Overseas Shipholding Group (OSG) has announced a strong start to the year with its first quarter 2024 financial results, showcasing substantial growth in earnings per share and robust increases in TCE revenues and adjusted EBITDA. Amidst geopolitical tensions and a growing renewable diesel market, the company's Jones Act vessels are in high demand. OSG is also actively engaged in the emerging carbon capture and storage (CCS) industry with projects T-RICH and COAST 20. Furthermore, OSG is considering a purchase offer from Saltchuk Resources, signaling potential shifts in ownership structure.
Key Takeaways
- OSG's earnings per share grew by over 35.7% year-over-year in Q1 2024.
- The company reported an increase in TCE revenues and a rise in adjusted EBITDA to $43.9 million.
- A second consecutive quarterly dividend of $0.06 was paid in April.
- Saltchuk Resources has shown interest in acquiring OSG shares not already owned for $6.25 each.
- Strong market demand for Jones Act vessels is driven by geopolitical tensions and renewable diesel transport.
- OSG's Alaskan Frontier vessel is on track for Q4 2024 service commencement.
- The company will release its 2023 Sustainability Report, emphasizing greenhouse gas emission reduction.
Company Outlook
- OSG is optimistic about medium-term demand for its Alaskan tanker vessels due to expected increases in Alaskan crude oil production.
- The company is focused on playing a leading role in the CCS industry in Florida with T-RICH and COAST 20 projects.
- OSG anticipates a need for six to ten Jones Act MR tankers for the future renewable diesel market.
Bearish Highlights
- Revenues from Jones Act Handysize tankers decreased by $1.7 million.
- Non-Jones Act tanker revenues declined by $2 million due to lower utilization.
- Unique circumstances such as higher compensation expenses and professional fees impacted Q1 2024 earnings.
Bullish Highlights
- Revenues increased to $110.7 million in Q1 2024.
- OSG has a strong forward book for 2025.
- The company has experienced increases in lightering volumes and revenues.
Misses
- Decline in earnings due to a decrease in cargo availability, particularly MSC preference cargo.
- The Alaskan Explorer was off-hire until mid-February, causing a $700,000 decrease in Alaskan tanker revenues.
Q&A Highlights
- OSG's charter with Vertex (NASDAQ:VRTX) for renewable diesel business remains strong, with no renewal needed for another year.
- In response to potential CARB regulations, MR tankers could reposition to the West Coast to replace ATBs, though this may cause short-term market disruptions.
Overseas Shipholding Group (ticker: OSG) reported a positive financial performance in the first quarter of 2024, with earnings per share increasing by over 35.7% compared to the same period last year. The company's total liquidity stood at $97 million, and they have extended their committed charter book with attractive rates. OSG is also actively pursuing opportunities in the CCS industry and is set to publish its 2023 Sustainability Report, underscoring their commitment to environmental sustainability.
OSG's strategic initiatives and robust financial performance indicate a proactive approach to market opportunities and challenges, positioning the company for continued success in the dynamic maritime industry.
InvestingPro Insights
Overseas Shipholding Group (OSG) has demonstrated a strong financial performance and strategic positioning in the dynamic maritime industry, as evidenced by its Q1 2024 results. To provide a deeper understanding of OSG's market position and financial health, let's look at some key metrics and insights from InvestingPro.
InvestingPro Data:
- The company boasts a market capitalization of $476.8 million, reflecting its significant presence in the industry.
- With a Price/Earnings (P/E) ratio of 8.32, and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 7.39, OSG appears to offer an attractive valuation relative to earnings.
- The Price to Book (P/B) ratio as of Q1 2024 stands at 1.31, indicating that the stock may be reasonably priced in relation to the company's net assets.
InvestingPro Tips:
- OSG management's aggressive share buyback strategy is a sign of confidence in the company's value and future prospects. This can often signal to investors that the company's leadership believes the stock is undervalued.
- The stock's low price volatility suggests that it could be a stable addition to an investment portfolio, particularly for investors who are risk-averse or seeking more predictable performance.
For those interested in delving further into OSG's potential, InvestingPro offers additional insights and tips that could guide investment decisions. Currently, there are 7 more InvestingPro Tips available for OSG at https://www.investing.com/pro/OSG. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and explore these valuable tips to inform your investment strategy.
Full transcript - Overseas Shipholding Group (OSG) Q1 2024:
Operator: Good day, and welcome to the Overseas Shipholding Group, First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please also note, today’s event is being recorded. I’d like to turn the floor over to Sam Norton, President and CEO, please go ahead.
