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spk00: Hello and welcome to the Overseas Shipholding Group second quarter 2022 results conference call. My name is Katie and I'll be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star 1 on your telephone keypad. I will now hand over to your host, Sam Norton, President and Chief Executive Officer of Overseas Shipholding Group to begin. Sam, please go ahead.
spk07: Thank you, Katie. Good morning. Good morning. And thank you for joining Dick Trueblood and me on this call for the presentation of our 2022 second quarter results. And for allowing us to offer additional commentary and insight into the current state of our business and the opportunities and challenges that lie ahead. To start, I would like to direct everyone to the narratives on page 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 a historical perspective on OSG today, and our presentation includes 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 these factors, we refer you to our Form 10-Q for the second quarter of 2022, which we anticipate being filed later today and will be available at the SEC's Internet site, www.sec.gov, as well as at 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. It is gratifying to have released this morning financial results indicating that the long shadow of COVID-induced demand destruction in our key markets seems to have finally receded. The recovery of demand in our conventional tanker business led to a return to profitability during the quarter and continued the progressive quarter-to-quarter improvements in other important financial measures that we have witnessed over the past year. Time charter equivalent earnings for the second quarter exceeded $100 million for the first time in two years, and adjusted EBITDA of $31.5 million represents the best quarterly performance on this metric in many years. It is worth remembering that for the first four months of this year, we were largely stringing together voyage fixtures for our conventional tankers as we were bringing tonnage out of layups. We took the approach of pushing spot market rates fixture to fixture to condition the market to higher rates with the hope that the tightening market supply picture would eventually induce end users to take on more duration risk and allow us to fix longer-term charter commitments. As a reminder, this is what I said during our first quarter earnings call in early May. For our Jones Act tankers, nearly 80% of vessel available days during the first quarter were earning freight in a firming spot market. Clearly, having spot vessel availability in a tightening and rising market had been a good thing. It bears remembering that our model chartering strategy is to attain longer-term time charters at profitable rates. Now that the market rates have risen to above break-even levels, our focus is gradually shifting to building some links in our charter books. This objective remains a challenge as the volatile trading markets continue to inhibit our charter counterparts from entering into longer-term commitments. I would add that a key part of our chartering strategy coming out of the first quarter was to be patient for rates to reach levels that warranted term fixtures. This approach was grounded in the belief that restocking low transportation fuel inventories and emerging demand for renewable diesel pointed to favorable fundamentals from a vessel owner's perspective. As is often the case when patience is demanded, things happen slowly, slowly, slowly, and then all at once. May, June, and July have seen the emergence of a truly remarkable shift to period versus spot cover. In the past 12 weeks, we have booked over 12 vessel years of aggregate time charter period cover by extending contracts of a freightment with our lightering customers and the government of Israel and by securing eight period fixtures for our tankers and ATBs. With conventional tankers fixing in the mid-60s and our ATB fixtures concluded in the mid-40s, this book of new business should generate nearly $275 million of time charter equivalent revenues to be realized over the next three and a half years. 92% of available vessel days have now been fixed across the balance of 2022, and close to 80% of vessel available days are now fixed for 2023. The sudden shift to profitable charters among our conventional tankers comes on top of steady and strong earnings provided by our niche market activities. Dick will take you through the sector-specific results in a few minutes, but when considering the trajectory of our financial performance going forward, it is noteworthy to point out The benefits of having both our niche and commodity trading businesses healthy and profitable at the same time. It is important to recognize that while improving market conditions have been supportive of the charting strategies we have chosen to pursue, the results achieved in recent months would not have been possible without the extraordinary work done by both shore base and seagoing staff at OSG in making our operating fleet ready to respond to these opportunities. The heavy dry docking schedule, the need to install and commission ballast water treatment systems, and the challenges of bringing seven vessels out of layup in a condition to operate at the standards that we require created demanding working conditions. These and other challenges have been met, allowing all of our vessels to return to work seamlessly with no material operating issues and no off-hire. Thanks to the hard work and commitment of OSG employees, July marked the first time in nearly