International Seaways, Inc.'s (INSW) CEO Lois Zabrocky On Q1 2022 Results - Earnings Call Transcript

May 04, 2022 11:56 AM ETInternational Seaways, Inc. (INSW)1 Like
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International Seaways, Inc. (NYSE:INSW) Q1 2022 Earnings Conference Call May 4, 2022 8:30 AM ET

Company Participants

James Small - General Counsel

Lois Zabrocky - President and Chief Executive Officer

Jeff Pribor - Chief Financial Officer

Conference Call Participants

Magnus Fyhr - H.C. Wainwright

Ben Nolan - Stifel

Chris Robertson - Jefferies

Liam Burke - B. Riley

Greg Lewis - BTIG

Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.

Operator

00:07 Good day and thank you for standing by. Welcome to the International Seaways' First Quarter 2022 Results Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] Please be advised that this conference is being recorded. [Operator Instructions]

00:37 It is now my pleasure to turn the call over to Mr. James Small, General Counsel. Please go ahead.

James Small

00:45 Thank you. Good morning, everyone, and welcome to International Seaways' earnings call for the first quarter of 2022. Before we begin, I would like to start off by advising everyone with us on the call today of the following. During this call, management may make forward-looking statements regarding the company or the industry in which it operates. Those statements may address, without limitation, the following topics:

01:07 Outlooks for the crude and product tanker markets; changes in oil trading patterns; forecasts of world and regional economic activity and of the demand for and production of oil and other petroleum products; the effects of the ongoing conflict between Russia and Ukraine; the effects of the ongoing coronavirus pandemic; the company's strategy; the anticipated cost savings and other synergies and benefits from our merger with Diamond S; our prospects; expectations regarding revenues and expenses including vessel, charter hire, and G&A expenses; estimated bookings, TCE rates and/or capital expenditures in the second quarter of 2022, the remainder of 2022 or any other period; projected scheduled drydock and off-hire days; purchases and sales of vessels, construction of new build vessels and other investments; the company's consideration of strategic alternatives; anticipated and recent financing transactions in any plans to issue dividends; the company's ability to achieve its financing and other objectives; and other economic, political, and regulatory developments around the world.

02:15 Any such forward-looking statements take into account various assumptions made by management based on a number of factors, including management's experience and perception of historical trends, current conditions, expected and future developments, and other factors that management believes are appropriate to consider in the circumstances.

02:33 Forward-looking statements are subject to risks, uncertainties, and assumptions, many of which are beyond the company's control that could cause actual results to differ materially from those implied or expressed by the statements. Factors, risks, and uncertainties that could cause International Seaways' actual results to differ from expectations include those described in our forthcoming quarterly report on Form 10-Q for the first quarter of 2022, our annual report on Form 10-K, and in other filings that we have made, or in the future may make, with the U.S. Securities and Exchange Commission.

03:05 Now, let me to turn the call over to our President and Chief Executive Officer, Ms. Lois Zabrocky. Lois?

Lois Zabrocky

03:10 Thank you very much, James. Good morning, everyone. Thank you for joining International Seaways' earnings call to discuss our first quarter results. Following a year of significant growth during which we strategically expanded our fleet through both a transformational merger and a well-timed new building project.

03:28 We advanced important strategic objectives in the first quarter as well. We further solidified our balance sheet. We completed our exit from older Handysize product sector. We expect our scale, our capabilities, and sustained operating leverage will serve us well as the rate environment continues to improve.

03:52 We’ve seen near term catalyst driving tanker rates higher while longer-term positive fundamentals remain fully intact. This is based on historically low oil inventories, growing oil demand and expectations of increased oil production in the second half of the year.

04:12 Specifically, as the product tanker market has gathered momentum in recent weeks, we’re benefitting greatly on our 40 spot MRs. Rates on both products and mid-sized cruise carriers have responded positively to changing trade patterns as ton miles have increased. We have not achieved this strategic positioning by accident.

04:35 We have transformed the company through fleet renewal as cyclical lows, including $900 million invested at the bottom of the cycle and most recently the Diamond S merger doubled our net asset value, tripled our fleet size, and enhanced our earnings power. We created power alleys and crude end products, positioning us well to capitalize on strengthening marketing conditions.

05:02 Before reviewing the quarter, I’d like to briefly address Russia’s invasion of the Ukraine. Since the outset of the violence in late February, Seaways has not booked any Russian cargoes loading any Russian ports. The safety of our seafarers and our stakeholders and their families, as well as our duty to preserve human life have been and continue to be our highest priority.

