Overseas Shipholding Group, Inc.
Q2 2021 Earnings Call Transcript

Published: 7 Aug 2021

[Operator:]

Good day and welcome to Overseas Shipholding Group Second Quarter 2021 Earnings Release Conference Call. 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.

[Sam Norton:]

Thank you Sarah. Good morning. Thank you all for joining Dick Trueblood and me on this call for the presentation of our 2021 second 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 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 those contemplated by our forward-looking statement and could be affected by a variety of risk factors including factors beyond our control. For a discussion of these risk factors, we refer you specifically to our annual report on Form 10-K for the fiscal year ended December 31, 2020. Our form 10-Q for the quarter ending March 31, 2021, our form 10-Q for the second quarter of 2021 which we anticipate being filed later today and other filings with the SEC, which are available at the SEC's website, 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 second quarter earnings release, which is posted on our website. The progression back to a healthy domestic energy transportation market has been and will likely continue to be in the short term uneven. Demand for conventional tank use has remained subdued, affected by a combination of volatile market forces. A significant percentage of Jones Act tankers remains underutilized, including six OSG tankers that were in layups throughout the quarter. Nonetheless OSG’s financial performances this quarter offers evidence of improving fundamentals in our core markets and progress towards restoring earnings potential of our full fleet. Our ATVs, Alaskan tankers and niche market assets achieved results approaching or exceeding historical norms. Outside of our conventional tanker trades, we have seen increasing chartering interest and emerging new trades. Overall, we are pleased with the progress we have made and the cash flows delivered which exceeded anticipated EBITDA during the quarter. Evident in the markets that we serve as the continuing impact of the ongoing global corona virus pandemic. Conditions of heightened uncertainty have persisted in our core markets, erratic recovery profiles outside of the United States and the resulting drag on economic activity internationally exactly to inhibit a rebound in international tanker markets. Weaken demand for refined products overseas, coupled with very low international freight rates have led to a meaningful increase in petroleum product imports over the first half of this year dampening demand for specially conventional Jones Act Tankers. Similarly, compressed crude oil price spreads and restrained international crude oil production has led to a very soft crude tanker market. As such, while demand for transportation fuels in the United States has recovered strongly from year ago lows, the slope of recovery and domestic marine transportation demand has been flatter than what we hadn't expected earlier in the year. Overall market conditions that led us to lay up six tankers and one of our lighter ATVs earlier this year have only marginally improved. It remains clear to us that we are still in the early stages of what we consider to be an emerging recovery. The pace and trajectory of demand recovery continues to be influenced by many factors including importantly progress and moving beyond the pandemic. Given this operating environment, the results announced morning are satisfying and once again pointed the benefit of having a diversified asset portfolio. Although our conventional Jones Act tankers experienced losses this quarter, time charter equivalent earnings from these assets saw improvements over our first quarter results this year. In addition, we are encouraged by progress made in a number of business initiatives which fall outside of the core MR Petroleum transport trades. And so our last communication, we have secured contract extensions with each of our two remaining lightering customers. The term of each contract is 12 months commencing July 1, 2021. Each contract provides for minimum taker pay volumes and volume commitments higher than the expiring contract periods. Given current expectations one lightering ATB USD 351 Horizon will be sufficient to serve these contracts. We have received notice from the Government of Israel of its decision to exercise its option to extend our current contract and the treatment served by our MSP vessels through the end of calendar 2022. OSG will continue to have two vessels available in order to provide scheduling flexibility, predicated on a minimum of seven annual voids during the contract year. With this extension, we can expect our two MSP vessels to maintain historic TCE contribution rates consistent with years passed over the full calendar year 2022. We have fixed the overseas Key West for delivery within a window of November 15 to December 15 with an intended trade of shipping renewable diesel from the Mississippi River of California. The contract period is 26 months. We will take the vessel through dry dock and intermediate survey prior to entering into this contract to allow for uninterrupted service over the full 26 months. This fixture is significant in highlighting the emerging trade in renewable diesel moving from new production units in Louisiana and Texas to California, a trade that appears ready to expand significantly in the next two to three years. We have reached agreement with the current Charter of the OSG 205 Courageous to extend the vessels employment in direct continuation for a period of three years commencing in early December 2021. This fixture will generate just under $39 million in time charter income and an estimated $8.5 million a year in EBITDA over the extended period of employment. We have reached agreement on the principle commercial terms to extend the current Charter of the Alaskan Explorer through the end of 2023. This extension will generate an estimated 12 million of incremental EBITDA above the original charter period agreed. The overseas Martinez has been extended by her current charter for the first two to three months options included in the original fixture. The three month period is with effect from mid September, and we'll keep the vessel firmly employed in the middle of December. Finally, in a significant positive development for the prospects of the tanker security program, the Defense department delivered a long overdue report to the house affirming the critical importance of an expanded U.S. flag tanker fleet in the interest of national security. On the heels of this report, the house transportation Housing and Urban Development Appropriations Committee has approved the full 60 million annual funding for its recently pressed appropriations bill. Senate approval is likely in the following weeks to come. Each of these steps is a significant milestone in the efforts to stand up the tanker security program. Moving now to our plans to restore to regular employment; the six conventional tankers and one lathering in lap. Near term uncertainty will continue to impact a wide spectrum of possible vessel reactivation outcomes as we move through the balance of this year. We continue to believe that to the extent 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. In this context, expanding vaccine penetration rates and progressive listing of COVID-19 restrictions have resulted in greater mobility and restored U.S. consumption of gasoline and diesel fuel. Hopefully these trends will continue. The latest Energy Information Agency data indicate that fuel demand patterns consistent with historical levels for these products have largely recovered in the United States with gasoline and diesel inventories below average levels for this time of year. This normalization of consumption patterns should stimulate more domestic marine transportation demand as we move into what is historically the seasonal high demand winter months and once import substitution subsides. On that note, recent import date is encouraging with gasoline imports last week, having dropped to 845,000 barrels per day from over 1.3 million barrels per day as recently as a month ago. Also encouraging is that international MR rates have been rising over the past 10 days. I will now turn the call over to Dick to provide you with further details on our second quarter results for 2021. Dick?

