Octave Specialty Group Inc (OSG) 2021 Q1 法說會逐字稿

Good morning. Welcome to Overseas Shipholding Group First Quarter 2021 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Sam Norton, President and Chief Executive Officer. Please go ahead.

Thank you very much, Kate. Good morning, everyone, and thank you all for joining Dick and me on this call for the presentation of our 2021 first quarter results, and for allowing us to provide additional commentary and insight into the current state of our business, and the opportunities and challenges that lie ahead. As usual, Molly Arcia and Princeton McFarland are participating with us on this presentation.

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 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 projections and could be affected by a variety of risk factors, including factors beyond our control.

For a discussion of those risk factors, we refer you specifically to our annual report on Form 10-K for the fiscal year ended December 31, 2020, and our other filings with the SEC, which are available at the SEC's Internet site, www.sec.gov as well as on our own website, www.osg.com. Forward-looking statements in this presentation speak only as of the date of these materials, 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 first quarter earnings release, which is posted on our website. The ongoing coronavirus pandemic had associated lockdowns, business closures and travel restrictions continue to severely impact global and national energy markets and by extension demand for crude oil and refined products, marine transportation.

In this very difficult operating environment, the results announced this morning have met our expectations and point to the continuing benefit of having a diversified asset portfolio. Although our conventional Jones Act tankers experienced losses this quarter, our other operating assets performed largely in line with historical norms. Dick will take you through those details shortly.

As it has been only a short month since the last time we spoke publicly about the state of our business, I will add only brief comments in the way of an update to our last presentation. The pace and trajectory of demand recovery continues to be influenced by many factors, including, importantly, progress in resolving the pandemic outside the United States. Near-term uncertainty will continue to define a wide spectrum of possible vessel reactivation outcomes as we move through the current quarter.

Domestically, the trends that we have identified in our last presentation continue to show improvement. Provided in the slide deck on pages numbered 5 to 8, our charts updating the data sets that we presented on our last call. I will not repeat the explanation and logic chain as to why we see these trends depicted in these slides is supportive of our recovery thesis. Anyone who wants more details on this may refer back to my comments given on our April 7 call.

Suffice it to say that we remain encouraged by the underlying trends. I would, however, highlight the data on refinery utilization rates. This week's data indicated an 86.5 -- 86.5% utilization rate nationally, and importantly, for our trades, a 90.7% utilization rate in PADD 3. The first time since the onset of the pandemic, the utilization rates in the region have exceeded 90%. Inventory levels for both gasoline and diesel remain below 5-year averages and high-frequency data points continue to indicate demand for these products on an upwardly sloping trend.

Even with these improving trends, public commentary from refiners and distributors characterize the emerging recovery as a grind with progress being slower than hoped for and sensitized to local pandemic conditions. Domestic gasoline consumption remains about 5% below pre-pandemic norms. Jet fuel consumption is 25% to 30% below historically comparable levels. Cautious commentary from our customer base confirms our view that they remain relatively risk-averse while awaiting for clearer signals of a sustained demand recovery.

It is clear to us that we remain in the early stages of emerging recovery, which, we anticipate, will become more fully apparent as the year progresses. We believe that as our customers' visibility and confidence in the future returns, more typical customer behavior and time charter activity will rebound, leading to improved financial performance for OSG.

Market conditions that have led us to layup 6 tankers in one of our lightering ATBs have been showing signs of improvement domestically. But as noted, heightened uncertainty remains a concern for many, if not most of our customers. In particular, the surge of recent virus spread outside of the United States and the resulting drag on economic activity internationally has acted to inhibit a rebound in international tanker markets.

Weakened demand for refined products overseas, coupled with very low freight rates in the international market, have combined to induce some meaningful increase in petroleum product imports in recent weeks. Last week, gasoline imports topped 1 million barrels per day nationally for the third week in a row and for the fourth time in the last 5 weeks. These elevated import levels have dampened demand for domestic refined product and the corresponding impact on refinery utilization rates.

While EIA data continues to show improving run rates of domestic refineries, the slope of recovery has flattened somewhat in recent weeks from the sharp recovery seen following the winter storm, Uri. As we progress in the months ahead, a continued increase in refinery and utilization rates and improving demand for refined product outside of United States should have the effect of reversing the import trends seen recently and act to stimulate demand for domestic maritime transportation.

