Q4 2019 Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to the terms on you report 2019 conference call.
This time, all participant silver listen only mode. After the speaker presentation. There will be a question is not sufficient to ask a question Jordan session. You would need to press star one on your telephone I must advise you that this conference is being recorded today Wednesday, the 11th as much Twentytwenty I like technical <unk>. So.
Joe speaking shape most can address please go ahead.
Thank you.
Thank you for dialing in and welcome to Tom's Conference call regarding the results for the full year 2019.
My name is more on October nine head of corporate finance is residential.
As usual on these calls we will refer to the spot this slots as we speak and at the end up the presentation, we'll open up for questions.
Slide two please.
Before commencing I would like to draw your attention to our safe Harbor statement.
Slide three please.
With me today is expected to direct so yeah, I got my God and.
Our chief financial Officer keep them.
I'll hand, it to watch Yahoo.
Yeah. Thank you.
Turning to slide number four.
Turning successfully navigated a modified product here 2019, which was impacted by the refining industries preparation for the IMO Twentytwenty sulfur regulations.
Yeah, our resource for the year were enhanced by our strong operational focus and I'll focus to maintain efficient operations and low cost base.
Today, I believe that Thompson fully integrated once one platform contribute both to our low breakeven levels as well, that's our superior commercial performance relative to abuse.
The product tanker market strengthened considerably I see it progressed with a significant positive impact from the strong crude tanker market. It's used by sanctions on the cost will feature.
The rates stabilize at lower but still very profitable levels and has all remained at these levels. Since then.
I will go through the details on the market shortly.
For the full year Toms Park 10 defeat realize an average Tc rate up $16526 today, we see 27th percentile then the corresponding figure from 2018.
For the fourth quarter of 2019, the realized rate was $19234 per day.
[noise], we realized a positive EBITDA of $202 million for the year and a profit before tax of 167 million dollar.
Adjusted for an impairment reversal of $120 million, our profit before tax was $47 million or 62 cents per share.
The return on invested capital was positive at 4.9% for 2019, which is considered attraction in comparison to up yes.
The estimated net asset value was just about $1 billion so 31st December.
And later in the presentation Kim will take you through a breakdown of this particular metric.
[noise] illustrating our continued focus on maintaining a solid balance sheet. The net loan to value was 46% at the end of the year and available liquidity was $246 million.
In 2019, we devoted significant resources to optimize the feet for I would twentytwenty and beyond.
Including commitments made in the first quarter of Twentytwenty to date toll might decide to install scrubbers on 49 vessels, including new buildings or slightly more than half of our feet.
Oh approach has been balanced and thoughtful and all decisions to install scrubbers have been made a case by case basis, taking reasonable fuel spreads assumption and vessel specifications into account.
Even with the recent drop in the fuel spread Tom Scrubber investments a profitable business case with a combined payback time around three years.
In 2019 tone continue to opportunistically grow at modernize the feet.
We took delivery of a total 12 vessels, including six m. on Newbuilds.
Well, the one newbuilds and for 2011 built in my second hand vessels and here in the first quarter of Twentytwenty, we placed orders for two or two newbuilds.
At the same time, we have sold eight older vessels, including five M. Abscessus entry Handysize systems.
Tom I assume when sanity, taking steps to further strengthen the capital structure and then liquidity profile.
In 2019, we competed sale leaseback transactions for eight vessels, providing total proceeds of $151 million.
Finally here at the start of Twentytwenty Weve refinanced debt for total of $496 million from eating ship lending banks for two separate term loan facilities and a revolving credit facility.
These facilities replace existing facilities and extended the majority of the debt maturities until 2026.
We believe that the actions position Tom to prosper onto the condition, we expect for the market to be present in the coming years.
Slide five please.
Now, let me turn to the product tanker market.
As mentioned.
That far think a feat in our case average at Tc rate of $16526 per day for the year in the lot segment. We achieved two rates of 19000 sitting on a $30 per day and a loss had rates of $17102 per day.
