OSG - Overseas Shipholding Group Inc. (OSG) Q4 2022 and Full Year 2022 Results Conference Call Transcript

2023-03-09 16:14:03 ET

Overseas Shipholding Group, Inc. (OSG)

Q4 2022 Earnings Conference Call

March 09, 2023, 09:30 AM ET

Company Participants

Sam Norton - President and CEO

Dick Trueblood - VP and CFO

Conference Call Participants

Ryan Vaughan - Needham and Company

Climent Molins - Value Investor's Edge

Presentation

Operator

Good morning. Thank you at attending today's Overseas Shipholding Group Inc., Fourth Quarter and Full Year 2022 Results Conference Call. My name is Forum, and I'll be your moderator for today's call. [Operator Instructions]

I will now hand over to Sam Norton to begin. So Sam, please go ahead when you are ready.

It is now my pleasure to pass the conference over to our host, Sam Norton, President and CEO of Overseas Shipholding Group. Mr. Norton, please proceed.

Sam Norton

Thank you. Forum, the sun is shining here in Tampa Florida and yet another beautiful morning friend, nicely the backdrop for sharing with you our presentation of OSG's fourth quarter, 2022 and full year results. Thank you for listening in on our presentation of details, as to the current state of our business and for allowing us to offer you additional commentary and insight into the opportunities and challenges at lie ahead.

As usual, I am joined in this presentation by our CFO, Dick Trueblood and would like to welcome in particular other regular participants on this call, who have exhibited commendable patients in maintaining their interest in OSG during the past several years. As well, I want to acknowledge the presence of new participants who have more recently begun to follow our story.

To start, I would like to direct everyone's attention to the narrative on Pages two and three 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 the 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 statements and could be affected by a variety of risk factors, including factors beyond our control.

For a discussion of these factors, we refer you to our SEC filings, particularly our Form 10-K for 2022, which we anticipate filing later today, which are available at the SEC's internet site www.sec.gov, as well as our own website, www.osg.com. Forward-looking statements in this presentation speak only as of today 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 measure in our earnings release, which is also posted on our website.

Operational and financial performance during the final quarter of 2022 exceeded our expectations and allowed OSG to deliver full year results for both time charter equivalent earnings and adjusted EBITDA well above the guidance provided in early November. Strong contributions during the quarter from our Lightering and non-Jones Act assets were instrumental in achieving this performance.

We are particularly gratified by the full-year adjusted EBITDA figure, which at $142.8 million reflected in over 200% improvement versus 2021 adjusted EBITDA, accomplished while completing a heavy drydock schedule during the year and while returning three MR tankers upon expiry of their leases in early December.

Year-end cash balances, including investments in treasury securities, came in squarely within the guide list rate provided November at $93.5 million. When considering the sharp turnaround of the business environment in which OSG operates, I imagine that two important questions are front of mind. Namely, what factors led to such a dramatic change in the operating environment and perhaps more importantly, can the current conditions supporting OSG financial performance and opportunities continue, and if so, how long can they last.

Attempting to address each of these questions in turn, I will start by observing that the domestic market for transporting energy products was prior to the onset of Covid-19, a marketing relative balance with owners poised to regain some pricing power following several years of oversupply, as has been discussed in some detail in prior presentations, the onset of the COVID-pandemic caused severe disruption to normal supply and distribution requirements in the United States, and recovery from those disruptions took longer than had initially been expected.

By early 2022, it was becoming clearer that the anticipated restoration of normalized energy consumption and distribution patterns was taking shape and that our markets were in the process of regaining the supply and demand balance that had existed prior to the onset of the pandemic.

Two factors combined to accelerate and extend the amplitude of that recovery. First, new charters entered the market seeking to secure vessels to transport renewable diesel from the U.S Gulf Coast to the U.S West, west coast, creating new and materially additive ton mile demand for Jones Act tankers. By our count, as many as eight Jones Act tankers will be involved in moving products across the Panama Canal to California by the end of this year, representing nearly 20% of the Total Jones Act. MR tankers fleet, an impressive increase in demand in its own right.

But in addition, when adding the extended length of each voyage to the west coast into the equation, the resulting reduction of availability of vessels to serve the conventional pad three to four to clean product trades is very impactful. One cargo move from Louisiana to California, utilizes capacity that could have been deployed to move as many as four cargos across the Gulf into Florida.

Thus, effective vessel supply has tightened considerably with the advent of renewable diesel trades. Second, and possibly of greater significance both now and for at least the immediate future; the severe disruption to historical international energy supply chains occasioned by the war in Ukraine resulted in chaotic conditions in the international tanker markets for much of 2022.