two years that every one of our vessels was working and contributing operating revenues. Turning briefly to the state of global energy markets, the continuing effects of Russia's invasion of Ukraine have yet to be fully realized or understood. The data to date suggests that Russian exports of both crude and refined products have largely continued at pre-invasion levels. Buyers of crude oil in Asia have replaced reduced EU demand, while restrictions on the import of Russian-produced refined products have been delayed. However, assuming the announced EU ban on waterborne imports of Russian crude and products is enforced and effective next year, more significant dislocations of energy flows to what have been evident to date can be expected. steps to replace Russian gas with imports of LNG and fuel switching to diesel and fuel oil will likely alter energy trading patterns even more significantly next year. These developments should combine to increase ton-mile demand for international tankers and support a healthy global tanker market in the year ahead. According to Clarkson's research, the international MR tanker market has in particular benefited from disrupted trade patterns with products Ton-mile trade forecast to expand by over 8% this year to stand 7% above the 2019 level. Average time charter equivalent rates earned by MR tankers in June were close to $50,000 per day versus a historical average of less than $15,000 per day. A strong international tanker market is supportive of demand within the Jones Act trades as competing sources for domestically consumed crude oil and refined products sourced outside of the U.S. becomes more expensive on a deliberate cost basis. Domestically, inventory levels, particularly of middle-district products on the East Coast, continue to sit well below historical averages. High refining utilization rates at still-elevated margins should continue, with strong Pad 3 refining production generating sustained transport demand for refined products over the near term. Recent data indicate high gasoline prices have impacted U.S. driving patterns resulting in a drop of about 1 million barrels per day of gasoline demand in the United States. Despite this, the consensus view is that demand for all transport fuels globally should continue to increase, leading to robust refining margins for the foreseeable future. On balance, healthy refining output means more product to be shipped, which should sustain elevated demand for international and domestic shipping. Before turning things over to Dick to provide a deeper dive into the numbers, I would like to once again highlight two developments that we feel will offer opportunities in the quarters ahead. First, and most significantly, has been the continued emergence of renewable diesel as an increasingly important driver of domestic marine transport demand. Two of the charter contracts fixed since the end of the quarter, which will both commence early next year, are with new customers engaged in the renewable diesel trade. We are currently fielding inquiries for one and possibly two more vessels to join the two already fixed in this trade, sailing from the Gulf of Mexico to the US West Coast. Added to the overseas Key West, which has been transporting renewable diesel to California since last November, it is possible that OSG could, by the middle of next year, see as many as five of its vessels dedicated to this new trade. It is important to note that a voyage to transport renewable diesel or its related feedstocks from the U.S. Gulf to California has a duration of 35 to 40 days, roughly three to five times the duration of a standard voyage from Texas to Florida. The increased ton miles generated by this trade can thus be understood as a significant boost in domestic shipping demand, one that could ultimately account for 10 to 15 percent of all available capacity. New business with further growth opportunities in the Jones Act has not often been seen in recent years, and we are excited about the role that OSG is and will continue to play in this emerging business. Second, prospects for an expanded U.S. flag fleet operating outside of the Jones Act trade are solidifying. The congressionally approved and funded tanker security program is expected to be stood up during the first half of next year. Consideration is being given to expand the approved 10-ship program to possibly a 20-ship program. Further, the U.S. Department of Defense has indicated interest in chartering in as many as six additional U.S. flag tankers. Our overseas Mykonos, overseas Santorini, and overseas Suncoast are well positioned to benefit from these programs. Depending on the pace and extent of the growth in these programs, opportunities to add additional vessels to our current fleet could well arise. The prime objective of these programs is to deepen and broaden the pool of domestic merchant mariners who possess the requisite skills and experience to support a right-sized U.S. flag tanker fleet. Achieving this goal requires all constituents, tanker owner operators, labor, and the government agencies who ultimately benefit to plan for and commit resources beyond those currently required for normal operations. A common approach to the pace of expansion and to meet startup needs is important to ensure long-term viability. OSG has taken a leadership role in working with its industry, labor, and government partners to make this vision a reality. I will now turn the call over to Dick to provide you with further details on our second quarter results for 2022. Dick? Thanks, Sam. Please turn to slide seven.
