Please ensure Javascript is enabled for purposes of website accessibility

Overseas Shipholding Group Inc (OSG) Q2 2020 Earnings Call Transcript

By Motley Fool Transcribers – Aug 8, 2020 at 1:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

OSG earnings call for the period ending July 31, 2020.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Overseas Shipholding Group Inc (OSG 1.35%)
Q2 2020 Earnings Call
Aug 7, 2020, 9:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good day and welcome to the Overseas Shipholding Group Second Quarter 2020 Earnings Release Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Sam Norton President and CEO. Please go ahead.

Samuel H. Norton -- President and Chief Executive Officer

Thank you, Sarah. Good morning. Thank you all for joining in on this call for the presentation of our 2020 second quarter results and for allowing us to provide additional commentary and insight into the current state of our business and the opportunities and challenges that lie ahead. As usual Dick Trueblood, Molly Arcia and Princeton McFarland are joining me on this presentation. Before providing commentary on the specifics of OSG's recent and future business activities I would like to take a moment to reflect on the human impact of the pandemic that has come to dominate so much of our lives in recent months. As was the case in our previous presentation COVID-19 continues to cloud all of our activities with heightened uncertainty and previously unimaginable challenges. The circumstances affecting all of us as a result of the COVID-19 pandemic remain exceptional in our lifetimes. Family and friends at higher risk of infection present a new element of constant concern. Our children's educational experience disrupts their learning trajectory. Remote working conditions have challenged the connection among our colleagues. Employees and crew members who are unable to work remotely are subjected to the constant threat of unavoidable virus exposure in the conduct of their jobs. It is easy to understand how these circumstances can exact a heavy toll on the individuals who collectively work each day to ensure that our vessels can load, transit and discharge cargoes without material interruption. In the face of all these challenges the sense of responsibility shared by OSG's mariners and shore-based support team in meeting the essential need to transport -- transportation fuels to the markets that we serve is commendable. The contribution made by all of our employees and in particular our seafarers in realizing the strong financial results reported this morning should be applauded by all who benefit from their service. Our business cannot function without the dedication of the individuals who bear the burden of ensuring its continued safe operation. I wish to recognize those contributions and put a voice to the evolving story at OSG. OSG's employees are our greatest asset. It is important that we remember this as we review the results achieved. Thanks and acknowledgment for the jobs well done cannot be expressed too often or too deeply. Keeping our employees safe remains our number one priority, recognizing them for the services that they provide is our shared obligation. Turning now to our presentation, I would like to direct everyone 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 an 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 projections and could be affected by a wide variety of risk factors including factors beyond our control. For a discussion of these factors, we refer you specifically to our annual report on Form 10-k for the fiscal year ended December 31 2019; our Form 10-Q for the first quarter of 2020; our Form 10-Q for the second quarter of 2020 which we anticipate being filed later today; and our other filings with the SEC which are available at the SEC's internet site as well as on our own website Forward-looking statements in this presentation speak only as to the date of these materials and we do not assume any obligation to update any forward-looking statements except as may be legally required. In addition our presentation today includes certain non-GAAP financial measures which we define and reconcile to the most closely comparable GAAP measures in our second quarter earnings release which is posted on our website. As announced earlier this morning, OSG delivered solid financial results in the quarter just completed. As Dick will detail more fully in his remarks, OSG has in place a deep book of time charters that have been providing considerable insulation from exposure to the disruptions caused by COVID-19 in the transportation fuel distribution markets we are active in. OSG's vessels were employed at healthy charter rates for close to 95% of available days for the first half of 2020. During the quarter costs, were managed to levels consistent with historical performance and as a result cash flow from operations was strong. We are managing our operations very much aware that the systems within which we operate are under escalating stress presenting new risks and vulnerabilities that have previously not affected our performance. Whether these systemic stresses ease with time and what cost they ultimately impose upon us, will only be known with hindsight. As these contingencies become clearer, we will continue our efforts to provide better guidance on their long-term financial impact. Given the high percentage of fixed revenue streams during the first and second quarters, which are largely expected to continue for much of the rest of this year, the most important management challenges have been and remain sustaining operational readiness at all times and containing the cost of adapting to developing logistical health and safety protocols. Earlier this month, we experienced our first shipboard case of COVID-19, which resulted in extraordinary expenses and the loss of several revenue days associated with cleaning and obtaining clearance for further operation from the Coast Guard CDC and other health officials. In this instance largely thanks to the effective planning and response of our operations teams, neither our extra cost nor the time lost out of service will materially impact our overall results. The continued spread of COVID-19 across the U.S. elevates the risk of further ship board outbreaks as crew members rotate on and off vessels in the course of their normal tours of duty. We are not alone in confronting this challenge. We have seen in recent weeks, an escalating number of shipboard infections on vessels of our industry peers. Maintaining a virus-free environment on board operating vessels will be a continuing concern. We remain focused on developing and implementing effective means for getting crew to and from our vessels in a manner that both protects their personal safety and endeavors to ensure with the highest level of confidence that a joining crew member is not bringing the virus onto the vessel or otherwise affecting the vessel's acceptability and service. Nonetheless, off-hire periods resulting from managing virus-related delays as well as the potential and as yet unknown new costs for testing, cleaning, quarantine, immunization and certifications are to be