Sam Norton: Thank you, Danielle. Welcome, and thank you for joining our presentation of OSG’s first quarter 2024 financial results and for allowing us the opportunity to comment in more depth on those results and to provide additional context as to the current state of our business and the opportunities and challenges that lie ahead. As usual, I am joined in this presentation by our CFO, Dick Trueblood. 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, performance and opportunities. 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 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 2024, and our Form 10-Q for the first quarter of 2024, which we anticipate filing later today, both of which can be found 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 legally be 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 posted on our website. Before discussing our financial results for the first quarter of 2024, I would like to address, the status of the unsolicited non-binding indication of interest submitted to our Board by Saltchuk Resources in January 2024 to acquire the OSG shares it does not already own for $6.25 per share in cash. Our Board continues to carefully considering Saltchuk’s indication of interest in consultation with our outside financial and legal advisors and is committed to acting in the best interest of our stockholders. Because the Board’s work is ongoing, we do not intend to comment further on this call or to address questions regarding Saltchuk’s indication of interest or the possibility of any potential transaction. We respectfully ask that your questions be focused on the company’s recent financial results and its ongoing business activities. We kicked off 2024, sustaining our strong performance in 2023. Our cash flow and profitability continued to steadily improve. We are particularly gratified to report a more than 35.7% growth in earnings per share when compared with the first quarter of 2023, rewarding our shareholders with value derived in the combined effect of numerous initiatives that we’ve undertaken over the past 12 months. We delivered significant increases from the prior year’s first quarter in financial metrics that we believe are important in measuring our performance, TCE revenues and adjusted EBITDA. Dick will be sharing with you later on this call, details of these as well as our other financial results for the period. Our cash flow from operations continues to build at a pace that has met our expectations and as a result our Board declared and the company paid in April a second successive quarterly dividend of $0.06 per share demonstrating confidence in our business plan. Our attained cash flow reflects the realized benefits of charter parties that we have fixed at escalating rates over the past several quarters, providing us with a means to make continued progress in meeting our key capital allocation goals. I spoke at length in our year-end earnings call about the events and circumstances that has contributed to strong market demand for our Jones Act vessels. The persistent influence of geopolitical tensions outside of the United States continues to severely disrupt historical trading patterns for crude oil and its refined products. Hostilities in the Red Sea, growing geopolitical tensions in the Persian Gulf, and the continuing war in Ukraine have kept international freight markets at or near historical highs. Most analysts consider this market strength to be durable, with positive implications for our Jones Act vessels. High international freight rates indirectly stimulate domestically sourced fuel consumption, and by extension Jones Act transportation demand, since import substitution is constrained by comparatively high freight costs for product shipped over longer distances on foreign flag vessels. So long as international freight rates remain high, Buy America, when it comes to fuels, will have economic as well as rhetorical justifications. Added to these disruptive forces U.S. government policies and state regulations have stimulated a growing market for transporting renewable diesel and its feedstock components from production sources along the Gulf Coast to markets along the U.S. West Coast. According to the Energy Information Agency, quarterly shipments of renewable diesel from PADD 3 to PADD 5 have more than doubled over the past two years with the marine transport of renewable diesel recently approaching 50,000 barrels per day. The EIA, currently expects renewable diesel production to increase by approximately 30% annually in both 2024 and 2025, a development which is likely to add further demand for tankers to move renewable diesel from the U.S. Gulf to the West Coast in the coming quarters. The strong demand signal is evident in the Jones Act trades has led our core customers to seek out extensions to vessel time charter for both longer periods and well in advance contractual renewal dates. This has allowed us to extend our committed charter book with increasingly attractive rates. Examples of this trend during the first quarter include the overseas Nikiski being extended towards current charter for three years from October 2024 and the OSG 205 Courageous being extended for three years from December 2024. During the first quarter, we also exercised an option for extend the bareboat charter of the overseas Tampa with its vessel owner for a period of five years commencing June 2025 until June 2013. Updating on the progress of bringing Alaskan Frontier, sister to our other three ATC operated crude oil tankers into service, we still anticipate the vessel being ready for service in the fourth quarter of 2024. This week, we have signed towage contract to move the vessel from Labuan, Malaysia to Singapore. The vessel is scheduled to enter a shipyard in Singapore during early June, where we will carry out both a comprehensive reactivation scope of work, as well as previously announced lifecycle upgrades on each of her four engines. The engine upgrades will improve performance and fuel efficiency, and also prepare the engines for possible use of methanol fuel in the future. In parallel to shipyard activities, we are currently fielding employment inquiries for the vessel, and are optimistic that we will fix the vessel on time charter at attractive rates in the next couple of months. I will now turn the call over to Dick to provide you with further details on our first quarter results for 2024. Dick?
