International Seaways, Inc. (NYSE:INSW) Q3 2022 Earnings Call Transcript

International Seaways, Inc. (NYSE:INSW) Q3 2022 Earnings Call Transcript November 8, 2022

International Seaways, Inc. misses on earnings expectations. Reported EPS is $2.29 EPS, expectations were $2.46.

Operator: Ladies and gentlemen, good morning. Thank you for your patience, and thank you for attending today’s International Seaways’ Third Quarter 2022 Earnings Call. My name is Amber and I will be your moderator for today’s call. It is now my pleasure to hand the conference over to our host James Small, General Counsel with International Seaways. James, please proceed.

James Small: Thank you, Amber. Good morning, everyone and welcome to International Seaways’ earnings call for the third 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; anticipated cost savings and 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 fourth quarter of 2022 and 2023 or any other period; projected scheduled drydock and off-hire days; purchases and sales of vessels, construction of newbuild 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 which 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 quarterly report on Form 10-Q for the first, second and third quarter of 2022, and in 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?

Lois Zabrocky: Thank you very much, James. Good morning, everyone. Thank you for joining Seaways’ earnings call to discuss our third quarter results. During the third quarter, we generated our highest ever quarterly income. This marks our second consecutive record quarter. Crude tanker earnings rose to follow suit with the product carriers from the second quarter, with oil demand increasing more than 1 million barrels per day in the quarter. Combined with the prioritization of energy security, tanker demand and utilization are high. International Seaways is capturing the strong rates. Our commitment to growing the company, maintaining a healthy balance sheet and returning cash to shareholders is serving Seaways well. We have built our overall liquidity, and now with strong cash flow generation, we are returning more to shareholders.

We have announced a special dividend of $1 per share in addition to our regular quarterly dividend of $0.12 per share. On slide four, we summarize our third quarter highlights and recent developments. In the third quarter, we generated net income of $113.4 million or $2.28 per share, and earned adjusted EBITDA of $157.1 million as our diversified fleet operated at profitable levels across all asset classes. As you can see in the chart on the lower left of the slide, our year-to-date adjusted EBITDA in 2022 of $295 million has eclipsed all prior full year EBITDA at Seaways. We are taking advantage of the strong markets the strongest in the last 10 years. Based on our fourth quarter bookings to date, we expect to generate even stronger earnings in the fourth quarter.

We maintain our strong balance sheet supporting our diversified capital structure and our financial flexibility, both of which are hallmarks of Seaways success. We ended the quarter with total liquidity at over $475 million, including $255 million of cash and $220 million in revolver capacity. Using today’s value, our net loan to value is a very low 29%. We repurchased approximately 687,000 shares during the third quarter for $20 million, at an average price of $29, well below our current price. We also paid our regular quarterly dividend of $0.12 per share, which we doubled earlier this year. This marks our 11th consecutive quarter of regular dividends. We have declared regular dividends for this quarter, and as a result of our strong cash flow generation, as mentioned a moment ago, we’re pleased to have declared a special dividend of $1 per share.

This represents the second consecutive year where we paid a special dividend of $1 or more per share. Overall, Seaways will return about $90 million in cash to shareholders in 2022, increasing the total return to shareholders to $185 million since the start of 2020. We continue to build upon our track record of returning value to shareholders as part of our balanced capital allocation strategy. At this point in the cycle with our large fleet, healthy rates and our strong balance sheet, we intend to continue the left delivering returns to shareholders. Turning to slide five. We examine one of the most prominent topics in tanker demand today, the sanctioning of seaborne Russian barrels of crude and product into the EU. This will create a structural shift in trade routes with cargoes exported from Russia.

On the left-hand graft, we pulled data from Kepler on Russian crude exports to Europe. About 2.5 million to 3 million barrels per day of Russian crude were exported to Europe prior to the invasion of Ukraine. Today, around the 1 million seaborne barrels continue to flow into the EU. As of December 5th, Russian seaborne crude will be displaced from the EU. Europe has been pulling incremental barrels in from the AG, West Africa and the America. These voyages add about 20 plus days of length compared to importing from Russia. We would also note here that Europe is increasing their overall crude imports as part of a switch from natural gas to oil. We believe the world will switch in the fourth quarter to 600,000 to 700,000 barrels per day of additional oil consumption due to the switching from natural gas.