anticipated. Several pieces of legislation have been passed in response to the COVID-19 pandemic. We are not expecting any material impact on either our liquidity position or our financial results arising out of the application of already enacted provisions. There are several legislative proposals that could present opportunities to recover some COVID-19-related costs, but it is still too early to assess with any certainty the prospect of these proposals. Turning now to the impact of the virus on our Jones Act trades, we have experienced reduced cargo volumes and increased idle times of available vessels, a derivative of falling refinery runs and diminishing, but still evident demand destruction for transportation fuels. During the quarter, two of our tankers, one of our remaining rebuilt ATBs and the lightering barges that was redeployed to engage in conventional ATB trades saw their time charter contracts come to an end. Decreased demand due to the seasonal cycle and COVID-19 has resulted in little to no spot market voyages. As such, we have taken the decision to place the Overseas Key West in layup at the end of the quarter. We are also permanently removing the OSG 244 from service through a sale for scrap, an action that was due to be taken in any case by the end of this month. At this time, we continue to maintain the operational availability of the Overseas Long Beach for potential spot market moves. In August, the OSG 350 Vision will move back into the lightering service following completion of a required dry dock and special survey replacing the OSG 351 Horizon in this service. This will allow the OSG 351 Horizon to complete her planned dry docking special survey work that's anticipated to be completed before the end of September. As we move into the final quarter of this year, the OSG 350 Vision will again be redeployed as a conventional ATB available in the spot market. The Overseas Martinez and Overseas Anacortes have also been dry docked undergoing special survey work. The combination of these activities will result in reduced revenue days during July and August with an expected reduction in time charter equivalent revenues for the third quarter of approximately 15% when compared to the second quarter. The Energy Information Agency reports, the refinery runs in the U.S. in recent weeks have recovered to close to 80% of capacity. Over the past four weeks, motor gasoline consumption has averaged 8.7 million barrels per day up from an April low of five million barrels per day and now roughly 9% below comparable year-ago levels -- consumption figures are also running at just less than 10% below year-ago averages. Analysts that we follow expect these figures to continue to improve in the months ahead, although full recovery of normalized consumption levels will not likely be seen until 2021. Jet fuel consumption remains 40% below year-ago levels as passenger flights in the U.S. continue to operate at roughly one-third of year-ago capacity. TSA passenger figures at U.S. airports have come off their lows but have been flattening out at about 25% of year-ago comparables over the past six weeks. Clearly jet fuel consumption recovery has a harder and longer pathway back to previous levels something that will likely continue to weigh on distillate prices and refinery margins for the foreseeable future. A survey of numerous new forecasts indicates that gasoline consumption in the United States will leave year-end levels slightly below historical norms. Trends in diesel consumption are also encouraging. The shape and speed of jet fuel recovery remains an area of focus for one of our key customers Monroe Delta. Currently, three of our vessels are contracted to serve Delta's trainer refinery. Delta has restated in their recent earnings call that the trainer refinery remains an important part of their fuel strategy. Marathon Oil has also just announced that it will not restart its Martinez refinery, a 160,000 barrel per day unit in the San Francisco Bay. It's too early to assess the impact of this closure on fuel distribution patterns on the West Coast. And Marathon has indicated that they were reviewing to restart the facility as a renewable diesel plant. As such we are not certain if and if so how this decision may impact the upcoming contract renewals for our vessels currently charged to Marathon. Marathon has also announced a transaction to sell off all of its retail gasoline stations. This transaction includes a commitment by Marathon to supply gasoline to the buyer for over the next 15 years. The impact of this transaction on marine transportation demand will thus not likely be material. Too much uncertainty exists to predict how supply, demand and the price of crude oil will unfold in the months ahead. Production cuts to-date have supported recovery of crude prices and increased consumption in many markets has brought all markets well off the bottoms seen in April. However, as always relative price remains the critical variable from our perspective. Irrespective of the overall quantity of domestic production cuts, should we continue to see domestic prices at a sustained discount to international prices as has been the case for most of the past several years, post-wise transportation of crude oil should continue to be demanded. Relative price differentials should not be looked at in isolation however. International shipping rates also factor into the equation when looking at comparable delivery cost economics. As predicted in our last call, the unusually high international tanker rates seen during the spring did not last. The reduced rates reflect declining crude oil production coupled with the increase of tonnage released back into the market once product that was being stored was delivered for consumption and increased available vessel supply. It bears repeating that although rates in the international markets act only indirectly on domestic market conditions, lower international rates have the marginal effect of creating more competition for our vessels when considering cargo movements on a delivered cost per barrel basis. Before handing things over to Dick to take you through the numbers, it is gratifying to note the contribution made in the quarter from our newly acquired ATC vessels. Working closely with the ATC staff in Oregon, we have managed to quickly integrate the ATC operations into our own without any visible disruption to the customers that we serve. Hilcorp completed their acquisition of BP Exploration in Alaska in late June and we have established an effective working relationship with our new customer in the weeks that have followed. In addition to the three large crude tankers being operated by ATC, OSG's U.S. Flag fleet consists today of one conventional ATB, two lightering ATBs. two shuttle tankers, 10 MR tankers and two non-Jones Act MR tankers that participate in the U.S. Maritime Security Program. OSG also currently owns and operates two Marshall Islands flagged MR tankers, which trade irrationally. OSG has on order one Jones Act compliant barge scheduled for delivery in November of this year. I will now turn the call over to Dick to provide you with further details on our second quarter results for 2020. Dick?