For our largest segment the M. us we achieved rates of $15840 per day and in the Handysize segment, the cheap rates with $14965 per day.
At the start up the fourth quarter last year rates for part of Texas, particularly for larger vessel classes will propel higher due to strong sentiment in the crude tanker sector that resulted from the sanctions put on the cost coffee.
It's triggered the switch to do it is rate for a number of it up to business.
Great stabilized then at higher levels after the market absorb the supply shock and product tanker rates benefited Additionally from seasonal demand and multiple open arbitrage opportunities.
Okay.
The strong finish to twitchy 19 continued into the new year.
Twos continued to switch to dirty trades, resulting in a number of into 2000 thirteen's rates declining by no less than 15% since the start of Q4 29 team.
Great and that went up in particularly strong with M. Austin, the U.S. golf currently running around $30000 per day supported by massive delays and the Panama Canal, which is tying up tonnage and creating new longhole trade routes.
We estimate that increased waiting time to transfer the Pentagon, Panama Canal due to the low water levels at the Lake Attune.
Could potentially reduce the available in lots on the supply by 22% on a global basis, while the impact in the Americas market alone is around 7%.
Given the prognosis that it takes at least until may before the water lives start to increase.
In the area that is a considerable distortion to the product tanker markets.
In the East we currently experienced increased product exports out of China, Asacol 19, that's dramatically reduced oil demand in China and led to increased product inventories.
Well, obviously uncertainties around the cool with 19 impact on the global economy in all demand remain but so far in their product tanker space, we've not seen negative impact from that.
In fact couldn't rates in the east are the moment around $22000 per day for M. obvious was up from 11 around $14000 per day during the second half of January well the virus what are we starting to make headlines.
The information developments I wasn't reflected in our bookings.
As a fifth March.
Last Thursday, the total coverage for the first quarter of Twentytwenty stood at 87% and at a rate of $23818 per day.
In our Lockups segment, the M. off the coverage was also 87% and the rate achieved was 22700 and switching $9 per day.
Slide six please.
Along with a strong who take a moderate in the fourth totaled 40 Ela two vessels has switched from clean to dirty trades and around 15% of the lot to capacity has been removed from the clean trading feet until then.
In fact, the lifetime, 50% of the other two feet was trading Dirty was all the way back in March 2030.
If we look at the nominal number up at a two business in the cleans rates now the last time, we had so few vessels trading clean what's in the second half of 2015.
This is was the feed itself has grown by around 100 vessels for the period.
This development within our opinion support park 10 rates over the medium term switching back from two it's to clean cannot happen very easily.
Additionally rates in the food segment still sufficiently healthy.
<unk> illness to differ so it's a decision.
Slide seven fees.
As already mentioned before the positive rate development in the product take a market had remain intact. Despite a negative sentiment related to the cool with 19.
The outbreak off the COO 19 in China, and it's getting to the rest of world has led to a downward adjustment.
The global oil demand growth this year.
Instead of growth.
1 million barrels per day.
Most oil and others and traders now aspect of growth below.
5 million barrels per day, and some even closer to zero gross.
How ala what is important to emphasize here is that part of thing a market is not directly affected by absolute all demand and supply levels, but rather buy imbalances between demand and supply in different geographical regions and as a result, the part of taking them out and it has not been negatively impacted by the.
David 19.
In fact, the lockdown of cities in China, which has shaved off a considerable portion of China's all demand has resulted in higher product exports out of China.
As I mentioned earlier it moderates in the eat up currently higher than before with 19 really too cold in China.
The same trend can be seen forward earnings for the first quarter of Twentytwenty, which are higher than out earnings in the fourth quarter and we in fact looking into the strongest start to a year in more than a decade.
Clearly it is too early to predict the full impact of the cool 19 on a global economic growth and many uncertainties remain.
