Good day, and welcome to the International Seaways Fourth Quarter and Full Year 2016 Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to James Small, General Counsel. Please go ahead.

Thank you. Good morning, everyone, and welcome to International Seaways' earnings release conference call for fiscal year 2016. Before we begin, I would like to start off by advising everyone on the call with us today of the following. During this conference call, International Seaways management may make forward-looking statements regarding International Seaways or the industry in which it operates, which could include, without limitation, statements about the outlook for various tanker markets, change in oil trading patterns, forecast of world and regional economic activity, and demand for and production of oil and petroleum products; International Seaways strategy; expectations regarding revenues and expenses, including both G&A expenses and vessel expenses; estimated bookings and TCE rates for the first quarter of and other periods in 2017; estimated capital expenditures for 2017 or other future periods; projected scheduled dry-dock and off-hire days; the anticipated successful conclusion of ongoing commercial negotiations; International Seaways' consideration of strategic alternatives and its ability to achieve its financing and other objectives; and regulatory developments in the United States and elsewhere. Any such forward-looking statements take into account various assumptions made by management based on its experience and perception of historical trends, current conditions, expected in future developments and other factors management believes are appropriate to consider in its circumstances. Forward-looking statements are subject to various risks, uncertainties and assumptions, many of which are beyond the control of International Seaways, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. Factors, risks and uncertainties that could cause International Seaways' actual results to differ from expectations include those described in International seaways' Annual report on Form 10-K for 2016 and in other filings that International Seaways has made or in the future may make with the U.S. Securities and Exchange Commission. Now with that out of the way, I would like to turn the call over to our President and Chief Executive Officer, Ms. Lois Zabrocky. Lois?

Thank you, James. Good morning, everyone, and thank you for joining International Seaways, Inc., for our first earnings calls since successfully completing our separation. Let me start by saying I'm honored to lead our experienced team as International Seaways benefits from both a rich history and a compelling future. We are starting our journey with a tanker fleet of scale, a solid balance sheet and the right people to effectively execute on our strategy. Before we get started, let me introduce Jeff Pribor, our CFO, who's joining me today on this call and who started at International Seaways in November. Jeff brings both public-company shipping CFO experience and a wealth of maritime banking experience and has already been a major asset to the team here. James Small, our Chief Administrative Officer, who you just heard from, has worked with us for two years after almost 20 years with Cleary Gottlieb, advising on transactional and governance matters and has provided invaluable counsel to the organization and has been a driving force behind numerous corporate initiatives. Rounding out the senior team here at International Seaways and also on the call are Bill Nugent, our Head of Ship Operations; Derek Solon, our Chief Commercial Officer; and Wale Oshodi, our Controller. Please turn to slide four. Let me start by providing an update on the spinoff. As many of you know, we completed our separation back on November 30. And on December 1, we began trading as an independent public company on the New York Stock Exchange under the ticker symbol INSW. A lot of time and effort from our dedicated employees went into ensuring the successful completion of that transaction, and I wanted to recognize those efforts and thank our team. The completion of the separation simplifies our operating structure. It enhances our…

Thanks, Lois, and good morning, everyone. I just want to say, first of all, I'm very pleased to be part of the great team here at International Seaways. It's really an exciting time to be back in the tanker business. Let's move directly to reviewing the fourth quarter and the full year 2016 results in more detail. And can I ask you first to turn to slide nine. Consolidated TCE revenues for the fourth quarter 2016 were $82 million, a decrease of $38 million or 31% compared to the fourth quarter of 2015. Consolidated TCE revenues for the full year 2016 were $385 million, a decrease of $91 million or 19% compared with the full year 2015. The decrease for both the quarter and the full year were both principally driven by lower daily rates. Now let me discuss the results of our business segments, beginning with the International Crude Tanker segment. TCE revenues for crude tanker segment, our container segment, were $54 million for the quarter, down 36% compared with the fourth quarter of 2015. This decrease is primarily due to a decline in VLCC and Aframax rates with spot rates declining to $32,100 and $15,100 per day, respectively, resulting in a $29 million decline in TCE revenues versus the prior year. TCE revenues for the crude tanker segment were $258 million for the full year 2016, down 15% compared with the full year 2015. This decrease was primarily due to a decline in VLCC and Aframax rates with spot rates declining to $42,000 and $21,000 per day, respectively, resulting in a $65 million decline in TCE revenues overall. This decrease is partially offset by increased revenue days in the VLCC and Aframax fleets due to fewer drydock and repair days, which accounted for a $12 million increase in…

Thank you very much, Jeff. Please turn to summary page, slide 16. We are very pleased with our performance in the fourth quarter and full year despite challenging market conditions in the second half of the year 2016. While we expect the year ahead to present a number of challenges, I'm confident in the solid foundation we built and the measures we continue to take to create a platform for success. We have a strong financial position, low leverage and cash breakeven, a diversified 55-vessel fleet positioned to optimize revenue, a balanced commercial deployment, lean and scalable model, and a rigorous capital allocation strategy. We are launching International Seaways at a favorable time in the cycle as periods of market weakness will create attractive opportunities, and we are well positioned to take advantage of those to renew our fleet and create value for our shareholders. We will now open the call up to questions.

