Q1 2020 Earnings Call
Leasehold and operator will be with you shortly.
[music].
I have your name and company.
Yes name as Conor C O N O R Mcdaid M.C.D.A.D.
And the company.
Yeah.
It is felt a.
It's spelled A.I.E.R.A.
Lets say 317, 0088, and entering passcode 101 fourth grade Fivefive fly at this time I will turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore shipping.
Good morning, and welcome to Ardmore, Shippings first quarter 2020 earnings call.
For somebody else Garcia football Tivnan to describe the format for the call and discuss forward looking statements.
Thanks, Tony and welcome everyone.
Before we begin or conference call I would like to direct all participants are website Ardmore shipping dot com 40, you'll find a linked to this morning's first quarter Twentytwenty earnings release and presentations.
Tony and I would take about 15 minutes to go to the presentation of the open up the called the questions.
Turning to slide two please allow me to remind you that our discussion today contains forward looking statements actual results may differ materially from the results protected from those forward looking statements additional information concerning factors that would cause the actual results to differ materially from those in the forward looking statements is contained in the first quarter Twentytwenty Air News release, which is available on our website an hour.
Turning the call back over to Tony.
Thank you Paul let me first outlined the format of today's call to begin with I'll discuss quarterly highlights and then key industry developments after which Paul will provide an update on tanker market activity summary of our performance and detailed financial update.
And then I'll conclude the presentation and open up the call for questions.
Turning first to slide four.
We're reporting adjusted net profit of 6.5 million or 20 cents per share for the first quarter 2020, as compared to an adjusted net profit of 2.5 million or eight cents per share for the fourth quarter of 2019, reflecting substantially improved tanker market conditions.
Yeah, Mark charter market was performing very well, even before the full impact of the oil price war on pandemic, which is reflected in our first quarter performance. Our Emrs earned 19300 per day compared to 17700 and the prior quarter.
And our chemical tankers or 19700 per day compared to 14300 and the prior quarter.
Throughout April the pandemic in the price, we're increasingly impact to the oil market, resulting in overproduction physical supply demand dislocation record volatility and Steve futures contango and rapidly depleting oil storage capacity.
Tanker demand jumped as a consequence and pushed rates to record highs initially for crude and more recently for product tankers as evidenced by our recent activity.
RMR voyages booked in the second quarter to date stand at 24000 per day with 55% of a void of fixed for the quarter.
Our MSR voyages in progress representing roughly the last three weeks of activity now stand at 28200, and most recently, we booked for wages as high 72000 a day.
So clearly the market's been building overtime.
Any increase in TC performance go straight to the bottom line with every 10000 dollar they increase in TC performance, adding 90 million to earnings and cash flow annually.
In this volatile, but strong tanker <unk> charter rate environment, we intend to remain on the front foot commercially while remaining financially conservative adhering to our capital allocation priorities, which we announced in March.
Turning next to slide five on key industry developments.
Okay.
Every quarter every quarterly earnings release, we have to call. It the way we see it regarding the product tanker market, even under circumstances such as this.
What we've seen it was an unprecedented collapse in oil demand.
And massive overproduction exacerbated by the OPUC, Russia price war and the filling up of a substantial portion of global oil sure storage.
In spite of the OPUC plus cuts some production declines in a modest recovery and consumption. The overproduction, maybe lower but we believe not enough to avoid short storage, reaching Max capacity in the near term.
[laughter].
The demand rebound as expected sometime in the third quarter 2020, if the virus cooperates, but it's unlikely to occur before short tanks are functionally fall already about 10% of the world's large tanker fleet is engaged in floating storage are carrying elevated levels of oil on the water and we expect us to continue rising.
Under these conditions, our view is that the value of oil storage, including floating storage could go extraordinarily high resulting in a second round of strong tanker rates.
When an economic recovery does occur oil demand would rise with it with oil products available, but in the wrong locations and a significant portion of the world tanker fleet still tied up in storage. This we believe could result in potentially a third round of strong rates.
As a consequence, we expect the product tanker market to remain volatile with spikes and lows, but overall elevated rates for the near term possibly into next winter. This is not the only potential scenario out there, but at the moment. Our view is that this one has the most logic.
And with that I'll hand, the call over to Paul.
Thanks, Tony turning to slide seven for an update on current tanker market activity.
The product tanker market enjoy significant strength from November to February as a result to buying much money Chinese demand overnight I'd winter market conditions.
Over 19 of the associated disruption has effectively turbocharge demand for tankers to days.
As you can see on the chart on the chart in the upper Rice.
Price war, coupled with the demand impact from covered 90, so a dramatic collapse in oil price and heightened volatility.
The only market went into steep contango opening up trading in storage opportunities.
Our cost declines, reducing voyage expenses and boosting charter rates.
Product tanker charter rates are now at unprecedented levels driven by a number of factors.
As you can see on the chart on the lower eyes wide price volatility a key indicator of trading activity has reached record highs.
You'll be acts in March was nine times averaged habits for the past five years.
At the same time, there's significant regional and balances of refined products driving demand for cargo movement.
Global oil oversupply is resulting in a surge in demand for floating storage due to unprecedented imbalance between supply and consumption.
These are jet fuel and caught gasoline markets have moved into sharpened Tango in New York U.S. in Asia Pacific.
And the collapse in oil price has boosted demand for substitute products oil and gas products are displacing coal for power generation, while demand for NAFTA has surged given the low price relative to propane.
Finally, covert 19 restrictions are causing significant disruption and increasing demand for ship time and supporting chart stronger rates.
Notably logistical bottlenecks for delays and congestion.
Moving to slide eight for near term market outlook.
Onshore always Georgia is forecasted to reach capacity as areas mid may.
Okay, plus cards are unlikely to be enough to offset near term oil demand losses.