Since the end of the first quarter, we have seen encouraging signs of slowly increasing demand for cargo movements on available vessels. Spot cargo fixtures for tankers emerged in April for the first time in nearly a year. This activity has allowed us to keep the Overseas Houston working in the spot market since their redelivery from time charter at the end of March. We are also maintaining the availability of the Overseas Boston on the West Coast at this time.

As vaccine distribution continues to expand, and there is a continued lifting of the COVID-19 restrictions, mobility and related U.S. consumption of transportation fuels are expected to normalize to fuel demand patterns consistent with historical levels. With product inventories below average levels at this time of year, the normalization of consumption patterns should stimulate more marine transportation demand leading us to reactivate our vessels from lab. Our near-term focus is squarely on sustaining sufficient liquidity to ensure a pathway for our long-term future. In this context, we ended the quarter with $45 million of cash on-hand. We have as well contracted to sell the Overseas Gulf Coast with delivery scheduled near the end of this month.

Proceeds from the sale of the Overseas Gulf Coast, which is debt-free, will add approximately $32 million of additional cash to our balance sheet at month end and position OSG to end the second quarter with about $60 million of cash on-hand. We have taken steps to defer capital expenses where appropriate and to reduce vessel operating and shore-based overhead spend in ways that will not compromise our commitment to safe and reliable transportation.

Incremental gains achieved through these efforts will remain important in the months ahead and acknowledgment should be given to all who have worked hard to bring about these results. Our conviction remains that a recovery of normalized demand is a question not a bit, but when. The lack of committed employment for such a large percentage of the available Jones Act fleet is a function of missing demand and not, as in years past, a reflection of a fundamental excess of supply.

The steep backwardation in crude oil future markets is a pricing signal that the market wants and needs more oil and the demand to transport this oil should follow. Our short-term forward planning anticipates a return of demand for our time charter transportation capacity during the second half of this year. In awaiting this development, we will continue to regularly assess the prospects for our 6 Jones Act tankers and one lightering ATB currently in lab.

Availability of acceptable vessels with Jones Act will remain static at worst and most likely will tighten in the years ahead. Incremental demand from emerging product flows of renewable diesel and potentially other alternative fuels should add to the domestic baseload transport needs for crude oil and refined products. Sentiment is and remain an important factor in the decision trees that affect our businesses. Analogous to Yogi Berra's observation that baseball success is 90% physical and the other half mental. I think it's fair to conclude my comments and summing up by saying that my sense is for the tanker market, especially at this time, the market is 90% fundamentals and the other half is sentiment.

With that, I'll turn it over to you, Dick to provide further details of our first quarter results for 2021.

Thanks, Sam. Our first quarter results, as Sam mentioned, were consistent with our expectations. The market continued to be depressed as COVID-19 lockdowns and reduced economic activity persisted in the face of higher disease levels. Elevated inventory levels depressed refinery operations and reduced mobility characterized the quarter. Winter storm, Uri, effectively shut down many Gulf Coast refineries. Additionally, international petroleum markets continued to be unsettled, and international transportation rates were at historic lows. These circumstances resulted in our customers' continued unwillingness to make transportation commitments.

Spot market activity for the first 2 months of the quarter was virtually nonexistent, and those moves that did occur were small and accommodated on ATBs. March saw an increase in spot market activity, but again, all were accommodated on ATBs. We continued to manage our costs by maintaining ships in layup for which there is no current demand. The daily per vessel operating cost reduction is approximately $15,000. As we indicated during our last call, our expectation was for breakeven adjusted EBITDA in the first quarter with a modest increase in the second quarter. Overall, we continue to expect approximately the same level of combined first half EBITDA as we look ahead.

Vaccinations and declining disease levels are resulting in wider reopening of society. Airlines are reactivating their fleets and jet fuel consumption is beginning to rise. Observers are predicting that pent-up travel demand will result in a spike this summer. One of our vessels currently in the spot market has been performing a series of voyage charters, all in direct continuation subsequent to the end of the first quarter. We have another vessel currently available in the spot market on the West Coast.

