Q2 2021 Scorpio Tankers Inc Earnings Call
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Excuse me, ladies and gentlemen, this is the operator today's call is scheduled to begin momentarily until that time and your lines will again be placed back on and music hold thank you for your patience.
And then.
Thanks.
And Oh.
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Hum.
[music].
Excuse me, ladies and gentlemen, this is the operator todays call is scheduled to begin momentarily until that time your lines will again be placed back on and music hold thank you for your patience.
[music].
Hello, and welcome to the Scorpio tankers, Inc. Second quarter 2021 conference call.
I would now like to turn the call over to Brian Lee Chief Financial Officer. Please go ahead, Sir thank.
Thank you operator, and thank everyone for joining us today and welcome to the Scorpio tankers second quarter earnings Conference call on the call with me are Emmanuel Laura Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief operating Officer, Lars Duncan debt Nelson commercial director James Doyle Senior financial analysts earlier today, we issued our second quarter earnings press release, which is available on our web.
Site Scorpio tankers dot com the information discussed on the call is based on information as of today August 6.2021 and may contain forward looking statements and involve risks and uncertainties.
Results may differ materially from those set forth and such statements for a discussion of these risks and uncertainties you should review the forward looking statement disclosure and the earnings press release as well as Scorpio tankers, SEC filings, which are available at Scorpio tankers dot com and SEC Dot Gov Gov call participants are advised that the.
This conference call is being broadcast live on the Internet and it's also being recorded for playback purposes and archive of the webcast and we made available on the Investor Relations page of our website for approximately 14 days.
There are slides that Scorpio tankers dot com on the Investor Relations page under reports and presentations, but those asking questions. Please limit the number of questions so everyone else to share.
If you have any specific financial modeling questions. You can contact me later and discuss off line I'd now like to introduce manual work.
Thank you Brian.
Welcome everybody for myself, as well and welcome Flyer and second quarter.
<unk> results call before I start with my opening remarks, just wanted to make everybody aware that Robert Bugbee had last very last minute personal issue and may not be with us for the first 30 minutes of the call will play it by here as we go along and.
And as far as the remarks are concerned instead, we've seen.
And market weakness caused by the pandemic, we chose a day.
Disappointingly continued in the quarter.
And despite that we believe with increasing conviction that the recovery has been deferred rather than canceled.
And I am pleased that the value of our incumbent position has continued to increase with vessel prices debt.
And have increased and very low supply growth, which has continued.
Over the quarter, our modern spot exposed fleet remains very well positioned.
We have continued to focus on sensible balance sheet management and liquidity management ahead of the normalization of ton mile demand and the upswing in the rates, which we anticipate in the final part of the year.
And concerns over variance of COVID-19 are dominating or have dominated and unfortunately still are dominating global markets.
Restricted government policies have led to a delay and recovery in many sectors and the transportation sector specifically was.
Heated.
As well.
This means debt for the product space. This means that ton mile demand, although stronger than a year ago is still running well below 2019 levels.
Indeed in the southern Hemisphere. Some developed nations have recently entered a form of Lockdowns for the first time and this is and.
Other negative to the transportation sector specifically.
As far as we are concerned as I've mentioned, we continue to manage our liquidity actively to ensure that the business remains on the front foot and.
And this quarter, we upsized, our 2025 convertible bond with top of the baby bond market and negotiated.
Debt facility, which I would describe as innovative and climate link.
And against that backdrop and rates, which we've experienced and are experiencing inventories are low crude prices have recently stabilized setting the scene for and enduring recovery, which we believe will follow the usual seasonal pattern.
And the second half of the year.
We've seen OPEC mid last month.
Who flagged a progressive reduction and the current supply cost.
These costs should be eliminated entirely by the third quarter of 2022, and Dcs or can be a sensible trajectory to use for the anticipated demand recovery.
The tanker market recoveries, and therefore as I've mentioned before.
Third rather than canceled, but we remain increasingly confident.
And in our position I should also that debt against the backdrop of the weak market the outlook of premium, which we can which can be achieved really buy.
And our eco and scrubber equipped vessels continues to increase and we expect the spread to continue to widen in the quarters to come and similar to what we've experienced in the first quarter of 2020.
And the last quarter and 19 actually.
And similarity with the other spaces product tanker values have continued to improve.
And input prices are increasing as well and yard availability remains low and.
There is demand for our new tonnage and other sectors.
And during the last earning call and we were excited about the rising number of vaccination in the U S and in Europe and that impact that vaccinations would have on refined product demand.