Estimated oversupply for May and June is expected to be significant well based on the <unk> estimates for Twoq Rtwenty oversupplied crude is estimated at 11.9 billion barrels a day with refined products estimated at 5.5 million barrels a day.
As can be seen from that graph on the upper right. Yeah, I estimate that there are approximately 100 million bar the available operation that capacity.
In storage as at the end of April.
Based on these Evans of oversupply approximately 20% if there were a tanker fleet could be committed to floating storage by the end of June which is unprecedented.
Turning storage is expected to rise rapidly the practical and viable option.
Oil traders need to manage existing contracts and hedges oil producers need to wait and cost of reducing or shutting in production.
As a consequence near term demand for Potter tankers could remain very strong potentially through next winter.
The only market is expected to remain very choppy volatiles other global economic recovery could fluctuate, resulting in continued uncertainty.
We expect more disruption to our trading close if the economy reopens at various stages and a large portion of the worst macrophage tied up in storage would limit ship supply as always in storage would also need to be redirected to meet points of immediate consumption.
Moving to slide night for a few of the medium term market outlook.
Well the consumption demand is likely to take some time before returning to pre cobot 19 levels.
However, disruption to existing trade patterns could benefit product tanker ton mile demand.
There's potential for restructuring of the refinery industry with less efficient than smaller refineries expected to lose out to make us get refineries located closer to point to production.
This would be an acceleration of the secular trend evident over the past 10 years for example, European refineries have been under pressure for sometime and opposed to cope with 19 market could add further pressure on accelerate their decline.
I continue to an accelerated dislocation of trading patterns and region on a balances is likely to result in less crude and more refined products moving over longer distances, the middle East and Asian refineries, increasing exports of refined products.
This could result in increasing volumes of gasoline from Asia to the U.S. instead of Europe to the U.S. and increasing volumes of gas oil from the U.S. Sunday Jay into Europe.
Meanwhile, product tanker net fleet growth remains exceptionally low.
Total order book stand at 173 product tankers or 5.8% of existing fleet delivering from the second quarter 20 to the first quarter of 23.
We are forecasting 76 that Mars to deliver full year twentytwenty, assuming no delays, while it's dropping run rate is approximately 30 to 40 ships per year.
Looking at scrapping are currently 79 tomorrow is over 23 years old on across all product tankers. There are 220 ships, representing 7.4% of the fees over 20 years old which would be expected to be scrapped and a weak markets.
We expect total product tanker fleet growth net of scrapping to be approximately 1.6% in 20, 21.8% in 21 on DMR feet alone are expected to grow by 1.7% in Twentytwenty.
Yes.
Moving to slide 11 for a summary of our quarterly performance.
Tony highlighted upfront, we reporting net profit of six and a half million for the quarter up substantially quarter on quarter under the prior year.
We will go through the rates in more detail on the later site. So moving to the fourth bullish we competed drydockings and three shifts in the first quarter.
We do not have any drydockings in the second quarter as the schedule has been pushed out you to covert 19 restrictions.
Operational challenges are evidence and being carefully managed.
Areas impacted include availability of supplies labor Drydocking states for both routine maintenance and special surveys true changeovers and crew happens equity.
Overall, if it continued to perform very well operationally in the first quarter, but the operating expenses coming in below budget.
Moving to slide 12, we take a quick look at fleet days, we're expecting 8890 revenue days and Twentytwenty.
Three drydockings completing the first quarter accounted for 91 Drydocking days.
And as mentioned three originally planned Drydocking days for Twoq, you have been pushed in Threeq and Fourq you.
And then the second half of the year, we expect to compete seven drydockings and that store one ballast water treatment system.
Turning to slide 13, we take it up a charter rates and on the left hand side, you will see a strong recovery and rates starting in the fourth quarter up 29 team.
Spotty Mars reported TC 19307 per day in the first quarter on the fleet average came in at 19390 per day basis discharged to discharge.
The chemical tankers also rebounded strongly charter rates for the cabinets were 19707 per day for the quarter up from 14284 per day in the fourth quarter.
Looking ahead as of today and already mentioned for the second quarter, we at 55% of days booked in the Amar that 24000 per day and 16000, a day on the chemicals with 45% for days booked.
Turning to slide 14, we would take a look at our financials as you will see of the second line. We're reporting EBITDA up 21 billion on a net profit of six and a half million or 20 cents per share.
Moving to the fixed line, we'll take a closer look at overhead.
Corporate overhead costs were 4 million for the quarter commercial and chartering expenses came in at 900000.
As mentioned before in many companies the commercial in chartering costs are incorporated into voyage expenses, which means that our corporate cost is the comparable overheads.
For the second quarter Twentytwenty, we expect total overhead incorporating corporate and commercial to be 4.9 million, including both cash and noncash items.
Depreciation and amortization totaled 9.1 million of the first quarter and we expect depreciation amortization for the second quarter to come in at 9.5 million.
Interest and finance costs were 5.3 million for the first quarter, comprising cash interest and 4.9 million unamortized deferred finance fees of four 400000.
We expect interest and finance costs for the second quarter to be approximately 5 million, including amortize part financings of 400000.
And moving to the bottom of the slide operating costs came in under budget 15.7 million for the quarter.
Centered opex for the eco designed a margin of 6361 per day.
Eco Mod MRC minutes 6559 per day, while the chemical tankers, given its 6743 per day.
Looking ahead, we expect to Opex for the second quarter to be approximately 15.4 million.
Turning to slide 15, we would go through the progress on our capital allocation policy.
As you all know we initiated our capital allocation policy on March nine of this year.
Our objective has been the long term shareholder value in a highly cyclical industry through operating performance capital allocation and effective risk management.
Policies designed to ensure that ardmores well positions to capitalize on opportunities through the cycle and developments in the industry.
