May 18, 2021
Operator
Hello, and welcome to Eneti, Inc. First Quarter 2021 Conference Call.
I would now like to turn the call over to Hugh Baker, Chief Financial Officer. Please go ahead, sir.
Hugh Baker
Thank you, operator. Thank you all for joining us today.
On the call with me are Emanuele Lauro, our Chairman and Chief Executive Officer; Robert Bugbee, our President; Cameron Mackey, our Chief Operating Officer; David Morant, Managing Director; and James Doyle, Senior Financial Analyst. This morning, before the market opened, we issued our first quarter earnings press release, which is available on our website.
The information discussed on this call is based on information as of today, Tuesday, May 18, 2021, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements.
For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release that we issued today as well as our SEC filings, which are available at www.eneti-inc.com and www.sec.gov. Call participants are advised that the audio of this conference call is being broadcast live on the Internet and is also being recorded for playback purposes.
An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days. On the call today, there will be a short presentation with slides.
The slides are available at www.eneti-inc.com on the Investor Relations page under Reports and Presentations. This presentation is -- it will not be presented during the call, but it is available for you to look at on our website.
If you have any specific financial modeling questions, you can contact me later and we can discuss them offline. Now I'd like to introduce Emanuele Lauro.
Emanuele Lauro
Thank you, Hugh, and welcome, everybody. Thanks for being with us today.
Eneti is now firmly set on the path of growth in offshore wind energy. I was pleased to have the opportunity on Thursday last week to share details of our new vessel, new building with the market, together with my colleagues.
And on that call, we also discussed our focus on the emerging U.S. market as far as offshore wind is concerned and our intention to build a Jones Act-compliant vessel.
Together, this represents an exciting new trajectory for our company as we engage with all the opportunities of this important market. There has been significant interest in our story from not only new shareholders but also new customers, new counterparties in general.
We believe that offshore wind is a multi-decade build out around the world, not only in the U.S., and this continues to accelerate. This represents one of the most important opportunities to combat climate change.
So our work continues at pace to establish Eneti as a reborn company with structurally higher, more visible and more stable returns. At this stage, we can tie up some of the last few pieces of our exit from dry bulk.
We have announced the sale of 44 vessels. We expect to be able to announce the sale of the remaining 5 vessels during the second quarter, together with the redemption of all remaining debt and all lease obligations.
So the resulting entity is and will be liquid and ready to embark on our new-build program. Significant customer engagement continues.
We expect to announce an employment contract for our first new-build vessel within the summer of next year, 2022. It is worth reflecting that the company is now redeploying capital swiftly into a space with extremely attractive unlevered returns on offer.
And we remain the only New York Stock Exchange-listed company exposed to budgeting wave of CapEx we expect in offshore wind globally and in turn, one of the most substantial and transformational U.S. energy build-outs since the 1970s, really.
As a group with our proud maritime heritage, we are well positioned to manage the challenges of this transition. And we believe that under -- the underinvestment in the maritime supply chain represents one of the greatest challenges for offshore wind.
But at the same time, in our view, that this dislocation, exactly this dislocation represents one of the best opportunities in terms of maritime investments. Management remains the largest shareholder of the company.
And I'm not only excited but also impressed with the focus and the drive that the organization has shown to make this transition happen. We are respectful of the challenges this transition poses, but excited and undaunted by them.
So I do look forward to updating as the business accelerates throughout the coming quarters. And I will now turn the call to Robert if he has anything to add to my initial remarks.
Thank you.
Robert Bugbee
Thank you, Emanuele. We've got quite a larger presentation that we put out last Thursday, and we announced the new building and the U.S.
flag initiatives. And what we'd like to do today is to give as much opportunity as possible for Q&A as we haven't talked about the company very much in this last month.
So with that, I think we'd just like to turn it over to Q&A, please. Thank you very much.
Operator
[Operator Instructions]. Your first question comes from the line of Omar Nokta from Clarksons Platou Securities.
Omar Nokta
Obviously, I thought last week was very good. It was good to get an update from you guys on the offshore wind project.
And I wanted to maybe just ask a couple of questions here. Maybe more on the specific cash situation.
Obviously, you guys are building cash pretty significantly here. And maybe this one is for Hugh.
And I know I don't want to get too specific into the modeling, but just maybe generally speaking, you sold 44 ships so far for $777 million, just looking at the table, excluding the Eagle and Star Bulk shares. And from what I'm gleaming, it looks like $453 million of that was completed already in the fourth and first quarters.
