Ladies and gentlemen, thank you for standing by and welcome to the International Seaways First Quarter 2021 Earnings Call. At this time all participants are in a listen-only mode. [Operator Instructions] I’d now like to hand the conference over to your first speaker today Mr. James Small, General Counsel. Please go ahead.

Thank you. Good morning, everyone. And welcome to International Seaways earnings release conference call for the first quarter of 2021. 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 which it operate. These statements may address, without limitation, the following topics: outlooks for the crude and product tanker markets; changes in oil trading patterns; forecast of world and regional economic activity and of the demand for and production of oil and other petroleum products; the effects of the ongoing Coronavirus pandemic, the company’s strategy, timing and likelihood of the completion of our announced merger with Diamond S shipping, any plans to issue dividends, any anticipated synergies or other benefits from the proposed transaction and the parties respective prospects, purchases and sales of vessels, construction of new build vessels and other investments, anticipated financing transactions, expectations regarding revenues and expenses including vessel charter hire and G&A expenses, estimated bookings and TC rates in the first quarter, second quarter of 2021 or other periods ,estimated capital expenditures in 2021 or other periods, projected scheduled dry dock and off hire days, companies consideration of strategic alternatives, the company's ability to achieve its financing and other objectives and other economic, political and regulatory developments around the world. Any such forward looking statements taken into account various assumptions made by management based on a number of factors including management's experience and perception of historical trends, current conditions, expected and future developments and other factors that management believes are appropriate to consider in the circumstances. Forward-looking statements are subject to risks, uncertainties and assumptions, many of which are beyond the company's control that could cause actual results to differ materially from those implied or expressed by the statements. Factors, risks and uncertainties that could cause International Seaways’ actual results to differ from expectations include those described in its quarterly report on form 10-Q for the first quarter of 2021, our 2020 annual report on form 10-K, our recently filed registration statement on form S-4 and in other filings that we have made or the future may make with the U.S. Securities and Exchange Commission. With that out of the way I would like to turn the call over to our President and Chief Executive Officer, Ms. Lois Zabrocky? Lois.

Thank you very much, James. Good morning everyone. Thank you for joining International Seaways earnings call to discuss our first quarter 2021 results. The first quarter was transformational for International Seaways. We took important steps to unlock significant value for our shareholders. This includes our highly accretive merger agreement that will create an industry bellwether with enhanced scale and capabilities. We are again capitalizing on an attractive opportunity to further renew our fleet at a cyclical low point for the benefit of shareholders. If you will turn to slide 4, we review the compelling value creating transactions in our first quarter financial results. Starting with the first bullet. Our all stock merger agreement with Diamond S brings together to leading U.S. based diversified tanker owners with long term customer relationship, deep cultures of achieving stringent safety, operational standards and strong governance. With this, we expect to deliver a number of compelling strategic and financial benefits to our shareholders and to stakeholders of both companies. The combination of International Seaways and Diamond S doubles our net asset value and triple the size of our fleet to 100 vessels. We are creating the second largest U.S. listed tanker company by vessel count and the third largest by deadweight. We expect to solidify our power alley in the large crude sector focused on V's and Suezmaxes and to create a power rally in the MR product sector among other notable benefits. We expect the merger to be highly accretive to both earnings and cash flow per share with the estimated annual cost of synergies $23 million and revenue synergy of $9 million. We will increase our equity market capitalization and our liquidity which we anticipate will provide an opportunity for a rereading of our equity valuation. We preserve our significant financial strength and…