While OSG's business is largely a domestic business, closely integrated with the distribution needs of domestic producers of crude oil and refined products; it is not immune from conditions in the international markets. The opening up of international markets to U.S energy producers in recent years has in fact reduced the level of insulation that OSG ships may have historically had from international events.

Ships and ports are the enabling vehicles for international -- intercontinental trade. If the cost of shipping allows a trader to buy product domestically and sell it overseas at a delivered cost that generates a profit, then the product will move to the market that offers the higher price, the intercontinental trade of energy products, thus ruthlessly efficient in seeking out and closing these price arbitrage opportunities.

The increased ability for traders to choose the most profitable trade, a domestic sale versus an international sale means that the Jones Act vessels are indirectly competing with foreign flag vessels for the transport of domestically produced energy products. While competition from international tank is a possible concern during periods of market weakness in the international markets when inter international markets are soaring, as is currently the case; the relative cost and added security for use cost and added security for using Jones Act vessels becomes more attractive to traders with strong focus on the domestic market.

Foreign international markets and heightened supply uncertainty has thus had the effect of increasing domestic demand for Jones Act vessels. In summary, global market conditions that arose as a result of the war in Ukraine, acted to supercharge a domestic market that was already strengthening from the combination of a restoration of pre-covid demand and the emergence of new demand from renewable diesel transport.

The upshot of these developments has been then over the last nine months, all OSG Jones Act vessels have returned to service and been fixed on time charter contracts, all of which extending the 2024 and beyond. Recent MR fixtures have seen rates obtained in the low $70,000 per day range for periods of two to three year's, with some contracts fixing as much as 12 months in advance of the contract commencement -- commencement date.

ATB fixtures have reached as high as the low fifties. Pricing power for owners of Jones Act vessels have not been this strong in over a decade. How long can these owner friendly conditions last? Fundamental factors suggest that this positive environment is set to persist new supply of additional tonnage into the domestic market is years away, even if it were to be ordered today.

The order book for MR tankers is empty and the two primary yards capable of building new MR from the Jones Act trades are booked up with government and other commercial contracts well into 2026. The order book for large ATBs is also empty, and while options do exist for constructing new ATBs and domestic yards. Any orders placed now will likely not be delivered before the second half of 2025.

Also, the price of new vessel construction is historically high, giving owners and charters alike pause in considering new investments. There is as well the overhang of increased obsolescent risks, confronting owners looking to invest capital into assets for use in an uncertain and evolving regulatory environment in light of carbon reduction goals. With no clear solutions as to what may be the preferred option for powering ships of the future, most ship owners are reluctant to invest in new capacity to allow the existing fleet of vessels to be renewed in a timely manner or in a way that will significantly reduce greenhouse gas emissions in the short term.

Increased owner concerns of being left with stranded assets may then result in a progressively aging and diminishing fleet, whether by a reduction in real numbers over time or simply because ships will be sailing at slower operating speeds, which will have the effect of gradually tightening real supply availability.

Changes in demand may of course limit the effect of static or shrinking supply. Gasoline consumption is more likely than not to decline in the years ahead. The impact of greater penetration of electric vehicles should have a progressively larger influence on declining gasoline sales as we move further into the decade. Demand for middle distillates may be impacted as well by changes in consumption patterns, many of which will arise as a result of climate change initiatives, which are receiving strong political support at this chunk.

Still, all available data suggests that the slope of decline in domestic fossil fuel consumption will be very shallow and that a continuing need for maritime transport of these fuels will remain in place for many years to come. Regulatory or market driven changes affecting the demand for shipping renewable diesel from the Gulf Coast states to California could also impact specifically the Jones Act tanker market.

However, our experience with customers in this emerging sector is that the security of access to transportation capacity offered by long-term contracts is a more important element in commercial discussions than has been the case recently with customers involved in crude and refined oil product trades. This bias has provided OSG with opportunities to reduce exposure to volatility in our conventional tanker trades and given us a forward book of contract cover with renewable diesel customers extending for several years into the future. Short term exposure to changes in this emerging market has thus been reduced as a result.

Looking elsewhere in our current portfolio of assets, renewed focus on the importance of sustaining and increasing domestic crude oil production bodes well for the continued future of vessels acquired through our purchase of Alaska Tanker Company in 2020. There is good reason to believe that the demand for these vessels will remain strong for the foreseeable future.

Opportunities to increase time charter earnings from ATC vessels in 2024 and beyond are an important area of focus for us at this juncture. One last development to note before turning things over to Dick, prospects for an enlarged U.S flag fleet operating outside of the Jones Act trades are finally taking shape.