Am I just -- am I correct in assuming that, basically, that implies there's $323 million of cash coming in post quarter end? Apologies for that type of question.
But just wanted to get a sense of the cash that's expected post quarter end?
Hugh Baker
I think we'd have to deal with that offline, Omar, but no, the cash -- the -- for all the vessels we've sold, the cash has been received, except for the remaining 7 vessels that have to be delivered to buyers and the 5 vessels that have yet to be announced for sale.
Omar Nokta
Okay. I'll take it with you offline.
And then just wanted to confirm, Emanuele, you had mentioned the expectation is for all the committed sales to take place in the second quarter. And then also, you highlighted the -- reaching a decision to sell the remaining 5, that's all expected to also take place here in the second quarter as well?
Emanuele Lauro
That's correct, Omar. That is correct and deliver most of them within the end of the second quarter as well.
Omar Nokta
Okay. And then I guess maybe just kind of big picture just on that with all the cash coming in.
How do you feel about how Eneti stands when all said and done with all the vessel sales you're going to have a good chunk of cash, how do you feel about the company's cash position as you look forward here in preparing for the installation -- sorry, the installment payments on the offshore wind vessel?
Robert Bugbee
I think we feel very comfortable. We can see from the installment payments are very, very tail heavy anyway.
And the company has no further firm commitments apart from those installments for capital use. So with whatever you want to look at it, around approximate $280 million, $300 million, whatever you come up with you can see that there's more than sufficient cash to deal with our needs for -- through this particular project.
Omar Nokta
Okay. And then one final one, and I'll turn it over.
Just kind of as you guys think about -- obviously, you have a good amount of liquidity. When you think about the Scorpio Tankers position, how are you guys thinking about that in this context as you move forward?
Because obviously, it's doubled in value here over the past 6 months. What are you guys thinking about that stake at this point?
Robert Bugbee
Well, it still only may have doubled in value in the last 6 months. There's still only half of what it was pre-COVID and its expectations are -- its market is gathering strength as we speak.
And I think whether it's the -- any of the shareholdings that Eneti has had, we certainly haven't put ourselves on ambition to be pressured into selling. So right now, the group itself is a better buyer of STNG than it is a seller individuals have been.
And there aren't any plans today to sell those stock -- the stock in the STNG imminently. But there will be a point as we move through this.
So over time, that, yes, we would expect to fully realize all of the cash in the -- in not just the vessels themselves, but the shareholdings as well.
Operator
Your next question comes from the line of Greg Lewis from BTIG.
Gregory Lewis
This is probably maybe for Cameron, but anyone. I was hoping to kind of understand, as we think about the design of the wind installation vessel that you guys have on order and that I assume you're thinking about a similar one in the U.S.
Gulf. There's been some doing -- some digging around and turbine installation is obviously essential, but one of the differentiators, it looks like, is going to be your vessel's ability to do foundation installation.
How much of a differentiator is that? And how should we be thinking about that in terms of the potential to maybe -- we realize that rate ranges are in a range.
Does that extra capability kind of put you at the higher end of the spectrum when we think about chartering these vessels for periods of time? Just any kind of color around that.
And really, the decision to kind of move forward with the ability to do foundation.
Cameron Mackey
Thank you, Greg. I'll take a stab at it, and maybe my colleague, David can add.
But we're looking at an industry that is still on the come and consequently, a supply chain that is still in uneven stages of development. So what I mean by that is that customers are trying to optimize their own plans without a full set of cards really.
And so having that extra capability gives us an offering for a customer like an option which priced appropriately, can really lead us to excess returns. It may not always be something that's used, but it's a very, very valuable option to have and when we priced out very carefully as we modified our vessel design and specification from last August to when we signed the contract just a couple of weeks ago.
So that may not be a very specific enough answer for you. But I would say that based on feedback we've gotten from the customers, it's an important option to give to them, particularly when you're talking about seasonality and weather conditions in places like the North Sea, Northern Europe, the East Coast, United States, for example, and what -- how reliable foundation installation will give value or provide value to our customers.
David?
David Morant
Yes, I think that's right, Cameron. It's David speaking.
I was just going to add that, as Cameron mentioned, it's been the result of significant customer feedback, Greg, to answer your question, over the period since we announced and I think what you can see in the charts we produced last week is that the sensitivity in terms of financial return, it's not just rate, but it's also utilization. So we put in there our utilization expectations, but clearly, having this degree of flexibility is going to lead those numbers to be potentially reliable base case numbers, I would describe it as.