We continue in our firm belief that the recovery in our markets is a question of time, not one of if. We expect to see demand return during the second half of 2021 with the expectation of significant operating improvement, coupled with substantial strengthening of adjusted EBITDA.

And if you take a look at Slide 11, please. TCE revenues declined 32.5% when compared to the first quarter of 2020 and sequentially declined by 23.9% from 2020's fourth quarter. The decreases result from 6 vessels in layup at the end of the fourth quarter, one additional vessel placed in layup at the beginning of the first quarter of 2021; and one vessel trading in the spot market, collectively causing a reduction in vessel utilization. Currently, we have 7 vessels in layup.

During the quarter, we had 2 additional vessels redelivered to us. One vessel, post redelivery operated on a short-term time charter through mid-April and is now currently available in the spot market. The other vessel has operated under a series of voyage charters and direct continuation of one and other.

Additionally, the Overseas Mykonos, which had been available in the spot market without employment since October, entered into a 6-month time charter with 2-, 3-month extension options. Adjusted EBITDA in the first quarter of 2021 declined significantly from the year ago quarter, which included a $19.2 million gain related to our acquisition of the Alaska Tanker Company. Drydock days decreased to 43 from 74 in the fourth quarter of 2020.

Please turn to Slide 12. The TCE revenue change was most pronounced in our Jones Act MR tankers, where we experienced a year-over-year 50% decline in revenues. Sequentially, the decline was 39%. We had 6 Jones Act tankers in layup during the quarter. And the Overseas Martinez, again, was available in the spot market, but not employed prior to entering into the previously discussed time charter. The MR tankers represent 6 of the 7 vessels currently laid up.

Lightering revenues were flat compared to the fourth quarter of 2020 and declined 45% from the year ago period when we had both lightering barges operating. The OSG 350 has been in layup during the fourth quarter of 2020 and the first quarter of 2021. Lightering volumes have decreased, reflecting our customers' reduced demand for crude oil resulting from the pandemic-induced decline in refinery operations.

The first quarter of 2021 is the first quarter in which both of our new built ATBs were in operation for a complete quarter. We have previously sold for recycling all of our rebuilt ATBs. The 2 new ATBs will operate under time charters throughout 2021. We also operate 4 non-Jones Act MR tankers. The Overseas Gulf Coast and Overseas Sun Coast has completed their 1-year time charters at the end of the third quarter of 2020. And since then, they have operated in an international MR pool on a time charter arrangement. Realized rates have declined due to the international market conditions.

Mykonos and Santorini continue to perform in the maritime security program and provide services to the government of Israel. During the quarter, we performed one GOI voyage. Our Alaskan tankers, acquired in March 2020, all operate on long-term time charters and continued to perform in line with expectations. But with the first quarter of 2021 and the fourth quarter of 2020 contained one month each of a 2-month drydock period for the Alaskan Navigator, the resulting off higher period accounted for the decline in revenues for these vessels.

Please turn to Slide 13. Conventional tanker spot market TCE revenues continued at the de minimis levels seen since the second quarter of 2020. The decrease in fixed revenues during the quarter were, as previously discussed, driven principally by the number of vessels in the layup. Drydock off-hire days continued to negatively impact revenues but to a lesser extent than during the fourth quarter.

Please turn to Slide 14. Revenues from our niche businesses declined compared to both the same quarter last year and Q4 202 due to reduced customer demand for lightering services resulting from the pandemic, coupled with the layup of one lightering barge and one shuttle tanker that had been operating as a conventional tanker.

Lightering revenues were flat compared to the fourth quarter of 2020 and decreased from the first quarter of 2020 due to the layup of the OSG 350 during the fourth quarter. Jones Act tanker revenue decreased compared to both the prior year quarter and last year due to lower international rates as well as a reduction in demand. Revenues from shuttle tanker providing shuttle tanker services were essentially flat from the prior quarter and year.

Please turn to Slide 15. Vessel operating contribution, which is defined as TCE revenues, less vessel operating expenses and charter hire expenses, declined 71% from Q1 2020 to $11.4 million in the current quarter. The Jones Act tanker swung from a contribution of $12.4 million to a loss of $12.3 million. This $24.7 million swing results from the 6 tankers currently laid up due to the lack of demand.