Thank you. We will now begin the question-and-answer session [Operator Instructions]. Our first question comes from Magnus Fyhr of Seaport Global. Please go ahead.

Yeah, good morning. Just you mentioned you have a strong balance sheet and you're looking at opportunities. You painted a little bit more positive picture on the product tanker market, vis-à-vis the crude tanker market. Can you talk a little bit maybe how you think about those 2 markets going forward, if the product tanker market may be ahead a little bit of the crude tanker market?

Well, I think that you’re absolutely correct in that from the fourth quarter of 2016, worldwide product inventories started to draw down. And that – and we believe that the markets are linked and that, that will start and then crude will follow. So we do believe that – we like being diversified. We think both of the markets will be positive, starting with the products and followed by the crude.

Okay. If you do nothing going forward, you’d have about seven MRs that – or time charted in. So I mean, will the focus be, if you're going to maintain that balance, are you looking to time charter or renew those time charters or potentially do acquisitions on the product tanker market?

There are four vessels that will indeed -- time charter that will expire in the middle of this year, and we are taking a look at whether or not we would extend those. We have not done so at this point in time. The three variables don’t expire until sometime in 2018. And then we prefer – we know we’re going to look at the secondhand market for acquisitions and prefer not to – we like being diversified. We think both of the two sectors are areas we want to be in, but we’re not going to tip our hand as to whether we would look at MR purchases right now.

Okay. Thank you. And then just one last question. I mean, the last week here we’ve seen a significant increase in the MR market. Can you put some – can you give some color on what's going on in the product tanker market currently, that has resulted in these strong rates?

We’ve spent a good amount of time looking at the fundamentals and trying to understand what’s moving the market. It looks like there were a lot of product movement into West Africa, where ships tend to sit for some period of time before they get discharged, and that corresponded with a drawdown gasoline inventories on the East Coast. You also have refineries coming back online down in the Gulf. So you're pushing product out of the Gulf. You're pulling it into the East Coast from the continent. And at the same time, you have ships on longer voyages with delays.

Okay. Have you seen any changes in opportunities on the time charter opportunities? Or is it too early to tell with the recent strength?

Are you specifically speaking on the MR side?

Yeah, on the MR side.

Yeah. I mean, the market is somewhere around $13,500 per day. And it would – if you were to – now speaking about putting vessels out on time charter, it seems a little bit early to us.

Okay. Thank you.

Thanks, Magnus.

Our next question comes from John Gandolfo of Clarksons Platou Securities. Please go ahead.

Just wanted to touch base on the FSO JV and was wondering on the long term view for those assets. I understand the JV is expected to pay down its remaining debt by the conclusion of its current contract. And is there maybe potential to refinance those assets and then take the cash out now and use it towards acquisitions?

Hey, John. Yes. I think as Lois said in her remarks, I believe, and as we've talked about, the first focus is just get the contracts done. But you're at and so that's what we're working hard on and expected to do. That said, you're right that they will be unlevered as the new contract kicks in, so I think we'll look at all options. And as I said, look at all options on our conventional tanker balance sheet. It's just one of a myriad of options for capital for us, but we will look at it.

Okay. And then lastly, just wanted to touch on Ballast water treatment. Was wondering if there are any vessels expected to be retrofitted this year. Or has that been pretty much push forward?

We will see the majority of the impact in 2019 and 2020. We do have something like $5 million to $6 million in the 2017 budget for taking delivery of systems that will eventually go on to the ship. So it's a small portion of the fleet.

Okay. Got you. Now have those systems actually been approved by the U.S. Coast Guard that you've already invested in?

The Coast Guard actually approved the specific company system. Ours have not yet been approved. However, we are working with a company that has proven technology, and we have a guarantee of performance. Otherwise, we would get our initial investment back.

[Operator Instructions] Our next question comes from Amit Mehrotra of Deutsche Bank. Please go ahead.

Jeff, just wanted to follow up on the FSO question. I totally understand you can't talk about it until that's all buttoned up. But aside from that, just trying to get your priorities around capital structure movements over the next year, 1.5 years. I mean, the company obviously has a nice debt amortization profile, which is great during this transition period of the market. But as we look out 1 year, 1.5 years from now, if you could just help us think about how the cap structure will evolve? And just what areas around financing outside of the FSO are some of the priorities for you?

Yes. Amit, good to talk to you. Yes, I mean, you hit on it. We have a nice balance sheet right now with low leverage in asset charge and relative to the group. And so we're pleased about that. We're in no rush to lever way up. I would say that we'll enjoy the position we're in, look at the various opportunities that are there relative to fleet renewal and growth as Lois has talked about. So, I think that we don't anticipate any major changes in that we would currently capitalize apart from appropriately financing acquisitions as we make them. Does that make sense?