Dick Trueblood: Thank you, Sam. If you could turn to Slide #7, please. Vessel demand continues to be strong, and during the quarter, we extended two charters and entered into one new charter for vessels whose existing charters were scheduled to end during 2024. Customers continue to show interest in longer-term time charters, and entering into new contracts and direct continuation of their existing contracts, often well in advance of scheduled maturities. Rates currently are in the mid-$80,000 per day for Jones Act MR tankers, while ATB rates are in the upper $50,000 per day. At this time, we are working on obtaining business for the Alaskan Frontier when she returns to service in Q4, and for the Explorer when her current time charter is completed. Sources of earnings variability at this point are vessels that participate in the Tanker Security Program who, by design, trade in the spot market internationally, and our lightering ATB, whose earnings can fluctuate upwards when volumes exceeds the contract minimum. Taking into account the two contract extensions and one new contract, we have continued to extend the maturities of our book of business. 2024 days as essentially fully booked. Looking at the chart in 2024, we have to vessels with charters entering before 12/31/24. One of these, the Mykonos has a series of one-year options with the One of these two vessels, the Mykonos, has a series of one-year options with the Military Sealift Command, which, if all exercised, will keep her chartered through August 2028. The two vessels becoming available at the end of 2024 participate in the Tanker Security Program. The Alaskan Legend and Alaskan Navigator are subject to extension options that if exercised will continue their charter for years into the future. The Frontier, a sister ship to our three Alaskan tankers will shortly be towed from Malaysia where she has been in cold layup for approximately five years to Singapore to commence her drydock period in June. In addition to preparing her to return to service, we also perform engine lifecycle upgrades and install a ballast water treatment system. Her total resource commitment including the purchase price, is expected to be $50 million. If we can turn to Slide 8, please. We have 7,134 available days in 2024, of which 96% are contracted. This gives us a very high degree of visibility into our operational and financial performance and represents a continuous improvement from a low point of 2021. Years prior to 2023 include the three vessels that were redelivered at the end of 2022. Please turn to Slide 9. Our quarterly performance continued the performance trends of 2023 and we are very pleased with our start in 2024. All elements of our fleet continued to perform well. We had some fluctuations do to planned drydock days and thus a repositioning prior to commencement of a new time charter. First quarter revenues increased to $110.7 million from $110.1 million in the fourth quarter. During the quarter, we repositioned the Alaskan Explorer from Alaska to the Gulf of Mexico for her to commence her new time charter in late February. This off-hire period coupled with off-hire days to dry dock schedules moderated the revenue increase. Revenue increase of 5.7% from the year ago quarter is the impact of higher rates of contracts entered into after Q1 2023 have benefited the first quarter of 2024. First quarter adjusted EBITDA $43.9 million compared to the prior year’s first quarter of $40.9 million. Our trailing 12 month adjusted EBITDA was $178.8 million. Please turn to Slide 10. Jones Act Handysize tanker revenues decreased $1.7 million from the prior quarter. ATB revenues increased $400,000 and specialized business revenues increased $1.9 million. Please turn to Slide 11. Lightering volumes increased substantially from the fourth quarter with a corresponding increase in revenues. Non-Jones Act tanker revenues decreased $2 million from the fourth quarter due to lower utilization during this quarter. Jones Act Shuttle Tanker revenues increased $1.2 million as both vessels were in service during the quarter. The Chinook scheduled drydock was completed in December 2023. Alaskan tanker revenues decreased $700,000 as the Alaskan Explorer was off-hire until mid-February due to her repositioning. Partially offsetting this was the Alaskan Legend's return to service for the full quarter after her scheduled dry dock. Please turn to Slide 12. Vessel operating contribution was $51.8 million, a $1.6 million increase from the fourth quarter. Jones Act Handysize tanker’s contribution decreased $2.4 million due to increased drydock days during the quarter. Specialized business vessel operating contribution increased $3.2 million. The increased lightering volumes coupled with the completion of the Chinook's fourth quarter drydock period drove the increase, which was moderated by the repositioning off-hire of the Explorer. The contribution from our ATBs increased $800,000 as the impact of higher rates continued to be felt. Please turn to Slide 13. First quarter adjusted EBITDA was $43.9 million, up from $40.3 million in 2023's first quarter. If we turn to Slide 14, first quarter net income was $14.6 million, up $2.5 million from the first quarter of 2023. Fully diluted earnings per share increased from $0.15 to $0.20 per share in the current quarter. The increase was driven by improved operating results coupled with a reduction in the outstanding shares from last year. Turning to Slide 15, we had total cash of $76 million at December 2023. During the first quarter we generated $44 million of adjusted EBITDA, and working capital used $11 million of cash. We invested $14 million in vessel drydock and other capital costs, and we paid $13 million in debt service. As a result, we ended the quarter with $82 million of cash plus $15 million of liquid investments, resulting in total liquidity of $97 million. Please turn to Slide 16. Continuing our discussion of cash and liquidity, as mentioned on the previous slide, we had $82 million of cash at the end of the quarter. Our total debt was $398 million. This represents a decrease of $6 million in outstanding indebtedness since December 2023. With $363 million of equity, our net debt-to-equity ratio is 0.9 times. This concludes my comments on the financial statements, and I'd like to turn the call back to Sam. Sam?
