towards answering these questions and forming our long-term strategies. Betsy, we will now open up the call for questions, please.
spk01: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Ryan Vaughn with Needham. Please go ahead.
spk05: Thank you, operator. Hi, Sam. Hi, Dick. Good to hear from you guys. Morning. Morning. So, you know, first off, I'd say the same praises, you know, big credit to the team for getting through 2021. And then, you know, Sam, especially being able to capitalize this year and beyond just as the market is returning and tightening up here. Sam, you touched on, I have a few questions, but you touched on a couple of these things. One, just as far as I know it's a fluid market that we're in today, we noticed that some of the charters that you're getting done, like the Key West, happen to be done on a longer duration. Some of them are being done on a few months. Just how are you thinking about that? It seems like it's somewhat staggered. I'm sure some of it is on your side, some of it is on the buyer's side. But just what's ideal for you? Again, just knowing that you're a big player here, things are really tightening up, appear to be recovering with COVID as well as some of these other external factors. But just the first question around how you're thinking about the duration of time charters going forward.
spk04: So thanks for that, Ryan. You know, we say in our published materials and we frequently repeat that our core business operating strategy is to be on time charter with our key customers in the United States. We consider our business services to be really part of the distribution infrastructure of our customers and we don't think the international market propensity for spot trading is really appropriate in the United States given the short duration of most of the voyages in the spot and the relatively small number of tankers that are available to be able to serve those trades. So we prefer to be on time charter and we prefer those time charters to be of longer duration because they offer greater stability for us and greater visibility to allow us to plan for growth in our business. But we also say that There are periods in the market where time charters are neither available nor, if they're available, available at rates that we think are remunerative. And during those periods, we need to be able to take decisions to remain in the spot market or need, as we saw last year, lay up vessels and wait for the market to recover and can correct itself to allow for the emergence or reemergence of time charter contracts at rates that we think are acceptable. We basically have transitioned through that whole cycle in the last 12 months. We had to lay up ships, or even in the second half of last year, we did fix a couple of ships on time charter for a year or two in certain cases at rates that we were not really happy about, but we needed to take some defensive positioning to keep cash flow flowing. Since the beginning of this year, a lot of that has changed. The market has tightened for reasons that we've talked about. We've seen rates come back up into levels that we think are remunerative for the services that we provide. And we, at the moment, would be happy to see the contracts that we're fixing begin to see some extended duration, a year, two years, at these sorts of levels that we're currently fixing at. I think would be very healthy for our business and very healthy for our customers, frankly, to give them the assurance of distribution capacity. As I noted in my comments, there's still a reluctance in the market to try and go for that kind of duration. Recent charter fixtures that we've done have basically been in the two to three month range. We have seen a little bit of longer activity. The longest fixture that we've seen in the last three, four months has been a year by one of our competitors. The trading desks of our customers seem still to be reluctant to make the kind of commitments that we think would be indicative of a truly healthy market for us. But the progression has been positive. We've gone from lots of ships in the spot market to one-month time charters to two-month time charters to three-month time charters. And we're hopeful that as we progress through the rest of this year that we'll start to see some length in the duration of the charters that we can obtain.
spk05: Great, that's helpful. And then it was great to hear that you're working on Tampa as well as the 350. Can you just talk about what some of the variables are? I know you said Tampa, you know, all things go well to Q and the back half for the vision. Just what are the driving variables to make that happen?
