Overseas Shipholding Group, Inc. (NYSE:OSG) Q4 2023 Earnings Call Transcript

Overseas Shipholding Group, Inc. (NYSE:OSG) Q4 2023 Earnings Call Transcript March 11, 2024

Overseas Shipholding Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, everyone, and welcome to the Q4 2023 Overseas Shipholding Group, Inc. Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please also note, today’s event is being recorded. At this time, I’d like to turn the floor over to Sam Norton, President and CEO of Overseas Shipholding Group. Sir, please go ahead.

Sam Norton: Thank you, Jamie. Welcome, and thank you for joining our presentation of OSG’s fourth quarter and full year 2023 financial results and for allowing us to provide commentary on those results and additional color as to the current state of our business and the opportunities and challenges that lie ahead. As usual, I am joined in this presentation by our CFO, Dick Trueblood. To start, I would like to direct everyone to the narrative on Pages 2 and 3 of the PowerPoint presentation available on our website regarding forward-looking statements, estimates and other information that may be provided during the course of this call. The contents of that narrative are an important part of this presentation, and I urge everyone to read and consider them carefully.

We will be offering you more than just a historical perspective on OSG today, and our presentation includes forward-looking statements, including statements about anticipated future results. These statements are subject to uncertainties and risks. Actual results may differ materially from those contemplated by our forward-looking statements and could be affected by a variety of factors, including factors beyond our control. For a discussion of these factors, we refer you to our SEC filings, particularly our Form 10-K for 2023, which we anticipate filing later today, and which can be found at the SEC’s Internet site, www.sec.gov, as well as our own website, www.osg.com. Forward-looking statements in this presentation speak only as of today, and we do not assume any obligation to update any forward-looking statements, except as may legally be required.

In addition, our presentation today includes certain non-GAAP financial measures, which we define and reconcile to the most closely comparable GAAP measure in our earnings release, which is posted on our website. Before discussing our 2023 performance and offering a perspective on how we see 2024 shaping up, I would like to comment briefly on the unsolicited non-binding indication of interest submitted to our Board by Saltchuk Resources to acquire the OSG shares it does not already own for $6.25 per share in cash. As we have previously disclosed, our Board is carefully considering Saltchuk’s indication of interest in consultation with our outside financial and legal advisors and is committed to acting in the best interest of our stockholders.

Because the Board’s work is ongoing, we do not intend to comment further on this matter during this call or to respond to questions regarding Saltchuk’s indication of interest or the possibility of any potential transaction. We respectfully ask that your questions be focused on the company’s financial results and ongoing business activities. We couldn’t be more pleased with our 2023 results. Following the positive results reported in prior quarters, it would be appropriate to state that we have stuck the landing for our fourth quarter performance. The quarter’s contribution led to meeting our adjusted EBITDA target of $175 million for the full year, a 23.1% gain over 2022 results despite having three fewer vessels in operation in 2023. The benefits of charterparties fixed at escalating rates over the past several quarters are now being realized, producing strong cash flow and providing the means to make continued progress in meeting our key capital allocation goals.

Previously announced capital investments in our Alaskan tanker assets, the purchase of 1.425 million shares during the quarter, and the declaration of our first dividend payment in many years underscore this point. Strong fundamentals have continued to support charterer interest in our vessels and allowed us to maintain and extend our preferred contract profile of predominantly medium-term charters. As has been the case for most of the past year, healthy refining margins and robust international tanker rates have supported strong performance across our fleet. Cash flow from operations continues to meet or exceed our expectations, giving us continued confidence that our business plan is working. Significantly, at year-end, we have entered into an employment contract for the Alaskan Explorer to transport U.S. Gulf Coast crude oil to one of our Delaware Bay refining customers, demonstrating the existence of employment options for this class of vessel outside its traditional Alaskan market.

Taken together with three other vessel fixtures concluded in early 2024, we have added 116 months of forward charter cover since our last report, which has increased the value of our forward charter book to over $860 million in time charter equivalent earnings as of the end of March 2024. Also of note on the chartering front has been our exercise of extension options allowed for under the terms of the bareboat agreement with the owner of the Overseas Tampa. The charter period has been extended for five years commencing in June 2025. Given this backdrop, we consider OSG to be well positioned now and over the long term to generate strong cash flows in what we expect to be a durably balanced market characterized by stable demand and constrained supply.