And the other thing I'd suggest is that we've obviously seen an evolution base in the industry in terms of the turbines, which have been announced and also some of the vessels which have been announced over the last 12 to 18 months. And you can see in a customer-led way a sort of convergence of thinking in that space around having some flexibility in the deployment of the vessel and the contract structures that are likely to come about as a result.
So very much reiterate what Cameron said, it's a thoughtful considered additional incremental investment on which we think that the financial -- the marginal financial return looks very interesting.
Gregory Lewis
Okay. Okay.
Perfect. And then you -- realizing there's a lot of moving parts and that Q2 is probably not going to really be indicative of later this year and next year.
But any kind of quarterly or annual run rate, how we should be thinking about SG&A as we kind of move forward to taking delivery of the first WTIV in a couple of years?
Emanuele Lauro
I think that we're still trying to work that out, Greg. I think that -- obviously, there are a lot of changes there, and it's still something that's under discussion internally.
Robert Bugbee
I think what you have, Greg, you just have to bear this a little bit longer because we've got -- we're -- obviously, on one hand, you're ending costs related to one business, which is positively costing on the other, where we are building out our own organization as they were related now to wind.
Operator
We have your next question coming from the line of Turner Holm from Clarksons Platou Securities.
Turner Holm
Congratulations on the firming up of the order of the wind vessel. I think, just speaking from a renewables' perspective, it's a very welcome investment.
There's definitely looks like a shortage of vessels going forward. So glad to see new players coming in and looking to fill that gap in the supply chain.
I just had one question on the spec of the vessel. Just post the upgrades, how many of the next-generation turbines do you guys expect to carry?
And sort of where does that put you from a competitive perspective?
Cameron Mackey
Turner, I can take that. It depends, of course, on the specification of the turbines is -- but it's somewhere between 4 and 6.
Obviously, at the time of designing and taking feedback from the customers and decided to upgrade the crane, we're balancing, say, logistical capability, depending on the geography where we're going to deploy the vessel and capital efficiency as well. So there's no question that our vessel can install the biggest turbines, up to 20-megawatt turbines.
The issue is, in and of itself, how our customers think about their supply chain and the turnaround times and the distance to the fields. And so again, it's not always the case that more is better.
It really is more horses for courses conversation with our customers. And so we're quite satisfied with where we've arrived.
Turner Holm
Okay. Very good.
I guess, though, it's fair to say that puts you on the high end of the fleet, including new builds. Yes, and then just one more from me.
It's a 2-part question on the Jones Act. On a high level, how does Eneti sort of comply with the Jones Act and -- from an ownership or operational perspective?
And then the second part of the question is just if you're seeing similar type dynamics on the sort of potential contracts, if you were to go ahead with the Jones Act new build as compared to the international market?
Cameron Mackey
Thanks very much for the question, Turner. So I think we may have touched on this in our call at the time we announced the contract, but I'll walk through it again for your benefit, which is obviously, to comply with the Jones Act, you need a few things, you need a vessel that's constructed in the United States, but you also need a U.S.
citizen owner and a U.S. citizen operator.
So as we said before, we're not planning on being the 100% or even the 51% owner of this vessel. We have a number of discussions with capital partners that are U.S.
citizens, and we also have several conversations going on with partners for the operation of the asset, credible partners. So we will be involved but in order to comply with the Jones Act, we cannot be either majority owners or majority operators of the asset.
We've identified this opportunity and carefully evaluated some of these potential partners before we dove in and made this announcement, but there's a fair bit of work still to do. What we know is that the opportunity is exciting, but it's also our initial announcement has been very well received and our initial conversations with customers, most importantly, has been very enthusiastic because they don't see -- many of them don't see the current solution of trying to avoid the Jones Act as operationally or even politically tenable.
And so as we get further into our process here, again, we'll be talking not only to the Jones Act partners but also the particular developers of U.S. field because those conversations have been very -- like I said, very, very constructive so far.
Operator
And your next question comes from the line of Mark Wilson from Jefferies.
Mark Wilson
The first point is to say, in terms of the U.S. Jones Act, the vessel you expect to get to, do you expect any differences in the spec of that vessel versus what you've shown for the Eneti new build under LOI now?
Cameron Mackey
Yes, we do. So as you probably know, there is one Jones Act vessel currently under construction in Texas, and that is owned by Dominion Energy.
