Overseas Shipholding Group, Inc.
Q4 2019 Earnings Call Transcript

Published:

  • Operator:
    Good morning and welcome to the Overseas Shipholding Group Fourth Quarter and Full Year 2019 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded.I would now like to turn the conference over to Sam Norton, President and CEO. Please go ahead.
  • Samuel Norton:
    Thank you, Grant. Good morning, everyone. Given the unique circumstances affecting nearly all of the markets that we’re collectively exposed to as well as the considerable uncertainties impacting our respective daily routines, I’m particularly grateful to all of you for joining in on this call today.As usual, Dick Trueblood, Molly Arcia, and Princeton McFarland all have joined me for this presentation. We are encouraged by developments in our business since our last call and welcome the opportunity today to provide added depth and perspective to our recent press releases and other public filings that we have made or we’ll soon make.Prior to beginning our review of the past quarter, 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, which may be provided during the course of this call. The contents of this 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 a 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 these factors, we refer you specifically to our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, our Forms 10-Q for the first 3 quarters of 2019, our Form 10-K for the fiscal year ended December 31, 2019, which we anticipate filing later today, 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 to 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 fourth quarter earnings release, which is posted on our website.As announced earlier this morning, we are extremely pleased with results for the fourth quarter of last year. Revenue, earnings and EBITDA, all came in at levels that portend continued progressing in fulfilling the promise of our business strategy. For some time, we have been expressing confidence that the mix of our revenue streams has positioned OSG to generate stable revenues from our niche businesses, while capturing the upside of the ongoing market recovery.The emerging strength of our conventional tanker earnings contribution is now evident. Combined with the expectation of continued stability from our other revenue streams, we have reason to believe that the long-anticipated return to sustained profitability is now at hand.We continue to see and are now beginning to visibly realize the benefits of a clear strengthening of fundamentals, driving rate recovery evidenced in our core markets. I will leave it for Dick to take you through the specifics and the fourth financial impact of these developments later in this presentation.For now, I would like to share the high-points of our progress in achieving our key strategic objectives. As a review of commentary provided in earnings calls over the past several quarters will show, we have consistently seen the potential that lies within our business model as being built on the foundation of 3 principles.First is the stability of earnings and cash flow inherent in the niche businesses within which we operate. Our unique position as being the sole provider of service in our U.S. shuttle tanker and Delaware Bay lightering markets, as well as being the only tanker operator within Maritime Security Program has long provided us with a steady and reliable source of high-quality revenue and cash flow.As illustrated in the graphic provided in Slide 6, showing operating contribution from our niche market activities, we continue to enjoy remarkable stability, the overall performance of these assets, notwithstanding fluctuations within these niche markets over the past several years. Strong forward contract cover for two of our shuttle tankers approximately half of the operating days for our MSP vessels and one of our specialized lightering assets, give us cause to believe that we can continue to rely upon niche assets, to deliver reliable and stable results.Second is the powerful operating leverage that characterizes our conventional tanker and ATB assets and the positive impact that this leverage has on our overall performance as a more normalized supply/demand balance for vessels emerges.As could be observed in the graphic provided in Slide 7, vessel operating contributions from our conventional ATB and tanker assets have sharply increased over the past several quarters as a result of the combined impact of higher day rates and higher utilization rates.In addition to the positive rate environment that we have now been experiencing, it is worth repeating that the normalized market in which our vessels trade is one marked by stable longer-term chartering relationships with our core customer base.Significantly for virtually the entire fourth quarter and for all of the first quarter of this year, all of our vessels, not otherwise operating under contracts of affreightment were fixed on time charter. A return to this normalized profile at what we – are now profitable rates allows us to achieve predictable higher-quality cash flow.Slide 8 provides you with a picture of the updated maturity profile of our current time charter book. With all of our conventional ATBs and the OSG 350 Vision also currently committed on short-term time charters.We have at this time no spot availability in the Jones Act fleet. We have largely achieved our objective, increasing the duration of our charter book at higher charter rates. We consider this result to be evidence that our customers are responding