Looking at our progress in the first quarter, we had capex of 2.8 million, which in two to three drydockings and an additional investment of 500000 and performance enhancing upgrades.
We repaid 7.8 million at scheduled debt amortization, while we're maintaining our revolving credit facilities for liquidity and additional financial flexibility flexibility.
[music].
These under the policy are unchanged, our priorities our feet makes sense and debt reduction.
In terms of fleet maintenance, we expect to complete 10, Drydockings and won't installed one ballast water treatment this year.
And for debt reduction, we have scheduled debt and lease amortization of 9.3 million in the second quarter and 36 million for the full year.
On slide 16, we are maintaining a strong balance sheets and liquidity position at the end of March or told you that leases was 423.6 million, while our leverage was 51% on a net debt basis.
Our cash at the end of March was 64.5 million and we have 25.6 million and that's working capital.
We're continuing to pay down debt all day and leases are amortizing at a run rate of approximately 38 million per year.
In the aggregate and finally as you all know LIBOR has been declining which is reducing our interest expense.
With over 90% or different leases. The LIBOR base every 25 bips reduction in interest rates is expected to contribute an additional 1 million and earnings and cash flow.
And with that I would like to turn the call back over to Tony.
Thanks, Paul.
To sum up then much attention has been placed on the extraordinarily high charter rates achieved by crude tankers were recently those conditions that are ride for the product tanker market to which we believe maybe more persistent potentially for many months as the physical oil market continues this extreme gyrations around supply and demand.
To better explain we have to describe a recent chartering activity last week, we fixed the 55 day voyage at 72000 per day equivalent to a VLCC at 200000 plus.
And our voyages in progress representing roughly the last three weeks fixtures now stand at an average of 28200 per day equivalent to Vlccs at around 84000 per day.
Well this is lower than rate estimates from some brokers and analysts let's face. It this is higher than any of us we've seen since the super cycle and the financial impact is significant.
For example rates for our fleet average 28200 per day for the full year, taking the first quarter of costs and ship days as a base, we estimate that our annual earnings would be approximately 110 million or $3 in 30 cents per share.
To be clear, we're not estimating are forecasting any future results, but rather just contextualizing, what's happening in the market.
In terms of near term outlook, if and when the oil market reaches Max capacity for sure storage, we mantra enter a new and potentially more volatile phase with the product tanker market.
And if and when oil demand rebounds, with an economic recovery sometime in the third quarter, we would expect more volatility this time consumer demand driven.
In terms of the medium term outlook beyond 2020, there may indeed be reckoning from high oil inventories and oil demand may recover slowly.
However, we also expect the global refinery landscape the shift with older inefficient refinery shutting down resulting in more product shipped over longer distances from modern efficient refineries geographically closer to points of oil production.
But the tanker market assorting when virtually every other industry is suffering is not a logical shipping rate strengthen with volatility and disruption.
Of course were saddened by the widespread suffering from the pandemic, but it should be understood that as an industry. We respond to demand through market mechanism consumption is to optimally allocate transport and storage resources, often in surplus sometimes and scarcity.
And with that we'd like to open up the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your touched on.
If you are using a speakerphone. Please pick up your handset before passing the key to withdraw from the question can you. Please press Star then Tim.
My first question is from Jon Chappell of Evercore ISI. Please go ahead.
Thank you good afternoon.
Permian Paul.
Hey, John turning.
First question for you you mentioned on your first line.
Fair enough for it commercially so.
Floating storage in Myanmar ours is obviously very rare sooner rather than New York. These are a modern high return to balance or physician or availability of free to take advantage of scored adoption.
Versus keeping them earn in a very regional position right. There is any follow through from what were traditionally deal our Q around that one cargoes are that don't have the capacity available.
You know to to adopt an old adage, we simply follow the money.
Storage contracts are really just time charters the ship happens to sit [laughter].
There are some consequences afterwards, you might have wholesaling et cetera and of course, if you're sitting there you don't move around and potentially you do miss out on the opportunity to reposition so that's what we leave to the chartering team I think they're doing a terrific job. So far we expect they'll continue to do so.
But.
It's all just part of the mix.
Of opportunities within which we try to maximize our performance.
Okay.
And then my follow up the Emerson mechanical anchors earn put up very similar numbers and they had quarter today. When you guys reported in February and that is finished first corner in the same ballpark in terms of acute there's been a pretty big disconnect, which is filled and driven by the upturn from DMR, although it looks like the chemicals that offer come off a little bit.
From the once you average there any suitability of chemicals Iridium ours is <unk> eastern North performance like once you bring to market gets as tight as it adds or are they just truly really specialize and have completely different supply demand dynamics altogether.
I think the truth John is somewhere in between so.
First of all our chemical tanker fleet is relatively small and therefore.
The portfolio of their voyages can you know change overtime.
What we also notice is that those ships tend to do extremely long haul voyages and so that does create a pattern of kind of front haul backhaul that can extend over even even as much in the quarter.
The other point is that within those six chemical tankers, we've got to 30 Sevens and their earnings pattern is much more similar to the M. ours. The 20 fives operate not fundamentally differently, but they do seem to have a different pattern of earnings overall, we think they do very well I think return on capital is good.
But they tend not to catch the spikes the way the bigger ships do.
So I think that's probably what we're seeing it's a combination of.
Back backhaul versus front haul on long voyages.
Combined with you know the the M. ours in the 30 Sevens.
Okay, catching the wave quicker than this memberships.
If I could do just to supercritical I'll follow up on that and if the merger averaged 20 for you to see if the current market, you're saying, it's 20 and of course do that 72 out there privilege, we'll just ignore enough for now.
If the current earn HM quarter to date is there aren't representation of where the market is today think about other anchored the quarter reactors, it's still run or you know level that you've done quarter to date.