Sam Norton: Thank you, Dick. I would now like to take a few minutes to review some key developments in our efforts to lead OSG to a more sustainable future. First, we will be publishing next week our 2023 Sustainability Report. This will be the fourth iteration of this report, and I am pleased to highlight elements of that report which reflect ongoing efforts OSG has made to invest in our collective future. I ask that you turn to Slide 18. Reducing greenhouse gas emissions produced by our vessels continues to be a driving force in how we operate and maintain our fleet. OSG is focused on achieving efficiencies in our fleet operations, including those potentially obtained through mechanical and operational improvements, new fuels, and decarbonization systems such as onboard carbon capture. Rapidly growing economic, social, and public policy pressure to reduce the human impact on climate change underpin these efforts. In 2022, we made a commitment to reduce our fuel use by 10% by 2025 and to reduce our overall emissions by 15% by 2030 as compared to 2018 levels. Over the past two years, we have been testing a number of ways to improve our fleet's efficiency, working diligently to achieve these targets by testing and implementing cost-effective measures to attain incrementally measurable enhancements to our fleet performance. For example, we are using more efficient and environmentally friendly robotic hull cleaning methods to reduce drag. We are installing graphene-based coatings to our propellers and silicon-based paints to our hulls to improve resistance to fouling and enhance durability. We participate in voluntary speed reduction programs that minimize the risk of our vessels harming endangered species and also reduce our emissions. We are leveraging voyage optimization software and working with our customers to reduce port wait times, which can measurably improve a vessel's carbon intensity indicator. We've also invested considerable time and effort to join the emerging alternative fuel transportation market with four of our vessels transporting renewable diesel and renewable diesel feedstocks. While these smaller incremental improvements are the central component of OSG's near-term environmental sustainability strategy, we have also made investments that I consider to represent a much larger commitment to achieving our CO2 emissions goals. In 2023, we committed over $60 million to install lifecycle engine upgrades to our largest vessels, the Alaskan Class fleet, with the Alaskan Frontier, as previously mentioned, being the first vessel to undergo these upgrades. With expected 15% to 20% fuel savings as compared to these vessels' current engine performance, this investment will go much further in reducing our carbon output while continuing to provide quality services to our customers. We expect that these engine upgrades will allow us to operate these vessels for longer periods of time and with lower maintenance costs. This, and the men and women who serve on our [vessels]. Over the past two years, we have pledged and awarded a combined total of $240,500 in scholarships focused on supporting women in our industry. Women will likely play a meaningful role in addressing the seafarer shortage that our industry faces, and we hope that by reducing financial barriers to entry, we will build a stronger, more inclusive pool of mariners for our industry. We are also focused on addressing the needs of our seafarers today. We listened to our mariners and installed Starlink on our entire fleet, enabling our seafarers to stay connected with the world while at sea and to reach their loved ones and families. We have also made strides in enhancing our policies on sexual assault and sexual harassment, also known as SASH, to bring more awareness to the issues and increased training to identify and prevent SASH onboard our vessels. Please now turn to Slide 19. Turning to our longer-term vision for contributing to mitigating the effects of climate change, I would like to spend some time describing in more detail the projects we are calling T-RICH, the Tampa Regional Intermodal Carbon Hub, and COAST 20 for Carbon Ocean Storage and Transport. Through T-RICH and COAST 20, we are evaluating the opportunity to expand OSG's transportation business, which has historically focused on liquid bulk petroleum cargo to other liquid bulk cargoes emerging in the new energy economy. Our focus on achieving efficiencies in our fleet operations in those areas that I highlighted for OSG's sustainability efforts, along with T-RICH and COAST 20 projects, all reflect the rapidly changing policy, economic, and technology environment within which the current transportation sector and the global economy must operate. Please turn to Slide 20. Let me back up a moment to provide some background on what led us to begin development of these projects. Our evaluation of the forces shaping the future of energy led us to conclude that there is a real and potentially substantial business opportunity in the emerging carbon emissions reduction industry. The confluence of technological developments, economic support, global political acceptance, and increasing recognition that carbon capture is a necessary part of any plan to successfully mitigate the effects of anthropogenic