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

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 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' 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 [technical difficulty] 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 a 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…

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 to 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, it's down to 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 [technical difficulty]. 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…

All right. Thank you very much, Jeff. On slide 15, we provide you with Seaways 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 for 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 in 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 remained limited and likely will shrink as vessels age and are eventually removed from the commercial trading fleet. We are staying upfront of 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 backed 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.

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

Thank you. Hey, guys. Good morning. Yeah. Congrats on a really nice strong quarter. The Diamond S merger, clearly looks like it's paying off very nicely. And you guys have been really streamlining the business here over the past several years and most recently, obviously, with the sale of the FSOs. Lois, in your earlier comments, you were discussing the reason behind the sale of it. And just what -- would you mind just maybe expanding on that, just to touch, I wanted to know how you came to that decision. And on the one hand, it's non-core relative to your focus on the tanker business. But on the other hand, it did offer a good amount of long-term revenue visibility. So, I just wanted to kind of get a sense from you what drove the decision to ultimately monetize it.

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 inflationary environment. But I really think the transaction was very much a win-win. International Seaways was not technically managing the assets that was being handled by our joint venture partners. And therefore, we did not have control of all of the elements. And we felt that we were not getting shareholder value for that and being able to realize a price that really satisfied, I think -- and provided an excellent return for us, all of those components went into why we divested the FSO.

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 clearly 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 "just based off "of 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?

Well, the first thing that I would say is we have three newbuilding VLCCs that we'll be delivering. And the merger with Diamond S, we now have over 9 million deadweight tons, and we're under nine years old. So, overall, we've been steadily improving the fleet profile. And then, 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. And we will continue to have that type of discipline and really look at constantly and continually the discounted cash flows of holding or selling on 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. And I would say, today we're in a pretty good position considering.

Yeah.

Yeah. Omar, it's Jeff. Let me just underscore that. I mean, talk about fleet renewal, if you talk -- if you think of doubling our deadweight times, 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. I think the fleet optimization program, the lowest referred to as it's been really taking care of that. So, I think we feel pretty good about where we are.

Yeah. No, I agree. You guys definitely in a very, very strong situation with a good operating platform. I guess, just sort of thinking now that now that you sort of bolstered your product exposure and you've gotten -- you've seen the benefits of having exposure to that market. And obviously, we've seen the Suezes and Afras do fairly well here recently. How are you guys thinking about -- I've asked you this before and you've gotten this question many times, but in general, as you look ahead in terms of deploying capital, whether it's from your liquidity that you've got, as you fine-tune the business to focus on crude end product. Where do you put that incremental dollar when you're ready to spend? Do you focus more on the crude side or more on product?

I think one of the -- we're seeing the beauty and the balance of the fleet right now being led by the products and then following -- solving with the crude. And that's something that we just -- constantly, we have our strategic meetings as a management team, and we sit with the Board. And I think that what we're witnessing right now is a bit of a step change. And what was true before is not necessarily true for tomorrow. And I think that we have that toehold in each of these sectors, big crude, mid-type crude, MRs, and we can strengthen any one of the legs on the table based on the scale that we already have in each of those sectors. So, I'm not going to limit us, Omar.

Great.

And the other thing to add, Omar, is that a lot of people have been talking about, oh, chips has gotten expensive for investments. And 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.

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

Thank you. Thanks Omar.

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

Hey, guys. I have a handful. Number one, I wanted to just check in on the chartering strategy, both chartering 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. Do you -- are you thinking about sort of 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?

Okay. So, just kind of taking it from the start, Ben. So, the commercial department has indeed secured a one-year time charter, a two-year time charter on different sectors. And as the market comes into itself, we'll continue looking at locking up high-level rates. And then, on the charter in side, the Panamax international pool, I mean, pretty steady. You see them out in all our other sectors and pretty much everybody in Q1 was over 20 a day. And then 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 -- if that's something we can make happen.

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

Yeah. We haven't -- I don't think we've talked about 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, six probably bought the strongest that we've seen in the sector. And the other one is on an MR, and that would commence in the fourth quarter. So, putting out the actual rates, I'm sure we will do that in due course. I don't think we've done that at this juncture. Yes.

That's fine. Well, just -- even the ship types is somewhat helpful. So, all right. I appreciate that. The -- if I have a follow-up, and this goes to -- well, I guess there's maybe two things here. First of all, Lois, for you, we've seen the VLCCs underperform in a weird market usually when things are tight. It's the bigger ships that do better. Russia, obviously, is a dynamic in there. Do you think that at the moment, what we're seeing with these coming back is structural and this is just part of how things normally play out? Or the inverse of that is, do you think those ones might be in a place where it's just going to be tough to play catch up given everything that's going on. And then similarly, how are you thinking about the share price? I mean, we certainly have seen product tanker equities really outperform, and you guys are more than half product tankers just from a fleet count perspective, but haven't done quite as well there. Do you think -- I guess, do you chalk that up to just having crude? Or is there something having a crude and product fleet? Any updated thoughts on that?

