International Seaways Q3 2022 Earnings Call Transcript

Key Takeaways

  • Positive Sentiment: Our record third-quarter results delivered net income of $113.4 million (EPS $2.28) and adjusted EBITDA of $157.1 million, marking the second consecutive record quarter.
  • Positive Sentiment: We announced a $1.00 per share special dividend alongside our regular $0.12 quarterly dividend, bringing total cash returned to shareholders in 2022 to $90 million.
  • Positive Sentiment: With robust market conditions, we have booked over 50% of Q4 spot days at attractive average rates (e.g., VLCC at $59,400/day), positioning us for even stronger fourth-quarter earnings.
  • Positive Sentiment: Disruptions from reduced Russian exports and longer routing of crude and products have increased ton-mile demand, particularly for Aframax and Suezmax vessels, supporting higher charter rates.
  • Negative Sentiment: Despite a balanced near-term supply-demand outlook, inflationary pressures and recessionary risks remain uncertainties that could temper oil demand and tanker market performance.
AI Generated. May Contain Errors.
Earnings Conference Call
International Seaways Q3 2022
00:00 / 00:00

There are 8 speakers on the call.

Operator

Ladies and gentlemen, good morning. Thank you for your patience and thank you for attending today's International Seaways Third Quarter 2022 Earnings Call. My name is Amber, and I will be your moderator for today's call. Lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. It is now my pleasure to hand the conference over to our host, James Small, General Counsel with International Seaways.

Operator

James, please proceed.

Speaker 1

Quarter. Thank you, Amber. Good morning, everyone, and welcome to International Seaways earnings call for the Q3 of 2022. Before we begin, I would like to start off by advising everyone with us on the call today of the following. During this call, management may make forward looking statements regarding the company or the industry in which it operates.

Speaker 1

Those statements may address, without limitation, the following topics: outlooks for the crude and product tanker markets quarter results and changes in trading patterns forecasts of world and regional economic activity and of the demand for and production of oil and other petroleum products The effects of the ongoing conflict between Russia and Ukraine, the company's strategy, anticipated cost savings and synergies and benefits from our merger with Diamond S, The effects of the ongoing coronavirus pandemic, our business prospects, expectations regarding revenues and quarter expenses, including vessel, charter hire and G and A expenses estimated bookings, TCE rates and or capital expenditures in the Q4 of 2022, in 2023 or in any other period, projected scheduled drydock and off hire days, purchases and sales of vessels, construction of newbuild vessels and other investments the company's consideration of strategic alternatives anticipated in recent financing transactions and any plans to issue dividends the company's relationships with its stakeholders the company's ability to achieve its financing and other objectives and other economic, political and regulatory developments globally. 3rd. Any such forward looking statements take into account various assumptions made by management based on a number of factors, including management's experience and perception of historical trends, current conditions, expected and future developments and other factors that management believes are appropriate to consider in the circumstances.

Speaker 1

3rd quarter. Forward looking statements are subject to risks, uncertainties and assumptions, many of which are beyond the company's control, which could cause actual results to differ materially from those implied or expressed by the statements. Factors, risks and uncertainties that could cause International Seaways' actual results to differ from expectations include those described in our quarterly reports on Form 10 Q for the 1st, 2nd and Q3 of 2022, in our 2021 Annual Report on Form 10 ks and other filings that we have made or in the future may make with the U. S. Securities and Exchange Commission.

Speaker 1

Now, let me turn the call over to our President and Chief Executive Officer, Ms. Lois Zabrocki. Lois?

Speaker 2

Thank you very much, James. Good morning, everyone. Thank you for joining Seaways' Earnings Call to discuss our 3rd quarter results. During the Q3, we generated our highest ever quarterly income. This marks our 2nd consecutive record quarter.

