Overseas Shipholding Group, Inc. (NYSE:OSG) Q2 2023 Earnings Call Transcript

Overseas Shipholding Group, Inc. (NYSE:OSG) Q2 2023 Earnings Call Transcript August 7, 2023

Operator: Good morning, and welcome to the Overseas Shipholding Group Second Quarter 2023 Earnings Release Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Sam Norton, Chief Executive Officer. Please go ahead.

Samuel H. Norton: Thank you, Drew. Welcome, and thank you listening in on this presentation of our financial results for the second quarter of 2023, and for allowing us to provide commentary on those results and additional color, so the current state of our business and 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 two and three 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 an 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 risk factors, including factors beyond our control. For a discussion of these factors, we refer you to our SEC filings, particularly our Form 10-Q for the second quarter of 2023, which we anticipate filing later today, and our previously released Form 10-K and 10-Q, 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 be legally required.

In addition, our presentation today includes certain non-GAAP financial measures, which we define and reconcile to the most closely comparable GAAP measures in our earnings release, which is also posted on our website. Solid and satisfying best characterizes the second quarter results that OSG announced earlier this morning. Following on from an equally strong performance during the first quarter of the year, we are now comfortably on track to [heat] (ph) our prior guidance for full-year financial results, with first half adjusted EBITDA having reached $80 million. Contributing to our second quarter results, were incrementally higher average TCE rates for our Jones Act MR tankers and stable and historically consistent returns from our specialized assets.

Positive real cash flow witnessed in the past several quarters has continued to allow a build in liquid assets. The quarter-end cash balances including investments in treasury securities stood at $120 million, an increase when compared with first quarter comparable levels even after taking into consideration nearly $10 million of stock repurchase during the period. Favorable market conditions over the first half of this year have allowed us to achieve our preferred contract profile which consist predominantly a medium-term charters. As of the end of June, the average contracted duration for our Jones Act vessels was over 21 months, with 100% of 2023 available days and 80% of 2024 available days now fully fixed. This contract duration gives us unusually high level of forward revenue visibility.

Further, in none of the next ten quarters, do we expect more than two vessels to be open for fixing at the same time. The combination of firm charter rates, staggered maturities and extended contract durations bodes well for continuing into the foreseeable future our recent strong financial results. During the quarter, the much anticipated conclusion of the Military Sealift Command’s tender for vessels to be stationed in the Pacific in support of key Department of Defense operations saw OSG’s Overseas Mykonos awarded one of the long-term contracts for MR tankers adding to the book of forward cover. The MSC contract is structured as a firm one year time charter, with options to extend the contract on an annual basis for up to 66 months in total.

It will produce more than $20 million of time charter equivalent earnings during the first year and close to a $100 million of total [TCE lightering] (ph) contract, if all options are exercised. Our success in securing at least one of these tender contracts was a major objective for the year. As with OSG’s participation in the Tanker Security Program, recognition of the key role played by OSG in supporting the maritime logistical requirements of the country’s defense strategies is a welcome vote of confidence in the value of the services that we provide. The Overseas Mykonos delivered into the MSC contract last week, and will, as a result, be withdrawn from the Tanker Security Program. This creates an opportunity for OSG to expand its fleet of internationally trading U.S. Flag tankers through the acquisition of a second hand tanker to fill the TSP slot vacated by the Mykonos.

We’re actively evaluating options to replace the Mykonos and are working to do so in the near future. As mentioned on previous calls, we have been seeking to add to our fleet count opportunities for which are most promising through expansion of activities in U.S. Flag operations outside of coastalized trades. Congress’ authorization of an increase in the number of ships participating in the TSP from 10 to 20 ships offers optimism for the chance to further expand this mid sector. Moving from two U.S. Flag vessels engaged in foreign trade at the beginning of this year, to potentially four such vessels by the end of this year, is a good start to realizing this growth potential. Turning to the domestic market, most indications reflect a market that is continuing to tighten with all Jones Act tankers in nearly all ATBs fixed on time charter to primary end users and traders.

