International Seaways cuts losses in Q4

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International Seaways, one of the largest tanker companies worldwide providing energy transportation services for crude oil and petroleum products, reported results for the fourth quarter and full year of 2021.

Highlights

  • Transformational Merger:
    • Completed the stock-for-stock merger with Diamond S Shipping Inc. (“Diamond S”), creating one of the largest U.S.-listed diversified tanker companies and significantly enhancing INSW’s scale in both crude and clean product markets.
    • The Company expects to realize over $25 million in cost synergies during 2022 in connection with the Diamond S merger. Another $10 million in revenue synergies are expected based on the historical performance of the pools where the Company’s vessels are employed relative to other commercial management.
  • Returned a cumulative $57.6 million in capital to shareholders:
    • Paid a regular quarterly cash dividend of $0.06 per share in December 2021. During the full year 2021, the Company paid approximately $9.4 million in regular cash dividends.
    • Repurchased 1,077,070 shares at an average price of $15.44 per share, for a total cost of $16.7 million
    • Paid a special dividend of $31.5 million, or $1.12 per share in connection with the Diamond S merger.
  • Fleet Optimization Program:
    • Took advantage of healthy secondhand vessel prices and strong steel demand to sell or recycle 16 older tankers with an average age of approximately 16 years, lowering our age profile to below 9 years old. Aggregate net proceeds were $91.7 million after all costs including debt repayment of approximately $73.5 million. During the fourth quarter, six of the 16 vessels were sold or recycled generating net proceeds of $31.4 million after all costs including debt repayment of $22.3 million. All recycling was conducted in accordance with the Hong Kong Convention.
    • Bolstered our Panamax presence in our strong earning niche joint venture, Panamax International (“PI”) with the purchase of a 2011-built LR1 during the first quarter of 2022. Additionally, the Company contracted for the sale of a 2010-built MR, effectively swapping the two vessels for which the Company will pay an additional $3 million for a younger, larger LR1 vessel. The vessel swap enhances our earnings in PI, which has been the strongest earning sector in the first quarter of 2022 to-date with an average time charter equivalent (“TCE”) earnings above $20,000 per day thus far.
    • Entered into a memorandum of agreement in the first quarter of 2022 to recycle another 2004-built Panamax, for net proceeds estimated at approximately $7 million.
    • Commenced construction on all three of our next generation dual-fuel, LNG-powered VLCCs, which are designed to lower CO2 emissions by 40% when compared to today’s average conventional VLCC. This project is now fully funded with secured financing and the vessels are expected to be delivered in the first quarter of 2023.
  • Enhanced the Balance Sheet and Diversified our financing partners:
    • Refinanced six modern VLCCs in November 2021, which generated incremental liquidity of approximately $150 million. Gross proceeds of $375 million were used to repay $228 million outstanding on the Sinosure facility. During the quarter, the Company used a portion of the net proceeds to repay $100 million of the outstanding balances under existing revolving credit facilities.
    • Refinanced two MRs and two Aframaxes through sale and leaseback arrangements with Japanese and Chinese leasing companies for net proceeds of approximately $32.5 million. Three of the vessel refinancings were completed in the fourth quarter with net proceeds of approximately $26.8 million. The final vessel refinancing was completed in January 2022.
    • Completed the financing for its three newbuilding, dual-fuel, LNG-powered VLCCs that are due for delivery in the first quarter of 2023 with affiliates of the Bank of Communications Limited (“BoComm”) under a sale leaseback agreement whereby BoComm has agreed to fund approximately $244.8 million of the aggregate $288.0 million of contract cost. The vessels will be employed on long term time charter contracts after delivery.
  • Adjusted EBITDA(A) for fourth quarter was approximately $11.9 million for the fourth quarter; full year Adjusted EBITDA for 2021 was $40.4 million.
  • Cash(B) was $98.9 million as of December 31, 2021; total liquidity was $238.9 million, including $140.0 million of undrawn revolver capacity.
  • Net loss for the fourth quarter was $34.0 million, or $0.68 per diluted share, compared to a net loss of $116.9 million, or $4.18 per diluted share, in the fourth quarter of 2020. Net loss for the quarter reflects the impact of the disposal of vessels, including impairments, loss on extinguishment of debt, write-off of deferred finance costs and merger related costs aggregating $5.1 million. Net loss excluding these items was $28.9 million, or $0.57 per diluted share. Net loss for the full year 2021 was $133.5 million, or $3.48 per share. 2021 net loss reflects the impact of the disposal of vessels, including impairments, loss on extinguishment of debt, write-off of deferred finance costs and merger related costs aggregating $47.6 million. Net loss excluding these items was $85.9 million, or $2.24 per diluted share