Speaker 2

Crude tanker earnings rose to follow suit with the product carriers from the Q2. With oil demand increasing more than 1,000,000 barrels per day in the quarter, International Seaways is capturing these strong rates. Our commitment to growing the company, Maintaining a healthy balance sheet and returning cash to shareholders is serving Seaways well. We have built our overall liquidity 3rd. And now with strong cash flow generation, we are returning more to shareholders.

Speaker 2

We have announced quarter. A special dividend of $1 per share in addition to our regular quarterly dividend of $0.12 per share. On Slide 4, we summarize our Q3 highlights and recent developments. In the Q3, we generated net income of $113,400,000 or $2.28 per share and earned adjusted EBITDA of $157,100,000 as our diversified fleet operated at profitable levels across all asset classes. As you can see quarter.

Speaker 2

In the chart on the lower left of the slide, our year to date adjusted EBITDA in 2022 of $295,000,000 has eclipsed all prior full year EBITDA at Seaways. We are taking advantage of the strong markets, 3rd, the strongest in the last 10 years. Based on our 4th quarter bookings to date, we expect to generate even stronger earnings in the 4th quarter. We maintain our strong balance sheet, supporting our diversified capital structure and our financial flexibility, both of which are hallmarks of Seaways' success. We ended the quarter with total liquidity at at over $475,000,000 including $255,000,000 of cash and $220,000,000 in revolver capacity.

Speaker 2

Using today's value, our net loan to value is a very low 29%. We repurchased approximately 687,000 shares during the Q3 for $20,000,000 at an average price of $29 well below our current price. We also paid our regular quarterly dividend quarter of $0.12 per share, which we doubled earlier this year. This marks our 11th consecutive quarter of regular dividend. As mentioned a moment ago, we're pleased to have declared a special dividend of $1 per share.

Speaker 2

This represents the 2nd consecutive year where we paid a special dividend of $1 or more per share. Overall, Seaways will return about $90,000,000 in cash to shareholders in 2022 alone, increasing the total return to shareholders to $185,000,000 since the start of 2020. We continue to build upon our track record quarter. Turning value to shareholders as part of our balanced capital allocation strategy. At this point in the cycle, With our large fleet, healthy rates and our strong balance sheet, we intend to continue delivering returns to shareholders.

Speaker 2

Turning to Slide 5. We examine one of the most prominent topics in tanker demand today. And Trade Route with cargoes exported from Russia. On the left hand graph, we pulled data from Kepler 3rd quarter. About 2,500,000 to 3,000,000 barrels per day of Russian crude were exported to Europe prior to the invasion of Ukraine.

Speaker 2

Today, around the 1,000,000 seaborne barrels continue to flow into the EU. 3rd. As of December 5, Russian seaborne crude will be displaced from the EU. Europe has been pulling incremental barrels in from the AG, West Africa and the Americas. These voyages add about 20 plus days of length compared to importing from Russia.

Speaker 2

We would also note here that Europe is increasing their overall crude imports as part of the switch from natural gas to oil. We believe the world will switch in the Q4 to 600,000 to 700,000 barrels per day of additional oil consumption 3rd. While a majority of Russian crude has moved toward Asia, It's too early to see if all of these displaced barrels will have eased, but the overall trade is moving to more inefficient patterns and soaking up a lot of tonnage, particularly in the middle class of crude vessels, Aframax and Suezmax, which has been quite strong in the second, third and continued into the 4th quarter, thus supporting higher tanker demand. On the right hand side of the page, product exports from Russia are still moving into Europe, which we do not expect to continue once the EU sanctions on products takes effect on February 5, 2023. This could present further upside to the product tanker market.

Speaker 2

We believe the tonnage to move these barrels is largely in place with the Russian fleet, Yet we still see about 40 to 60 MR vessels will likely rotate from commercial markets to new Russian trade routes that are likely to take product exports to Turkey, Africa and Latin America. In particular, These are early days and we will see the trade movements as they evolve. Overall, this should have a similar impact on the product market as it has improved Longer Hole Tree absorbing more tonnage and pushing earnings higher. Turning to Slide 6. We have highlighted some of the major drivers of tanker demand.