Recent fixtures by competitors are reported to have seen an MR tanker taken for two years at a rate exceeding $80,000 per day, a 270,000 barrel ATB fixed at over $60,000 per day, also for two years, and 180,000 barrel ATB committed for two years at an average rate of $43,000 per day. The pricing power for owners of Jones Act vessels has not been this strong for nearly a decade. During this past quarter, we’ve reached agreements with each of OSGs to lightering customers who extended their respective Contract of Affreightment for two years commencing July 1, of this year. Time charter equivalent earnings on the terms as extended at the minimum barrels committed will increase by roughly 10% over the minimum time charter equivalent amounts implied in the expiring contract terms.

It is worth noting that both of these lightering customers have exceeded the minimum contract volumes in each of the past two years. OSG has one conventional MR tanker, one ATB, and one Alaskan tanker coming open at the end of this year. Discussions are advanced to conclude terms for future employment of these vessels. It is anticipated that all three of these ships will be fully fixed by the end of the current quarter, a position which if achieved, will lead to a forward time charter book for all of 2024 that exceeds 90% of current vessel available days. OSG is actively taking steps intended to incrementally reduce the carbon footprint of our existing fleet. We have discussed some of these steps in our sustainability report available on our website.

This commitment to imagining and delivering on a future business model with a reduced carbon footprint is an important component of our current plans. In this context, we have recently entered into several memoranda of understanding to make capital investments on existing vessels intended to reduce fuel consumption and associated TiO2 emissions. Of these initiatives, the most significant is an MoU signed an engine maker MAN B&W to upgrade engines on two of our ATC tankers with a goal of achieving as much as a 15% reduction in annual fuel consumption. These engine upgrades, if concluded as planned in 2024, will involve a total project cost for two vessels of close to $25 million. The MoU includes options for upgrades on up to two additional Alaskan class vessels.

Expected benefits to be achieved by these engine upgrades include reduced annual fuel maintenance and operating costs of approximately $2.5 million per vessel, and an estimated reduction of 6,000 tons of CO2 emissions per year for each vessel. As important, these upgrades will ensure CII compliance under current rules beyond 2030, ensuring continued availability for these vessels to operate in Jones Act trades for the foreseeable future. Other upcoming investments on selected vessels include planned modifications to improve propeller efficiencies, installation electronic performance monitoring equipment and use of high performance hulk coatings, all intended to reduce fuel consumption and improve operating efficiencies. These initiatives will help us move towards our stated goal of reducing overall greenhouse gas emissions across our fleet by 10% by the end of 2024.

Beyond modifications intended to incrementally reduce carbon footprint of our existing fleet, OSG continues to develop plans for contributing to a reduction in global greenhouse gas emissions through CO2 capture and sequestration. In recent months, we have witnessed considerable momentum building towards the development of intermediate storage hubs and transport networks to facilitate industrial scales CO2 capture and sequestration projects. OSG’s established franchise for domestic transport of liquid bulk commodities gives us a significant competitive advantage for participating in this emerging market. OSG has recently partnered with key port operators along the Gulf Coast, to submit applications for grants from the U.S. Department of Energy to develop detailed projects for intermodal transport hubs for captured CO2.

OSG believes that the marine transport of captured CO2 is the most attractive means of connecting stranded industrial emitters in the region with sequestration sites. We are focused on working with our new partners to develop economically viable solutions to achieve this vision. I expect to be able to share with you more specifics on this topic in the quarters ahead. I will now turn the call over to Dick, to provide you with further details on our second quarter results for 2023. Dick?

Richard Trueblood: All right. Thanks, Sam. If we could turn to slide seven, please. Our Board authorized a $10 million share repurchase program in March 2023. And in June, increase the authorization by an additional $10 million, bringing the current program to $20 million. In the second quarter, we repurchased 2.1 million shares for $8 million. Cumulatively, in 2023 our purchases through June 30, 2023, were 2.6 million shares for approximately $9.8 million. Since then, we have repurchased an additional 258,000 shares for $1 million through August 3. Cumulatively, since we began to repurchase shares in June 2022, and including the purchases in the third quarter of this year, we have bought a total of 12.9 million shares returning $39.9 million to shareholders.

Please turn to slide eight. Expanding on Sam’s comment, and also including revenue days from both our U.S. Flag and Jones Act operations, our contracted book of business for 2023 represents 96% of all available days. Keep in mind that the international U.S. Flag business is a combination of contracted of Affreightment business and spot voyages. This high level of contracted business substantially increases the predictability of our future operations. Looking at this on a revenue basis, without considering any business currently under negotiation and not assuming the exercise of any existing contractual options, our future book of business is approximately $840 million over the remaining lives of our existing contracts. The factors that estimated off-hire days due to future required drydock periods.

