Q1 2021 Ardmore Shipping Corp Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Ardmore shipping first quarter 2021 earnings Conference call. Today's call is being recorded and the audio webcast and presentation are available on the Investor Relations section of the company's website Ardmore shipping Dot Com, we will conduct the question and answer session. After the opening remarks instructions will follow.
By the time I read.
Probably of the conference call will be accessible at any time during the next week by dialing 187734475 to nine or 141 to 3170088 and entering the pass code 101553.
Zero nine at this time I'd like to turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore shipping. Please go ahead Sir.
Thanks, and good morning, and welcome to Ardmore shipping the first quarter 2021 earnings call first start CFO Paul the minimal described the format of the call and discuss forward looking statements.
Thanks, Tony and welcome everyone before we begin our conference call I would like to direct all the participants to our website of the Ardmore shipping dot com, where you'll find the length of this morning's first quarter of 2021 earnings release presentation Tony.
Tony and I will take about 20 minutes to go through the presentation of then open up the call of 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 of protects us from those forward looking statements and additional information concerning factors that could cause the actual results to differ materially from those in Florida and the statements as of <unk>.
In the first quarter 2021 earnings release, which is available on our website.
Now I'll turn the call back over the time.
Thanks, Paul So turning first to slide four for some highlights.
We're reporting an adjusted net loss of $8 6 million per share, sorry, 6 million or <unk> 26 per share of the first quarter compared to the adjusted net loss of $13 million or 39 cents per share last quarter.
It is largely the result of better market conditions with our MRO is there any of 11175 per day in.
In the first quarter versus 9420 fives in the last quarter when the.
The second quarter to date, we've earned around 11000 per day with 50% of the corner of fifth.
Our chemical tankers continue to perform well in the first quarter relative to Mr's, earning of 11950 per day or 12750 per day on the capital adjusted basis, and so far in the second quarter of the earning 11250 per day with about 80% of them.
Meanwhile, we've been active in the first quarter on commercial in the energy transition projects, we fixed four of them of ours on time charters of six months to one of your duration at an average rate of 14000 per day, two part of the de risk near term cash flow depending of full market recovery.
We entered into a commercial management agreement with call of Buettner for the four of the 25000 deadweight chemical tankers trading alongside of our own similar sized units.
We released our progress report in February of 2021, which includes details of our energy transition plan or ETP for sure.
In connection with the T. P. We announced the formation of <unk> Marine the joint venture with all of them at one and marathon partners, which is now documentation and should close in the next few weeks.
We've also continued to focus on financial strength under challenging market conditions, maintaining a strong liquidity position and balance sheet.
On the next three slides I'm going to cover our recent product and chemical tanker market activity of near term prospects and then Paul will continue with the discussion on longer term fundamentals and outlook.
Moving on to slide six for a snapshot of global EM, our trading activity.
This is the new format, which we intend to use the coming quarters to provide an assessment of activity in the EMR sector, along with how we're positioning the Ardmore fleet.
As you can see from the call out box in the lower left we had 56% of our fleet positioned east of Suez in the first quarter roughly in line with the hemisphere ex splits of the global EM, Our fleet and also where rates have recently been stronger.
So you can see that from the first quarter of 7% of our MLR of ship days worth of time chartered out which will rise to approximately 15% from the second quarter on the back of time charter as previously noted.
In terms of global M&A activity will cover the map from left to right.
The U S. Gulf has been soft with refinery utilization has increased substantially following winter storms in February there was also an increase of naphtha trade the Asia driven by price arbitrage.
European activity has seen increased volumes of gasoline to the U S East coast refined products, the West Africa, and the surplus naphtha also to Asia.
The southeast Asia, we saw lower volumes of Palm oil cargoes in the quarter. The result of temporarily constrained supply and higher palm oil prices.
And Australia of the recent refinery closure of it.
It's the latest and the strength of shutdowns and we believe disclosure of alone should result in approximately 20 additional M of ours per months needed to bring in substitute of refined products.
North Asia, we're seeing increasing refined product flows from China to the rest of Asia on the back of the increased export quotas and economic activity and higher volumes of jet fuel to the U S. West Coast is increasing air travel in North America is driving up demand.
Overall and more ton miles of Indonesia is up 9% quarter over quarter as measured by a S tracking reflecting the substantial recovery in economic activity in that area.
Turning next to slide seven regarding the impact of the pandemic on overall of oil demand of the key to a full tanker market recovery.