climate change has led to a rapid acceleration of interest in the capture, transportation, and geological sequestration and storage of CO2, known as CCS. CCS starts with the capture of carbon emissions before they leave the smokestack from power generation and other industrial emitters. The carbon captured must then be transported from the emitters capture location to a permanent storage location. There are two basic segments to this transportation phase, the movement of captured carbon to a location where it can be combined with other emitters captured carbon, and the shipment of the aggregated captured carbon to a permanent storage location. The final stage of CCS is the placement of captured carbon into permanent geological storage locations underground. Now please turn Slide 21. As CO2 emissions are a primary contributor to global warming, finding solutions to reduce these emissions is a priority for governments across the globe. CCS is one of the three principal strategies that has been adopted to reduce carbon emissions. It is believed that CCS could account for 30% of the CO2 emission reductions needed to achieve net zero by 2050. The United States, following international agreements which include the Paris Agreement and the Kyoto Protocol, has adopted legislation supporting the technology for commercialization of CCS. During 2021, the White House issued Executive Order 14008 entitled Tackling the Climate Crisis at Home and Abroad, and Executive Order 14057 titled Catalyzing Clean Energy Industries and Jobs through Federal Sustainability. These orders state that the climate crisis is placed at the center of U.S. foreign policy and national security, establish a National Climate Task Force to deploy a government-wide approach to combating the climate crisis, and set the goal to achieve net zero emissions by 2050. The Infrastructure Investment and Jobs Act appropriated $62 billion to the Department of Energy for use in emission reduction programs, including $2.1 billion for CO2 transport infrastructure to connect industrial sources of CO2 emissions with permanent underground geologic storage locations. We believe these energy-based domestic and international policies are generating an increasingly reasonable commercial opportunity for early adopters in the storage and transportation of captured carbon. The U.S. government, through three successive administrations, has on a bipartisan basis approved more than $25 billion to support the technological and commercial development of all parts of the CCS industry. In addition to grants and federal loans, in 2022 the U.S. government adopted a direct cash subsidy payment of $85 per ton for the capture, transport, and geological storage of CO2 through provisions in the Inflation Reduction Act. This subsidy is intended to de-risk part of the supply chain's cost for the permanent disposal of carbon and is the start, but not likely the end, of the development of a U.S. carbon price structure. This cash subsidy, known as the Section 45Q tax credit, has stimulated considerable private-sector commercial investment in CCS and directly encouraged our initial steps towards designing a carbon storage and transport system. Please turn to Slide 22. With this context, we have been focused on how best to leverage OSG's skill sets in transporting liquid bulk commodities to gain first-mover advantage to play a leading role in Florida in this emerging industry. This has led us to the creation of the T-RICH and COAST 20 projects with a vision of developing a viable end-to-end takeaway capacity serving industrial emitters of CO2 in the state. T-RICH, the Tampa Regional Intermodal Carbon Hub, will collect captured carbon from large emitters across the State of Florida for temporary storage at Port Tampa Bay. The captured carbon would then be transported by our newly designed CO2 vessel COAST 20 across the Gulf of Mexico to permanent underground sequestration sites in approved pore space on or offshore in Louisiana or Texas where the geology has been confirmed safe for injection into well sites. The vessel project COAST 20 envisions a 20,000 dead-weight ton capacity design to serve as the marine transport medium for this system. Now please turn to Slide 23. Last year, OSG submitted applications for grants available from the U.S. Department of Energy to assist with designing large-scale infrastructure projects for the storage and transport of captured CO2. In December 2023, the DOE selected OSG to receive a $400,000 grant for the T-RICH hub site and then in April of 2024, the DOE notified OSG that it had been selected to receive a further $3 million grant for design of COAST 20 dedicated CO2 vessel and the load and discharge terminal designs. These projects have allowed OSG to further explore the CCS market as well as collaborate with other parties such as the Port of Tampa Bay, Aker Solutions, and Corban Energy. We see these grants as validating our vision for developing a carbon storage and transport system to support the new energy economy and are excited to be a leader and participate in this promising business and look forward to sharing more with you on this topic in the future as these projects that are now underway become more mature. Danielle, we can now open up the call to questions.
Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Ryan Vaughan from Needham. Please go ahead.
Ryan Vaughan: Thank you. Hi, Sam. Hi, Dick. Hope you guys are doing well?
Sam Norton: Good morning.
Ryan Vaughan: Good morning. So I think first things, it was great to hear about the Nikiski and 205. I think Dick said 2024 is essentially fully booked. You guys are always very good about this. About where are we for 2025 and even if you want to stay into 2026, that would be helpful. As far as a day's booked, it just looks like most of it is spoken for, but any sort of percentages would be helpful. Number two, Sam, can you just update us on where things stand, how things are going with the Alaska Frontier? I know you had initially targeted to have everything completed by the fourth quarter that's still on track. And then, I know it's early but any sort of thoughts on use cases for the Frontier? And then, yeah, just lastly, thanks for all the carbon capture transportation information. Very interesting. Thank you.
Sam Norton: Thanks, Ryan. Percentages of forward cover, I don't have the exact numbers. You have the chart in front of you. From the last time I looked at it, we're effectively 70%, 75% covered for 2025 and probably on like 50% for 2026. We can get back to you on the exact percentages on that. You have to look at drydock days and other factors to try and run those numbers. But I think the general feeling is that we're extremely comfortable with the forward book that we have and frankly, we could be extending that forward book even now. As I mentioned in my comments, we've been fixing ships a year in advance pretty much, has been the program over the last six months or so. And so as the renewal dates of ships that come open in 2025 begin to fall within that kind of one-year window, I think we're pretty optimistic that we'll be able to fix those ships 10 months to 12 months in advance of their renewal dates. As far as the Alaskan Frontier is concerned, we're super optimistic on that ship right now. I just came back from Alaska. Alaskan production going forward, it looks very promising. I know in the medium term, the Santos Repsol (OTC:REPYY) project is slated to come on-stream in the fourth quarter of 2025 or early 2026, ramping up to about 80,000 barrels per day. 80,000 barrels per day is equivalent of a little bit more than one Alaska Tanker Class vessel on a consistent round voyage basis. So we see that medium term as being an attractive increase in demand for crude oil transportation out of Alaska. And we also believe that our Alaskan tanker vessels offer the most cost-effective transport method for moving North Slope crude out of Valdez, even in comparison to shipments internationally, given the size benefit that our ships have at 1.3 million barrels versus the conventional million barrel ship that would be doing international voyages, as well as a shorter duration of the voyages to the West Coast. So we think medium term, there's a lot of demand for these ships. The Willow project that Conoco has on is scheduled to come on in 2028. You know, I spoke to the Director of the Alaska Pipeline when I was in Alaska, and they feel quite strongly that current production out of the North Slope is about 480,000 barrels per day. By the end of this decade, that should be up close to 700, 000 barrels per day to 750,000 barrels per day. So, medium term, that looks like really supportive data to give us confidence that these ships will have a role to play and continue a role to play in moving Alaskan crude oil. In the shorter term, as we now know, we moved the Alaska Explorer to the Gulf Coast of Mexico. She's regularly now trading from Texas to the Delaware Bay. We think there's other demand for Gulf Coast to the East Coast operations. We have two or three conversations ongoing right now surrounding those kinds of opportunities. And particularly given a lot of the geopolitical uncertainty, I would characterize a shrinking availability of Atlantic basin crude, that production of U.S. crude and availability of U.S. crude at attractive prices, I think, is stimulating quite a bit of inquiry into how to move that crude to production centers outside of PADD 5, excuse me, PADD 3. So, as I said, we're optimistic that in the next month or two, as the dates for availability become narrowed to a matter of weeks rather than or days rather than a month or two, we'll be able to fix that ship with a specific window to be able to start to trade.
Ryan Vaughan: That's great. Thank you, guys.
Sam Norton: Thank you.
Operator: [Operator Instructions] The next question comes from Climent Molins from Value Investor's Edge. Please go ahead.