Commenting on the year, Lois K. Zabrocky, International Seaways’ President and CEO, said, “2021 was a momentous year for Seaways, as we took deliberate steps to position the Company to create enduring value. We became one of the largest diversified tanker companies following the completion of our transformational merger, which we expect will realize more than $35 million in synergies. Despite significant growth, we maintained a healthy balance sheet, instituting a fleet optimization program to capitalize on firm asset values and diversified our capital structure. We also returned nearly $60 million to shareholders through regular quarterly dividends, a special dividend in connection with our merger and a share repurchase program.”

Ms. Zabrocky added, “As we look ahead, with inventories at the lowest levels since 2014, growing oil demand that we expect to surpass pre-pandemic levels and expectations of increased oil production, we remain optimistic for a stronger rate environment in the second half of 2022. We remain in a strong position to evaluate additional opportunities to create value for our shareholders.”

Jeff Pribor, the Company’s CFO, stated, “Our significant progress enhancing our capital structure and financial flexibility this year has further positioned the Company for long-term success. Complementing our ample cash position and low net loan to value, our diversified fleet of crude and product tankers provides us considerable operating leverage to a rising rate environment. We expect to continue to diversify our capital structure and remain committed to a balanced capital allocation program that maintains our strong balance sheet while returning capital to shareholders.”

Fourth Quarter 2021 Results

Net loss for the fourth quarter of 2021 was $34.0 million, or $0.68 per diluted share, compared to a net loss of $116.9 million, or $4.18 per diluted share, for the fourth quarter of 2020. The decrease in net loss in the fourth quarter of 2021 primarily reflects gain on disposal of vessels in the fourth quarter of 2021 compared to an $85.9 million loss on disposal of vessels and other property, net of impairments in the fourth quarter of 2020, partially offset by merger and integration related costs, costs aggregating $6.6 million associated with the extinguishment of debt, and increased interest expense, principally reflecting debt assumed in the merger.

In addition, equity in income of affiliated companies increased by $16.8 million to $5.3 million from a loss of $11.5 million in 2020. This increase was principally attributable to the recognition of a non-cash $16.4 million deferred tax provision recorded by the FSO Joint Venture in the fourth quarter of 2020 as a result of the execution of 10-year extensions on each of the joint venture’s existing service contracts in October 2020.

Consolidated TCE revenues(C) for the fourth quarter were $93.0 million, compared to $53.0 million for the fourth quarter of 2020. This increase in TCE revenues, which reflects a significantly larger post-merger fleet, only marginally exceeded the increase in vessel expenses resulting from the larger fleet. Shipping revenues for the fourth quarter were $94.7 million, compared to $56.7 million for the fourth quarter of 2020.

Adjusted EBITDA for the fourth quarter was $11.9 million, compared to a loss of $5.0 million for the fourth quarter of 2020.

Crude Tankers

TCE revenues for the Crude Tankers segment were $42.4 million for the fourth quarter, compared to $44.0 million for the fourth quarter of 2020. This decrease primarily resulted from a decline in fixed time charter activity, particularly from the VLCC sector and lower spot earnings of VLCCs, which averaged $14,326 per day partially offset by an increase of 639 revenue days as a result of the merger and spot earnings from the Suezmax, Aframax and Panamax sectors, with average spot earnings increasing to approximately $13,000, $11,500, and $15,000 per day, respectively. Shipping revenues for the Crude Tankers segment were $44.5 million for the fourth quarter of 2021, compared to $47.0 million for the fourth quarter of 2020.