Overall, we expect there will be further displacement of Russian crude backed out of the EU as sanctions take effect. While a majority of Russian crude has moved toward Asia, it’s too early to see if all of these displaced barrels will head East, but the overall trade is moving to more inefficient patterns and soaking up a lot of tonnage, particularly in the middle class of crude vessels Aframax and Suezmax, which have been quite strong in the second, third and continued into the fourth quarter, thus supporting higher tanker demand. On the right-hand side of the page, product exports from Russia are still moving into Europe, which we do not expect to continue once the EU sanctions on products takes effect on February 5th, 2023. This could present further upside to the product tanker markets.

We believe the tonnage to move these barrels is largely in place with the Russian fleet, yet we still see about 40 to 60 MR Vessels will likely rotate from commercial markets to new Russian trade groups that are likely to take product exports to Turkey, Africa, and Latin America. In particular, these are early days and we will see the trade movements as they evolve. Overall, this should have a similar impact on the product market as it has improved longer haul trades absorbing more tonnage and pushing earnings higher. Turning to slide six. We have highlighted some of the major drivers of tanker demand. Oil demand has averaged about 99 million barrels per day through the first three quarters of 2022. This is about 2 million barrels per day higher year-on-year.

In the fourth quarter, we expect oil demand to close the year above 101 million barrels per day, driving the 2022 average to be just under 100 million barrels per day. The outlook for 2023 is for an additional 2 million barrels per day of oil demand increase to average around 102 million barrels per day for the year. Of course, as high inflation persists, recessionary concerns could adjust these estimates going forward. While the announced production cuts of OPEC, OPEC+ had put a focus on oil supply. Research suggests OPEC+ has a history of underperforming on the production targets. We believe with Saudi, the UAE, Kuwait and Iraq leading the production cuts. This could result in close to 1 million barrels per day of reduction. This reduction would be offset by the increased oil production largely from the Americas, which is expected to increase by around 1.5 million barrels per day.

Overall, we see a balanced market of supply and demand in the near-term. This also means that inventory levels, which are already at the lowest levels in 10 years, are not likely to be replenished, and therefore further market disruptions could create more demand for tankers. The strategic petroleum reserve has been covering short flaws across the globe for the last several quarters, but soon these releases will cease and eventually we will need to replace the barrels and the FPR, which should further create tanker demand. In the lower left-hand side of the slide, you can see just how far OECD FPR has declined during 2022. The United States strategic petroleum reserve has not been below 400 million barrels per day, 400 million barrels in total since 1984.

If there is a decision to replace the nearly 200 million barrels that have been drawn down since the beginning of this year, we expect much of this we’ll import it. As much of the drawn inventories are medium sour blends not produced in the United States, this would provide further support for tanker demand. On the bottom right chart, seasonal global refinery turnarounds could help seaborne trades. Refinery planned outages typically happen in March or April and from September to early November. As you can see in the chart, global CDU outages in September were the lowest they have been in a while. We expect the planned and unplanned outages are likely to increase in early Q4, which draws on inventories and creates the need for imports on tankers.

As a result of this combination of factors, we expect tanker demand to remain strong, especially in the near-term as the Russian trade is a major market disruption for the oil trade. On slide seven, the main drivers on tanker supply remain positive for tanker earnings. The overall tanker order book continues to be low, is presently below 5%, and continues to record its lowest level ever relative to the size of the fleet. Net fleet growth is just 1.5% year-over-year. The average age of the global tanker fleet has increased to over 12 years on average. This is the highest it has been in about 20 years. This all means the fleet will continue to get older and more vessels over the age of 20 will be removed from the commercial trading fleet. Sanctioned oil trade is likely to take in the older tonnage as barrels from Iran and Venezuela may face some competition with Russian oil.