05:28 On to the quarter. We are on Slide 4, we summarize our Q1 highlights and our recent developments. First, consistent with our balanced and accretive capital allocation strategy, which has been a hallmark of our success since becoming an independent public tanker company over five years ago.

05:47 We continue to return capital to shareholders. This remains a priority as evidenced by nearly $100 million returned since the start of 2020, including our regular quarterly dividend of $0.06 per share, $47 million in buybacks, and the 32 million special dividend that we paid in connection with the Diamond S merger. We are proud of our track record providing returns to shareholders amidst challenging tanker market conditions and importantly, while maintaining a very strong balance sheet.

06:22 Turning to the top right series of bullets, we provided an update on our fleet optimization program. After last year's transformative merger, which nearly doubled our net asset value, we embarked and initiative to monetize older non-core ships, capitalizing on healthy second-hand asset values and strong steel demand. To date, we have sold or recycled 24 older tankers with an average age of 15 years.

06:52 We've lowered the each profile of our fleet to below nine years old and expect to have generated aggregate net proceeds of 165 million after all costs. In March, we completed a vessel swap, exchanging a 2010 built MR for a 2011-built LR1. The addition of the Seaways Eagle was welcomed in our strong earning niche joint venture, Panamax International where we generated the strongest earnings of any of our asset classes during the first quarter.

07:28 With our focus on further optimizing our sizeable fleet of crude and product carriers, we recycled two Panamax vessels with an average age of 19 years old in April. We took advantage of historically high recycle values, agreed to sell our four remaining Handysize product carriers built in 2006, as well as a 14-year old MR. Combined with enhancing our balance sheet, the additional liquidity provided by these sales gives Seaways further capital allocation flexibility.

08:03 Moving to the bottom left hand column of the slide, we have maintained a strong balance sheet. We've advanced initiatives that support a diversified capital structure and significant financial flexibility for the benefits of shareholders. With current total liquidity of 166 million, including 90 million in revolver capacity and a net loan to value of 45%, we are capable of operating effectively in diverse tanker markets and capitalizing on attractive opportunities as they arise.

08:36 During the year, we've made further progress diversifying our loan portfolio with recent refinancing activities, which Jeff will highlight in his comments.

08:46 Turning to our financial results, our first quarter net loss was $13 million or $0.26 per share, excluding special items. In a sustained weak rate environment, we had generated adjusted EBITDA of $26 million. As I will outline on the subsequent slides, the fundamental backdrop remains favorable for tankers.

09:10 Turning to Slide 5. While the situation in Russia and Ukraine continues to create volatility in energy markets, we address underlying tanker demand drivers. 2022 oil demand is projected to grow by around 3 million barrels per day to about 100 million barrels per day, with much of the growth backloaded in the second half of the year.

09:34 While China's oil demand has been slowed based on its COVID zero strategy, oil production increases are anticipated with growth, particularly in the West led by the United States, Canada, and Brazil.

09:49 Looking at the bottom left chart, inventories have been reduced to their lowest levels in the decade, providing less than 60 days of forward demand cover. As the world scrambles for crude to replace Russian cargoes, strategic U.S. barrels are being released and exported. This combined with the need for further replenishment is supportive of seaborne trade and demand for tankers.

10:17 As evidenced by the right bottom chart, refining margins have strengthened significantly, more than doubling since the start of the year, which indicates healthy demand pulling, refined products, leading the higher crude throughput and higher clean exports. We anticipate permanent changes to oil movements and trade patterns related to Russia invasion of the Ukraine.

10:43 We see cargoes moving longer distances in the first few months of following the invasion. As a result of government sanctions and due to self-sanctioning of commercial interactions with Russia's oil and transportation industries by many of the nations in the West, we've seen Russian crude exports bound for Asia as opposed to the more natural trade to Europe.

11:08 We've seen these moves increased by 27% in the months immediately following the invasion, compared to January. At the same time, we've seen a 17% increase in crude oil exports from key Atlantic basin producers such as United States, West Africa, and Brazil to Europe. Both [ships] [ph] in trade are additive to ton miles and lead to strong rates at the back of the first quarter heading into the second quarter for Afras and Suezmaxes in the crude sector.

11:38 We see similar alterations to trading patterns in the clean side, which has helped in already strengthening MR sector. Middle distillate exports from Russia to Europe decreased at the start of the second quarter by 28%, while charters looking for a more stable source of imports to Europe led this category of clean products, exports from the U.S. to Europe increasing nearly five-fold when compared to the start of the year.

