Nordic American Tankers Limited (NAT) Q3 2022 Earnings Report, Transcript and Summary

Good day, my name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the solid position for the Nordic American Tankers Limited Conference Call. [Operator Instructions] Thank you, Herbjorn Hansson, Founder, Chairman and CEO, you may begin your conference. Herbjørn Hansson: Thank you very much, sir, and thank you also to all our friends listening in and prepared to take the floor and ask questions. And I will, as an introduction, make a few observations on Nordic American Tankers Limited. And I will just mention them in short at the start of this conference. And that is question number one, I would bring up. That is what it's happening in the marketplace. We are very focused in our group on so-called ton miles. That is the same as transportation work. And the notion of ton miles does reflect the transportation work and what we are seeing at this time, that is that the transportation work is increasing all the time, and we analyze this from various angles. We analyze our business in Japan, in China, in Korea and also in India. And as you know, we do have our business all around the world. In the recent past, we have started lifting oil from Guyana in South America. And again, I emphasize that we are focused on transportation work. We have a lot of business in the Middle East in Saudi Arabia and in these places in Oman, we are also doing business. And that is -- the next question I would raise is, what will happen after December 5. And you know December 5, we have the new rules coming in. It has to do with Russian oil. And I would note that uncertainty has always been good for our business. Uncertainty is, in fact, good for our business. In such times, we have the notion of hoarding. We need to have reserve capacity to take care of the demands coming up. And at this time, we see there is an imbalance between supply and demand of tonnage simply because there is not enough tonnage at this time. I'm also asked why the investor market is nervous. And I simply cannot respond to that question because our market -- and we are not nervous at all because to be in the tanker business, it's no good place to be if people are nervous. But we have been in this business for many, many, many years from the early '70s originally, and we know how to handle the business, and that is what we are doing. A fourth point I would mention is our work together with Beal-- Beal Bank in Dallas, that cooperation is going in an excellent way. We -- they are our main creditor, and we had paid back a lot of debt over the last 2 years, and we also expect to be debt-free in a year or slightly more. I would note that we wish to give priority to dividend. Dividend is our main priority, and we will never leave that policy. And we do see now there are many, many parties who wish to do business with us. And we appreciate that there may be one reason or for several reasons. And that is NAT, Nordic American, is very transparent. We have been in America, stock listed since the mid-90s, and we have been operating in America before that. And everything about our company is up in the open. There is nothing hidden as far as our company is concerned. I would also note that major oil companies are our main customers. I'm talking about ExxonMobil. I'm talking about Shell. I'm talking about Total, the French group and British Petroleum, et cetera. Before ending my short introduction, I would like to mention this question of reduced emissions from ships. We do reduce emissions from our ships through active speed management. Let me explain this because not so many people are aware of this fact. When we go into a loading area, we -- and we don't have a cargo. Then we go slow speed. And when we go slow speed with one of our ships, we consume about 20 tonnes a bunker oil, 20 tonnes a bunker oil. When we have a cargo, they going from Sri Lanka and to the Persian Gulf, and we had a cargo and then we get the cargo, we have given the so-called lay day canceling. That is when we are going to pick up the cargo. And then we increased the speed, and then you know, the consumption of oil -- bunker oil could be about 50 tonnes. And between 20 tonnes and 50 tonnes, there is a big, big difference. And in the past, tens of years ago, we went much more full speed, and we don't do that anymore. So the coordinator, I would like to end my short introduction here, and then we'll be prepared to respond to any questions that our friends on this line would like to ask. Thank you, sir.

[Operator Instructions] Your first question comes from the line of Omar Nokta from Jefferies.

