International Seaways, Inc. (INSW) Q3 2019 Earnings Report, Transcript and Summary

Good morning, and welcome to the International Seaways Inc. Third Quarter 2019 Earnings 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 the third quarter of 2019. Before we begin, I would like to start off by advising everyone on the call with us 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: outlook for the crude tanker and product carrier markets; changing oil trading patterns; forecast of world and regional economic activity and of demand for and production of oil and other petroleum products; the company's strategy; purchases and sales of vessels and other investments; anticipated financing transactions; expectations regarding revenues and expenses including vessel charter hire and G&A expenses; estimated bookings and TCE rates in the fourth quarter of 2019 or other periods; estimated capital expenditures for the fourth quarter of 2019 or other periods; projected scheduled drydock and off-hire days; the company's consideration of strategic alternatives; the company's ability to achieve its financing and other objectives; and other economic, political and regulatory developments around the world. 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, which could cause actual results to differ materially from those implied or expressed by those statements. Factors, risks and uncertainties that could cause International Seaways' actual results to differ from expectations include those described in its Annual Report on Form 10-K for 2018, its quarterly report on Form 10-Q for the third quarter of 2019 and in other filings that we have made or in the future may make with the U.S. Securities and Exchange Commission. 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 very much, James. Good morning, everyone. Thank you for joining Seaway's earnings call to discuss our third quarter 2019 results. If you'll turn to slide 4, we review our third quarter highlights and our recent accomplishments. During the quarter and subsequent to the end -- to its end we have implemented multiple initiatives that strengthens our commercial prospects and optimize shareholder value. In October, we drew upon our successful and ongoing relationship with Nakilat to monetize our ownership interest in our LNG joint venture for $123 million in cash. This is an important accomplishment as we unlocked significant value for shareholders evidenced by the approximately $100 million increase in our market cap on the day of the announcement. In addition, this opportunistic sale enabled us to strengthen our balance sheet and advance our disciplined and accretive capital allocation approach, which has been a key part of our strategy since becoming a stand-alone public company. Second, in September we helped expand Tankers International's footprint which further enhances Tankers International position as the leading VLCC pool worldwide. As a founding member of TI nearly 20 years ago, we are pleased to host TI's new office here in Seaways headquarters expanding our relationships with customers in the Western Hemisphere and positioning us to more fully capitalize on increasing U.S. exports. Next, the notable success we've had year-to-date in 2019 strengthens our balance sheet and our liquidity position. Following our $600 million investment in big and modern ships at the bottom of the cycle significantly strengthening our earnings power we have shifted the focus of our capital allocation strategy beginning with deleveraging. Consistent with this, we prepaid $110 million of debt creating an annual interest savings of $9 million and improving our pro forma net loan-to-value to well below 40% compared to 50% as of June 30. This solidifies our position as a tanker company with one of the lowest leverage profiles in the business. As of September 30, we had $124 million in cash. Our total liquidity stood at $174 million including our undrawn $50 million revolver. Jeff will discuss our current capital allocation priorities and our ongoing strategy to optimize our balance sheet and lower our cost of capital later on this call. Moving to the final bullet. While seasonal weakness impacted rates throughout the majority of the third quarter, the tanker market reached its inflection point during the third quarter as we realized the initial benefits from the IMO 2020 low sulfur regulations. Together with geopolitical and broader macro factors, this led to significantly higher crude tanker rates at the end of the third quarter and into the fourth. With significant operating leverage based on our strong spot exposure, we expect to continue to capitalize on favorable crude and product tanker prospects into 2020. We note that our fourth quarter bookings to-date are significantly higher than the third quarter. Jeff will also provide a more detailed fourth quarter earnings update later in the call. Finally I want to highlight our upside potential in this rising market. Every $5,000 per day increase in tanker rates corresponds to a $72 million increase in our EBITDA and $2.46 in earnings per share. Now turning to slide 5 and highlighting the current drivers of this tanker market. As we progress through the fourth quarter, fundamentals remain strong and we expect the favorable rate environment to continue into 2020 based on a number of factors. On the demand side, oil demand growth is projected to increase 1.6 million barrels per day in the second half of 2019 over the first half. This supports a robust market. In addition, with refinery maintenance now complete, we have begun to see throughput increases which we expect to continue and have an ongoing positive impact on the crude and product tanker markets. While we started to see the positive impact from an initial IMO 2020 related demand surge in October, we expect incremental IMO 2020 demand to become more pronounced as we get closer to year's end. Specifically our expectation remain that refiners will continue to produce more very low sulfur fuel oil and middle distillates increasing overall crude volumes and the seaborne transportation of petroleum products due to changes in trading patterns. Supply fundamentals also remained favorable and supportive of a strengthening market. During a time, when the overall tanker order book is at its lowest level in over 20 years vessel supply has been reduced as a result of increased out-of-service time from scrubber installations ahead of the IMO 2020 regulations going into effect. We have seen up to 30 VLCCs lead the global fleet to store various grades of crude and fuel oil in Singapore further reducing vessel supply. Moving to the chart at the bottom of the page, we can see how the market reacted to two recent geopolitical triggers with VLCC rates briefly reaching record levels in October. Specifically, a sharp rise in tanker rates was precipitated by the attack on Saudi oil processing facilities on September 14 and was further boosted with the announcement of sanctions on a number of Chinese tanker companies including a COSCO subsidiary on September 25. In addition to the strong supply and demand drivers that I described earlier in a tightly balanced market, geopolitical events can drive rates higher creating additional upside on top of an already strong market. Briefly an update on our 2020 compliance initiatives. For our scrubber program, nearly all of our equipment has been delivered to our two shipyard sites well in advance of the 10 VLCCs' scheduled arrival date. Engineering and procurement are complete. And our site teams are in place to oversee prefabrication of the new structures. We're grateful to our project partners Hyundai Global Services, Clean Marine, PaxOcean and Wenchong for working with us so ably. The first ship is on schedule to arrive in the shipyard at the end of this month. In October, with market conditions as strong we pushed back two scrubber installations from the fourth quarter to the first quarter. Both of these ships were subsequently fixed at high time charter equivalent rates. For our ships that will burn very low sulfur fuel, we have been working more than 18 months to prepare for January 1. Our ship implementation plans are in place our tank cleaning program is largely complete and we are now in the logistics phase. This includes working with pool partners to carefully monitor the status of each bunker tank on each ship, seeking potential bunkering opportunities and buying both high and low-sulfur fuels strategically to manage our supplies to the end of the year and going forward. Our shoreside teams and our crews on board the vessels have done a great job. I will now turn the call over to Jeff. He will provide additional details on the third quarter results.