Several key developments during 2023 have served to bolster our confidence in our current business plan. Most visible to even casual observer of shipping markets has been the persistent influence of geopolitical tensions outside of the U.S. that have severely disrupted historical trading patterns for crude oil and its refined products. Since December 2022, the EU has, in response to the war in Ukraine, banned waterborne crude imports from Russia, and the G7 nations have implemented price caps limiting the global price paid for Russian oil and its refined products. Other countries have stepped in to purchase these commodities at a discount to world prices. More recently, the conflict in the Middle East has impacted vessels transiting the Red Sea, where vessels have been the target of Houthi missile and drone attacks, causing many vessels to avoid the Red Sea transits and to instead make longer voyages around the Cape of Good Hope.

These circumstances have collectively resulted in the redirection of crude oil and refined product trade flows and increased aggregate ton mile demand. Although the United States was not a major importer of Russian or Persian Gulf oil, its markets have nonetheless been impacted by these global events. Historically high international freight costs have resulted from disrupted trade patterns. Supply constraints now exist in markets that were alternative sources of supply competing against domestic products shipped on Jones Act tonnage. As a result, traders now seem to favor domestic product sources over overseas alternatives, giving strong support to the use of Jones Act vessels. This increase in demand has resulted in higher utilization levels and higher rates for Jones Act vessels.

Domestically, the continued impact of government policies encouraging the use of renewable fuels has driven strong demand growth for transporting renewable diesel and its feedstock components from production sources along the Gulf Coast to markets along the U.S. West Coast. California’s Low Carbon Fuel Standard regulation, in particular, have stimulated the use of renewable diesel, which is chemically identical to regular diesel, and can be used on its own or blended with conventional diesel and produces less carbon dioxide and nitrogen oxide than conventional diesel. The Gulf Coast currently produces a significant portion of renewable diesel, and California is the largest customer. Marine transportation is the most cost effective solution to move finished product to the West Coast.

The length of the trip to California creates a significant increase in ton mile demand and has created an important new market for Jones Act tankers that is expected to expand further in the years ahead. Of equal significance was the Biden administration’s approval last year of ConocoPhillips’ Willow Project in Alaska. This project, together with an earlier permitted project to develop the Pikka discovery operated by Santos, is expected to bring nearly 250,000 barrels per day of new crude oil production in Alaska by 2027. The promise of significant increased future production bodes well to the prospective demand for OSG’s Alaska Class tankers, which provide the most cost effective means for delivery of North Slope crude oil to refineries located in California and Washington State.

Anticipating this increase in demand, OSG acquired in late 2023 the Alaskan Frontier, sister to our other three ATC-operated crude oil tankers, and contracted with engine manufacturer, MAN B&W, to perform lifecycle upgrades on each of the engines on all four ATC vessels. The lifecycle upgrades will improve performance and fuel efficiency and also prepare the engines for possible use of methanol fuel in the future. It is expected that the fuel efficiency gain will result in 15% to 20% fuel savings as compared to the original engine design, leading to meaningful reduction in carbon output. The significant capital investment in the four Alaskan class tankers should permit OSG to operate these vessels for a longer period of time and with lower maintenance costs for the remaining lives.

Another development of significance during 2023 was the transaction transferring ownership of the seven veteran class tankers that OSG operates under bareboat charters from entities previously owned by AMSC ASA to new owners owned by a private fund managed by Maritime Partners, LLC. In conjunction with this transaction, OSG entered into new bareboat agreements and simplified the underlying arrangements that govern the relationship between OSG and now Maritime Partners, a Jones Act qualified company. The Maritime Partners transaction presented OSG with an opportunity to prepay all of its remaining deferred payment obligations on two of the seven bareboat chartered vessels at a 14% discount to the aggregate outstanding liability of $6.5 million.

Other material commercial terms of the revised bareboat agreements remain unchanged from the original agreements. Looking ahead for the longer term, OSG is actively engaged in pursuing opportunities in the emerging market for transporting carbon dioxide that may be captured from industrial sites in the future. In December, OSG was awarded a $400,000 grant from the U.S. Department of Energy to study the development of its proposed Tampa Regional Intermodal Carbon Hub, or T-RICH. The study is an important step towards realizing the potential for participating in an emerging market to manage the transport and sequestration of captured CO2. The study will evaluate the commercial feasibility of developing intermediate storage hub at Port Tampa Bay for CO2 captured from industrial emitters across the state of Florida.

