Earnings Call Transcript - INSW Q2 2022

Operator, Operator

Hello and welcome to today’s International Seaways' Second Quarter 2022 Results. My name is Elliot and I will be coordinating your call today. I would now like to hand over to James Small, General Counsel. The floor is yours. Please go ahead.

James Small, General Counsel

Thank you, Elliot. Good morning, everyone, and welcome to International Seaways' earnings call for the second quarter of 2022. Before we begin, I would like to start off by advising everyone with us on the call today of the following. During this call, management may make forward-looking statements regarding the company or the industry in which it operates. Those statements may address, without limitation, the following topics: Outlooks for the crude and product tanker markets and changes in 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 company's strategy; the anticipated cost savings and other synergies and benefits from our merger with Diamond S; the effects of the ongoing coronavirus pandemic; our business prospects; expectations regarding revenues and expenses including vessel, charter hire, and G&A expenses; estimated bookings, TCE rates and/or capital expenditures in the third quarter of 2022, the remainder of 2022 or any other period; projected scheduled 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 relationship with its stakeholders; the company's ability to achieve its financing and other objectives; and other economic, political, and regulatory developments globally. Any such forward-looking statements take into account various assumptions made by management based on a number of factors, including management's experience and perception of historical trends, current conditions, expected and future developments, and other factors that management believes are appropriate to consider in the circumstances. Forward-looking statements are subject to risks, uncertainties, and assumptions, many of which are beyond the company's control that could cause actual results to differ materially from those implied or expressed by the statements. Factors, risks, and uncertainties that could cause International Seaways' actual results to differ from expectations include those described in our forthcoming quarterly report on Form 10-Q for the first and second quarter of 2022, our 2021 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. Now, let me turn the call over to our President and Chief Executive Officer, Ms. Lois Zabrocky. Lois?

