Welcome everyone to the International Seaways Third Quarter 2021 Earnings Conference Call. My name is Victoria and I will be coordinating your call today. [Operator Instructions] I will now hand over to James Small, General Counsel from International Seaways to begin. James, please go ahead.

Thank you. Good morning, everyone, and welcome to International Seaways' earnings release conference call for the third quarter of 2021. 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; changes in oil trading patterns; forecasts of world and regional economic activity and the demand for and production of oil and other petroleum products; the effects of the ongoing coronavirus pandemic; the company's strategy; the anticipated cost savings and other synergies and benefits from our merger with Diamond S Shipping; any plans to issue dividends; our prospects; purchases and sales of vessels; construction of newbuild vessels and other investments; anticipated and recent financing transactions; expectations regarding revenues and expenses including vessel charter hire and G&A expenses; the estimated bookings and TCE rates in the fourth quarter of 2021, in 2022 or in other periods; estimated capital expenditures in the fourth quarter of 2021, in 2022 or in another periods; projected scheduled dry-dock 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 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 quarterly reports on Forms 10-Q for the first, second and third quarter of 2021, our 2020 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. 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 International Seaways' earnings call to discuss our third quarter results. We have positioned Seaways to take best advantage as the tanker market recuperates. [Indiscernible] has the fourth quarter global oil demand growing by 3 million barrels per day. Worldwide oil inventories have destocked to pre-COVID levels and refinery margins have increased in both the East and the Western Hemispheres. OPEC+ continues to bring an additional 400,000 barrels per day of oil supply every month back onto the market. If we turn to slide four of our deck, we recap the benefits we are realizing from our merger with Diamond S. We share our focus on fleet optimization and our success in returning capital to shareholders. Starting with the first bullet, the merger is both transformational and accretive to International Seaways. We have nearly doubled our net asset value and tripled our fleet size. Seaways is now established as the largest U.S.-listed diversified tanker company. By bringing together these two leading U.S.-based tanker owners, both with a long-term focus on customer relationships, both with deep cultures of achieving stringent safety standards and strong governance, we are well on our way to delivering compelling strategic and financial benefits to all of our stakeholders. We solidified our power alley in the large crude sector with 28 combined Vs and Suezmaxes and we created a new power alley with over 50 Product Carriers. Our increased scale, capability and operating leverage have significantly strengthened our ability to take advantage of the recovery in Crude and Product Tanker demand for the benefit of shareholders. In the month of October, even as we just are beginning the rate recovery in the tanker sector on vessel values, our fleet value rose by $50 million equating to…

Thanks Lois, and good morning, everyone. Let's move directly to reviewing the third quarter results in some more detail. Before turning to the slides let, me just summarize our consolidated results. For the third quarter, we had adjusted EBITDA of $8 million. Net loss for the third quarter was $68 million or $1.44 per diluted share, compared to net income of $14 million or $0.50 per diluted share in the third quarter of 2020. When excluding the impact of the disposal of vessels including impairments and merger related charges, net loss was $29 million or $0.63 per diluted share. Now if you could turn to slide 8. This slide summarizes the results of our business segments for Q3 2021 versus Q3 2020, at the top of the page, and on a last 12 months basis on the bottom. The decrease in Q3 in last 12 months revenue and EBITDA, primarily results from the impact of lower average blended rates in both the crude oil and product sectors. Now turning to slide 9, we provide a third quarter review and fourth quarter 2021 earnings update. For a look at results in Q4 thus far, we've booked 59% of our available Q4 spot days for VLCCs, at an average of approximately $16,100 per day; 58% of our available Suezmax spot days at an average of $13,900 per day; 47% of our available Aframax/LR2 spot days at an average of $11,100 per day; and 45% of our available Panamax spot days at an average of approximately $16,800 per day. On the Product side, we've booked 46% of our fourth quarter MR spot days at an average of approximately $9,400 per day; and 42% of our handysize spot days at $7,300 per day. These fourth quarter rates are encouraging and consistent with our view…