Richard Trueblood -- Vice President and Chief Financial Officer

Thanks, Sam. Please turn to slide seven. We took delivery of the OSG 204 ATB at the end of May and drew the remaining $5 million availability on the loan at that time. The total loan balance is now $32.9 million at a fixed 5% interest rate. The barge had an initial voyage charter as she was repositioned from Oregon to the Gulf of Mexico where she delivered into a one-year time charter starting in July 2020. Our strong cover from long-term charters continue to serve OSG well during the second quarter as the impact of COVID-19 hit the domestic and global economies. This has been particularly beneficial as there have been only minimal spot cargoes. Fuel reductions in all forms of travel wreak havoc on demand for transportation fuels. Crude oil inventories rapidly expanded and refined product production plummeted. Nevertheless, we were quite pleased with our second quarter operating results. We experienced TCE revenue growth on both a year-over-year basis as well as on a sequential quarter basis. TCE revenues grew 22.3% or $18.3 million from the year-ago quarter. Sequentially, TCE revenues increased $3.3 million or 3.4%. Adjusted EBITDA grew 63.7% or $11.6 million compared to the second quarter of 2019. As a reminder, the second quarter of 2019 included a $4.3 million write-off of our PES receivables.

Our first quarter adjusted EBITDA likewise included a onetime gain of $19.2 million on the termination of prior arrangements related to our acquisition of the Alaska Tanker Company. Please turn to slide eight. Second quarter continued to reflect the positive impact of our fleet operating principally under time charters in an improved rate environment. The mix and number of vessels has changed since last year's second quarter. We operated 24 vessels for the full second quarter of 2020 and 2021 in the second quarter of 2019. Since the second quarter of 2019, we have continued to reduce the number of operating rebuilt ATBs from four to one. The remaining rebuilt barge is being sold for scrap this month. The related tug will go through drydock before relocating to Oregon to be paired with the OSG 205. Since the second quarter of last year, we added three Alaskan tankers as well as the Gulf Coast, Sun Coast and Key West. Key West operated under a short-term time charter initially during the quarter. And subsequently in the spot market, while the rest of our Jones Act handysize tankers were on long-term time charters. Offsetting this effect was the continued reduction in our rebuild ATBs. We have 56 off-hire days due to drydock activities during the quarter. The Alaskan tanker acquisitions contributed $15.9 million in revenue during their first full quarter of operations. Revenues from our Jones Act handysize tankers increased $8.8 million from the year-ago quarter. This reflects the impact of higher rates in 2020 as well as the addition of the Key West. Effective daily rate for fixed earnings increased over $4,000 per day while the number of days increased by 129. The Key West redelivered from our short-term time charter during the quarter with minimal utilization thereafter. We made the decision to layer up due to current market conditions, which are exacerbating the normal third quarter seasonal slowdown.