12:08 Turning to Slide 6. We talk about vessel supply. The global fleet size has grown about 3.8% since the start of the pandemic. However, the average age of the tanker fleet has increased to nearly 12 years old on average, the bottom right chart illustrates the increasing incentives to recycle older tonnage based on historically high recycle values. But substantial volumes have yet to materialize.

12:38 In terms of sanctions on Iranian and Venezuelan oil, because the sanction trades are largely serviced by older large VLCCs, we expect the removal sanctions would lead to the recycling of these ships, which are trading outside the normal international markets. The overall tanker order book stands at 7% by deadweight. This is the lowest level order book, basically, since statistics have been tracked by Clarksons, relative to the size of the fleet and several factors continue to limit supply.

13:13 Foremost, with reputable shipyards filled with contracts for other shipping sectors, the earliest new billing slots are in 2025. Secondarily, ordering has been tempered by uncertainty around future environmental regulations. And third, new building prices are near all-time highs, limiting tanker owners from ordering. Another factor limiting the fleet supply stems from sanctions imposed by many governments prohibiting trade with Russian controlled ships. This will lead to an artificial fleet reduction impacting 30 Afras, 20 MRs, and several ships for the various other tanker sectors.

13:56 Displacement of Russian oil has the potential to necessitate more tankers for longer haul voyages. We're closely watching the longer-term fallout from the war and the implications for our trading routes and our tankers.

14:11 I want to turn it over to Jeff Pribor to give the financial review for the first quarter. Jeff?

Jeff Pribor

14:19 Thanks, Lois, and good morning everyone. Let's go straight to reviewing the first quarter results in greater detail. Before turning to the slides, let me provide a quick summary of our financial results.

14:30 In the first quarter, we had an adjusted EBITDA of $26 million. Net loss for the first quarter was $13 million or $0.26 per diluted share, compared to a net loss of $13.4 million or $0.48 per diluted share in the first quarter of 2021.

14:50 Now, please turn to Slide 8. I'll first discuss the results of our business segments beginning with the crude tankers segment. TCEs for the Crude Tankers segment were $36 million for the quarter, compared to the same amount in the first quarter of last year. When we turn to the product carrier segment, we note that TCE revenues were $62 million for the quarter, compared to $9.2 million in the first quarter of 2021. This large increase is attributable to an increase of over 3,400 revenue days as a result of the merger with Diamond S, as well as higher average rates earned by our LR1 and MR fleets.

15:28 Looking at the right side of the slide, adjusted EBITDA of the recent quarter was $26 million, compared with an adjusted EBITDA of $11 million in the first quarter last year.

15:40 Now, turning to Slide 9, we provide a first quarter review and second quarter 2022 earnings update. For Q2 bookings to date, we booked 51% of our spot VLCCs at an average of approximately $15,100 per day. 40% of our available Suezmax spot days in an average of $24,600 per day, 39% of our available Aframax LR2 spot days and an average of $43,700 per day and 27% of our Panamax and LR1 spot days at an average of approximately $31,100 per day.

16:23 On the MR side, we have booked 41% of our second quarter spot days at an average of approximately $24,500 per day. I would like to add that more so than ever, these rates should not necessarily [be considered] [ph] as guidance for the full quarter with geopolitical events evolving rapidly in a market subject to significant changes in the immediate term.

16:48 Now, if you could turn to Slide 10. The cash cost TCE breakeven for the 12-months ended March 31, 2022 are illustrated on this slide. International Seaways’ overall breakeven rate is estimated to be $17,400 per day for the next 12 months. As always, these are all in daily rates, our owned vessels must earn to cover vessel operating costs dry docking cost, cash unit expense, and debt service costs, which means scheduled principal amortization, as well as interest expense.

17:24 At this point, I'd also like to confirm cost guidance for the remainder of the year for modeling purposes. We expect full-year regular daily OpEx, which includes all running costs, insurance, management fees, and other similar related expenses for our various classes to be as follows:

17:40 For VLCCs $9,000 per day; for Suezmax $7,600 per day; for Aframax $8,200; for Panamax [LR1] [ph] $7,900 per day; and for MRs $7,200 per day. We expect our dry-dock CapEx expenses to be 47.8 million and 56 million respectively for the year. As mentioned on our previous earnings call, our last earnings call, these costs are related to ballast water treatment systems and other upgrades in anticipation of 2023 EEXi Synergy Efficiency requirements.

18:18 For a more detailed breakdown on projected dry-dock CapEx and off-hire days [by quarter] [ph], please refer to Slide 16 in the appendix. Continuing with cost guidance, we expect 2021 cash interest expense to be about $40 million to $45 million. For the year, we expect cash G&A to be between $30 million to $32 million, and finally, we expect about $14 million to $15 million in equity income and $105 million to $110 million for depreciation and amortization.