Speaker 2

Oil demand has averaged about 99,000,000 barrels per day through the 1st 3 quarters of 2022. This is about 2,000,000 barrels per day higher year on year. In the Q4, we expect oil demand to close the year above 101,000,000 barrels per day, driving the 2022 average to be just under 100,000,000 barrels per day. The outlook for 2023 is for an additional 2,000,000 barrels per day of oil demand increase to average around 102,000,000 barrels per day for the year. Of course, as high inflation persists, recessionary concerns could adjust these estimates going forward.

Speaker 2

While the announced production cuts of OPEC Plus had put a focus on oil supply. Research suggests OPEC Plus has a history Underperforming on the production targets, we believe with Saudi, the UAE, Kuwait and Iraq leading the production cuts, This could result in close to 1,000,000 barrels per day of reduction. This reduction would be offset quarter by the increased oil production largely from the Americas, which is expected to increase by around 1,500,000 barrels per day. Overall, we see a balanced market of supply and demand in the near term. This also means that inventory levels, which are already at the lowest levels in 10 years are not likely to be replenished and therefore further market disruptions could create more demand for tankers.

Speaker 2

The Strategic Petroleum Reserve has been covering shortfalls across the globe for the last several quarters. But soon, these releases will cease and eventually we will need to replace the barrels in the FTR, quarter has declined during 2022. The United States Strategic Petroleum Reserve has not been below 400,000,000 barrels per day 400,000,000 barrels in total since 1984. If there is a decision to replace the nearly 200,000,000 barrels that have been drawn down quarter. Since the beginning of this year, we expect much of this will be imported as much of the drawn inventories are medium sour blends not produced in the United States.

Speaker 2

This would provide further support for tanker demand. On the bottom right chart, 3rd. Refinery planned outages typically happen in March or April quarter from September to early November. As you can see in the chart, global CDU outages in September were the lowest they have been in a while. We expect the planned and unplanned outages are likely to increase in early Q4, which draws on inventories and creates the need for imports on tankers.

Speaker 2

As a result of this combination of factors, We expect tanker demand to remain strong, especially in the near term as the Russian trade is a major market disruption for the oil trade. On Slide 7, the main drivers on tanker supply remain positive 13. The overall tanker order book continues to be low, 13.5% year over year. The average age of the global tanker fleet has increased to over 12 years on average. This is the highest it has been in about 20 years.

Speaker 2

This all means the fleet will continue to get older and more vessels over the age of 20 will be removed from the commercial trading fleet. Sanctioned oil trade is likely to take in the older tonnage as barrels from Iran and Venezuela may face some competition with Russian oil. The DART fleet stands at around 240 vessels, of which we have seen only about 10% switch thus far into the Russian trade. Should there be the removal of sanctions on any or all of these countries, we expect quarter. This would be to higher recycling volumes.

Speaker 2

One of the facts that most supports the positive tanker supply dynamics is the limitation tanker companies have in replacing or adding to the fleet. In the lower left hand chart, you can see that new build contracting is the shipping is the lowest by far in 20 plus years. And as seen in the lower right hand chart, new orders are likely to have delivery days 3 years call from now in late 2025 or into 2026 because the yards have filled capacity with orders for other shipping sectors. New building prices for conventionally fueled vessels are high and with pending environmental regulations, It's difficult to rationalize building a ship that will not deliver until the middle of the decade with uncertainty about its economic useful life. Overall, tanker fundamentals remain positive over the short and medium term, barring any major economic upheaval.

Speaker 2

Seaways is well positioned to capture the strong rate environment with our diversified fleet of 78 tanker vessels in both crude and products. With our healthy balance sheet and our liquidity, we expect to continue our balanced capital allocation strategy, invest in the fleet opportunistic, reduce our debt levels and return cash to shareholders. I'll now turn the call over to our CFO, Jeff Prebore to provide the Q3 financials review.