[Dick Trueblood:]

Thanks Sam. Second quarter results achieved in a difficult market reflect an improvement over our first quarter results. Domestic transportation fuel consumption levels increased as vaccine penetration improved over the first quarter and economic activity continues to increase. Internationally, we continue to see pandemic related restrictions which are limiting economic activity and delaying recovery in global transportation fuel demand. International tanker rates during the quarter remain significantly depressed. International petroleum product flows and tanker rates both impact the domestic transportation fuel markets. Higher levels of gasoline have been flowing to the United States from Europe. The Economics of this trade have been augmented by the very low tanker rates that have been available. Our customers accordingly have continued their reluctance to make longer term transportation commitments. Spot market activity increased during the second quarter. The overseas Houston analyst series of spot voyage is all in direct continuation that kept her busy for the majority of the quarter in the year overseas operated under a short term time charter during the quarter. There were two other short term time charters available in the market which were filled by other vessels. The remaining spot voyages during the quarter were smaller in size and generally satisfied with ATVs. As Sam has described, we had a more active quarter and developing new business or extensions of existing business than was the case during the first quarter. Nevertheless, the number of vessels in layup remained constant. We continue to manage our costs by maintaining these shifts in layout for which there is no current demand with a daily operating savings per vessel of approximately $15,000. As we indicated during our fourth quarter 2020 call, our expectation was for breakeven adjusted EBITDA in the first quarter of 2021 with a modest improvement in the second quarter. Our second quarter 2021 adjusted EBITDA was $10.2 million, a $4 million increase from the first quarter resulting in first half adjusted EBITDA of $16.4 million. The impact of the overall domestic economic recovery on the marine transportation sector has been somewhat muted to-date. We firmly believe that the recovery in our markets is only a question of time. We expect to see demand returned during the second half of 2021 with the expectation of significant improvements in our operating performance. Please turn to slide 7. TCE revenues in Q2 were $71.7 million, a 9.5% increase from the first quarter which were driven in large major by our niche businesses. TCE revenues, however declined 28.6% when compared to the second quarter of 2020. We had six tankers and one lightering barge and layup during both the first and second quarters of 2021. Q1 of 2020 vessels were either occupied chartered, or avoid under contracts freight meant there were no vessels in layup in the prior year. We had two vessels we delivered to us towards the end of the first quarter and they operated in the spot market during second quarter one on the previously mentioned series of voyage charters and the other on short term time charters through mid April and then again on another short term time chart later in the quarter. Adjusted EBITDA on the 2021 second quarter increased 64.5% from the first quarter of 2021 to $10.2 million to the increase in revenue levels. Comparatively adjusted EBITDA declined significantly from the year ago quarter when our vessels were more fully employed. Drydock days increased during the quarter to 45 from 43 in the first quarter of 2021. In the year ago quarter, we have 56 drydock days. Please turn to slide 8. The increase in TCE revenue for the first quarter of 2021 was led by improved performance from our niche businesses. Lightering revenues increased $1.2 million to $8 million from the first quarter of 2021 and increased 2.6 million from the second quarter of 2020. Both lightering barges were operating in the year ago quarter while only one was operating then during this year second quarter. Increased lightering volumes during the second quarter drove the revenue gain and average TCE daily revenues increased to $92,500 a day from $74,600 per day in the year ago quarter in the first quarter, I'm sorry. Both of our new built ATVs were in operation under time charter during this first and second quarters of 2021, generating consistent revenues. During the second quarter as previously announced we sold the overseas Gulf Coast to delivered to the new owners in mid June. Prior to the sale we operated four non-Jones Act MR tankers, you will receive Sun Coast and Gulf Coast until their sale continued to operate in an international MR fuel on a time charter arrangement. Realized rates have declined due to the international market conditions. Mykonos and Santorini continue to participate in maritime security program and provide services to the Government of Israel. During the quarter we performed two GOI voyages and two voyages for the command. Resulting revenues increased $3.6 million. Our Alaskan tankers all operate on long term time charters continued to perform in line with expectations. The second quarter of 2021 contained 45 off hire days for drydock activities for the Alaskan of the first quarter of 2021 to-date one month of drydock off-hire to the Alaskan navigator. The slight increase in second quarter drydock days accounts for the slight revenue decline for the first quarter. In the year ago quarter there were no drydock days. Conventional tanker revenues increased $1.2 million from the first quarter. This