18:49 Now, if we can go to Slide 11, we have our cash bridge. Moving from left to right, we began the first quarter with total cash and liquidity of $239 million. During the quarter, our adjusted EBITDA was $26 million, equity income from JVs will decreased $6 million and the cash distributions from JVs were positive $2 million. We [extended] [ph] 27 million on drydocking and CapEx; installments on our dual fuel LNG VLCCs, and the net effect of the vessels slot involving the Seaways Eagle and [indiscernible] totaled $8 million. This was offset by gain of $6 million attributable to the completion of sale leaseback transaction, net of debt repayments and $50 million revolver drawdown.

19:38 Debt service on term loans and sale leasebacks was $56 million, and finally, taking into account the $3 million quarterly dividend and a negative impact of working capital and other charges of $8 million, the net result was that we ended the quarter with approximately $76 million of cash and a $90 million undrawn revolver yielding total liquidity of $166 million.

20:02 Now, please turn to Slide 12. I'd like to briefly talk about our balance sheet. As of March 31, we had $2.37 billion of assets compared to $943 million of long-term debt. In addition, we have a $90 million revolving credit facility undrawn as of March 31.

20:21 As you can see in the bottom left of the slide, our net debt to total capital stands at 47%, while our net loan to asset value for our conventional fleet stands at 45%. As shown at the bottom right of the slide, I'd also like to highlight that since the end of the first quarter, the following, we've agreed to refinance a 2,000 built MR with a Japanese leasing company through a sale leaseback arrangement, generating a net increase in liquidity of approximately $5.4 million.

20:50 We've also sold our final two Panamax vessels, both unencumbered for a net increase in liquidity of approximately $16 million. We've sold our last four remaining handy vessels in two separate transactions, providing a total net increase to liquidity of approximately $24 million, and we've agreed to sell an MR generating additional liquidity and savings on upcoming drydock at ballast water treatment system expenditures.

21:17 Finally, turning to Slide 13, we take a look at our net debt as of March 31. As you see, our total debt balance is approximately $1.1 billion with $90 million of undrawn revolving capacity. As we continue to maintain a healthy balance sheet, our debt reflects a highly competitive cost of capital and long-term maturity profile with the vast majority of debt due in 2024 or later.

21:43 That concludes my remarks. So, I'd now like to turn the call back to Lois for her closing comments.

Lois Zabrocky

21:47 Thanks a lot Jeff. On Slide 15, we detailed Seaways investment highlights. We are focused on executing our disciplined and balance capital allocation strategies. This enables the company to create significant enduring value for shareholders.

22:04 Since our spin-off in 2016, we’ve transformed Seaways into the largest U.S. based international tanker company with the diversified fleet and a market cap of nearly $1.1 billion. Complementing the 900 million of vessels we purchased at cyclical lows, our merger with Diamond S last year also had a cyclical low, tripled our fleet size, and significantly enhanced our scale on our earnings power.

22:32 All of this has been accomplished without issuing any equity at any point in our independent history. At the same time, we're proud of our consistent track record, returning capital to shareholders. We’ve returned nearly $100 million in share repurchase and dividends over the past two years. We also differentiate ourselves based on Seaways commitment to upholding its best-in-class ESG standards.

22:59 We believe that the diversity and independence of our board, the focus on our environmental impact as demonstrated by our dual fuel VLCC order and our status as the first shipping company to secure sustainably linked financing, provides significant benefits to customers, shareholders, and lenders.

23:18 We have been ranked in the top three in the Webber Research ESG ranking for the past four consecutive years. Our mission is to exceed customers’ expectations and to deliver value to all of our stakeholders is supported by our hybrid operating model focused on environmental performance, as well as safety and flexibility.

23:40 We have indicated in the past, we rely on our seafarers to ensure the safe, reliable, and efficient transportation of energy cargoes for our customers. Amidst the global pandemic, the ships crews have done a remarkable job adhering to the highest levels of not only safety, but professionalism standards.

23:59 In terms of our operating model, our sector leading commercial tools, many with International Seaways ownership such as Tankers International provide a competitive advantage to Seaways.

24:12 TI is one of the largest VLCC pool operators in the world, and as a founding member, over 20 years ago, we have taken an active role in developing and expanding the global presence of the pool. In 2020, we established TI’s New York office in Seaways headquarters.