Combined vessel operating contribution of our niche market activity, ATBs and the Alaska crude oil tanker, provided a vessel operating contribution in the current quarter of $23.6 million compared to $26.4 million in last year's comparative quarter. The niche market contribution decreased $8.6 million from last year due to the decline in lightering revenues, lower international rates and the layup of the OSG 350. The increases in the Alaska tanker vessel operating contribution reflects a full quarter of operations in the first quarter of 2021, partially offset by 1 month of drydock off-hire for the Alaskan Navigator compared to a partial month of operations in the year ago quarter.

As mentioned previously, our new ATBs both operated for the first time in this quarter. Sequentially, vessel operating contribution decreased $12.8 million from Q4 2020. $9.8 million of this decrease resulted from the 6 tankers in layup during the first quarter and one tanker that was available, but without employment for 2 months of the quarter. The reduction in demand by our Delaware Bay lightering customers and reductions in international rates and demand contributed to the remaining decrease.

Please turn to Slide 16. First quarter adjusted EBITDA decreased $46.6 million from $52.8 million in Q1 2020 to $6.2 million in the current quarter. We recognized a $19.2 million gain related to our acquisition of Alaska Tanker Company in the first quarter of 2020. The operating decrease resulted from lower utilization levels in Q1 2021 for our MR tankers, resulting from the vessels in layup, virtually no spot market activity for tankers during the first quarter, decreased demand for lightering services due to pandemic, reduced demand and lower international tanker rates. The impact of this was partially offset by our Alaska Tanker operations. Sequentially, adjusted EBITDA declined $14.3 million from the prior 2020 quarter, and the quarterly decrease was driven by the previously discussed factors.

Please turn to Slide 17. In early April 2021, we entered into a contract solely Overseas Gulf Coast, which is unencumbered for $32.5 million in an all-cash transaction. Completion of the sale is expected to occur in late May 2021. This transaction will provide approximately $32 million of additional liquidity to the company.

Our balance sheet, we have classified this asset as held-for-sale at March 31, 2021, and the first quarter reflects the estimated loss on the sale of $5.4 million. Net loss for the first quarter of 2021 was $15.9 million compared to net income of $25 million in the first quarter of 2020, which again included the $19.2 million pretax gain based to the ATC acquisition. The change was driven by the loss associated with the Gulf Coast sale, lower vessel utilization, decreased lightering demand, a reduction in international rates, all of which were partially offset by our Alaska Tanker acquisition.

Please turn to Slide 18. Our capital expenditures will be well below 2020 levels, which were elevated due to the number of vessels required to go through their normal drydock cycle and the installation of ballast water treatment systems. 2020, capital expenditures were $43.8 million. Drydock and ballast water treatment systems investment in 2021 is estimated at $27 million. Approximately 80% of this effort will occur in the first half of the year.

While vessels are in drydock or otherwise unavailable for use, they are off-hire even if otherwise employed on a time charter. We lost $2.5 million in revenues due to off-hire during the first quarter.

Turn to Slide 19. At the end of 2020, we had total cash of $70 million, which included $100,000 of restricted cash. During the first quarter, we generated $6 million of adjusted EBITDA. Working capital consumed $4 million of cash. We expended $8 million on drydocking and improvements to our vessels. And we invested $3 million in vessel and other CapEx.

Additionally, we incurred $6 million in interest expense and repaid $10 million in debt. The result was, we ended the quarter with $45 million of cash, including $100,000 of restricted cash.

Please turn to Slide 20. Continuing our discussion of cash and liquidity, as we mentioned on the previous slide, we had $45 million of cash at March 31, 2021, including $100,000 that was restricted. Our total debt was $426 million. This represents a decrease of $10 million in outstanding indebtedness since December 2020.

We will amortize an additional $29 million of our loans over the remainder of 2021. With $364 million of equity, our net debt-to-equity ratio is 1x.

This concludes my comments on the financial statements, and I'd like to turn the call back to Sam. Sam?

Thank you, Dick. Largely speaking, we consider the financial results achieved during the first quarter of 2021 to be satisfactory, given the continuing pandemic environment. While our forward planning contemplates the continued layup of several vessels for the immediate future, we consider the prospects for demand recovery during the second half of this year to be a reasonable expectation, spurred by a return of the healthy gasoline and diesel demand in the United States, increased fiscal stimulus and a return to more normalized levels of mobility.