increase resulting from the first quarter was due to a full quarter of time charter operations for the overseas Martinez partially offset by the impact of the redelivery of the Houston Boston during the first quarter. We had six conventional tankers in layup in both Q1 and Q2 this year. The impact of vessels in layup in the addition of two vessels in the spot market in Q2 of 2021 resulted in a TCE revenue decline of $33.6 million from the results achieved in Q2, 2020. Please turn to slide 9. Revenues from our niche businesses increased $5.2 million in the first quarter of 2021. And this was driven by an increase in lightering volumes in an increase in GOI voyages from one to two as well as the impact of the MSC voyages during the current quarter. TCE revenues declined by $1.8 million from the year ago quarter in which one shuttle tanker has been operating as a conventional tanker is now currently in layout. Lightering and non- Jones Act tanker revenues both increased compared to last year due to the volume increases and the mix of business from the U.S. flag non-Jones Act tankers. Revenues from shuttle tanker providing shuttle tanker services were as expected essentially flat from the prior quarter and year. Please turn to slide 10. Vessel operating contribution which is defined as TCE revenues less vessel operating expenses and charter higher expenses increased $3.7 billion in Q1, 2021 to $15.1 million in the current quarter. Niche market activities contributed $4.6 million over the increase from the prior quarters while the ATB contribution remained stable. The Alaskan tanker contribution declined due to the increase in off-hire fire drydock days. Jones Act tankers loss decreased from $12.3 million to 11.5 improvement principally resulting from the overseas Martinez operating under time charter for the full period in the current quarter partially offset by the contribution change resulting from the redelivery of two tankers into the spot market. The number of layup days was essentially flat between the two quarters. Combined vessel operating contribution of our niche businesses ATBs and the Alaska crude oil tankers provided the vessel operating contribution in the current quarter of $26.7 million compared to $23.6 million in the first quarter. Vessel operating contribution declined for the first quarter of 2020 by $21.2 million. Jones Act candy size tanker contribution decreased $21.4 million. Year-over-year niche market contribution was flat while contribution from our new ATBs decreased 3.6 million is only one of the new ATB drop rates for a brief period of Q2, 2020. The current quarter reflects a full quarter of operations for each. In Q2, 2020 all Alaskan tankers were in operation for the full quarter. While in the current quarter the legend was in dry dock for half of the quarter. Please turn to slide 11. Second quarter 2021 adjusted EBITDA increased $4 million in the first quarter of 2021. This resulted from increased contributions from our niche market activity and stable operations of our ATBs. Alaskan tankers reflected decline due to the increased drydock days. Adjusted EBITDA continued to be negatively impacted by the sixth Jones Act tankers in layup and lower utilization of the two ships in the spot market. Adjusted EBITDA decreased $19.2 million in the second quarter of 2020. The decrease again was driven by the reduction in tanker appointments between the two periods. The six tankers have been placed in layups since then. Please turn to slide 12. Net loss for the second quarter of 2021 was $10.7 million compared to a net loss of $15.9 million in the first quarter of 2021. The change was principally driven by improved performance of our niche businesses. In the year ago quarter we recorded net income of $6.4 million as our fleet was primarily operating on time charters. Please turn to slide 13. By early in Q3, 2021 we completed all scheduled drydock work for 2021. The total 21 investment to-date including amounts extended in July 2021 was approximately $20.4 million. We will be activating the overseas Key West to enter the new time charter. In order to make her available without interruption to our charter during the 26 month charter period we have accelerated her drydock that would have been due in second quarter of 2022 to occur prior to the commencement of our charter in November 2021. We anticipate that the expenditure will be approximately $6 million which includes installation of the ballast water treatment system. At March 31, 2021, we get total cash at $45 million, including $100,000 of restricted cash. During the quarter, we generated $10 million of adjusted EBITDA and we received net proceeds from the sale of the overseas Gulf Coast of $32 million. Working Capital used $1 million of cash and we extended $6 million on dry docking and improvements to our vessels. Additionally, we invested $2 million in vessel and other CapEx. During the quarter we incurred $6 million in interest expense and repaid $10 million of debt. The result we ended the quarter with $62 million of cash including $100,000 of restricted cash. Please turn to slide 14. Continuing our discussion of cash and liquidity as we mentioned on the previous slide, we had $62 million of cash at June 30, 2021. Total debt was $417 million, representing a decrease of $10 million in an outstanding indebtedness since March 2021. We will amortize an additional $20 million of our loans over the remainder of 2021. With $354 million of equity our net debt to equity ratio is one times. This concludes my comments on the financial statements. And I'd like to turn the call back over to Sam. Sam?