to an increasingly supply-constrained market, an outcome that we have been anticipating.For our principle customer base, the marine link between production and distribution point is not easily replicated. As such charter acceptance of a larger exposure to utilization risk in order to secure firm access to system-critical transportation capacity is a strong signal of improved fundamentals.In the last few years, we endured short-term volatility in our earnings as an unavoidable cost, while we awaited a time-charter pricing environment that offered more remunerative returns. This strategy bore fruit across the second half of last year. During that period, we are pleased to have been able to secure time charter contracts for all 10 of our conventional Jones Act tankers with our remaining ATBs, including both of our new build ATBs. Each of these 10 tanker fixtures were made at rate higher than last done. And together, they have increased our forward revenue cover for 2020 to nearly 90% of available vessel days.Several of these fixtures were made for periods longer than 1 year. As at year-end, we had only 2 active conventional ATB units in service, both of which we are planning to retire in 2020. These remaining units once retired, will be replaced with 2 new barges currently under construction to be delivered in May and November of this year. Both of these new barges are already committed on one-year time charter contracts upon their delivery.Time charter commitments for our ATB fleet, including those for the new barges, now over 75% of available days in 2020. In addition to the contract obtained for our conventional tankers, we secured a charter for the Overseas Chinook, the shuttle tanker currently trading as a conventional tanker covering all of 2020.The OSG 350 Vision, now trading as a conventional ATB all of the closure of the PES refineries last summer, has also secured firm employment commitments covering substantially all available days through the end of the third quarter of this year. The third element of upside potential within our business is the frequently highlighted promise for OSG to utilized well established profile and reputation as a quality tanker and ATB operator to pursue growth through consolidation within the U.S. Flag sector.Earlier in 2019, we added the Overseas Key West to our conventional tanker fleet. More significantly, our acquisition of the Alaska Tanker Company and the large crude oil tankers operated by that company highlights the benefits of pursuing greater scale in what remains a somewhat fragmented market.The ATC transaction was successfully completed yesterday. The transaction had 2 components. First, we acquired all of the membership interest in ATC from our partners that were not already owned by OSG. Second, we purchased from BP 3 1.3 million barrel tankers that have been and will continue to be operated by ATC. We have paid a net price of $54 million to complete these transactions.Tankers acquired from BP have been engaged in the transportation of crude oil out of Alaska into the West Coast of the United States. The vessels purchased will continue to be operated by ATC under time charters with BP Exploration Alaska, with firm charter periods lasting until 2022, 2025 and 2026. Each charter also provides for 5 1-year extension options thereafter.We anticipate that the ATC transaction will have a profoundly positive impact on our 2020 results. We now have an incremental EBITDA contribution of $15 million over the balance of this year, and more than $20 million for the first full year of operations in 2021. The transaction allows us to build on our strong Jones Act franchise and presents an exciting opportunity for OSG and one that we are looking forward to delivering on.Also recall that at the end of September last year, we took delivery of 2 MR tankers, the Overseas Sun Coast and the Overseas Gulf Coast, both built at Hyundai Mipo Dockyard in Korea. Both vessels are now trading internationally under the Marshall Islands flag on 1-year charters at rates that should provide an incremental operating contribution of about $3.5 million for each vessel during the first year following delivery.We are awaiting final disposition of the proposed Tanker Security Program, which remains the subject of considerable debate in Washington. We continue to work closely with multiple constituents to marshal legislative and executive office support for authorizing and funding this important program.As previously disclosed, if this program is made law substantially in the form approved by the House of Representatives last year, we intend to nominate both of these MR tankers to participate in the new Tanker Security Program and we flag each vessel into the U.S. Flag registry.For presentation purposes, we have included the Overseas Gulf Coast and Overseas Sun Coast earnings as part of our niche business grouped together with our existing MSP tankers, the Overseas Santorini and Overseas Mykonos.OSG’s 22 vessels U.S. Flag fleet consists of 3 crude oil tankers just acquired doing business in Alaska, 2 conventional ATBs, 2 lightering ATBs, 3 shuttle tankers, 10 MR tankers and 2 non-Jones Act MR tankers that participate in the U.S. Maritime Security Program. OSG also currently owns and operates 2 Marshall Islands flagged MR tankers which trade internationally. In addition to the currently operating fleet, OSG has on order 2 Jones Act complaint barges, which are scheduled for delivery in 2020.I will now turn the call over to Dick to provide details on our fourth quarter results for 2019. Dick?