The dark fleet stands at around 240 vessels, of which we have seen only about 10% switch thus far into the Russian trade. Should there be the removal of sanctions on any or all of these countries, we expect this would lead to higher recycling volumes. One of the facts that most supports the positive tanker supply dynamics is the limitation tanker companies have in replacing or adding to the fleet. In the lower left-hand chart, you can see that newbuild contracting is the lowest by far in 20-plus years. And as seen in the lower right-hand chart, new orders are likely to have delivery dates three years from now in late 2025 or into 2026 because the yards have filled capacity with orders for other shipping sectors. Newbuilding prices for conventionally fueled vessels are high.

And with pending environmental regulations, it’s difficult to rationalize building a shift that will not deliver until the middle of the decade with uncertainty about its economic useful life. Overall, tanker fundamentals remain positive over the short and medium term, barring any major economic upheaval. Seaways is well-positioned to capture the strong rate environment with our diversified fleet of 78 tanker vessels in both crude and product. With our healthy balance sheet and our liquidity, we expect to continue our balanced capital allocation strategy, invest in the fleet opportunistically, reduce our debt level and return cash to shareholders. I’ll now turn the call over to our CFO, Jeff Pribor, to provide the Q3 financial review. Jeff?

Jeffrey Pribor: Thanks Lois, and good morning, everyone. Let’s go straight to reviewing the second quarter results in greater detail. As always, before turning to the slides, let me provide a quick summary of our financial results for the quarter. In the second quarter, we generated a record adjusted EBITDA of $157.1 million. Net income for the third quarter was $113.4 million or $2.28 per diluted share compared to a net loss of $67.4 million or $1.44 per diluted share in the third quarter of last year. Now if you 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 over $75 million for the quarter compared to $35 million in the third quarter of last year and up sequentially from $59 million last quarter.

Crude Tanker revenues remained strong in the Aframax and Suezmax, and the increase in the quarter was largely due, therefore, due to higher earnings from the VLCC. Also, embedded in the Crude segment is our lightering business, which had $8 million of revenue, along with $2 million of vessel expenses, $2 million of charter hire expenses in the quarter, yielding an EBITDA contribution of about $4 million from lightering in Q2. Turning to the Product Carriers segment. TCE revenues were $159 million for the quarter compared to $38 million in the third quarter of 2021 and again, sequentially up from $126 million last quarter. These increases were primarily due to substantially higher spot rates for the LR1 and MR sectors. Looking at the right side of the page, adjusted EBITDA for Q3 was $157 million compared with $8 million in adjusted EBITDA in the third quarter last year and up sequentially from $112 million last quarter.

These significant increases clearly demonstrate our significant operating leverage to the strengthening tanker markets driven by product tankers and increasingly by the Crude segment. Now turning to slide 10. We provide a third quarter review and fourth quarter 2022. We finished the third quarter with spot earnings at averaged $24,400 a day for VLCCs, $34,200 per day for Suezmax, $38,300 per day for Aframax $41,000 per day on the LR1 fleet and $36,000 per day in MR spot earnings. Since our update on the Q2 earnings call regarding Q3 bookings, VLCCs gradually increased during the quarter where the strength in rates came later in the quarter after vessels completed the longer voyages on which they were booked. The MR segment declined slightly from very high levels since our last update are strengthening again in late September and into October.

Now turning to our fourth quarter first look. Our fourth quarter bookings to date have increased considerably across the entire fleet compared to Q3. Starting with Crude. We booked 63% of our spot today quarter for VLCCs at an average of $59,400 per day, 51% of available Suezmax spot days at an average of $47,000, 50% of our available Aframax spot days at an average of just over $58,000 a day and 47% of our available LR1 spot days and an average to over $57,000 per day. The MRs have booked 51% of our fourth quarter spot days at an average of about $41,000 per day. Nationally, we caution you that these are indications of the average fixtures in our fleet that may be different, one direction or another fourth quarter earnings in the next quarter.

