International Seaways, one of the largest tanker companies worldwide providing energy transportation services for crude oil and petroleum products, reported results for the first quarter of 2021.
- Net loss for the three months ended March 31, 2021 was $13.4 million, or $0.48 per diluted share, compared to net income of $33.0 million, or $1.12 per diluted share, in the first quarter of 2020.
- Time charter equivalent (TCE) revenues(A) for the first quarter were $45.2 million, compared to $119.7 million for the first quarter of 2020.
- Adjusted EBITDA(B) for the first quarter was $10.7 million, compared to $74.2 million for the first quarter of 2020.
- Cash(C) was $172.4 million as of March 31, 2021; total liquidity was $212.4 million, including $40 million of undrawn revolver capacity, compared to $255.7 million as of December 31, 2020.
- Paid a regular quarterly cash dividend of $0.06 per share in March 2021.
- Announced a definitive merger agreement pursuant to which INSW will merge with Diamond S Shipping Inc. (NYSE: DSSI) in a stock-for-stock transaction, creating a 100-ship fleet.
- Immediately prior to the closing of the merger, existing INSW shareholders are expected to receive a special dividend of approximately $1.10 per share.
- Announced a contract to build three dual fuel LNG VLCCs at DSME shipyard in South Korea with seven-year time charters to Shell commencing at delivery in the first quarter of 2023.
“The first quarter was transformational for Seaways, as we took important steps to unlock shareholder value,” said Lois Zabrocky, INSW’s President and CEO. “We entered into an accretive merger that will combine two leading U.S.-based diversified tanker owners to create an industry bellwether with significantly enhanced scale and capabilities. Among the benefits of this transaction, we expect to double our net asset value, realize significant cost synergies, increase our equity market capitalization, all while maintaining one of the lowest net leverage ratios amongst our peers. During the quarter, we also capitalized on an opportunity to once again renew our fleet at a cyclical low point. With our agreement to build three LNG dual-fuel VLCCs for delivery in 2023, we will add state-of-the-art vessels to our fleet that will commence seven-year time charters to Shell upon delivery. In addition to the charters providing strong, stable cash flows with added upside, these highly efficient vessels offer significant environmental benefits and advance Seaways position at the forefront of sustainability initiatives in the maritime sector.”
Ms. Zabrocky continued, “We continue to demonstrate our commitment to the return of capital to shareholders as an important part of our capital allocation strategy, highlighted by the intention to pay a special dividend to INSW shareholders immediately prior to completing the merger. Going forward, and based on our strengthened commercial scale, we are in a strong position to take advantage of positive long-term tanker fundamentals and further create enduring value well into the future.”
Jeff Pribor, the Company’s CFO, added, “We entered 2021 with an all-time high cash position, which provided Seaways with a strong foundation for taking advantage of attractive strategic opportunities. Our success building a strong balance sheet continues to serve us well, and we remain committed to paying a quarterly dividend, while opportunistically executing on our share repurchase program. As of the end of the first quarter, we had ample total liquidity of approximately $212 million, and our net loan to value of 33% is one of the lowest among our tanker peers.”
First Quarter 2021 Results
Net loss for the first quarter of 2021 was $13.4 million, or $0.48 per diluted share, compared to net income of $33.0 million, or $1.12 per diluted share, for the first quarter of 2020. The decline in the first quarter primarily reflects significantly lower TCE revenues, which was partially offset by lower vessel expenses, charter hire expenses and interest expense. Decreased global oil production, drawdowns of sea- and shore-based inventories, and COVID-19’s continued negative impact on oil demand continue to place downward pressure on tanker day rates.
Consolidated TCE revenues for the first quarter were $45.2 million, compared to $119.7 million for the first quarter of 2020. Shipping revenues for the first quarter were $46.8 million, compared to $125.3 million for the first quarter of 2020.
Adjusted EBITDA for the first quarter was $10.7 million, compared to $74.2 million for the first quarter of 2020.
TCE revenues for the Crude Tankers segment were $35.9 million for the first quarter compared to $88.9 million for the first quarter of 2020. This decrease primarily resulted from the impact of lower average rates in the VLCC, Suezmax, Aframax and Panamax sectors, with average spot earnings declining to approximately $15,700, $12,200, $11,700 and $14,200 per day, respectively, aggregating approximately $53.5 million. Also contributing to the decline in TCE revenues was a $2.8 million decline in the Aframax fleet as a result of the sales of two older Aframaxes in 2020. Partially offsetting these decreases was the impact of a 120-day increase in VLCC revenue days, aggregating $7.4 million, which was primarily the result of 313 fewer drydock repair and other off-hire days in the first quarter of 2021. In the prior year’s quarter the Company’s VLCCs were out of service for 305 days to have scrubbers installed, and 53 days relating to the detention of the Seaways Mulan by Indonesian authorities. This increase was offset in part by the impact of the sales of two older VLCCs during 2020, including the Seaways Mulan. Shipping revenues for the Crude Tankers segment were $37.5 million for the first quarter compared to $93.7 million for the first quarter of 2020.
TCE revenues for the Product Carriers segment were $9.2 million for the first quarter, compared to $30.9 million for the first quarter of 2020. The decrease is primarily attributable to lower period-over-period average daily blended rates earned by the LR2, LR1 and MR fleets, which accounted for a decrease in TCE revenues of approximately $14.6 million. Average spot rates fell during the first quarter of 2021 to approximately $12,900 and $7,400, respectively for the LR1 and MR fleets. In addition, fewer revenue days in the LR1 and MR fleets during the first quarter due to LR1s being off-hire for scheduled drydocks and a decrease in the MR fleet, primarily resulting from the redeliveries of three chartered-in MRs between March 2020 and July 2020, contributed an aggregate decrease in TCE revenues of approximately $7.0 million. Shipping revenues for the Product Carriers segment were $9.2 million for the first quarter of 2021, compared to $31.7 million for the first quarter of 2020.
Announced Merger with Diamond S Shipping
On March 30, 2021, the Company announced a definitive merger agreement pursuant to which INSW will merge with Diamond S Shipping Inc. (“Diamond S”) in a stock-for-stock transaction. Subsequent to the merger, INSW and Diamond S shareholders will own approximately 55.75% and 44.25% of the combined company, respectively. Prior to the effective date of the merger, INSW is expected to pay a special dividend to its shareholders in an aggregate amount equal to $31.5 million, which special dividend will not result in a change to the above ownership split.
Following the transaction, the senior management and Chairman of INSW will remain in their current roles and lead the combined company and the board of directors of the combined company will be comprised of seven representatives designated by the board of directors of INSW and three representatives designated by the board of directors of Diamond S.
The merger of Diamond S with INSW unites two companies with long-term customer relationships, similar cultures, and complementary positions in key tanker sectors. The merger is expected to enhance INSW’s capabilities in both the crude and product markets and create “power alleys” for INSW in the large crude—VLCC and Suezmax—and LR1/Panamax and MR markets. The merger will create the second largest U.S.-listed tanker company by vessel count and the third largest by deadweight (“dwt”). On a pro forma basis, the combined company will have 100 vessels, shipping revenues of over $1 billion, over 2,200 employees, and an enterprise value of approximately $2 billion.
Constructing Three Dual Fuel VLCC Newbuildings
During the quarter, the Company contracted to build three dual fuel LNG VLCCs at DSME shipyard in South Korea. The three ships, upon delivery in the first quarter of 2023, will be time chartered to Shell for a period of seven years at a rate that consists of an attractive base rate plus profit sharing.