  • Richard Trueblood:
    Thanks, Sam. 2019 demonstrates the tangible results of the rebalancing of our markets, resulting from a reduction in vessel supply and a combination of refined by improvements and a continuation of demand for crude oil transportation within the Jones Act market. As we believe, this has resulted in a tightening market with pricing rates, growing time charter demand at profitable rates and an interest from customers in the lengthening time charter commitments to ensure their access to transportation.As 2019 ended, there were no vessels available in the spot market. At September 30, we accepted delivery of the Overseas Gulf Coast and Overseas Sun Coast. This represents the first tangible expression of the renewal of our fleet. These Marshall Islands flagged vessels are both operating under 1-year time charters.The U.S. government continued to consider the creation of the Tanker Security Program, and if enacted into law, would create a 10-tanker program to support the United States Military in time of national emergency or war. The TSP would provide for a $6 million per vessel annual stipend. If ultimately enacted, we will reflag our vessels under the U.S. Flag for use in the TSP.Please turn to Slide 13. During the fourth quarter, we continue to see a positive spread between WTI Houston and Bonny pricing. This continues the performance that was evident through most of 2019 and resulted in an open arbitrage, when the arb is open, this is favorable for the Jones Act tankers and encourages the use of domestic crude oil and refinery operations.Please turn to Slide 14. The fourth quarter demonstrated strong year-over-year TCE revenue growth exceeding 17% as TCE revenue reached $93.8 million. Sequentially, fourth quarter TCE revenues increased almost 23% from the third quarter. Correspondingly, adjusted EBITDA was $33.7 million, almost a 46% increase from Q4 2018. Compared to Q3, 2019, adjusted EBITDA more than doubled in the fourth quarter. We benefited from our increased time charter days, and correspondingly higher rates, the initial operations of the Gulf Coast and Sun Coast, and the concentration of 3 Government of Israel voyages during the fourth quarter.Although the mix of our vessels changed, we operated 21 vessels in both Q4 2019 and 2018. Since the third quarter of 2018, we have reduced the number of operating rebuilt ATBs to 2 and added the Overseas Key West, Overseas Gulf Coast, and Overseas Sun Coast to our fleet. The last 2 rebuilt ATBs who will be removed from our fleet in 2020. The impact of our increased time charters’ higher rates on our Jones Act tanker performance is evident in the results of the 2019 fourth quarter when compared to the year ago quarter.TCE revenues increased almost 24%. TCE revenues from non-Jones Act MR tankers almost tripled from a year ago as we added the Gulf Coast and Sun Coast, and performed 3 Government of Israel voyages. Lightering revenues declined $1.7 million due to the shift of the OSG 350 to the Gulf of Mexico. Finally, TCE revenues from our rebuilt ATBs continue to decline as we further reduce the number of vessels that we operate.Please turn to Slide 15. Looking at our TCE revenues on a more granular basis, our Delaware lightering business TCE revenues sequentially were flat in comparison to the third quarter. This reflects the continued use of the OSG 350 in the Gulf of Mexico following the PES bankruptcy and shutdown. We experienced a decrease of $1,867 in the average TCE daily rate, when compared to the third quarter of 2019, resulting from the lower rates utilization caused by our operating the OSG 350 in the Gulf of Mexico.TCE revenues from our rebuilt ATBs were flat at $3.5 million. Our non-Jones Act tankers recorded a $5.8 million increase in TCE revenues during the quarter when compared to the third quarter. The end of the fourth quarter included the operations of Gulf Coast and Sun Coast, which were delivered on September 30. This increased our international time charter days and the effective TCE rates that we earned. This was from our 3 Government of Israel voyages and an MSC voyage during the quarter.We operated under international time charters for 175 days, increasing the effect on utilization of our vessels by reducing the number of days of spot market exposure. Our Jones Act tanker fleet TCE revenues increased $11.6 million in the third quarter to $70.1 million in the fourth quarter of 2019. Our fourth quarter spot market exposure was less than 2 weeks. This was driven by the increase in time charter days and the resulting impact of effectively 100% utilization coupled with increased rates.Our average daily TCE rate increased for time charters by $2,338. Spot market effective TCE rates increased significantly driven by higher utilization and increased rates. Looking at year-over-year changes, lightering revenues were down $1.7 million in comparison to the fourth quarter of 2018. ATB revenues declined from $8.1 million