As conceived, T-RICH would receive, store and process initially 2 million metric tons of CO2 per year, which will be transported by OSG vessels across the Gulf of Mexico for permanent underground storage. T-RICH will be the first of its kind in the nation and could be scaled in the future to meet expanded volumes of captured CO2. It bears repeating that given the restored health of our core businesses, decisions regarding allocation of capital remain the most important of those regularly considered by Board and management of OSG. When considering this question, the following topics feature prominently: First, we are interested in investing opportunistically in incremental U.S. Flag tanker and ATB assets, both Jones Act and internationally trading U.S. Flag tankers, where we expect long-term cash flow returns to provide value to our stakeholders.

Second, the Board considers applying peak cycle cash flows to reduce the overall financial leverage in our business, while at the same time, it is considering ways to sustain access to liquidity, either through creating a pool of unencumbered assets against which future financing could be added if needed, or through establishing new financing facilities which would offer contingent liquidity at an acceptable cost. Third, the Board engages in discussions regarding continuing its ongoing efforts to return capital to our shareholders. And fourth, we seek opportunities to invest judiciously in gaining and sustaining a first mover advantage and participating in the emerging market for transporting liquid bulk commodities that are not currently in the mix of products being shipped on our vessels.

In this category, we see the most interesting opportunities to be the transportation of liquid carbon dioxide generated in the value chain seeking to capture and sequester industrial emissions of carbon dioxide. I will now turn the call over to Dick to provide you with further details on our fourth quarter and full year results for 2023. Dick?

Dick Trueblood: Thanks, Sam. Please turn to Slide 7. Vessel demand continues to be strong with no additions to supply. Customers continue to show interest in longer-term time charters and entering into new contracts and direct continuation of their existing contracts, often well in advance of the scheduled maturity. Rates reflect this demand strength with recent rates now exceeding $80,000 per day for Jones Act MR tankers. This resulted in a strong 2023 performance and significant visibility into 2024 and thereafter. We continued our share repurchase efforts with the Board authorizing $45 million for this purpose in 2023. During the year, we purchased 8.6 million shares, including 1.4 million shares in the fourth quarter, bringing the total purchases, which began in 2022 to 18.6 million shares with a cumulative expenditure of $64.8 million.

The average share price paid for all of these shares was $3.46 per share. Earlier in 2023, we purchased 75% of our outstanding warrants for $11.4 million. This reduced the potential dilution by 2.6 million shares. The warrants were canceled after acquisition. The remaining outstanding warrants are convertible into 859,000 shares. At this time, we have remaining authority for further share repurchases of $25 million. Please turn to Slide 8. We have continued to extend the maturities of our book of business as our customers desire to lock in their transportation requirements. 2024 is essentially fully booked with some variability for our internationally trading vessels. Looking at the chart, in 2024, we have two vessels with charters ending before 12/31/24.

One of these two vessels, the Mykonos, has a series of one-year options with the Military Sealift Command, which, if all exercised, will keep her chartered through August 2028. The two vessels becoming available at the end of 2024 participate in the Tanker Security Program, and by design, the majority of their voyages are in the spot market. The Alaskan Legend and Alaskan Navigator are subject to extension options that if exercised will continue their charter for years into the future. Looking at our contracted book of business on a revenue basis without considering any business currently under negotiation and not assuming the exercise of any contractual options, our future book of business at March 31, 2024 exceeds $860 million over the remaining lives of those contracts.

In arriving at this estimate, we have factored out estimated off-hire days due to future required drydock periods. We completed the purchase of the Frontier in the fourth quarter as sister ship to our three Alaskan tankers. She’s been in cold layup since 2019 and we are now actively planning a lengthy shipyard period during which we will also perform engine lifecycle upgrades and installation of the ballast water treatment system. We expect her to commence commercial operations in the fourth quarter of 2024. Our total resource commitment, including the purchase price, is expected to approximate $50 million. Please turn to Slide 9. We had 7,391 available days in 2023, of which 96% were contracted. This represents a continuous improvement from the low of 2021 during the pandemic, as well as a high point for the last five years.