Well, I'll take the first part of that, and then I'll give Jeff a notice to start thinking on the second part. So, speaking specifically about the VLCCs, China, right? China, so you had pretty intense COVID lockdowns this summer, and you have the lowest amount of imports of crude that we had in quite -- several years into China. They were also drawing down inventories of -- from what we understand, somewhere around 1.5 million barrels a day. And 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 Vs. Part of it is also that some of the Western crude has been pulled into Europe, displacing some of that long-haul that we had previously seen going East. Recently, U.S. Gulf exports over 3.5 million barrels a day for the rolling July averages, right, and expect it to continue, because the U.S. is producing 12 million barrels a day and expecting those exports to continue and to increase. So that element of additional barrels going along the haul, we think we'll start to reenter the space. So, we do see the VLCCs coming along to the party in due course. And 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. And one of the things that our Chief Commercial man, Derek mentioned yesterday is just the inefficiencies that are happening in the market right now are really moving things, because there's a little bit of unsettled market with a lot of volatility and barrels moving to unusual places, right? So, these are all elements of that. But I do think that the VLCCs will come along and will come along to the party. Biden got a hard time going to Saudi Arabia, they only said they're going to increase OPEC plus 100,000 barrels for September. However, between Saudi and the UAE combined increased very quietly close to 1 million barrels a day from what we understand in July of their crude production. So, I think, all of these elements will dovetail in to help out of these. And then, Jeff, if you can talk about the share price.

Love to. So, yeah. Ben, to your point, I think that maybe because before Diamond S, we were a bit weighted towards crude that some of the research you see sort of may lump us in that area or at least kind of overlooked us a little bit when the product tankers were ripping this quarter and focused a little bit on others. And that maybe some investors didn't see it yet. So, our -- we're glad about our stock price appreciation this year, but it could have been more. My reaction 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, as I was saying to Omar and loss optionality for investors, including ourselves. I mean, to look at our shares at a tremendous -- still large discount to NAV. So, we think that's a good opportunity for investors, including ourselves.

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

No, no. Thank you.

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

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

Good morning.

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.

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. You see gasoline approaching out of the Gulf 1 million barrels a day. You're still bringing in gasoline into the U.S. East Coast. So, we are seeing a product coming from the Middle East and India to Europe. Largely, that's going to be on LRs, and that also helps to buoy the MRs, right? Because overall, Clarkson has that product trade going up by nearly 10% this year in ton-mile, right? So, all of those elements did the product carriers and our MRs a real lift.

Okay. And then, on the crude tanker side, there's a fair amount of capacity came online in the first quarter of 2022, understanding there's been disruptions in trade rate by midyear. 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?

Yes, I would say so. I mean, 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. And the delivery next year in 2023 are lighter than what they have been in 2022. So, indeed, we are starting to see that level out, Liam.

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

Okay.

You're looking at flat to negative as you look out to 2023 and beyond. Most observers would say.

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

Thanks Liam. Take care.

Thank you.

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

Yeah. Hi. Thank you and good morning. And thanks for taking my question. Lois, I kind of had a broader, bigger picture question for you. Understanding that the company continues to look and being in the energy transition with the dual-fuel vessels. I may be dating myself, but I remember conversations about potential opportunities in LNG for INSW. And so, just kind of curious, just given what's going on in the global gas markets, there's a lot of conversations about -- not even conversations, but I guess Qatargas in the market looking to charter LNG vessels, there's probably going to be a lot more liquefaction coming online in the U.S. that probably needs vessels. Is that a sector that the company continues to kind of track on the periphery where maybe we could see an investment at some point? Or is it -- at this point, we're really just focused on maximizing the crude and product segments of our business.

I like how you phrased that, tracking it on the periphery. I mean, one thing that our team has been heavily engaged in -- Bill talk a little bit about the LNG course. Bill Nugent is our Head of Operations. The LNG courses that our team and the sailors are undergoing in the -- for the delivery of our three new VLCCs.

Sure. Well, 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. And 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 as or something going on today and then warning out in [indiscernible] and elsewhere. So, the crews -- we've got ample crews ready to take on those ships. And I think we are ready to do whatever lowest asked us to do.

So, 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, oh, we would only be tankers forever because we know that even the dual-fuel be is a step toward pivoting to decarbonization.

We are energy transport.

Yeah. We move energy.

Okay. Great. And then, just as I think about strategy, as -- I guess I'll ask it this one, it seems like the company, and maybe it's just a function of some M&A. It seems like the company is very willing to go out and honor newbuilds on the super -- on the large crude side, right? Should we be thinking about sale and purchase in portfolio management, different between the product and the crude i.e., hey, crude, sometimes we need to make newbuilding opportunities. But as we look at the product side, that's going to be more secondhand portfolio management, if we're looking to, I guess, renew, I guess, has come up a few times on the call. Or I mean -- and I get it's never say never. But is it kind of safe to say the probability of INSW and MR newbuilds is a lot lower than in ordering crude newbuilds.

No. The -- we look for our opportunity and being able to partner with Shell on a seven-year time charter is what really enabled that choice, right? So, when we are able -- in particular, when we're able to find an oil company partner, a very strong chartering name that is interested in moving forward on dual-fuel, decarbonization, we definitely will look to make that partnership on either crude or product.

Yeah. I mean, we've been saying since 2020 that we're not in the market for newbuildings, speculative newbuildings with conventionally fuel engines period, right? And so, the significant thing about the shelf, dual-fuel is not their VLCCs, it's that they're in partnership with a major customer like Shell on long-term charter. So -- and 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 envies going to really help us so that we look towards projects. As I said to an earlier question, we'll look towards projects that are working with customers more likely that speculatively at the current prices. But as well as just said, it could be across the board in terms of the fleet size.

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

Thank you.

Thanks, Greg.

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

Thank you everyone for joining International Seaways on our second quarter, and stay tuned to this space. We're looking for an exciting Q3. Thank you very much.

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