Thanks a lot, Jeff. The steps we've taken to enhance our scale, our capabilities and our operating leverage have put us in a favorable position to unlock significant value for shareholders. We will take advantage of the tanker market recovery that is underway. The completion of our transformational and accretive merger has doubled our market cap, tripled our fleet size and significantly strengthened our earnings power. Importantly, we have solidified our power alley in large crude and we created one in the product sector. During the quarter in addition to concluding our merger, we executed on key strategic priorities, maintaining significant balance sheet strength during this downturn and we kept optimizing our fleet, which we will continue to do as we disposed of ships that were on average 17 years old at a time in the cycle where secondhand values were buoyed by underlying steel prices. We distributed $38 million in dividends to shareholders during the third quarter. This included the $1.12 per share special dividend as well as our regular quarterly dividend. This increased our total returns to shareholders since 2020 to $73 million. I want to pause for a minute as I do our conclusion and just acknowledge the silent and steady reliable seafarers at International Seafarers [ph]. We're particularly proud to share that we reached the milestone of having 70% of our seafarers both at home and onboard of 2,500 strong vaccinated. This is a number that we're working to increase every day. As we enter the fourth quarter, our prospects remain strong. We're encouraged by our fourth quarter bookings to-date, which show improvement over the third quarter. We have significant liquidity of approximately $300 million and a high quality fleet of product and crude tankers and we are on track to achieve the synergies from our recent merger. That concludes my formal comments, and we'd like to turn it over to the operator to take questions.

Thank you. We will now start a question-and-answer session. [Operator Instructions] Our first question comes from Randy Giveans from Jefferies. Randy, please go ahead. Your line is open.

Howdy, Lois and Jeff. How it’s going?

Very good Randy. How are you today?

Great.

Good. Good. Nice to see the quarter-to-date rate guidance at better than expected levels. So clearly the market is improving here. But separate from that your balance sheet, right? Obviously in great shape, keeps getting better. I guess, what is the plan for some of the incremental liquidity from these recent sale and leasebacks and the vessel sales? I know Jeff you mentioned debt repayments kind of going forward. Is there a specific leverage ratio that you are targeting?

Jeff, why don't you jump in there?

Sure. Thanks, Lois. Yes, Randy, look, I think, it's part of a big picture here that we -- post the Diamond S merger we have the benefits of scale in this regard are that we have lots of opportunities to do what I'll call balance sheet optimization. We're doing fleet optimization, but we're also doing balance sheet optimization. So that's different facilities that are related to different assets, different loans to value, increasing liquidity as you mentioned. So I think it's -- you caught us partway through. Stay tuned. There's more to come. It's just really exciting frankly to have the opportunity to use this sort of almost like a financial whiteboard and start to optimize the balance sheet. In terms of the last part of your question, I think, Lois and I both mentioned that we're down to the mid-40%s in net loan to value. That's -- we feel really good about that after having completed a merger that doubles the size of our fleet in deadweight tons. So that's naturally going to work down to below 40% where it was before just in the course of natural amortization and capital allocation that we'll do. So I think we're at a good spot, but we'll probably look to be lowering the leverage a bit from here just to get into that below 40% area where we were pre merger.

Okay. That makes sense. And then you mentioned now fleet optimization and you've certainly done the right things to take advantage of the kind of current disconnect between high asset values and low rates, right, selling some of your older vessels, chartering in some vessels. So with that are there still maybe additional sales candidates remaining in the fleet, or are you kind of happy with your current ownership there? And is there another specific asset class you'd like to maybe gain some operating exposure through additional time charter-ins?

Yes. Okay, Randy, so what you'll notice is where we've chartered in and where we have recycled ships is in that Panamax space. So the vessels that we recycled really performed extremely well and were actually approaching 20 years of age. And we've in-chartered in that space where we want to make sure that we have enough commercial presence there to really take advantage of that niche where we earn a premium. And then we constantly look at the entire fleet and what we have coming up. And I think one of the things that's been really good, I noted in my comments that in the month of October, you saw asset values start to pick up a little bit and increase and that's a very good position to just continue looking at the fleet all the time and making those decisions on pruning, and then still looking opportunistically in the market for potential in-charters so that we are set up really well for the recovery.