ATB TCE revenues decreased by $5.1 million from 2019 second quarter, driven by the reduction in our rebuilt operating ATBs to 1. We added the OSG 204 during June and she contributed $1.3 million in revenue. Total revenue days declined from 341 during last year's quarter to 124 in this year's quarter. TCE revenues from our four non-Jones Act tankers increased $4.6 million from last year's quarter. The Gulf Coast and Sun Coast, both of which are on long-term time charters contributed $3 million. We conducted two voyages for the government of Israel this year compared to one last year. During the quarter, both the Mikonos and Santorini had dry dock related off-hire days but none in the prior year. The effective day rates for spot and fixed earnings both increased in comparison to last year. Lightering revenues decreased $6.2 million from the second quarter of 2019. During the second quarter of 2019 both ATBs were engaged in Delaware Bay lightering activities. Subsequently the PES refinery ceased operations and the OSG 350 was repositioned to the Gulf of Mexico. During the second quarter of 2020, the OSG 350 was in dry dock and therefore off-hire for approximately one month. The OSG 351 lightered fewer barrels during the quarter due to reduced demand from our customers as refinery utilization decreased. Each of our lightering contracts require annual minimum volumes to be lighter to paid for. As a result, the barrel reduction is a timing shift rather than an elimination of revenues. Effective day rates earned during the quarter decreased from 2019. Sequentially the $3.3 million increase in TCE revenues were driven by the Alaskan Tanker acquisition. Jones Act handysize tankers, revenue reflect little variation between the quarters, which was expected due to all but one of the vessels being employed on long-term time charters. Offsetting this was the $2.8 million decrease in ATB revenues and a $7 million decrease in lightering revenues both for the reasons previously stated.

Please turn to slide nine. The spread between fixed and spot earnings as the portion of our fleet operating on time charters continued to widen during the second quarter, due to the addition of the three Alaskan tankers, all of which are under long-term time charters. Please turn to slide 10. Conventional tanker spot market TCE revenues continue to represent a decreasing portion of our total tanker revenues. As a reminder, we classify short-term time charters as spot market activity. Turning to slide 11. Our niche businesses continue to provide earnings stability which serves to underpin our overall operations. During the second quarter of 2020 lighter revenues declined for the reasons we previously described. The OSG 350 has now returned to the Delaware Bay to replace the OSG 351 Horizon as she undergoes her dry dock during the third quarter. on-Jones Act tanker revenues increased from the year-ago quarter and were flat with the preceding quarter. Several tanker revenues increased from the first quarter as the Cascade completed her dry dock during the first quarter. Please turn to slide 12. Vessel operating contribution, which we define as TCE revenues, less vessel operating expenses and charter hire expenses, increased $9.3 million or 34% from Q2 2019 to $36.3 million in the current quarter. The largest contributor to the increase was the $8.5 million addition to vessel operating contribution from our Alaskan tankers. The Jones Act tankers added $7.2 million. Offsetting these increases were reduced contributions from our ATBs of $3.4 million and niche market activities of $3 million. Decline in ATB contribution results again from fewer operating rebuild ATBs in the quarter. The introduction of the OSG 204 in June and the OSG 205 later this year will reverse this trend.