Now turning to slide 11. The cash cost TCE breakevens for the forward 12 months are illustrated on this slide. International Seaways overall breakeven rate is estimated to be about $18,600 per day. As always, these are the all-in daily rates our owned vessels must earn to cover vessel operating costs, drydocking costs, cash G&A expense and debt service costs, which means scheduled principal amortization as well as cash interest expense. At this point, I’d also like to confirm cost guidance for the fourth quarter and for 2023 for your modeling purposes. We expect fourth quarter OpEx fee between $53 million and $55 million before — including our lightering business, which had $2 million of vessel expenses in Q3, as I mentioned earlier. For the full year 2023, we expect OpEx before lightering to be between $235 million and $245 million.

Total G&A for the fourth quarter is expected to be about $9 million to $12 million and include non-cash G&A, which is between $1 million and $2 million, but before any cost related to shareholders. Looking to 2023, all and G&A is expected to be between $40 million and $44 million. And as a footnote indicates that approximately $8 million of this is not cash. Cash interest is expected to be between $17 million and $19 million using a base rate of 325 basis points. For 2023, we expect cash interest to be in the range of $69 million to $77 million. Depreciation and amortization is expected to be about $30 million for the fourth quarter and $135 million for all of 2023. CapEx for the fourth quarter is expected to be between $18 million and $20 million, while next year, we expect CapEx to be in the range of 47%.

For a more detailed breakdown on projected drydock CapEx and off-hire days by quarter, you can refer to slide 17 in the appendix. Now if we go to slide 12 for our cash bridge. Moving from left to right on the page, we began the third quarter with total cash and liquidity of $452 million. During the quarter, our adjusted EBITDA was $157 million. Our debt service for the quarter was $25 million, composed of $11 million of debt repayment and $14 million of cash interest expense. We expended $12 million on drydocking and maintenance CapEx. We repaid the 8.5% baby bond for a total of $25 million. Also, our 687,000 shares repurchased in Q3 used about $20 million of cash, and we paid our regular quarterly dividend of about $6 million . Lastly, we had a substantial negative impact on working capital of their charges for $46 million during the quarter.

Most of this impact is due to the increase in receivables from the tools due to rapidly rising rates and also the doubling of bucket prices and the fact that bunker payment terms have been halved time. As this stabilizes, we expect to recoup these with the natural end flow capital. Combination of all these factors resulted in a quarter-end cash balance of approximately $256 million and $220 million in undrawn revolver for total liquidity of $475 million. Now please turn to the slide 13. I’d like to briefly talk about our balance sheet. As of September 30th, we had about $2.5 billion of assets compared to $1.1 million of long-term debt. In addition, we have a $220 million revolving credit facility that remained undrawn as I just said, and our net loan to asset value is below 29% as of September 30.

As Lois highlighted, we have a very healthy balance sheet. Current asset values are well above net book value of our vessels. Net debt to total cap is also low in the high 30s, and our total liquidity is $476 million. Accordingly, at this point in our tanker cycle, with current asset values at 10-year highs and a healthy built-in debt amortization schedule of approximately $180 million a year, we are well positioned to return a substantial portion of our free cash flow to shareholders. And you see that reflected in our announcement today of a $1 per share special dividend, along with our normal quarterly $0.12 per share per dividend. Turning to slide 14. We look at our debt as of September 30. As you see, our total debt balance is approximately $1.1 billion with $220 million of an undrawn revolver capacity.

In the table, we provide our mandatory debt repayments for the fourth quarter and full year 2023. The $750 million facility term loan begins its amortization schedule in the fourth quarter with $30.6 million in that quarter. The BoComm facility, which is connected with our dual fuel LNG VLCCs should increase by about $190 million from the September numbers, and we’ll make regular installment payments after each ship is delivered. One last item of note before I turn it back over to Lois, we provided in the appendix, updated charter route revenues and charter hire expenses for our fixed TCEs, time charters in and out. We’ve entered into a two-year charter out with one of our 2015 built Suezmaxes and a one year on a 2007 built MR. We continue to review our chartering out strategy over longer term charters.

That concludes my remarks. I’d now like to turn the call back to Lois for closing comments.