Oil demand is still down 7 million barrels a day or close to 7% from its peak of 2019, notwithstanding the substantial recovery from the lows of last year.
Mobility is approximately 57 per cent of global oil demand largely comprising road and air transport and travel the components of oil demand most affected by the pandemic.
Road traffic has rebounded over the past six months, but seems to have plateaued for the moment.
As a consequence of global gas oil and gasoline demand has recovered significantly not only one 5 million barrels a day off of 2019 levels.
Aviation activity on the other hand remains low domestic flights in some regions of recovering to pre COVID-19 levels, but international of long haul air travel is still lagging.
As a consequence of global jet fuel demand is still down 31% or about 2.2 dollars 4 million barrels a day of below 2019 levels.
We expect oil demand to continue recovering over the next several months as the vaccine rollout continues globally the.
The Big question is exactly when this will rise sufficiently to drive the full tanker market recovery.
We believe that this will take place sometime in the second half of the year, but precisely one is unclear.
And then moving to slide eight for a look at refinery utilization at current inventories.
You can see from the graph on the upper left the pad III, which accounts for approximately 50% of refinery capacity in the U S and.
And is the major source of the U S product export is returning to normal utilization levels.
The graph on the upper right lots of Chinese refinery utilization for both the state owned and independent refiners.
The slot it also looks close to full recovery.
The graph on the lower left shows refined product inventories in the U S. A R E in Fujairah.
Interestingly inventory levels in these key regions have moved below the five year rolling average, even when considering the large value volumes of stranded jet fuel still remaining.
So on that note I'll hand over the call to Paul to take the discussion of onto the fundamentals and the longer term outlook.
Thanks, Tony turning to slide 10 on the left hand side chart, we have all the demand broken out by type.
The two biggest drivers of oil demand recovery of road transport in aviation too.
Demand for road fuels of jet fuels are expected decreased by $3 5 million part of the day and the aggregates between now and December 2021 leading to a full of oil market recovery in early 2022.
Much of the demand recovery has to come from the U S and Europe, while Asia. The head in this recovery phase with demand close to pre COVID-19 levels.
Beyond 2022 on the right hand side is IEA data, which is forecasting continued always of mine gods of post pandemic of approximately 1 million barrels a day through 'twenty 'twenty four and beyond.
Moving to slide 11, one ongoing trend, which has accelerated by the pandemic is refinery dislocation, which is now a key demand driver for product tankers.
Dislocation mean shutting down refineries in developed areas with new refineries opening up in the middle East and China.
Over the past few years, we've seen a graduate trend of closing less efficient refineries in the U S Europe, Australia, and Japan. These refineries of 100 to 200000 barrels a day with most of US in the 19 seventies of area.
At the same time, you of significant refinery capacity expansions in the middle East and Asia ease of.
Refineries are larger and much more efficient in the middle East alone two new refineries, one in Kuwait and one in Saudi Arabia are expected to come online this year with additional capacity of 1 million barrels a day.
As you can see on the map on the slide there's a very clear trend and where the refineries of cozy, where the refineries are opening.
Well the trend that's been ongoing for some time the pandemic has accelerated the closure of smaller refineries.
Approximately 4 million BARDA day part of the day of refinery capacity has been closed or announced to be closed since the start of last year.
And this is providing a significant boost to our market.
Turning to slide 12, we can see how this is translating into increased ton mile demand for product tankers.
As we've seen with the closure of the command of refinery in Australia of late last year. Once closed the refineries are converted into refined product imports and storage terminals.
In effect refinery complex is on regions. The once imported crude oil are now importing the finished the refined products. These products have been sourced from the new Mega scale refineries in the middle East and Asia and the impact for product tankers can be significance in simple terms.
And then Marc and Carrie of approximately 300000 barrel of the refined products on the average voyage length from the middle East of Europe or from Korea to Australia is approximately 60 days on a round trip basis.
This means that every 100000 barrel a day refinery the closes results in additional demand for 'twenty Mr's are the one per cent demand increase.
To illustrate this point and Tony touched on this earlier based on ship tracking data the closure of the couldn't run of refinery in Australia of late last year resulted in addition of demand for 'twenty of ours in the last month.
We believe the refiner dislocation will continue to be a significant driver of top of mind ton mile demand growth for product tankers over the next few years and along with continued all the demand growth should support the prototypes of the ton mile demand growth of two to three per cent or more through 2030.
Turning to slide 13 of them take a look at that the supply.