Available and contracted days decreased with the return of three vessels to AMSC at the end of their bareboat charters in December 2023. Please turn to Slide 10. We’re very pleased with our fourth quarter and full year results. All elements of our fleet continue to perform well. We did have some fluctuations due to scheduled drydock days. Fourth quarter revenues increased modestly to $110.1 million from $108.6 million. An increase in off-hire days due to drydock schedules moderated the increase. Rates and utilization remained high. Revenue declines from the year-ago quarter result from the return of three vessels in December 2022 at the expiration of their bareboat charters. Increased rates and higher utilization from the remaining fleet offset much of this decrease.

Full year time charter equivalent revenues were $423.5 million, essentially flat to 2022 time charter equivalent revenues of $426.3 million. Fourth quarter adjusted EBITDA was $47.3 million compared to the prior year’s quarter — to the prior quarter’s $48.1 million. Full year adjusted EBITDA was $175.7 million, a 23% increase from 2022. The reduction in operating expenses and charter hire associated with the return vessels offset the revenue decline from those vessels. Please turn to Slide 11. Jones Act Handysize tanker revenues increased $2.2 million from the prior quarter, while ATB revenues increased $900,000. Specialized business revenues decreased $1.6 million. Please turn to Slide 12. Lightering volumes increased slightly from the third quarter with a corresponding increase in revenues.

Non-Jones Act tanker revenues decreased modestly from the third quarter resulting from lower quarterly utilization. Jones Act shuttle tanker revenues declined due to a scheduled drydock period. Alaskan tanker revenues were essentially flat compared to the third quarter as the Alaskan Legend underwent first scheduled drydock period. Each of the third and fourth quarters saw one vessel in drydock. Please turn to Slide 13. Fourth quarter vessel operating contribution declined $2.2 million due to the lower contribution from the specialized businesses resulting from their specialized — their scheduled drydock periods. Jones Act Handysize tankers contribution increased $1 million. Rate increases due to new contract provided the impetus for this increase.

The contribution from our ATBs increased $1.2 million, and this increase was moderated slightly by the completion of the scheduled drydock. Please turn to Slide 14. Fourth quarter adjusted EBITDA was $47.3 million, and adjusted EBITDA for 2023 full year was $175.7 million, a $32.9 million increase from 2022. Please turn to Slide 15. 2023 net income was $62.5 million compared to 2022 when net income was $26.6 million. The continuing impact of higher rates, increased contract duration, and increased utilization contributed to these positive results. Please turn to Slide 16. I thought it might be instructive to quantify how adjusted EBITDA is used. The difference between adjusted EBITDA and this table approximate our free cash flow generation.

During 2024, we expect to expend $28 million in interest expense and reduce our outstanding indebtedness by $43 million. This includes the repayment of the Sun Coast loan maturing in September with an outstanding balance of $18 million. Our CapEx for planned maintenance this year is $30 million. We will expend an additional $32 million to reactivate the Frontier, complete our lifecycle engine upgrades and make progress payments towards the lifecycle engine upgrades for our other three Alaskan vessels. Finally, in the first quarter, we paid in full the ATC $7 million deferred compensation obligation. One more 2024 note. We are currently projecting that we will not pay any profit share with respect to our seven bareboat chartered vessels from ASC.

We anticipate considering vessel performance that in future years we will begin to pay profit sharing. Please turn to Slide 17. At September 30, 2023, we had total cash of $98 million. During the fourth quarter, we generated $47 million of adjusted EBITDA and working capital used $10 million. We invested $39 million in vessel drydock and other capital costs. As mentioned before, we repurchased 1.4 million shares for $7 million. Additionally, we paid $13 million in debt service. As a result, we ended the quarter with $76 million of cash plus $15 million of liquid investments, resulting in total liquidity of $91 million. Please turn to Slide 18. Continuing our discussion of cash and liquidity, as mentioned on the previous slide, we had $76 million of cash.

Our total debt was $404 million, which represents a decrease of $6 million in outstanding indebtedness since September. With $354 million of equity, our net debt to equity ratio is 0.9 times. This concludes my comments on the financial statements. I’d like to turn the call back to Sam. Sam?

Sam Norton: Thank you, Dick. Turning to our expectations for 2024. A high level of forward contract coverage has now become a feature of our business profile. The markets within which we operate have continued to firm, allowing us to succeed in concluding new or extended time charters, which taken together with our existing book of business provide us with time charter coverage for our Jones Act vessels for over 95% of available vessel trading days for all of 2024. Recent fixtures of conventional Jones Act tankers have been in the mid-$80,000 per day range for periods of three years. Fixtures for comparable periods for larger ATBs are now approaching $60,000 per day. We evaluate the market time charter equivalent for our ATC vessels at levels exceeding six figures on a daily basis.