[Sam Norton:]

Thank you, Dick. In the quarters that lie ahead we're looking to several catalysts to drive improved operating conditions in our core markets. First, as noted earlier, low domestic inventory levels of key refined products and a steady normalization of fuel demand patterns consistent with historic levels of consumption should encourage continued improvement in refinery utilization rates and create strong underlying conditions to stimulate more domestic marine transportation demand. Second, as we know, the state of international economic conditions significantly impacts the domestic market for demand for oil. As the international markets progressively heal from the lingering effects of the pandemic, it should be expected that the U.S. will experience a reduction in the significant import volumes that we have seen over the first half of this year in particular, if international tanker rates increase on the back of higher product demand outside of the United States. When this occurs, we should see, as a result, a rise in demand for our services. Third, as group price spreads in domestic versus international crude oil increase, more favorable conditions for coast-wise domestic crude oil movements should occur. In particular shifting availability of Nigerian crude oil once the new domestic refinery there begins operation early next year, there's watching. The final catalysts that would drive improved operating conditions is the emerging demand for transporting renewable diesel. Both new and expanding production facilities in the U.S. Gulf Coast will move renewable diesel to the consuming markets on the U.S. West Coast, which should generate both more and longer voyage demand for Jones Act tankers with availability of acceptable vessels of the Jones Act static at worst, incremental demand from these emerging product flows of renewable diesel and potentially other alternative fuels should add progressively to the best to the domestic baseload transportation needs for crude oil and refined products. Patience in waiting these developments to generate an improved operating environments for our tankers is necessary. In the meantime, our near term focus remains squarely on sustaining sufficient liquidity to ensure a clear path to a sustainable future. 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 to these efforts will remain important in the months ahead and acknowledgments should be given to all who work hard to bring about these results. As seen from the results of our just completed quarter, we expect continuing strong contributions from the ATC vessels on charter, as well as the expected revenue streams from our niche businesses, which were outlined earlier in my presentation. These cash flow stabilizers provide confidence that we will be able to ride out the current market weakness expressed in our conventional tanker performance and carry through to what we believe to be a fundamentally promising medium and long term future. Sarah we can now open the call to questions.