The order book remains at very low levels by increased ordering activity in other sectors means new orders of tankers won't deliver before 2024.
As of today and you will see on the upper left the order book for product tankers is approximately 6% with 185 ships on order delivering the delivering over the next three years.
We will go through scrapping of more detailed on the next slide However, net of scrapping we expect part of the tanker supply growth to the 1% to two per cent for the next few years.
On the upper right you will see the chemical tanker order book, which is lower of three 8% of our 67 ships.
Net of scrapping that is expect to see growth of less than one per cent per annum for the next two years.
Looking to the chart on the lower right. There has been a significant increase in new orders for container ships in the first quarter.
This is good news for tankers as the Blue.
The potential for new supply to enter the market before 'twenty 'twenty, four and which supports the tightening supply demand balance for the next two years.
Finally, we believe that many owners are still hesitant to build in the vessels, we need to see of full market recovery and while the energy transition is well underway. The industry is still awaiting clarification from regulators on propulsion technology and emissions regulations.
Turning to slide 14, we will take a closer look at scrapping.
We've seen a significant increase in scrapping in the first few months of this year. So far of 15 product tankers have been scrapped in the year to date.
Typically scrapping increases when charter rates are low however, the current scrapping number of equate to a run rate of 60 ships per year, which as you can see on the chart on the upper right is well in excess of the past few years.
We also believe that scrapping will accelerate as a result of the energy transition of.
The increased submissions and efficiency targets will put pressure on older and less efficient ships.
The product and chemical tanker fleets are also aging.
Looking at the prototypes on the bottom right approximately 2000 ships or <unk> 63 per cent of the fleet is non eco over 10 years old and we expect to be scrapped over the next 10 to 12 years.
Looking specifically at the next five years. There are 260 part of tankers over 20 years old which supports the scrapping run rate of 50 to 60 ships per year over the next five years.
Overall, the end based on the Lauder book and anticipated scrap endeavors, we expect supply growth to be constrained in the coming years.
That's it on the market outlook and fundamentals and that would take a look at our financial performance of capital allocation.
The moving to slide 16, we the summary of our financials were also of our onshore of cost items in guidance for the second quarter.
We're reporting EBITDA of $4 5 million and an adjusted loss of $8 6 million of 26 per cent per share for the quarter.
We're continuing our focus on cost control and efficiency improvements total overhead costs were $4 9 billion for the quarter, comprising corporate expenses of $3 7 million.
<unk> 8 million for commercial the chartering expenses and 500000 of noncash items.
Our corporate expenses were slightly up year on year due to market increases on D&O insurance and foreign exchange associated with the weaker U S dollar year on year.
As mentioned before in many companies of the commercial and chartering costs are incorporated into voyage expenses, which means that our corporate cost is the comparable overhead.
Overall, the Ardmore is cost structure is amongst the lowest of our peer group. Despite our smaller size with significant incremental improvement through scale.
Currently our internal commercial overhead costs are approximately 50% of market rates prevailing policies.
For the second quarter of 2020, one we expect total overhead incorporating corporate and commercial to be $4 9 billion, including noncash items.
Depreciation and amortization totaled $9 3 million for the first quarter, we expect depreciation and amortization for the second quarter to $9 3 million.
Interest costs came in at $3 7 million from the first quarter, which is significantly lower than the prior year.
This is as a result of entering into a floating to fixed swap in may of last year.
Currently $298 million or 76% of our debt is fixed at a margin from 32 bps through May 2023.
We expect interest and finance cost of the second quarter 'twenty, one to be approximately $3 8 million, including amortized deferred finance fees of 400000.
Moving to the bottom of the table operating expenses across all ship types in the first quarter came in under budget and below prior years.
Total Opex was $14 5 million for the first quarter compared to $15 7 million for the same period last year and looking ahead, we expect opex from the second quarter to the approximately 16 million of slight increase related to timing.
Turning to slide 17 from fleet and operations update the feed continues to perform well with all of COVID-19 challenges currently been managed.
Crewing and seafarer welfare remain a top priority. The recent developments in India are top of mind I'm the being carefully monitored.
We continue to invest in the fleet to optimize operating performance, we had no new dry dockings in the first quarter and we have two dry dockings scheduled for the second quarter, including one ballast water treatment system installation.
The forecasted capex of $5 million for 2021 comprising three dockings, one ballast water system installation and performance enhancing upgrades.
The forecasted revenue days for 2021 of 9210.