No I think I can can mentioned things that are happening in the market that you know because this is full disclosure, but you know we fixed a 25 earlier today a 23000 a day.
Maybe that's still a little bit short of what the potential market is but.
You know that that is probably a better estimate of where the market is today and like I said those should they tend not to get these spikes quite the same way, but then there voyages are longer and they actually tend to do about the same overtime on a return on capital basis.
So you know so I think.
We you know I think there's some confusion about the rates that were mentioning and I might just take this is an opportunity to clarify that because the numbers that were providing or not really guidance. There what we've actually booked in the portfolio for the quarter to date, Okay and typically voyages in progress going improved overtime. So as an example, we just.
Privilege that we actually commenced on March 3rd.
Just completed now it was a fairly long voyages <unk> incorporated backhaul. That's started off at 19000 today and we just concluded at a 26000 a day. So one can you point to make here is that these are portfolios of historical voyages and for voyages in progress they do improve over time.
The second thing is that whatever the market whatever level you know the market delivers we're going to earn it right. So if for the rest of the quarter BMR markets at 30000, a day, we're going to earn that maybe a little bit more.
The fact that quarter to date, we've earned 24000 reflects voyages that weve booked as early as late February early March right in part okay.
You know so it's not forward looking its historical and I think based on some of the notes that we've seen this morning, I think people are misconstruing little bit.
The final point I want to make is that it just seems like when you get into these extreme periods of volatility.
Indices that people are quoting the the rates the broker.
Sure brokers or something around tend to be somewhat detached from reality.
And as you know surcharge routine likes to refer to that it's you know, it's it's basically fairy dust until you actually fully fix it.
Right. So you know I'm not saying the markets not a 35 40000, a day I don't think I'm ours are at 50000, a day as a lot of the broker reports are suggesting right now, but let's let's face it that's a pretty good level right and the financial implications are pretty extreme so I think if we've sort of somehow disappointed.
Based on our quote unquote guidance, we're providing estimates based on what we booked so far going back to his as early as late February March.
And maybe maybe the numbers that people have been hanging onto that have been quoted by brokers and indexes et cetera aren't aren't quite there.
Yeah.
That's completely clear I appreciate it they are explanation thanks Harold.
The next question interim Randy given of Jefferies. Please go ahead.
[noise] Howdy gentlemen have the going.
Very good Randy how are you.
Good alright, so little also mentioned, they're talking about the headline recruiting for 2000 15000, even 45000.
Oh, well loss is that market is that one Carter and he said to you know a handful of charters every day.
How awkward either.
You had but benchmark out there that you said at least one in the seventies right although start than in the twins.
Our bus or those kind of charters.
The robust I mean, you know we you know we at the moment, we would assess the global market at Demarse at 35 to 40000 a day.
We've got voyages that we booked at substantially higher rates than 28000 today and we've got some that are largely historical that were lower right. So.
This is a you know what kind of builds and then you know plateaus et cetera.
The strongest market at the moment is Arabian Gulf, we think that.
That you know that that kind of rate level 70000 today is close to achievable in that market today.
Meaning that their ships fixing it those kind of levels right elsewhere. The rates are lower so for example, the Atlantic, especially.
Like in Northern Europe, it's come off.
Quite a bit, but but overall, we would assess with global market at 35 to 40000 not at 50000, but I think you know again I mean.
You have to put this in context because views. These rates are quite extraordinary in another themselves and I think anybody that you know finds those kind of rate levels to be disappointing I think is Ah.
I I you know, it's [laughter] they might have been looking at numbers that were more broker talked in reality.
Sure that's there.
And then how high and maybe if I can just if I if I could just maybe add yes, sorry, we've got a time lapse. So I'll, let you go ahead sorry.
Oh I was just saying in terms Arnold.
The strength in the market that we're seeing in spot rates has that translated to time chartering and then what about asset values or has that kind of cascaded down from the strong spot rates were seeing that moved time charter rates marks has been moved asset values Mikes and then with that you still believe your NAV is in that growing $11 range.
[noise] <unk>.
Yes, just to finish up maybe a point on the last question.
We don't know how persistent this market is gonna be we think it's going to be volatile and overall it very elevated levels for the reasons. We mentioned it doesn't feel like the M. our market right now is in any kind of freefall there seems to be real support at the levels that we mentioned.
In terms of time charter market.
You know, let's face it be spot markets move very very rapidly literally over the last kind of two weeks in the Amar space.
And well time charter rates have moved up probably not as much as you would think.
And as a Quants consequence, not much is getting done at the moment, because we think that the differential between you know did an offer is probably pretty wide at the moment.
As these conditions persist you'll see the time charter rates come up.
You can imagine that the asset market is even further behind that right because.
Let's face it the overall macro picture is quite scary looking right. So if you're.
Talking about newbuildings or buying relatively modern ships fees are fairly long term investments and I think there would be understandable your degree of risk aversion.
They 2010 built ship recently sold for 19 million a very recently like in last week, we think that's.
A good support level, given what's happening in the in the in the bigger macro picture.
[music].
Can these go higher Oh, yeah.
But we'll we'll just you know I think it I think it really would require two things one is for the spot market to play out.
You know over longer period, and I think for some of the concerns about 2021 to begin to dissipate.
You know in terms of Randy the we don't we don't.
Talk about what our NAV is the number that you quoted sounds to be sounds to me like.
Price level that would build in future earnings expectations.
But but in principle, obviously as you know vessel values go up so is that sort of NAV by roughly 80 cents a share for every million and asset value.
All right well that's it for me thanks, Okay.
Thanks, Ryan next question. The next question your term Ben Nolan Stifel. Please go ahead.
Hey, guys [laughter] guarantee ball.