As seen from the results of the just completed quarter, we expect continuing strong contributions from the ATC vessels on charter as well as the expected revenue streams from our other niche businesses, in particular, our 2 active shuttle tankers in our existing MSP vessels. In addition, during 2021, we have committed revenue streams for the full year from both of our 2 new barges, the OSG 204 and OSG 205. These cash flow stabilizers provide confidence that we will ride out the market weakness and carry through to what we believe to be a fundamentally promising medium and long-term future.

Challenges remain as new opportunities. Our renewed fleet provides us a profile of assets with a reduced average age. We continue to achieve lower costs and material improvements in our key safety and operational performance measures. We are focused on achieving high health and safety performance in the continuing COVID-19 environment, and we remain confident in the long-term success of our business model and of OSG's ability to maintain its position as the leading U.S. flag tank vessel operator in the years to come.

Kate, we can now open up the call to questions.

(Operator Instructions) Our first question is from Ryan Vaughan from Needham.

Sam and Dick, I have 2, if you don't mind. The first one is just listening to your call, peer calls and even some of the consumer -- U.S. consumer travel companies, it really sounds like business travel is coming back nicely. And without the Texas freeze and, let's say, the international imports, it sounds like your -- a lot of your vessels would probably have some charters now or be back in business, at least running on the spot market.

So clearly, the Texas event was a onetime event. But just, Sam, you touched on it briefly in your remarks, just on the international imports being quite high. Do you think there's been a permanent shift there? Or do you think it's more just some of the European countries have just been slower to reopen? So if it is that, any sort of best guess on timing, early summer, late summer, anything you can add on that?

And then number two, Dick, liquidity at $45 million at the end of the year. I think you said $60 million at the end of 2Q. Can you just update -- I know you told us last month, you felt comfortable, but just 1 month later just you're going to bring in the Gulf Coast cash. Just how you're feeling going into 2Q, 3Q as business probably come back at some point in time, whether it's late 2Q or sometime in 3Q, just how you're feeling about liquidity over the next couple of quarters?

All right. Okay. So I'll try and deal with your first question. We have frequently pointed in response to questions in the past that although the United States and the Jones Act are from time to time characterized as being insulated or isolated marketplaces, they really are not. The energy markets are global markets. Price differentials and other factors that can influence those price differentials can be arbitraged through transportation capacity and through traders that are moving commodities around the world to arbitrage those differences.

My view right now is what you're seeing in the international markets is a very weak international tanker market, a reflection of the fact that outside of the United States, with possibly the exception of China, most countries are still suffering badly from the pandemic, and many countries are -- have either been in or currently entering into increased lockdown conditions, which, obviously, has an impact on mobility and transportation fuel demand.

You see that in Europe, you see that now in South Asia, Latin America also having spikes in the pandemic spread. That creates weak markets for international products for the time being. You couple that weak demand for product with weak demand for transportation and international MR rates hovering in the sort of single digits, $6,000, $7,000, $5,000 per day. That opens up the opportunity to take excess production out of Europe, in particular, and move it into the United States.

And that's been what we've been witnessing for the last 4, 5, 6 weeks as large surplus gasoline production in Europe is finding its way into the East Coast of United States, even as far Southeast Florida. You look at that picture and again, logic dictates that, that's not sustainable. International tanker rates of $4,000, $5,000, $6,000 a day are below operating costs for international operators. It can be sustained for a period of time, but not for a long period of time, eventually leading to either a culling of capacity or laying up of vessels that would have the impact of shortening up supply.

I think the international market commentary also believes that fuel consumption, transportation fuel consumption globally will rebound in the second half of this year. So I think a lot of that capacity is being held available, anticipating that recovery. And as you know, rates can move quickly based on short-term shifts in demand. So I said in our last call, we need to see the international MR tanker rates move back up to above $10,000 a day. That would be certainly a big help in trying to remove that transportation arbitrage that currently exists and bringing product in -- from Europe.