24:29 Another hallmark of Seaways success has been our focus on maintaining financial strength with attractive leverage ratios, and enhanced balance sheet throughout the cycle. We have one of the lowest net-to-loans to asset values in the industry, as well as liquidity at the first quarter of 156 million. This positions us to operate effectively in diverse rate environments.

24:53 I'll end my remarks by briefly reiterating Seaways significant upside potential as the improving rate environment unfolds. As I discussed, we see positive market developments that could translate to a sustained stronger rate environment moving forward. And based on our sizable fleet, we have significant operating leverage to capitalize on this.

25:15 I note that every $5,000 improvement in the TCE equivalent daily rate provides over $150 million in incremental EBITDA or about $3 per share on an annual basis.

25:30 Thank you very much, and we'll open it up for questions.

Question-and-Answer Session

Operator

25:35 Thank you. [Operator Instructions] Your first question comes from Magnus Fyhr from H.C. Wainwright. Your line is open.

Magnus Fyhr

25:51 Yes, good morning Lois and Jeff. Congrats to a good improvement during the quarter and good bookings for second quarter. My first question related to your capital allocation strategy. With first quarter, turning cash flow positive, and based on the guidance you gave, if you extrapolate that into the whole quarter, you could make [more than dollars] [ph] in earnings per share in the second quarter and 100 million of EBITDA. Can you kind of talk a little bit how you're thinking about your capital allocation strategy going forward? How that will evolve as you start tying off in 2022?

Jeff Pribor

26:33 Yes. Hi, Magnus, thanks. Yes, it's nice to be in that position with rates improving. We consistently tell you that we review capital allocation decisions every quarter based on liquidity and the conditions in the market. As Lois said in remarks, we're really proud of the fact that we were able to return as much as $100 million of capital to shareholders over two years in one of the worst markets that anyone has ever seen. So, you can imagine, but I’ll confirm that with the market's improving, that aspect of capital allocation returning cash to shareholders remains a very high priority for us.

Magnus Fyhr

27:19 I mean, the balance sheet is pretty good, 45% net to LTV. Would you say that you like to get that down a little bit more before maybe starting, paying a higher dividend?

Jeff Pribor

27:31 You know, this is something I always come back to. We do more than one type of capital allocation at one time. It's not like this quarter is deleveraging, next quarter is return cash to shareholders, next quarter is by a ship. You know, you look at them all, all the time. And we have a healthy amortization of schedule built into our debt.

27:57 So, we're repaying about $45 million a quarter, just from the existing debt plus, in our fleet optimization program when we sold a fewer older non-core vessels, we pay off some debt. So, you combine those two. We've been allocating capital to and we will continue to deleveraging in a healthy fashion. So that will continue and that will work that net loan to value down naturally, especially as values are going up Magnus, right.

28:27 So that's going to develop in a nice way. And so that is also a priority, but it’s kind of happening naturally along with looking at returning cash to shareholders.

Magnus Fyhr

28:40 Thank you. Just on my second question, you have a great track record and they can counter cyclical acquisition and I think the Diamond S finally starting to gain visibility with a significant cash flow generation in the first quarter. My question is, how do you balance the fleet renewal going forward? You sold a 2008 MR ahead of a special survey. And strong cash flow generation now, how do you look at the rest of the fleet that – since you have a lot of 2007, 2008 vessels that would face special service going forward?

Lois Zabrocky

29:16 Yes. So Magnus, I'll jump in there. And we developed a program when we completed the merger with Diamond and we’d executed on the majority of that. And specifically, if I touch on the four Handysize vessels that we have under contracts for sale, we strategically wanted to exit that MR1 or Handysize sector due to the age of the profile and also that your kind of reliant on that market has a lot of exposure to the Russian Black Sea, and that was a sector that we are now completely removed from, right?

29:58 So, when we look at the initial program we had developed at the time of the merger, we've largely completed that. And then we look at the rest of our fleet and on balance, we'll do everything very selectively. So, we appreciate the very strong cash flow generation across our MR fleet that we have and we're thrilled that we have now a very significant footprint in the MRs. So, we'll be very selective going forward and balancing that.

Magnus Fyhr

30:36 All right. Right. It's current, the market persists, we should expect it to continue to run those vessels to generate significant cash flows.

Lois Zabrocky

30:45 That's correct.

Magnus Fyhr

30:46 Thank you. That's all I have.

Jeff Pribor

30:51 Thanks Magnus.

Operator

30:54 Your next question comes from Ben Nolan from Stifel.