Since we now have clear visibility of both charter rates and fixed contract coverage for 2024, changes in our expectations for 2024 should occur solely as a result of changes in lightering volumes and in the rate conditions experienced in the international MR market in which currently only two of our Jones Act — our non-Jones Act vessels trade. Available trading days for the year remain only for the fourth quarter for both the Alaskan Explorer and the Alaskan Frontier. For both of those vessels, we are currently fielding inquiries for employment, and we are optimistic that we will fix these ships well in advance of their open availability dates. We anticipate continued strength in all important financial metrics and a sustained build in our available cash balances over the next several quarters as profitable time charters at high utilization rates are realized.

Given all of this, we are in position today to provide guidance of our expectation of time charter equivalent earnings for the full year of approximately $450 million. Attaining this top-line result should generate a growth in adjusted EBITDA of between 10% and 15% as compared with full year results for 2023 announced earlier today. After accounting for cash used for debt service, planned maintenance CapEx, installment payments for engine upgrades from our ATC vessels and the retirement of the ATC deferred compensation plan, we expect to generate surplus cash of approximately $50 million over the course of 2024. To deliver these results, our mission is firmly focused on execution and operational excellence as well as the pursuit of growth opportunities described earlier.

Jamie, we can now open up the call for questions.

See also 30 US Cities with the Highest Fast-Food Consumption and 20 Most Popular Religions in the World.

Q&A Session

Operator: Ladies and gentlemen, at this time, we’ll begin the question-and-answer session. [Operator Instructions] Our first question today comes from Ryan Vaughan from Needham. Please go ahead with your question.

Ryan Vaughan: Great. Thank you. Hi, Sam and Dick, great job on the quarter. Great job on the year as well. A few questions for me. Maybe just the first one, Sam, I know it’s a little bit early, but you’re through quite a bit of the CapEx on the Frontier, you mentioned, in the fourth quarter. Just how you’re thinking about the use cases for the Frontier? Number two, just thinking, you guys have done an incredible job of de-levering the balance sheet. I’m just running some rough numbers. It looks like at the end of the year, it will be a little bit less than 1.5 turns. You did just give us some guidance, so it’s probably even a little bit better than that. Just how you’re thinking about that? You did mention some unencumbered vessels.

How you’re thinking about appropriate leverage for the business? That’s number two. And then just the last one, if you don’t mind. Dick, you had mentioned you had $25 million left in the share buyback. Is that accessible currently or is that on hold given, Sam, your earlier remarks about the unsolicited proposal? Just any update on that? Thank you.

Sam Norton: Okay. So, I’ll try and address the three questions as best I can. Frontier, we expect the Frontier to be available out of the geographic drydock is in Singapore. So, we expect the vessel to be out of the drydock by the end of September. Depending on where her employment options evolve, that would make her, in my opinion, sort of ready to load cargo, probably three to six weeks later than that, depending on where she goes. In my prepared remarks, I highlighted the fact that we think that medium term the production of Alaska crude oil is going to be a big driver of the use case for all of our ATC vessels. The interim period between the end of this year and the early part of 2027, that’s a period that we have to fill.

We have some ideas about how we might do that both in the traditional Alaska trades as well as emerging interest that we see for transporting crude oil from the Gulf Coast to locations on the East Coast of the United States. I also pointed out that we saw a good example of that in the use case for the Alaskan Explorer. She is currently on a contract to transport kudos from PADD 3 to PADD 1 for one of our Delaware Bay refineries refinery customers. And there is interest from other parties to explore and utilize this size of crude oil tanker in the Gulf Coast and East Coast trade. So, we see either one of those options in the short run, either working the traditional Alaskan trades or working additional demand or so satisfying additional demand in the Gulf Coast trade as the likely short-term utilization of these vessels.

Medium term, sort of beyond 2027, I think we feel that the home for all of these vessels will be in the Alaskan trade as that new production comes on stream. Level of debt, that’s a constant conversation for us. In our conversations, we consider that our business is cyclical and that market peaks or near market peaks, it’s a good idea to be reducing debt, and that has been an objective of ours over the last 18 months or so. And as Dick alluded to, we currently plan to allow maturing debt facilities to just be paid off with surplus cash that we have. I think that you noted 1.5 times, I think that that’s a good number. I think that we expect our net debt cash net of — excuse me, debt net of cash by the end of this year to be less than that probably.