Lois Zabrocky: Thank you very much, Jeff. On slide 15, we provide you with Seaways’ investment highlights. I encourage you to read these fully. However, I will summarize them briefly. Key ways in our history as a public company, have a proven track record of building value while maintaining the balance sheet throughout the cycle. We are disciplined stewards of capital, balancing consistent returns to shareholders with the fleet growth and healthy financial metrics. We have a focused and flexible operating model that has allowed for us to expand and contract at appropriate moments in the cycle under a disciplined approach. The company today has significant operating leverage to capitalize in what we expect to be a robust tanker cycle over the next few years.

Regional imbalances of oil are expected to continue and to grow in distance from sources to consumers, creating higher seaborne your mile demand, while the supply of vessels remain limited and likely will shrink as vessels age and eventually are removed from the commercial trading fleet. We are staying in front of the growing ESG priorities, investing in the fleet to reduce our carbon footprint, keep our safe and build a corporate culture of diversity with appropriate checks and balances. We are willing to back this message up with transparent ESG reporting and sustainability metrics. We have sustainability linked incentives in our debt portfolio. We strive to continue to evolve these principles and to provide a meaningful platform for all stakeholders.

Thank you very much. And with that said, Amber, we would like to open up the lines for questions.

Q&A Session

Operator: Of course. Thank you. We will now begin the Q&A session. Our first question comes from the line of Chris Robertson with Deutsche Bank. Chris, your line is now open.

Chris Robertson: Hi, Lois and Jeff, good morning and thanks for taking our questions.

Lois Zabrocky: Yes. Good morning.

Jeffrey Pribor: Welcome to the group, Chris.

Chris Robertson: Yeah. Thank you. I just wanted to talk about leverage for a moment. Jeff, how are you thinking about just leverage overall your kind of methodology here? Are you looking at certain leverage ratios that you’re targeting? Are you aiming for a specific total cash breakeven level eventually? And can you just walk us through your philosophy around that?

Jeffrey Pribor: Sure, Chris. I think that our feeling is, whether it’s leverage levels or other capital allocation policies they need to be responsive to the cycle. It’s not a one-size-fits-all situation. So, we don’t have any one say loan-to-value target when values change so dramatically. Rather, it’s more to us instead of about points in time, it’s about a process. So, at this time, when we’re in the now second quarter plus of an upcycle, generating significant cash, one of the things that we want to make sure happens is that we are continuing to dealer. We fully believe that deleveraging and returning cash to shareholders is not mutually exclusive. And hence, our announcement today of dividends. But what we’re doing is not heading for any one particular target, Chris, but just making sure that we are appropriately leveraging through the cycle.

And for us, it all starts with the scheduled amortization we have in our debt, which I mentioned in my remarks, it’s about $180 million a year. And we think that does the job pretty well.

Chris Robertson: Okay. Yeah. I got it. I guess, following up on that, you mentioned the special dividend. Can you walk us through how that special dividend was calculated the decision to go with a special dividend rather than increasing the normal quarterly dividend. Is that going to be supplemental to the quarterly dividend? Or should we think about this as more of an annual occurrence?

Jeffrey Pribor: First of all, you should think about the special dividend as supplemental to the quarterly dividend. Our commitment to capital allocation debt goes across all parts of the cycle without any other change that ever changing is the quarterly dividend, which we put in place at an amount, which we doubled this year, but it’s not that we feel we’ll never have to change for any part of the cycle. That’s our view on that. And then, whatever we do, last quarter it was share repurchasing. This quarter, we’ve announced at this point, a special dividend, which is in large part reflective of the increase in our share price and closing the gap to NAV, which we’re very happy about. And that is a separate special dividend. As you’ll see in the press release, the record date and the payment date are the same, but it would be two dividends to make the point that we’ll always have our regular dividend.

And then at times like this, at this point in cycle, our policy will be to pay a substantial portion of our free cash flow out. It’s not a formula, but don’t — we don’t do that other than our regular dividends if you want to call that a formula. But it’s a substantial portion of free cash flow, we think can appropriately paid out to our shareholders with the adequate liquidity — with the more than adequate liquidity we have at this point in the cycle. Hope that’s clear.

Chris Robertson: Yeah. Thanks for the color, Jeff. And I will turn it over.