Thanks, Lois. And good morning, everyone. Let's move directly through reviewing the first quarter results in more detail. Before turning to the slides let me quickly summarize our consolidated results. In the first quarter, we had an adjusted EBITDA of $10.7 million. Net loss for the first quarter was $13.4 million or $0.48 per diluted share, compared to net income of $33 million or $1.13 per diluted share in the first quarter of 2020. Now, please turn to slide 10. I'll first discuss the results of our business segments beginning with the crude tanker segment. Time charter equivalent or TCEs for the crude tanker segment worth $36 million for the quarter compared to $89 million in the first quarter of last year. The decrease primarily resulted from the impact of lower average monthly rates and VLCC, Suezmax, Aframax and Panamax sectors. Turning to the product carrier segment, TCE revenues were $9 million for the quarter compared to $31 million in the first quarter of last year. This was due to lower period over period average daily budget rates earned by the LR2, LR1 and MR fleets. In addition, our product revenues were impacted by a decrease in LR1 revenue days as results in decreased off hire for scheduled drydock and a decrease in MR revenue days due to the redelivery of poor time fired in MRs to their owners between March 2020 and July 2020. Overall as reflected in the chart top left consolidated TCE revenues for the first quarter of 2021 were $45 million, compared to $120 million in the first quarter 2020. The decrease was principally driven by substantially lower average daily rates soared across the fleet this quarter compared to last year's first quarter. Looking at the chart at the top right of the page, adjusted EBITDA…

Thank you very much, Jeff. As I summarize, our first quarter, suffice it to say, this has been a truly instrumental and transformational quarter for International Seaways. We signed a merger agreement with Diamond S and we contracted to build three dual fuel LNG VLCC. All stock combination with Diamond S will double International Seaways net asset value will triple the size of our fleet. It will create an industry bellwether that will rank as the second largest U.S. tanker owner by ship count. We anticipate significant accretion to our earnings and our cash flow per share. We have a forecasted annual cost savings of synergies of $23 million and revenue synergies of $9 million. We expect to maintain one of the lowest net leverage ratios in the global shipping market and enhanced our trading liquidity through a larger market capitalization. We continue to demonstrate our commitment to returning capital to investors. This is highlighted by our intention to pay $1.10 special dividend to International Seaways shareholders immediately prior to the completion of the merger. In addition, we remain committed to paying a quarterly dividend and opportunistically drawing on our $50 million share repurchase program authorization to increase further value post merger. Complementing this highly accretive merger we're excited to partner with Shell market leading counterparties on our agreement to build three LNG dual fuel VLCC for delivery in early 2023. In addition to the seven year time charters providing strong stable cash flows and added upside these highly efficient doubles offer significant environmental benefits and further reflect our commitment to ESG in the maritime sector. This is the latest example of Seaways capitalizing on an opportunity to renew our fleet at a cyclical low point. This is consistent with our disciplined and accretive capital allocation track record. Going forward and based on the two important transactions we entered into in the first quarter, we are in a strong position to take advantage of positive long term tanker fundamentals and further create enduring value well into the future. This concludes our prepared remarks and we'd like to open it up for questions. Operator?

Thank you. [Operator Instructions] Your first question comes from a line of Randy Giveans from Jefferies. Your line is open.

Thanks, operator. Howdy Lois, Jeff and David. How's it going?

Very good. Good morning, Randy.

Good morning. Good morning. All right, two questions for me. I guess first there's been some chatter on maybe your average fleet age, getting a little older than peers. That said doesn't seem to be a material negative as you have now, I guess much less obsolescence risk when it comes to IMO 2030. So how do you feel about your fleet, possible fleet renewal in terms of maybe some sales candidates and additional modern acquisitions?

Okay, Randy. So just kind of taking that and starting to address it first with fleet age. Since International Seaways became independent, 4.5 years ago, Derek Solon's and his team have sold over 21 older vessels and they have done extremely well. So we've continued to modernize the fleet. And as we look forward, right now, if you were to look at vessel values which is an independent service on ship valuations, you'll see that secondhand values are ticking north really daily. So as we look forward to 2021 we believe that the conclusion of the merger with Diamond S, the ships are going to start earning higher TCEd and also be at a higher valuation. And we'll look all the time at every ship as to whether or not we selectively sell any vessel. So we'll just continue the same disciplined approach that we've had all along. And when we look at buying more modern ships, I would say that at the moment I think International Seaways, we are focused on concluding our merger, building our new buildings and that's going to put us in really good shape.

Well, if I can just add one comment. Randy, I think we're really happy with what I would call the portfolio of ages we have in our fleet. It's a really nice mix of the [indiscernible] buildings, other modern vessels, sort of 8 to 10 year vessels, 13- 14 year old vessel age vessels. It really is the fleet we wanted to put together for this point in the cycle.