It’s less than $300 million of net debt, and we’ve guided to a 10% to 15% increase in adjusted EBITDA against the 2023 levels. So, that would put it at less than 1.5 times turn. Dick, do you want to answer the question on the $25 million?

Dick Trueblood: Sure. I think it is available currently. We would probably be somewhat cautious about using it right now. But we still see this as an attractive use of cash to reduce the outstanding shares and to return money to shareholders who have an interest in selling their shares. So, I’m…

Sam Norton: Yeah. And it’s US$25 million of unutilized [indiscernible] and so, it is fully available to us should we choose to use it.

Ryan Vaughan: Okay. Great. All right. Well, thanks for that, and great job. Appreciate it.

Dick Trueblood: Thanks, Ryan.

Operator: [Operator Instructions] Our next question comes from [indiscernible] from Value Investors. Please go ahead with your question.

Unidentified Analyst: Good morning. Thank you for taking my questions. I wanted to start by asking our potential opportunities in the CO2 space. You received a grant from the Department of Energy to study feasibility of developing a storage and transport hub. How should we think about potential timings? And secondly, should the project be commercially feasible, would OSG focus on transportation or also on the ownership and operation of the storage and terminal facilities?

Sam Norton: So, as to timing, a lot depends on a lot of things, but we are pursuing this opportunity with the belief that current support for climate change initiatives will continue, including a significant amount of funding that’s being made available by the current administration to be able to promote those solutions. The grant is part of that program, and we believe that within the next 12 to 18 months, we should complete the study that’s being funded by that grant. It would be a success, in my opinion, if, by the end of 2025, we had a clear understanding of the scope, a full front-end engineering and design and a full development of the scope for going out for construction bids to be able to assemble the various component parts of this value chain that we’re interested investing in.

Given the requirement that the vessels would need to be built in the United States and given the current — our current understanding of the lead time for vessel deliveries following a contract award, I think a three-year forward delivery position is a good number to be working on. I think that probably — the other elements of the project could probably be completed within that three-year period. So, I think there is cause to believe that sometime during 2029, probably the latter part of 2029, there might be revenue generating that would start from this project. So, we’re looking at a five year — effectively at a five-year forward revenue generating opportunity, which I understand in most people’s sort of economic models that’s far out in the future.

Nonetheless, I would emphasize that should this project prove feasible, the opportunities for managing the capture of carbon at industrial facilities in Florida, we think is extraordinary. Within 40-mile radius of Tampa itself, there’s existing industrial emitters that emit 25 million tons a year of carbon dioxide. As indicated in my comments, our additional project is scaled to 2 million ton per annum scale, but there are opportunities we think to scale up from that if the concept proves feasible. And for the scope of the work, clearly, we’re interested in the maritime component of this. However, our current focus is also to participate in the shore-based storage and — well, liquefaction and storage facilities that would be shore based, and to participate as well potentially in the downstream storage and regasification of these facilities.

So, that’s all open to study and further consideration. But at this juncture, we’re imagining a project boundary that would extend from the outlet flange of a delivery pipe probably from an emitter to the outlet flange of the delivery receiving facilities for delivery into probably pipelines for further delivery to sequestration sites in PADD 3.

Unidentified Analyst: That’s very helpful. Thank you. I also wanted to ask about recent contract renewals. You mentioned new three-year contracts for Jones Act vessels are assessed in the mid-$80,000. But could you provide some additional commentary on the delta between the new contracts for the Tampa, the Endurance, the Nikiski and the Alaskan Explorer relative to their previous employment?

Sam Norton: So, yes, the OSG — we fixed one ATB during the first quarter of this year. Per increase from the previous rates is order of magnitude of $20,000 per day. And for the Overseas Nikiski and for the Overseas Tampa, the increase for the Nikiski is order of magnitude of $20,000 per day and for the Tampa, $10,000 per day roughly.

Unidentified Analyst: That’s really helpful. Thank you. That’s all from me. Thank you for taking my questions, and congratulations for the quarter.

Sam Norton: Appreciate it.