Thanks, Lois and good morning, everyone. Let's move directly to reviewing the third quarter results in more detail. But before turning to Slide 7, let me quickly summarize our consolidated results. We achieved the highest adjusted EBITDA at $23.8 million that we've ever had since becoming a public company. Net loss for the third quarter was $11.1 million or $0.38 per diluted share compared with a net loss of $47.8 million or $1.64 per diluted share in the third quarter of 2018. Now getting into the specifics on Slide 7. I'll first discuss the results of our business segments beginning with the Crude Tankers segment. TCEs for the Crude Tanker segment were $49 million for the quarter compared to $40 million in the third quarter of last year. This increase reflects our success improving the age profile and increasing the capacity of the fleet that primarily resulted from the impact of higher average blended rates in the VLCC, Suezmax and Aframax sectors. Turning to the Product Carrier segment. TCEs revenues were $16 million for the quarter compared to $11 million in the third quarter of last year. This increase primarily resulted from the impact of higher average daily blended rates earned by the LR1, LR2 and MR fleets with spot rates rising to approximately $15,500, $17,300 and $11,400 per day respectively. This increase in overall revenue occurred even though MR revenue days were down as we sold four older MRs in doing so completing our programs to sell all six older MRs. Overall, as reflected in the chart top left, consolidated TCE revenues for the third quarter 2019 were $55 million compared to $51 million in the third quarter of 2018. Again this increase was primarily driven by higher average daily rates earned across the crude and product carrier fleet in the third quarter compared to last year. Looking at the chart on the top right of the page, adjusted EBITDA was $24 million for the quarter compared to $6 million for the same period last year. Again the increase primarily driven by higher daily rates. On the bottom half of the page we look at results on a sequential basis i.e. quarter-to-quarter. Consolidated TCE revenues and adjusted EBITDA for the third quarter were up from the second quarter both increasing by $3 million. Now turning to Slide 8. We provide a Q3 review and Q4 earnings update. Spot rates are broken out for our modern VLCCs and then VLCCs in that part of the fleet which is over [Technical Difficulty]. As I [Technical Difficulty] previous calls regarding spot rates for VLCCs, particularly at lower points in the tanker cycle modern VLCCs earning high [Technical Difficulty]. As the market recovers this gap will narrow significantly and rates from modern VLCCs more closely reflect those of both the overall VLCC group and we see the evidence of this during the recent market strengthening. Now turning to bookings for Q4 thus far, which are significantly higher relative to the third quarter based on the stronger market fundamentals that Lois just spoke about earlier. We booked 69% of our available Q4 spot days for modern VLCCs, at an average of approximately $15000 a day and would note that this number is consistent with -- on a pool points adjusted basis with the rates reported by our TI pool partners. 46% of available VLCC days for those that are 15 years or older averaged $44,000 a day. 54% of Suezmax spot days at an average of $50,900 per day. 47% of available Aframax LR2 spot days at an average of $30,800 per day. And 49% of our available Panamax LR1 segment spot days were at a very impressive $28,700 per day. On the MR side we booked 37% of the fourth quarter spot days at an average of approximately $12,800. But here I would point out that recent bookings have been more in the $20,000 range. So we'd expect that number to go up. Now if we could turn to Slide 9. The cash cost TCE breakevens for the 12 months ended September 30, 2019 are illustrated on this slide. International Seaways' overall breakeven rate was $22,300 for the 12 months ended September 30, 2019. These rates are the all-in daily rates our owned vessels must earn to cover operating costs, drydocking, G&A expense and debt service costs all set within the schedule which means, principal amortization as well as interest expense. Of note, taking into consideration distributions from our FSO JV, the overall breakeven rate for the company drops to $20,500. At this time I'd like to also reaffirm and update cost guidance for the year for modeling purposes. First, 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 at the levels previously provided. So no change there. For details on projected drydock, CapEx costs and off-hire days by quarter, you can please refer to Slide 17 in the appendix for an update. Continuing with cost guidance for your modeling. We expect fourth quarter interest expense to be $14.3 million, which includes amortization of deferred finance costs and non-cash cost of $1.6 million. This is about $2 million lower than Q3 reflecting the recent repayment on our debt. Additionally, our debt costs were $11.4 million in principal repayments scheduled in the fourth quarter. For G&A in the fourth quarter we expect it to be approximately $6.3 million all-in, including $0.9 million for non-cash charges so $5.4 million in cash G&A for the quarter. We also expect about $5.4 million of equity income before the impact of a $2.9 million cash gain on the sale of our interest in the LNG joint venture and a non-cash reclass of approximately $21 million, representing the company's share of the unrealized losses associated with the interest rate swaps held by the LNG JV that is already reflected in the September 30 carrying value of the investment into earnings from accumulated other comprehensive loss. Finally we expect about $19 million for depreciation and amortization in the fourth quarter. Now if we could go to Slide 10 for our cash bridge. Moving from left to right. We began the third quarter with total cash and liquidity of $200 million. But during the quarter we generated $24 million of adjusted EBITDA. This amount includes $8 million in equity income from the JVs which is non-cash. So therefore we deducted it to reach a cash figure. So that adds back the cash distributions from the JVs, which were $3 million from the FSO JV. The proceeds from vessel sales were $7 million. In addition we expected $7 million on drydocking and CapEx. The cash interest and principal pay down of debt was $37 million, excluding our 2017 term loan prepayment which totaled another $10 million. The net result various cash flow was that we ended the quarter with approximately $124 million of cash and $50 million under our revolver yielding total liquidity of $174 million. Now if you could please turn to Slide 11. I'd like to next talk about our balance sheet. As discussed earlier we made a prepayment of $10 million in July and a further prepayment of $100 million in October on our 2017 Term Loan B facility which has a current interest rate in excess of 8%. These prepayments will result in a $9 million decrease in cash interest expense on an annual basis and $1.9 million, specifically in the fourth quarter of 2019 compared to the third quarter, based on current interest rates as well as a reduction in future quarterly amortization payments, from $6.1 million to $4.6 million per quarter. Having completed these prepayments and significantly lowered our interest expense, we believe there's still an opportunity to further optimize our balance sheet. And lower our cost of capital in the future. As Lois mentioned, we remain well positioned to further implement our disciplined and accretive capital allocation strategy, in a strengthening market. In terms of balance sheet specifics, as of September 30th, we had $1.8 billion of assets compared to $717 million of long-term debt, which again is before the October prepayment of $100 million. In addition, we have as mentioned, the $50 million revolving credit facility that remains undrawn as of September 30th 2019. As you can see on the right-hand column, pro forma for the sales by LNG and $100 million debt prepayment, our total debt-to-capital stood at under, 41% while our net loan-to-value stands at 36%. On the bottom of slide, we outline the face amount of our debt facilities, giving pro forma effect to the $100 million prepayment, all of which importantly matures in 2022 or later. Lastly, turning to slide 12, we illustrate again our strong earnings power or our fleet as we head into a market recovery. And the far left, we show, 2018 spot rates earned by INSW vessels, which we view as a trough in the market or the tanker market. And in order to demonstrate the impact of a rising rate environment relative to these 2018 levels, we present three specific scenarios, to the right. First is, mid-cycle by which we mean, 15-year average rates. Second is, a recent peak, represented by 2015 average rates. And last on the right is, sort of the openings rate as experienced in 2008. You can see that base on the mid-cycle average rates are currently would generate annualized EBITDA of $244 million with $3.65 per share EPS. If rates were we would turn to 2015, level that would represent $438 million adjusted EBITDA and $10.31 of EPS. And of course we ever experienced, super cycle levels again we generate over $600 million of EBITDA. I'd like to highlight that our past success implementing our fleet growth and modernization strategy has significantly enhanced our upside potential capitalize in a market recovery, in both the product and crude tankers, where we continue to maintain significant operating leverage. As a reminder, $5,000 increase in spot rates in every vessel class would result in about $72 million in additional cash flow or $2.46 additional earnings per share, per annum. I'd now like to turn the call back to Lois, for closing comments.