to $3.5 million compared to the fourth quarter of 2018 due to the decreased number of operating vessels. The non-Jones Act tanker revenues increased from $3.4 million to $10 million.The fourth quarter of 2019 saw the introduction of the Gulf Coast and Sun Coast in the fleet, which contributed in excess of $3 million in TCE revenues. We performed 3 Government of Israel voyages and an MSC voyage as well. Conventional tanker TCE revenues increased $8.3 million driven by reduced spot market presence, higher rates and higher utilization due to the increased time charter activity.Please turn to Slide 16. The fourth quarter of 2017 had TCE revenues of $82.8 million of which $25 million or 30% were earned in the spot market. Since then, spot market TCE earnings peaked at $34.9 million or 39% of our total TCE revenues during Q1 2018. Spot market TCE revenues have generally been on a continuous decline since then, down to $19 million or 20% of our TCE revenues in Q4 2019. Fixed TCE revenues at their highest level, $75.1 million, during this time period in the fourth quarter of 2019.Please turn to Slide 17. Conventional tanker spot market TCE revenues peaked at $13.9 million or 35% of conventional tanker revenues in the first quarter of 2018. The continuing reduction in the importance of spot market activity results in lower TCE revenue volatility and increased predictability as we look forward.Please turn to Slide 18. Our niche businesses continue to provide earnings stability, which serves to underpin our overall operations. This continues to be true even after considering the impact of the PES bankruptcy, net of the revenues we generate as the OSG 350 operates in the Gulf of Mexico. Looking at quarterly revenue performance by the 3 components of our niche operations, our niche market operations have produced a relatively stable revenue contribution throughout this period with revenues remaining in a fairly narrow band.Our ability to create for all of our activities by market conditions, drydock requirements and repairs. As can be seen, although there are fluctuations, the outcomes stay within a fairly narrow range. The PES bankruptcy introduces a higher level of variability, but this business will continue to be a stable platform.Please turn to Slide 19. Vessel operating contribution, which is defined TCE revenues, less vessel operating expenses and charter hire expenses, increased $12.4 million or 54% from Q4 2018 to $35.4 million in the current quarter. The largest contributor to the increase was the $9.4 million contribution to vessel operating contribution from a previously negative asset – vessel operating contribution from our conventional Jones Act tankers. This reflects the increased time charter employment higher rates and the addition of one vessel late in the second quarter of 2019. Today, the spot market exposure for our tankers decreased to 92 from 248 in the prior year.Our rebuilt ATB contribution decreased by $1.1 million as the number of ATBs being created was reduced to 2. Vessel operating contribution from our niche market activities increased $4 million, principally driven by increased contributions from the MSP tankers as well as the Gulf Coast and Sun Coast. This was slightly offset by declines in lightering barge performance.Sequentially, vessel operating contribution increased $15.7 million from Q3 of 2019. The increase was driven by the continuing shift to time charter contracts for our conventional Jones Act tankers, new vessels entering the fleet and increased Government of Israel voyages and MSC voyages.Please turn to Slide 20. Fourth quarter 2019 adjusted EBITDA was $33.7 million compared to third quarter adjusted EBITDA of $16.1 million. Higher utilization at increased rates and new vessels were primary contributors to this increase. Fourth quarter adjusted EBITDA increased $10.6 million from $23.1 million in Q4 2018. Again, the increase resulted from increased rates across the fleet and improved utilization due to the shift to time charters.Please turn to Slide 21. Net income for the fourth quarter of 2019 was $11 million compared to a net loss of $5.2 million in the fourth quarter of 2018. As previously mentioned, the shift to time charters at higher rates, the introduction of 2 new vessels to the fleet made significant contributions to this performance.Please turn to Slide 22. During each year, we perform scheduled maintenance as required by regulation. This slide provides information for scheduled maintenance and ballast water treatment system installations. It does not include unplanned repairs, which should they occur, could impact the schedule. While vessels are in drydock or otherwise unavailable for use, they are off-hire even if otherwise employed on a time charter. We work to minimize the number of off-hire days to reduce the revenue loss we’ve sustained. However, we will experience a revenue disruption.Maintenance capital expenditures required are tied to the vessel’s original build date. The result is that this makes our capital expenditures lumpy with some years requiring more resources than others. 