Lois Zabrocky, CEO

Thank you very much, James. Good morning, everyone. Thank you for joining International Seaways' second quarter earnings call to discuss our strong results. In the second quarter, we generated our highest quarterly net income since our spinoff nearly six years ago. We closed our merger with Diamond S just over a year ago. The 40 MRs gained in the merger earned incredibly well in the second quarter, and yet they are posting TCEs that are 40% higher quarter-over-quarter for the book days in the third quarter. Refined product oil demand specifically for gasoline and middle distillates is resilient despite rising refinery utilization. The Seaway fleet of 78 tankers is providing us with a strong foundation to capitalize on rising tanker rates, as oil demand continues to recover from the negative impacts from COVID. On slide four, we summarize our second quarter highlights and our recent development. For the second quarter, we generated net income of $71.5 million, $1.43 per share, excluding special items. Adjusted EBITDA was $112 million led by the Product Carriers, with our MR revenues coming in at $15,000 per day above their breakeven levels. We have a sizeable fleet and substantial operating leverage, not only in the product but also in the midsize crude. We expect to continue capitalizing on favorable market conditions during the remainder of the year and into 2023, including in the recovering VLCC space. With the exception of the Aframaxes, which are closely tracking the second quarter rates booked in the third quarter on every sector are counter seasonally outperforming the second quarter. Tanker fundamentals are anticipated to remain attractive, supported by growing demand, limited fleet growth and higher utilization from longer distances between oil supply growth in the West and demand growth coming from the East. Turning to the bottom left series of bullets, our fleet optimization program focused on monetizing our older non-core vessels. I would just like to highlight that we sold two Panamax vessels for recycling in the second quarter, with an average age of 19 years old. We exited our non-core 2006 built handy fleet and sold one 14-year-old MR ahead of our third special survey and to commensurate ballast water treatment system installation and expense. The updated net proceeds reflect adjustments for positioning costs and the timing of delivery. We have sold 24 of our oldest vessels and least efficient vessels, with an average age of 16 years. We've lowered our fleet age profile to below nine years old and generated aggregate net proceeds of approximately $165 million after all costs since July of last year. Asset values remain at the high end of the 10-year averages for our fleet. In July alone, vessel values tracked our fleet appreciation at nearly $200 million or $4 per share. We will maintain our fleet discipline, including opportunistically looking to shed older tonnage to maximize returns. On the top right hand of the slide, we highlight balance sheet gains made in the quarter. We ended the quarter with total liquidity of over $450 million. This includes $232 million of cash and a $220 million revolver capacity. Using recent values, our net loan to fleet value is extremely healthy at 34%, one of the lowest amongst the peer group. Our increasing liquidity is a direct result of actions taken during the quarter, aimed at unlocking value for shareholders while enhancing our financial strength. This included successfully selling Seaways' 50% stake and our FSOs for $140 million in cash proceeds after a process that lasted several months evaluating all of our options to monetize the joint venture. To streamline our tanker fleet, we were pleased with the favorable outcome of this disposal. We captured the implied value inherent in the fixed rate contract on the FSOs. We closed on a new credit facility that saves us $60 million in mandatory repayments in 2022. We then delevered by $95 million, making a $70 million payment on our revolver. And we followed that with the $25 million redemption of our 8.5% baby bonds in August. We have continually lowered our cost of capital. This is consistent with our strong track record over the past five years. Returning capital is a major component of Seaway's strategy. In 2021, we returned $57.6 million or 9% of our market amid the most challenging tanker market conditions we have seen in decades. We are proud to build upon our consistent track record of returning capital to shareholders. During the quarter, we doubled our quarterly dividend to $0.12 per share. Over the last 10 quarters, we have returned over $100 million to shareholders in our regular quarterly dividend, $47 million in buybacks, and a special dividend of $32 million in connection with the conclusion of the Diamond S merger. Today, we've announced another boost in our program with the Board's authorization to upsize our share purchase program to $60 million and extend the expiration of the program to the end of 2023. We intend to use this program as one of our options to return capital to our shareholders over time. Our balanced capital allocation approach, number one, consistently returns to shareholders; number two, allows for opportunistic fleet growth and renewal at the low point in the cycle, such as the Diamond S merger and the ordering of our three newbuilding VLCCs; and number three, maintaining a strong balance sheet with a diversified debt portfolio that makes principal payments each quarter. Slide five. We update the current tanker rate environment relative to last year and the range of the earnings over the last 10 years. The larger chart on the left really exemplifies the significant strength on display in the MR rates since the start of the second quarter. And as mentioned, they continued to climb in the third quarter. This class of ship has not seen these types of rates since the supercycle in the mid-2000s. As energy security becomes a priority and Russia continues actions in Ukraine, we are seeing Atlantic basin product demand soaking up tonnage with product sourced from the United States, the Middle East, and India, creating long haul voyages for our vessels. Clarkson's projects 2022 products ton mile demand growth to clock in at just about 10%. This is happening while South America is recovering from the COVID crisis and demand there has been increasing in Argentina, Chile, and Colombia. With China slowly but surely coming out of its lockdown, they have been drawing down on inventories this summer in June and July. They are now starting to ramp up the refinery runs. Seaborne transportation is enjoying strength in products and building on an asset recovery on the crude. Afras and Suezmax earnings are nearing their 10-year highs, while our scrub fitted VLCCs are building to levels approaching breakeven. Overall, this slide illustrates our operating leverage. Turning to slide six. We address underlying tanker demand drivers during a time when the situation in Russia and Ukraine continues to create volatility in energy markets. Oil demand is expected to be about 101 million barrels towards the end of 2022 and further increase in 2023 to approximately 102 million barrels per day. The IEA actually puts growth at 2 million barrels per day in 2023. Of course, slowing GDP could certainly curtail oil demand growth. However, oil production growth, particularly in the West, led by the Americas, Norway, and Guyana is supportive of long-haul trade East and is a positive for tanker markets. As evidenced by the bottom left chart, refining margins remain robust, indicating healthy demand pulling refined products, leading to higher crude throughput and higher clean exports. We anticipate long-term changes to oil movements and trade patterns during this time related to Russia's invasion of Ukraine, and we continue to see cargoes moving longer distances. In the bottom right chart, OECD inventories have been reduced to their lowest level in a decade, providing less than 60 days of forward demand cover. SPR U.S. barrels continue to be released and exported as the world scrambles for crude. Combined with the need for further replenishment, this is supportive of seaborne trade and demand for tankers. Next on slide seven, the main drivers of tanker supply remained positive for tanker earnings. At 5%, the overall tanker order book continues at the lowest replacement level that we have seen in modern recordkeeping. The key net fleet growth has been just 1% since June of 2021. Over the last 10 years, the average age of the tanker fleet has increased to 12 years from the previous average of 9%. The bottom left chart illustrates the increasing incentives to recycle older tonnage. Based upon continued high recycling values, significant volumes have yet to materialize in 2022. We have paired tanker newbuilding deliveries against vessels turning 20 years old in the chart on the bottom right-hand side, and you can clearly see deliveries are dwindling. A number of factors continue to limit fleet growth. Newbuilding slots for tankers from reputable shipyards are well into 2025 as yards remain filled with contracts for other shipping sectors. Second, new orders have been tempered by uncertainty around future environmental regulations. And thirdly, newbuilding prices are near all-time highs, limiting tanker owners from ordering. We also continue to monitor the Russian controlled fleet that have been sanctioned by many governments in the West and may reduce fleet capacity by 30 Afras, 20 MRs, and many from other ship classes and sectors. We don't believe that we have seen the full impact of these vessels being out of commercial trading, and it may take some time before the full implications on trading routes and tanker capacity are realized. I'm going to now turn the call over to Jeff Pribor, our CFO, to provide the second quarter financial review. Jeff?