Climent Molins: Good morning. Thank you for taking my questions. I wanted to start by asking about the overall Jones Act market. Could you provide some insight on recent trends in the renewable diesel trade and on your expectations going forward? And secondly, there are no Jones Act MRs in order, but could you provide an indication of how much it would cost to another one?
Sam Norton: I'll take the second question first. There is only speculation about what a new MR tanker might cost. I understand that indications for new construction and not even firm authors, that indications have been in excess of $200 million. And that the earliest delivery dates that are being indicated for U.S. built MR tankers is in the 2028 to 2029 range. I am not aware of any active discussions ongoing about construction of new MR tankers. But those are the levels that the market has tended to talk about when looking at possible replacement capacity. Renewable diesel, there is a considerable amount of data that is out there now talking about renewable diesel. The EIA is producing quite a bit of granulated data. The levels of production have grown considerably from sort of a low of 2018 and I think are scheduled to reach as much as 7.2 million gallons a year. I can't remember the actual number. I can look those up. But if you go to the EIA website, you can find a lot of data on that. The most important element that we look at are the production centers in the Gulf of Mexico. And existing and expansion programs that are announced and underway for Gulf of Mexico production will take renewable diesel production in the Gulf Coast to about 100,000 barrels per day by the end of this year. 100,000 barrels per day were it all to go on ships would be the equivalent of roughly 10 MR tankers. It doesn't all go on ships. The data provided by the EIA suggests that between 15,000 barrels per day and 20,000 barrels per day is historically moved by rail. But the increase of marine transport over the last 12 months to 18 months has gone from roughly 20,000 barrels per day to, as I said, close to 50,000 barrels per day in the latest data point. My expectation is, across the industry, it's likely that between six and eight and possibly as many as 10 vessels will ultimately be committed to the renewable diesel transport trade. That's significant in the context of an overall market of Jones Act MR tankers of roughly 45 vessels. So, again, it's been a very strong stimulative factor in the recovery of the Jones Act market and I think will continue to be a strong demand force for the foreseeable future.
Climent Molins: That's very helpful. Thank you. Turning to international MRs, the real light spot average was a bit weaker than expected, considering how strong the market has been over the past few months. Was this attributable to vessel repositioning?
Sam Norton: For our tanker security vessels? Is that your comment?
Climent Molins: Exactly, the spot exposure on these vessels?
Sam Norton: Yeah, the principal factors that contributed to maybe less than optimal earnings on the vessels, we had the overseas Sun Coast on the time charter to the MSC in the fourth quarter of last year. That time charter ended and then gave redelivery of the overseas Sun Coast on the West Coast of the United States, so we had to reposition that vessel from the West Coast of the U.S. into the Gulf of Mexico in order to do a scheduled lifting under our Government of Israel contract. The fuel costs and effectively zero earnings of that voyage from the West Coast to the Corpus Christi loading area, that depressed earnings to some extent. Then the second event has been we have seen a relatively concentrated number of voyage nominations under the Government of Israel contract during the first half of this year. That is probably related to stuff that's going on in Israel in terms of military activity. And so for at least one and I think a couple of the voyages that may have been accounted for in the first quarter, we had the ballast back for the next subsequent voyage. And normally we're able to pick up a cargo and then get the backhaul on those types of front haul voyages, but the timing of those voyages necessitated that we actually ballast back. And then the last thing that has contributed to the decline in earnings compared with previous quarters, we didn't do any MSC preference cargo during the quarter. And there's been a relative lack of opportunity for those types of cargos, which is something that is a topic of conversation amongst those OSG and other companies that are participating in the Tanker Security Program. Looking for ways to understand why cargo availability has been relatively low and ways to stimulate that cargo availability in the future.
Climent Molins: Make sense. Thank you. Final question from me, general administrative expenses increased quite significantly quarter-over-quarter. What were the key drivers behind that? I'm assuming it's a mixture of fees to assess Salchuk's offer and higher spending on CO2 feasibility studies. But how should we think about the run rate going forward?
