Good morning. And welcome to the International Seaways Fourth Quarter 2020 Earnings Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I’d now like to turn the conference over to James Small, Chief Administrative Officer and General Counsel. Please go ahead.

Thank you. Good morning, everyone. And welcome to International Seaways earnings conference call for the year ended December 31, 2020. Before we begin, I would like to start off by advising everyone on the call with us today of the following.

Thank you very much, James. Good morning, everyone. And thank you for joining International Seaways earnings call to discuss our fourth quarter and our full year 2020 results. 2020 was a pivotal year for International Seaways. We benefited from our earnings power and our timely chartering decisions early in the year. During the period that started out very strong and became challenging and volatile for tankers, we locked in significant cash flows by extending our fixed employment on our FSO joint venture through 2032. We transformed our capital structure in 2020. We significantly improved our balance sheet. We repurchased 5% of our outstanding shares and we implemented a dividend during 2020.

Thanks, Lois, and good morning, everyone. Let’s move directly to reviewing the fourth quarter and full year results in more detail. Before turning to the deck, let me quickly summarize our consolidated results. For the full year 2020, our adjusted EBITDA was $220.1 million, our highest on record. In the fourth quarter, we had an adjusted EBITDA loss of $5 million. Both the full year and fourth quarter 2020 EBITDA numbers I’ve just cited are after the effect of a one-time non-cash charge of $16 million related to the FSO contract extension. So you may want to take that into account in your modeling. Net loss for the fourth quarter was $116.9 million or $4.18 per diluted share, compared to net income of $19 million or $0.67 per diluted share in the fourth quarter of 2019. However, again, excluding the impact of the $85.9 million impairment charge and $16 million related to the FSO extensions, net loss was $15 million or $0.52 per diluted share. Now, please turn to slide eight. I will first discuss the results of our business segments beginning with the Crude Tanker segment. TCEs for the Crude Tanker segment were $44 million for the quarter, compared to $93 million in the fourth quarter of last year. The decrease primarily resulted from the impact of lower average blended rates in the VLCCs, Suezmax, Aframax, and Panamax sectors. Turning to the Product Carriers segment. TCE revenues were $9 million for the quarter, compared to $25 million in the fourth quarter of last year. This is due to lower period-over-period average daily blended rates earned by the LR2, LR1, and MR fleets and also a decrease in MR revenue days in the fourth quarter, primarily as a result of the new delivery of four time-chartered in MRs to their owners between the third quarter of 2019 and July 2020. Overall, as reflected in the chart top left, consolidated TCE revenues for the fourth quarter 2020 were $53 million, compared to $118 million in the fourth quarter 2019. The decrease was principally driven by substantially lower average daily rates earned across the crude fleet for this quarter compared to last year’s fourth quarter. Looking at the chart at the top right of the page, adjusted EBITDA was a loss of $5 million for the quarter, compared to adjusted EBITDA of $72 million in the fourth quarter 2019. And again, the increase was principally driven by lower average daily rates and includes the effect of the one-time non-cash charge of $16 million.

According to our rate...