Second quarter operating results were in-line with expectations. We continue to see active demand for future time charters as customers ensure their ability to meet their future transportation needs. As Sam addressed in his comments, the rate environment remains quite healthy, along with demand for longer term contract duration. The Tanker Security Program commenced during the second quarter saw three of our vessels accepted into the program. Program participation provides $6 million annual stipend paid monthly per vessel to reduce effective operating costs to permit U.S. Flag vessels to compete in the international marketplace. Subsequently, one of these vessels, the Overseas Mykonos, entered into a time charter with the Military Sealift Command and will be removed from the TSP.

As Sam discussed, we are actively seeking to acquire another vessel to fill the TSP position, formerly occupied by the Mykonos. Please turn to slide nine. Second quarter TCE revenues were $100.1 million, $4.6 million decline from the first quarter of this year. 77 off-hire days due to drydock schedules was primary contributor to the change. We will continue to see the impact of increased survey activity in third quarter. We have 136 budgeted drydock days in the second half, of which 96 days will occur in the third quarter. We expect to expand approximately $23 million on drydock and related capital expenditures over the balance of this year. Adjusted EBITDA was $39.5 million, a small decrease from the prior quarter, principally resulting from the discussed decrease in revenues.

Please turn to slide 10. Our specialized business revenues declined $4.7 million and ATB revenues declined $1.5 million. Jones Act product tanker revenues increased $1.4 million due to the higher average daily rates. Looking at slide 11. During the first quarter, lightering volumes had exceeded historic levels. In the second quarter, volumes returned to more typical levels and TCE revenues associated with this business reverted to historical means. Non-Jones Act tanker performance was influenced by the scheduled 30-day drydock period for the Overseas Mykonos and fewer Military Sealift Command voyages during the quarter. Jones Act shuttle tanker revenues increased $1.1 million returning to customary quarterly levels following the completion of the Overseas Cascade’s intermediate survey during the first quarter.

Alaskan Tanker revenues were stable between the quarters as those vessels continued to be fully chartered. Please turn to slide 12. Vessel operating contribution decreased slightly to $43.5 million from $46.6 million in the first quarter. The contribution from our specialized businesses decreased $2.9 million as the lightering volumes return to more customary levels coupled with the survey period for the Mykonos and a decrease in MSC cargos reduced the non-Jones Act product tanker contribution. Jones Act Handysize tankers contribution increased $1.3 million due to rate increases on new contracts providing the impetus for this change. The contribution from our ATBs decreased $1.7 million as both the OSG 204 and OSG 350 experienced off-hire for drydock period during the quarter.

Turn to slide 13, please. Adjusted EBITDA was $39.5 million for the quarter, bringing our first half adjusted EBITDA to $80.4 million, a modest $1.4 million decline from the first quarter again, reflects off-hire days for survey requirements and the lightering volume reductions. Adjusted EBITDA increased from Q2 by $8 million. Please turn to slide 14. We’ve continue to generate net income in our trailing 12-month basis, our net income is $47.8 million. The substantial improvement in our markets including the impact of renewable diesel vessel demand, as resulted in rate increases and increased contract duration substantially contributing to these positive results. Please turn to slide 15. First, let me apologize as the published slide is an incorrect slide.

And I’ll discuss the correct information that affects two columns. At March 31, 2023, we had total cash of a $105 million, not $79 million. During the quarter, we generated $39 million of adjusted EBITDA and working capital used $11 million of cash and not contribute $14 million. We invested $5 million in vessel drydock and other capital costs, and we’ve repurchased 2.1 million shares for $8 million. We paid $14 million for debt service, $6 million of which reduced our outstanding debt through scheduled amortization. We ended the quarter with $106 million of cash, plus an additional $15 million of liquid investments resulting in total liquidity of $121 million. Please turn to slide 16. Continuing our discussion of cash and liquidity, as mentioned before, we had $106 million of cash.