Applications for the congressionally approved and funded tanker security program were submitted in mid-February and [indiscernible] is expected to review these applications and advise owners which vessels will be admitted into the program by the end of this month. OSG has taken a leadership role in working with its industry labor and governed partners to make this program a reality and has submitted applications for three vessels to be considered for the TSP program, two of these vessels which would be transferred from the Maritime security program.

Outstanding bids for providing the U.S Department of Defense U.S flag tankers to assist with reorganizing fuel storage operation at Hawaii's Red Hill facility are also expected to be awarded within the next four to six weeks, anticipating some success in participating in one or both of these programs, OSG Reflag, the Overseas Suncoast in January, marking the first time in many years that additional U.S FLAG tanker capacity has been added to the U.S registry.

Depending on the extent of OSG success and bids to participate in the aforementioned government programs, opportunities to reflag additional foreign build vessels and add them to our international trading U.S flag fleet could well arise.

I will now turn, turn the call over to Dick to provide you with further details on our fourth quarter and full year results for 2022. Dick?

Dick Trueblood

Thanks Sam. Please turn to slide seven. In 2022, our markets began a recovery in the early part of the year. We began to see demand increase and rates rise. This was coupled with a continued reluctance on the part of Charterers at that time to make longer duration commitments.

As the year progressed, the recovery and user markets began in earnest. Coupled with this was the emergence of a renewable diesel market with the trade principally between the Gulf of Mexico and California. Rates continued to strengthen as the year progressed and as the year changed and moved along, there was a shift to longer term time charters, which is the Historic Jones Act norm.

Recent rates are now in the low $70,000 per day range for Jones Act, MR tankers. Our Jones Act vessels are fully fixed for 2023 and approximately 80% fixed in 2024. In December, we re-delivered three vessels to American Shipping Company as their bareboat charters expired. As a result of the redelivery fourth quarter time charter equivalent revenues of $114.1 million from approximately flat when compared to third quarter TCE revenues.

Adjusted EBITDA increased $1.3 million from the third quarter to $43.6 million compared to 2021's fourth quarter, TCE revenues increased $34.1 million or 43%. Adjusted EBITDA increased $27.1 million or 163% reflecting the high degree of operating leverage inherit in our business. In June, 2022, we commenced a five million share buyback and this program was completed in early October at a total cost of $14.7 million.

In November, we repurchase an additional five million shares for $14.3 million. Please turn to slide eight. The steadily, the steady quarterly progression of increasing TCE revenues and adjusted EBITDA resulted in full year TCE revenues of $426.3 million, an increase of $133.7 million from 2021. 2022 revenue days increased from 6,064 and 2021 to 7,739 is our full fleet. Return to service.

Adjusted EBITDA was $142.8 million, an increase of almost $100 million from the prior year. Please turn to slide nine. Lightering revenues were flat compared to the third quarter as our ATBs were fully employed during both quarters. During earlier 2022 quarters, the OSG 350 had remained in layup. Revenues from our two ATBs were essentially again flat between the two quarters. The OSG 204 after completion of her prior long-term charter operated in both quarters under short-term time charters, before entering into a long-term time, charter commencing in January, 2023.

Mykonos and Santorini continue to participate in the maritime security program and provide services to the government of Israel. During the quarter, we completed one GOI voyage and partially performed a second voyage, which was completed in January, 2023. Additionally, we completed one voyage for the military sea lift command. Our TCE revenues were consistent between the quarters.

Jones Act Shuttle tanker revenues increased slightly compared to Q3, resulting from increased rates for the OS -- for the overseas Tampa during the quarter, Alaskan tanker revenues increased on an increase in revenue days as the Alaskan Explorer returned to service, following her third quarter scheduled DryDock period. Jones Act candy size tanker revenues decreased $1.8 million due to the return of three vessels during December.

TCE revenues for the other seven vessels actually increased $4.9 million quarter-to-quarter. Please turn to slide 10. The niche businesses continued their overall stable performance with third and fourth quarter revenues. Essentially, flat lighting revenues decreased slightly on volume fluctuations between the quarters. Shuttle anchor revenues increased modestly on increased contract rates from the new time Charter Non-Jones Act. Product anchor revenues decreased slightly in comparison to Q3 due to a slight increase in our fire days.

Please turn to slide 11. Festival operating contribution decreased or from $47 million into third quarter of 2022 to $46.2 million in the current quarter. The Jones Act candy size tanker contribution dropped 5,500,000 due to the vessels returned at the end of the leases. Niche market contribution declined 700,000 from the third quarter principally due to Lightering volume fluctuations.

Please turn to slide 12. Adjusted EBITDA has increased each quarter of this year with the fourth quarter's, $43.6 million exceeding the comparable 2021 fourth quarter by $27 million. Growth from the third quarter of 2022 to the fourth quarter was reduced again due to the return of the three ships. The return vessels generated a diminimous amount of revenue while still incurring expenses.