Ben Nolan

31:01 Hi, Lois, Jeff. So, I got a couple of things, but one Lois, maybe for you, just as you talked a lot and gave a lot of color, which I e appreciate on, sort of how the Russian dynamic is playing out. I guess my question is, in your view, does it feel like we've sort of reached a new, sort of new normal equilibrium? Guys kind of have it figured out the trades that we're seeing as long as things don't change materially from where they are now, are what they are, and volumes are going to the places that they would naturally go or is it still very much a work in progress do you think?

Lois Zabrocky

31:46 We're still a work-in progress Ben. And when we wake up this morning we see the EU ever inching forward here to cease importing Russian crude and products by the end of 2022. And that's not finalized yet, but if that happens, we're going to continue to see displacement of barrels because that would mean that that the pipelines, you know it's not only the waterborne barrels that we see today, but also the pipelines that deliver into Europe, you know they would no longer be accepting that [crude or products] [ph].

32:24 So, I think that we're going to continue to see this situation evolve certainly until war ends, and I think even beyond, because now the conversation has shifted to energy security beyond just energy transition. So, all of these complexity, I think we're going to continue to see this this evolve Ben.

Ben Nolan

32:49 Yeah. I agree. Although, I guess I was asking more about like, things like ship placement and things being in the right places at the right times and obviously this caused a pretty substantial logistic shift, I guess barring other things, is that shift in logistics now happened or is it still things trying to reposition to the right places and that kind of thing?

Lois Zabrocky

33:17 You know, I think the shift has largely happened. You're seeing roughly half of the SPR barrels are anticipated to go up to Europe. Some fewer barrels from the U.S. actually going East right now. The big shift is, kind of been left out in the [indiscernible] and then the Afra Suez on down have taken advantage of these changed trading patterns. And now the world is really crying out for diesel and that's pulling and causing those refinery margins to spike. On the MR fleet, you know you're seeing, and the LR1’s and LR2’s, but I mean we're heavy on the MRs.

34:00 You're seeing that market strengthened now in the East. It had been, it was initiated in the West, but now you’re seeing it strengthen in the East. So, you're always going to see some chasing of the returns, but I think that for now the trading patterns are kind of stable.

Ben Nolan

34:18 Okay. I appreciate it. And then I can shift Jeff to, you've been doing this for quite a while now and not to over emphasize that in fact, but, given sort of your background and history and knowledge of this space, lately, there's been a lot of noise about consolidation and mergers and all of this. From your view, do you think the industry is well positioned for that or is this not ordinarily the time or the place that you would expect that to happen? Just curious how given your background, how you think where we are fits into that mind frame?

Jeff Pribor

35:07 Look, I think as long as I've been in the business, as people talk about consolidation, and I think there's always a level of activity, maybe more than people appreciate. I think there's been some – I go back to Lois’ comment that we're happy about the Diamond S acquisition or merger and what it’s done for us in terms of executing our strategy. So, I don't think it's particularly, I think same as it always has been. It's just part of the landscape.

Ben Nolan

35:43 Okay. That's good color. Appreciate it. And then last, hopefully I’m not overstaying my welcome, just real quick. I came up, well, and you have a big fleet, there's always going to be a lot of drydocking’s and special surveys and so forth. Any thoughts about installing scrubbers on any of the V’s or Suezmax as they don't already have them?

Lois Zabrocky

36:04 So, Q1 was our heaviest quarter this year and we do have the chart in the back. The V’s already have – all of our 10 on the water V’s have scrubbers and then the three new billings that will come in Q1 of 2023it will be dual fuel, of course, and therefore won't have scrubbers.

36:22 Intention will be for those to burn LNG. And on our Suezmax fleet, we're just installing one scrubber that that Diamond happened to have and we are putting it on. In addition to that Ben, I would say no, we're not going to chase that. You know, the differentials between heavy sulfur and low sulfur crude has really been strong this year, but with all the volatility that we're seeing in oil prices and the fluctuating margins and a recovering market, I'm thinking that additional project and time out of service, at this point, may not pay off and we're pretty satisfied with where we're at.

Ben Nolan

37:09 Okay. Alright. Appreciate it. Thank you.

Lois Zabrocky

37:12 Thank you, Ben.

Operator

37:16 Your next question comes from Chris Robertson from Jefferies.

Chris Robertson

37:21 Lois and Jeff, how are you?

Lois Zabrocky

37:23 Good and thank you, Chris.

Jeff Pribor

37:25 Good.

Chris Robertson

37:26 Good. So, Seaways is ahead of the game in terms of ESG and environmental reporting, so along those lines, I'm going ask a question kind of Magnus and Ben brought up here. So, how are you thinking about the fleet in terms of the age segments as we head into IMO 2023 and beyond? Not necessarily due to special surveys or anything like that, but how many vessels do you consider kind of future sales candidates to help with getting on the path to IMO 2023 versus how many are going to be upgraded to, kind of be IMO ready, and what kind of capital outlays do you think it will require to get the fleet prepped for that?