Operator: Thank you. Our next question comes from the line of Omar Nokta with Jefferies. Omar, your line is now open.

Omar Nokta: Thank you. Hey, Lois. Hi Jeff. Good morning.

Lois Zabrocky: Hey Omar.

Omar Nokta: Nice strong results, obviously and very good figures ahead, it looks like. Maybe just — maybe touching on the topic you were just having with Chris. The share price has been trending nicely all year. And in fact, I think INSW has been the best performer in terms of gains since maybe the middle part of — maybe since the beginning of the third quarter. How are you thinking about valuation today, which I think basically looks like you’re at the closest to NAV? You’ve been — since you guys took the helm. How do you view that? And does that change anything in terms of how you look at allocating capital, whether it’s returning capital to shareholders or investing in the business?

Lois Zabrocky: So, Omar, indeed, we — our asset values, our net asset value continues to improve and increase. And we think that, that will continue as you see the extremely high rates that are projected that we’ve already earned in the fourth quarter. So, you’re building on strength. The — if you look at vessel values, the MRs of around 2, 8, 9, 10 have improved in valuation by over 50% this year. If you look at big crude, it’s been something like 33%. So, just overall, in making the pie bigger, we believe that we will continue to earn these strong cash flows and see increased vessel value. So, you see that the overall tanker market, both crude and products, strengthening into itself.

Jeffrey Pribor: I’d just add that Omar, we’re very confident that we have a strategy that works, investing in fleet renewal at the bottom of the cycle and focus on returns to shareholders and new leveraging in the up part of the cycle. And we’ve done that over the last six years. We’re grateful that it’s being recognized in our share price now. It’s — and so I think we just continue to stay the course and follow the strategy.

Omar Nokta: Yeah. And I agree, it makes sense. Nice to see the stock price performed so well. And maybe just wanted to ask then about the fleet makeup. And Jeff, you just mentioned acquiring assets at the bottom and returning capital on the higher end of the cycle. Just in terms of where you are with the fleet, you obviously have critical mass in the VLCCs, the Suezmaxes and the MRs. Not so much a big presence, I’d say, in the Afras and the LR2. In the past, you’ve sold the FSO business, the LNG vessels. I think it may be the handies that you got from Diamond S. Basically you’ve been selling a lot of the non-core pieces. What do you think of where you are today with the Aframax LR2 segment? Do you perhaps maybe look to monetize that and maybe take that capital and boost your presence elsewhere? Or what do you think just generally on that?

Lois Zabrocky: Well, Omar, I would say you did a really good job of recapping those non-core businesses that we did move out of, including the handy tankers, especially due to the Russian exposure that we saw in that sector of the market. On the middle part of the fleet, as you can see with earnings booked in the quarter to date, well up in the 50s per day, it’s a very strong piece of our portfolio. We are not looking to divest the Aframaxes or LR2 at this point. Thanks Omar.

Omar Nokta: Okay. Thanks Lois. And thanks Jeff. Congrats on the strong quarter.

Lois Zabrocky: Thanks Omar.

Operator: Thank you. Our next question comes from Greg Lewis with BTIG. Greg, your line is now open.

Gregory Lewis: Yeah. Hi. Thank you. And good morning everybody. And thanks for taking my question. Lois, realizing that would be you kind of walk through how you’re thinking about the capital allocation, I’ll move on. As I think about the timing of the sanctions or the embargoes around crude and then following products, is there any way that the industry can kind of position their fleets around that? And I say that specifically to you guys because you do have that blend of crude and products, i.e., are there things that are going to happen in the crude market from the embargo that we should see similar things happen in the product? Or is there any way — yeah, I’m just trying to — I’m trying to wrap my head around how INSW should be able to take advantage of that.

Lois Zabrocky: Okay. So, we believe that there is about 1 million barrels per day of seaborne crude still going into the EU. And Bulgaria has an exemption, so that’s like 200,000 barrels a day. So, there’s about 800,000 barrels a day that has to find a home. Certainly, India and China have been the biggest takers of Russian crude to date. And that 800,000 barrels has to find a home either working under the price cap, or with vessels that are in the gray fleet. And I think Russia is going to scramble to December 5th, the date, but now it’s January 19 as you would have to have your crude off your ship by then to be compliant. So that 800,000 barrels a day, we’re going to see where Russia can put that. And then Russia is — the EU is starting to import more barrels from the Americas, both North and South America as well as the Middle East.