…we have during the next 12 months. At this point, I’d like to provide cost guidance for the year for modeling purposes. For 2021, we expect regular daily OpEx, which includes all running costs, insurance, management fees, and other similar and related expenses for our various classes to be as follows: for VLCCs $8,900 per day, for Suezmax $8,000, for Aframax $8,200 per day, for Panamax $7,900, and for MRs $7,600 per day, in each case, excluding any impacts attributable to COVID-19. We expect drydock and CapEx expenses to be $24.5 million and $9.9 million, respectively, for the year. For details, I expect projected drydock and CapEx in off-hire days by quarter. You can refer to slide 15 in the appendix for an update. Continuing with cost guidance, we expect 2021 cash interest expense will be about $24.5 million, which compared to an actual cash interest expense of $26.8 million in 2020. For the year we expect cash G&A to be in the region of $25.6 million. Finally, we expect about $21.1 million in equity income and $67.1 million for depreciation and amortization, which is about $7 million below last year. Now if you go to slide 11 for our cash bridge, moving from left to right. We began the fourth quarter with total cash and liquidity of $194 million. During the quarter, our adjusted EBITDA was a loss of $5 million. We added $12 million in equity income from the JVs and the cash distributions from JVs were $4 million from the FSO JV. We expended $13 million on drydocking and CapEx, proceeds of vessel sales were $60 million, cash interest and scheduled principal payments on our debt were $6 million, finally taking into account $50 million of principal repayment, the $2 million quarterly dividend, and the positive impact of working capital and other changes of $29 million. The net result was that we ended the quarter with approximately $215 million of cash and a $40 million undrawn revolver, yielding total liquidity of $255 million. Please turn to slide 12. I’d like to briefly talk about our balance sheet. As of December 31st, we had $1.6 billion of assets, compared to $474 million of long-term debt. In addition, we had a $40 million revolving credit facility that remained undrawn as of December 31st. As you can see on the right-hand side of the slide, our net debt to total capital stands at 24%, our net loan to value of our conventional fleet stands at 33%. As footnote one tells you, it is not taking into account the value of our FSO. If you include that FSO’s book value, the net debt to value number drops to 29%. Further, our last 12 months adjusted EBITDA was a very strong $220 million, and therefore, our net debt to last 12 months EBITDA was just 1.4 times – 1.45 times. Before turning the call back to Lois, I’d like to briefly discuss this week’s agreement to purchase three LNG dual fuel VLCCs. As Lois mentioned, these vessels are on seven-year time charters to a market leading counterparty in AA rated Shell, that allows us to access very competitive financing as we renew our fleet at attractive levels and provide strong stable cash flows. The time charter is structured with a favorable base rate and a profit share, which provides added upside in a strengthening rate environment. Additionally, the payment is highly favorable with payments heavily weighted toward the back end. I’ve had a lot of questions already about this since the announcement. So I’d like to – let me try to give you as much detail as I can, bear in mind that the exact terms of the contract are TNC. As I mentioned, the payment terms of the newbuilding contract are back-ended favorable that way. So for your CapEx modeling for 2021, you should assume $30 million in payments this year. In terms of financing, given the seven-year time charter to a higher rate to Shell. There’s a myriad of opportunities to finance that we’ve been shown and are evaluating. For sure, you can expect this will have a very high advanced ratio, thereby enhancing return on equity. Also, we expect quite a low interest rate component. Revenue, of course, doesn’t start until 2023. I’m not sure that anyone is modeling 2023 numbers yet, but we’re very comfortable telling you that we project that there will be a double-digit return for this project for us. As I conclude my comments, I’d like to highlight our progress implementing our disciplined and accretive capital allocation strategy in 2020. Earlier this year, we successfully completed our sustainability-linked refinancing, which reduced our average interest rate by 3.5 percentage points and our annual interest expense by $25 million, enhanced our capital structure and enabled us to begin returning capital to shareholders. In addition to utilizing our strong cash flow to further prepay debt, we’ve been able to execute on our share repurchase program and pay $6 per share of quarterly dividends, as Lois mentioned earlier. At the same time, we’ve grown our total liquidity and our net loan to value of 32.7% remains one of the lowest among our tanker peers. Regarding future share repurchases, I’d simply like to say that, at these valuations relative to our net asset value per share, we view our share price as a highly attractive value. That concludes my remarks. I’d like to now turn the call back to Lois for closing comments.