The other thing is just to see European economies begin to get back on their feet because some of that excess production would then be absorbed in -- locally in Europe. And there would be less incentive to be able to push -- to basically dump that excess product in the United States. What I find encouraging and I addressed in my remarks is notwithstanding all of this increased import activity, refining rates in the U.S. continue to inch up. And ultimately, the principal driver of tanker demand in the Gulf Coast region is that movement of transportation fuel from PADD 3 into Florida.

And one of the charts that I see up there that was a continuation of the presentation we made in April, you can see that mobility in Florida has regained its pre-pandemic levels. Now that's not necessarily a tried and proven data set. It's a Google data set that people are looking at as a high-frequency data set. But it certainly indicates improved conditions. And I can tell you, Dick and I talk about this all the time. There's plenty of traffic here in Florida. There is no indication anecdotally as you look around in Miami, in Tampa, in Orlando and places that I visited in recent weeks. Florida is full on. And we feel that every day we see the inventory levels, you'll see the PADD 3, one see inventory levels, they continue to be at reduced levels.

Eventually, product needs to move in to fill those inventory drawdowns. And we think that's coming. Timing, I've said 100 times of the skill sets that we have in our toolbox, predicting the future with a high level of accuracy is probably the least developed that we have. But we look at the logic, we look at the fundamentals that are there. We feel it's all pointing in the right direction. And our job right now is not to call that turn, but to make sure that we're ready to be able to participate in that turn with sufficient levels of liquidity to ensure that we have the runway to get there.

So to go on to the second part of your question, Ryan, we entered into the sale of the Gulf Coast to sort of provide some additional insurance that we had adequate liquidity to get where we need to go to realize the recovery that we see coming in the second half of the year. We will -- by the time the second quarter ends, as I indicated, we will have spent most of our capital dollars for the year. And so, the remaining capital commitments will be relatively minor in nature.

The ships that -- and all of those are on-time charter. The on charter will be fully in service, so they will generate their normal levels of cash flow on that basis. And we think we have the kind of runway that we need to get to the other side of this really demand dislocation that we're experiencing right now. For all the reasons that Sam has gone through, we see business coming back in the second half of the year. Much of our business generates positive cash flow today. Part of it consumes cash today, and that's we need to get past that.

And the part that is cash consumer today, we've taken all the steps that are prudent and reasonable to take to minimize the daily cost of those ships and operating them or at least maintaining them in layup. And the rebound, as you put one of these ships back in service will be dramatic. I mean you're talking somewhere incremental cash flow on an annualized basis per vessel somewhere in the order of $17 million per vessel.

So it's -- we believe we're on the cusp. We have the kind of resources we need to get to that point in time, and we expect to start realizing that in the second half of this year.

(Operator Instructions) Our next question is from J. Mintzmyer from Value Investor's Edge.

Sam, Dick. It seems like we just talked a few weeks ago. So a quick turnaround here. I'm glad to see Q1 back on time. So look, Q1 was a difficult quarter. There's a lot of stuff going on. You had the COVID overhang. We had the Texas freeze. Obviously, a trough quarter. We're starting to see green shoots, as you mentioned. But I know there's a little bit of a lag effect in the way vessel revenues are recognized and layup costs come in and that sort of thing. Is Q1 going to be the trough to bottom here in terms of reporting EBITDA earnings or Q2? What's kind of the vector on this next quarter?

I think without making real solid predictions, I mean, I think what I said was in the last call that we may be kind of breakeven EBITDA for the first half of the year. And I don't think my opinion hasn't changed there that we will be about breakeven for the first half of the year. There is a lag, and our customers need to get to a point where they're willing to make commitments again. And we need to bring -- when they do that, we need to bring ships back into service. There will be a little lag because we'll need several weeks to accomplish getting them prepared to operate again.

So you've got the sort of the cycle is enter into a contract, which will consume a certain amount of time all by itself and then follow-on that with the restoration of the ship to service and the preparing of that ship for service. So I think the likelihood is you'd see the performance really started to change in Q3 and thereafter.

Yes. I think that makes sense. It's just important to have realistic expectations on this sort of thing. And it's looking really nice for Q3. So we're excited there. Can you give us an update on the related debt to your second international tanker, the Sun Coast? I know you repaid the debt associated with the Gulf Coast, just sold that one. How much is left directly against the Sun Coast?