Thank you very much, Jeff. Please turn to summary slide on page 15. During the third quarter, and as we have for all of 2019, we executed initiatives that strengthened our prospects and unlocked significant value for shareholders. By monetizing our LNG Joint Venture for $123 million, we significantly strengthened our balance sheet, enabling us to further implement our disciplined and accretive capital allocation strategy, for the benefit of shareholders. Following, our success capitalizing on attractive asset values, at the bottom of the market to grow the fleet and our earnings power, we have used a portion of the proceeds from the LNG Joint Venture sale to prepay $110 million of debt, saving $9 million in annual interest expense. We remain in a strong position to further optimize our balance sheet, as we continue, lowering our cost of capital. In addition, our accretive and disciplined approach to capital allocation has been a hallmark of our strategy, since becoming a stand-alone public company three years ago. And we remain committed to further implementing this approach. On the commercial side, the opening of Tankers International office, in International Seaways headquarters brings us closer to our customers, in the Western Hemisphere, which is particularly important given the increasing US Gulf exports. In the 2019, year-to-date, we have further strengthened our financial position, and are pleased to continue to have one of the lowest leverage profiles in the industry. We ended the quarter with $174 million in liquidity. And following the recent debt repayments -- prepayments, we improved our pro forma net loan to value to below 40% compared to 50%, at June 30. Progressing through the fourth quarter, the tanker market environment is undergoing a significant upturn. We expect this robust market to continue into the fourth quarter and into 2020, with the order book being at the lowest level since 1997, continued strong oil demand growth, decreasing vessel supply and the impact of IMO 2020 becoming more pronounced, as we get closer to the January 1, 2020 deadline. In addition to IMO 2020, we continue to expect that increase in U.S. Gulf exports, will be a game changer for the tanker industry. Importantly, International Seaways is a -- is in a strong position to capitalize on favorable conditions. And the tanker market, strong prospects. Based on our sizable spot exposure, our operating leverage is substantial, with every $5,000 increase in rates, corresponding to $72 million in EBITDA to our bottom-line and $2.46 in our annual earnings per share. Before, we open up the call to questions.