[Operator:]

Thank you. We will now begin the question and answer session. Our first question comes from J. Mintzmyer with Value Investor's Edge. Please go ahead.

[J. Mintzmyer:]

Hi, good morning, Sam. Good morning Dick. Thanks for taking my questions today. So we talked last quarter just a few months ago about turning this corner and hopefully that was going to happen right after Q2 and Q3. But now it seems Delta's push things back maybe a little bit. I know we've seen some perhaps disappointing status on the fleet. You mentioned seven ships in layup as of Q2 and you mentioned the Key West coming out of layup. Is that going to be six net that's in layup in Q3. Is there anything more to report on that front?

[Sam Norton:]

The Key West is, will come out of layup entering your contract in November. So that's actually Q4. We are looking at the possibility of activating one of our vessels towards the back end of Q3 that would be in addition to the Key West. And we need to just monitor conditions as we move through the third quarter into the fourth quarter I would say, typically what we see the past is the third quarter is the softest quarter from a demand point of view. Some expectations that we would see we're already halfway through the quarter expectation that we see a significant jump in demand was quarter or probably need to be tempered. But as I said, in the past, the demand for product flows in the fourth quarter has historically been higher than in the third quarter. And we look to the pretty subdued inventory levels and increased demand patterns as a hopeful indicator of increased demand in the fourth quarter. That's our expectation.

[J. Mintzmyer:]

Okay, thanks, Sam. So it sounds like a little bit of the goalposts pushed Q4 there. I'm curious on just kind of looking quarter to quarter on EBITDA because I think at least I was pleasantly surprised at the Q2 number for EBITDA but I wanted to kind of think about Q3 and how that's going to look relative to Q2. And I'm also curious, how do your covenants come into play? Because I know when you had to push that debt back a few months ago, you had basically breakeven EBITDA for Q2 was a requirement, then you had to show accelerating EBITDA in the Q3 and Q4. Has there been any progress on those covenants? Is there any sort of risk that you're going to run into those in Q3?

[Sam Norton:]

So Q3 from what we can see right now, our expectations would be outlined performance and EBITDA performance likely largely in line with what we saw in Q2. There is some scope for a little bit of upside potential a little bit of risk on the downside depending on certain things play out. But as I said, we're seeing softer lightering volumes this quarter than we did last quarter. Some of that's related to turnarounds at refineries. But we would expect that to come back towards the back end of the quarter. We're doing as well on our MSP vessels this quarter. We picked up another MSC voyage in July; all of our ATB, excuse me all of our ATBs two conventional ATBs are back on charter on charter with the OSG tool for having delivered into a new charter at higher rates, and we're in play during the second quarter. All of the ATC vessels are back. We've lost about another 10 days, I think at the beginning and recorded at drydock. But after that now all three vessels will be back earning. So all those things are stable from, stable to slightly improved from the second quarter. There is still uncertainty in the performance of our conventional tankers. We have the Houston and the Boston kind of work in the spot market. We've had less utilization today in this quarter than we did in the second quarter. But there is some signs that we will see a pickup in the back end of the quarter on those two vessels. So all of that leads us to believe we're kind of looking at the same performance for the second quarter, excuse me in the third quarter as compared to the second quarter. How that lines up with our covenants, that's a conversation that's ongoing. We think that looked at from a slightly broader perspective picking quarter to quarter results is kind of difficult. The principal driver of our covenants was focused on maintaining sufficient liquidity to continue to allow us runway to realize a recovery. So, if you look what, sort of 2 million for the first the second quarter sorry, was the target, we exceeded that. As I said we're kind of looking at the same levels for the third quarter. So if you aggregate second and third quarter, we're actually likely to exceed what our targets had been in our covenant structures and the outcome of that is long answer to your request the outcome of that is on the liquidity levels will be at or above the levels that we were looking for at the end of the third quarter. So we think that sets us up well for our continuing conversations with our lenders to achieve that objective of maintaining runway to allow ourselves to access recovery that we think is forthcoming. And we're pretty comfortable with the liquidity levels that we currently have as always, we work on lots of things to be able to give us greater flexibility as facts present themselves.