Make sense. And then I guess, lastly following up on the upcoming merger with DSSI, what are your updated thoughts on the FSO venture? I know we've asked about it before, but at these levels, are you more likely to sell your 50% ownership, buy your own as 50% ownership or just kind of keep your current 50% as is?

So regarding the FSO, we've been we continue to work very closely with our joint venture partner Euronav and it's a very positive discussion with them. And we look at opportunities to monetize the FSO. And we're continuing to do that. We're not in any particular rush and we believe that there's significant value potentially to be unlocked on those FSOs.

Yes. All right. Well, that's it for me. Thanks so much.

Thank you, Randy.

Thanks.

Your next question comes from the line of Omar Nokta from Clarksons Platou. Your line is opening.

Thank you. Hi, Lois. Hi, Jeff.

Hey, Omar.

Hi there. I sort of have just a general question about this is maybe a bit bigger picture but sort of like the use of pools in the future, especially, it's really a big part of how you deploy your ships and soon to be the 100 ships you'll have following the proposed merger with Diamond S. We're getting to a place where ships are becoming much more differentiated more so I think than say in the past, you've got eco versus non-eco, scrubber, non-scrubber and now dual fuel as you're investing versus traditional bunkers. How do you see that just affecting pools and how they operate going forward and particularly for Tankers International? Any thoughts on that?

Omar, that's a great point. Tankers International has been around for over 20 years and the International Seaways zones have, Euronav have and I think for pools in the future to be successful, they actually will have to look a lot the way that TI does, which is a pool that is really a lower cost overhead type pool, and has to be, it has to be a very close relationship between the owners and the pool. Because as we need to capture more data on vessel performance, we have to enhance how those ships are performing for the company's technical and commercial needs to be closer than ever. So I think TI is actually extremely well-positioned and there's a high level of collaboration between the owners in the pool and the commercial and the technical teams and you're going to have to see that in order for pools to thrive in the future.

Yes. That makes sense Lois I think it's, how do you think the potential for say carbon tax to play into this, we've got the EU is discussing it the U.S. is increasingly coming on board with that idea. And I guess it's sort of seems that you'll have the pool making decisions on maximizing rates and earnings potential and then the owner might be seeing an outside carbon tax bill. So I guess in this as a discussion on carbon tax starts to really gain steam here, as there's more clarity. Do you see that as being like a risk within pools or I guess it just sort of comes down to what you just said, which is closer collaboration between the pool owner -- operators and the owner?

It will and what, Omar, I think in our industry, there's a lot of innovation, and the pools are populated by really sharp commercial people and we're starting to see carbon monitoring desks within the pools themselves and because all of us is owners realize that we need to be paying close attention and be part of the solution here moving forward. So I think that you're hitting on what will be the biggest growth area in trading probably in the future which is going to be carbon tax, and how critical it is for all of us as owners to be part of that conversation as this develops.

Yes. No. Definitely very interesting to see how things develop on that front. Just maybe one follow up, just maybe to Randy's question about the FSOs. It's been this ongoing discussion, it feels like every quarter, it comes up, is there a way maybe that the JV is leaning when it comes to monetizing it? Is it outright selling the ships or do you think securitizing the cash flow with some sort of debt facility? Any way you're leaning so far?

Well it's funny, Omar, because it does seem like a long time. We actually just concluded these two JVs for an additional 10 years to 2032 in the fourth quarter. So it's a fairly recent achievement. And I would say that we are still evaluating all different opportunities and we're going to work together with our partners to make sure that we maximize our outcome on the FSO. So like I said we've got two really strong teams working on that. And we'll look at whatever is going to bring us the absolute best value.

Okay, that's clear enough. Thanks, Lois. Appreciate it.

Thank you.

Your next question comes from the line of Magnus Fyhr from H.C. Wainwright. Your line is open.

Yes. Good morning, Lois and Jeff.

How are you doing?

A couple of questions here. First, going to slide 11. Thanks for [Technical Difficulty] it looks like you're able to capitalize on the spread between low sulfur and high sulfur. Can you talk a little bit, I mean, this is the first quarter I've seen that breakout. Can you talk a little bit about the challenges over the last year with since the IMO 2020 coming into regulation and what you expect going forward there as far as -- if there are any challenges that you can address?