Thank you. Herbjorn good afternoon. Thanks for the update today. And obviously, very nice to see NAT in such a strong position with the tanker market really behind it here. I wanted to ask about the dividend. You mentioned that as being an integral piece of the NAT story. As we look ahead, what can we expect in terms of that dividend? Do you see that growing here over the next several quarters just based off of what we're seeing in the market? And also, is there a certain ratio of earnings that you're looking to pay out going forward? Herbjørn Hansson: Let me respond to that precisely. We have had in this rather [indiscernible] "difficult times, " we have been in a good shape. We have paid $0.01 of dividend, $0.03 of dividend, and now we paid $0.05 of dividend. And then the next dividend for the fourth quarter, that will be announced in February and we expect it to be paid in March. And we have said very clearly that we expect it to be $0.10. So we doubled the dividend from $0.05 to $0.10. And we have in the past in our strong position, we had dividends coming up to $1 a year and coming up to $1 a year. And of course, that is the objective again. But in essence, I repeat what I said. I will always explain and we will always explain in detail what we are doing because that is our obligation, having been in America for such a long time and placing such heavy emphasis on the American flag. And also today, MSA, we are strongly supporting Ukraine. We are strongly supporting Ukraine. Thank you, Omar Nokta. Any other questions you had?

Just another one about the Beal Bank facility. You mentioned that in your comments, that's obviously given you a lot of flexibility here over the past several years, especially when the market was very soft. You've talked about getting your debt down to 0. How do you think about the facility in general? Do you look to just pay that down aggressively as quick as you can here over the next few quarters, if possible? Or do you maybe refinance that here in the next couple of months, if possible, to sort of enhance the free cash flow profile? Herbjørn Hansson: I -- and we would prioritize dividend. And I would ensure that shareholders shall receive a check every quarter. We have now done that for 101 quarter. When it comes to the Beal facility, it has been very good for us, and we have an excellent relationship with the Beal Bank of Dallas. And that relationship, I expect will continue whatever times are ahead of us because Andy Beal, the head of Beal Bank, is a very solid friend of Nordic American and vice versa. But I would like to ask our CFO, Bjorn Giaever and talk a little bit about the main numbers in which we are involved there with respect to reduction of debt and our dividend going forward. Could you, Bjorn, talk a little bit about that? Bjørn Giaever: Yes, Herbjorn. As you know, the initial loan amount was $306 million back in 2019, and we added another $30 million to it. And since 2019, we paid down $205 million on this facility. So today, it is $130 million. And in a $50,000 per day market, we could just by following the agreement we have paid down close to $25 million per quarter, while at the same time paying in excess of $0.10 in dividend per quarter. And then the question of refinancing, we have several proposals on the table, and we are looking at and contemplating what we should do about that. We would like to be debt free and could be able to increase our dividends even more, but no decisions are made, and we're not in a hurry to decide on anything at the moment. But there are plenty of options. Herbjørn Hansson: And I would like to add, Omar, that we are now, as far as I can judge, one of the strongest companies on the shipping sector in Wall Street. About that is how we see it at this time. But I also -- I'm hopeful that our cooperation with Beal will continue in the future, whether we pay down all the debt or not. But again, I emphasize what I said, we will never give up dividend. Thank you.

Now that's clear. And yes, so -- and it looks like, basically, you are from your comments, you could just based off of this market backdrop, we can assume $25 million of debt reduction and at the same time, pay out $0.10 in dividends each quarter. Herbjørn Hansson: Absolutely.

Your next question comes from the line of Liam Burke from B. Riley.

You often discuss your fleet management, where you're selling your older vessels, which you have, but you also want to grow from your current fleet to 30 Suezmaxes. How are you managing that? Or do you see acquisition opportunities out there? And how do you balance that against your commitment to a dividend and debt reduction? Herbjørn Hansson: The head of all this is capital allocation. It is a question of a capital allocation program, and there are many several elements in that capital allocation program. And we wish to expand without jeopardizing the ability to pay dividends. But they really need to have more than 1/3 in our head at a time. It is a picture with many elements. One is an overriding element that is the dividend payment and how we manage to maneuver in this more [indiscernible] environment is a different question, and it will take me an hour to explain in detail all our thinking -- of my own thinking and myself and everybody in this company who participate actively in the management of this company and the management of the running of this company.

Just a quick follow-up on that, Herbjorn. Do you see any opportunities to add new assets? Herbjørn Hansson: People are chasing us all the time. I feel like being at the dancing place in the old days. The girl everybody would like to dance with the girl and I almost feel like that, that everybody is chasing us in a way because they know we are very transparent and all details are known about us from America and from being stocklisted in America. And I do know that we don't have any strange things up to sleeve that investors and shareholders don't know about. And that transparency is absolutely essential for us.