Operator: [Operator Instructions] Our next question comes from [Josh Kehoe] (ph). Please go ahead with your question.

Unidentified Analyst: Hi, Sam and Dick. Great quarter, great year, just to echo what Ryan said earlier. I just have two questions. The first one, just a quick one. Previously Sam had mentioned potential interest in a new build ATB from one of your customers. I’m just wondering if there’s any update on that.

Sam Norton: Nothing firm at the moment, although I think it would be accurate to characterize the current Gulf Coast or cross-Gulf availability of capacity is being quite tight. And I think that, one of the — Josh, you know this, one of the things that people are watching is whether the new CARB regulations in California result in some of the equipment that has traditionally been moving on the West Coast coming back to the Gulf Coast. I saw today actually that the U.S. Coast Guard is choosing to not enforce some of those and there’s still an open question as to whether or not those CARB rules will be enforced. So, I think people are watching that. On the assumption that nothing much changes on the West Coast, in other words, that the existing equipment that’s operating in the West Coast will be allowed to continue to operate there, I think that might be the catalyst one or more of the principal transporters of refined petroleum product in the Gulf Coast trades to come with an RFQ for new ATB sometime during the first half of this year.

Unidentified Analyst: Okay. Yeah, great color on the CARB regulations. I’m following those closely too. So thank you on that. My second question is, I noticed it looked like for Q4, the international, the non-Jones Act MR tankers, the TSP tankers, it was a little bit soft on the numbers compared to previous. So, I believe one of the tankers may have been ballasting back from East Asia may have been part of that. But I was just curious if you’ve seen any or heard any interest in increasing number of preference cargoes out of MARAD, whatnot to support the TSP fleet. That’s the end of my questions. And once again, great quarter. You hit your guidance spot on and I love seeing what’s been going on. So, thank you.

Sam Norton: Yeah, I think the TSP preference cargo issue is an ongoing conversation. There is — the programs that are sponsored by the transportation department are built around commercial trades, plus the stipend, plus access to preference cargoes. I think there’s a general view that the dry cargo operators in the Maritime Security Program are afforded a larger value to the preference cargoes that is the case currently with the tanker trades. And clearly, the introduction of new U.S. Flag tankers into what was already relatively [indiscernible] preference cargo availability has raised some questions amongst the operators as to how and — if, and if so, how to increase the preference cargo availability. I think there is relative recognition of the need to be able address this issue at TRANSCOM and at MARAD.

And I think that, that conversation over time should result in some positive direction from the owners’ point of view. I think it’s really too early to comment what the level — with the current level of preference cargo is going to be. Last year, because of the Military Sealift Command’s chartering of six vessels to assist them with repositioning cargo out of the Red Hill storage facilities in Hawaii, that created, in the second half of the year, a significant increase in what’s — I consider that a preference cargo or increase in U.S. Flag utilization internationally. Most of those vessels, if not all of them have now been redelivered. So, there is a question as to what’s this year going to look like. I mentioned that the Red Sea is clearly an area of operation not favored by many operators.

And so, we’ve seen at least one cargo, which would normally have transited the Red Sea, move from the Mediterranean, not on our ship, but on one of the other U.S. flagships, move from a Mediterranean load port to Middle Eastern discharge port, not transiting the Suez Canal, but going around the Cape of Good Hope, that obviously adds ton mile demand and days on their preference cargo. So that’s a positive — from the owners’ perspective, that’s a positive development. I think it’s yet to be seen how things play out this year, but we — in I think 2022 and 2023, we certainly saw a greater number of days under preference cargo during those years than we had in prior years. It’s a question to me right now whether we revert back to the sort of level of MSC cargoes that we did in 2020 and ’21 or whether we see a sustained level of increased preference cargoes resulting from the various geopolitical events around the world and a step up of commitment to moving cargo on U.S. Flag vessels from TRANSCOM.

So, yet to be seen.

Operator: And ladies and gentlemen, with that, we’ll be concluding today’s question-and-answer session. I’d like to turn the floor back over to Sam Norton for any closing remarks.

Sam Norton: Thank you, Jamie, and thank you again all for listening in. We look forward to continuing to provide you with more information as and when we can, and to what we consider will be good quarters in the months ahead. Thanks again for listening. Have a good day.

Operator: Ladies and gentlemen, with that, we’ll conclude today’s conference call. We thank you for joining. You may now disconnect your lines.