Magnus, I would say that one challenge is that to form shipping never does exactly what you think and the original differentials that we had expected to be between the low sulfur fuel oil and the conventional fuel were more narrow, however, presently, and it has been maybe now for about four or five months, maybe that's overstating but we've been at about $100 per tonne. So you can see, the differential is something like $5,000 to $6,000 per day between the scrubber fitted beads and the non-scrubber fitted beads. So that critical outperformance is just when we need it most at this moment in the cycle. And then, Bill maybe I would ask you our head of operations Bill Nugent, from a fuel perspective, I mean, the fuel has been available to heavy sulfur and the low sulfur fuel has been available. Have we seen quality issues or have we been able to overcome these largely to date?

Hello, Magnus. Thank you, Lois. On the heavy fuel side for the ships with clean exhaust gas cleaning systems, we've been very fortunate. We've not had any issues, getting fuel or any quality issues there. It's actually been quite stable and quite okay. On the very low sulfur side on the IMO 2020 fuels we've seen a lot more variation in the nature of the fuels, which is something that was anticipated by the market. And we certainly anticipated it. But again, with some good planning, we've been able to manage through those issues. So no, Lois I think generally, we've come through Okay.

Thank you, Bill.

And can I just add before you move on just because this is for health for everybody in planning purposes that scrubber days in 2Q that's just going to be 27 days. Sorry, non-scrubber days in Q2, just 27. So wanted to get that out there. 24 I apologize. That's the correct number.

Okay, thanks for that color. I mean, do you -- with the spread now a little over $100, do you guys take a view on that? Or is there maybe some thoughts on locking in that spread?

We constantly monitor it. I wouldn't say that we're looking to lock it in at the moment only because as you've seen in 2021, oil prices have been rallying and increased significantly. And spread tends to widen as you see the prices move up. So at the moment, I think we'll let it ride. But we do monitor it.

All right, good. And just lastly, I was looking through the slide deck here. I can't find anything online during business here. I guess in the last couple of years, but maybe you can touch a little bit on what's going on there. I mean, what's going on there during the last year? I mean, as far as activity level seems like the U.S. crude exports are still pretty robust. And I guess we've addressed a lot of the pipeline capacity issues?

So we closed 2020, I believe our EBITDA was over $4 million for lightering. However, we have seen lightering COVID affected, as you've seen the U.S. demand numbers were down. I mean, this week just yesterday we see that the United States exported over $4 million barrels per day of crude in the last week. Now, that's the first time we've seen that and in a very long time. In the United States we're looking at GDP maybe 6.5% in 2021. A high level of vaccination penetration and gasoline usages, as I mentioned almost $9 million barrels a day. It's up 2 million barrels a day from last year but still down 1 from 2019. So when you look at lightering, it is picking up and it's getting busier. It was certainly COVID affected just like the rest of the world were when you saw fewer imports and lower exports in and out of the United States. It was COVID affected as well.

Okay, great. Thank you.

Thank you.

Your next question comes from Greg Lewis from BTIG. Your line is open.

Hi, thank you. And good morning and good afternoon, everybody.

Hey.

Lois, I guess just wanted to follow up on Magnus's question and welcome back Magnus around the lightering it seems like it's funny how time flies and seemed like forever, though we had heard a lot about whether it's an oil company or alternative investor thinking about Beaubien, VLCC, export terminals, any kind of updates there in terms of as we think about that push and pull on the lightering business. Has those projects move forward or they have all kind of been kind of pushed to the right like everything else?

Yes. A lot of those projects have been pushed to the right, Greg. You do see where Suezmaxes can now load and also go out and Philippa V. But a lot of those projects have been pushed to the side. It's interesting, we do a lot of lightering in Panama very busy, busy in the Bahamas. The West Coast was affected by COVID and imports which is now starting to pick up. And of course, the U.S. Gulf is the biggest hub for lightering. And there are projects that to deepen and widen, but each one is specific. And I have to follow up with you, Greg, to kind of get into the specific different projects but a lot of them there were really too many that were on the boards and then just COVID a lot of those have gotten delayed.