Despite locks downgrades global oil demand is expected to rebound during the second half of the year and we've seen early indications of government stimulus not only China, but also from a number of other countries, which will likely mitigate the impact of the cooling 19 outbreak medium and long term.
From the tone of supply side. The situation will also have a positive short to medium term impact on vessel supply.
So operations at shipyard in China had not yet returned to their normal state.
This means that in general delays will occur with respect to newbuilding deliveries scrubber retrofits and ordinary scheduled dry docks.
Thanks to capital planning and the fact that most shipyards use by Tom have only been affected to a minor degree our scrubber retrofits will only experience marketing of delays.
Slide eight these.
Another factor, causing turbulence on the market. It's a very recent collapse of the overall plus supply limiting collaboration with Saudi Arabia announcing locks pricing cuts and increase in his crude production to up to 12.3 million barrels per day from 9.7 million barrels per day in January.
The immediate reaction to this was a shortfall in the crude oil price.
Brent now trading at around the mid Thirtys.
US dollars per barrel.
An increase in Saudi Arabia is crude output and the subsequent price cut is expected to boost Saudi arabia's crude export supporting the crude tanker market.
Assuming all at 1.6 million barrels per day of extra accrued from Saudi is export to the far east. This corresponds to an additional demand of 37, vlccs or an increase of 5% in VLCC fleet utilization.
The crude oil price at the current low level and the forward curve in contango also incentivizes for stock building and potentially for floating storage once onshore storage has been fully utilized.
In fact, we talked a lot increase in crude supply at the same time at demand has been hit by the Corona bars, the amount of crude going into storage could be larger than seen in 2015 and 2016 last time, we saw strong increases in the middle East crude production.
This resulted in a strong welcome sanco with an average of 40 vlccs being involved in floating storage.
The positive developments in the could take a market are likely to spill over to the product tanker market as well.
On the supply side, the stronger crude tanker market encourages ella vessels to stay in a dirty market and on the demand side lower crude oil prices boost refinery margins and incurred higher refinery Lawrence leading to more products.
That need to be transport from refineries to end consumers and eventually to inventory.
Slide nine please.
Yes.
An important catalyst for the product tanker market remains I'm with Twentytwenty regulation that has led to a shift from high sulfur fuel towards cleanup fuels, including Marine Castle.
The first effects of this started to unfold already in October and November last year as vessels tanks were clean and new fuels were loaded ahead of the regulation.
The initial evidence suggest that while beautiful gained significant market share in Asia already in the last month of 2019, leaving the Mg Oh uptake more limited the MTO demand in Europe, So a 30% increase in November.
Second sources indicate that several vessel owners in Europe have continued to apply MTO instead of me as a CFO at the price difference between the two fuse that's been very narrow and at times, even negative as can be seen on the public rough on this slide.
It must also be noted that the availability of municipal on a global scale, probably has been higher than most of the marketplace as expected.
However.
We believe the full effect upon which we see 20 on the demand of MTO and subsequently concrete seems trading is yet to unfold.
We believe there's the potential for a larger MQ uptake in the second and third quarter when gasoline demand is expected to increase and refineries we removed some of the feedstock that currently go to the vs. If vocal towards the production of gasoline, hence lowering municipal availability in the market.
Slide 10 please.
Now, we turn to the supply side market sectors, the product tanker order book to fleet. Rachel currently stands at 7%.
Which I briefly mentioned earlier is a 25 year historically low levels.
This reflects the low ordering activity we've seen most of last year, although interest when you billings picked up somewhat towards the end of year driven by the higher freight freight rates experienced.
Nevertheless, we do not expect a quick run off of the order book given the uncertainty around new potential regulations on vessel propulsion in connection with almost 2030 and 25 tissue to targets.
Lot of talk in the market has been on June four vessels, but so far in that product tanker space June two orders have been very limited.
We estimate that the product tanker fleet will grow at an average annual rate of 3% for year over the next three years compare.