spk04: TCE revenues exceeded $103 million in Q2 and continued the trend of sequential quarterly revenue increases. The year-over-year revenue increase was $31.5 million. Adjusted EBITDA for the quarter was $31.5 million, an increase of $21.3 million from the comparable year-ago quarter. TCE revenues increased 9.9% from Q1 2022 and adjusted EBITDA rose 5.9 million or 24% in the prior quarter. The market remains active in an increasing rate environment. During the quarter, we saw a shift away from short duration charters to increased duration commitments. Contract durations in some cases have reached three years. As Sam mentioned, there has been an increasingly active market for renewable diesel transportation, both as feedstock and refined product. The principal trade is from the Gulf of Mexico to the US West Coast. Please turn to slide eight. We returned the two vessels remaining in layup at the end of the first quarter, the overseas Tampa and the OSG 350 Vision, to service during May. each providing additional revenue days from their reactivation. Our fleet is now fully active, and the two vessels that returned to service during 2022's first quarter provided a full quarter of operations during Q2. Our Jones Act conventional tankers continue their upward trend in employed days reaching 841 days in Q2. Comparatively, We had 379 employee days in Q3 2021 when we began to return ships to service. Our employee days for this component of our fleet rose to 92% of total available days from 42% employment in Q2 of 21. The overseas Tampa left layup in early May and underwent her required dry dock period and ballast water treatment system installation before she commenced operation. The OSG 350 vision returned to service in late May. In total, we had 82 days in layup during the second quarter. Please turn to slide nine. Lightering volumes declined slightly during the quarter with lower average rates as our customers surpassed their minimum volume commitments. The revenue increase here was driven by the OSG 350's return to service. Revenues from our two ATVs, both of which are on-time chartered, 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 two complete GOI voyages and one voyage for the Military Sealift Command. Additionally, as the quarter concluded, we were performing one MSC voyage and one Government of Israel voyage. As a result, non-Jones Act tanker revenues increased $1,100,000 from the prior quarter. Jones Act handy-sized tanker revenues increased $7 million from Q122 based on the previously described increase in employee days coupled with a stronger rate environment. Revenues from our Jones-Axe shuttle tankers and Alaskan tankers were consistent with the first quarter. Please turn to slide 10. The niche businesses registered a $2.1 million increase in revenues driven by the increase in non-Jones-Axe product tanker revenues. As previously mentioned, Government of Israel voyages, MSC voyages, and higher international rates all contributed. Lightering revenues increased as the OSG 350 returned to service. Turning to slide 11. Vessel operating contribution increased $5,600,000 from Q1 2022 to $36.7 million in the current quarter. Jones Act candy-sized tankers' performance continued to improve based on more vessels in service, higher utilization, and an improved freight environment. Vessel operating contribution was $7.7 million, an increase from $1.5 million in the prior quarter. Niche market activities contribution decreased slightly from the first quarter, principally due to costs associated with the return of the overseas Tampa and OSG 350 to service. The ATB contribution and Alaskan tanker contribution remained constant between the quarters as all vessels were committed on time charters. The combined vessel operating contribution of our niche market activities, ATVs and Alaskan crude oil tankers, provided a vessel operating contribution in the current quarter of $29 million compared to $29.6 million in the first quarter, continuing their consistent performance. Please turn to slide 12. adjusted EBITDA, continuing its sequential improvement, rose $6.1 million from the first quarter of 2022 to $31.5 million in the current quarter. Compared to the second quarter of 2021, this represents a $21.3 million increase, reflecting improved market conditions and increased rates, as well as the return of vessels to service. Please turn to slide 13. Second quarter net income was $3.7 million compared to a first quarter net loss of $1.5 million and a $10.7 million loss in the year-ago quarter. This results from the continuing improvement in operations as we return vessels to service as demand has returned from the COVID-19 lows. Please turn to slide 14. As our results continue to improve, we wanted to provide information concerning the profit-sharing arrangement that exists for the vessels we bare boat chartered from the American Shipping Company. This chart provides information for 2022 through 2024. The 2022 information reflects all 10 vessels we currently chartered from AMSC, while subsequent years reflect the seven vessels we will continue to bare boat after redelivery of three vessels in December 2022. The calculation, which is governed by the terms of the contract between AMSC and OSG, provides for specific deductions to be taken into account in determining whether there is any profit, as defined, to share between us. These deductions include, among other items, an OSG management fee, an OSG profit layer, and deductions for dry dock costs, all of which are prior to determination of the existence of any profit to share. Shareable profit, if any, is split evenly between the parties. We look here at what the profit share picture might be for average TCE rates based on estimated future market rates. The slide provides an estimate of anticipated profit share under the AMSC barebow charters for 22 through 24. The underlying information used to develop 2023 and 2024 estimates is based on our assessment of the market in each year as informed by current market conditions. There will not be any profit sharing payments in 2022 due to the carry forward of losses sustained on the AMSC vessels in 2021. In 2023, if we were to achieve an average TCE rate of $62,300 per day across the seven AMSC vessels, there would be no profit sharing. In 2024, if we achieve an average rate of $63,500 per day, there will not be any profit share. Finally, it is worth noting that as certain costs are recovered, the minimum average rate that will result in profit share declines in the future. The calculations are complex and have a variety of factors involved. This chart is meant to be indicative of possible outcomes based on the assumptions made. Please turn to slide 15. In March 31, 2022, we had total cash of $77 million. During the quarter, we generated $31 million of adjusted EBITDA. Working capital used $5 million of cash. We expended $5 million on dry docking and improvements to our vessels, and we made $13 million in debt service payments. The result was we ended the quarter with $84 million of cash. Please turn to slide 16. Our total debt at June 30 was $439 million. This represents a decrease of $6 million in outstanding indebtedness since March 2022. Scheduled loan amortization in the second half is $11.2 million. With $343 million of equity, our net debt to equity ratio is one time. This concludes my comments on the financial statements, and I'd like to turn the call back to Sam. Sam?