Okay, great. And then I wanted to follow up on what Omar was discussing but from a different angle. Clearly, the transaction with DS, Diamond S hasn't closed yet. But I mean, you are going to be taking on a large pool of MRs and I'm realizing that those were already managed. How is INSW thinking about the management and the opportunities for those vessels just given that some of those MRs are a little bit older and might be facing issues. Is there any thought about the company kind of partnering with one older MR owner or how are we thinking about that I guess it's probably my question?

Yes. Well and as I'm sure many of you are aware Diamond S MRs are commercially managed by Norient Product Pool and also another contingent of ships is commercially managed by Capital. And I think on both fronts you've seen them be able to increase their marketability or to stand pretty strong. I think Norient imposing quite strong results. So we are always looking in benchmarking at the best places to trade the ship. I think that you as the market recovers, you will see International Seaways take a larger portion of our fleet to look at time charters as the market strengthens into itself, when you running 100 that holds maybe we won't have such a high percentage of bought exposure. And then we will opportunistically look at sales as you do all the time. So there is not one answer. It's a part of an approach that involves making sure while we have the ships they're absolutely earning the best they can and then as best as they can be and then you look at opportunistically improving the fleet moving forward.

Okay, great to hear. Thank you very much.

Thank you, Greg.

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

Yes, thank you. Good morning Lois. Good morning Jeff.

Good morning.

Lois, if we look at your VLCC partnership with Shell and the chart is associated with it and potential upside with those charter agreements. How does that translate to your return on capital profile and then your return on capital discipline?

Jeff, why don't we jump in there?

Yes. Hi Liam.

Hi Jeff.

It's very nicely. We've discussed this before the combination of the low purchase price which Lois mentioned in her remarks really at the low point of the cycle combined with a very well thought out collaborative contract with Shell that provides a base rate and profit share. It's going to work out well for both parties. I've said it before. And I'll say it again, and with that profit share the way works, which you can't go into detail, but we're expecting it to be a double digit return type of contract. So it's going to be it's perfectly well with a capital allocation strategy.

And I mean, obviously post DSSI merger, how does these types of projects fit into your overall fleet management strategy?

That's a really good question. And I think that going forward and we will continue and welcome these types of projects. It's really great to see the oil companies and owners coming together because that's what it's going to take to innovate and decarbonize the propulsion moving forward. So I think that we will welcome these types of projects and we'll evaluate each one on the merits and the projected returns, Liam.

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

Thanks Liam.

[Operator Instructions] Your next question comes from line of John [indiscernible]. Your line is open.

Hey Lois and team congratulations on navigating a difficult year.

Thank you John.

My question is about inflation. The Federal Reserve said that inflation is transitory but a lot of banks are wondering about inflation in the long term. I wonder how your company is positioned and also the overall tanker market if inflation gets out of hand and exceeds the Fed’s expectations?

Well, that's an interesting question. I think that when you're in inflationary environment, it's good to be in hard assets. I think that we're certainly away from seeing that flowing through. But when you have periods of strong GDP and to be clear its projections, if we can hold the Coronavirus at bay. I mean again, we're looking at over 6% in the United States GDP growth over 8% in China. India had been looking at 12 which is massive, and I'm sure that will be moderated now by COVID. But when you start to see strong GDP growth, oil consumption growth is a derivative of that. In other words we're usually about oil consumption growth will grow at a little bit less than half of GDP growth. So for the tanker market where we're headed here with increased GDP growth in the world in the backside of 2021 is quite welcome. And then from Jeff's perspective regarding our debt maybe just talk about how much of our debt is hedged Jeff? It's pretty significant.

Yes. It's right there on page 14 of the deck. It's 96% of our debt is either fixed or hedged. And most of that is floating rate debt that has been hatched. So we feel we're pretty, very well protected on that front.

Excellent. Thank you so much, guys.

Thank you.

There are no further questions at this time. I will turn the call back to Lois Zabrocky, CEO for closing remarks.

Well, thank you everyone for joining us for our first quarter wrap up call and our earnings today. And at International Seaways, we're going to be laser focused on getting our merger completed and driving the business forward. So thank you very much.

Ladies and gentlemen thank you for your participation. This concludes today's conference call. You may now disconnect.