2020 will also require the installation of ballast water treatment systems on vessels undergoing drydocking. In addition to the cost of the drydock vessels, our off-hires are not earning revenues during transit time to and from the drydock as well as time actually in drydock. 2020 will be an active drydock year for us.We estimate that our investment will be $33.9 million in drydock expenses and $13.4 million for ballast water treatment systems. Additionally, we expect to incur an estimated 307 off-hire days with a loss of revenue of $15.8 million. In all cases, we endeavor to work through this process expeditiously to minimize the costs incurred in the number of days off-hire.Please turn to Slide 23. This slide shows the cumulative amount of progress payments made and for future progress payments the estimated payments we expect to make in each quarter. The timing of actual payments will depend on the dates when the shipyard achieves the required milestones. At the end of the fourth quarter, we had made $45.6 million in progress payments on the OSG 204 and $14 million of progress payments on the OSG 205.Total progress payments at quarter end were $59.6 million. We have a financing commitment for the OSG 204 that provides construction financing converting into permanent financing. We believe that we will secure approximately $33.15 million of financing for each barge. When the financing for the OSG 204 is complete, our equity investment will be reduced by approximately $28 million. Ultimately, OSG’s equity at each barge will be approximately $17.7 million or $35.4 million in total.Please turn to Slide 24. As our operations continue to improve, we want to provide information concerning the profit sharing arrangement that exists for the 10 vessels we bear, both chartered from AMSC. This chart provides information for 2020 through 2023. As we’ve previously stated, we do not anticipate any profit sharing obligation will be created in 2020. We look here at what the profit share picture might be for assumed average TCE rates based on estimated future market rates.In 2020, if we were to achieve an average TCE rate of $62,000 across the 10 AMSC vessels, there would be no profit sharing. The minimum average rate required to result in profit sharing obligation in 2020 is $69,000 per day. This would create an aggregate payout of $300,000.For years beyond 2020, assume that the rate earned in the prior year was the market rate. Based on the assumptions for trade here, the first year in which a profit-sharing obligation would exist is 2022. Given the assumptions used, the profit sharing payout would be $8 million. The minimum average rate necessary to achieve any level of profit share in 2022 would be $59,000. Again, using the assumptions here, the profit sharing earned in 2023 would be $14 million. Profit share is paid out in the year subsequent to the year earned.Finally, it is worth noting that if certain costs are recovered, the minimum rate that will result in profit share declines. Calculations are complex and have a variety of factors involved. This chart is meant to be indicative of possible outcomes based on the assumptions made. Please turn to Slide 25.We began 2019 with total cash of $81 million, which included $200,000 of restricted cash. During 2019, we generated $92 million of adjusted EBITDA. We issued $50 million of debt secured by the Overseas Sun Coast and Overseas Gulf Coast. Vessel sales generated $3 million of cash during the year.Working capital changes provided $30 million of cash. We expended $12 million on dry docking and improvements to our vessels. We invested $133 million in new vessel construction. We incurred $25 million of cash interest expense. We paid debt repayments of $27 million, $3 million of which represented proceeds from vessel sales, which were used to reduce debt.Result was we ended the year with $42 million of cash including $200,000 of restricted cash. Please turn to Slide 26.Continuing our discussion of cash and liquidity as mentioned in the previous slide, we have $42 million of cash at December 31, 2019. Our total debt was $375 million, which represents a $22 million increase in outstanding indebtedness since December 2018.Our $325 million term loan has an annual amortization requirement of $25 million or $6.25 million per quarter. With $342 million of equity, our net debt to equity ratio is 1 times compared to 28 times at December 31, 2018.One final note, as Sam mentioned, yesterday we completed the acquisition of 3 tankers from BP and the acquisition of 62.5% interest in Alaska Tanker Company from our partners. We obtained financing of $54 million at fixed interest rate of 4.43%. Loan has a 5-year term with a 12-year amortization period.This concludes my comments on the financial statements. I’d like to turn the call back to Sam.