They have very particular, say, plans for that vessel. It may appear to one that it would be easiest for us to repeat that design and with that shipyard, but we're not sure that, that's the best thing to do, again, from the point of view of capital efficiency and also from the customer needs that we've assessed so far.
So while we haven't concluded on the design, we're thinking that something slightly smaller provides both the right capability, given the distances from the marshalling harbors to the fields, the right capital efficiency and also, needless to say, at some point down the line in another decade or is more, there's going to be a market for operation and maintenance of U.S. wind farms that a vessel will be needed to address.
So with all those things in mind, we're thinking of something slightly smaller. But again, we haven't finalized those plans yet.
We're still in discussion with several yards.
Mark Wilson
Got it. Okay.
And I'm sure this was covered on the call last week. But in terms of the -- I think you mentioned the crane.
In terms of the difference between the price of the first vessel, to $330 million and also the time line, 3Q '24 versus 2023. Can you just explain the delta in the cost and the time line there, please?
Cameron Mackey
Sure. I can address that in part.
I mean, we can all have 2020 hindsight, but of course, it would have been cheaper to order a vessel a year ago in the middle of the COVID pandemic when demand were -- was at its weakest for components and for steel and for ships, frankly. So there's no question that as the world recovery, economic recovery from the pandemic has started to taking shape, the price of steel has risen quite markedly by some measures, 50% to 70% off its lows last year.
The Korean Yuan has moved quite significantly. And of course, there's competition for other vessel classes, not just in Korea, but Japan, China, for assets like LNG and container ships that one has to compete with.
So for all these reasons, the price of our vessel, again, we took advantage of time to get customer feedback to get more sure of our position and our path forward. But yes, that came at some cost to the overall pricing position we were able to attain.
So again, probably 8% to 10% difference in the price of the asset.
Mark Wilson
Okay. All right.
So the actual -- the spec is, as you would have expected, material cost has increased. Understood.
Cameron Mackey
Sorry, just to clarify, we changed the specification during that time from last August to the time that we announced the contract 2 weeks ago. So we've upgraded the specification in a number of ways, most notably in the capacity of the crane.
So it's a much bigger crane, but also in improving the green credentials of the asset, which took a lot of time in the study. So it's a combination of the price of the vessel increasing, but also the specification increasing.
Mark Wilson
Understood. Understood.
Okay. Absolutely.
And then last question for me. We go back to last year, you talked about an additional 10 installation vessels required to meet 2024 demand.
That was over 10-megawatt turbines. How would you think that delta looks today given the -- both yourselves and other orders on that time line.
Cameron Mackey
David, do you want to address that?
David Morant
Yes. I think -- Mark, thank you for the question.
I mean we've looked obviously at a lot of the LOIs that have come in over the last 12 months. And it's clear that there are -- there is interest in building additional vessels.
However, you'll notice that many of those have not yet come to a full contract, not to say we expect them to fail. But clearly, there has to be question marks around how many of those will actually get built.
As you'll see from our presentation that we gave back late last week, we produced some numbers that we believe the deficiency is still at least that partly because we've seen additional FIDs come through. And also, obviously, particularly as we've been focused on with the acceleration in the U.S.
market, which were brought out by the political changes from the Biden administration. I don't know, Tim Sanger, my colleague who has focused a lot on the industry, might have anything to add to that answer.
Tim, do you have anything to add?
Tim Sanger
I think the only other thing I'd add is that just some of the specifications of the turbines that have come out in the last year or so have been kind of even more demanding than were expected. So that gap is still very much there.
And the project demand pipeline is still incredibly strong and particularly strong in 2025 and '26.
Operator
Our next question comes from the line of Randy Giveans from Jefferies.
Randall Giveans
So first, on the WTIV on last week's call, you mentioned you have attractive vessel financing. But what kind of terms or maybe loan-to-value do you expect to secure for that?
And then for the timing of the drawdown, is that not until delivery in 2024?
Emanuele Lauro
Randy, let me answer the first part of that question. We don't know yet what terms are available.
But we've been discussing at a very high level this with banks for quite a while now, and we're certainly confident that a very standard export credit agency financing would be made available, and we got a lot of interest from export credit agencies in Korea and elsewhere. Because obviously, it's not just being built in Korea.
There's a lot of European equipment. So we are getting very positive input from the export credit agencies and from commercial lenders.
So our expectation is that it would be a very standard project finance and we would be expecting terms that are roughly approximately similar to what we would get for normal maritime lending. I think the advance rate is likely to be slightly smaller and lower, and that would be probably our preference as well.