Thank you very much, Jeff. In 2020, we achieved solid results, generating significant EBITDA and record net income. We strengthened our capital structure and our balance sheet. We took important steps to unlock shareholder value. We ended the year by further increasing our financial strength during a weak market. With our 10-year contract extensions on the FSOs, Seaways will generate approximately $20 million annually through 2032 from these assets. During the quarter, we captured still elevated asset values by selling three unencumbered ships for $60 million in cash. This increased our total cash position and total liquidity to $215 million and $255 million, respectively. Yesterday we announced our agreement to build three dual fuel LNG VLCCs that will commence seven-year time charters with Shell. We’re pleased to support Shell’s leading efforts to significantly reduce the maritime industry’s carbon footprint. We’re excited to partner with our long-term close customer on the state-of-the-art vessels that will be 40% more efficient than 10-year old ships and 20% more efficient than modern ECO Vs. Going forward, our fleet will continue to drive earnings, combined with the strong cash flows from the remaining two favorable VLCC time charters, then the extensions of our FSO joint venture contracts bolster our contracted revenues for the next decade and beyond. We remain positive on the long-term fundamentals and the outlook for the tanker market. And we believe that Seaways is well-positioned to continue to create value for shareholders well into the future. Thank you very much, and Operator, we will now open for questions.

The first question is from Liam Burke from B. Riley FBR. Please go ahead.

Good morning, Lois.

Good morning.

When we are looking at the acquisition of the orders for the three new VLCCs, is this a dramatic change from how you’re viewing the long-term management of the fleet? I mean, you get double-digit returns. Typically they would get competed away. But is this a major change in how you view managing the fleet away from the spot market?

Thank you, Liam. No. Absolutely not. I mean, as we go forward, our approach to cash flows and our time charter strategy is strategic in the sense that we try to align with market cycles and take advantage of opportunities, but what we love about this deal is that the dual fuel technology and this next step in efficiency and decarbonization is now being underwritten somewhat by the seven-year cooperation of our time charter with Shell. And it sort of highlights what I think will become more important going forward where owners and customers will both benefit by collaborating on technological breakthroughs.

Fair enough. And does it change your view on how you would like to weight the fleet between crude and product vessels?

No. It does not. It is the VLCC. It is just much more efficient. And as you will have noted, we have invested significantly in big crude in recent years. We still like Product Carriers and last year we bought an LR1. We still appreciate the product suite. It's where we think that the fundamentals will be strong going forward.

Hi, Lois and Jeff. How’s it going?

Hey, Randy. Very good. Thanks.

All right. Sounds like it, yeah. All right. So, sounds like you’ll need about $100 million in equity for the three VLCC newbuildings, maybe a little less, $90 million or so, $30 million this year, right? So, how does this impact the appetite or ability for share repurchases and how do you view share repurchases going forward considering you didn’t purchase any shares when they were $15, $16, $17?

Okay. So, Randy, I’m going to start that, but Jeff, I want you to come back to the way that Randy started on the…

Yeah. I don’t forget.

So, in the third quarter, Randy, what we were doing was two very material contracts, including the FSO, right, where we were able to crystallize what we believe to be about $150 million, probably more than $150 million in asset value on that FSO. So we were doing that in the fourth quarter which was quite material to the size of International Seaways. As well, we were in the midst of the dual fuel Shell VLCC project, which Omar noted, the total cost of those vessels. So we were in the midst of two material transactions, which makes it very challenging to go ahead and do buybacks when you’re involved in material transactions and then I’ll turn it to Jeff.

Yeah. Hey, Randy. You should not assume that that’s $100 million of equity that’s required for this. Among the myriad of financing options we have, I mentioned that we will have the ability to look at a much higher advanced ratio than you would in a normal acquisition. So I think you should be focusing more like numbers in the $50 million range, of which only $30 million is this year. And that segues me to the other thing that I like about this from a capital allocation point of view is starting the year with $200 million in cash, earmarking $30 million for a fleet renewal in the form of this newbuilding contract that we discussed to have all these other benefits, gets us a long way to any fleet renewal we would want to accomplish in this part of the cycle and leaves us a lot of liquidity to pursue returning cash, there’s no other capital allocation, which we find is equally attractive, which is returning cash to shareholders. So, we had stuff we were working on, as Lois said, that’s just what it is. But we’ve got the liquidity. We’ve nailed down fleet renewal. So we have a strong balance sheet even in a weak market. So we remain committed to returning cash to shareholders.