Speaker 3

Jeff? Thanks, Lois, and good morning, everyone. Let's go straight to reviewing the 2nd quarter results in greater detail. 13. As always, before turning to the slides, let me provide a quick summary of our financial results for the quarter.

Speaker 3

In the Q2, we generated a record Adjusted EBITDA of $157,100,000 Net income for the Q3 was $113,400,000 or $2.28 quarter compared to a net loss of $67,400,000 or $1.44 per diluted share in the Q3 of last year. Now if you turn to Slide 9. I'll first discuss the results of our business segments beginning with the Crude Tanker segment. GCE revenues for the Crude Tanker segment were over $75,000,000 for the quarter compared to $35,000,000 in the Q3 of last year and up sequentially from $59,000,000 last quarter. Crude tanker revenues remained strong in the Aframax and Suezmax And the increase in the quarter was largely due therefore to the higher earnings from the VLCC.

Speaker 3

Also embedded in the crude segment is our lightering business, which had $8,000,000 of revenue along with $2,000,000 of vessel expenses, dollars 2,000,000 of charter hire expenses in the quarter, yielding an EBITDA contribution of about $4,000,000 from lightering in Q2. Turning to the Product Carriers segment, TCE revenues were $159,000,000 for the quarter compared to $38,000,000 in the Q3 of 2021 and again sequentially up from $126,000,000 last quarter. These increases were primarily due to substantially higher spot rates for the LR1 and MR sectors. Looking at the right side of the page, adjusted EBITDA for Q3 was $157,000,000 compared with $8,000,000 quarter and adjusted EBITDA in the Q3 last year and up sequentially from $112,000,000 last quarter. These significant increases clearly demonstrate our significant operating leverage to the strengthening tanker markets driven by product tankers and increasingly by the crude sector.

Speaker 3

Now turning to Slide 10, we provide a 3rd quarter review and 4th quarter 2002 earnings outlook. We finished the Q3 with spot earnings at average $24,400 a day for VLCC, dollars 34,200 per day for Suezmax, $38,300 per day for Aframax, dollars 41,000 per day on the LR1 fleet and $36,000 per day in MR spot earnings. Since our update on the Q2 earnings call regarding Q3 bookings, VLCCs gradually increased during the quarter with the strength in rates came later in the quarter after vessels completed the longer voyages on which they were booked. The MR segment Now turning to our Q4 first look. Our 4th quarter bookings to date have increased considerably across the entire fleet compared to Q3.

Speaker 3

Starting with crude, we booked 63% of our spot days in the quarter for VLCCs in an average of $59,400 per day, 51 percent of available Suezmax spot days at an average of $47,000 50% of our available Aframax spot days at an average of just over $58,000 a day and 47% of our available LR1 spot days quarter. The MRs have booked 51% of our 4th quarter spot days at an average of about $41,000 per day. Nationally, we caution you that these are indications of the average fixtures in our fleets that may be different 1 direction or another 4th quarter earnings in the next quarter. Now turning to Slide 11. The cash cost GCE breakevens for the forward 12 months are illustrated on this slide.

Speaker 3

International Seaways overall breakeven rate is estimated to be $18,600 per day. As always, these are the all in daily rates our owned vessels must earn to cover vessel operating costs, drydocking costs, cash G and A expense and debt service costs, which means scheduled principal amortization as well as cash interest expense. At this point, I'd also like to confirm cost guidance for the Q4 and for 2023 for your modeling purposes. We expect Q4 OpEx to be between $53,000,000 $55,000,000 before including our lightering business, which had $2,000,000 in vessel expenses in Q3 as I mentioned earlier. For the full year 2023, we expect OpEx before lightering to be between $235,000,000 $245,000,000 Total G and A for the Q4 is expected to be about $9,000,000 to $12,000,000 quarter.