So, as far as vessels, going outside insurance theme, there may be some ways, but it is very tricky with the reinsurance market for a robust strong owner to with — concerned about their reputation in the market to go ahead and employed over the coming regulation. So, we see — that’s step one, and then that’s going to be followed by the product carriers, and I think the product carrier deadline will be modified potentially based upon the success of the crude deadline and these regulations. But the bottom line is that we’re watching to see, okay, so where does that mean that Russia is able to gain more market share to put their barrels into the market and then the EU pull-in from alternate markets. So that’s — we think it’s dislocation, it’s inefficiency and good for the tanker market.

Gregory Lewis: And then I did — okay. And then I did want to follow-up on that because of the February timing. We’re already at least — if you pick up a newspaper in the Northeast, which is where I am, you’re already starting to hear concerns about heating oil and if it’s an unseasonably cold winter. I guess, what I would say is, could you walk us through a little bit around the heating oil market? And I guess, really could we see — in a cold winter, does that typically last? I mean I imagine it lasts longer than we think. And really, what — I mean it just seems like the product market seems like it’s in a tremendous spot here heading into the winter.

Lois Zabrocky: Yeah. Thanks a lot Greg. So, the middle of the barrel, the diesel, this is the lowest inventories that we’ve had on the East Coast since 2007. And in the United States, I mean, there’s really — it’s a pretty small diesel market. The Northeast is really the principal market that’s still heat with diesel gasoline — I mean, gas oil. And one of the things we’re seeing is PBF even with the East Coast has restarted the unit making 100,000 barrels a day. So, when you see the refining margins very, very strong, all of a sudden, the market used to respond to that and to close that gap. So, we understand there’s some Jones Act movements, bringing diesel from the U.S. Gulf to the East Coast. Like I said, you see some of that PBF cranking up a little bit on the East Coast, which, of course, will bring in some foreign crude.

And you see the market responds. But I think the key overall is the very strong refining margin puts the signal out, hey, money to be made and the market moves into — take advantage of that and then narrow that margin.

Gregory Lewis: Okay. Super helpful. Okay.

Operator: Thank you. Our next question comes from the line of Liam Burke with B. Riley. Liam, your line is now open.

Liam Burke: Thank you. Good morning, Lois. Good morning, Jeff.

Lois Zabrocky: Hey, how are you Liam?

Liam Burke: Good. Thank you. Just touching back on Omar’s question on the fleet management. Not that you would need the cash, but is there any thought of lightening up on some of the older MRs with the asset value so high here?

Lois Zabrocky: We have — you’ll notice in our press release, we have one vessel that is under contract for sale at present. And we’re very judiciously looking at it because these vessels are earning very strong returns, right? So, very carefully, we are okay, under contract for sale for one. So that’s just a continuation of that pruning that vessel will avoid the drydock and ballast water treatment installation in 2023. And you should expect us to continue with selective sales like that.

Liam Burke: Okay. Fair enough. And I guess, is there any thought with spot rates so high to move any more of the vessels over to the time charters?

Lois Zabrocky: Yeah. The team looks at that, and we executed a couple of time charters. We continue to look at as that market builds into itself, and you can get more length at a healthy rate.

Liam Burke: Great.

Jeffrey Pribor: Apparently not longer than one year.

Lois Zabrocky: Thank you.

Liam Burke: Thanks.

Operator: Thank you. This will now conclude the question-and-answer session. I will also hand the conference back over to Lois for any additional or closing remarks.

End of Q&A:

Lois Zabrocky: Thank you very much everyone for joining International Seaways’ third quarter call. We look forward to a strong performance in the coming quarter. Thank you very much.

Operator: This concludes today’s International Seaways’ third quarter 2022 earnings call. Thank you for your participation. You may now disconnect your line.