spk04: The two principal constraints that we face right now in getting vessels activated are not market related. We think the business is there in the market. But we still face certain obstacles in terms of getting equipment back on the water. The first is frankly something that everybody is dealing with these days, which are supply chain logistics. For the Tampa specifically, we have a ballast water treatment system that we have to install. We purchased that equipment from Europe. Um, we have seen significant delays in, uh, container shipping out of Europe. We just recently, uh, are finishing up the dry dock on the overseas Houston. Uh, the unit that we installed, the balance for treatment system that we installed on the overseas Houston was delayed by 10 weeks coming out of Europe. Uh, we sort of seeing similar delays, uh, in the equipment that we ordered for the Tampa. Uh, so at this time, uh, you know, we can't put the vessel into dry dock until probably the end of May. And it's a little bit tight as to whether or not the ballast water treatment system that we ordered is going to get there in time to be able to afford us to get that dry dock completed by within the second quarter of this year. The other thing that is really notable is labor shortages in our business are right now acute. We have officer issues, particularly junior officers, and we have unlicensed crew members Both of those pools of employees have been severely impacted by COVID. The schools for the unlicensed officers during much of the COVID period were closed down. So the normal graduates of those schools that would have been coming into the market over the last 18 months are not available. And you still have your sort of normal level of retirees and people that are going out of the market. So that's created a lot of tightness in the labor market. Also, the other shipping markets that are outside of the tanker market, including most notably the container market, their businesses have been booming, so the demand for labor there has been significant as well. That's really crimped our access to immediate availability of seafarers to put on our ships. We've seen that through the activation of the ships that we brought out in January, February, and March of this year. There was, frankly, a heroic effort by our survey staff to be able to go out and recruit and hire the people to put those ships back in service, and we're really grateful for the work that they've done in doing that. But those labor shortages will continue and could have an impact on the timing of bringing those ships out of layup.
spk05: Okay. Let me just think of one more, if that's okay. The commentary on 1Q sounds great, especially the 90 and 25 heading in the right direction for sure. And getting back to, I know, before all of this started, this COVID started, I know you guys were looking to be probably $35 million on EBITDA per quarter. Just maybe just totally understanding that there's still quite a few factors in the market and shorter markets. spot voyages that you're doing right now. But the biggest variable, and I don't need to tell you guys this necessarily, is just that Jones Act tanker segment. On the contribution side, it was negative $44 million in 2021. I don't mean to rub salt in the wound necessarily, but really more to highlight what that segment can do this year. Certainly it seems positive if you had five, six, seven vessels idle last year. That's down to one right now. But just any kind of broad strokes just to help us out, what we should be looking for and thinking about for that one segment that set another way. If it was zero, your business looks significantly different last year versus what you reported last year. but just any sort of helpful idea what to be thinking about for 2022. Thank you.
spk04: The commentary that we gave at the end of last year about rationale for why we elected not to renew three of the tankers that we have on bare boat leads from ATC, I think is applicable to be repeated. As you have said, the The conventional tanker market is very volatile and it's susceptible to swings and changes in the underlying demand and to exogenous shocks and other factors that are totally beyond our control. I'd like to think that things, as I said in my comments, we had the narrative of an improving tanker market and getting back to normal. That was our script for this year. I think that's still the same. And so I think that we remain pretty optimistic that that's going to play out over the balance of this year. But everything has changed in the last couple of weeks. And I think we're still in a stage of trying to understand what all those all of the implications of the energy shifts that emerge out of the Russian Ukrainian conflict how that's going to impact our markets. In one sense, the dislocation of energy movements is probably positive for the tanker markets globally as the markets adjust to changing supply patterns. But the flip side of that is if inflation and high commodity prices trigger a recession, that could have an offsetting or potentially asymmetrical impact on consumer confidence and the other factors that go into general demand for transportation fuels. So I think that's the narrative that's reflected in our customers' reluctance to try and go beyond a month or two in terms of their commitments for ships. And I think we still need to see that play out. Again, our basic game plan for this year is a pretty positive one. You look at the overall inventory levels. You look at the refining utilization rates that are coming up. You add on top of that the likely probability of increased air travel and increased jet fuel, which has been the principal missing part of the consumption barrel over the last six to eight months. You know, general COVID, post-COVID demands, you know, explosion from people that just pent up demand that want to get out and do stuff, all of that we thought was setting up pretty well for a good 2022. I think we still believe that that's the base case, but recent activities in Europe have increased uncertainty in recent weeks. I think that's the best way to think about it. You know, we have, just to help you answer your question, we have now all of our tankers are out and operating. Except for the Tampa, we're pretty confident that Tampa will join that operating fleet by the end of the second quarter. Rates right now are close to $60,000 a day. If you take 10 ships times $60,000 a day, if you can achieve that over the balance of the year, that's a pretty good outcome. The question is, how much downtime may we take because of uncertain demand and how successful we will be as we roll through the conclusions of current contracts that we have on the books, how successful will we be in re-employing those ships at equal or better rates as we move through the balance of the year. And that's just, we have to wait and see.