Niche market activities declined due to increased dry dock related off-hire days for our MSP vessels and the OSG 350 Vision as well as reduced Delaware Bay lightering demand. Sequentially, vessel operating contribution decreased $2.5 million from the first quarter. Contributors to the decrease were low utilization for the Key West after her redelivery off a short-term line charter, an increase in niche market dry dock-related off-hire days, and a reduction in the number of operating rebuilt ATBs. This was partially offset by a $6.6 million increase in contribution from the Alaskan tankers due to their inclusion for the full quarter as opposed to 19 days in the first quarter. Please turn to slide 13. Second quarter 2020 adjusted EBITDA was $29.8 million compared to first quarter 2020 adjusted EBITDA of $52.8 million. The first quarter of 2020 included the gain associated with the acquisition of the tankers and ATC. Second quarter adjusted EBITDA increased $11.6 million from $18.2 million in Q2 2019. The increase resulted from an increase in the number of vessels operating including the Alaskan tankers. The effect of increased rates across the fleet improved overall utilization due to the shift to time charters. This again, was partially offset by the impact of off-hire days reduction in rebuild ATBs and reduced Delaware Bay demand. Please turn to slide 14. Net income for the second quarter was $6.4 million compared to the net loss of $1.7 million recorded in the second quarter of 2019. Operationally, the increased TCE Jones Act tanker revenues in new non-Jones Act tankers as well as the addition of the Alaskan tankers drove the increase in net income. Please turn to slide 15. During each year, we perform scheduled maintenance as required by regulations. Vessel maintenance requirements are based on the original construction date at intervals of approximately 2.5 years. As a result, we have years, in which the volume of dry dock activities, are substantially greater than other years.

This slide provides information for scheduled maintenance and ballast water treatment system installations. It does not include unplanned repairs, which should they occur could impact the schedule. While vessels are in dry dock or otherwise unavailable for use, they are off-hire even if otherwise employed on a time charter. We work to minimize the number of off-hire days to reduce the revenue loss we sustain. This year, because of COVID-19, estimating the timing of dry dock activities on a quarterly basis is particularly challenging. Shipyards are deferring scheduled dry dock because of staffing issues related to COVID-19 lockdowns. Technical personnel from third party vendors necessary to accomplish certain aspects of the maintenance process have been and are unable to travel through repair locations. This has resulted in a series of backlogs throughout the industry. U.S. Coast Guard and ABS have been understanding through this time and it is likely that they will need to continue their flexibility. This slide presents our best estimates of the timing of dry dock activity for the remainder of the year, which has changed from prior estimates. It is possible perhaps likely that these estimates will continue to change as to timing. We expect that although the timing may shift the annual totals will remain reasonable estimates.

2020 is an active dry dock year for us. We estimate, which includes the three recently acquired Alaskan tankers that our investment will be $45.9 million in dry dock expenses and $17 million for ballast water treatment systems in 2020. We will experience approximately $20 million in lost revenue for the full year, resulting from 401 off-hire days. In all cases, we'll endeavor to work through this process expeditiously to minimize the costs incurred in the number of days off-hire. Please turn to slide 16. This graphical presentation of the information in the table on slide 15 also adds a look back to 2019, a year of relatively low activity. In fact, there were no dry dock days in either the third or fourth quarters of 2019. Our estimate is that we will experience 275 off-hire days in the third and fourth quarters of 2020. The related revenue loss is expected to exceed $14 million. Although this graph doesn't look forward to 2021, 2021 will look more like 2019 than 2020. Please turn to slide 17. The OSG 205 is expected to deliver in late November this year. We have invested through the end of the second quarter $36.5 million in the OSG 205. Our remaining payments including amounts which will be due on delivery of $14.5 million. We are currently engaged in discussions to obtain financing for the 205. Please turn to slide 18.

There has been no change to our estimates as to the timing of future amounts of profit sharing that may occur to the AMSC ships that we bear out. The chart provides information for 2020 through 2023. As we've previously stated, we do not anticipate any profit share obligation will be created in 2020. We look here at what the profit share picture might be for assumed average TCE rates based on estimated future market rates. In 2020, if we were to achieve an average TCE rate of $62,000 across the 10 AMSC vessels there would be no profit sharing. The minimum average rate required to result in profit sharing obligation in 2020 is $69,000 and this would create an aggregate payout of $300,000. Years beyond 2020 assume that the rate earned in the prior year was the market rate. Based on the assumption for trade here, the first year in which profit sharing obligation would exist is 2022. Given the assumptions used, the profit sharing payout would be $8 million. The minimum average rate necessary to achieve any level of profit share in 2022 would be $62,000. Again, using the assumptions here the profit share earned in 2023 would be $14 million. Profit share is paid out in the year subsequent to the year earned. Finally, it's worth noting that if certain costs are recovered, the minimum rate that will result in profit share declines. Calculations are complex and have a variety of factors involved. This chart is meant to be indicative of possible outcomes based on the assumptions made. Please turn to slide 19. At the beginning of the second quarter, we had total cash of $102 million which included $20.1 million of restricted cash. During the second quarter of 2020, we generated $30 million of adjusted EBITDA. We drew the remaining $5 million available on the OSG 204 loan upon delivery of the vessel. We expended $7 million on dry docking and improvements to our vessels. And we invested $18 million in new vessel construction and other CapEx. We incurred $6 million in interest expense and made debt repayments of $9 million. The result was we ended the quarter with $95 million in cash including $20.1 million of restricted cash.