Peak growth of 4.7% in 19, and an average of almost 6% during the previous three years.
It is also important to mention here that the extra fee growth in twentytwenty might come in at a somewhat lower level due to vessels being temporarily removed from market for scrubber retrofitting aswell as delivery delays from Asian shipyards related to the impact of the cool with 19 on supply chains and with.
Force availability.
The slowing fee growth rate is a key point to the fundamentally positive development that we expect for the part of tech industry.
Okay.
Slide 11 please.
To conclude my remarks on the product tanker market talk generally has a positive outlook and we expect the growth in product tanker demand to exceed the supply growth. The next three to five years.
The product tanker market is impacted by key economic indicators, such that underlying all demand and the general state of the across.
And yet we clearly have entered into a period of short term uncertainty.
The outbreak of improved 19 in China and is spreading to the rest of world has led to a downward adjustment of the global oil demand growth this year.
However, as already mentioned the part of thing a market if not directly affected by absolute all demand and supply levels, but rather imbalances between demand and supply.
And a good example here is indeed, the current strength in China's clean product exports, which has been there is sort of the collapse in chinas auto demand due to the dropdowns and travel restrictions exceeding the corresponding cards that took place in the refinery production.
With the uncertainties in mind, we do believe that the growth in product.
The demand and supply imbalance is the low order book.
A number of Ela twos, having switches to dirty trade as a crude market has strengthened.
Lower crude oil price and contango encouraging floating storage refinery runs.
The continued refinery expansion in the middle East and finally, the still unfolding IMO 2020 effect or supportive of a continuous strong product tanker market medium to long term.
Slide 12 please.
Looking at our commercial performance, we have in our locked in our largest segment loss outperform the peer group average 14 out of 16 times since 2016.
This translate directly into additional earnings are more than $90 million over the last four years.
In the fourth quarter of 2019, we achieved rates of $18111 per day compared to a peer average of $16123 per day.
Into you know I'm very satisfied the terms operational platform continues to deliver very competitive TC earnings I believe Tom is well positioned to take advantage of the promising supply and demand fundamentals in our markets.
Slide 13 piece.
Okay.
A key deciding factor for delivering above average Ccs earnings.
Is driven by our continued focus on positioning our vessels in the basins with the highest earning potential.
We had a balanced strategy, where we generally do not for season. All of this is one basin, but instead have some overweight in other east or west depending on our expectations for the future markets.
In a scenario where the market is strengthening in the west relatively compared to the east we want to increase our exposure to the list.
To illustrate Australia choices, we have depleted our share of MRV basis.
Decision West of Suez Canal, together with a measure of the premium service market as realized over these markets.
Over the last quarters, the market west of Suez has been stronger and especially so far in the first quarter of Twentytwenty. The with market has been trading at a premium to the east with measured using benchmark rules has been at around $12000 per day.
So far in the first quarter, we've had around 75% of our drilling days west of Suez, providing us with a significant advantage compared to owners with a high exposure to the east market.
Let me now handed over to Kim.
Further elaboration of tomes cost structure, the operating leverage and our balance sheet. Thank you Jay how please turn to slide 14.
Before reviewing our Opex on admin expenses I would like to remind you of Toms operating model, we have a fully integrated commercial and technical platform, including all support functions such as an interim season purchase team, which we believe is a significant competitive advantage futral.
Importantly, it also provides a transparent cost structure for our shareholders and eliminates related party transactions.
Naturally we are focused on maintaining efficient operations and providing a high quality service to our customers. Despite this trade off we have seen gradual decrease since up 17% in our Opex per day over the last six years, which translates into a decrease of around $33 million on annual basis.
Opex was approximately $6350 per day in 2019, which we find competitive in light of fleet composition.
We also remain disciplined with respect to general and administrative expenses.
We believe that.