Yeah, I would just like to turn it to -- this is Jeff again. Go back to page 8. I may have misspoken about the printed page is correct. The modern Q4 VLCC rates booked in the fourth quarter is $57,000 a day, so just to be clear.

Thank you very much, Jeff. And now we open up the call for questions, Operator?

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Randy Giveans with Jefferies. Please go ahead.

How are you, Lois, Jeff, David, how are you all?

Good. How are you?

Good Randy, excellent.

So a few quick questions from me, starting with your quarter day rates, you're VLCCs slightly below peers, your Suezmaxes well above peers, but honing in on to these. What was your kind of most recent fixture kind of current fixture levels? I'm assuming, above the $57,000 a day booked quarter-to-date just trying to get a run rate for the rest of the quarter? And then also how many of these are going to be off-hire for the rest of the quarter or in the fourth quarter?

Randy. I'll take the first part of your question there. So the prevailing spot market as you could see on the TI app where they published the fixtures every day, those rates are being fixed somewhere around $65,000 per day presently. The second part of your question, we don't believe that we are fixed below our peers. And we are on par with our pool partners in Tankers International. And we think we posted strong results there. And then, to the third part of your question, when we're looking at off-hire days in the fourth quarter, there is in the appendix, the out-of-service days projected for Q4 at around 150 days for our VLCCs. And that were our scrubber installations.

Yeah. I'm trying to sensitize that, five vessels 30 days, three vessels 50 days?

And okay. That is, includes canopy which is undergoing a, dry-dock that is just her routinely schedule period. And as far as -- I mean, we have five vessels that are going into the yard in Q4 for scrubbers and five in Q1. And, what we can do Randy is, slide those data for you, I think offline might be better.

But it's basically what you said it's, the five vessels, one of which may provide a little bit completion into Q1. So it's 30 or five times 30 plus is kind of gets you to the 150 in Q4. So, you're right there.

Okay, that's fair. And then, yeah, looking at your divestiture, obviously, the $123 million for the LNG joint venture was above our estimates. So that was a positive surprise in that regard. Good use of the cash, obviously paying that kind of high price term loan down. What about, kind of further divestitures obviously, with FSO joint venture, not really core to your business some older tankers that you could still kind of divest. So not only the strategy around that, the possibility around that, but also the use of those proceeds, would it be further kind of term loan repayments? Or possible share repurchases? Or kind of what would you do with that incremental cash?

Again, Randy, I'll take the first part. And throw the second part to Jeff.

Okay.

So there are some differences between the FSO and the LNG. Notably, on the FSO, we will have basically gotten about $20 million through to International Seaways from that joint venture in 2019. We expect to receive around $14 million cash from our 50% interest in 2020. We are two years into the five-year charter that goes through 2022 on those FSOs and they are ideal for the field on which they are operating. So as we move forward we expect to engage in conversations with our customer our charterer and we'll keep everyone updated on our progress regarding the FSO. And then on the second part of that when and as we are able to secure additional charter on that vessel and look to monetize it your second part of the question is really around capital allocation.

Yeah. I mean, Randy, it's too early to speculate what would happen with FSO for this, because many things could happen down the road. But I think the playbook we don't do this to see through the pants, right? The playbook was shown by what we did with LNG. When you have extra cash, you look at what's the right place to deploy it. And we found having done our $600 million fleet renewal in advance of this upturn that we're experiencing now. And I would note those vessels are worth -- significantly worth of $600 million today. We find the priorities for capital allocation will be first deleveraging as we have done, but then most likely returning cash to shareholders in one form or another. So that's really the next step.

Okay. That's fair. Well, I’ll turn it over for now. Thanks so much for the time.

Thank you, Randy.

The next question is from Greg Lewis with BTIG. Please go ahead.