[Operator Instructions] Your next question comes from the line of Turner Holm from Clarksons. Your line is open.

Herbjorn, I wanted to just ask about chartering strategy. I guess NAT has historically been focused on the spot market. But certainly see the 1-year time charter rates coming up quite a lot. I think they're up about 50% in the last couple of months, and they doubled since the summer. So how are you thinking about managing the fleet from a sort of commercial aspect as you move into next year? Herbjørn Hansson: I will again respond in two ways. Firstly, the dividend shall remain then no discussion. Secondly, we are in the spot market and as a main principle, we wish to be in the spot market. But we will never take on any huge debt that could jeopardize our position. But to be in the spot market, it's our strategy because Turkey policy does produce more money than any other policies. But we are balancing all these considerations. So you cannot give a clear cut answer to the point you are making. We have now, as I said, sold off a few ships over the last couple of months. And that is a normal renewal process in which we are involved. And we are chased every day. And I don't know all these people coming after us. But at this time, we are sitting back and that is a good position to be in to sit back. We do a lot of business in America in the U.S. curve. We do a lot of business in the Middle East and in the Far East. But generally speaking, we don't wish to go for time charters now unless they are very, very attractive. But unless otherwise, we wouldn't do that. We would go for short-term voyages, and these are producing a lot of cash. And this business is about cash. It is not about accounting. Nobody lives from accounting, everybody lives from cash. And as long as I've been in the business, that's quite a long time. I started actively operationally in 1980. And every week, I always have a requirement to see how much cash do we have. Thank you.

I appreciate that, Herbjorn. And as you mentioned, you've been around this business about as long as anybody. And with your sort of experience and perspective, how long do you think the strength in the tanker market can last? How are you thinking about that from a planning -- financial planning perspective? Herbjørn Hansson: Well, as you say, I've been along since I took that first degree in economics in 1974. And that took me second degree in economics also in America a little bit later. But the -- if we did know the future, life would have been easy. But that is really the function of a manager like myself, the Chairman and the Founder of this company, if I did know the future, that would be fine. But it is my obligation and our obligation on behalf of shareholders, to have a view on the future because if you don't have a view when we have 80,000 shareholders in America and when people are coming. What do you think about this or that? I cannot possibly say, I don't know. I don't know because then I would be hiding. So that is the last thing I could say -- I would say is I don't know because it is my obligation as leader of this group to have a view. And if I don't have a view, I should leave this position to somebody else, but I can tell you also my family and I, we are the largest private shareholder group in this company. We have very good and solid support from BlackRock, which is one about biggest supporters and the biggest companies supporting us and we live from all the shareholders in a way, and we support our shareholders and we must run the company, and I enjoy this opportunity to talk to shareholders and investors because we do appreciate to get input from you. And then I'm hopeful that the stock price will go up much more than it is today, but I cannot promise anything. But as a leader of this group, it is my obligation to have a view. Thank you.

Your next question comes from the line of Craig Rose from Axiom Act Management.

Hello, everybody. Well, I'll remind everyone that rates have gotten [indiscernible] during a war in Ukraine, so I don't know what happens nor does anyone else know what happens if the war ends. But regarding staying in the spot market, is there a percent equity that you can buy new boats with---with the banks that don't require you to take on a time charter for that new vessel? Herbjørn Hansson: Absolutely. The answer is yes.

What is that level? Herbjørn Hansson: I couldn't respond directly to your question because, as I said, this is a question of managing capital allocation. I would be pleased to discuss this in more detail if you can send it to me. But I'm also very not concerned, but focused or not diverging information, internal information, which does not fit in the open marketplace before it has materialized. And we wish to act very transparently and we need to act very, very correctly. At that level, you mentioned, I couldn't respond in detail during this session.

Okay. So the most conservative way is if you were able to pay down debt in a year and you had -- and rates stayed at these great levels, you could buy a new boat for cash almost every year going forward, if rates stayed at $50,000 a day. Herbjørn Hansson: I believe you are absolutely right.

Your next question comes from the line of Michael Masco from MRM Capital.