I first wanted to ask just on the asset allocation side of it. Obviously you guys. There sooner changed are you doing things with respect to the dividend and I think given the.
Uncertain times that we live in it makes perfect sense, but maybe from a longer strategic standpoint can you maybe kind of talk through what.
Do you want the balance sheet ultimately look like you know you get through a period of excess earnings here that that certainly builds the balance sheet, but what we're working to target would you say.
Well, we have I mean, we stated our target at 40% based on mid cycle I'm asset values.
We think the reasoning behind that as we think that begins to put us in a position where we can be truly counter cyclical.
Everybody sees opportunities in a weak market, but very few people can act on it.
That's the principal reason, we think that it's a better approach to building value over the long term.
So I don't know lets say this elevated market or to last for six more months and you get to that or get below you know that kind of threshold. If that point do you revisit steward of capital allocation or you know I dunno <unk> is that is that a real threshold would you say.
Or just kind of okay.
All right. That's helpful and then as it really I know I know that's exactly what we said and yeah.
Okay.
As it relates to the market and an m., we discuss a little bit here in rates being elevated and and floating storage and everything else, but clearly what's going on is refineries have not.
Turned down to the same extent that or at least there their production remains higher than consumption and you know that's relatively obvious but yeah. Yeah Im curious what you're hearing from your customers with respect to what they're thinking about going forward would you.
Spec there'd be some more.
Refinery pullbacks or you know do you think that maybe some of the coastal refineries will maintain their their high production levels relative to maybe in line refineries and just sort of how you. Obviously you know none of us know for sure, but how you envision this playing out with respect to <unk>.
The demand for product tanker, both floating storage and and transportation.
I'm. Good question not you know it seems like Theres a lot of talk in the market about refineries curtailing production, reducing utilization levels et cetera, and I'm sure that's happening, but more than that it seems like.
Whether you're in oil producer or refiner.
To a degree you just trying to make it to the rebound.
And I think thats, prompting a lot of continued production and of course refineries will you know if I have a buyer and and they can buy the crew cheap enough and make money that's the business there and right. So so I think.
Yeah, I think there's that dynamic that's going to result in maybe more production and more throughput.
And we're shipping then you'd otherwise think.
The second point is that with all the extreme volatility going on for which is really reflection of the price dislocation.
We're just seeing voyages over a much longer distances.
And that that just had a dramatic impact on ton mile demand.
And as we've seen before you arrive at a discharge port and you've got a wait and sort of course that you know that may not be contractual floating storage, but it is floating storage.
The other thing we're hearing more and more of is.
Request from charterers to slow ships down.
Because they know that when they arrive it's going to be a long time right and there's a mechanism in the charter party. This allows you to benefit from that as the is the owner.
But that that basically results in elevated levels of oil on the water.
So all of this contributes to you know either ton mile demand or is it takes supply out of the market.
Okay, and then is that what you might attribute to the fact that amar's, although they go back and product tankers in general have not nearly seem to pullback that we've seen in the crude market is that sort of it differentiation.
Between the activities of the other than refiners are that what's going on here.
Yeah, I I wouldn't really even characterize what's happened with them ours is a pullback I mean rates have come off but like I said rate you know rates are still up it at those close to those record levels and you know how to the AG, which has been exporting.
And you know a hugely increased increased amount of what CPP and yeah. This activity is supporting.
It's it's.
You know that that market dynamic you know that we just painted.
Is supporting you know those kind of price levels that will anticipate a little bit possibly will tighten again, we actually think it will because we just see more and more product getting stuck on ships <unk>.
<unk>.
Okay, and <unk> and lastly, if I can squeeze one more and given all the volatility and everything else you see I'm curious broader macro perspective, if you think there there's been any change and <unk>.
I I either the that the banking side of it whether you clearly you're making good money now, but whether you think that there's been any a pullback in terms of capital availability from the banks under or any change in how owners or thinking about it yeah, maybe being more or less aggressive with respect.
To a consolidation or M&A, oh or or asset specific buying and talent.
Well I think if capital was relatively scarce before it's even scarcer now.
You know I think I think banks that we talked to are there to support their customers, but you know we're very very lucky.
You know being in the tanker sector just at the moment, others aren't fairing, so well, so I think theres, probably overall pressure.
In every aspect of the banks portfolio, not just shipping but that in shipping too.
And they'll probably be consequences.
You know in terms of overall access to capital.
In the long when we think that's a good thing it'll keep the keep capital away from Newbuildings.
Will it spur any any more consolidation in the industry, we don't know.
Okay.
Perfect I appreciate it thanks.
The next question is from Mike Webber Atlanta Research. Please go ahead.
Hi, good morning, guys sorry.
Good My Korea.
Tony allotted since it's it's kind of been picked over but I do want to touch on storage again.
And I.
I guess first and foremost around <unk> and a lot of isn't it oriented towards some of the larger tonnage things some of it and I'm ours, but I'm just curious in terms of the the length of inquiry.
And at least maybe it get his magic directly related or adds as robust relate more robustly related to EMR is what you're seeing in the broader market in terms of people.
Maybe looking to extend beyond six months storage contracts and take a bit more length. It seems like it's been pretty clustered around six months, but I'm just curious whether you've seen.
People starting to extend their gave snam and maybe get a bit worried about what to do it with when it cargo after a six month period.
Yeah I, it's a good question, Mike I'm afraid, we're not quite in the right sectors to speak on at Knowledgeably, We have had some discussions not even on m. ours about six months storage.
At good rates, but but that's really more for the bigger ships I'm, even even though you know L.R. twos et cetera.
But it does seem like the.
The real interest is around six months, but if your own greater need in your job you probably getting options to extend.
Terminals, if I if I look at slide slide eight you guys kind of put some illustrate of examples of where floating storage could go.