[J. Mintzmyer:]

Yes. Thanks for addressing that. And then sort of the elephant in the room you didn't mention it in the press release, and I didn't hear anything on the call about it. But you have a takeover offer out there at $3. Even today your stock is like $2.60. So it doesn't seem like the market is putting much stock at offer. We've been on these calls for two years now, kind of both of us me as an investor and us management, bemoaning the ridiculous valuation that your stock has and how your business doesn't even trade it at half of the enterprise value to EBITDA some of your peers. Is there any commentary that you want to share at this moment regarding the takeover offer regarding any other potential suitors whether or not you are going to reject it or anything like that?

[Sam Norton:]

I think you appreciate, J, that ownership of the businesses is above my paygrade to some extent. The board of directors are the ones that are responsible for managing that process. There is a transaction committee that has been appointed by the board. They have taken what I believe to be our very professional and capable advisors both those from investment banker point of view and also legal advice. I think the transaction committee is being well served by those advisors and they are judiciously and systematically reviewing the different opportunities that are being surfaced through this non-binding expression of interest. And as you can appreciate that takes time. They want to make sure that they do their job properly. And they're at it at this time. If you're asking me for when I think there will be a resolution in that process. I could only speculate. I don't know. I feel that our job as the management is to run the business and to maximize the value of the business from a cash flow point of view. And that the ownership question is one that's best handled by the board.

[J. Mintzmyer:]

Right, Sam, appreciate you at least trying to dance around that one a little bit. Thank you, gentlemen, for your time, and we'll look forward to upcoming results.

[Sam Norton:]

Thanks, J.

[Operator:]

Our next question comes from Ryan Vaughan with Needham. Please go ahead.

[Ryan Vaughan:]

Great. Thank you. Hey, Sam. Hey, Dick. Hello. Good Morning. So two questions for me. First one, Sam you mentioned in your prepared remarks, the new routes opening and then went into a little bit of detail on Key West. Could you just elaborate a little bit more? It sounds very interesting. And something that we haven't really heard too much about but potential future opportunity for other vessels as well I'm curious about. Then number two we've talked many times. I think we talked about it last quarter as well. It certainly feels like the recovery has been delayed largely due to the international markets. Just curious, are you seeing anything there? I know you said this is kind of a quieter period 3Q in general, but just any thoughts or any sort of green shoots, recent improvements, anything on the international front? That would be great. Thanks.

[Sam Norton:]

