International Seaways: Is Something Rotten in the State of Ecuador?
INSW spent years discussing their high corporate governance rankings, but then added a poison pill. We ask if they are being transparent with their too good to be true LR1 earnings?
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On the recent International Seaways (NYSE: INSW) earnings call, one of the best shipping analysts, Omar Nokta, asked about the exceptional LR1 earnings and if that would attract competition. This jumped out to us because it highlighted a potential gap in understanding between the financial markets and how the commodity markets operate.
So pretty meaningful outperformance especially for you guys. My question is, are there risks that owners start to bring vessels into this niche market and crowd out the premium, you've been able to consistently achieve here over the past several quarters?
For those paying attention, International Seaways has been reporting astronomical numbers in their LR1 division. In Q1, they reported $70,800/day. Outperforming VLCCs, Suezmax, Afra/LR2s, etc. And while smaller ships can have their time in the sun, typically they do not outperform all larger asset classes.
By comparison, competitor TORM reported a measly $44,141. So why can INSW outperform by $30k/day on their vessels? What is the magic sauce?
The reply from management was what alerted us to the potential discomfort, whether it be in the business or in just having to address their secret mousetrap.
Well, I would say Omar, that I think the base trade in the Americas on these vessels and in this class as you know, also benefited from, what the overall tanker market especially the mid sector of the fleet enhance ton-miles with all of the sanctions and the trade that has benefited us. But there are lots of Panamaxes engaged in this trade. INSW CEO on Earnings Call
Well Omar, you see a lot of vessels made good money. Did you hear about the sanctions with Russia? That helped tankers quite a bit. Look over there!
And we're supporting our joint venture, and we're making sure [that she] was going forward. We're nearly 20 years in 2025, it'll be 20 years that we've been in this joint venture, and it's been very successful. And we look forward to supporting that trade, our customer base and our partners.
You see Omar, we are supporting our joint venture. It has been very successful…Well obviously!! You out performed your closest peer by $30k/day! Many years these ships don’t even make $30k/day.
There was no discussion of what that joint-venture is. Or why that joint-venture is so successful. And that makes sense, why would you draw attention to your pot of gold?
Just to make sure we weren’t crazy, we did a quick google search. Usually no matter what you google, you get thousands or millions of results.
International Seaways Ecuador gets 2 results! Talk about staying under the radar.
So what is the Panamax International pool?
The Panamax International pool runs the cabotage business for Flopec, the Ecuadorian oil transportation Company. That means that pretty much every ship taking oil to Ecuador is run by Flopec via a couple of pools, Panamax International handling the LR1/Panamax size.
And with any relationship where you have the inside track with the government for a *monopoly*, a Company that touts their corporate governance and fact that they do not carry any Russian oil, even the barrels that were approved, should be forthright in discussing this.
Especially considering the political situation in this country at the moment.
While the political violence is unsettling and dangerous, we do not necessarily feel that a Company doing business in that country would need to comment on it.
However, the impeachment process has started against the President who was accused of embezzling money through the agreements that Flopec had for the transportation of oil.
Ninety-two votes from the 137-member assembly are needed to remove Lasso, who opposition politicians say disregarded warnings of embezzlement related to a contract at state-owned oil transportation company Flopec.
This impeachment, like most impeachments, appears to be particularly politically motivated and the President was not even involved in Flopec contracting or even in the government at that time. There is also no basis that these contracts involved wrong-doing.
But the country is mired in accusations of bribery and wrong-doing. An energy minister also resigned last fall to defend against corruption charges.
He told local media on Thursday there was no proof against him and that the accusations were a systematic effort by criminals to discredit the government.
"This is something orchestrated by the mafias which have always prowled around my sector, which drives 30% of GDP, and I'm a rock in their shoe," Vera told Sonorama radio. "This is not a coincidence, this is a systematic effort to affect the image of the government."
"There is no concrete case, there is no recording of me, there is no photo of me, there is no audio of me, there is no video of me," he added.
Other executives have fled the country.
So to answer Mr. Nokta’s question. No you should not expect any competition entering the INSW mousetrap for the time being. However, the political situation in Ecuador is, how do we say, very volatile at the moment. So that could change.
The question he should ask is
You will not carry sanctioned approved Russian barrels at a premium to market, but you will participate in this arrangement, what makes you comfortable with one over the other?
Because neither Cape Tankers nor Panamax International have an online / LinkedIn presence. Which stands out to INSW’s other pool, Tankers International. So the 25 years of good cooperation with their JV partners must be done under the radar and out of the public eye. We see.