Please turn to slide 20. Continuing our discussion of cash and liquidity as we mentioned on the previous slide, we had $95 million of cash at June 30, 2020 including $20.1 million of restricted cash. Our total debt was down to $446 million which represents a net decrease of $4 million in outstanding indebtedness since March 2020. Our $325 million term loan has an annual amortization requirement of $25 million or $6.25 million per quarter. With $374 million of equity our net debt-to-equity ratio is 0.9x. After the end of the second quarter, we fully repaid a $24 million loan secured by one of our two tankers delivered in October 2019. We funded part of the payoff with $20 million of restricted cash. This will ultimately result in a reduction of annual debt service of $2.6 million and our total debt is now $422 million. This concludes my comments and the financial statements. I'd like to turn the call back to Sam. Sam?

Samuel H. Norton -- President and Chief Executive Officer

Thanks a lot, Dick. I saw quoted in an article yesterday that, math is the logic of certainty and statistics is the logic of uncertainty. If this is true, then we have by necessity all become better statisticians in recent months. Uncertainty abounds in virtually every corner of our lives. The extent and impact of the continuing pandemic, on the broader economy in general and on fuel production, distribution and consumption patterns in particular, is at this time virtually unknowable. Yet as we try and solve the puzzles that these circumstances present, our approach should be the reason in a principled way, by integrating what we have previously thought, with what we have learned in the interim. So as to reach a new conclusion that incorporates, both elements giving them appropriate ways. In this context, we can observe the following points. As recently as six months ago demand for Jones Act tankers and ATBs appeared to be well in balance with supply. Time charter demand was firm with rates correspondingly at healthy levels. In ensuing months, available supply has been reduced by the removal from service of our last two rebuilt ATBs. Additional scrapping of a handful of other vessels can be expected in the year ahead. Although, our two new barges will partially offset this reduction of capacity, no additional new supply is on order, nor can any vessels be delivered for likely several years into the future, even if ordered today.

Philly's shipyards one of the few domestic yards capable of building Jones Act tankers, has taken on a government contract to build training vessels, a contract which could fill the yard for years to come to the exclusion of other work. Another domestic yard Marinette Marine Corporation was recently awarded a contract to design and produce the next generation of up to 10 guided missile frigates. Vasco's shipyard in San Diego has also committed its near-term capacity, to build vessels for the U.S. Navy. In short, the supply side is a math problem, with a high degree of certainty in deriving solution. The issues of uncertainty lie therefore with questions concerning demand. Looking at the market for refined products at large, the recovery in gasoline and diesel consumption that had occurred since April is encouraging and suggests a trajectory toward restoration of normalized demand within the foreseeable future, assuming current trends are not reversed. Recovery rates in Florida specifically underscore a belief in improving demand fundamentals. In the market most important is, the Jones Act trade. Baseload movements of clean products from Texas and Louisiana into Florida should therefore provide strong support for sustaining a healthy demand condition, as we move through the balance of this year and into 2021.

Reduced jet fuel demand, will be felt in the short to medium term. But in aggregate, the net reduction will be between, 250,000 and 500,000 barrels per day nationally or less than 5% of total fuel demand. As such, the overall impact of reduced jet fuel consumption should not have an outsized impact, on broader marine transport demand. In the West Coast markets, current thinking is that, distribution needs will remain largely stable, with some prospects for increased demand for Gulf Coast to West Coast moves. Tightening regulatory requirements in California, offer the chance for shipping renewable diesel from the Gulf Coast to the West Coast, a business that would represent incrementally new, long-haul ton mile demand. Replacement of output from the closed Martinez refinery could also offer an opportunity for shipping Gulf Coast product to the West Coast, to fill this need. Demand for crude oil movements domestically is on the other hand, much more difficult to predict. Price differentials, pipeline developments, refinery operation conditions and international politics all act, basically to modify the decision trees that ultimately influence crude price production outcomes.