Our total debt was $416 million, representing a decrease of $6 million in outstanding indebtedness since March 2023. Scheduled loan amortization for the remainder of 2023 is $11.8 million, with $354 million of equity, our net debt to equity ratio is 0.9 times. In 2024, our scheduled debt service is $53.1 million, of which $24.9 million is principal amortization. Additionally, our loan on the Overseas Sun Coast matures in September 24, and will have an outstanding balance at that time of $18 million. This concludes my comments on the financial statements. I’d like to turn the call back to Sam. Sam?

Samuel H. Norton: Thank you, Dick. As highlighted by Dick’s detailed comments, the first half of 2023 has proceeded largely according to plan, with positive performance in both average TCE attained and the contribution of some of our specialized assets putting us on-track ahead of where we guided at the outset of the year. With now greater visibility of charter rates and coverage contracted for future quarters, the extent of our abilities to expectations for the balance of the year will 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 non-Jones Act vessels trade. Our fleet today remains well-positioned to respond to the changing patterns of domestic and international transportation of fuel shipments, and is well situated and actively engaged in participating in emerging areas of opportunity.

We anticipate continuing strength in all important financial metrics and to sustain build in available cash balances over the next several quarters as profitable time charters at higher utilization rates are realized. As Dick noted, we do anticipate increased drydocking survey out of service days for the second half of this year. Nevertheless, with our success in securing improved terms on a number of vessel contracts, it gives us confidence in improving our guidance for full-year 2023 results from what we have presented last quarter. We now expect time charter equivalent earnings for the full-year of approximately $410 million. Attaining these top line results should generate adjusted EBITDA of about a $160 million for the full calendar year of 2023.

After deducting debt service and planned maintenance capital expenses, we anticipate that free cash flow for the full-year should be close to $70 million. To deliver on these results, our mission is firmly focused on execution and operational excellence, as well as the pursuit of growth opportunities in some of our specialized businesses. The extended contract coverage into 2024 also allows us to project with a reasonable degree of certainty, results that should be achieved from existing vessels for next year. Given what we know today, we expect time charter equivalent earnings for 2024 to exceed $430 million and an adjusted EBITDA to exceed $175 million for the full calendar year of 2024. Capital allocation and the future use of surplus cash flow is a regular topic of conversation with our Board.

We consider allocation of capital decisions to be among the most important that we must make towards achieving a proper balance between investing in the future, managing the level of our fixed payment obligations and considering appropriate means for returning cash to our shareholders. We recognize the need to invest in solutions to ensure the long-term sustainability of our business model. To continue to meet the investment objectives of our shareholders, and to be responsive to ambitious goals of achieving a future target of zero emissions for ocean shipping. As reflected in the comments made during this presentation, we believe that we are making good progress towards meeting all of these goals. We hope that you will agree with our assessment and that we can continue to advance these objectives in month and years ahead.

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

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Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Climent Molins with Value Investor’s Edge. Please go ahead.

Climent Molins: Good morning. Thank you for taking my questions. You provided some very interesting commentary on CO2 transport. Although this is still an exploratory phase, when do you think any potential firm commitment could materialize? Could this be a 2024 event, or how should we think about it?

Samuel H. Norton: Thanks for the question, Climent. This is an area of opportunity that we think is extremely interesting. But as you noted, it’s a project or series of projects that will likely have a long lead time, just to put it in context, if we were to order some vessel to comply with Jones Act regulations to be able to service meaningful volumes of CO2 transport, the likely delivery time for a new vessel in the United States today is probably in the order of magnitude of three to four years. So, even if we were to have a firm project in hand today, revenue generation from that project would likely not be visible for a better part of three to five years. I think our own expectations are that, within the next two years, we’re hopeful that we will see, real progress made towards, actually seeing projects get off the ground.

Projects getting off the ground in my understanding of that, meaning be commitments from, emitters and sequesters to annual volumes of CO2 transport that would allow of the infrastructure to be committed to and to be commenced construction of all of those intermediate, pipelines and storage and vessel and receiving facilities on the other end. So, it’s certainly not something that’s going to be revenue generating in the next, 12 to 20 [Technical difficulty] But I think longer term, it’s an area of opportunity that could provide significant additive revenue to our portfolio in the long run.

Climent Molins: That’s very helpful. Thank you. And following up on that question, would there be any appetite to invest in the online infrastructure, or would you mostly speak with the best one?