The EBITDA breakeven rate of $8700 per day and profit before tax breakeven rate of 14000, several hundred dollars per day achieved in 2019 reflects.
The efficiency of the once on platform and its highly competitive compared to other on us in the product tanker segment.
Slide 15 please.
Okay.
With us based profile, Tom has significant leverage through increases in the underlying product tanker reach.
30.
So first of December 2019 every 1000 dollar increase in average daily Tc rate achieved translates into an increasingly BDF around $25 million in twentytwenty.
Corresponding figure increases to $13 million in 2021 and 2022.
In the bottom of the page you can see that as a fifth must twentytwenty. The coverage for the first quarter of Twentytwenty was 87, or so sorry, 70% at 23008 on $18 per day.
For the same individual segments the coverage range between almost.
The ranges between almost $20000 per day for smaller handysize vessels and up to $20000 per day for the last or electrical business.
Slide 16 please.
I'd now like to discuss our financial position in terms of key metrics, such as net asset value on loan to value.
Vessel values have increased with around 6% during the fourth quarter of 2019, and the value of Tom services, including Newbuildings was $1.8 billion. So.
31st at December 2019.
Outstanding Cross stepped amounted to $855 million so.
First December 2019.
Finally, we had outstanding committed Capex of 51, Oh, sorry, $51 related to our Newbuilding program as of surface December 2019.
This gift homes and the loan to value of four to six present.
At the end of the fourth for which we consider a conservative level.
The net asset value system made to that.
1 billion in 16.
Dollars as per se.
First of December 2019, this corresponds to 13.6 dollars or 90.
1.1, Danish krone per share.
Just before commencing this call Tom share were trading at 52 things growing up.
In short, we have a balance sheet that provide us with strategic and financial flexibility.
And on following slides I will give you some more insights into the profile liquidity position and Capex commitments updated as up in February Twentytwenty as both our refinancing and recently ordered electrical Newbuildings are not included that if you guys Esa.
So the first December 2019.
Slide seven gene please.
As of 31st December 2019, Tom had available liquidity of $246 million cash totaled $72 million and we have.
We had undrawn credit facilities of $174 million.
This corresponding figure as of the 20 Nice February Twentytwenty was $297 billion, which reflects both our finalize refinancing of existing bank that but also our ongoing financing of three remaining newbuildings.
Our total capex commitments reeling relating to a new buildings were $51 million as of servers December 2019, the corresponding figure as a 20 last February 20 to 20 was $112 million, reflecting our recent off to a lot to newbuildings.
As expected delivering the force products 2021.
In addition to the Capex related to a two newbuildings. We also expect to pay $33 million into interest Brinci for retrofit scrubber installations on business on board.
With some strong liquidity profile, the capex commitments fully funded and very manageable.
Slide 18 please.
Also finalized refinancing in the beginning of 20 to 22, we have included the new financing profile a sustained at 29 February 20 to 20.
The graph, we have eliminated all major refinancing until 2026, which provides them with a financial.
Strategic flexibility to pursue value enhancing opportunities in the market.
As a third of first December 2019, our outstanding debt stood at $850 million and other refinancing was concluded the corresponding figo stood at $935 million.
With that I will let the operator for questions.
Thank you we will not begin the question answer session. As a reminder, if you do wish to ask a question. Please press star one on your telephone and what's your name to be announced if you wish to kind of see request. Please press the husky.
Once again, if you wish to ask your question. Please press star one.
Thanks.
Your first question comes from the line of Jon Chappell from Evercore. Please ask your question.
Thank you good afternoon, everyone.
Good morning, John.
Jacob I know its a.
It's a very fluid market right now.
Both and tankers and oil and the world.
So let me ask you have kind of a bigger picture operational question you mentioned the geographic positioning of your ships.
You also at the joint venture that provides the scrubbers for your own fleet.
So kind of multi part here how are you managing the business, giving kind of the disruption going on right. Now have you changed the way that you actively managing the fleet in different regions given the outbreak.