We have four vessels are fixed on time charter in the first quarter at attractive rates and currently 16% of days for the second quarter are fixed on time charter.
Turning to slide 18, we take a look at Ardmore sharp performance.
The charter rates are off the trough of the fourth quarter Eco design, Mr's, which represent the majority of our fleet reported TCE of 11540 per day in the first quarter up considerably from 9600 per day in the fourth quarter 2020.
Meanwhile, the chemical tanker rates are performing very well on a relative basis.
That's what the previous quarters, we are presenting charter rates.
On the chemical tankers on an actual and the capital adjusted basis the.
The purpose here is to present the rates from the various vessels on a comparable basis to an EMR.
The chemical tanker rates of reported at 11950 per day for the quarter and on the capital of adjusted basis. The chemical chips reported 12 750 per day.
Looking ahead as of today for the second quarter, we had 50 per cent of our days booked on the Mr's at 11000 per day and on the chemicals, we have 80 per cent of the days booked at 11250 per day.
Turning to slide 19, we would take a look at our capital allocation of financial activity.
We are continued to focus on the financial strength of liquidity with 50 to $50 2 million in cash at the end of March.
Total net debt at the end of March with $339 million and corporate leverage was 53%.
We announced a 40 million share of preferred share investments in Ardmore by Marathon partners as part of the formation of the one marine LLC.
We see this as an attractive piece of capital it is perpetual and it carries the dividend rate of eight 5% and has an option for ardmore to redeem from the end of year three.
The total amount of $40 million 25 million initially and 15 million subject to final approval from Maritime partners.
The transaction is currently in documentation and we expect the chosen in the coming weeks.
Meanwhile, debt reduction non financial strength remain top priorities under the capital allocation policy, we have scheduled debt repayments of 43 million for full year 'twenty, one while maintaining the revolving credit facilities for financial flexibility.
The preferred share issuance provides additional flexibility to prepay debt reduce costs and reduce cash breakeven levels.
And finally, we of unrestricted cash of 2 million per ship, which is amongst the highest of our peer group.
With that I would like to turn the call back over to Tony.
Thanks, Paul So before we conclude and go to questions I would want to take some time on this earnings call to discuss ESG and of particular activities around the energy transition.
For a total of four slides so turning first to slide 21.
ESG is something that's always been important to us, albeit not necessarily under this terminology instead, we refer to simply as progress hence the name of our reported.
To mention a few highlights from our recently issued 2020 progress support.
When it comes to the G&A interest ESG and the 'twenty 'twenty. We were ranked third overall and first of foreign issuers out of 48 public shipping companies on the web of corporate governance scorecard.
With interest in correlation as shown in the web of report between the company's position on the scorecard and long term returns on capital.
In terms of the S. In ESG, we have a high degree of diversity at every level of our organization both by gender nationality and of this ethnicity.
Which we believe is a key factor in our solid operating performance in an industry, that's otherwise not known for its diversity.
And as for the E. In ESG, we're doing very well on our C. O two emissions by virtue of having a modern fuel efficient fleet.
And the focus on fuel efficiency and voyage optimization, which adds to the twin virtue of reducing emissions, but also of proving TCE performance.
We know that ESG is an increasingly important topic for investors and we're happy to discuss these aspects of ardmore and Q&A or offline later on.
Moving to slide 22 for a discussion on shipping industry de carbonization.
The overarching point to make is that the pressure to reduce emissions is not only increasing but it is also accelerating and we believe rules will come into force sooner than currently anticipated.
As you can see from the Pie chart to the upper right shipping is not insignificant in the global context and is no longer being overlooked by regulators and environmental interest groups.
Much of the discussion has been around <unk>, which is the technical measure of ship efficiency, but in our view of the carbon intensity indicator or see eye to eye and operational measure will be more impactful as it will include rising targets year by year and it's a grading system just like school will make it easier for charterers to screen shifts and marginalize those laws.
Sufficient in the deity categories.
In terms of initiatives already underway. The EU emissions trading scheme is set to come into force for shipping in January of 2022, which is just eight months away with full compliance expected to be required in April of 2023.
It sets of cap on carbon emissions and any amounts over or under what caused the trading of allowances of repayment of science effectively less efficient ships will cost more to run on any voyage is taking place within the EU, whereas currently contemplated.
Voyages originating or terminating in the EU.
So the cargo charter as the framework for assessing and disclosing the climate alignment of chartering activities around the globe and this will further encourage charterers to screen out inefficient ships.