Regarding your ATM, it seems like you issued another 6 million shares with business being so strong, why do you continue to use the ATM and dilute shareholders? Herbjørn Hansson: We have not used it for a long time, but Bjorn Giaever may elucidate pertinent aspects connected with this. Bjorn, could you comment on that? Bjørn Giaever: Yes. We used it a little bit in the early parts of the quarter simply because, as you know, we've been going through an extremely low market for the last 8 quarters. And when the market turns, it takes a little while before the good freight rates arrived in our bank account, and our working capital increases. So we wanted to make sure that we managed through it.

I would assume going forward with business being so great that you're not going to need to use it going forward like you did in the second half of the quarter, correct? Herbjørn Hansson: Yes. I would say it's correct. That would be my view, it is correct. Because when the market is as strong as now, we can do essentially whatever we wish. But you may supplement, Bjorn. Bjørn Giaever: No, I totally agree with you.

Do you have any view like the previous questionnaire, do you have any view regarding if the war would end at some point, how that plays out in the tanker market? Herbjørn Hansson: I could comment on that. That's the most simple question -- the most simple response is, I don't know. But I can tell you, in the past, some of you have heard about George Soros. George Soros is the American investor, and he said that we are now in the World War 3. Many years ago, I was working together with them on a special project in New York and in London. And given the premise that he says it's World War III. That is one scenario. I don't need or wish to discuss international politics, but it was hard -- it was said this morning, that a lot of people in Russia are against Putin. A lot of people are against it. We don't carry the Russian oil anymore. We did carry Rational Oil from the port of Primorsk in the Baltic Sea. But -- and we were invited into Russia to become a permanent company in Russia and we said, no, we are not going to have an operation in Russia. And at this time, we don't carry oil from Primorsk in the Baltic Sea, and we don't carry Ration Oil. And I can assure you, we have been involved and are to some extent involved in " dangerous areas " like the Black Sea . We are doing business not today, but with ExxonMobil and with Chevron. You know Chevron, of course, and who are in San Francisco. And we have visited Chevron in the past, and we have a long business relationship in the past. Coming back to your question, what will happen. I would, of course, I'm hopeful that the war will end and -- but it will not impact us to any significant extent in depression circumstances. But the thing is for us to be able to adjust very quickly, and we do adjust very quickly. We had a very competent Board of Directors on which they serve 2 Americans, 1 in Los Angeles and 1 in New York. The person in New York used to be the Managing Editor of Time Magazine. He was working for Bloomberg who at one time aspired to become President of America. But Jim Kelly, who was managing Editor of Time Magazine, is a strong member of our Board. American, another strong member is Jenny Cho, who started out in the Los Angeles as an ordinary worker in a hotel reception and she became the Managing Director of a big financial institution in America. She speaks Korean, and she is helping us with -- she's American citizen, and she is helping us a lot with our business in Korea. Coming back and respond precisely to your question. I don't foresee any dramatic consequences of the war coming to an end for us. I can tell you we are doing a lot of business in the Middle East. We are doing a business with Bari, who has part in Saudi Arabia, who is a part of Saudi Aramco, Saudi Aramco, which is the biggest company in the world. And we are doing business in Saudi Arabia, and we are -- have very good contacts and a business relationship with the top people in Saudi Arabia. So my response to you, sir, is that I'm not concerned about the war coming to an end. I'm very hopeful that war will come to an end. I can tell you also that we are supporting Ukraine very strongly in all possible respects. And one major Norwegian company, Kongsberg, they are supporting Ukraine with a lot of equipment for the Ukrainian activities. Again, I respond precisely, I don't see that the end of the war in any way will impact our business except it will be a positive thing because what we do see in the tanker trade that oil is moving in all directions, all over the world. Thank you.

Can I just ask-- just to add a little comment to what you've been saying regarding the market? Herbjørn Hansson: Is this Mike?

It's Eric [indiscernible] Herbjørn Hansson: There's no chartering. The top man of chartering. Can you Erik, comment on this?