Lois Zabrocky

38:06 So, you know, our team is constantly monitoring our existing fleet and every time we put the vessels into dry-dock, we are upgrading and seeking those incremental efficiency improvement so that we stay on track, and we're monitoring our ships all the time. And our fleet, you know this fleet is in good shape to head into the regulatory environment.

38:36 So, we don't have oh, this ship has to go right here. There will be continued efficiency improvements that we will implement on the fleet as we go forward. But overall, we think we're in pretty good shape.

Jeff Pribor

38:51 And I would just add Chris, If you look at the dry-dock and CapEx schedule that's in the deck, you know that amount of money as Lois mentioned kind of a little front end loaded with this quarter, but spread out over the year, that includes in there some, the – half of the Panamax MR swap we did. So, you had to sort of back that out, but a lot of the CapEx there is related to being prepared for that, not a lot, but a chunk of the CapEx.

Lois Zabrocky

39:18 Right. Absolutely. In all the Suezmaxes we're putting on the upgraded haul coatings to make them more efficient in the water and consume less fuel and therefore [indiscernible].

Jeff Pribor

39:29 Yes. And then finally, to part of your question as a result, the entire fleet is – we expect to be in confined and in good shape we're working for us through 2023 and beyond, right?

Chris Robertson

39:43 Okay, great. My second question is related to LNG fuel economics. So, I guess with the same higher natural gas prices in Europe and Asia now, how are you guys thinking about LNG’s fuel on the ships being built? How did the economics change with the prices and if you know offhand, what's the Mmbtu equivalent needed to replace a metric ton of [oil] [ph]?

Lois Zabrocky

40:12 I see you're filling big shoes very quickly here. So, on our dual fuel VLCCs, those vessels will be on time charter to Shell and Shell will be responsible for the bunkering, and they are really like the leader I would say in the space for, you know first of all, they have a lot of their own natural gas and they are a leader in that bunkering space.

40:36 Now, that having been said, we've been watching daily the fluctuations of price and I can tell you that for a period here, really probably the last six months, LNG was significantly more expensive to burn than conventional fuel would be. However, you're seeing those differentials narrow again. And I'm thinking in the longer-term, when you're not in a real energy where energy is becoming so [indiscernible] and you're in a little bit of an energy crisis, if I could say, you're going to see those differentials narrow significantly, and it will be suitable, you know price wise, and you also see really pricing – large pricing variance.

40:36 In the U.S., it's still significantly cheaper. If you want to do LNG bunkering, than it is in many other parts of the world such as the East. And offline I’ll – oh, bill, the second part of that question do you want to take it or do you want to – on the btu there or do you want to do that offline?

Jeff Pribor

41:47 I would – Lois, I don't have that number right at my fingertips this morning, but we can get that to everybody offline.

Chris Robertson

41:55 Great. Excellent.

Lois Zabrocky

41:55 Yeah. Absolutely. If you check-in with [Bill] [ph], we'll do that after the call.

Chris Robertson

42:01 Okay, Lois. Hey guys, thank you very much for your time. Appreciate it.

Lois Zabrocky

42:05 Thank you.

Jeff Pribor

42:05 Thanks, Chris and welcome.

Chris Robertson

42:07 Thank you.

Operator

42:11 Your next question comes from Liam Burke from B. Riley. Your line is open.

Liam Burke

42:17 Good morning, Lois, good morning Jeff.

Lois Zabrocky

42:19 Good morning.

Liam Burke

42:21 Lois, directionally the product tanker rates are getting stronger and you've indicated that in the prepared comments, do you see any opportunity or any need to basically fix some longer-term charters at certain rate levels.

Lois Zabrocky

42:39 You know, our commercial team is watching all of that right now and you know, we think we're in the early innings of a market that's building there, especially on that product side. So, you first see, you know people want to lock up six months or a year, if they're going to do something strategic and try to layer it into the portfolio, we will look at those types of time charters, but then we would take that portfolio approach and try to get some longer deals in as the market strengthens into itself here as we move forward.

Liam Burke

43:13 Okay. And Jeff, I know capital allocation is always something you love talking about, but looking at the returning cash to shareholders, would you be more inclined just to maintain the dividend or current levels and then look at buybacks opportunistically or is there any thought as markets become more stable to look at the dividend policy?