Have you thought twice about the timing around scrubbers.
Just any kind of.
Bigger picture management operational as it relates to what's going on the world today.
Yes. Thank you John that that is.
Are relevant question obviously.
And I think you can say that the one of the things that we've experienced.
Benefit of our one toll integrated platform is obviously that we can make these decisions.
Almost on a.
If not Audi then on a daily basis about adjusting.
Our approach to to all the operational elements, where you already touching upon some so I think if I start with the effect.
Of the Corona wise, it obviously started with a direct consequence around China.
You know how to mobilize vessels said were either on the way the to China to try to up to retrofit.
And how to actually get people.
In get people out.
Without compromising safety.
We were lucky in the sense that the particular shipyard we are utilizing for dominant force grow retrofit is actually an island.
Well the government of China, and the local government isolated the island by simply.
Putting down.
That.
You could leave the I didn't put you could not come to the island.
So in effect that was not by design something we had anticipated but by design was so that the spread of the virus Didnt come to this particular air at Q2.
That decree and that the workers that were there continue to work has been on the margin we've experienced some delay, but it's not something that has led us to change and make any other decisions as seen from that perspective.
Right now we have still a number of.
Retrofits, they're either going to take place as we speak or pretty soon I think what could happen with the current strength in the product tanker market is that we may choose to delay.
Maybe a couple of our retrofits on a case by case basis, if let's say the current strength in the lot to segment is so that you can achieve lets say 40000, plus if you do a voice now depending on your expectation for the future. It may be that instead of putting a scrubber on which gives a benefit of let's say $5000 per day.
Yeah.
Doing that today, all waiting two months.
No it's adjustment call, but we may make those calls so now feet. So I think China is one thing relative the world So far.
That's been less operational.
Consequently, we've still been capable of taking.
Our colleagues at sea on an offer vessels, we've not experienced.
Significant delays some additional operational cost in relationship to that Weve for safety measures we do.
From time to Tom have people in two weeks guaranteeing simply because they come from areas that could potentially be high risk areas, but that's the extent of what we have it doesn't mean now I'm not.
Sort of saying that it doesn't have an impact on outdated laugh, but it does not have a financial impact on our resource.
And there I think the bigger picture would be that we've actually seen the export volumes out of China.
The reversal of from being refiners.
Being solely.
Focused on delivering to the Chinese consumers that they have had to move outside has actually been supportive.
Our freight rates were impacted just as you when you work.
Hi to of the lunar holiday, let's say early phase until mid fit we saw that how rates came down.
We are now experience today that the rate environment. It is probably at or above what we had pre corona.
And Thats.
We are in that sense very different.
Than many other achieving sectors.
And I'm not an expert on the others, but I can just see from the data points that get in that you would be more.
Exposed if you were in the container business, because there's not a movement in and out of China.
When this is taking place we actually had movements that took place.
Yeah that makes sense and it was very noticeable and then as we kind of take the next step stuff, which is the oil price, where that's going on and I know you got to slide dedicated to this.
I think.
We try to.
Work off of past experiences and this deals very similar.
To the post Thanksgiving 2014 move biotech that lasted well through 15 in was incredibly supportive to the tanker industry across every segment.
However, it feels a little different this time, just because in that environment. The demand for oil will still relatively robust outlook.
We're looking at in absolute.
Opening of the spigots across the world, where demand may not be there. So I think it makes sense from a crude perspective to see how there is it.
Direct benefit from the product, it's maybe not as clear so you'd mentioned on slide eight the refinery runs and refining margins will be higher lower feedstock cost to get that refinery runs.
But is there any concern on your part that.
The end users not there the demands that their itself. The crude just may be sitting at sea and not being utilized done by the refineries. So what's happening in the world at least in the last 48 or 72 hours is directly beneficial to the crude guys without maybe the the same direct impact of products.