Samuel H. Norton: I think that’s a question that we’re still in the early stage of considering. But I think that, we will examine this question from the perspective of how best to deploy our capital to ensure the most competitive position that we can attain in the full value chain of capture and distribution. I don’t think that would include actual capture, carbon capture equipment at the emitter sites. But, in the transportation chain that links stranded emitters with sequestration sites. I think there’s scope for us to examine, each and every part of that value chain in the transportation link.

Climent Molins: Makes sense. That’s really helpful. You’ve secured a grand total of first slots on government contracts, but you have three international MRs. And I was wondering how do you plan to fulfill this last slot. Is a bareboat in the most likely option, or would you rather acquire the vessel?

Samuel H. Norton: I think that we’d look at both options. My own opinion is life is easier if we own the vessel as opposed to bareboat the vessel. But, we’re really looking at it from the point of view of a capital cost perspective, as to which is ultimately the most beneficial structure.

Climent Molins: Thank you. Thanks for the color. That’s all for me. Thank you for taking my questions and congratulations for the quarter.

Samuel H. Norton: My pleasure, Climent.

Operator: The next question comes from Ryan Vaughan with Needham. Please go ahead.

Ryan Vaughan: Thank you. Hi, Sam, hi, Dick, hope you guys are doing well. Great job in the quarter. And, Sam, thanks for the guidance, it’s some big time numbers. So, it’s a great job there, especially for 2024. Thank you for that. Come ahead on a few other things I was going to ask you about, but maybe for, Sam and for Dick, if you could just help us out a little bit generating a ton of free cash flow, look at for $160 million EBITDA this year, $175 million next year, leverage it’s getting pretty, low here at $1.5 million on a net basis. With that being said, obviously, we’re at a good point in the cycle. Can you guys just talk about what you’re thinking about, it’s a bigger balance, but it’s from an actual leverage perspective, it’s quite low. How are you thinking about what’s ideal? Where would you like to be, as we start thinking out six to six months, maybe toward the end of the year as far as debt and cash balances, what’s ideal for the company?

Richard Trueblood: Yes. I think, clearly we have one piece of debt maturing next year. And then in 2025, we’ll start to see some additional debt maturities arising. I mean, I think, in some respects, we would like to continue, and we are continuing to deleverage our business a bit, and reduce what our fixed obligations are. But, as you know, Ryan, it becomes a real mix of what other opportunities are out there, on how to deploy cash and make capital investments for the future. We have an opportunity now to look at repaying some debt without refinancing it. And I think that would [indiscernible] the very near-term be attractive. But, decision is going to be made based on how we see opportunities unfolding for adding a ship to the TSP program, for instance, and whether that is, again, it’s outright purchase or it’s a bareboat charter and what that implies.

And then, we continue to have an interest in expanding our fleet that participates in the TSP as it grows from 10 to 20 vessels. And so we’re going to have to look at those capital commitments as well, and then balance it all out. So, I think it’s going to be an evolving outcome.

Ryan Vaughan: Fair enough.

Samuel H. Norton: Yes, Ryan —

Ryan Vaughan: Oh, sorry.

Samuel H. Norton: Ryan, maybe I can add one of that. There’s — in loose bucket terms, there’s probably three areas think we’re going to need to expand some of it, well, leaving aside share repurchases and debt repayment in terms of sort of investment in the business opportunities in the near-term, there’s probably three [technical difficulty] that we consider we need to be mindful of when we think about our forward cash requirements. One is, as Dick mentioned, the replacement of the Mykonos TSP program, whether that’s a bareboat or an outright purchase that would obviously have implications on the amount of cash that would be used. And then the second is, we remain hopeful to be able to find, means of reactivating the Alaskan frontier that would involve capital both for likely the acquisition of that vessel, which is currently still owned by BP as well as pretty substantial investment into bringing that vessel back to an operating condition, since it’s been in lay-up since 2019.

So, there’s some hope that we have some clarity on that by the end of the year. And then the third area, that I addressed in, at some detail in my prepared comments is, investments in capital expenditures to reduce fuel consumption in our ships. Again, those are investments that will be made likely over the period of 2024 and 2025. So, all these things are out there. And, how we fund those and how we finance them, really will evolve from day-to-day. I would note that pretty attractive, all of our debt is currently fixed rate. And in an environment where interest rates are rising, the real benefit of prepayment of debt becomes pretty marginalized when you look at particularly specific loans that we have out there. I think, all else being equal, we will pursue and continuing deleveraging of our business through acquisition of some [technical difficulty] of those or capital deployment on those projects that I mentioned, either with minimum amounts or no amounts of new debt, and then look to refinance or put some more debt on those existing projects once they’re completed.