  • Samuel Norton:
    Thank you, Dick. As noted in my opening remarks, we have over the second half of 2019 and during the early months of this year realized success in obtaining renewed time charter coverage with a substantial portion of our conventional tankers in ATBs. This has given us time charter coverage with close to 90% of available operating days for 2020.This coverage taken together with the historically stable operating contribution from our niche businesses, and the incremental cash flow expected from 9 months of operating newly acquired ATC assets gives us confidence in projecting material improvement in expected result for 2020.We see conditions in our spread of businesses, as indicating, we can now expect time charter equivalent earnings for 2020 to be in the range of $395 million to $400 million. This represents roughly 19% increase over our just announced results for full year of 2019.Full year EBITDA in the context of this level of revenues, our forecast be in the range of $113 million to $118 million, with adjusted EBITDA in the range of $118 million to $123 million. We consider the fundamentals of our markets to have reached the healthy equilibrium, with limited availability of free tonnage indicative of market balance.The barriers to entry for any prospective new entrants are high. And with the exception of our 2 new barges to be delivered next year, no new Jones Act capacity is on order or will be delivered within the next several years. The prospects for continued strength in our rates appears to be realistic.The encouraging picture that we see for our future is founded on what we believe to be well established and readily quantifiable market fundamentals as well as key components of our business that I’ve highlighted in my opening remarks.We expect our historically stable and profitable niche business to continue to deliver consistent results. The revenue recoverably latent in our conventional tanker fleet, which can now be understood to be seen with much higher degree of visibility, should allow the operating leverage of our business model to manifest itself in the coming quarters.Finally, realization of opportunities for consolidation obtained through the acquisition of ATC provides us with real growth in revenues and expected EBITDA, both attained through entry into a new sector of the Jones Act trade.We consider the successful completion of the ATC transactions as affirming OSG’s ability to sustain its good standing in the community of our customers, our peers and our regulators. Safety and consistent service remain, above all, a key focus of our operations.While commercial success is one measurement of achieving our goals, we also place paramount importance on maintaining our established culture of achieving the highest standards of both protecting the environment and ensuring the health and safety of all of our employees.Challenges remain, as do opportunities. But overall, we believe steps taken over the past several years to improve the promise of OSG’s future have positioned the company well to benefit from the current environment. We have strengthened our balance sheet, invested in new assets, lengthened our contract cover at profitable rates, reduced costs and achieved material improvements in our key safety and operational performance measures.We are pleased that the results that we have announced today give credence to the narrative of potential that we have been speaking to over the recent quarters. We look forward with anticipation to achieving more of the same in the quarters that lie ahead.Operator, we can now open up the call to questions.
  • Operator:
    We will now begin the question-and-answer session. [Operator Instructions] First question comes from Ryan Vaughan with Needham. Please go ahead.
  • Ryan Vaughan:
    Thank you, operator. Hey, Sam and Dick, great job on the quarter. Everything sounds really great. Just wanted to, I was hoping to get an update. Obviously, the situation, a lot has changed in the marketplace over the last few weeks. But I was just hoping you could just give us some sort of update, kind of what you’re seeing. We did notice in the presentation, you extended a few of your time charters by 1 to 6 months in several cases.But just sort of with 90% locked up for this year, what you guys are watching, what we should be watching for, just with the recent moves in the oil?