Speaker 3

Includes non cash G and A, which is between $100,000,000 but before any cost related to shareholders. Looking to 2023, all NG and A is expected to be between $40,000,000 $44,000,000 and as a footnote indicates, approximately $8,000,000 of this is not cash. Cash interest is expected to be between $17,000,000 $19,000,000 using a base rate of 3.25 basis points. For 2023, we expect cash interest to be in a range of $69,000,000 to $77,000,000 depreciation and amortization is expected to be about $30,000,000 for the Q4 and $135,000,000 for all of 2023. CapEx for the Q4 is expected to be between $18,000,000 $20,000,000 while next year we expect CapEx to be in the range of 47 For more detailed breakdown on projected drydock CapEx and off hire days by quarter, you can refer to Slide 17 in the appendix.

Speaker 4

Now if

Speaker 3

we turn to Slide 12 for our cash bridge. Moving from left to right on the page, We began the 3rd quarter with total cash and liquidity of $452,000,000 During the quarter, our adjusted EBITDA was 157,000,000 Our debt service for the quarter was $25,000,000 composed of $11,000,000 of debt repayment and $14,000,000 of cash interest expense. We expended $12,000,000 on drydocking and maintenance CapEx. We repaid the 8.5% baby bond for a total of $25,000,000 quarter. Also, our 687,000 shares repurchased in Q3 used about $20,000,000 of cash and we paid our regular quarterly quarter of about $6,000,000 Lastly, we had a substantial negative impact on working capital and other charges for $46,000,000 during the quarter.

Speaker 3

Most of this impact is due to the increase in receivables from the pools due to rapidly rising rates and also the doubling of bucket prices and the fact that bucket payment terms have been halved in time. As this stabilizes, we expect to recoup these with a natural ebb flow or GAAP. Combination of all these factors resulted in the quarter end cash balance of approximately $256,000,000 $220,000,000 in undrawn revolver for total liquidity of $475,000,000 Now please turn to Slide 3rd. I'd like to briefly talk about our balance sheet. As of September 30, we had about $2,500,000 of assets And our net loan to asset value is below 29% as of September 30.

Speaker 3

As Lois highlighted, we have a very healthy balance. Current asset values are well above net book value of our vessels. Net debt to total cap is also low in the high 30s and our total liquidity is $476,000,000 Accordingly, at this point in our tanker cycle with current asset values at 10 year highs shareholders. And you see that reflected in our announcement today of a $1 per share special dividend along with our normal quarterly $0.12 per share dividend. Turn to Slide 14, we look at our debt as of September 30.

Speaker 3

As you see, our total debt balance is approximately $1,100,000,000 $220,000,000 of an undrawn revolver capacity. In the table, we provide our mandatory debt repayments for the Q4 and full year 2023. The $750,000,000 facility term loan begins its amortization schedule in the 4th quarter with $30,600,000 in that quarter. The BoComm facility, which is connected with our dual fuel LNG VLCCs Should increase by about $190,000,000 from the September numbers and we'll make regular installment payments after each shift is delivered. One last item of note before I turn it back over to Lois.

Speaker 3

We provided in the appendix updated charter out revenues and charter hire for our fixed TCs time charters in and out. We've entered into a 2 year charter out with 1 of our 2015 built scrubber that is Suezmaxes and 1 year on a 2007 built MR. We continue to review our chartering out strategy over longer term charters. That concludes my remarks. I'd now like to turn the call back to Lois for closing comments.

Speaker 2

Thank you very much, Jeff. On Slide 15, We provide you with Seaways investment highlights. I encourage you to read these fully. However, I will summarize them briefly. Seaways in our history as a public company have a proven track record of building value while maintaining the balance sheet throughout the cycle.