Jeffrey Pribor, CFO

Thanks Lois, and good morning, everyone. Let's go straight to reviewing the second quarter results in greater detail. Before turning to the slides, let me just provide a quick summary of our financial results. In the second quarter, we had an adjusted EBITDA of $111.7 million. Net income for the second quarter was $69 million or $1.38 per share compared to a net loss of $18.8 million or $0.67 per diluted share in the second quarter of 2021. When excluding one-time items, net income was $71.5 million or $1.43 per diluted share. Now please turn to slide nine. I'll first discuss the results of our business segments, beginning with the Crude Tanker segment. TCE revenues for the Crude Tanker segment were almost $60 million for the quarter compared to $31 million in the second quarter of last year. Crude Tanker revenues doubled year-over-year, largely due to the Aframax and Suezmax rates coupled with more revenue days on the Suezmax fleet from the Diamond S merger. In the Product Carriers segment, TCE revenues were $126 million for the quarter, which compares to $14 million in the second quarter, showing a substantial increase of 21%. This very significant increase is attributable to the substantially higher spot rates for LR1 and MR sectors combined with a substantial increase in revenue days as a result of divestment. Looking at the right side of the slide, adjusted EBITDA for the recent quarter was $112 million compared to just $10 million in adjusted EBITDA in the second quarter of last year and $26 million previously. These significant increases from prior periods represent a clear demonstration of our significant operating leverage to the take markets. Now please turn to slide 10, where we provide a second quarter review and third quarter 2022 rate and earnings update. For Q3 bookings to date, we have so far booked 62% of our spot days for the quarter for VLCCs at an average of approximately $19,000 a day. 53% of our available Suezmax spot days average a little over $33,000. 50% of our viable Aframax spot days at an average of about $32,000 per day, and 43% of our available one spot days at an average of under $31. On the MR side, we booked 48% of our third quarter spot days at an average of almost $43,000 a day. Naturally, we caution you that these are indications of the preferences in every week that need to be reported in the next quarter. Please turn to slide 11. The cash cost TCE breakevens for the forward 12 months are illustrated on this slide. International Seaways overall breakeven rate is estimated to be about $16,500 per day. Our breakevens are lower for the next 12 months this quarter due to the change in our amortization schedule with our first scheduled payment on credit facility in the fourth quarter of this year. As always, these are the all-in daily rates our own vessels must earn to cover vessel operating costs, drydocking costs, cash G&A expense and debt service costs, which include our scheduled principal amortization and interest expense. At this point, as I always do, I'd also like to confirm our 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 as follows: VLCC $9,000 per day, Suezmax $7,600, Aframax $8,200, LR1 $7,900 and MRs $7,200. We expect our drydock and CapEx expenses to be $55 million to $65 million respectively for the year. As I mentioned on our previous earnings call, these costs are related to ballast water treatment systems and other upgrades in anticipation of regulations. For a more detailed breakdown on drydock and CapEx by quarter you can go to slide 17. Continuing with cost guidance. We expect 2022 cash interest expense fees of $45 million to $47 million, naturally higher due to increases in treasury. For the year, we expect cash G&A to be $33 million to $36 million, mainly due to increases in costs on shareholder mandates and project expenses. And finally, we expect $105 million to $110 million of depreciation. Now we can go to slide 12 for our cash bridge. Moving from left to right. We began the second quarter with total cash and liquidity of $166 million. During the quarter, our adjusted EBITDA was $12 million. Equity income from joint ventures decreased by $4 million. Proceeds from the sale of the FSO joint venture were $140 million. We expended $15 million on drydock and CapEx. We received $54 million in proceeds from vessel sales, $15 million in depletion for two sale leasebacks after fees and debt payment, and $24 million in net proceeds from refinancing and swap terms. This was offset by a $70 million revolver repayment, which reduced liquidity. Debt service on term loans and sale leasebacks cost us about $22 million. Increased quarterly dividend was $6 million in the quarter. Lastly, we had a substantial negative impact on working capital and other charges of $72 million during the quarter. Most of this impact is due to the increase in receivables from pools due to rapidly rising rates, and the doubling of bunker costs. As this stabilizes, we expect to reduce some of these with the natural ebb and flow. Combination of all these factors resulted in a quarter end cash balance of approximately $220 million for a total liquidity of $452 million. Now please turn to slide 13. I'd like to briefly speak about our balance sheet. As of June 30, we had $2.37 billion in assets compared to $950 million in long-term liabilities. In addition, we have a $220 million undrawn credit facility. Our net loan-to-value for our conventional fleet has been reduced to 37% as of June 30 and to 34% in July. Lastly, not included in the June 30 figures, we paid a total of $25 million outstanding on our 8.5% senior notes, further lowering our cost of capital. Turning to slide 14. If you look at our total debt as of June 30, our total debt balance is $1.06 billion with $220 million of undrawn revolving capacity. As we've mentioned a few times, both on a new senior secured facility in May, an aggregate capacity of $750 million composed of a term loan of $530 million and a $220 million revolving credit facility. The proceeds from this new facility were used to repay three existing senior debt facilities in aggregate of $575 million. Importantly, this new facility extended the maturity profile of our senior debt by more than two years, reduced our average interest rate of senior debt by about 15 basis points, saving us $1 million on interest payments and approximately $60 million in 2022 to the updated payment schedule. This facility was about two times oversubscribed, and I'd like to thank our top-tier bank group for their continued support. It's also worth highlighting that the covenant package is similar to the existing facilities and enhanced sustainability-linked features, which we're very proud of. Seaway was the first New York Stock Exchange-listed ship owner and operator to link its financing to sustainability in 2020, and we remain committed to advancing initiatives that improve the environment and enhance our business. We detailed the sustainability features in the press release and our filings. So, the last point I'd like to make is that our sustainability-linked features make up 95% of our senior debt, putting onto our revolver, 58% of our entire debt portfolio. That concludes my remarks. I'd now like to turn the call over to Lois for the closing comments.