Yes. Thank you and good morning. Lois, I just wanted to talk a little bit about your comments around increasing production out of the U.S. Gulf and really what that could mean in terms of bottlenecking logistics, and how we should be thinking about that potentially impacting the lightering business, as we look out over the next year ahead of -- or the next couple of years ahead of this potential infrastructure build-out that we keep hearing about?

Thank you, Greg. So maybe I'll divide that into two pieces of the question as well and say, the U.S. Gulf exports were a stunning, I think 3.2 million barrels per day on a rolling over the last month. Now last week they were oddly 2.3 million barrels a day, but we expect those exports to continue to increase. And within the next -- first half of 2020, we expect them to go up at least between 250,000 to 500,000 barrels per day of exports. And the benefit of what we're really seeing there is, that that -- those cargoes are being exported not only to Korea and Japan and Far Eastern locations on VLCCs, but also on the midsized vessels Aframaxes and Suezmaxes, which are benefiting the middle of our fleet to Europe. And when we look at it on lightering, we do have lightering operations. It is predominantly in U.S. Gulf, but we also cover the U.S. West Coast, Panama and Bahamas. So the deepening of the channels in Corpus are really not fully expected to be realized until around 2022. In the interim, you are seeing just a heavy load of reversed lightering as well as the lightering we continue to do with the VLCCs coming in from Saudi.

Okay. Great. And then just one more for me, the Chinese vessel sanctions, obviously, were a big headline news one month, two months ago in September. Just as we think about what impact that's having on the market has -- I guess, I'm trying to understand, are those vessels still being discriminated against? Are those vessels trading? Like any kind of color you can give around some of these vessels that have been sanctioned by the U.S. would be helpful.

Absolutely. The way that the market spikes was really just a sign of how tightly balanced we are now in the fundamentals. And the picture over what is or is not a sanctioned COSCO tanker is not still fully transparent in the marketplace and it does lead to reduced supply as charterers are careful with the ships they're fixing. The industry is watching everything very closely. But as long as these sanctions are in place on these COSCO entities, it is a plus for tanker rates. And I also think the second part of that is, the additional clauses that have been brought into the market on vessels that have loaded in Venezuela and you're just going to increasingly see that highlighted going forward. And that just makes it an even murkier marketplace, which is better for owners.

Okay. And just really like a quick follow-up to that. Now these vessels are sanctioned, I guess by the U.S. and U.S. partners. But this -- I mean, they were doing things they shouldn't have been doing anyway. Is the right way to think about these vessels well, they're out there they're just being underutilized? Or they're out there and they're just not doing anything?

More of the first, I doubt in this marketplace that there's anyone sitting fully idle. It would just be that they're sub-optimized.

Okay. Perfect. Thank you very much for the time everybody.

Thanks, Greg.

Thanks, Greg.

The next question comes from Omar Nokta with Clarksons Platou Securities. Please go ahead.

Okay. All right. Thank you guys. Just maybe my question is maybe a bit more operational or commercial kind of just thinking about it. Obviously, Seaways, you're investing in scrubbers. And your partnering TI; Euronav is not. Just thinking about, does this have any effect or any impact on how the pool earnings are set up? Do you guys share working capital and fuel costs and whatnot? Is that part of the pool? Is it completely separate?

So already in Tankers International, we have the main pool and then we have a 15-year plus pool and the scrubber pool will sit right alongside of these other two pools from an accounting perspective. But from a marketing and operational face, customers will see no differentiation between scrubber and non-scrubber ships. All the vessels will be available for charter. And then the division happens back in the accounting department where we have a scrubber and a non-scrubber breakout.

Okay. And then is each company responsible for fuel separately? Or does that get thrown in?

No. Tankers International performs all commercial functions for the vessels including fuel procurement.

Okay. And does that -- so how does that -- with your not having bought the ULCC worth of bunker fuel that's sitting off Singapore, how does that play into the pools earnings? Does that create some sort of drag on earnings just due to I don't know, if it's interest costs or just dead money? Does that play a role in the earnings power of the pool?

Absolutely not, Tankers International will buy fuels at market levels and any fuels that are used by Tankers International and provided by the ULCC would be priced at market levels. And Euronav's balance sheet remains their own.