Speaker 2

We are disciplined stewards of capital, balancing consistent returns to shareholders with the fleet growth and healthy financial metrics. We have a focused and flexible operating model that has allowed for us to expand and contract at appropriate moments in the cycle under a disciplined approach. The company today has significant operating leverage to capitalize in what we expect to be a robust tanker cycle over the next few years. Regional imbalances of oil are expected to continue and to grow in distance from sources to consumers, trading higher seaborne ton mile demand. While the supply of vessels remains limited and likely will shrink as vessels age and eventually are removed from the commercial trading fleet.

Speaker 2

We are staying in front of the growing ESG priorities, investing in the fleet to reduce our carbon footprint, keep our seafarers safe and build a corporate culture of diversity with appropriate checks and balances. We are willing to back this message up with transparent ESG reporting and sustainability metrics. We strive to continue to evolve these principles and to provide a meaningful platform for all stakeholders. Thank you very much. And with that said, Amber, we would like to open up the lines for questions.

Operator

3rd. Our first question comes from the line of Chris Robertson with Deutsche Bank. Chris, your line is now open.

Speaker 4

Hi, Lois and Jeff. Good morning and thanks for taking our questions.

Speaker 2

Yes, good morning.

Speaker 3

Welcome to the group, Chris.

Speaker 4

Yes. Thank you. Yes, I just wanted to talk about leverage for a moment. Jeff, how are you thinking about just leverage overall, your kind of methodology here? Are you quarter.

Speaker 4

Looking at certain leverage ratios that you're targeting, are you aiming for a specific total cash breakeven level eventually? And can you just walk us through Your philosophy around

Speaker 3

that? Sure, Chris. I think that Our feeling is whether it's leverage levels or other capital allocation policies, They need to be responsive to the cycle. It's not a one size fits all situation. So we don't have any one say loan to value target when values change so dramatically.

Speaker 3

Rather, it's more to us instead of about Points in time, it's about a process. So at this time, when we're in the now second quarter plus of an up cycle, Generating significant cash, one of the things that we want to make sure happens is that we are continuing to delever. Call. We solely believe that deleveraging and returning cash to shareholders is not mutually exclusive, hence our announcement today over dividends. But What we're doing is not heading for any one particular target, Chris, but just making sure that we are appropriately leveraging through the cycle.

Speaker 3

And for us, It all starts with the scheduled amortization we have in our debt, which I mentioned earlier in my remarks. It's about $180,000,000 a year, We think that does the job pretty well.

Speaker 4

Okay. Yes, got it. I guess following up on that, You mentioned the special dividend. Can you walk us through how that special dividend was calculated, the decision to go with a special dividend rather than increasing the normal quarterly dividend? Is that going to be supplemental to the quarterly dividend or should we think about this as more of an annual occurrence?

Speaker 3

First of all, you should think about the special dividend as supplemental to the quarterly dividend. Our commitment to capital allocation debt goes across all parts of the cycle without any other change without ever changing is quarterly dividend, which we put in place at an amount, which we doubled this year, but it's an amount that we feel will never have to change for any parts of the cycle. That's our view on that. Quarter. And then whatever we do, last quarter it was share repurchasing.

Speaker 3

This quarter we've announced at this point a special dividend, Which is in large part reflective of the increase in our share price and closing the gap to NAV, which we're very happy about. That is a separate special dividend. As you'll see in the press release, the record date and the payment date are the same, but it would be 2 dividends to make the point that we'll always have our regular dividend. And then at times like this, at this point in the cycle, our policy will be to Pay a substantial portion of our free cash flow out. It's not a formula.

Speaker 3

We don't do that other than our regular dividends. You want to call that a formula. But it's a substantial portion of free cash flow. We think it appropriately paid out to our shareholders With the adequate liquidity with the more than adequate liquidity we have at this point in time. Hope that's clear.

Speaker 4

Yes. Thanks for the color, Jeff, and I'll turn it over.

Operator

Our next question comes from the line of Omar Nakoda with Jefferies. Omar, your line is now open.