spk07: Thank you, Dave. Our second quarter results evidence healthy operating conditions in our core markets. OSTs, fleets, remains well positioned to respond to changing patterns of domestic and international transportation fuel shipments, as well as to facilitate many of the emerging trading opportunities that we see. This leads us to anticipate continuing improvement in all important financial metrics and a gradual build in available cash balances over the next several quarters as profitable time charters at higher utilization rates are realized. As noted earlier, 92% of our available vessel operating days are covered for the balance of 2022, and 80% of available days during 2023 are also fully fixed. Rates obtained for recent tanker fixtures exceed $65,000 per day, and the current time charter period rates for our ATBs have been included in the mid-40s. Periods fixed range from six to 36 months, with several contracts fixed for delivery next year. All of this activity gives us good visibility towards the results expected for the second half of 2022 and into 2023. For the third quarter, healthy fundamentals should produce continued quarter-to-quarter sequential improvement in TCE and strengthening cash flows. We expect both TCE and EBITDA to increase sequentially over the first and second quarter results. For the final two quarters of 2022 combined, We now expect to achieve time charter equivalent earnings of about $210 million and for adjusted EBITDA to approach $70 million for the six-month period. Attaining these targets should result in $20 to $25 million of free cash flow over the second half of this year before changes in working capital and before accounting for the deferred payment obligations due to American Shipping Company upon the re-delivery of vessels in December. Year-end cash balance of approximately $100 million is now forecast. Looking further ahead to 2023, absent changes in the trajectory of current market trends, we believe healthy fundamentals will offer the prospect for continued solid financial performance throughout 2023. Our current forecast has time chart equivalent earnings for 2023 approaching $400 million on a reduced fleet size due to re-delivery of vessels with expiring bare-gold contracts. Factoring in some allowance for anticipated cost increases, attaining this top-line result should generate adjusted EBITDA of $130 to $135 million across all of 2023. After deducting debt, service, and capital expenses, we anticipate free cash flow for the year should be between 50 and 55 million U.S. dollars. More stability in our financial profile translates to positive free cash flow in the quarters ahead and improvements in our balance sheet. As stated on prior calls, use of surplus cash flow, should it arise, will be a regular topic of conversation with our board. Investment and growth opportunities, reduction of outstanding debt, and the continued acquisition of shares under our share repurchase program will all be part of this conversation. Of course, now that we've removed a good deal of the volatility in forward earnings, the corresponding truth is that we have set a ceiling on what we can achieve on the top line. Operational execution now becomes the key performance factor, as any up higher or other loss of time will only serve to reduce our expected earnings. With inflationary pressures evident virtually everywhere we look, an extraordinarily tight marine labor market that is set to get tighter with tighter still with the advent of the Tanker Security Program and a regulatory environment that will continue to add layers of operational requirements on our shore-based and seagoing staffs, the challenge of fully realizing cash flow that our focused fixed revenue portends will be significant. Looking ahead, our mission now shifts to execution and operational excellence and to a focus on using OST's unique franchise to position ourselves for a better future. Katie, we can now open up the call to questions that may be forthcoming. Over to you.
spk00: Thank you. So if you would like to ask a question, please press star followed by one on your telephone keypad now. If you'd like to remove your question, please press star followed by two. And when preparing to ask your question, please ensure your phone is unmuted locally. We take our first question from Ryan Vaughan from Needham. Please go ahead.