And even the market for a long time and a lot of this and one of the why the storage decisions are gonna that mechanisms or want to be driven by that refining behavior, which you guys certainly get a ringside seacor. So I'm curious you know.
As you're looking at the market now where would your best guess be in terms of how much tonnage actually get soaked up by storage I mean, we can all kind of put the parameters out there of what could happen, but you've got a pretty interesting vantage point certainly more institutional memory than just about anybody. So I'm just curious as you look at it now knowing it could certainly change tomorrow.
You know where would you put that number.
Yep.
[noise]. So unfortunately experienced doesn't count for much right now because these are unprecedented condition [noise].
But you know we spent a lot of time looking at this analytically as everybody has and.
You guys more than more than anyone probably.
If we were over producing by 30 million barrels a day of demand in April.
And let's say the O. pet effective OPEC cuts or 8 million barrels a day.
That shut ins and curtailment as another three four or 5 million barrels a day globally and you've got a rebound.
You know gradual you know sort of slight increase in demand of maybe three four or 5 million barrels a day, you still probably 12 or 13 million barrels per day.
Over producing globally.
And so that.
Over the course of millions so thats, another 400 million barrels.
Of course, there's you get a double effect because that this essentially production some of that goes through refinery and then can end up you know you know on the on the other side of the refinery on our side of the will as as additional excess production.
So those numbers are pretty significant right now I think the estimate is that.
As at the end of April 370 million.
Barrels of oil were.
And you know officially floating storage or elevated levels of oil and on the water.
How much of that 400 ends up you know actually out on ships. You know is just pure conjecture.
But if it's let's say half that's a significant number.
That could result in.
You know the utilization of real tanker fleet going from you know and when we say large tankers, we mean aframax and up and kind of MSR enough.
Not talking about 10000 deadweight ton ships, but you know on that basis.
10% could go to 20% and then if you factor in.
Other.
Long voyages other other disruptions and you know that's that's where the support for the market is coming from right now.
That's right.
That's helpful and just maybe one more on on asset values.
Are you, having you kind of you've got to mentioned the upside to any view with every million dollars value and if you look at you know I know, there's a debate around whether the market to 72 or 40, but we're kind of talking about stupid numbers that point anyway right. So the you know it did that 35 40, k. for an MRV or you're talking about justified values are probably you know one from 41 40.
2 million, a little bit north of where we're at today I'm. Just curious you know based on <unk> again, the conversations you're having within the industry. You know should we keep marching up a little bit from here you know and we index. These equities off now you know do you think the market ends up clearing it some of these prices do you think there's enough.
Liquidity and I were really a lack of frictions minor enough for deals to people to transact that we actually see some asset values.
So Matt that straight on that kind of a crop or newer side in the high 30, even the low fortys or beyond.
And I think it's a really good point and interesting question, but obviously when you really see values moving up it's because people have a belief that something is going to continue for a long time I don't think anybody believes this is going to continue for a long time.
You know in nine months would be fantastic right.
After that you know if we get back to decent market levels I think real happy.
But the reality is if you go back to what happened in the Supercycle. It was just a whole different mindset.
What was happening now is that rates are so high on the front end that you could see you know I've never been a big believer in this idea of adding future earnings to envy you know for NAV type of thing.
But I think it makes some sense now because the you know the near term cash flow is potentially really really significant just has to be added in right. So you know for example for US if we make 90 million.
You know cash cash over certain period of time, you know if that's three bucks a share.
But that's not afraid because it's in the balance sheet.
Right right. So you know so I think on a forward not basis. Yeah. You can you can start you know kind of projecting significantly higher numbers.
And just to follow it started the follow up on your answer there a bit you mentioned you know this last thing it's lapping nine months that what degree is is that you predicated on a relatively.
Where are we in linear recovery.
You know if we're looking at a scenario, where we have fits and starts of economic recovery and I kind of you know the kind of the general kind of linear storage grade kind of gets turned on its head.
Do you think you think that's an area was still reflective of kind of a nine month timeframe or you think it could extend beyond that.
[noise], sorry, I'm very high level question that you know there, but just just curious [laughter] no no no no no I I think we've been spending a lot of time thinking about this and.
You know, we we went from having no sense of visibility a month ago to all the sudden beginning to see what could be happening here.
And the first piece is this you know sure storage situation right.
And you know we think look it's not guaranteed happened, we think it's likely to happen and I think there's a difference in theoretical and functional storage capacity.
For example, 50% of all the remaining oil storage in the world is in the U.S. and China right.
That doesn't help you if you're in you know the Mediterranean or something right.
So you know so I think I think there's potentially very disruptive event coming up in the near term they like in the next few weeks.
<unk> I don't think it has to do much to having you know provide real support to the current market and maybe even drive at higher that's our personal view, we might be completely wrong on it.
And I think what's happening is everybody's just trying to survive with rebound.
But what does that rebound looked like well, it's probably I mean, when you're coming back from 25% down.
15% is one held rebound, but you're still 10% short.
Right. So so in terms of you know this kind of snap back and whiplash of all the sudden demand coming back to life.
After this dramatic phase that we've been through and perhaps or through even more <unk> that could be that could really generate a lot of lot of volatility in chaos in the oil market right.
You know the oil be will be out there.
But almost certainly not the right places right. So then you get into these you know credibly long haul trades and you know the old you know our famous example is you know if you go from Houston to East Coast, Mexico, that's very different from Houston to China.
<unk> was a ton mile demand.
And you know you could you know theoretically if you know if you have setbacks and recurrence of Corona virus in certain parts of the world you could have.
More you know more volatility.
More physical dislocation of supply and demand in the oil market.
And so that's why overall, we think that this just could carry on for a while go to carry into 2021, I don't know I mean it just.
We'll take what [laughter] will take what we're getting right now if it will continue for nine months, but.