Please turn to slide 13, following, and essentially even first quarter this year, we have delivered three quarters of net income resulting in full year earnings of $26.6 million in comparison to a net loss of $46.3 million in 2021. Increased demand for vessels from charterers led to return to service of all vessels still laid up at the end of December, 2021, coupled with a full year of operations for vessels returned to service in late '21.

As as well as the strengthening rate environment in 2022, which led to significant improvement in our operating performance. Please turn to slide 14. In December 31st, 2021, we had total cash of $83 million. During 2022, we generated $143 million of adjusted EBITDA and used $26 million of cash for working capital. Further, we invested $24 million in vessel drydock and other capital costs, and we purchased 15 million of U.S treasury securities.

As mentioned before, we repurchase 10 million shares of OSG stock for $29 million. During the year, we paid $54 million in debt service, $22 million of which reduced our outstanding debt through scheduled amortization. The result was we ended the year with $79 million of cash, plus $15 million of liquid investments.

Please turn to slide 15; continuing our discussion of cash and liquidity as we mentioned on the previous slide, we had $79 million of cash at December 31, '22. Our total debt was $428 million, a decrease of $22 million from outstanding indebtedness at 20 December '21. Scheduled loan amortization in 2023 is $23.7 million. With $340 million of equity or net debt to equity ratio is one times.

Sam, I'd like to turn the call back to you and as I've concluded my comments.

Sam Norton

Thank you Dick. Our fourth quarter results evidence healthy operating conditions in our core markets. OSG's fleet is responding to the changing patterns of domestic and international transportation fuel shipments and is well positioned to participate in emerging areas of opportunity. Improving market conditions have resulted in OSG achieving more stability in its financial profile and greater visibility of forward cash flows to an extent not seen for many years.

All Jones Act assets are fixed under time charters or contracts of equipment for the balance of 2023. And nearly 80% of 2024 available days are also fully covered at attractive rates. Our healthy book of forward time charter coverage gives us good visibility towards the results expected for 2023 and much of 2024.

We anticipate continuing strength in all important financial metrics and a gradual build and available cash balances over the next several quarters. As profitable time charters at higher utilization rates are realized. For the first quarter of 2023, as a result of having three less MR Tankers than operation Following delivery of these ships to American Shipping Company in early December,Time charter equivalent earnings will likely see a drop of about 10% when compared with Q4 levels.

Notwithstanding the drop of TCE earnings, quarte-to-date strength in what we have been able to observe from our niche market activities gives us confidence to expect levels of adjusted EBITDA to track very closely with what was achieved during the final quarter of 2022.

Looking further ahead to the balance of 2023 OSG healthy fundamentals off the prospect of continued solid financial performance throughout the year, our current forecast has time charter equivalent earnings for the full year 2023, approaching $400 million, attaining this top-line result should generate adjusted EBITDA of between 140 and 150 million for the full calendar year 2023.

After deducting debt service and planned maintenance capital expenses, we anticipate that free cash flow for the full year should be between $50 million and $60 million. To deliver these results, our mission is now squarely focused on execution, operational excellence, and the pursuit of niche business growth opportunities.

In summary, it is fair to say that the business environment for OSG has shifted away from the defensive posture that has characterized much of the past three years. We can now look forward to evaluating real opportunities to extend and expand the cash generating capabilities of our unique franchise, while continuing to consider means to utilize surplus cash flow to reduce leverage and drive improving share price performance.

As stated on prior calls, use of surplus cash flow should it arise, will be a regular topic of conversation with our board. With this thought in mind, we recognize the increasing importance of understanding and participating in newly developing markets that would transition the U.S economy away from fossil fuels. These evolving markets point to interesting and exciting potential for OSG to leverage its strong operating franchise to participate in these new trades.

OSG continues to commit resources towards an express goal of identifying the best opportunities that will arise from this transition. And we are optimistic that these efforts will yield positive results over the medium term.

Forum, we can now open the call to questions.

Question-and-Answer Session

Operator

Certainly. [Operator instructions] Our first question comes from the line of Ryan Vaughan with Needham and Company. Ryan, your line is now open.

Ryan Vaughan

Thank you. Hey. Hey, Sam. Hey, Dick. So I just wanted to follow up, I think for a while, maybe some of the knock on the stock, the valuation, Sam, was that, you preferred for the last couple of years to enter into kind of shorter term charters just until the market had recovered to what seemed more appropriate or fair.