Yes. I would just like to say that there are quite a few things which point in the direction that we are heading into a super cycle in this tanker market, regardless of this ongoing war, we have a historical low order book. It's -- I think it's around 2% of the fleet on order and that's very, very low. And we have new trading patterns coming up at the same time, which you can say it's a result of the war, but it's going to take -- I think these changes will likely be permanent for -- at least for a long, long time. I can hardly see Europe is going to be dependent on Russian oil for a long time to come. And so things are looking very good from a general market perspective. Some people are complaining that we don't see very much scrapping of ships. But there's been a lot of ships sold to remote virus in remote places of the world, which will continue to import Russian oil. Going forward, and that's what you call it, a shadow fleet, which is being built up at the moment. And this fleet, we have a reason to believe it's not will not be very well maintained. It's going to be not be very well insured and is not going to be very well manned. So it's not for all the ships to come back to the market if the war is to end, which we, of course, hope it will soon. So there's going to be a lot of ships taken off the market just because of this. So all in all, I think the future looks very good for the tanker market going forward long term. Herbjørn Hansson: And if I should add to you what you said, Eric, who is heading up all our chartering activities, the oil companies, big oil having about 50% of our business, ExxonMobil and the like, they wish to do work with the good people having the good fleet, and we had both good people and good fleet. And we had access to money via the American capital market always. And as you know on this call, if you have a good project, all people there, it has to do with our reputation. And fortunately, we have built up a good reputation over the years because we never cheated and we don't try to be " clever". We always act with integrity and with honesty. Thank you.

[Operator Instructions] Your next question comes from Nick Lanham from Sefton.

I had a couple if that's okay. Could you tell us currently how many time charters you have and when they end? And if you can tell us what the rate on those time charters is? Herbjørn Hansson: Yes. We can tell. Bjorn will know that, and I will know that. Will you comment? Bjørn Giaever: Yes. We have 4 ships on time charter and we have a total fleet of 19 ships. So we have 4 or long-term time charters. We have 2 ships going to Oman trading. They are committed for 6 years, started early this year or mid this year. We have 1, 2018 big ship, the Nordics Signet, which is on to Equinor. Herbjørn Hansson: Equinor is the big -- 1 of the biggest companies in Europe. Bjørn Giaever: She is committed for another year for as a minimum period. We have an option for another year on top of that. And we have the Nordic Vega, which is in 2011 big ship, which is on to Unipec, which is actually the biggest tanker chartering company in the world, the Chinese state, and that's for a year. Herbjørn Hansson: I asked Unipec when he had meetings with them, very good friends. So many people are you and your organization. And they said, [indiscernible] and I said that's a little bit more than we have, I said.

One other question, if I can ask. The -- you had 2003 vintage Suezmax left in the fleet. Would you expect to be selling those in the next year? Or do you think in the current market, you can continue to operate those for a few more years? Herbjørn Hansson: The response is that in this market, we don't wish to sell anything. When people ask us if they could buy ships from us now, I send one of my longest e-mails to them. The 2 letters, no. N O. And that -- but again, the big advantage of our organization is that we are able to change our minds on a very short notice. We are not a big, huge oil company. We have many committees and many meetings and a lot of people. We are very efficient and very -- also when we do things, we do them quickly and in a smart way, I would add.

Okay. And last question, what portion of the current debt is on fixed rates versus floating? Herbjørn Hansson: On the debt? Can you comment on the debt tax rate? That we don't have extra debt rate, do we? Bjørn Giaever: No. Herbjørn Hansson: No. We don't have [indiscernible] rate debt.

Okay. So all floating interest rate debt? Herbjørn Hansson: Yes.

And there are no further questions at this time. Mr. Herbjorn Hansson, I turn it back over to you for some closing remarks. Herbjørn Hansson: I would like to thank you very much for taking your time to listen to this conference. And I have been strongly advised by my colleagues here and abroad to be very modest in my judgment. And in my comments, and I remind myself about that. And -- but I must also admit I think this is very exciting in a way. And I have to tell you that I will continue and this is not a threat or a promise. It is a fact and we enjoy every day we have, and we think it was great that we could have this conference. And any of you are welcome to contact my colleagues and myself, whenever you wish. We are very sensitive not to divulge any information that is not circulated in the marketplace. But -- and it comes back to my comment earlier, nobody knows what the future is holding, but in this business, there is nowhere to hide. So I -- Mr. Coordinator, I would like to thank you very much for arranging this thing. And if you don't expect me to say anything more, I declare that this conference is adjourned.

This concludes today's conference call. Thank you for participating. You may all disconnect.