Got it. Make sense. Well, looking forward to seeing that continued development of the new and improved guidance set for yourself. Thanks again.

Thank you, Randy.

Thanks.

Thank you, Randy. Our next question comes from Omar Nokta from Clarksons Securities. Omar, please go ahead. Your line is open.

Hi. Thank you. Hi, Lois, Jeff and David.

How are you, Omar?

I’m good. I'm juggling a few calls. So I apologize…

Okay.

If I ask a question that's been -- you addressed already. But I did want to ask, Lois, I did hear you discussing just now the Panamaxes. Just in regards to that niche trade, you're selling the older vessels replacing them with the in-charters. Is that your thought about -- your thoughts going forward over the long-term is to service that trade with charter-ins, or do you see yourself investing and owning the assets outright for that area?

We are opportunistic. A couple of years ago, we picked up an individual vessel the Guayaquil, which added very nicely into that fleet. In this case, we had an opportunity to pull in a couple of charters. So, we'll look opportunistically Omar. We're not wedded to one particular methodology. And we like to make sure that we have enough presence there to defend what we think is a great niche trade. Hello?

Sorry, Omar. We're not getting any audio. It appears that Omar has dropped his line.

Okay, okay. Very good.

He can always come back.

No problem. When he comes back, we'll reconnect him. So, in the meanwhile, we're going to move on to our next question from Magnus Fyhr from H.C. Wainwright. Please go ahead.

Yeah. Good morning, Lois and Jeff. Just a question on the US exports, if you're seeing any changes there. There's some estimates for next year and with oil prices at seven-year highs, I've seen estimates increasing 800,000 barrels for US production next year. And I guess it's a matter of time maybe until we see that materializing in more exports. But, you have a presence there and can you maybe talk a little bit about what you're seeing there as of late and if you see any indications that exports are picking up?

Great question. We're stabilizing in crude exports out of the US Gulf somewhere around three million barrels a day. But for sure, as rigs get added back in the US Gulf and I think shale producers hedge their books forward, the prospects for increased production in 2022 are there. There are projecting to be over 12 million barrels per day in 2022, which is ideal for US crude production. Our Lightering unit is quite busy right now, and we look at them as something of a leading indicator. And we also understand some of that offshore production that had been offline due to IDA has been brought back online. So, I think that the formal numbers from the EIA have steadied out around three million barrels a day, but we look for that to increase going forward here.

Okay. But, no discussions yet on contracts for next year, I guess that's typically a spot trade.

Yeah, yes, absolutely. That's typically a spot trade, and you'll see the lifting vary, and we'd like to see more of the long V moves out of the US Gulf going East.

Right. Good. And just another question on your MRs. I know you're dealing now with completing, I mean I guess the integration of the Diamond fleet. Most of the ships are in the Norient pool. Can you comment a little bit on the performance in the quarter, if there were any one-off items, the performance of the ships in the Norient pool versus the ships that were not?

Yeah. So, for sure, the third quarter is a transition quarter for us. And as soon as we concluded the merger the two things that we did from a commercial perspective was we did immediately and we worked in close collaboration with the former Diamond staff to move the Suezmaxes into Penfield. And I think that those vessels did quite well coming in at $10,700 per day for the quarter. And on the MRs, the vessels that we moved and we've had -- we're ahead of schedule by three months by a quarter on the technical transfers from capital over to our providers. And on that front the vessels that we moved out of capital, we put some of those with Norient and we put some of those with CPTA which is our Product Carrier pool with Ultragas and coming in at $10,000 per day for the quarter. And even the $9,400 looking forward into the fourth quarter, we feel that both of those pools are performing up to our expectations.

Okay. Thank you. That’s all I had.

Thank you, Magnus.