And just listening to you now, it seems like we've entered that time period and, and we should expect that what you're seeing, what the market, what, what's a value to you today. This now is going to transition the thinking from this shorter stuff to, medium, longer term. It sounds like you're, you're basically fully booked for '24 and, and one I guess just want to make sure that is accurate, that we're in the environment that you've been waiting for setting the company up. That's number one.

And then number two, you, I caught something in your prepared remarks. You said some have some of your customers have, have signed contracts in advance. Would you mind just giving a little bit more detail on what you meant by that?

Sam Norton

Sure. I think the two points are related. We state in our public disclosure documents that the preferred chartering profile for our business is one heavily weighted towards medium to longer term contracts with our customers to serve as an integral part of their distribution chain. And, and not just to be an Uber life asset to respond to occasional needs. We still feel very strongly that way. The, some of the unique aspects of the Jones Act market given the short duration of many of the voyages make it very difficult to optimize utilization of assets. If you're, if you're running three to five day voyages all the time it puts a lot of, we've said in the past, it puts a lot of dis-utilization risk on the owner as opposed to the, to the end users.

All of those things are, are mitigated if we're on longer term or on time charter. And the longer the time charter, the better the visibility we have from insulating us from the, that dis-utilization risk. So, yes once we have moved into an environment where we feel that the rate structure is remunerative and allows us to earn a reasonable rate of return we have certainly shifted our focus away from trying to push market rates up to an emphasis more on duration now than on further rate gains. And the market is there.

As I said every MR tankers that I'm aware of is fully fixed for the foreseeable future. Not only ours, but but our competitors the market tightened, as I said in my prepared remarks considerably over the past 12 months. And that's, and that's led our customer base to be seeking visibility of, of transportation cover in a much more progressive and, forthright way than hadn't been the case through much of 2019 through 2020, '21. And an evidence of that is as I said in my remarks, some of the contracts that we're fixing are fixing forward.

So we have a, a number of vessels where they are currently employed and where the, the customer came to us and said they wanted to extend those contracts notwithstanding the fact that the, the current contracts don't expire for a year or more looking forward they came and they at their initiative, they, made a request to say, we want to secure this vi the visibility of this access to this vessel, and we'd like to extend those contracts.

And in one particular case we fixed the vessel to a different client who was looking for new trade. This is a renewable diesel trade and committed to take a vessel commencing in the first half of 2024. And we fixed that ship three months ago, so that's an indication of the, of the kind of tightness that we see in the market.

Ryan Vaughan

That's helpful, thank you. And I always ask you about this, but I do think this, I think the business has changed so much. I just updated based off of the guidance you gave for 2023, I'm at four and a half times EBITDA pre the, the $50 million to $60 million of free cash flow. And if I had, if we had spoken, a couple of quarters ago, I probably would've been saying, oh, yeah, like, keep delivering, makes a lot of sense. And, fast forward to the end of the year or, even into next year you're basically low ones of net leverage one times.

But it just seems like with the duration that you're getting, it does open up the door to potential other opportunities, other growth opportunities. I'm sure nothing crazy, but maybe one or two vessels here and there that might be available to you. And even running some of those hypotheticals and, I appreciate the numbers are actually going to be a little bit better than I thought, but under, under those scenarios, I'm at call it net leverage of mid ones next year, which, I was surprised to see. So I'm just wondering just with, with basically how much the business has, has changed, just getting that duration, has that changed how you guys think about your capital allocation plans? And, and also balancing that with, with the stock at four and a half times today? Thanks.

Sam Norton

At the risk of sounding like a broken record I'll -- I'll say what I've said every time you've asked the question is that there's really three areas that we focus on for capital allocation. And, and frankly we see the capital allocation is probably the most important job that we have at this juncture as we, as we evaluate both the cash flow generating capacity of our fleet together with opportunities for growth in either current businesses or in adjacent spaces this is clearly a very important topic for the board and, and so the management team.

We continue to believe that there are opportunities to invest in assets that will provide a creative of cash flow. I've said in the past that this is not like the international market where you have a, a very liquid and very, a very deep and broad market to be able to move in and out of the market as the cycles evolve.

That being said, there are opportunities we think to, to expand our fleet probably more likely in the international trading side of our business than in the domestic side. But there are opportunities we think there may be opportunities to look at expansion in the domestic side as well. So we want to make sure that we have sufficient capital to be able to pursue those opportunities.

My bias would be we can achieve two things at the same time. If we deploy that cash without leveraging that cash, then we achieve the expansion and assets and cash flow generation while at the same time not increasing our leverage or probably decreasing our leverage from cash, kept from a cash measurement point of view.

So that, that would kind of be the first the first goal if we could, if we could deploy some cash and, and do that without taking on additional leverage. If those opportunities don't present themselves, then clearly the other two areas that we look at are one de-leveraging the business to provide flexibility for financing at, at future dates, if other opportunities come along at a later date. We have identified specific steps that we might take if we felt that that was the appropriate steps to take.