spk05: Thank you for that. Makes sense. And I have one more, but I'll see if Jay or anybody else has any questions. Thanks.
spk01: As a reminder, if you have a question, please press star then 1 to be joined to the queue. The next question comes from Ben Nolan with Seafool. Please go ahead.
spk02: Hey, Sam. I thought I'd follow up on a quick question. Actually, you were just talking about it. $60,000 a day, that's a pretty good number. Two things there. I assume that's the spot market. I'm curious if there's a big delta between that and where you're able to contract at. Um, and how, how do we frame that from, let's say where we started the year where, you know, in, in the last two plus months, where have we come from to, to that 60,000 number?
spk04: So remember the Jones act, I know you're usually covering the international market where there's probably 50 fixtures a day market, you know, you know, period fixtures, uh, you know, happen, you know, one or two a month or a lot, and sometimes you go months without any. So take that as a caveat. At the end of last year, there was a one-year period fixture that was done in the low 50s by one of our competitors, Fix the Vessel. So call that November, December, you're at low 50s for 12 months. January, later January, early February, let's call it. There's another fixture that was done in the mid-50s. And what we've seen in recent weeks, or this past 10 days, not 12 months, although I think the rate, the asking rate out there for 12 months is probably the same, but we've seen fixtures for three to four months time charter at $60,000 a day. Spot rates are approaching $70,000 a day. And they were, in November or October of last year, they were probably low 50s. Yeah.
spk02: Well, that's a good move. Sort of along the, well, correlated, obviously. You know, obviously, you talked about having all, I guess, the Tampa up and running. Any sense of where utilization is across the entire fleet beyond your own vessels? How close are we to kind of every ship or ATB being in service and operating?
spk04: Pretty close. Tankers, again, if you look at tankers, the only tanker that is not currently working is the Tampa. And as I said, There's business for her today. We just can't get her out because of the constraints of labor and supply chain logistics. On the barge side, I think you're aware there was a company called Bouchard that went through bankruptcy liquidation in the second half of last year. Some of those assets have been put back to work. Some of them still are not working. So there's a little bit of overhang on the barge side, at least theoretical overhang that those barges could come back to service. And there may be one or two other barges that I'm not specifically aware of that are still kind of not fully utilized. But if the general universe of Jones Act ATBs and tankers or ATBs greater than 150,000 barrels, that's kind of the defined market by people that look at our markets. The number of ships is about 87, 88 vessels in total. I would say You know, certainly 84 or 85 of those vessels are currently working. That's a pretty good number.
spk02: Great. Well, that's great color and good news. So, thanks. I appreciate them.
spk01: Once again, if you have a question, please press star then 1 to join the question queue. That's star then 1 to join the question queue. The next question is a follow-up from Ryan Vaughn with Needham. Please go ahead.
spk05: Yes, thank you, Albert. So just one more for me, for Sam and Dick, as we're thinking about 2022, and clearly your EBITDA trajectory is substantially better than what we were looking at last year. Maybe for Dick in particular, how are you thinking about swinging now to burning cash, to generating free cash? Obviously, I think you've made it pretty clear you want to deliver the balance sheet. Where do you start there? Is it just kind of widespread with the AMORs and then targeting specific loans in particular? But any sort of update when you expect to officially kind of swing over to that free cash flow positive? And is it to accumulate more cash or is it let's go down, let's really start to pay down the debt that we have? Thanks.
spk03: I think we should, given the performance that we're seeing now in the first quarter, I would expect that free cash flow after, before CapEx will be positive. And I think that, again, on the current trajectory will continue through the year. You know, we'll obviously bring the Tampa back into service. We're going to spend several millions of dollars to take her through dry dock and ballast water treatment system, although some of that comes back to us. So there's There will be some of those costs, but this is not a particularly intensive year from a ship-oriented capital requirements. So I would expect that we will be cash flow positive probably after CapEx as we start to get into the third quarter. And then we can look at what do we do with it, what are the best opportunities to pay it back. I mean, we'll certainly obviously pay back the $22-plus million of scheduled amortization. We'll look at opportunities that are out there and look at the economics of whether we want to prepay anything. Keep in mind that obviously most of these loans have prepayment penalties in place and some costs that would be associated with reducing the indebtedness in advance of the normal amortization curve. But we'll look at what the economics are and what they all other alternatives for using some cash.