So I will pick the second one first. International market has been I think disappointing would be an understatement for people that are operating in that business. If you look at other marine markets, they have never been more frothy than they are today. The container sector is out of control in terms of the rates and values that are being achieved. The drying bulk market is also at extreme highs. A handy size bulk carrier internationally is earning an excess of $30,000 a day. Looking at container vessels a 15 year old container vessel which could have been bought for scrap effectively 15 months ago was sold for in excess of 27 RTU vessels sold for an excess of $40 million last week. Those conditions are just mind blowing in terms of the turnaround that occurred during the course of the pandemic. The energy markets are the standout exception to those they have been flat and worse than flat in virtually every sub sector of the international tanker market today as our former colleagues at INSW are operating at below operating costs and they've been that way for since really since the beginning of the year. What's going to turn that around you probably know better than I do you read the same things that I do, you need to see sustained economic recovery in Europe and Asia. You need to see an increase in production from OPEC plus to the end to take some of that excess of transportation capacity off the market with more product flowing. Is that going to happen though a month ago I would say to you people are pretty optimistic. Today Delta variant china's got problems. India's got problems. Southeast Asia countries, Indonesia's got problems. Latin America, Europe was looking a little better but still flattening trajectory I think is the trend is the lexicon that I was trying to convey. All of that is a big question and how long. The UK saw a surge in Delta and then sharp decline afterwards. So we're going to see the same kind of trajectory here in the States and internationally that would accelerate economic recovery. That's a big question I think that's on everybody's mind. So I think we've got to be patient. There is a fundamental belief from our perspective that freight rates at below operating costs. It's not sustainable in the long run. It has to adjust at some point. We think the economic activity given that the very loose monetary conditions that are continuing around the world have to come back at some point once the pandemic is brought under control. As we said earlier in the year vaccines are the sort of pathway to reaching that and the proliferation of vaccines and hopefully the acceptance of that more broadly across the world should lead us to a better time. We just have to be patient. Renewable diesel; to me renewable diesel offers a really sharp insight into how markets can change and how the promise of evolving thought on the mix of transportation fuels in this country is going to progress. I think it's really interesting. California is ahead of the rest of the country and putting their low carbon fuel standards into place. From the research that I've done electrical vehicle penetration is going to be too slow to be able to allow the refinery distributors in California to meet their goals just through substitution of electrical vehicles. The principal pathway to meeting those low carbon standard, fuel standards is through substitution of diesel with renewable diesel. You can go and do your own research. There is a number of new plants that have been announced marathon on the West Coast marathon, P66 potentially and their acquisition of the Shell refinery have all signaled that they're moving towards transforming their facilities to produce renewable diesel but even with those additive that added capacity on the West Coast there's not enough production on the West Coast to be able to meet the ultimately the level of demand that would be necessary for substitution of standard diesel with renewable diesel. So then you turn to the Gulf Coast. The Gulf Coast in my view has a certain advantages over production on the West Coast because they have better access to feedstock through the agricultural sector that runs up through the central part of the United States and all that a feedstock can flow down the Mississippi river to feed those refineries in Louisiana. Diamond Green Valero are going to complete a 450 million barrel capacity plant in the fourth quarter of this year. Obviously Key West has been charted by Valero to begin to move product out of that expanded facility. They have Valero announced that they're advancing the phase three of their expansion from the second half of 2023 to the first half of 2023. That's another 450 million gallon per year production. is exploring, converting part of their telnet Louisiana refinery to 18500 barrel per day these renewable diesel fuel facility and then you have the Renewable Energy Group who have an existing facility in Geismar, Louisiana have announced an expansion of their facility which is now under construction that will increase roughly 15,000 barrels per day on top of your existing facility by the end of next year. All told it's about 100,000 barrels per day of potential production coming out of Louisiana and Texas over the next couple of years. That's a lot of renewable diesel that needs to be moved and the market is in the West Coast. It's California and years out includes probably Washington and Oregon as well and stepping up their requirements for renewable diesel. That's a really interesting market and one that we're looking very carefully at right now in terms of the promise that it presents in terms of long-haul consistent transportation demand for our tankers.

[Operator:]

I am showing no further questions. This concludes our question and answer question. I would like to turn the conference back over to Sam Norton for any closing remarks.

[Sam Norton:]

Thank you Sarah and thanks everybody for taking time out from your summer break. We continue to look to try and bring better and happier news about our markets. It's taken longer than we had hoped but we really feel we're making some progress and as Ryan alluded to we do see green shoots. We do see significant new areas of interest outside of our conventional tanker trades that give us a lot of hope. We'll keep working at it and look forward to talking to you again in a couple of months with what we hope for our continued signs of improvement in our business. Thanks again. Enjoy the rest of your summer holidays. Have a good day.

[Operator:]

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