I would note that some of our debt all of our debt is fixed and some of it is fixed at levels below what current cash levels are yielding. So we, we, we do have a positive carry on some of that debt which of course is something that we think about. But we are also very mindful of the fact that during periods when the market is strong it's a good idea to, to decrease leverage and provide the liquidity and resources to be able to take advantage of terms and markets if and when generally they come.

So that's something that we think about a lot on the share buybacks stage. I think we've demonstrated our willingness to look at that as a, as a real solution. We purchased 10 million shares last year, that's more than 10% of the outstanding shares at the time. That's a pretty substantial amount of share repurchasing, it remains in our playbook. And as you, as you say, the, the relative value of the stock against how we might be able to deploy that capital. And the other two areas that I've discussed is a regular topic as a conversation and our board meetings and will continue to be so.

Ryan Vaughan

Yep, that makes sense. It just seems like gaining that duration and basically we're out to 2025, it, it just opens up the door for, for some things that might not have existed a couple of quarters ago. Just last one real quick. Sam, can you just remind us on, I, I know most of the vessels are, let's call it mid-2000, late-2000 into, into 2010, 2011, just the remaining useful life there. And then Dick just real quick, can you just remind us the any more expectations for 2023 along with CapEx, please? And that's it for me. Thank you.

Dick Trueblood

The average life, the average life Ryan is a, is a bit under 15 years across the entire fleet. The CapEx for this year will be in the $30 million range, slightly up from '22, but certainly below some of the other peaks that, that we've seen. From a debt perspective, we have one piece of debt maturing in 2024 towards a third quarter and two in 2025

Ryan Vaughan

Debt service this year?

Dick Trueblood

It will be, again, it's going to be about $54 million, $55 million in total for the year between principal and interest. Interest cost could be about $32 million, $31 million and the principle amortization will be just a shade under $24 million.

Sam Norton

So, I, and I think your question is, what, what can we expect the useful economic life of our vessels as I, as I handed in correct prepared, I think that we can expect a market that will accept longer utilization of assets over time unless, and until there's a clear solution or a clear answer that has arrived at what propulsive systems for marine access will look like. The nascent state of replacement technologies that would address that question today, just it's, too early for anyone to really endorse in my opinion, to endorse a favored approach.

And I think that the international market will be the testing grounds for what those technologies and what the emerging preferred solution will be, and the domestic U.S market will most likely observe what happens in the international markets and how that question is resolved before taking decisions as to constructing new vessels in the United States. So I think that's going to take a while. And I think that certainly a useful economic life for Jones Act tanker or an ATB of 30 years or more is not unreasonable to consider it this juncture.

And I think that the environmental arguments for sustaining and continuing the use of high quality assets and the comparable Greenhouse gas emission count, that if you look at the full life cycle building new ships is also a large producer of greenhouse gas emissions. So I think arguments will arise in the, even in the environmental goal context, that keeping high quality assets in service for longer periods of time will actually be a favor, will, will result in a favorable outcome from a life cycle greenhouse gas emissions account. And I think that will encourage for Jones Act assets in particular a view towards extending the useful economical life of these assets.

Dick Trueblood

It's, it's sort of a natural support to that right now, which is just the inability of U.S based shipyards to be available to build Jones Act MR Class tankers the preponderance of shipyard capacity committed to the U.S government for Navy, coast Guard ship, et cetera. So it just, there, there isn't anything available, even if you wanted to place an order today for all that, that would produce something in the foreseeable future.

Ryan Vaughan

All makes sense. Thank you. Appreciate it.

Operator

Our next question comes from the line of Climent Molins with Value Investor's Edge. Climent, your line is now open.

Climent Molins

Good morning. Thank you for taking my questions. I wanted to start by asking about your TCE cover on Johns Act vessels in 2023 and 2024. Could you provide some insight on what kind of average TCE you expect to realize on each those years?

Dick Trueblood

I think that the guidance that we've given on overall TCE is helpful in, that as we said, we expect a full calendar 2023 time charter equivalent earnings across our fleet to be close to $400 million. Obviously, embedded in that number is the Jones Act, MR Time Charter equivalent lead ,we still have some historical time charter contracts that are, significantly below current market rates. And we've fixed some of vessels recently at what I would consider to be current rates. The blended rate on all of that is probably in the mid-sixties but as older contracts roll off, that number should begin to creep higher.

Climent Molins

That's helpful, thank you. And regarding Capital Location going forward, you'll have more clarity in a couple weeks once the TSP and the Red Hill have been awarded, but if everything goes according to plan, do you have the capacity to service those contracts with your fleet, or should we expect vessel acquisitions and if fleet expansion is required, where do you see the sweet spot regarding Vessel Vintage?