Currently, five of our vessels are engaged in crude oil trades. And will come open, to be reemployed over the next six months. A reduction in domestic crude transport needs triggered by either a further reduction in domestic production or unfavorable relative price differentials between domestic and international crudes, could thus release some of these vessels back into the otherwise balanced clean markets. Conversely, if the multiple variables affecting refining sourcing decisions favor domestic over international crude purchases, additional crude transportation demand could serve to significantly tighten the market, with favorable implications on future rate developments. Taking these factors into consideration and constructing an understanding of how we think the next several quarters will unfold, our revenue expectations remain consistent with earlier guidance. Absent an increase in off-hire days potentially caused by virus-related events, our fixed revenue coverage should be helpful in sustaining good financial results.

More than 80% of vessel available days for the balance of the year are covered, either through time charter contracts or contracts of affreightment. A key contributing element of this forward visibility of earnings is the contribution now being made by the Alaskan tanker company vessels purchased in March. For the third quarter, we expect to achieve time charter equivalent earnings of approximately $85 million, after taking into consideration the lost revenue days discussed earlier in this presentation. We anticipate a stronger performance in the fourth quarter, which should put us squarely on track to be within the range of $380 million to $400 million of time charter equivalent earnings for the full year. Similarly, we expect consolidated adjusted EBITDA for the second half of 2020 to reach between $40 million and $45 million, a result which would bring full year adjusted EBITDA to a figure likely to exceed $120 million. During the next six months, a total of seven of our vessels will come to the end of their current charters, joining the three vessels that were already open as of the end of July.

As our existing time charter portfolio begins to mature and vessels become open for extension, reemployment or redelivery, visibility beyond the end of this year becomes much less clear. We see the prospects for extending many of our existing charters as encouraging. However, the range of possible outcomes is wide and will be strongly influenced by the shape of demand recovery. Challenges remain, as do new opportunities. But, overall, we believe the steps we have taken over the past several years to improve the promise of OSG's future, have positioned the company well to sustain its recent performance and to adapt to the current environment. We have strengthened our balance sheet, invested in new assets, lengthened our contract cover at profitable rates, reduced costs and achieve material improvements in our key safety and operational performance measures. We are focused on achieving high health and safety performance in this COVID-19 environment. While we foresee greater uncertainty in the immediate future, we remain confident that the long-term success of our business model and OSG's ability to maintain its position as the leading U.S. Flag vessel operator in years to come. Operator, we can now open up the call to take questions. Sara?


Thank you. We will now being the question-and-answer session. [Operator Instructions] Our first question comes from J. Mintzmyer with Value Investors Edge. Please go ahead.

J. Mintzmyer -- Analyst

Hi. Good morning, gentlemen. Congrats on another stable quarter as we continue the process. And thanks for taking my questions.

Samuel H. Norton -- President and Chief Executive Officer

Thank you

Richard Trueblood -- Vice President and Chief Financial Officer

Hi, J.

J. Mintzmyer -- Analyst

So, I've noticed in the last two presentations since COVID happened, there hasn't been as clear of a forward EBITDA guide. I know we had one, kind of, at the very start of the year, I think late last year as well. Understanding, there's some uncertainty out there, of course, but is that original guidance still -- are we still in that window? It looks like Q2 was pretty stable. Are there any uncertainties that we should specifically be focusing on going forward?

Samuel H. Norton -- President and Chief Executive Officer

I think we try to provide additional guidance in my comments just concluded. There is a higher level of uncertainty due to the fact that we have contract renewals that are going to be coming up during the course of the second half of the year. And while we expect most, if not, all of those contracts to be successfully renewed, we don't know that. So there's probably a broader band of outcomes that result from that fact.

J. Mintzmyer -- Analyst

Okay. Understandable. We'll stay in touch and see how that develops. Looking at the OSG 205, I see your remaining milestone payments on slide 17. I apologize. I came a little late on the call we had another company one going on. But it looks like it's still coming for Q4. Has there been any delays to that delivery first of all? And then second of all what's kind of the timeline for the financing on that? And what is sort of the target amount?

Richard Trueblood -- Vice President and Chief Financial Officer

It is still on track. There's been no shipyard construction-related delays that have occurred. So, we would expect it to deliver late November as our plan and as has been planned. As a reminder I think we've said before it will deliver right out of the yard into a one-year time charter. So, it will be gainfully employed from day one. We're -- as far as financing, we're actively involved in discussions with several lenders at this point who have expressed an interest in financing the barge. So, I would expect that we will try to see if we can't wrap that up toward the tail end of the third quarter maybe very early into the fourth quarter, but sort of in September maybe early October timeframe.