spk03: Thank you, operator. Hi, Sam. Hi, Dick. Congrats on the great quarter. Thank you. Thank you. So just – you covered a lot there, Sam. You took a lot of questions from me toward the end. I appreciate that, but I'll still probably follow up on a couple of things you said there. But maybe just first things first, just – You've obviously been working hard to position the company, and you alluded to that in your prepared remarks about being in the spot market and ultimately shifting to duration. Just a couple questions there. One, you mentioned anything from six months to 36 months, and then you also mentioned just the renewable diesel, two additional vessels that could be up to five. First of all, what's driving the six months versus the 36 months, and We know what you did with the Key West before, which is a little bit longer. I think it was two-plus years. Are you getting some longer duration on some of the renewable diesel trades?
spk07: What drives people's choice of duration really, I think, is better than the risk appetite of the desks that are taking these chips in on charter. I think it is generally true that our chartering customers sense today uh the tightness that we've sensed for some time uh and and and are therefore leaning more towards securing visibility of transportation capacity over optimizing maybe their their trading results we've seen that clearly uh and as i said we fixed eight uh fixtures six tankers and two atbs The longest fixture we have recently concluded is for three years, commencing in the first quarter of next year, so taking us all the way through to the end of 2025. We've had a number of fixtures of two years duration and then a handful of fixtures of one year and six months. The renewable diesel fixtures, they're new players in the market for us or new customers. A lot of that is tied to two things. One is the emerging production capacity for renewable diesel in the Gulf of Mexico, Vertex, Renewable Energy Group, the Darling-Vallero joint venture, all are expanding capacities. There are a couple of other plants that are kind of mooted as being potentially coming online as well. There's also been some movement to shifting not only renewable diesel, but feedstock for renewable diesel coming out of the Mississippi River sort of gathering areas and moving that to the West Coast for refining on the West Coast into renewable diesel. So that was also a factor in the increased demand that we've seen. As far as the conventional trades are concerned for conventional refined product, ourselves and some of our competitors, we've seen a pretty steady beat of one to two to three-year fixtures for the key players in that trade. Again, in my view, it's driven by a sense of shortening capacity that traders don't want to be left without some visibility to be able to move their product going forward.
spk03: That is helpful. Thank you. And then also thank you for all the free cash flow, I guess the time chart of revenue and EBITDA and free cash flow. Just to that point, I mean, I love seeing these bar charts in the presentation, just heading in the right direction, continue. Thank you for the 3Q and 4Q. But also just love seeing that the debt's going down every quarter, your cash is going up, you alluded to Ending the year at around $100 million, you're going to generate another $50 plus next year. Again, that's at least what you're seeing today. That's $150 million plus. Your debt service with the AMOR, it's $20, $30 million a year. Just talk to us. There's been a sea change here. Again, huge credit to the team for being in this position and waiting out and working through those challenging quarters of late 2020 and all of last year. But Just talk to us. We did see that $5 million share buyback go in place in June, but it really seems like things are going to change meaningfully from the balance sheet perspective. Just fast forwarding toward the end of next year with that probably closer to something in the $300s and cash in the $150 million.
spk07: Yeah, I mean, look, that's That's what we hope, certainly. And as I said in my prepared remarks, we certainly have a lot more visibility given operational execution to how that cash development is going to build over the next six quarters. And as I said, we really have three focuses for use of that cash. Investing in increasing opportunities to earn reasonable rates of return on our capital. That's something that we always want to look at. We think that the expansion of the non-Jones Act U.S. flag lead offers us some opportunities there. And if we see that program, the tanker security program, and then, as I said, some of the Defense Department programs pick up at the speed and the trajectory that has been discussed in Washington. I think that offers some opportunity for us to expand our non-Jones Act U.S. flag fleet at reasonable rates of return. There continue to be opportunistic single type asset possibilities in the Jones Act trade that we look at. And we've thought about maybe some other areas of opportunity that could arise, as I've said often in the past, through the emergence of other types of sustainable energy markets, whether it's hydrogen or ammonia or carbon, CO2 transport. These things are things that we're looking at pretty carefully right now. Absent clear... attractive investment opportunities. The other two areas that we continue to focus on are reduction of overall debt levels and the return of capital to shareholders, either through share repurchase or potentially in the future, some sort of dividend, if that looks like a sensible way to return capital to shareholders. So having surplus cash flow is a good problem. uh we uh we haven't enjoyed that problem for some time but i look forward to having a much more robust conversation around those opportunities as we go uh through the balance of this year and into next year great that's helpful and then uh just to touch a little bit more i know we'll probably see it better in the queue but that five million dollar buyback um can you just uh
spk03: you know, maybe just describe a little bit, uh, how that came into place and, and certainly huge vote of confidence. What you're seeing is there, um, are you, are you happy with 5 million for now? Or is it, do you think there's some, uh, get through that and then evaluate after, um, and then, sorry, just to jump back. Uh, you said you're 80% through next year, leaving, leaving 20%. Um, you are shifting the model from more spot to duration. Um, it, where would you, where do you want to be? Let's just say by the end of the year, do you want to be fully, you know, call it closer to 90, 95, 100, just any sort of update on, um, as we approach toward the end of the year, looking into next year. Thanks.