Dick Trueblood

So if everything goes according to plan I think there is a scope for us to add between one and three additional MR tankers to our international trading fleet over the next six to 18 months, depending on the timing of deliveries and, and the and the ability for us to go and, and consider a reasonable priced replacement tonnage. But even more so I'd like to reiterate what I've said in the past that the 2022 National Defense Authorization Act, included within it, a provision to authorize the expansion of the tank of security program from the current 10-sh authorized vessels to 20 vessels in the future.

So I believe that the the environment in Washington today, it's very supportive of arguments to expand U.S maritime in general, and U.S tanker assets in, in particular and that the that the political will to take the necessary steps to see that happen is as strong as it has been in my seven years here.

So not only are you looking at near term resolution of Red Hill and Tank of Security Program applications in the next four to six weeks but over the medium term I think there is scope to consider additional tonnage to be added over time as that tanker security program or if and when that tanker security program expands from 10 to 20 shifts. And I think that's something that we keep our eye on in terms of allocation of capital and making sure that we have the necessary resources to participate in those programs at the level which we think is appropriate for a company of our profile in this industry.

Operator

Our next question is from a private investor, Josh Caho. Josh, your line is now open.

Unidentified Analyst

Can you guys hear me okay? Good morning, John. All right. Well, once again, congrats on a good quarter, and thank you for taking my call. Just a quick follow up on Climent's question. If you do add additional MR tankerss is there a particular vintage that you would be looking at right now? I know that the international tanker market has responded to things Sam had mentioned and prepared remarks around the product tanker markets in general on a, a five year MR five year old MR tankers right now is probably around $43 million, excuse me, an eight year old tanker around $36 million is, once again, is there any particular vintage you're looking at, or would it depend on timing and what's available in the market if you were to acquire new vessels?

Sam Norton

I, I think Josh more the latter than, than the former. I'll, I'll make a couple of observations. First of all, I would caution drawing straight lines between transactions that have occurred in the international second hand mark it and interpretating those to understand what younger or more conventionally owned tonnage might attract from a pricing point of view.

And I say that because the vast majority of activity in the international MR market in recent months has been concentrated that the older end of the spectrum and the buying market for that older end of the spectrum has been dominated by what I will call sanction insensitive buyers who are acquiring tenant largely to be able to participate in the emerging trade of Russian crude oil and Russian product that has been abandoned by conventional western buyers and traders that traditionally serve those markets.

And because of the nature of the opportunity there buyers of that type of tonnage are relatively price insensitive because the relatively low capital investment for an older vessel can be rewarded very quickly and over a very short period of time through trading in what the press calls the dark fleet or the, what I call sanction insensitive participants in that trade.

And, and, just to put it in perspective an [indiscernible] max tanker carries roughly 700,000 barrels of crude oil. If you go buy an [indiscernible] Max tanker and you load one cargo out of the Baltic region in Russia, and you're transported to India, which is emerging and active trade right now, and you're able to capture somewhere between a $10 and $20 discount to the crude price and pass some of that on to the buyer let's just say you take $10, that's $7 million of a profit on the trade alone, plus the, the market is trading for those types of ships on a, on a freight basis of somewhere between 80 and a hundred thousand dollars a day.

So in one voyage, it's conceivable in my mind that a sanction insensitive buyer could make as much as 10 to 12 million on one voice. And so if you're paying $20 or $30 million for a vessel with a view that this market is going to going to be sustained for at least a foreseeable future you can see where the, the price levels would be relative insensitive to just, just, just get your hands on a ship and it doesn't really matter what you pay.

I, I would counter that by saying that as you move forward into the younger age of the fleet, the capital amount that needs to be deployed goes up considerably and therefore a belief in the duration of that of that market arbitrage that's available today needs to be much, much greater. And what, certainly what I've seen is that there's been very little of any activity in the front end of the age profile that would affirm that a buying market exists, that the price levels, that if you interpretate those older vessels would, would equate to the kinds of price levels that you're talking.

I know that there are organizations that try and provide vessel values based on, kind of age, what's the new building cost, what's a what's, what's a 10 year old, what's a 15 year old? And what does that translate into in terms of a five year old vessel might be like I I personally, I don't subscribe to that methodology at this juncture because I just don't see the level of transactions at the younger age of the profile that would support those higher valuations at this time.

We'll see how this market evolves over the course of the next next six to 12 months. You know, inputs into ship construction are also a really important part. And there's been quite a bit of inflation and the shipyards have been trying to push prices as well.