In round numbers, about $23 million.

$23 million. Okay. Good. I mean, hopefully, you'll be able to operate that one and look at the tanker security program expansion next year. But if not, it's good to see that there's a pretty nice equity cushion there. The MR values have improved nicely.

Looking at your second half of this year, it's obvious that you're spending almost all your drydock costs front loaded. All the ballast water upgrades are front loaded. We're in the biggest trough of the market right now.

Q3 is looking like we could shift to strong free cash flow mode. If your shares remain at these ridiculous valuations -- obviously, today, it's all about playing defense, but if these shares remain at these very low valuations in Q3 or Q4 and the free cash flow is very positive, are there any mechanisms you can pull to start to correct that? Is there any appetite for like a share repurchase or something of that manner?

We've been asked this question frequently in the past. My general opinion -- and this is my opinion, and everybody has differing opinions. But my general opinion is dividends in the shipping market or shipping companies that pay dividends, don't get much value for that because the market looks historically and says that shipping companies' capacity to maintain a sustained dividend in what is historically a pretty volatile and cyclical market is questioned.

So you don't really get much value for paying a dividend, although large shareholders would probably like to get the seat of that money. It's also tax inefficient to do that. Share buybacks, yes, that's something that could be in the toolbox. But again, the volumes of our share on a daily basis, the trade and the limitations that we have in terms of regulation, in terms of how much shares we can actually buy in a buyback program, given those sort of daily averages, that takes a long time to kind of move the needle to be able to actually acquire significant numbers of shares. So I'm not certain that, that really works for us as well.

So that leads me to believe that if the pretty picture that you paint that we return to a healthy surplus cash flow environment, if that materializes in the near term, the bias will probably be to direct money towards reduction of debt as a first order of priority. In theory, if your business like ours is valued as an enterprise value, then reducing debt has the same impact as whatever is buying back shares.

Your equity value is going up on that calculation. It's delevering the business, reducing the risk level of the business to some extent. And also, it just generates more earnings for the company because we pay less interest expense. And so, as I said, I'm one voice in a room of people that have an opinion on that. But conversations that we've had in the past lead us in the short run to probably look at, focus on trying to delever the business a little bit more in the near term.

I would say that we still believe that there are opportunities for us to deploy capital in assets that would generate incremental revenue, incremental cash flow. So the first priority would always be to try and look for opportunities to do that. Those opportunities are episodic. And we really don't have much control over the timing or the emergence of those. But there are opportunities to acquire like assets in our sector and there are opportunities, in my view, to start looking at sort of the evolution of shipping into whatever comes next and how we're going to be able to -- how we're going to be able to participate in that evolution.

I'm talking about over the next 20 years, changes in propulsive systems, changes in the carbon footprint that our industry leaves. These are all larger issues that we're going to have to start dealing with in the next 5 years or so. And opportunities even that exist in adjacent spaces, maybe that have to do with renewable energy or new ideas about how energy would be produced and transported around the United States.

And so those questions do come up and they exist on our longer-term agenda. So if there are opportunities to profitably deploy capital in those kind of areas, something that we would give regular consideration to.

Sam, I appreciate the rundown there. Yes, but definitely a lot of different things you can look at for free cash. And first off, we just have to get there. So we're looking forward to Q3 and looking forward to that. The only frustrating thing here is that you guys trade -- if you normalize the EBITDA, you guys traded about 5x, 5.5x enterprise value to EBITDA. Every single one of your peer comps, U.S. transportation, U.S. energy, logistics, whatever you want to slice and dice it, they're all 8x, 9x, 10x, 11x, right? And you guys are at 5x.

So that's the only reason I really kind of harp on the repurchases. I know we're kind of in a defensive spot right now. And I do like hearing about debt reduction. So keep up the good work, and we're looking forward to a much better second half.

Thanks, J.

Thank you, J.

(Operator Instructions) As we have no more questions, this concludes our question-and-answer session. I would like to turn the conference back over to Sam Norton for closing remarks.

Thank you, Kate, and thanks again to everyone for participating on today's call. And we look forward to speaking with you again in August. We expect to be able to have better news to share with you then. Until then, wishing you all well. Thank you.

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