Jeff Pribor

43:36 Look, I think it is early to say that. So, I think that part of what I say that we look at the entire capital allocation spectrum every quarter, and when we talk about returning cash to shareholders as part of that, you're right, it could be share buyback, it will be a regular dividends that we're going to maintain that. But whether we would increase that or not, it is too early to say at this point, but certainly it's something that you would – it's in the mix to be thought about.

Liam Burke

44:09 Great. Thank you, Lois. Thank you, Jeff.

Jeff Pribor

44:12 Thanks, Liam.

Operator

44:16 Your next question comes from Greg Lewis from BTIG. Your line open.

Greg Lewis - BTIG

44:23 Hey. Thank you, and good morning everybody. I do think it's worth mentioning, and I think Ben was kind of alluding to it. Obviously, you have a new shareholder that build position last month. Has there been any dialogue between that entity and management? I believe the filing was just like a [indiscernible], I mean, it's just a regular shareholder filing, but I'm just kind of curious.

Lois Zabrocky

44:58 We speak with our shareholders on a regular basis, and we maintain an open dialogue and we welcome communications. As a matter of policy, we don't comment on our discussions or the status. So, we're focused on executing our strategy and generating cash flow across our expanded fleet.

Greg Lewis

45:18 Okay. And then [Multiple Speakers]. And then Lois, like, could you talk a little bit about like, you laid out the [bullish case] [ph] for VLCCs in the recovery market. I mean, do you have – do we have – can we kind of gauge maybe where utilization is of the VLCC fleet and kind of the thought is, hey, OPEC, Saudi production is up 3 million barrels year-over-year. The disruption in Russia pushed Suezmax rates up $100,000 to $100,000 and the V market [they don’t really blink] [ph]. Is there any kind of way to think about where we are, and understanding that the backdrop from supply for VLCCs looks really good, that can be argument for ton miles, but is there any, like what needs to still happen to get VLCCs to more of a mid cycle type level from where the languish is?

Lois Zabrocky

46:27 You know. We need China, right? And it's looking like, even though we're under their zero policy and they have very strong restrictions right now, it's looking like that should lift in the second half of May or heading into June, and we really, they're very effective right now, where you're seeing levels that were less, you know we're seeing in April of 2020 when this started, right?

47:00 So, we really need for that to fall away and for China to be there taking in [barrels] [ph], and that will really drive things. And then the other thing is really that even the OPEC is authorizing 400,000 barrels a month. They are at least a million, it’s not 1.5 million low that in actual production. So, we need to see production coming back online and with [Libya] [ph] where they are at, they don't really have restrictions from OPEC, but they're down. They're down 500,000 barrels.

47:38 West Africa has been having a challenge cranking up their barrels. So, we need to see production coming. We're definitely going to be helped by the United States doing the 180 million barrel release and not what we hear, we're seeing exports out of the U.S. One with over 4 million barrels a day, and we need to see a lot of that, we need to see China coming back online.

48:06 I'm not confident just based on what I'm reading that the Iranian barrels are going to go back online, real quickly. I do believe that there are conversations between the United States and Venezuela, which would be certainly helpful, you know if those Venezuelan barrels came back on the market. That would be helpful. Some would go [indiscernible] some would go short to the Gulf, but also a good volume would go legitimately to China. And I think that that could help us [tip the balance] [ph].

Jeff Pribor

48:35 All of which [indiscernible] the products are carrying things right now will likely be a bridge to the big crew, it's just a question of timing and that’s based on factors you can't predict exactly. When did aviation in China come back you know, when a [lot goes] [ph] and what [happens at sanctions] [ph], etcetera, you can’t quite predict it, but the credible thesis is product now [indiscernible].

Lois Zabrocky

49:00 And I guess, and I'm hoping that it's also available in China, and my assumption is that it is. The COVID numbers, even here, you know bounce up and, but the hospitalization rates are not up, right? The duration is longer and less intense for period, not people, knock on wood, that we continue to move from pandemic to endemic, and everybody is still conducting business. So, our hope is that China will get through this as quickly as possible.

Greg Lewis

49:34 Okay. Hey, that was super helpful. Thank you for that Lois. Have a great day guys.

Lois Zabrocky

49:38 Thank you. Take care.

Operator

49:43 Right. There is no further question at this time. You may continue.

Lois Zabrocky

49:49 Okay. Thank you all for joining us for International Seaways first quarter earnings results and everybody stay healthy and we're going to get back to work trying to create shareholder value and stakeholder value. Thank you so much.

Operator

50:06 Thank you. This concludes today's conference call. Thank you all for joining. You may now disconnect.

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