Once again, the volume of transactions that we've seen, or at least I've seen in terms of new building activity would not suggest there's, there's a deep market for paying those kind of price levels. So I think there's, there's, there is a considerable amount of opacity right now in where, where price points would exist for age profiles along that, along the curve of 5, 10, 15, 20 years. And we need, we need to see some discovery of that as we move through the year and understand how those price points will play out.

I, I would also observe, if you look at the MR trading market and international markets tend to be dominated by spot trading versus time charter returns. It, it's been an extraordinary volatile period for the MR Tanker market over the last two, three months. We've seen rates jump from, or, or fall from, say, mid sixties on a voyage across the advantage down to single digits and jump back up again to mid-thirties, mid forties, and then drop back down again to negative time charter returns.

So there's, there's quite a bit of uncertainty in the actual evolution of how the shift away from servicing Russian product in particular is, is going to evolve.

And I think that, that that creates an, a difficult market to read from a, from a, from a sale purchase point of view but one which I think settles out as we move through this year and, and probably gives us greater clarity as to if we were to buy a, a new MR Tanker where would we target along the age profile that we think would be an appropriate level for our needs. And where would liquidity be triggered? Where you had a, you, you had a willing buyer, but also a willing seller that still needs to be, that still needs to evolve and, and, and discovery of those, those price points remain ahead of us.

Unidentified Analyst

No, that's great color and yeah, the bifurcated s and p market makes a lot of sense, so thank you for that. And then just to follow up on your renewable diesel charters, I believe it, you had mentioned at last quarter having three or four shifts doing that. Is that still, and then you had mentioned on this call, perhaps a new 2024 client or an extension on a existing charter. Are you still looking, what roughly four MR tankerss or any number changes there for OSG?

Sam Norton

You know, it's that's correct for right now. But Josh, we still see demands for renewable diesel transportation capacity both from existing players, but also we get new inquiries. You know, I think to, to give you some guidance, I think that we now have a relationship with virtually ever major producer of renewable diesel in the Gulf Coast. And you've, you've highlighted in some of your commentary that I've read that there is some uncertainty as to whether or not the production the increased production that's coming online over the next 12 to 18 months in the Gulf Coast.

How much of that is going to be moving to the West coast, and how much of it, including sustainably aviation fuel as a sort of subpart of renewable deism, how much of that might begin to find export markets to Canada or to Europe or to Scandinavia? I think that's something that's that bears watching. But certainly from what we can see from the behavior of our customers there is no indication there of any concern for the demand for transportation to the West Coast for the foreseeable future. I would say the opposite, that there continues to be a very strong level of inquiry to, to tie up vessels and secure that capacity to ensure that that product can continue to move to the West coast.

Unidentified Analyst

All right. Thanks. yeah, renewable diesel, you guys were certainly on top of that, so congratulations on, on grabbing those. And then just one last minor question having to do with the OSG Tampa. I'm looking at slide 10. It looks like his Tampa might be placed under the shuttle tanker sort of sub category. I'm just wondering, is Tampa doing shuttle workers at doing standard MR. Work right now? And that's all for my questions. I appreciate once again you guys taking them and congrats on a great quarter.

Sam Norton

Just as an explanation we will be changing our the way that we disclose the individual kind of types and the, and the presentations going forward. We have historically the Tampa was a shuttle tanker. The OSG 350 vision was engaged in the in the Lightering business in the Delaware Bay. And so in order to, to conform with historically presented financial figures, we have kept those as they have been through the end of 2022.

But with our next subsequent release, we're going to alter that to reflect the Tampa as a standard, MR tankers, because that's in fact the service that he's involved in. And the three 50 will be joined in with our conventional ATB assets. And so you'll see that reflected going forward, and we'll make the necessary historical adjustments so you can see those comparisons. But we at the advice of our very strict financial advisors we're, we're instructed to keep our presentation consistent with historical purposes through the end of 2022. And you'll only see those changes with our next quarter release when we ship those to reflect more accurately in the current services that they're providing.

Operator

This concludes our question and answer session for today's call. I will now pass back to Mr. Norton for any closing remarks. Thank you.

Sam Norton

Thank you Forum, and, thank you all for joining. We're as excited today about our prospects as we have been in a long time. We look forward to being able to deliver the results that we forecast for you and to speaking with you again in the near future to share with you what hopes to be a continuity, progressively improving story. Wishing you all a good day. Thanks again for joining.

Operator

This concludes today's Overseas Shipholding Group fourth Quarter and Full Year 2022 Results Conference Call.. Thank you very much for your attendance. You may now disconnect your line.

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Overseas Shipholding Group, Inc. (OSG) Q4 2022 and Full Year 2022 Results Conference Call Transcript