And, when some of our other debt has run-off, and do that in a more consolidated basis rather than one-off financing packages. And I think that, as Dick mentioned as well, some of the maturities that we have coming due in the next, 24 months or so, if things continue to go as per plan, we may just repay those and not be financial specific, leaving ourselves with a series of unencumbered assets that we can use as financing collateral for future projects, either collectively those loans coming off or together with new projects that we entered into over the next 12 to 24 months. So, I think that gives you a little bit of a clear description of what goes on in our thinking when we look at these opportunities. It’s certainly better today than it was several or a couple of years ago in terms of the options that are open to us.

And, we’re clearly thinking about how best to use that cash to maximize our opportunities.

Ryan Vaughan: That’s great, Sam. Thanks for the clarification. And if you don’t mind, just to follow-up on, you give us the three options. It will make perfect sense. Approximate timing on number one, and then I heard you say for the Alaskan frontier, hopefully have some clarity by the end of the year, what’s the rough timeline to get that back in the water? Thank you.

Samuel H. Norton: Yes. We clearly would like to get a substitute vessel for the Mykonos sooner rather than later. So, as I said in my comments, our hope is that we’re able to achieve that by the end of the year. Clarity on the Alaskan frontier, that remains a little bit of a moving target. But, I think today we are more hopeful that we will see some movement on that within the next — within this year, for the next six months. And then, we would then need to be able to invest in the vessel to bring it back into service. Our current timeline right now, the earliest that we would expect the Alaskan frontier to be, contributing to revenue of the company would be late in 2024. So, for now it’s not really featuring in our forecasting.

But we should know more about that in the next three to four months. And finally, as I said, we signed a MoU with MAN B&W to invest in two of our ATC ships, to upgrade the engines there. And we have an option to do two additional vessels. And as I mentioned, the capital cost — the total project cost there, including all elements will probably run, for the two ships order of magnitude of $25 million. And that capital will be expended. If we sign a firm contracts which we are working to do within the next 60 days, that capital will be deployed kind of evenly over the 15-month period starting, the end of September.

Ryan Vaughan: Okay. Great. All right. Well, that all sounds good. Thanks for the extra details, Sam, and great job to the entire team. Thank you.

Operator: [Operator Instructions] The next question comes from [Joshua Kehoe, Private Investor] (ph) Please go ahead.

Unidentified Analyst : Yes. Hi, Sam. Hi, Dick. Thank you for taking my call. If possible, could we follow-up a little bit on the TSP program? I know the MSC and Government of Israel voyages are, done at good rates, but the international, spot market, it’s a little bit more volatile. My understanding is currently only nine of the ten TSP slots are filled. And I just want to kind of get you more sense of, the desire of participants to enter into that program given the more volatile international spot rates for MR Tankers?

Samuel H. Norton: Thanks for the question, Josh. A couple of observations that I would make. I think, longer term that participants in the TSP program believe that it is an attractive program, and that — as I have commented, well the expansion from 10 to 20 ships is something that is likely to spur over the next three to four years. I think the cadence of entry into, an expansion of the TSP however, is something that, in the short-term is somewhat problematic or not in alignment with the aspirations of the transportation department and Department of Defense. Two things stand out in contributing to that delta in expectations. One is, the continued high rate of, the price or the high prices for international tankers that currently, in my opinion, don’t reflect the existing spot markets or time charter markets for international MR tankers.

Just to give an example, there was announced recently a series of new buildings entered into, with a full methanol capable, engine design and specification for delivery, I believe, in 2025. And those ships were fixed, for long time charters, I believe, five to seven years, it in range of about $25,000 per day. Now, that would imply longer term time charter rates for more conventional vessels, probably in the gap between $20,000 and $25,000 per day. If you have scrubbers or eco or all the rest of that, probably based on variability there, but, we certainly see, equivalent time charter rates for international MR tankers in the lower-20s, let’s call it $22,000, $23,000, $24,000 per day. It’s probably being effective rates. And when you look at those types of rates vis à vis the actual prices for vessels in the market, it’s quite difficult to make any kind of sense, out of the returns that can be generated from that, whether trading internationally or trading in the TSP program.