And the Poseidon principles are intended to ensure the bank portfolios are in line with carbon reduction targets set out by the I M O, which will have the effect of reducing financing opportunities for inhibition ships.
Overall, we expect the substantial transformation in the shipping industry between now and 2030, driven by regulations as well as industry initiatives such as those mentioned here.
Turning to slide 23 regarding of our own focus on efficiency.
It's already well ahead of the targets set by the industry. Historically, we have substantially outperformed the besides of the principles trajectory for example in the first quarter of this year, our emissions were 9% below the target for 2021.
In addition to all of our ships outperformed the E X I targets currently under discussion by the EMA.
And we believe we're one of only two listed companies in this position.
As the company, we're dedicated to continuous improvement and to that end are engaged in projects and initiatives as shown in our 2020 progress report and also shown here in summary form in the lower half of the slide.
Turning now to slide 24 on our energy transition plan.
Rather than taking you through the slides in detail. Let me just explained at the high level with the T. P is and also what it's not.
The ETP as the long term plan, which will spend years and will evolve over time, but with the constant focus on how to improve our core performance and relevance of the tanker company in the period of great change.
It augments our core strategy, but it doesn't replace the returns.
We're a tanker company and that won't change, but what will change is the cargo we carry over time, we will ship more and more sustainable cargos in other words things other than diesel gasoline and jet fuel.
Sustainable cargos already make up roughly 25 per cent of our revenues and we expect this to increase gradually.
We also wanted to get closer to the key customers facing similar energy transition challenges. So that we can add value through our knowledge of capabilities, whether tactical operational or financial in nature.
Most of improvements will stem from technology, and we will increase our involvement in what we referred to as transition technologies.
Not research and development of theoretical solutions, but rather the practical nuts and bolts assessment of already developed technologies, the economic viability and their deployment.
But this doesn't mean that we're becoming a technology company, we are and will remain a tanker company with a strong operational focus and are merely expanding on something we've always focused on technology as a means to improve performance.
The Good example is the one marine this involves the very interesting proven technology of hydrogen generator already deployed on land able to safely and efficiently produce hydrogen on board ships the power fuel cells.
In this instance, we partnered with the developer of the technology element one of one with Maritime partners of Likeminded Finance company, which sees the potential of the system.
The one marine will be independently staffed and run with the three partners contributing their knowledge and expertise to the venture as needed.
We will continue to look for additional opportunities principally to improve our own performance, but where it makes sense to work in partnership with others on proven technologies, which we can help bring can bring to market.
And then I'm moving to slide 26 to sum up.
A recovery of the product and chemical tanker demand or I'm, sorry, a recovery of the product and chemical chemical tanker demand is well underway, but the exact timing of the full rebound is still unclear. However, we think it's very likely to be within the second half of 2020 one.
Our chemical tankers continue to perform very well on a relative basis, probably because of their tighter correlation of global GDP growth.
Which also gives us reason to believe that the tanker market recovery will be glad at this time by chemicals and products.
Meanwhile, the supply outlook is we think very positive, particularly in light of the ordering spike per container ships gas carriers and brokers taking of shipyard berths, meaning the yard capacity is becoming increasingly scarce.
Our gross commercial performance in the first quarter reflects the rebound in rates along with continued solid performance from our high quality modern fleet and excellent team work under very challenging conditions, both at sea and shore.
Our focus is also on risk management, and the financial strength with quarter end cash of $50 million and leverage of 50% and dependent preferred share issuance supporting us additional financial flexibility.
Our ETP initiatives announced in February of long term in nature, but well underway with early steps taken to form E. One marine along with the activities focused on fleet performance.
But as the final point, even as we look forward to the end of the pandemic as an industry. We continue to struggle with the operational and human impact of COVID-19, most recently the spike in cases in India.
Where our thoughts are with our Indian colleagues, whether our seafarers are short of staff or our business partners and our focus is on what we can do to assess whether collectively or individually.
For example, the seafarers International Relief fund, which was launched today.
For which there is a link on the slide.
And we will now open up the call for questions.
We will now begin the question and answer session to ask the question you May press. The Star then one on you touched home phone.
Of the speaker phone please pickup your handset before pressing the keys to withdraw your question. Please press Star then two.
And my first question to the old will come from Jon Chappell with Evercore. Please go ahead.
Thank you good afternoon.
Hey, John plenty of ours.
All of the interesting at the end you said youre not a technology company Youre going to remain a shipping company.