Lois Zabrocky, CEO

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

Operator, Operator

Thank you. Our first question comes from Omar Nokta from Jefferies. Your line is open. Please go ahead.

Omar Nokta, Analyst

Thank you. Good morning, everyone. Congratulations on a strong quarter. The Diamond S merger seems to be benefiting you well. You have been effectively streamlining the business in recent years, particularly with the recent sale of the FSOs. Lois, in your earlier remarks, you discussed the reasons for that sale. Could you elaborate on the decision process? On one hand, it is non-core to your focus on the tanker business, but on the other hand, it provided significant long-term revenue visibility. I'm curious about what ultimately led to the decision to monetize it.

Lois Zabrocky, CEO

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

Omar Nokta, Analyst

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

Lois Zabrocky, CEO

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

Jeffery Pribor, CFO

Yeah. Omar, it's Jeff. Let me just underscore that. I mean, talking about fleet renewal, if you think of doubling our deadweight tons, tripling the units, selling over 20 vessels and still having 75 vessels in the fleet that's under nine years of age. I think we're in pretty good shape in terms of fleet renewal. The fleet optimization program has been really taking care of that. So, I think we feel pretty good about where we are.

Omar Nokta, Analyst

I agree. You are in a strong position with a solid operating platform. Considering that you have enhanced your product exposure and are seeing the benefits of that market presence, especially with the recent success of the Suezes and Afras, how are you approaching capital deployment? I've asked this before, but as you plan ahead, how do you prioritize the allocation of your resources, particularly between crude and product?