Product Carriers

TCE revenues for the Product Carriers segment were $50.5 million for the fourth quarter, compared to $8.9 million for the fourth quarter of 2020. This increase is attributable to an increase of 3,373 revenue days as a result of the merger and higher average rates earned by the LR1 and MR fleets, with average spot rates increasing to approximately $17,400 and $11,300 per day, respectively. Shipping revenues for the Product Carriers segment were $50.2 million for the fourth quarter, compared to $9.7 million for the fourth quarter of 2020.

Full Year 2021 Results

Net loss for the full year ended December 31, 2021, was $133.5 million, or $3.48 per diluted share, compared with a net loss of $5.5 million, or $0.20 per diluted share, for the full year ended December 31, 2020. During 2021, the Company incurred $50.7 million of one-time merger and integration related costs due to the Company’s merger with Diamond S, and increased vessel expenses, which were not sufficiently covered with a corresponding increase in TCE revenues despite having a larger post-merger fleet. These costs and expenses were offset by a net gain on disposal of vessels of $9.8 million in 2021 compared with a loss of $100.1 million in 2020.

Equity in income of affiliated companies increased by $17.7 million to $21.8 million from $4.1 million in 2020. This increase was principally attributable to the recognition of a non-cash $16.4 million deferred tax provision recorded by the FSO Joint Venture in the fourth quarter of 2020.

Consolidated TCE revenues for the full year ended December 31, 2021, were $255.9 million, compared to $402.0 million for the full year ended December 31, 2020. Shipping revenues for the full year ended December 31, 2021 were $272.5 million, compared to $421.6 million for the full year ended December 31, 2020.

Adjusted EBITDA for the full year ended December 31, 2021 was $40.4 million, compared to $220.1 million for the full year ended December 31, 2020.

Crude Tankers

TCE revenues for the Crude Tankers segment were $144.3 million for the full year ended December 31, 2021, compared to $318.6 million for the full year ended December 31, 2020.

The decline of $174.3 million was primarily due to the impact of significantly lower average rates in the VLCC, Suezmax, Aframax and Panamax sectors, with average spot rates decreasing to approximately $13,600, $12,600, $10,800 and $13,300 per day, respectively, aggregating approximately $186.8 million. Also contributing to the decrease was a 1,065-day decrease in VLCC, Panamax and Aframax revenue days, primarily driven by vessel sales, which had the effect of decreasing TCE revenues by $42.2 million. The declines were partially offset by a $59.8 million days-based increase in the Suezmax fleet, reflecting the Company’s acquisition of 13 Suezmaxes as part of the merger.

Shipping revenues for the Crude Tankers segment were $156.3 million for the full year ended December 31, 2021, compared to $334.8 million for the full year ended December 31, 2020.

Product Carriers

TCE revenues for the Product Carriers segment were $111.6 million for the full year ended December 31, 2021, compared to $83.4 million for the full year ended December 31, 2020.

The increase of $28.2 million was primarily the result of a net 5,431-day increase in MR revenue days, aggregating $85.1 million, as the Company acquired 44 MRs in conjunction with the merger, seven of which were sold during the third quarter of 2021. Additionally, there was a $5.0 million days-based increase in the LR1 fleet, which reflected (i) the purchase of a 2009-built LR1 that was delivered to the Company in February 2020, (ii) the delivery of two time chartered-in 2008-built LR1s to the Company between August and October 2021, and (iii) 109 fewer off-hire days in the current year, partially offset by (iv) the redelivery of a 2006-built LR1 to its owners at the expiry of its two-year charter in August 2021. Partially offsetting the days-based increase in TCE revenues were lower period-over-period average daily blended rates earned by the LR1 and MR fleets, which accounted for a decrease in TCE revenues of approximately $67.1 million. Average spot rates fell during 2021 to approximately $14,800 and $10,500 per day for the LR1 and MR fleets, respectively.