Speaker 5

Thank you. Hey, Lois. Hi, Jeff. Good morning. Call.

Speaker 5

Nice strong results obviously and very good figures ahead it looks like. Maybe just Maybe touching on the topic you were just having with Chris. The share price has been trending nicely all year. Quarter. And in fact, I think INSLW has been the best performer in terms of gains since maybe the middle part of maybe since the beginning of Q3.

Speaker 5

How are you thinking about valuation today, which I think basically looks like you're at the closest to NAV, you've been since you guys took the helm. How do you view that? And does that change anything in terms of how you look at allocating capital, whether it's returning capital to shareholders or investing in the business?

Speaker 2

So Omar, indeed, our asset values, our net asset value continues to improve and increase and we think that that will continue as you see the extremely high rates that are projected that we've already earned in the Q4. So you're building on strength. If you look at vessel values, the MRs of around 2, 8, 9, 10 have improved team valuation by over 50% this year. If you look at, Big Crude, it's been something like 33%. So just overall in making the pie bigger, we believe that We will continue to earn these strong cash flows and see increased vessel value.

Speaker 2

So you see that the overall tanker market, both crude and products Strengthening Into Itself.

Speaker 3

I'd just add that Omar, we're very confident that we have a strategy that works, investing in fleet renewal at the bottom of the cycle and focus on quarter. Return to shareholders and new leveraging in the up parts of the cycle. And we've done that over the last 6 years. We're grateful that it's Being recognized in our share price now. And so I think we just continue to stay the course and follow the strategy.

Speaker 5

Yes. No, I agree. It makes sense. Nice to see the stock price perform so well. And maybe just wanted to ask then about the fleet makeup.

Speaker 5

And Jeff, you just mentioned acquiring assets at the bottom and returning capital on the higher end of the cycle. Call. Just in terms of where you are with the fleet, you have obviously critical mass in the VLCCs, the Suezmaxes and the MRs. Not so much of a presence, I'd say, in the AFRA's and the LR2. In the past, you sold the FFO business, the LNG vessels.

Speaker 5

I think it may be the Handys that you got from Diamond S. Basically, you've been selling a lot of the non core pieces. But what do you think of where you are today with the Aframax LR2 segment. Do you perhaps maybe look to monetize that and maybe take that capital and boost your presence elsewhere? Or what do you think just generally on that?

Speaker 2

Well, Omar, I would say you did a really good job of recapping those non core services that we did move out of including the Handy Tankers, especially due to the Russian exposure that we saw in that sector of the market. On the middle part of the fleet, as you can see with earnings booked in the quarter to date, Well up in the 50s per day. It's a very strong piece of our portfolio. We're not looking to divest the Aframaxes or LR2 at this point.

Speaker 5

Okay. Quarter. Thanks, Lois, and thanks, Jeff. Congrats on a strong quarter.

Speaker 2

Thanks, Omar. Thanks.

Operator

Our next question comes from Greg Lewis with BTIG. Greg, your line is now open.

Speaker 6

Yes. Hi. Thank you and good morning everybody and thank you for taking my question. Lois, Realizing that you kind of walked through how you're thinking about capital allocation, I'll move on. As I think about The timing of the sanctions Or the embargoes around crude and then following products.

Speaker 6

Is there any way That the industry can kind of position their fleets around that. And I say that specifically to you guys because you do have that blend of crude and products, I. E, are there things that are going to happen in the crude market from the embargo that we should see Similar things happen in the product. Or is there any way yes, I'm just trying to wrap my head around How INSW should be able to take advantage of that?

Speaker 2

Okay. We believe that there's about 1,000,000 barrels per day of seaborne crude still going into the EU. And Bulgaria has an exemption, so that's like 200,000 barrels a day. So there's about 800,000 barrels a day that has to find a home. Certainly, India and China have been the biggest takers of Russian crude to date.