And I think many of US would just received and we're getting there first vaccination and based on the initial data we sold vaccinations would increase personal mobility and be the key driver and the recovering demand for refined products, we still believe that in fact, even more so.
However, we have also been experiencing a significant refinery maintenance season, and our expectation was that refining capacity coming back on line would translate towards increased and seaborne volume.
The short of it refinery maintenance turned out to be more significant than we had expected and when capacity returned we encountered and asymmetric spread up the delta variant and key regions, which delayed the widespread recovery.
Especially jet fuel.
Also a week and crude oil tanker market increase the number of vlccs carrying distillate on their maiden voyages from Asia to the ETA and the west displacing product tankers and discounting rates, particularly on the L. O 2 L O and backhaul voyages.
Now, while the recovery deviated from our expectation.
Robust economic growth rising vaccination rates, increasing mobility levels and the easing of social distancing will underpin and stronger global oil demand and the second half of this year.
We're now starting to see.
Arbitrage barrels moving longer haul, specifically, an increase and transpacific lately trying to take voyages, which has helped to improve rates over the last few weeks.
2 of our vessels, even loaded and Asia and now destined for South and South America, and New York.
And in the same vein Trans Atlantic and most have moved out of the lows of the second quarter and we're now seeing some positivity positive volatility that otherwise has been lacking in the last 8 weeks.
This subtle change and reflects a general rebound and gasoline and diesel demand and the Americas.
With researching Latin America, posting almost 2 million barrels per day of imports and July.
Refinery utilization has increased and the U S average 92 per cent refinery utilization and in June and July the highest level since COVID-19 started and looking forward I think we will also continue to see global refinery rationalization led by the closure of uncompetitive refineries.
This Conversely will lead to increased ton mile. That's emerging geographical dislocations will require products to travel further to market.
And even as refinery utilization has increased the significant draw we have seen and global inventories and rising demand. These inventories now within or below 5 year historical bands.
We have seen though a recovery and jet fuel demand, but there is still room to go.
Now while global commercial flights at 89 per cent compared to 2019 level global jet demand and it's only at 70 per cent of 2019 levels.
And the supply side things have improved the high steel prices combined with an older fleet profile and that's finally seen a meaningful increase and scrapping this year. The number of M. On scrap is likely to be the highest ever.
We continue to have a benign vessel supply outlook and historically low product tanker order book and the constrained shipyard capacity focusing on the higher valued container LNG and bulk orders or push new build slots after 2020.4 and other way substantial increases and the newbuild contract price and mineral mentioned on negotiated economy.
We remain patient and constructive and we are confident that we are embarking on a full multi fleet sustained recovery. It is a question of time when the remaining cylinders on the engine fire up.
We have maintained that we anticipate a second half recovery for a long while.
And this view I continues to hold however, we're not probably looking more at the back end of the second half before we can expect to see a meaningful rally.
These factors at play, including the young Scorpio fleet, which Scorpio is well positioned to take advantage of the market opportunities as they materialize.
And with that I think operator, we can now go to questions. Thank you very much.
Thank you at this time, if you would like to ask a question. Please press Star then the number 1 on your telephone keypad again net of scars and the number 1 we will pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Omar No debt.
With courts and securities.
Hey, guys good morning, and good afternoon.
Hum and I've, obviously been ie because.
But you've been pretty busy here, obviously looking at thing and and the next door and Eddie.
Okay.
My first question I have is actually on the investment that you've made here that you discussed and the dual fuel tankers I know, it's a small minority stake small capital outlay and $7 million, but can you maybe give just a perspective on what drove you to this investment and is this sort of like a is this the kind of getting your feet wet type of thing in terms of.
And we'll feel propulsion.
Hi, Omar.
It's Ken here I think that's the right way to look at it.
You know it is a modest amount of money.
We do expect it to be a very positive IRR investment, but the real rationale here is as you say starting to get engaged.
And the benefit to dual fuel and the trajectory of methanol off for the next 1 to 2 decades. If you were to look back at our investment and our first eco tankers that delivered in 2012.
It was a period of about 2 years of R&D and designing and constructing that first asset, which then has transpired into where we are today notwithstanding the market, we are and are far more competitive.
Position.
Because of that work.
Versus our peers.
Similarly, with an investment like scrubbers.
That took a fair bit of time and investment and research not what you could do it and spreadsheets or on the internet, but really getting engaged in order to translate into again something that makes us far more competitive in our peer group.
I would draw a line through those initiatives to this 1 saying look it's not something we expect to be.