Sam Norton: You should think that the first quarter G&A expenses are not likely to be the go forward level. We had a couple of relatively unique circumstances in the first quarter. First of all, compensation, compensation payment, the way that we account for employee compensation is we accrue at 100% of target during the year. But if there is a premium to target that's accounted for when the awards are made. Due to the strong performance of OSG last year, a number of the beneficiaries of performance based compensation, including principally the executive officers, attained performance at above target and therefore the performance compensation was paid out at above 100% of target. And that then was expensed in the first quarter of 2024 as per our policy. So you won't see that repeated in the second, third, fourth quarter of this year. The second contributing factor, as you have noted, there have been professional fees that have been incurred in the evaluation of the non-binding indication of interest received in January. The continuation of those fees is subject to the outcome of those conversations, but they are not related to our, I would call it our ongoing business expenses in terms of running the business. The quantum of those fees and the impact of that going forward is still a bit up in the air, but I would suggest that as a modeling function and leaving those kinds of transaction fees out for the balance of this year, you can look through last year's figures and there's probably a 3% to 5% increase in last year's figures that we would be expecting for the balance of the year.
Climent Molins: Thanks for the color. That's all from me. Thank you for taking my questions.
Operator: The next question comes from [Josh Kehoe], a private investor. Please go ahead.
Unidentified Analyst: Hi, Sam, hi, Dick. Thanks for taking my call. Just to follow up a little bit on the renewable diesel, I know Vertex and Mobile, Alabama, yesterday announced they were no longer going to be producing renewable diesel. They're going to take that unit and move it back to traditional petroleum refining. If I remember correctly, OSG Martinez is contracted or chartered to do renewable diesel, and there's just been a lot of movement in the renewable diesel markets for a number of reasons. And I'm just curious if you're hearing anything from number one, your charter is about continuing to do that business, whether it's going up or down? And number two, if there's going to be any effects on what Martinez is going to do. I know, I believe it's chartered out through February 2026. That's the end of the question. Sorry, more of a statement, apologies.
Sam Norton: Look, our charter is an intermediate with Vertex, and so they have an obligation to continue to charter the vessel. And I would say to you, Josh, there's tremendous demand for MR tankers right now, so I believe that if they're not going to find use for the vessel themselves, they'll be able to sub-charter that vessel out. I can also share with you that the customers that we do do business with right now that are involved in the renewable diesel trade, they still seem to want more capacity. So that gives me some indication or some insight into the fact that there's no retreat from their commitment to being in this business. And for now, the ships that we have on charter that were intended to be utilized in these trades, they don't come for renewal for a year in the future. So we're watching it, but again, you know, the sort of feedback that we're getting is there is no retreat from commitment at this juncture.
Unidentified Analyst: All right. Now, thank you. Thank you, that's very useful to hear. And then my second question kind of relates to that, having to do with California and California Resources (NYSE:CRC) Board and this. So we've discussed before the Commercial Harbor Craft rules on this, and you may not even be able to answer this, but just say, for instance, the CARB doesn't back down and suddenly the Jones Act ATBs operating in PADD 5 suddenly have to relocate to the Gulf Coast. Obviously, that would create quite a bit of consternation for at least a short time. Do you get a sense of how flexible the MR tanker fleet might be to move to the West Coast to replace those ATBs, should this happen or would PADD 5 just suddenly find itself dramatically short Jones Act tonnage? Sorry, now sort of a complicated question.
Sam Norton: No, it’s okay.
Unidentified Analyst: But thank you very much.
Sam Norton: I believe that if the scenario that you painted, which is that CARB doesn't back down on insisting that ATBs that currently operate on the West Coast have Tier 4 engines, I think those vessels will reposition to the Gulf Coast, and I think that will create sufficient capacity to allow repositioning of MR tankers to the West Coast to backfill the vacancy or the void that those repositioning ATBs will create. I think what's interesting is, in the medium term, in the short term, that will create certainly some inefficiencies. Cargo lot sizes on the West Coast have tended to be smaller than full MR capacity vessels. That’s more of a -- it may be a chicken and egg. It may be because the ATBs are smaller and lot sizes are smaller. Once the or if the tankers replace ATBs on the West Coast, I think it'll take a little bit of time for the traders to readjust to having more capacity in the form of larger ships. In a similar way, the repositioning of those ATBs to the Gulf Coast will be a reduction in efficiency because smaller lot sizes will be moving, and the implied cost of transportation on a unit basis will probably go up. But I think the market solves that problem over time. In the short term, yeah, it will be some disruptions against ships repositioned from one place to another. But the market signals, I think, will direct a solution to that over time with, as I said, probably a decline in efficiency and maybe increase in unit cost delivery.
Unidentified Analyst: Great. Thank you very much.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Sam Norton for closing remarks.
Sam Norton: Thank you, Danielle, and thanks everybody for joining in today. We appreciate your participating and your continuing interest in OSG, and we look forward to speaking to you again, soon. Have a good morning.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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