spk04: I think I can add a little bit of color to that. I think you're correct that deleveraging the business is certainly part of our game plan and something that we look at, if not every day, we look at pretty regularly. But we don't turn away from looking at growth opportunities. And the Jones Act market is small. You know, our opportunities in U.S. flag market, while expanding because of the Tanker Security Program, they're also not great. But there are little things that we see from time to time that we think afford us an ability to invest more capital in areas that are not as commoditized as our conventional tanker business, and then offer the kind of stability of niche returns that we see in our shuttle tanker, ATC, the lightering business, um, that, uh, that we keep our eyes open for. And, uh, you know, there, there's still some consolidation that's going on in the industry. Uh, so we may see one or two assets that come up, uh, that would look interesting there. So, uh, you know, I said in my remarks, look at the capital investments that we made in 2019 to 2020. Uh, those were, um, You know, those were not easy decisions to make at the time. You know, we bought ATC literally as COVID came down on top of us. And, you know, thanks to Dick, we got some financing range at the last minute to be able to pull that off. And the ATBs that we built, you know, the decisions to build those were done at a time when the market was not as strong as it is at least looking today and you know the new building that we that we built that we positioned for the thank you security program all those things uh you know contributed meaningfully in 2021 and you know i think give us uh some scope for increased niche market revenues as we go forward so although the jones act u.s flag opportunities to invest capital in growth assets is not maybe as readily available in the international markets, it's still an important part of our game plan and something that we look forward to having some surplus cash to be able to think about in the future.
spk05: Okay. So just along those lines, and since you mentioned it, I mean, you have several different segments and definitely getting the ATC done was huge, and especially at the time that you did, you have the ATBs, you have the niche businesses, you have the Jones Act. I mean, you do have a lot for a $600 million company today. Would you ever think about investing more heavily in one or two or three of those and maybe letting one of the other ones go just to be a little bit more concentrated? Or do you like being this diversified? Again, it's a $600 million business today spread out between, call it four or five, six different assets.
spk04: I'm not certain we have a lot of choice in the matter. The markets we operate in are pretty small. I think the answer to that question we've given in the decisions that we've taken in the last couple of years, we've pivoted away from ATBs towards tankers, and we've pivoted away from an overly heavy concentration in the commodity side of our tankers towards businesses that are more niche businesses that afford us a greater stability in what we do. I don't think there's a scenario in which we exit the tanker or ATB market, notwithstanding its volatility, because it's an important part of our business. And, you know, it's a cyclical business. You want to have some exposure, I think, to the tightening markets, as we start to see now, because that can provide you with some outsized returns. for at least brief periods when those conditions exist. I think the mix of the stability provided by our niche businesses and the upside possibilities that are afforded to us by our conventional tanker and ATB businesses right now, that's a pretty good mix to have. If we see Opportunities to add to that mix of assets I think would give first priority to more niche-type businesses, but we wouldn't exclude commodity-type assets or more commodity-like assets if the opportunities presented themselves.
spk05: Okay, great. Well, thank you for all the questions. Appreciate it. Good job.
spk01: This concludes our question and answer session. I would like to turn the conference back over to Sam Norton for any closing remarks.
spk04: Thank you, Betsy. Thanks again to everyone for participating on today's call. I read in the New York Times today a piece about the 50th anniversary of the screening of The Godfather, which is pretty amazing. It's Al Pacino's making commentary on The Godfather. But one of the things that was in there was, a recollection of the greatest lines of the movie, and Dick and I both recall that our favorite line in the movie was, lead the gun, take the cannoli. So I'll leave you all with that as we go off for cannoli lunch in celebration of the Godfather and look forward to speaking to you again next quarter as our business continues to improve, we hope. Have a good day, everyone.
spk01: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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