I share your thoughts I think I'm, a little more refined to my thinking in that process as I think when you have what we had a let's call it.
A week ago or since two hours ago wasn't environment, where everything else being equal.
Crude tanker owners.
The would potentially be looking at us and there was where.
They would have an incentive to actually capitalize on the part of the market.
In terms of Newbuilds potentially moving into our trade.
In terms of Aframaxes potentially moving back into the election.
We look at the all supply of China's in products and as we aggregate Ela Tuzla one Avon one.
And it is a significant.
The tailwind to our markets that we are in nominal terms that the biggest segment in terms of size vessels a lot to is at the lowest level in nominal capacity since second half of 2015.
So I think I think.
Starting point strength in crude.
In absolute terms takes away.
Potential risks for cannibalization in terms of Newbuilds from the crude tanker markets penetrating clean that's number one and maybe more importantly, the incentive.
Is today much less for owners, who are currently trading crude to move a lot because you will see.
Benefit across crude tanker space in my opinion.
So I think that's the that's the supply side, they're not demand side.
We've debated actually a lot since it happened on Sunday.
We've had time to the paid a lot internally around okay. So one of the points that I've heard being laggard from day. One is that this will be devastating.
To.
The shale producers in the us there.
Marginal cost compared to what they can sell at now this is not going to be.
Tremendous good business model, obviously some of the may have hedged and they will continue production, but apart from that this is where we will see marginal.
Cutbacks and that the whole Saudi Arabia, Russia.
The discussion is actually around that they would like to see.
Potentially the U.S. environment.
Energy change and the this is an opportunity to that.
In effect I subscribe to that.
Maybe that will also lead to that this could be different than than 2014, what I've. Just described because in effect I think that this is actually a dilemma between us as an energy producer in general and Riyadh, just as much as if something between Riyadh, and Russia and with an election coming to you as I think this is.
Would be more short lift of a price war.
In my opinion.
Right.
Even if it's not.
Even if it's not then when you look at the refinery margins and the net cash margins profiles for producers on the refinery side across the World then the highest.
Marketing is everything else I mean is outstanding the high North America, and even if the supply of.
The.
We see that this year.
Production will follow.
In my opinion in our opinion when we do analysis it will still be so that the north American.
Refinery sector will be profitable, even when they are going to be starting importing.
So my biggest concern would have been that you would see a big drop in the.
North American sort of energy sector as a whole, but I think that refinery sector is actually not depending on the shale they why they have.
So you get to play is much more their efficiency and then relatively.
Hi level of sophistication.
And a low cost base that they've got from modern refineries.
All right I appreciate all your thoughts Jacobs. Thank you.
Yes.
Thanks to you on your next question comes from the line of spend from family. Please ask your question.
Hey, good afternoon, some some pretty interesting.
Slides down and the deck just wanted to follow on on the last question really.
I just came out with a revision to U.S. crude production next year a million barrel less I mean is impossible to cannot quantify the impact you guys had on the product trade for the last couple years on what.
The removal of the million barrel or more potentially could do.
Okay.
So our opinion is that.
As I said, we do not see a shortfall in production of shale in the U.S. is not necessarily want to one.
Leading to the same lower utilization in the refinery sector in the U.S.
Part of the baggage that came out on Sunday is also that.
Rayva will offer a discount to exactly the customers with discussing in the us on crude in the coming months. So my interpretation of this would be.
That yes. This is tough for shale gas and oil producers in the us a lower.
The topline will immediately.
Have a consequence and an estimate here that you bring is 1 million barrels that seat, but I think it's significant.
Hi, However, do not see that this input.
Competitiveness of the input will.
Be sufficient for the refinery sector not to continue because they're so profitable compared to other refiners that they will everything else you can continue.
More or less at the same level.
If that is not correct thesis then it would have an impact on the product tanker market them.
Okay. Since then.
Lots of talk of floating storage now and on the crude side.