spk07: So we'll try and kind of take both those questions. Um, look, 5 million share repurchase. Um, I think that our view right now is that probably is sufficient for the foreseeable future. You know, without going into too much detail, there are limitations on how many shares we can purchase in any given day or week. And given the overall level of volume of the shares that are traded every day, that does set some upper limits on how quickly we can deploy capital to be able to acquire shares for our own account. But, you know, we're steadily, to my knowledge, we're steadily applying uh, that share, but repurchase program, uh, and expect to be, uh, continuing to do so, uh, given current current price structure and current market volume conditions, um, for, uh, how much do we want to have on term charter versus period charter? Um, you know, a lot of that depends on, on really on the circumstances of where, where things sit. Um, uh, Would we put 100% of our fleet on time charter? I think we would at the right levels. There is still risk in the economy. There's risks, as we've seen in the past, risk of unforeseen shocks that come from external forces. To the extent that we see remunerative rates that we think are representative of that or near the levels that we think uh are proper for the market uh yeah we might put 100 of our vessels on time sure i don't think that's going to happen uh because we just have you know we have a kind of rolling maturity structure right now with our ships and you know from one period to the next there's probably going to be gaps in between we also have frankly we have our our non-jones act trading vessels that uh the mykonos and santorini pretty much have to stay in the spot market because we have to trade around that government of Israel contract. In theory, we could put those out on time charter and try and work with a partner to give us the flexibility to have them operate in that contractual framework of the government of Israel. But I don't really see that. happening certainly on the near term and with the international rates quite firm right now, having that spot market exposure is not a bad thing. The overseas Gulf Coast trades in a pool and has spot market exposure. We could fix that away on time shorter as well, but given our plans to transfer that vessel into the US flag and then have that vessel participate in the tanker security program. You know, the limits of our ability to fix that are probably defined in months. So it wouldn't really achieve that much security. So that's kind of where our spot market exposure is concentrated. It's in our non-Jones Act lead. We do have some, as I said, some Jones Act vessels that are maturing off their current contracts in the first half of next year. We do have a little bit of spot exposure in the fourth quarter of this year as ships come off existing charters and position into entering into charters next year. So there's a bit of a gap there that gives us some spot. We think the fourth quarter should be historically a pretty strong month, so having that spot exposure probably would be a good thing. But time will tell on that.
spk03: Well, that's great. Yeah, I know that was great info. Thank you for all that and And best of luck this third quarter. Thank you.
spk04: Thank you, Ryan.
spk00: The next question comes from John Conrad from GCaptain. Please go ahead, John.
spk05: Yes, hello, guys. Thank you so much. I'm just hearing great, great things about your chartering department. Andrew over there just doing wonderful work throughout the industry to share great things. So good job for that, guys.
spk07: Appreciate the support.
spk05: Um, but my question is, uh, you know, we, we monitor the news and the, uh, and the ongoing military situation. Um, a year ago, two years ago, there was not much talk about, uh, the merchant fleet. And now a number of think tanks from Georgetown to Harvard and Grand are talking about, uh, the lack of a seal of capacity and some of them are even saying that the biggest national security problem now since the closure of the navy's red hill bunker and avgas fuel facility in hawaii is uh tankers product tankers specifically um but but we're not seeing despite all of this press and the think tanks really pushing the navy we're not hearing much from the navy itself or from nothing from MARAV at all. So I just was wondering what that process is as these think tanks continue to push. How do you close out on those contracts and provide the Navy with Hulse?