Feels like you've always been kind of between a rock and hard place on investing in assets and in a meaningful way and now you've had the huge energy transition opportunity that you're expanding in Q2 that you won a bunch of when you think about your capital envelope and the ability to invest going forward and I'm thinking more like three to five years, how do you think about the.
Split between hard assets like the traditional shipping company you are versus taking advantage of potentially some of the higher returns in this energy transition venture.
Good question.
Our thought process is largely around hard assets and building the core business and the direction that we've kind of laid out in the U T T.
But at the same time when opportunities arise.
That offer perhaps more.
The.
The very attractive returns and the less capital intensive manner, obviously, we're going to take the seriously because again, that's part of our our focus now to try to bring our strengths.
From the operational and tactical side of the bear on.
Opportunities to partner with others to bring things to market. So.
I can't tell you that theres going to be a lot more <unk> type projects, but there may very well be it'll be a function of of what comes along what we can be convinced of.
What our priorities are at that time.
Do you think the two are mutually exclusive or if the if you did have an opportunity to invest in assets and at the same time, you can make a big investment in in some E. One type project with the banks be there to support the ladder, maybe more so than they had been in the format.
It's very possible.
Think that.
You know it's interesting the you know the.
The the sort of the.
The perception of the one is quite large in the context of ardmore, but in reality, we're investing 6 million of cash.
No.
We think there is potential for extremely outsized returns there.
But yes, I mean, the you know the banks are extremely supportive and encouraging them in this direction.
And.
But I think another point I want to make.
Because it's very it's.
It's a very important point to make is that.
When we look at the three key areas of our energy transition plan, they're all interlinked and kind of synergistic.
So efforts that we make on the technology side can feed into the other two areas.
And vice versa. So we.
We think we think it's a pretty cohesive and synergistic approach.
And then just my final one when I look at that slide six that you put in here from the first time, which is really interesting and some of the dynamics that have unfolded and layer that on top of some of the other things that Paul spoke about I mean, it seems like the product tanker market should have inflicted already and every time it starts to lift off of that a little bit it seems to get knocked back down so I'm not asking you.
For the timing of an inflection point, because I don't think anybody knows that.
From your perspective, why do you think of it hasnt lifted yet is it just there's too many vessels there's too many vessels of the wrong places the inventories are still too elevated the mobility hasn't improved enough what's been the limiting factor to really.
Impede of full breakout.
Well I think.
It's a great question I think it's just pure shipping economics and that you can if you're coming out of the deep trough as we were from the kind of middle late last year.
You can you can see of significant demand recovery before the supply demand balance gets to that point of inflection.
So I think we're arguably halfway through the recovery may be a bit more but clearly not enough yet to inflect in terms of supply demand and the impact on on rates.
And.
There are so many moving parts right now on the balance of the recovery.
That it's just hard to kind of pinpoint anything but.
It could it could be it could the and the other thing I think the point out is the other things are happening right. So we've talked about.
The continued refinery dislocation. We've also in this period seen China very quietly but.
Significantly continuing to increase there.
Their exports.
Which is driving product tanker demand as well.
And there could be returned of things like Nobody's talking about on IMO 2020 anymore other than maybe in the context of scrubbers, but but that that did definitely create an incremental layer of demand. We think from moving low sulfur products from the east of the west. It's just been swamped by the surplus or the the dirt the dearth of demand overall in the availability of that.
Kind of product in the west under those conditions, but that could come back as well.
And so we so we think that there.
Also have the impact of of stimulus spending and activity.
On demand, which isn't permanent but it can it can have an impact for up to a couple of years.
So that's a rambling long long way around the saying that we don't know exactly when the inflection point is but it doesn't surprise us that it hasn't happened yet.
Because of all we are doing now is making up demand from the very deep trough.
The I get that thank you Tony.
Sure.
And our next question will come from Brendan Gibbons with Jefferies. Please go ahead.
Oh, the etonian, Paul How's it going.
Hey, Rodney has gone good.
So it seems like you booked I think for MLR on time charters. So can you provide some more color on that 27% of MRO revenue days book on time charter, maybe the rates and the tenor of those and then also looking at your rate guidance. It seems like the Chem tankers continue to outperform the M ours.
Why is that day and when do you expect those <unk> to inflect above the cans.
Okay, maybe I'll just I think I think the way we report it sometimes can be a little bit.
It's just the math, but.
But we have for example, the spot trading shifts of.