Yes. It makes sense. I mean, if I could, let me just push back a little bit on you on that. You know this obviously and Lois knows this way better than I do, but if you just look at shipping companies that create the most equity value overtime, typically the balance sheet expands at the weakest point in the cycle and then delevers as the market recovers. And I understand we're coming out of this weird period in the shipping market, capital markets in particular, where companies that are underlevered are awarded. So you want to maintain some balance noting where we are today. But at the same time, I mean, it just seems that you guys are maybe being a little bit too conservative with the balance sheet today. And that may be the right thing to do. And if you think it is, just please tell me to shut up. But in terms of the companies that are creating most value, you would think that you would have a little bit more leverage or a lot more leverage at this point in the cycle. If you can just talk to that and just how you guys think about that.

Yes, well, won't tell you to shut up, okay. Let's start with that. But I think what I was trying to say before about this, I'll just maybe try to make it more clear now is, as Lois said, we are looking judiciously to allocate capital towards assets right now, right. So when we do that, we'll be thinking about the cash we have on hand on that as well as the balance sheet moves we can make to finance that. So I think rather than just looking for financial engineering, lever up kind of stuff, you're going to see us use our balance sheet, and the balance sheet will evolve relative to acquisitions and fleet renewal. So I get you about where we are in the cycle, but I think we have a natural tendency, or a natural opportunity to do that as we renew the fleet. So I think we're…

Okay, that makes sense. It's a good segue into my follow question, if I could. And there's obviously been a lot of strategic or M&A rumblings in the crude segment. Jeff, just given your experience in corporate finance and then, obviously, the CFO of the company, just like to get your perspective on what you think these types of headlines and actions kind of signal to you in terms of where we are in the cycle. And then International Seaways itself is kind of in an interesting position because you already have a substantial balance sheet capacity, the equity currency has increased significantly in value, and then the company does have a need to bring down the average age of the fleet. So from that context, just curious if you've been tempted to enter into some strategic start to or even do some ship repair deals? Can we expect something like that given it would kind of seem to potentially check a lot of the boxes, the strategic boxes for the company?

Well, thanks. You addressed the question to me, so I'll start but I'll then turn it over to Lois. I mean, I think we do see things in the market, but we just look at them all as part of the overall evaluation of all the opportunities that we have. I don't know. Lois, you want to comment on how we look at M&A?

Yes, I, we've repeated this a lot of time with our investors. We think it's very important to be able to execute on a daily basis with one or two ship deals and get the company moving forward to renew the fleet. We will opportunistically look at consolidation, M&A, the other options you had put forward, but we don't think that you can count on growing and running the company in that way. So that's really the fulsome answer. We are very open minded into how we will renew our fleet, but we're going to make sure that we aren't just counting on an M&A opportunity to deliver the age reduction to us.

Yes, if I could bring that back to the CFO half of your question, Amit. Yes, because that's what you asked before. Our low leverage, low breakevens, that's actually a real plus in the context of thinking about M&A. So we approach it from a very favorable financial position, we think. So I hope that and answer get to what you’re asking about.

Yeah. I mean, it just seems the message I’m taking away, which is just from a strategic standpoint is continue to run the business effectively and then maybe take an incremental approach to growth as opposed to maybe a transformational approach. Is that the correct takeaway?

Not really. We’re going to look at all the opportunities that would be transformational. In the meantime, we’re going to be moving the ball down the field with the fleet. So we would look at both.

Got it. Okay. That’s helpful. Thanks for taking my question [Indiscernible] from the first earnings call. Appreciated guys.

Thank you.

Thanks.

Our next question is a follow-up question from Magnus Fyhr of Seaport Global. Please go ahead.

Thank you. Question for you, Jeff. You mentioned the guidance for next year on G&A is $25 million. Looked like the number was a little higher in the fourth quarter. Anything going on there?

Yeah, I think the – all of 2016 was a transition year to the 2017 business-as-new-usual year for International Seaways. So we’ve talked about this. It was mainly headcount reduction to appropriately size us for being an independent spun-off company, and that wasn’t done until year-end.

So by first – I mean, first quarter, you’re almost done with the first quarter so you feel comfortable with that run rate, about $6 million a quarter?

Well, we’re saying $25 million, and that included – and we said this at the Investor Day. That includes $1 million of – in this calendar year, fiscal year of onetime cost. So it’s $25 million to $24 million on a run-rate basis. But in terms of what we expect, because there is that $1 million in there, I’d say $25 million. So I had that modeled $6.25 million.

Okay. But it’s pretty consistent through the quarters? Or is that going to be higher in the first quarter?

I think it’s pretty consistent during the quarters.

Okay. Thank you.

Thanks, Magnus.

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

Thank you, Nicole. We wanted to thank everyone for your interest in International Seaways, and we look forward to the continued relationship with you as we move forward. Thank you very much.

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