spk07: Thanks for that question, John. I think you're correct in identifying the tailwind of support for the domestic maritime sector that has arisen in Washington and around the intellectual community that supports Washington. And I really think at this juncture, it's a matter of months before we start to see real action on that. MARAD, in their testimony to Congress, stated that they expect to be begin applications for the tax and security program at, by the end of this year, they're in a rule writing process right now, which is probably why you're not hearing much for them because they have to write their rules before they go out to see public comment. Um, but again, in, in, in, in public testimony, the merit administrator, uh, gave Congress a, uh, end of the year timeline for getting this program up and running. I can state with confidence that there's quite a bit of interest amongst the US flag tanker operators to participate in that program. So I fully foresee that that program will get a lot of support and be populated pretty quickly after the application process is commenced. And as I said in my prepared remarks, there has been some discussion on capitol hill about the next phase which would take the current 10 ship program that has been authorized and fully funded by congress and look to try and increase that perhaps to as many as 20 ships the timeline for that is unclear uh but the um i would say the support for it or the or the momentum for trying to build a larger fleet uh is uh is helped in my view by many of the geopolitical events that are going on around the world today and as as you have noted uh a perception uh that uh particularly when it comes to moving fuel uh the assets that are under the control or potentially under the control of the navy uh may not be adequate to meet the the mission uh you made a comment about red hill uh Yes, Red Hill storage needs to be shut down. And as I said, our sense is that, or not our sense, the information that we've received from the Department of Defense is that their strategy is to then instead of rebuilding the fuel storage capacity at Pearl Harbor, to disperse that fuel storage using a combination of MR tankers and some smaller tankers to position forward fuel capability around the Pacific and also to enhance those assets by providing ship-to-ship transfer capabilities on those ships that would be suitable for Navy vessels. All of that is in the future, but not in the far future in my view. was quite a bit of pressure uh on the navy or on the department of defense to be able to resolve the problem at red hill so i think i think all things uh being equal that we should see as i said resolution of of how this is going to play out within the next several months excellent thank you so much and uh is there anything else you want to add to the to the
spk05: Geopolitical, but also the ESG, you see the closure of a coal burning facility in Hawaii for electricity. And they're going to, they don't have enough solar panels now, so they're going to have to move to diesel, potentially biodiesel with this energy crunch. and the wind and solar not there yet and LNG being exported, what's your thought on that market dynamic there and potentially more use of the biodiesel?
spk07: I can't really speak to Hawaii in terms of what their biodiesel plants would be. My sense is, from what I know, there are two refineries in Hawaii, one of them at least until recently, has not been operational. So my sense is if there's an increase in demand for diesel or other fuels to substitute for coal burning, that the refineries there would probably satisfy that need, and you might see some increase in crude oil imports into Hawaii. But I don't think that would have a material impact on Jones Act demand. Most of the crude that goes into Hawaii comes from outside of the U.S.,
spk05: Great. Thank you guys so much, and I appreciate all your good work. Congratulations on the quarter.
spk07: Have a good day.
spk00: As a reminder to ask a question, please press star, fill it by one on your telephone keypad next. Our next question comes from Clement Mullins from Value Investors. Please go ahead.
spk02: Good morning. Thank you for taking my questions. I wanted to start by following up on Ryan's question on the share repurchase authorization. Although it was instituted in mid-June, you did repurchase some shares before quarter end. Could you provide some commentary in your stance regarding additional buybacks going forward? And should volumes become a limitation? Is a tender offer something that could be considered?
spk07: If you want to take that one.
spk04: The amount of shares, we continue to buy shares every trading day. And that has been at a fairly steady rate. We are, as Sam has mentioned, limited by the rules to how many shares we can buy per day, which is predicated on actual volumes. And I think we're comfortable with the way it is operating currently. The interest in sort of doing something different, I think, might be part of a future discussion, but it isn't anything that's on the table currently. We certainly stand prepared as volumes increase to buy more shares and would do so. But there's only a certain amount of liquidity that's really available on a daily basis in the market for our stock.
spk02: That's very helpful. Thank you. Your shares are trading at a significant discount to normalized valuations, so repurchases are very attractive. And I also wanted to ask about what kind of organic capex requirements are you looking at from the second half of the year and into 2023?
spk07: Dick, do you have those numbers handy?