Going and go into 2021, we we would expect things to stabilize.
We are really interested in learning more about what's happening to the refinery a global refinery landscape.
[noise], because we think that could really accelerate trends that have been going on a long time.
ER and the world could look quite different in terms of trade patterns and ton mile demand for product tankers in that situation.
Gotcha.
Okay. That's enough for me appreciate the time guys. Thank you.
Yeah. Thanks. My next question. The next question is from Omar not correct.
Clarksons. Please go ahead.
Hi, Thank you Hi, Tony and Paul.
I know I'm jumping in a bit late but I just wanted to follow up on maybe the voyage dynamics you were discussing I think it was a Ben you mentioned Chargers asking to slow speed down because there's obviously a log jam at different ports worldwide or you are there any issues.
That are a rising where a charter may want to declare something along the lines of the force merger when it comes to having to pay the added demurrage costs.
So far no no I think there's a lot of lot of a worry about what could be coming down the road.
But the reality is that the you know the demerge Bill is the obligation of the charter and these are typically big oil traders and oil companies and oil majors and national oil company. So that's not a no that's really at this point not not a direct and immediate concern.
Okay. So the counterparty risk, obviously, you're not chasing you're not chasing built here.
Maybe just a bit more color when it lets say when you are fixing a ship you know when you're agreeing on the spot rates.
How different is it especially in today's market where spot rates are just through the roof.
What's the difference between the spot in the marriage and you know because if the latest persist globally here for an extended period or should we be thinking that maybe there is some risk to the rates. So we think you're going to be reporting a relative to you know the the indexes.
Yeah, I think that's a good question.
No demurrage is.
Oh was heavily negotiated and.
Very often it's you kind of consider it's pretty far out on on the futures curve, if you will or the forward curve of where the market ought to be and so let's say if you're in a hot market.
And you're able to get a good good right now that doesn't necessarily mean you entirely believe on you know what the market might be in a month right. When you you know when you're sitting on the verge right. So you're right typically very often the demerge rates or or lower.
But there still is very very high levels like nobody nobody fixing it 40000, a day and agree agreeing to merge at 17000.
You know you fix it 40000, a day you agree to merge at 35 to 30.
Right. Okay I'm sorry, that's helpful. If and there are there are sometimes you deliberately enter into trades that you called the merits place where you're going for the demurrage and then then it becomes the main point of view negotiation.
So, but I I wouldn't I wouldn't I don't think typically in our business people sell themselves too short a demurrage very often its a.
You know kind of a forward looking.
Indeed, you know indicator of where people think rates might be coming out of a certain market, but there's usually not a huge disconnect between.
You know the spot wage and the demurrage right.
Got it thanks, Tony that's all for that.
Okay. Thanks.
The next question from Jae Min tire and value Investor that you. Please go ahead.
Good morning, Tony morning, Paul Thanks for taking my questions.
Okay.
Okay.
We've covered most of that fixture nuance is pretty well in the call thus far but looking at the numbers you reported for the keeps you guide it seems like a lot of fixtures came a little early which you know and is understandable. It for the rest of the fixtures in Q2 is that pretty evenly spaced out are we going to have several coming up the next week or two.
We do you know I think it's a relatively smooth flow. So you know if.
Yeah, we're probably fixing on average a ship every one or two days in a fleet of our size.
So yeah. So I think we'll we're in position to grab any near term a upside.
And overtime, whatever you know whatever the market.
Delivers we're going to get right. So.
Excellent makes sense, Tony you mentioned, one it's actually just stood at 72000 was there anything else you did recently you like over the 50000 range or is that the only one that's kind of high pop and at this point.
I think we've done to over 50000.
Yeah, and then a final question on your capital allocation letter you mentioned one of you down to 40% data assets I think thats pretty reasonable, but at the same time, we kind of how to discussion earlier, which Randy about your NAV and we have different numbers, but we show you guys about 750, right now as of Q1 financials, and probably a little bit 859.
And range by Q2, which were almost halfway through that quarter on and your stock right. Now. It's it's been trading down pretty poorly is about $6 flat earlier now its rebounded slightly at what point do you say, we're going to take advantage of some that huge dislocation and perhaps your repurchase is there an opening to do that perhaps this summer or is that something you want to wait until you get to.
The 40% leverage first.
I think there's a really interesting philosophical discussion to have around short term value versus long term value orientation [laughter] on that question.
And probably now it's not the time, but bottom line as it were just very very focused on building value overtime.
Building long term value and.
You know Weve you know we've.
Come out with any capital allocation policy and we've kinda stated our priorities you know very clearly.
And you know they can shift over time. So for example.
I can almost guarantee you if our stock went to 50 cents and we were running this kind of money, we probably by a lot of stock.
Right, but the other the other thing maybe I'll mention is that the you know share buybacks are not pretty clean vote right now, but in any case you know the FCC rules, you know around share buybacks actually really limit the amount that you can do in a quarter I'm very often you you get stuck against blackouts et cetera.
So I I think I think in terms of.
Buying shares back cheap its a little bit elusive anyway.
Something good to talk about [laughter], and maybe you know the signal to the market, but again, we're just we're just trying to figure out what's the right thing to do you know to build build value on a long term basis, and obviously maximizing earnings is a really good way to do it.
Yeah, absolutely Tony we can never go wrong with de leveraging and making sure that balance sheet is solid so really looking forward to your Q2 results and hopefully that more rates will stick around thanks for your time.
Yes, Thanks, Mike.
Your next question is from George Berman at Cabot like Securities. Please go ahead.
Good morning, Thanks for taking my call ANAC I want to congratulate you do a very good quarter, even though the stock a dozen reflected yet.
Got a couple of questions for you.
And we often see that various tankers are booked on a subject and then and a few days later this subject calls in that as fail.