Okay. All right. Thanks for that clarity. I have just a follow-up and maybe a broader – and I know you addressed it a bit in the comments and some of the questions. But Jeff, you've talked about refinancing the Term Loan B here in the near-term as well as some other debt. You've prepaid the term loan already with the proceeds of the LNG sale. As things are now once you do that refinancing how do you think about Seaways from a growth perspective/more focused on debt repayments and also with respect to shareholder rewards. And I'm asking that because obviously growth has necessarily not been there. You've been more focused on selling some of the older assets. You've talked about selling the JVs. As we think about, how Seaways stands today and looking ahead where do you think the capital is going to be deployed based off where the company is big picture?

Yeah. Thanks, Omar. I hit a little bit of that with Randy's question. But there's a number of aspects of it so I'm happy to expand. First of all, I think we've been clear that we say LNG joint venture divestiture and other cash has come in. It does clear the path to the ability to do an optimization of our balance sheet, which as you quite rightly point out could well mean the refinancing of among other things our Term Loan B. That does two things at least. First of all, it lowers our overall cost of capital. But equally importantly, doing that would give us more flexibility to make capital allocation decisions in 2020 than we presently have. And that's really important to have that flexibility. So as you said jump ahead to assume that's done. What do we do? As I said before, what's the playbook from here? First of all, I'm going to say, we have been focused on growth, right? We did spend $600 million in shifts that's eight years of appreciation in two years of operation plus $50 million of CapEx on top of that. So we often use the phrase we high-graded our fleet. It's newer and bigger. So we don't feel we need to do any other growth just to say, we've done it right? We've already checked that box. So that's not to say that, there couldn't be acquisitions in the future. Again, we look at this thing through a very disciplined capital allocation lens. If there's an acquisition that meets our return hurdles and leverage hurdles that is a possibility, especially tactically here and there. But as we've said before, and I think you've heard us, but I would like – happy to be clear on the call, as we go into this up market with the additional cash from selling non-core assets to which we will also include older assets, which was selectively prune our emphasis is likely to be on continued deleveraging and returning cash to shareholders. And that form of returning cash to shareholders is going to depend where our share price is. If share price is well below NAV, you expect to see share repurchase. If not you would see less share repurchase and in any event I think we will look into a dividend but not as of this time. But that's something of course that we are looking into as a method to returning cash to shareholders. So I hope that covers the alternatives and it's also – it's something else, we want to say it's not just ever picking one thing. These are all really good capital allocation alternatives that we fortunately are going to have to utilize in an upturning market like we've got right now.

Thanks, Jeff. And I didn't mean to overlook the six VLCCs because obviously that was quite significant. Because as you guys stand today your leverage is – we estimate sub 40% on a value – fleet value basis. So clearly, there's a lot of flexibility. Maybe as you think about the fleet expansion potentially, you've been scaling down on the MRs and selling some of those older ships. You've become increasingly much more crude focused. Is that sort of a – is that by design? Is that the plan is maybe to just invest more on the crude side relative to product?

Well, we definitely put our $600 million to work on the Suezmaxes and the VLCCs in advance of this market recovery, which we felt we would see the highest and earliest return on those assets. The lightening up on the MRs has largely been around specifically DCFs as the 2004 series of six MRs came up on their 15 years. And the sale of them avoided ballast water and coating upgrades to the tanks, right? So, we do think the fundamentals and the products are strong. We think that they will come right along with the crude, and we're not abandoning products. We just put our capital investment where we felt we'd get the highest return first.

Yeah. And again, just to underscore that we are comfortable with diversification. And when you look how the IMO 2020 story has played out. A lot of people have expected products to run first, but it turned out that crude picked up first. That was great. Now products are having their day while crude continues to be very strong. As witnessed by in particular results that we saw in that Panamax LR1 segment. So – and others as well. So we really are comfortable with having a fleet that covers both crude and products.

Got it. Thank you. Thanks for that color. And maybe just one more, if you don't mind. OSG your predecessor and Lois I know you were very active you had a fairly large in-charter portfolio. What are thoughts on – is that something you'd look to grow with this outlook here in the medium-term? Or are you comfortable with just the fleet size as it is now when it comes from just looking to take advantage of the market today?