Got it. All right. Sounds good. And then, I guess, for the rest of your fleet, obviously, this is a big step in reducing your average fleet age and these things. Any additional sales coming and then any other appetite for maybe expanding your fleet or replacing some of the possible sales candidates with charter ins?

Yeah. So, I would say, I mean, we have remaining in our fleet one older VLCC, the Tanabe, she’s – she will conclude her $53,000 per day time charter in April and then look to monetize that ship. And indeed during this – the market is – really the rates are quite low today. I think it’s – why is that we have a strong balance sheet and then we will indeed be able to look at potentially bringing in time charters at today’s lower levels and blend them into our fleet then.

Got it. And then, I guess, briefly drilling down on Tanabe. It’s almost 20 years old, 19, 19.5 years. How does the current market value compare with scrap value?

It is – the current market value we believe to be substantively higher than the recycling levels. Although, what I will say is that recycle prices are a bit on the rise again, I think, reflecting the increase of demand and underlying price feel.

Yeah. Good morning, Lois and Jeff.

Good morning.

I want to clarify something you mentioned, Jeff, about being confident that the return would be in double digits. When you said that, were you referring to return on equity or return on assets? Any additional insight you could provide would be helpful.

Yeah. Ben, both.

Okay. Perfect. I want to ask about the industry's shift towards dual fuel LNG. I have a few questions regarding this. First, you mentioned that they will comply with the 20 to 25 new regulations. The contract's tenure ends in 2030, which coincides with the rollout of the next significant set of regulations. How does this align in terms of commissions, and will it also adhere to those regulations?

So, Ben, one of the ways that we are thinking about things is you look at you have an 800 plus strong VLCC fleet. And on average the tankers are recycling at an age of 22 years. So, when you look at the entire fleet and when we give these 20% and 40% efficiency numbers, we’re using generic averages. I mean, in many cases, some of the Vs that are on the water are consuming basically double what the ships will be consuming. So we thought – we look at it from an asset perspective that these will be the lowest emitting VLCCs on the planet. Bill, can you kind of give a little bit of – I also want Bill just to hit on the emissions profile from a total greenhouse gases perspective and then just kind of discuss a little bit around what Ben is talking about regulations?

Well, I’m going to flip that around, Lois, if I could, I’ll do the regulations first. Thanks, Ben. Just for clarity, IMO hasn’t agreed yet on what they’re doing in 2023, let alone 2030. Although, I think everyone knows and expects that the regulations are going to become more stringent. Really, what we anticipate happening over time is that regulations for higher CO2 producing fuel-burning ships, so the ships burning very low sulfur fuel oils will be hit harder, right? And that vessels with lower emissions will be less impacted by newer emerging regulations. As the IMO and the globe tries to incentivize that move towards lower carbon producing fuels. And LNG produces 13% less CO2 than very low sulfur and then when you combine that with a ship that is a highly, highly developed hull form and advanced propeller, altogether kind of bells and whistles that go with that, and a very, very efficient engine, you will get to that 20% and 40% numbers of the lowest emissions quoted. We actually anticipate that when we get past the 2025 Design Index mark, where this ship is 8% below that target, very low sulfur, new, let’s say, VLSFO burning VLCC delivering in ‘26 or ‘27, we’d have a huge amount of difficulty meeting that standard. So, I think we’re coming at this two ways, a highly, highly efficient ship design, coupled with a low carbon fuel, and that then results in the opportunity to continue to trade through this decade and well into the decades that follow.

That’s very helpful, I appreciate it. Combining this with the strategic plan, I am curious if Equinor or Total might approach us after seeing the Shell deal and express interest in collaborating. Are you open to that conversation at this time? Additionally, regarding our fleet, might there be a possibility to acquire more Suezmaxes? We are already participating in dual fuel, so would we consider doing that even without a contract? Is there any interest in pursuing that option?

I mean, I think, Ben, listen, we in Seaways have to be like a shark, because in this business you have to keep moving and we are open for business. So we’re going to listen to our customers and respond to that. However, from a capital allocation perspective, I would go back to what Jeff said and say that we also feel that we are still undervalued in terms of our shares perspective at this point.