The roughly 40%, 50% through the quarter, but for the ships out of the time charter we know the whole quarter right. So I think if you add those together.
It's looking like the bigger number of somehow yeah. The reality of its four out of 19 of 20 ships. So it's exactly right.
Ron You said, we've got the 50% stakes debt, so where profit the way we look at the halfway through the quarter of $11000 of day, but obviously this four ships the annual fixed right through the quarter. So.
The rates of knock on to disclose the rate because of that.
The market comprehension of but the market rates for <unk> in the first quarter were around somewhere between 13 and the half in 14 in the base. So that would be the rate that we picked us.
And.
Yes, so you of 50% plus whatever four ships you have for the remaining six weeks if that makes sense.
Yeah, and the duration on the charters and of the rates Youre, saying confidential, but of the normal one year 12 months charter.
There are six months to one year with no options.
Got it.
And then the bullshit.
Why when we talked about the quarter to date, we are not adding the full quarter of the time charter days and that it's just a pro rata share for the.
Against the spot ships.
Okay that makes sense on the number then.
And then I guess second question.
The fourth quarter, you repurchased around $300000 worth of shares didn't purchase any here in the first quarter.
<unk> is still over six if not seven.
So how do you view share repurchases here at the kind of current share price level.
A good price and Randy I guess I guess first off in terms of the first quarter. We were obviously working on the one marine add transactions about getting the documentation. So theres no ability to buy back shares I think we've been very clear at the outset the priorities on capital allocation.
They remain debt reduction and financial strength and continuing to manage through the risky markets as we see them.
The investments in any one was as Tony mentioned $6 million in capital outlay of we think that's it.
You know of potentially of high return investments so for us the capital allocation priorities remain unchanged and to the extent that there are opportunities to kind of take interesting investments. We look at the us share buybacks. It's there. It's the two of them the toolbox, but no no immediate plans to kind of move aggressively on that front.
Got it all right I'll turn it over thanks, so much.
Thanks Randy.
And our next question will come from Magnus <unk> with H C. Wainwright. Please go ahead.
Well thank you.
Afternoon, guys.
Just a question here if I just confirm what I heard on the call did you mentioned that there's no capacity available until 2024 and is that just the Korean yards or is that overall of what are you basing that on.
Well, yes, but Paul do you want to explain the 'twenty 'twenty four yes.
That's the indications from ship brokers. We are today, if you wanted to do a series of ships.
We're looking at I'm sure. If you look for a onesie Twosies order you could probably get the mayor here, but generally the feedback from the main yards in.
The kind of top tier yards is that.
Capacity is based book down four for extended period of time.
So once the last I mean, I haven't seen that in a long time I was the last time there was of 30 months lead time for net margin library.
Well I think I think Paul's comment may have been misunderstood okay.
If you were I think.
I mean, when I talk to S&P brokers, the amount of ordering activity taking place at the moment largely with containers, but also gas and volcker's is huge and a lot of it hasn't been announced yet.
So.
And it's spreading down to the sizes, which are typical EMR type of.
Builders and births.
Basically Peter container ships of midsize gas carriers so.
And in these kind of core EMR shipbuilding yards. There it seems like based on what we're hearing anecdotally, but not formally reported yet.
They are filling up rapidly.
And.
I think the point that Paul was trying to make is that if you want to order of long series of ships lets say you wanted to order for the six or eight of ours or something.
That's going to extend into 2024.
Alright.
And other than other point of broker makes me this morning, which is interesting and we know this but you forget the when container when container ships of ordered they're never ordered in ones and twos, it's always for strength.
And so these are these large these were large orders.
Alright, thanks for clarifying that and just the second question on the.
260 product tankers over 20 years old the cube.
Expected the scrapped over the next five years.
How much do they really play into.
The market I mean aren't there already kind of a two tiered market, where these won't really affect the market and the more interesting part would be look at the I guess, the 17% of the fleet that's between 15 of 19.
Yes, I mean, what is the knock on effect. So if one of the really old chips get scrapped that.
Later, we will typically by the newer one to replace it kind of taking it out of the mainstream pool. If you will so sort of like like there is a very active market for M of ours around the age of 15.
Or being bought by.
Those kind of people that have been our scrapping the older ones.
Okay.
Last question on the.
And it looks like the operating expense have come down or you're managing them very well.
Any.
The additional costs from COVID-19 here.
With crude changes.
Yeah.
Okay.