Shipping revenues for the Product Carriers segment were $116.3 million for the full year ended December 31, 2021, compared to $86.9 million for the full year ended December 31, 2020.

Share Repurchases

During the fourth quarter of 2021, the Company repurchased and retired 1,077,070 shares of its common stock in open-market purchases at an average price of $15.44 per share, for a total cost of $16.7 million.

Completed Liquidity Enhancing Financing

The Company executed a number of liquidity enhancing and financial diversification initiatives during the fourth quarter and subsequent to year end:

  • 10-year lease financing arrangements with Ocean Yield ASA for the sale and leaseback of the six VLCCs that collateralized the Sinosure facility, for a total net sale price of $375 million. This refinancing generated incremental available liquidity of approximately $150 million for the Company, after prepaying the $228 million outstanding loan balance under the Sinosure facility;
  • Seven-year lease financing arrangements with BoComm in connection with the construction of three dual-fuel, LNG-powered VLCC newbuilds. BoComm’s obligation to provide funding pursuant to the terms of the sale and leaseback agreements commenced when construction began on the first vessel in November 2021. BoComm is expected to provide funding of $244.8 million in aggregate ($81.6 million per vessel) over the course of the construction and delivery of the three vessels. As of December 31, 2021, $9.6 million had been funded by BoComm pursuant to the terms of the agreements;
  • A Seven-year lease financing arrangement with Toshin Co., Ltd. for the sale and leaseback of a 2012-built MR that was previously encumbered under the $390 Million Facility Term Loan. The transaction generated net proceeds of $6.9 million after making the mandatory prepayment of the $390 Million Facility Term Loan;
  • 10-year lease financing arrangements with Oriental Fleet International Company Limited for the sale and leaseback of a 2013-built Aframax and a 2014-built LR2 that were previously encumbered under the $390 Million Facility Term Loan. The transaction generated net proceeds of $19.9 million after making the mandatory prepayment of the $390 Million Facility Term Loan;
  • A $25.0 million five-year term loan facility with ING Bank N.V., London Branch maturing in November 2026 secured by a 2016-built Suezmax.in connection with the dissolution of the NT Suez joint venture, and the repayment of the Company’s share of NT Suez joint venture’s $66 Million Credit Facility; and
  • In January 2022, we entered into a nine-year lease financing arrangement with Hyuga Kaiun Co., Ltd. for the sale and leaseback of a 2011-built MR that was previously encumbered under the $390 Million Facility Term Loan. The transaction generated net proceeds of $5.7 million after making the mandatory prepayment of the $390 Million Facility Term Loan.

Vessel Sales & Recycling

During the fourth quarter of 2021, the Company sold two Handysize product carriers built between 2006 and 2007, three 2002-built Panamaxes, and a 2006-built Suezmax. Two of the three Panamaxes sold in the fourth quarter were sold to be recycled in compliance with the Hong Kong Convention, adding to a total of four vessels recycled during 2021 by the Company.

In January 2022, the Company entered into memoranda of agreements for the sale of a 2010-built MR and the purchase of a 2011-built LR1 with the same counterparty. The LR1 is expected to replace the MR as collateral in the respective debt facility and the net cost to the Company is expected to be approximately $3 million. The transaction is expected to be completed by March 2022.

In February 2022, the Company agreed to sell a 2004-built Panamax, expected to deliver to the buyer for recycling compliant with the Hong Kong Convention in the second quarter of 2022.

Payment of Regular Cash Dividend

The Company’s Board of Directors declared a regular quarterly dividend of $0.06 per share of common stock on February 28, 2022. The dividend will be paid on March 28, 2022 to shareholders of record at the close of business on March 14, 2022.