Yeah. Thanks. Thank you and good morning and good afternoon everybody. I apologize, Jeff and Lois, I missed the other gentleman’s name that chimed in, but I guess, I would just...

Yeah.

I would like to ask about those calculations, which are quite interesting. The Marshall Islands are now discussing $100 per ton taxes, and Trapgor has mentioned $250 to $300. We probably don’t need to go over both figures. If we focus on the Marshall Islands' proposed $100 per ton taxes, can you provide a rough estimate of the savings when comparing new LNG to more conventional options? Thank you.

What I want to highlight is that Bill Nugent, who heads our Technical division and is also a naval architect, is closely monitoring all the regulatory developments. We noticed something regarding the Marshall Islands this morning, but it may be a bit early to discuss. Bill, do you have any insights on this matter or do you think it's still premature to determine the potential costs per ton in relation to carbon?

It is early days. There’s lots of developments and discussions around market-based measures, whether that’s Marshall Islands proposal or the trading schemes like what’s being discussed, but still not decided in the EU. And IMO has set a target for the second half of the decade to decide what that will look like, Marshall Islands is one of about two dozen proposals that’s gone out to be tabled and discussed at IMO. So I think we’re going to have to wait and see how this evolves and I think it’s too early to say what the real impact will be.

Thank you, Bill.

Thank you for that. I would like to ask about the evolution of the fleet. Are other larger established oil companies exploring dual fuel options? Is there currently a market beyond Shell for LNG fuel contracts or long-term agreements?

And I guess the way I would respond to that would be that the two oil majors that you’ve really seen step out and make these investments are Total and Shell. So Total has contracted with AET and a couple of others on some dual fuel, a couple of these. There’s been some Aframaxes from these two oil majors. And then it thins out a little bit, but I think that that’s going to remain to be seen, quite frankly. As each participant really in the market decides what their go-forward strategy is going to be.

Okay. And then just...

Yeah. And one thing, Lois, hey, Greg.

Yeah.

Take a look at the Shell press release itself beyond ours. They mentioned that this satisfies a goal for them that in 2023, 50% of their LNGs that they’re using contractually on time charters will be LNG fuel. So it’s key to their strategy in this part of their business. I think that’s worth a look.

Thank you for that. It's interesting to see how the market can hit an inflection point and evolve faster than we anticipate. I’d like to ask this: we are currently comfortable with our fleet, but as INSW considers adding tonnage, whether through new builds or acquiring vessels less than a year old, how does the cost of an LNG, which we estimate to be between $13 million and $15 million, influence your consideration for purchasing tonnage? In other words, what are your thoughts on this as we look ahead?

Yeah.

...it's almost like...

Okay. I got your...

...one might argue that...

Every owner needs to carefully consider whether to purchase secondhand vessels or new builds. As Bill mentioned earlier, regulations are constantly changing, and it's crucial for each owner to evaluate the ships in their fleet. We are actively working on various efficiency programs, maintaining our ships to maximize their performance. When it comes to buying secondhand tonnage, International Seaways has experience, as Bill has overseen the acquisition of over 50 new builds. It's fortunate to have him leading our Technical department as we embrace this new project. Most of the vessels we have acquired are modern secondhand, which tend to be the most efficient option. Owners must consider whether they wish to make that investment or pursue a significant change. Although there is ongoing discussion about hydrogen and ammonia, there are currently no practical solutions available.

Yeah. No. It’s definitely challenging. You guys definitely are facing a lot of challenging decisions here. So, anyway, hey, thank you very much for your time and have a great weekend.

Thank you and I’m sorry, can’t be more definitive there.

This concludes our question-and-answer session. I would like to turn the conference back over to Lois Zabrocky for any closing remarks.

I want to thank everyone for joining International Seaways on our call. We are in the midst of a very challenging tanker market environment. However, we have financial strength and we believe that, as we look forward to attain for recovery, 2021 is going to be a very interesting year and we’re super excited to share some of our recent achievements with you today and thank you again.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.