Yes, it's slight it's not it's 100 200 Bucks a day something like that.
We do think that the protocols that are having to be put in place now.
Are going to.
The basic resulting in more crew days, if you will.
The the process of of corn tuning in and arrival at a at a crew change port Quarantining again getting on board as you know we have to pay them, we pay them all the way.
From when they big bites of the check in.
So that's going to increase a little bit, but it's Max 100, 200 Bucks a day.
Okay, Great. That's all from me thanks.
Yes, Thanks, Michael.
And once again, if you'd like to ask the question. Please press Star then one.
Our next question will come from Ben Nolan with Stifel. Please go ahead.
Hey, Tony and Paul.
Well.
So I got a couple of things.
Let me start with the you want it and I appreciate that.
It's still on the.
The process of being finalized, but I'm curious since.
Maybe announcement.
It's obviously pretty public what kind of the incremental interest you're seeing or if there's been any early wins or you know any any update as the sort of how things are progressing even though it's not officially opened yet.
Yes, we're still we're still.
Putting the ink down on paper.
But we hope to close of the next couple of few weeks.
We've hired a managing director of the commercial director for the for the JV.
So the staffing is well underway the great people.
Where we're in the process of class approval.
For the system for for deployment to the vessels.
And and theirs.
Without without being able to disclose any any great detail there is there.
There are a lot of discussions going on.
With the potential users.
But this is not this is not going to take off like a bottle rocket and in a matter of of months. It's this will take time.
We hope to have a clearer picture of the addressable market.
What we do already theoretically, but the kind of proving it out towards the end of the year and we're also working on hopefully around that time frame, having demonstration units ready to to deploy.
That's what we've got at the moment.
Alright, that's helpful.
And then sort of connected to that obviously.
All of our I believe of with this contemplates is the methanol quite a lot.
Which is an area that is very close to where you guys are but it is not.
When the market I'm not mistaken is not an area that youre currently in.
Is that in there is that that's something that you aspire to do and something that we should be the on the outlook for them going forward.
Yeah, I think the methanol as the cargo is it's the largest commodity chemical cargo.
80 million tonnes, a year, which is like the three 5% of of oil demand because it's not producer of oil, it's a big big chunk.
Typically it shipped in.
And stainless steel or zinc coated ships, which we don't have at the moment, we couldnt the future.
And then also sometimes marine line or Interline 9000 is used for that that can be sometimes problematic.
So.
It's not it's not of cargo that we currently ship. We also don't ship sulphuric acid or things like that so it's but but it is a component of aggregate chemical tanker demand and and I think of it in a more general sense is if the demand outlook for the demand for methanol grows that'll help the overall commodity chemical market and the.
Aggregate sense sort of don't know if that answers the question, but I would expect at some point, we will be shipping methanol, but it's not a.
It's just in the context of its just another cargo that you can carry.
Providing you with the more trading options.
Okay.
Yeah.
Let me lastly, I circle back with something that our debt John was talking about and again sort of appreciating that none of us really knows but one where one of your sort of doing the back of the envelope math.
Can you sort of when things can rebalance.
And let's just take the IEA data for instance in there yeah, obviously theres an upward trajectory for oil demand, but it doesn't get back to pre COVID-19 levels until sometime next year at the same time the product tanker fleet has grown by three per cent or so since all of the started how do you get.
Do you sort of.
How do you get comfortable with the recovery, let's say in the back half of this year.
Or sort of what what sort of at the tipping point that says okay, well, maybe absolute oil consumption is maybe still a little bit less net leak, a little bit bigger, but that doesn't really matter because ex.
You know sort of feeling of the blind, but what what tips the scales evening.
Well I think ex could be a.
A few things that I believe I've already mentioned, but the refinery.
Chipset of continuing to take place and even accelerated in the pandemic.
China export volumes.
The the reemergence of the impact of volume of 2020.
On demand.
And just overall trade complexity.
The stimulus spending.
And the fact that very often rapid economic.
The growth can be can be disruptive in terms of of cargo movement.
And in that that could that could create its own.
Element of demand, but that's not that's not the long term.
Okay and collectively.
Yeah.
It could be or should be announced right like that.
That gets you there in terms of just making the math work.
Yes, yes, okay.
Alright, I appreciate it thanks debt.
Yes, Thanks a lot.
This does conclude our question and answer session of today's call. The conference has now concluded. Thank you for attending today's presentation. At this time you may now disconnect your lines and have a great day.
Okay.
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Yeah.
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