Lois Zabrocky, CEO

I believe we are currently experiencing the benefits of our diverse fleet, driven primarily by our products and followed by crude. This is a topic we regularly review in our strategic meetings as a management team and in discussions with the Board. What we are observing is a significant shift; conditions that applied previously may not hold true in the future. We have established a presence in various sectors, including large crude, medium crude, and MRs, and we can enhance any segment based on our existing scale in those areas. Therefore, I don't want to constrain our options.

Jeffery Pribor, CFO

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

Omar Nokta, Analyst

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

Lois Zabrocky, CEO

Thank you. Thanks, Omar.

Operator, Operator

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

Ben Nolan, Analyst

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

Lois Zabrocky, CEO

Okay. So, just kind of taking it from the start, Ben. The commercial department has indeed secured a one-year time charter and a two-year time charter on different sectors. As the market comes into itself, we'll continue looking at locking up high-level rates. On the chartering side, the Panamax international pool is pretty steady. You see them out in all our other sectors, and pretty much everybody in Q1 was over 20 a day. The way they're looking in Q2 and Q3, we will look for those opportunities to extend the vessels that we have if we can.

Ben Nolan, Analyst

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

Lois Zabrocky, CEO

We haven't discussed where those rates are at. One of those time charters is an extension on an oil company major for a couple of years on the Suezmax with a scrubber, and that is for two years, I think we've bought them at the strongest rates that we've seen in the sector. The other one is on an MR and that would commence in the fourth quarter. Putting out the actual rates, I'm sure we will do that in due course.

Ben Nolan, Analyst

That's fine. Even the types of ships are somewhat helpful. I appreciate that. If I have a follow-up, there are maybe two things here. First, Lois, we've noticed that VLCCs are underperforming in a peculiar market where usually, when conditions are tight, larger ships tend to perform better. Russia, of course, is a factor in this. Do you think that what we're observing now is structural and just part of the usual market dynamics? Or do you believe that these ships may struggle to catch up given the current circumstances? Additionally, how do you assess the share price? We've certainly seen product tanker equities outperform, and your fleet consists of more than half product tankers from a count perspective, yet you haven't performed quite as well. Do you attribute that to having crude tankers, or is there something about having both crude and product tankers affecting that? Any updated thoughts on this?

Lois Zabrocky, CEO

I'll take the first part of that, and then I'll give Jeff a moment to address the second part. So, speaking specifically about the VLCCs, China, they had pretty intense COVID lockdowns this summer, and you have the lowest amount of imports of crude that we've seen in quite several years into China. They were also drawing down inventories at approximately 1.5 million barrels a day. Knock-on wood, you're seeing the COVID restrictions relaxed, and refineries in China and Asia starting to ramp up towards the end of the year. So, I think that's part of it on the VLCCs. Some of the Western crude has been pulled into Europe, displacing some of that long-haul that we had previously seen going East. U.S. Gulf exports averaged over 3.5 million barrels a day for the rolling July averages, right, and we expect it to continue because the U.S. is producing 12 million barrels a day and we expect those exports to increase. All of these elements will dovetail into helping the VLCCs recover. In the meantime, the Afras and the Suezmaxes have been the star beneficiaries of the trades in the Western Hemisphere, more staying in the Western Hemisphere. I think all of these elements contribute to the current market dynamics. But I do see the VLCCs coming along as well.

Jeffery Pribor, CFO

Ben, to your point, maybe because before the Diamond S merger, we were a bit weighted towards crude that some of the research you see may lump us in that area or at least kind of overlook us a little bit when the product tankers were performing well this quarter. This could be the last year of any net fleet growth in tankers for a while. We are glad about our stock price appreciation this year, but it could have been more. My reaction is that what an opportunity for investors. We're sitting here with almost $0.5 billion of liquidity, 34% net loan to value, a fleet that's already been renewed, with plenty of optionality for investors, including ourselves. We think that's a good opportunity for investors, including ourselves.

Ben Nolan, Analyst

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

Lois Zabrocky, CEO

Thank you.

Operator, Operator

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

Liam Burke, Analyst

Thank you. Good morning, Lois. Good morning, Jeff.

Lois Zabrocky, CEO

Good morning.

Liam Burke, Analyst

Lois, you talked about regional imbalance, obviously, Russia is a driver of that. But on the product side, how much has the redistribution of global refinery capacity helped the rates on the MRs?