That's actually, where you've seen us take exposure in on the products market. We have three MRs in on in-charters with optionality on all of those vessels. And we recently charted it in two LR1s albeit they are trading dirty in our Panamax international pool and they also have options on their period. So we continue to look for value on in-charters. And opportunistically, we do look for that to enhance our overall returns.

Okay. Yeah, that's it's all in the release. There was another vessel today disclosed. Okay. Well, good, Lois. Thank you, Jeff. Thanks for answering my questions.

Thank you.

Thanks, Omar.

[Operator Instructions] The next question comes from Tucker Long with Stifel. Please go ahead.

Hey, actually, this is Ben in for Tucker. He's letting me sit in for a minute. I've got – I wanted to follow a little bit on the FSOs that Randy was talking about earlier. And those – maybe you would sell maybe not. But one of the things that we saw out of the LNG sale was you got a price actually a little bit better than what you had on your books. Certainly was a surprise to the market in terms of I think the price that you got. Is there you're left with by my math a little bit under $150 million worth of book value on those FSOs. And they're sort of they are very much unique assets. Is that -- in your view is that a fair way to think about it around the $150 million? Is that really what it was worth? Or do you have any idea what the what the market value for those might be?

So, what I would say is one of the differences between the FSO and the LNG of course is that the LNG had basically life of the vessel charter potentially up to 35 years. And that would be the idea of what we could ultimately achieve on the FSO because they really are great on the field and had zero off-hire since 2010. And when you're thinking of the value of the episodes I don't think you're far off the mark Ben. Our -- we do disclose our book value on those which is right around as of September 30th, $135 million. But somewhere in that range between that and $150 million that you mentioned is roughly where we ascribe value in our mind.

Okay, that's helpful. And then you ship -- well sort of again following on with some of the other questions about capital allocation and potential growth or whatever and paying down debt. One of the things that hasn't really come up and is not unique to you guys is the possibility of building new ships. We've certainly seen that. The secondhand asset values in the tanker market appreciate a little bit here lately. That has not been paired with higher new building prices. Is that something that again given all of the various factors that have been discussed, would you consider maybe placing orders I don't know for product tankers or something else given the sort of the price disparity?

Well, we've been very disciplined. As you know we have not as International Seaways independent company ordered any new buildings. We've been very selective in our purchases buying modern resales and we found a much better value proposition on those vessels. However, that's not to say that there cannot be a new billing component in our future. And in particular, you do see some certain big oil companies starting to look at alternative propulsions and this is something that we'll be following closely.

Okay. All right. Well, I'll leave it with that and we'll just see what develops. But lastly for me is on the refinancing. And first of all, it's certainly been one of the things that I thought was low-hanging fruit in terms of paying down some of that debt and the impact that it can have on your income statement actually. But as you look at that term loan or as you look at any of the debt and the fact that now the leverage is a lot less than it was how -- just maybe if you could remind me Jeff how much of that is available to be called back early and refinanced? And any kind of sense of timeframe that some of that might -- could happen?

Yes sure Ben. I'm glad you could fill in for Tucker. Yes. Yes, the Term Loan B as publicly is well known it is has a call premium on it now and it goes to callable part of January. So, that's the primary instrument that has sort of a change that is really suggestive of a timeframe. And I think the outstanding at year-end would be about $331 million. So, that's significant. The -- our sign-assured debt is long-term debt at LIBOR plus two, that's not going anywhere, right? So, the BlackRock and note and the 8.5% note so-called baby bond are callable in June next year. So, they're not really callable before that. So, I think primarily the term loan B there's a bilateral loan on one vessel the Raffles that's callable any time. And the BlackRock does have a make-whole component. So, it's obviously they've got the ability to do that. Those are the ones that are sort of are in the mix or we're studying in terms of balance sheet optimization.

Thanks for the detail. Appreciate it. And I knew it would be in the -- again, thanks for Tucker for making the space.

Thank you.

Okay, all right. Thanks.

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

Thank you very much. We really appreciate everyone joining International Seaways call. And we look forward to Seaways taking advantage of the increased building rates into the holiday season. Thank you very much.

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