spk04: Much of the dry dock activity has either occurred or is occurring as we speak now. We've got a couple of ships that are in or getting ready to go in dry dock. We have a couple in the balance of the year. I would not say that the actual dry dock costs would be much different from the second half of the year from that which we experienced in the first half of the year. This, you know, so I, you know, This year is slightly heavier than we would have otherwise anticipated because we had deferred the dry docking of the Tampa from last year to this year. So we had to do that when we brought it back into service.
spk02: Yeah, thank you for the call. Thank you for taking my questions and congratulations for this quarter.
spk04: Thank you.
spk00: We have a question from private investor Joshua Kehoe. Please go ahead, Joshua.
spk06: Yeah. Hi, Sam. Hi, Dick. Can you guys hear me?
spk04: Yes. Very well, thanks. You're up early.
spk06: First off, just want to congratulate both of you and the whole OSG team for navigating probably a rather hair-raising last two years with COVID. So first off, congrats on that. And sort of see in this quarter, there's sort of where you should have been in the second quarter of 2020 were it not for COVID. So once again, congratulations there. I just have two fairly specific questions. The first has to do with Delaware Bay Lightering. I know that PDF just recently announced they're going to restart the crude distillation unit at Paulsboro. Do you ever see enough lightering business to ever bring the vision back to Delaware Bay, or do you think the horizon is probably going to be adequate for that?
spk07: um you know never say never uh it's it's uh but it's unlikely i would say i think you know we we continue to or have continued to report the osg 350 vision as a part of our lightering you know niche sector that's kind of been done because just consistency with past reporting i think going forward part of our conversation is maybe shifting that vessel out of the lighter and niche revenue and EBITDA bucket into the conventional ATBs. She's been fixed for a little over a year to just transporting crude oil in a conventional ATB trade. And I think that's probably the more likely scenario going forward to do that. We have fixed the vessel in a way that allows us flexibility to use the vessel for lightering should that need arise. But, you know, practically speaking, to leave a vessel hanging around, so to speak, to pick up extra incremental 10 or 15 percent of volume uh we're better off trading the vessel as conventionally as we do so unless there's really significant increase in volumes um i think that one at uh excuse me one minor investor probably is sufficient to to meet the needs of the two remaining uh refining customers that we have in um in the delaware bay i remind you that you know pes uh previously sunoco That was really the flywheel for the lightering operations. They had a minimum commitment of three, from memory, three million barrels a month of off-take commitments. When that refinery went down, that took half of the volume, more than half the volume out of that service. So again, even if we got a little bit more volume out of Delaware Bay, the remaining customers, it's kind of hard to put two vessels in service that would make economic sense.
spk06: No, great. Thank you. That makes a lot of sense. The loss of PES, I think, pad one as a whole is starting to realize what that meant for them. Getting on to the next question, you mentioned actually transporting, and once again, congratulations on it. I think it was about this time last year that I heard you mention renewable diesel, and clearly you guys have been on top of that and foresaw that market emerging maybe before others did. You mentioned feedstock. I know there's the renewable diesel product from Pad 3 to Pad 5, but did I hear you mention that you might actually transport feedstock? And if so, can you give me a little idea of what that might be? Would that be soil oil? I know Marathon and Phillips both have really large projects that are going to be coming online in 2023 in the San Francisco Bay Area. And that's my final question. Again, congratulations and thank you.
spk07: So feedstock was a little bit of a surprise for us as well. Without going into too much detail, what we have begin to perceive is that the increase of renewable diesel production on the West Coast is also creating demand for feedstock that's coming down out of the agricultural centers and up the Mississippi River. So we have, as I said, one of these fixtures is commencing next year. So we haven't seen the actual cargoes that would be loaded, but looking at the types of cargoes that were contemplated by the charter party, you're looking at tallow and fat, agricultural products, waste products, restaurant grease collections, that sort of thing. Agricultural soy and that sort of thing could be carried. It's part of the approved cargo list on the charters that we've signed. But my sense is it's going to lean more towards fats and tallow and that sort of product rather than soy oil or other agricultural products. byproducts that's my sense all right thank you very much we currently have no further questions on the line so i'll hand it back to our speaker team for any closing remarks thank you katie and thank you all for joining us again we look forward to continuing to report improving earnings and improving opportunities for us as we move into the future. And again, look forward to speaking with you again soon in the future. Thank you all again. Have a good day.
spk00: Thank you all for joining. This now concludes today's call.
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