We will now move on to Liam Burke from B. Riley Financial. Liam, please go ahead, your line is open.

Thank you. Good morning Lois, good morning Jeff.

Good morning Liam.

Lois, the OPEC production estimates are increasing and I know there has been a capacity -- overcapacity on the VLCCs due to the lower production. With new production numbers, do you see faster absorption of existing VLCC capacity?

Yes. Clearly, I mean they're better the rates being booked at $16,000 in the fourth quarter, but that's clearly still quite anemic when you look at things. But you see that there's a higher cargo count not only out of the Middle East, but really worldwide. And that's what we needed to see behind the scenes. When I mentioned in the comments that year-over-year today we have 6 million barrels per day higher demand than we did a year ago. I mean this is what we need to see for us to get to the tipping point of where we go into that higher utilization rate and we really see where we get a steadier base to build upon on the entire fleet; in particularly, I think the Vs. Because in October the Chinese really imported not even 9 million barrels a day; it had an 8 million in front of it. So, like the least amount that they have in several months. Now, we know that demand is increasing and that inventories have been pulled down. So, at some point that will shift and we will see those rates start to go up.

Fair enough. And staying with the VLCCs, you've got the two newbuilds with the existing contracts. Is there any possibility that you'd consider doing more of those types of deals?

So, it's three VLCCs that we're building at Daewoo with the dual-fuel LNG capability. And absolutely we would look together with customers to -- I think that's part of how tanker owners we will look to be successful going forward, the working collaboration with customers to build on it. And ideally when you have a contract and you work closely with the customer that really gives you enough confidence to be able to do that.

Great. Thank you, Lois.

Thank you.

Thank you, Liam. We will now move on to Ben Nolan from Stifel. Ben, please go ahead.

Hi guys. Good morning. Thanks for the update today. My name is [indiscernible] from Stifel asking a question on behalf of Ben Nolan. So, my first question relates to the sale-leaseback transaction and the relation to liquidity. You guys talked about how this transaction has had a significant improvement on liquidity. Clearly, this flexibility can be used in a number of different ways, but should we think of this for now as just a defensive move to protect against the chance of a softer or a longer market, or just being opportunistic on capital availability?

Jeff, why don't you jump in there?

Yeah. So thank you. And welcome to the Seaways call. Absolutely, the latter, opportunistic, I had made some comments earlier on in the call. And I would just underscore them that. One of the benefits of the Diamond S merger in terms of the scale, it provides Seaways is the opportunity to be opportunistic, sorry to be redundant here the opportunity to look at what's really attractive financing. So we're very selective, when we look at financings that are structured as leases, but this one, ticked the boxes for us in terms of being long-term, attractively priced financing, high-loan-to-value, covenants that are completely harmonized with the rest of the debt in our capital structure and a furthering of a theme we've been on which is diversifying our capital sources is really important. So for us, that's it. And it's very opportunistic. And what we're going to do in the short-term is use that excess liquidity to pay down revolvers. And save interest expense. So, we've got a good use of proceeds, reducing interest costs and increasing EPS and increasing optionality for capital allocation going forward. I hope that answers the question.

Yeah. Thank you. That helps. I also wanted to ask about the FSOs. Is there any update on how you guys are thinking about the long-term strategic fit, of the two FSOs in the current operating fleet?

We continue to have the same outlook on our FSOs, where we're very happy with the fixed income they provide. And as of the third quarter of 2022, they will be mortgage-free and International Seaways will receive $21 million of free cash flow through that joint venture. However, we do continue to look at monetizing the assets with our partner, should we find someone who we feel values that appropriately. Okay?

Awesome.

Hello?

Thank you guys again.

Thank you.

Thank you.

Thank you very much. We currently have no further questions. I will now pass over to Lois Zabrocky, for final remarks.

So thank you everyone for joining International Seaways today. And we look forward to this tanker market recovery, as we get deeper into the fourth quarter. Thank you very much.

Thank you everybody. You may now disconnect your lines.