What happens to your tank, what kind of way do you negotiate Dan.
That's a really great question, George it's a especially when you get these volatile markets. It's a very prevailing feature it's called fixing and failing as you say and it really has to do with you know the the oil trader, whether he's an oil company or.
It had an oil trader from whatever they'll they'll basically secure the ship and then bill you know give it to the oil traders who will then try to complete the trade the oil trade and very often if with the markets moving around as much as it's been recently.
You can grab something and then you know the peak of the market didn't lose it because you know condition conditions change or they don't they don't lift or you know they don't lift the the physical side of the ER oil trade.
So what happens then you just keep on working the market.
Companies that that develop a reputation for fixing and failing find it hard to get chips. So I think it's you know there is a bit of good behavior monitoring goes on.
In the market you know on that basis, but look it's a very typical feature of our business.
Its its creates a bit of an emotional roller coaster for our own trading team, but the great at it and they just keep at it until they you know until they get a good a good fixed or not.
Okay Fair enough. Then next question would be on storage are there any time limits due to say degradation off the oh the cargo as to how long you can store.
Clean paradox that being a gasoline diesel and jet fuel I guess is there any is like [laughter] affluent until or does it if apple eight or.
What's what's happening on on the time that you store a load.
The only cargo im aware of that can actually go out of date quote unquote is jet fuel.
The rest of it I think is fairly stable what do you might find is that that grade of gasoline for example need not be suitable for the season that you're in.
So so you know so there might be some impact of that I think the other factor is that if you let it shifts it too long on honest George contract. It can develop significant significant wholesaling and you know and might need to go into Drydocking etcetera. So I think their operational considerations, but as far as I'm aware.
There's not other than jet Theres no real kinda cutoff dates in terms of you know the cargo going off in anyway.
Okay, great and you'll sleep predominantly is not on storage its its seats its avoidance fleet correct.
Oh, yes, but very often we find ourselves arriving at a discharge port and Lo and behold. They sure tanks are full and they you know we can't discharged to ship then it goes on demurrage and it's effectively in floating storage at that point.
Okay, and then that last one maybe and.
Have you seen any off your competitors in your size range switched from clean too.
Tony crude oil storage or transportation or is that not affect our in email class.
<unk>.
In our size.
There is a limited amount of dirty trading them our activity, it's quite small it's more prevalent with L.R. twos and Heller ones, mostly alerts whose.
We you know up for the last you know probably since November we were tracking more and more LR twos, we're treating clean going into the dirty trades more recently, because allergy rates have gone sky high and Aframax rates, which is the uncoated description of that ship size.
They you know, they're not earning as much and so we here and we haven't seen anything yet, but we hear of some shifts trying to find ways to clean up and go back into clean trades.
Okay. So far we don't see it as a major factor in the market.
Thanks, very much but we had time and I look forward to another great quarter.
Thank you George.
The next question is from grade Weiss of Boston Partners. Please go ahead.
Hey, guys just want a little more some comments on two quick things you mentioned a couple of drive now.
The delays.
When some of your ships a report and the CMR wages are often times not that long 2030, 40 days, if you add a couple days to that.
It's expected to be a big percentage of capacity.
Coming out of the market. So is this trend increasing decreasing what aspect of how long do it but with delays in other words, how much supply.
There's been picking on the market potentially from this which obviously could look we're talking about floating storage more than just delays and then secondly, I I'm. The order book, it's extremely low and it back in the fall one thing I was worried about both new orders could disrupt the supply demand balance now we're in this environment where rates are high but no one just wondering.
Just given some of those ship owners mindset. If you think we're going to see ordering here because obviously, we don't extends so maybe we can be in a constructive supply demand environment post whatever hang up where we have.
Thanks.
<unk>.
Yes, good questions, Greg I guess to answer the first one.
Maybe to use an example, we just we just completed a voyage.
Where are the shipset edit discharge port for 40 days.
That's unusual or it was probably get to sit there anyway, but this was much longer than was expected.
And so if that's you know and we're not.
We have other ships doing similar things right now so I think the effective floating storage component of the market right now is significant and it's growing.
The slow steaming is the effectively the oil on the water you know calculation. So we think there's a very real and we don't see isn't going away anytime soon in fact, we think that that.
Thats going to increase right.
So.
You know analytically.
I think other people are much better positioned to try to figure out what percentage of total supply or demand or whatever that that represents.
In terms of Newbuildings.
You know we talked earlier about the fact that capital if anything is more scarce and it was a few months ago, that's certainly going to.
I I wouldn't want to go into bank right now and say by the way we want to order some ships [laughter] what do you think.
I think they might tell you just to kind of stick with what you have and be happy, but there are lot of very cash rich owners in the world and.
They have succeeded by being counter cyclical and speculative and we'll always see trickle of that kind of activity, but it just doesn't feel like a great time.
Access capital in the order a bunch of ships.
Have you had your history you know in your career in this industry have you seen a period, where we have.
Very strong rates.
And a low order book and the rates not stimulating orders or is this kind of given the backdrop.
Hey unique situation.
This you know look I think you can look to two prior periods like this one is 2014 15 and and maybe 2008 nine.
Both you know.
Both resulted in strong markets at a time when it was acknowledged that they were going to be short term I think what's different. This time is this whole issue assure storage filling up and it just it's just taking it into a new dimension we think.
We just never seen this kind of volatility in oil price or or or oil demand.
So.
You know I like like I said earlier I can't say, there's anything in and what we're talking about that feels like it's a multiyear.
Trend. So we have to think of it in the short term, but you know if you're on.
Five times as much.
In 150 time, that's the same thing is earning that over a longer period.
Got it. Thank you thank you Terry.
Yep.
Can break our question and answer session and today's conference.
Thank you for attending the presentation you may now disconnect.
[noise].