J. Mintzmyer -- Analyst

Okay. Thank you. Yes, we'll look forward to that. Is there a target amount on that financing? Is it expected to be similar to the previous one? I think it was like $33 million.

Richard Trueblood -- Vice President and Chief Financial Officer

That's my goal J.

J. Mintzmyer -- Analyst

All right. Fingers crossed that we'll get that and actually get some free cash flow on delivery then. Okay, I think last question for me before I hop back in the queue. I'm sure there are some other folks with good questions here. Looking at slide 15, you provide a pretty clear projection of your dry dock costs and ballast water treatment expenses and so on. We can see that even with strong cash flows, you're close on free cash flow in Q3 2020 and Q4 2020. Do you have any guidance yet on FY 2021 and where those dry dock expenses are going to come out at around?

Richard Trueblood -- Vice President and Chief Financial Officer

If you went to slide 16 and looked at kind of what we spent in 2019, it would be that plus an incremental amount for Alaska tankers. One of our tankers will incur some dry dock requirement next year. So, that will be probably $7 million to $8 million incremental cost to -- 2021 will be a relatively quiet year.

J. Mintzmyer -- Analyst

Okay. Yes, I guess what I'm getting at is that 2020 was just a massive outlier and dry dock expenses and ballast water treatment landed on there as well. It looks like '21 is going to be a lot more mild. Is that just massive percentage of your fleet just happened to hit the service at the same time? Or are there forward years like '22 that we also need to be paying attention to?

Samuel H. Norton -- President and Chief Executive Officer

So J, the cycles for tankers in dry docks are effectively every five years until the vessels reach 15 years of age in the U.S. Flag. So the dry docks are -- if you go and you look at the year of delivery when the ship were constructed and you project five year forward and you can see the expected timing of when those dry dock and special surveys come into play. So the answer to your question is they're very lumpy because the delivery dates for several of our vessels fall within a range of one or two years. And so that's the outcome that you get. It should be noted that looking further ahead once U.S. Flag vessels reach 15 years of age then dry dock requirements are changed to twice within every 5-year cycle. The intermediate dry dock can fall anywhere from 30 to -- within a window from 30 to 36 months from the prior dry dock. So as you look beyond I think our earliest vessel delivery was 2007 of the Veteran class. Then 15 years forward once you get into 2022 and beyond those vessels start to have more frequent docking cycles. If you look at the ATC tankers, you can expect because all of those tankers are beyond 15 years of age you can project that those vessels will start to see actual dry docks every 2.5 to three years. So while it's constructive to look backward in terms of understanding the lumpiness of our dry docks going forward the picture will alter a little bit as we move part of our fleet beyond 15 years of age.

J. Mintzmyer -- Analyst

Definitely understandable so the same kind of structure as the international tankers we follow. Makes sense. Just kind of highlighting the fact that 2020 is a massive level compared to, it sounds like 2019 was very low and '21 is also low.

Richard Trueblood -- Vice President and Chief Financial Officer

I think that's an accurate picture.

J. Mintzmyer -- Analyst

Excellent. I'll jump back in the queue. I have some more but I want to make sure we get other questions in there. Thanks.

Samuel H. Norton -- President and Chief Executive Officer

Thanks J.


[Operator Instructions] At this time, I'm showing no further questions. This concludes our question-and-answer session. I would now like to turn the conference back over to Sam Norton for any closing remark.

Richard Trueblood -- Vice President and Chief Financial Officer

Much appreciated, Sarah. And thanks again everyone for participating in today's call. We look forward to speaking to you again a little later in the year and hopefully to be able to continue to deliver the solid results that we've managed thus far. Wishing you all a good day.

Samuel H. Norton -- President and Chief Executive Officer

Much appreciated, Sarah. And thanks again everyone for participating in today's call. We look forward to speaking to you again a little later in the year and hopefully to be able to continue to deliver the solid results that we've managed thus far. Wishing you all a good day.


[Operator Closing Remarks]

Questions and Answers:

Duration: 52 minutes

Call participants:

Samuel H. Norton -- President and Chief Executive Officer

Richard Trueblood -- Vice President and Chief Financial Officer

J. Mintzmyer -- Value Investors Edge -- Analyst

More OSG analysis

All earnings call transcripts

AlphaStreet Logo

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Overseas Shipholding Group, Inc. Stock Quote
Overseas Shipholding Group, Inc.
$3.01 (1.35%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.