Lois Zabrocky, CEO

I would say, Liam, that largely a huge piece of the strength in the MRs is the exports from the U.S. Gulf. You're seeing diesel exports over 1.4 million barrels a day and gasoline exports approaching 1 million barrels a day from the Gulf region. You're still bringing in gasoline into the U.S. East Coast. So, we are seeing products coming from the Middle East and India to Europe, largely on LRs, and that also helps to buoy the MRs. Overall, Clarkson has that product trade growing by nearly 10% this year in ton-mile. All of those elements provided the product carriers and our MRs with a real lift.

Liam Burke, Analyst

Okay. And then, on the crude tanker side, there's a fair amount of capacity that came online in the first quarter of 2022. Understanding there's been disruptions in trades mid-year. Do you think the capacity sort of leveled out on a normal basis? I understand what the order book looks like. But right now, do you see more stabilization after capacity came online earlier?

Lois Zabrocky, CEO

Yes, I would say so. Once you get into the fourth quarter, you tend to see owners be very reluctant to take deliveries in the fourth quarter and tend to push them forward. The delivery next year in 2023 is expected to be lower than what they have been in 2022. So, indeed, we are starting to see that level out.

Jeffery Pribor, CFO

Liam, this could be the last year of any net fleet growth in tankers for a while.

Liam Burke, Analyst

Great. Thank you, Lois. Thank you, Jeff.

Jeffery Pribor, CFO

Thanks, Liam. Take care.

Lois Zabrocky, CEO

Thank you.

Operator, Operator

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

Gregory Lewis, Analyst

Thank you and good morning. Lois, I have a broader question for you. The company continues to explore opportunities in the energy transition with dual-fuel vessels. I recall discussions about potential LNG opportunities for INSW. Given the current dynamics in the global gas markets, particularly with Qatargas looking to charter LNG vessels and increased liquefaction coming online in the U.S. that will require vessels, is this a sector the company is monitoring? Could we see an investment in this area at some point, or are we currently focused solely on maximizing our crude and product segments?

Lois Zabrocky, CEO

I appreciate how you articulated that, keeping it on the periphery. Our team has been actively involved, and Bill can provide some insight into the LNG courses. Bill Nugent, our Head of Operations, can share details about the LNG training that our team and the sailors are participating in as we prepare for the delivery of our three new VLCCs.

William Nugent, Head of Operations

We did operate those ships with Nakilat and Qatargas for our Q-Flex ships for a long time and that expertise is still in-house. So, we retain that. Now with the new team that's joined us through the merger, we're expanding that in preparation for taking these three dual-fuel vessels with training here.

Lois Zabrocky, CEO

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

Gregory Lewis, Analyst

Okay, great. As I consider our strategy, it appears the company is open to pursuing new builds in the large crude segment, possibly influenced by recent mergers and acquisitions. Should we be approaching portfolio management differently for crude and product? For crude, there may be new building opportunities, while the product side might focus on managing secondhand vessels as we look to renew. This topic has come up a few times during the call. Is it reasonable to suggest that the likelihood of ordering new builds for INSW and MR is significantly lower than for large crude new builds?

Lois Zabrocky, CEO

No. We are seeking to partner with Shell on a seven-year time charter, which really enabled that choice. When we can find a strong oil company partner interested in advancing dual-fuel and decarbonization, we will definitely pursue that partnership for either crude or product.

Jeffery Pribor, CFO

Yeah. I mean, we've been saying since 2020 that we're not in the market for speculative newbuildings with conventionally fueled engines period. The significant thing about the Shell dual-fuel vessels is that they're not just VLCCs; they're in partnership with a major customer like Shell on long-term charter. Something that Bill was talking before, the in-house intellectual capital we've developed from previous experience, for example, with LNGs with Nakilat and the current experience with dual-fuels is invaluable and is really going to help us so that we look towards projects. As I said to an earlier question, we will look towards projects that are working with customers rather than speculatively at the current prices.

Gregory Lewis, Analyst

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

Lois Zabrocky, CEO

Thank you.

Jeffery Pribor, CFO

Thanks, Greg.

Operator, Operator

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

Lois Zabrocky, CEO

Thank you everyone for joining International Seaways on our second quarter, and stay tuned for an exciting Q3. Thank you very much.

Operator, Operator

Today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.