I’ve spoken about this on calls and discussed it with you in the past. There is a — in my mind, there’s an overhang of the opportunities available to sanction insensitive traders to be able to participate in moving Russian crude oil and products, that I believe is getting close to the end of its development. By that, I mean, I think people that are going to engage in that trade are probably fulfill their appetite for ships to be able to buy to do that, and therefore, that buying nexus that buying appetite, it is either waning or completed. And once that process finishes, I think, then price levels for other buyers of anchors that participate in the normal non-Russian trades, you’ll start to see some decline in prices. And I think that, one of the reasons that, maybe you haven’t — maybe there’s only nine and, we have to go out and replace the vessel as well and we haven’t done it yet.

One of the reasons why you’re seeing that kind of lag is, I believe, that the normalization of prices to align themselves with time charter rates in the market will occur over the — for the coming months. Of course, it may not. There’s no guarantee there. But, I think there is a view out there that process may be beginning to materialize. The other important factor that I want to emphasize in terms of the trajectory of vessels entering into the Tanker Security Program is the continued shortage of maritime labor, which manifests itself, nearly every day in our normal business. And when you start to add, the number of new additional U.S. Flag vessels to the pool, is and will continue to put tremendous stress on the manning capabilities of companies participating in that program.

We are actively engaged in Washington with Congress and with sponsors for the program to first understand the requirements for manning and second to, plan for a ramp up of additional manpower. In conversations with labor, they characterize this as a good problem to have. I’m not sure if it’s a good problem. It’s a problem. And ultimately, it leads to more jobs. And one of the objectives of the Tanker Security Program is to broaden and deepen the pool of U.S. mariners available, for supporting maritime logistics for the Defense Department. So, I think everybody is on board and understanding that that’s a long-term goal, short-term, whatever teething pains or the real hurdles that exist, and trying to ramp up that manpower very quickly. That’s a concern, and I think that probably contributes more than the volatility of the international market for MRs in the long run.

I think that the availability of labor in the short run is a greater contributor to hesitancy in terms of putting more vessels into the program.

Unidentified Analyst : No. Thank you for the thoughtful response. It makes a lot of sense. And if I may follow-up real quickly, because I’m always interested in renewable diesel, and I know both Vertex and PBS, their renewable diesel plants have come online in the second quarter. Are you seeing any more appetite in terms of obtaining charters for renewable diesel runs or you had mentioned before, I believe you thought eight to ten vessels would eventually be involved in doing that transportation. I’m just wondering if you’ve seen anything change there. I mean, that’s the end of my questions. And thank you once again. And, great quarter, and I really like that guidance for 2024.

Samuel H. Norton: So, my take on renewable diesel is, if there were more MR tankers available in market today, there would probably be more appetite for movers of renewable diesel to take those vessels. As I said in my prepared comments, to our knowledge, every MR tanker is currently fixed and deployed. So, there’s no availability of vessels. So, it’s a little hard to speculate how, where there’s demand and where there’s supply because there’s just simply isn’t any supply right now. We certainly continue to field inquiries from some of the existing customers that we have about availability of tonnage in the future. So that leads me to believe that there’s probably still demand there. I think, just to hedge that a little bit, I think, and, you know, this, I’ve read in some of the comments that you post online, developments in terms of other states with renewable fuel or equivalent to the California, a low carbon fuel credits.

If those sorts of things were to come online, that might change some of the transportation dynamics for the long West Coast — Gulf Coast to West Coast trades. I don’t think anyone reasonably expects that to change in the next year or two, but looking beyond that, I think that’s an area of some question and probably tempers the appetite of our current customers in terms of looking at longer term contracts.

Unidentified Analyst : Great. Thank you very much.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to, Sam Norton, for any closing remarks.

Samuel H. Norton: Thank you, Drew. And, once again, thanks to everybody, for listening in. We’re certainly encouraged with the trajectory of our business and look forward to continuing to give you good news as we roll through the balance of this year and into 2024. Wishing everybody a good day. Thank you very much.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.