On a forward prices on products supporting you know storage place or if not what it's going to needed for that to happen. Thanks.
Isn't we are getting inbounds from clients either on some of the vessels, where we already carrying.
Cargos, King cargos or whether it is.
The future.
Place that people are looking at I think that the contango clearly just needs to.
To widen from where it is before we will see it in earnest and another element is of course that we are in a way competing with land based starch and Luckily what happened after 2015, where we where the stores were being built up is that we've actually come back to a more normalized stores level. So I think if I'm a if I may.
[music].
A trader in this I will obviously, our thinking is that we will.
Potentially after some time benefit from starch, but two things need to Evan the contango need to widen further then the on land cheaper facilities for stores disappear filled up and then you will start to see that you can have.
Stores play.
But that would be depending on that before you get to that that the Saudi Arabia, Russia, U.S. have not comps when new.
I'm going to say agreement around production and therefore also the pricing in the market.
Okay. So we're not baking in any potential I mean, we see the potential but currently we are not baking in to our models.
We will see significant store space in product.
Family's health that takes longer.
And finally on long realize the full supplies consumption has been very high I think for.
And in comparison to both most people are anticipating a 70% of compliant mix and large bunkers, but potentially you mentioned at least some Joe demand could could go higher from here.
Are you seeing any change to that and the cargo mix that you have an hour in is that sooner or later down the road.
We are seeing that two two things is playing out one I think that.
A lot off.
Bonus operators.
Gross.
Shipping have actually been uptick.
For BLS AFFO Grace.
Even when MTO has been priced at only slightly above.
The viewers AFFO and according to our.
The.
Technical.
And now this is you would actually even when the prices even if MTO is slightly more expensive than municipal because of the caloric value is higher and that you. A main engine maintenance is lower with MTO you should actually be incentivized to use in Q I think that that out of the bucks a lot of people have not been made.
During this distinction because you sort of said we're going to go from high sulfur and then you sort of strikingly said, we're going to go to low sulfur always going to go to scrubber and I think that the sweet spot for MTO is actually only being export by a lot of people, including ourselves in units now because it is.
Beneficial to also use into not only in the mixing of products, but also just as a as you are prime.
Product when you are when you are filling up the tanks. So.
In rather than we have so that's one element is that we have seen in rather than that the utilization of M significantly higher now than what it was pre I'm with Twentytwenty in Singapore is different.
As of overhead taking up a big share.
Let's see how that plays out in a bit longer run, but that's that's what we see.
Hi, Thanks for taking up.
Thank you.
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Yes. Good afternoon. Thank for taking my question I have said too on the first one thing on your Opex.
In Q3, you reported significant below Oh.
Oh picks a especially for the MRF and there are lot choose compared to the 29 average and maybe you could just elaborate about a bit about what why that is and what we should think about a run rate for 20 to 20.
The.
Good afternoon. This is a acumedia.
Basically when we consider.
Opaque.
We found any phone to consider on a yearly basis because quarter by quarter you can fluctuate.
So so we.
Basically we we're much more focused on the on the unit number.
There is not necessarily.
Direct link between each quarter so.
So please focus on the phone number that's no specific reason for why Q3 uses deviating.
Okay. Thank you.
Then my second question is are you were alluding to that a lot of DLR to sell out one saw a trading strategy at the moment.
Any of the old vessels trading turchyn or what are your plan to do so.
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Yeah.
As such we have we have some that are that are trading at 30.
The utilizing the market's a such.
So we do have we do have some I don't have the specific number in front of me right now, but it but we do have some.
Yeah.
Okay.
Yes, that's a that's it from my side. Thank you, Okay I guess.
That seems to be no questions from the hotel. Please continue.
Yes.
Okay.
This morning.
There's no other questions from the whip. So this concludes to your earnings conference call for the full year 2019.
Thank you for dialing in and participating have a good.
That does conclude our conference for today. Thanks for participating you may now disconnect.
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