  • Samuel Norton:
    So I think from our perspective, we’re feeling pretty comfortable that we have a healthy time charter coverage that obviously dampens volatility in the context of changing market environments. The things that we’ve spoken about before, to me continue to be supportive of a pretty optimistic view of the Jones Act market. The WTI Houston, Bonny spread continues to be supportive of encouraging domestic refineries to use domestic crude.Also, the foreign market for international tankers has spiked as a result of the [reductions] [ph] going on in the crude oil supply market internationally. That also is supportive of using Jones Act vessels to transport crude oil domestically as the comparable cost of international transportation goes up and makes it less attractive.In the clean market, we’ve always observed that consumption of refined products, particularly in Florida and along the [West Coast] [ph] serve those markets, is relatively stable. History suggests that the significant drop in prices for transportation fuel tends to be demand stimulative. So, in an environment where we have relatively low oil prices, that would be positive for transportation fuel consumption in the medium-term.And as long as the relative price differential between crude oil not produced in the United States and crude oil produced overseas remains at a discount, all of those would, to our mind, be supportive of the fundamentals of our business continuing for the foreseeable future.
  • Ryan Vaughan:
    Great. Next question, just as you were able to seemingly take advantage of a great opportunity with the ATC acquisition, as you start thinking about back half of 2020, into 2021, your view on use of the free cash flow, whether it’s additional kind of tuck-in opportunities or other kind of return to shareholders, any sort of update as we’re getting closer to that free cash flow period?
  • Samuel Norton:
    I’ll give you credit, Ryan, for asking the same question every quarter. But I’ll take the same approach and tell you. We’re coming to the tail-end of what has been pretty significant for us, commitment of capital to not only replacing the ATB fleets that has gone out of service but also, as Dick touched on in his comments, the sort of lumpy timing of our dry-dock expenses coupled with the need to install ballast water treatment systems. All of that is pretty heavily focused in the first 6 to 8 months of this year.We do have financing in place for the ATC transaction. We have committed financing for the first of the 2 barges, which gives us a lot of confidence that we have sufficient liquidity to meet all the obligations that we have. And given our expectations for the business to generate surplus cash flow, now this is a pretty significant change from what we’ve seen in recent quarters, going back several years to have us move from a business that was cash flow positive, but a capital expenditure profile that was actually seeing us draw down cash, both for investments in new assets as well as the reductions to our debt.So once we get to sort of promised land of generating significant surplus cash flow, I think that opens the door, at that time, for conversations about how best to deploy that capital. I think, as we’ve said before, bolt-on acquisitions that look accretive and profitable to us to allow us to expand and take advantage of our franchise in the Jones Act, those obviously look interesting. They don’t come along like subway cars. So we can’t really predict the timing of them.But there are, I think, continued opportunities to look at some assets in the Jones Act that could positively affect our future performance. But beyond that, I think there’s a healthy debate about whether our surplus cash flow should be used to reduce debt or to start to consider a program to return some of that capital to our shareholders. All of that, I believe, will be a discussion that will become more current during the second half of this year and into next year.
  • Ryan Vaughan:
    Excellent. And one last one, we saw last night, we have a new shareholder, quite significant. Any sort of – do you have any background or any information about the shareholder?
  • Samuel Norton:
    I don’t know anything more than you do. You’ve read the filing. I think that Dick and I would comment that we think they made a good investment.
  • Richard Trueblood:
    Right, absolutely.
  • Ryan Vaughan:
    Excellent. All right, well, thanks guys.
  • Richard Trueblood:
    Thank you, Ryan.
  • Samuel Norton:
    Thank you, Ryan.
  • Operator:
    [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Sam Norton, President and CEO, for any closing remarks.
  • Samuel Norton:
    Thank you, Grant. Thanks again to everyone for participating on today’s call. And we look forward to speaking again with you later in the year. Have a good day.
  • Operator:
    The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.