Speaker 2

And that 800,000 barrels has to find a home either working under the price cap or with vessels that are in the grace fleet. And I think Russia is going to scramble to December 5th, the date, But now it's January 19th as you would have to have your crude off your ship by then to be compliant. So that 800,000 barrels a day, we're going to see where Russia can put that. And Then Russia is the EU is starting to import more barrels from the Americas, both North and South America as 12 Middle East. So as far as vessels going out side.

Speaker 2

The insurance schemes, there may be some ways, but it is very tricky with the reinsurance market for A robust strong owner to with concerned about their reputation in the markets to Go ahead and avoid all of these coming regulations. So we see that's Step 1, and then that's going to be followed by the product carriers. And I think the product carrier deadline will be modified potentially based upon the success of the crude deadline and these regulations. But The bottom line is that we're watching to see, okay, so where does that mean that Russia is able to gain more market share to put their barrels into the market And then the EU pull in from alternate market. So that's we think it's dislocation, it's inefficiency quarter and good for the tanker market.

Speaker 6

And then I didn't okay, and then I did want to follow-up on that because of the February timing. We're already, at least if you pick up a newspaper in the Northeast, which is where I am, you're already starting to hear concerns about heating oil And if it's an unseasonably cold winter. I guess what I would say is, could you walk us through A little bit around the heating oil market and I guess really could we see quarter. In a cold winter, does that typically last? I mean, I imagine it lasts longer than we think.

Speaker 6

And really, what yes, I mean, it just seems like the product market Seems like it's in a tremendous spot here heading into the winter.

Speaker 2

Yes. Thanks a lot, Greg. So the middle of the barrel, the diesel, this is the lowest inventories that we had on the East Coast since 2007. And in the United States, I mean, there's really it's a pretty small diesel market. The Northeast is really the principal market that still heat with And one of the things we're seeing is PBF, people on the East Coast has restarted the unit making 100,000 barrels a day.

Speaker 2

So when you see the refining margins very, very strong, All of a sudden, the market moves to respond to that and to close that gap. So we understand there's some Jones Act movements, bringing diesel from the U. S. Gulf to the East Coast. 13.

Speaker 2

Like I said, you see some of that PDF cranking up a little bit on the East Coast, which of course will bring in some foreign crude. And you see the market respond, but I think the key overall is these very strong refining margins puts the signal out, hey, money to be made and the market moves into Take advantage of that and then narrow that margin.

Speaker 3

Okay. Super helpful. Well, thank you very much. Okay. Okay.

Operator

Thank you. Our next question comes from the line of Liam Burke with B. Riley. Liam, your line is now open.

Speaker 7

Thank you. Good morning, Lois. Good morning, Jeff.

Speaker 2

Hey, how are you Liam? Hey Liam.

Speaker 7

Good. Thank you. Just touching back on Omar's question on the fleet management, Not that you would need the cash, but is there any thought of lightening up on some of the older MRs with the asset value so high here?

Speaker 2

We have you'll notice in our press release, we have one vessel that is under contract for sale at present. And we're very judicious looking at it because these are burning very strong returns, right? So very carefully, we are like, okay, Under contract for sale for 1. So that's just a continuation of that pruning that vessel will avoid a dry dock and ballast water treatment installation in 2023. And you should expect us to continue with selective sales like that.

Speaker 7

Okay. Fair enough. And is there any thought with spot rates so high to move any more of the vessels over to the time charters?

Speaker 2

Yes. The team looks at that and We executed a couple of time charters. We continue to look at as that market builds into itself and you can get more linked at a healthy rate. Great.

Speaker 3

Yes, the progress will be longer than 1 year.

Speaker 2

Thank you.

Speaker 7

Thank you.

Operator

This will now conclude the question and answer session. I will hand the conference back over to Lois for any additional or closing remarks.

Speaker 2

Thank you very much everyone for joining International Seaways 3rd quarter call. We look forward to a strong performance in the coming quarter. Thank you very