So our anticipation is we would anticipate approximately 60% finance for this asset, give or take, 5%.
Randall Giveans
And then timing or...
Emanuele Lauro
Timing is -- this is something that we will begin to discuss with institutions this year. But there's a very -- export credit agency financing has a long lead time.
So I think that it's going to be next year that we would be able to get credit approval for such financing. But I think that our level of comfort on what we can achieve is going to be established this year.
Randall Giveans
Got it. Okay.
And then looking at the dry bulk fleet. I know the initial goal was to sell all those vessels by March.
Obviously, now it's May, you still have a few vessels. Is that because the market improved much quicker and better than you expected?
Or -- and was that buying appetite for your vessels was just maybe less than expected?
Emanuele Lauro
No.
Robert Bugbee
I think it's -- go on, Emanuele, please.
Emanuele Lauro
It's a good question, Randy. The vessels are -- the specific 5 vessels remaining are financed in Japanese leasing structure that presents some complexities in their -- in its transfers.
So we do expect to announce a conclusion as we discussed by the end of the quarter, but there are no issues, neither with the market nor with a specific vessel transaction. It's just an issue of announcing it when all Ts -- when everything is in place.
So it's just a question of timing.
Randall Giveans
Okay. That's fair.
And then I guess, lastly, real quick, no revenue coming after this quarter if you sell those 5 vessels. So how long do you plan on keeping the dividend and then do further share repurchases?
Does that make more sense with the share still trading at a big discount to NAV?
Robert Bugbee
I think that's something that we -- the Board has been focused right now on, excluding the sales and the new building. And that's a worthwhile question and something that we will shortly discuss.
You're correct. The service that -- you're correct that the stock is trading -- is going to be trading or is trading well below its -- what its cash realized value is going to be.
Operator
Your next question comes from the line of Liam Burke from B. Riley.
Liam Burke
David, when do you begin to gather management talent and the team to build the WTIV business? And do you think there'll be a lot of competition for talent?
David Morant
Thank you very much for the question, Liam. I'll have a stab at it, and then I'll hand it on to Cameron, who has been very involved with that.
Look, it's definitely an industry that is growing very quickly. And I think what you can see with all people as they look to make a career in an industry which is set for multi-decade of growth is that they like working with great equipment.
And I think at this stage, as a new entrant, it's very clear that we have the opportunity to build our infrastructure with a relatively clean sheet of paper. We think carefully about how we want to structure the business and the sort of people that we want to bring in.
And also our footprint. We've mentioned, obviously, the U.S., which is going to be an important part for Eneti going forward.
And that's something that's very much a focus for us in the context of what we're looking to do. But I'll maybe hand it on to Cameron if you have anything to add to what I've said there to Liam's question.
Cameron?
Cameron Mackey
Sorry there, Liam. If the question is when and how the answer is we've already started, and we have, as David implied, a choice from very credible and experienced personnel.
It's hard to get much more specific than that, except to say that as our plans have become more widely known, there's a number of people reaching out to us, and we have the chance now with some lead time to methodically build a very credible world-class structure to match the assets that we're ordering.
Liam Burke
Great. And -- I'm sorry, Robert.
Robert Bugbee
I think, Liam -- I think one way to -- I'm pretty confident from what I can see is to the extent that people see that we're building this, they will come. And that's sort of about the simplest position.
They are coming.
Liam Burke
Okay. You're in discussions with U.S.
shipyards, you have an option on the Daewoo for another vessel. Thinking about the offshore markets, do you have a particular bias towards going with Jones Act and U.S.
offshore? Or like the first deployment overseas, do you have a preference going that way?
Cameron Mackey
I can try to answer that, Liam. You probably know our style by now, which is to try and set up alternatives and then have a competition for capital for the best returns at the time.
So to the extent we don't have to say, and we don't have to make a decision today, we'll keep establishing alternatives in order to make the best decision when we have to make it, not before that time. So we each may have biases, but the scene is changing so rapidly that it's just something we'll have to address as and when those choices come due.
Operator
And I am showing no further questions at this time. I would like to turn it back to the speakers for any further comments.
Emanuele Lauro
Great. Thank you.
Thank you very much, everybody, for your time today and your interest. Hopefully, we'll have many opportunities to update you in the future and come back to you with more specifically with some of your questions.
Just thank you very much, everybody dialing in. Thank you.
Bye-bye.
Operator
And this concludes today's conference call. Thank you all for joining.
You may now disconnect.