And the transformative in the near term, but it is modest it is going to be a positive return and it allows us to get seriously engaged and positioning the company to be as competitive as possible.
And stay ahead of the pack.
For the rest of this decade.
Thanks Cam.
It's helpful to understand the backdrop and you know theres been obviously a lot of talk about LNG dual fuel at least on the larger ships and and then maybe perhaps ammonia years down the line and it is an ethanol seemingly probably the is that what that would sort of gaining traction here for say mid sized vessels going forward.
Yes.
And I think that's well.
Well noted Omar and LNG, we have.
Every alternative has its pros and cons.
Tween, the infrastructure that may or may not exist and the pure <unk>.
Volumes that are available so LNG is say the easiest bridging fuel.
But you.
Further down the line people are talking about hydrogen or ammonia, which I would describe as more aspirational fuels for shipping.
Methanol falls right in our sweet spot, where there is a fair bit of infrastructure already in place, there's a fair bit of demand industrial demand and production already in place what's interesting to us about methanol is not just that aspect, but also the fungibility between.
And what would 1 calls black or gray methanol and the blue green or even E. Methanol that people are discussing.
And the near near future.
And the you know notwithstanding the lower energy density of methanol versus conventional fuels that the transition of our fleet.
And 2 dual fuel tankers or at some point and the future.
And the time, where we have to think about fleet renewal.
<unk> is very interesting and in this respect.
Yeah.
Got it.
Thanks for that color, maybe just 1 small follow up.
And I know, it's a small investment but is there potential to grow that say for instance, and bill feel tankers that that's something you're interested and are more.
Well at this point.
No.
Sort of limited and how I can respond to that I would say of course, it's interesting to us, but we have many other priorities to manage at the moment. So again I would just say this.
Our foot and the door are totally and the water we will see how it goes if if things go well.
There is.
A fair bit of opportunity, there, but but where our expectations right. Now are just modest and focused on getting engaged and the trade and understanding the technology thoroughly.
Yeah, understood and will be interesting to see how things develop there on that front.
And I'll turn it over and.
And Tim.
Yeah.
Your next question comes from the line of Ken <unk> with Bank of America.
Yeah.
Hey, good morning.
So just can you talk about your.
Vessel age and you've got and used to be that I guess, the youngest now you're starting to age with but you have got 5 vessels 9 years old and another 5 to 8 years old $25.7 how do you think about fleet renewal.
Or are do you come up against any point of pressure on rates and.
And the fleet starts to age or are you still viewed as peak.
Peak age and the market.
Thanks, Ken maybe I can.
You want to go and then you'll go right ahead.
So it's fine it's finite and I was going to start with and then you can.
Chime in and I was saying.
In general the fleet sub 15 years.
<unk> is treated in very similar ways. The features that defer differentiate.
The vessel is the technology, the electronic engines and the design.
As Cam has alluded to in answering the question before our.
Our first generation eco design vessels, despite being a total of 9 years old now they still are.
Eco design vessels, so we do not get any.
Issue and the operating the same way and the same markets as the rest of the fleet.
And that's.
That's a fact.
As far as thinking about fleet renewal.
I think debt.
We are to an extent and the luxurious position because we do not have to at this stage think about fleet renewal.
In terms of the technological shift that is happening the dual fuel et cetera, it's something that we can and.
Again as Tom has described just a few minutes ago.
And.
Start looking at and working on without taking a big position.
Because we have today.
And.
The ability to actually watch what it's going to happen, where the LNG is going to be the next step or whether alternative fuels.
Like ammonia or hydrogen or going to.
Come sooner than than expected and sooner than expected doesn't mean, 1 or 2 years by all means it means maybe.
And 50.710 years from now.
And so we still have a bit of time before we start thinking about fleet renewal in them.
Our octave way in a more strategic way, even though we are always waiting all the options ahead of us and.
And the methanol investment is a testament to 2 debt.
Yeah.
Thanks, that's helpful. So.
Let me I guess, maybe Brian its all non cash you've lost money now 16 of the past 20 quarters and it looks like you pushed out some of the scrubber installs.
I guess, you've got a couple of left and the fourth quarter 8 next year and some of the water ballast came and you pushed out maybe talk about your capital commitments to come obviously, you've done a lot of debt work. This this quarter.
Still have $210 million due over the next 3 quarters and $215 million and 22. So I mean, it's just a question of we keep pushing off net recovery. It seems like it's constantly on the call and maybe talk about 1 what gives you the confidence that you talked about the rebound and fourth quarter later fourth quarter confidence and that but in the interim.
Your your ability to handle those capital commitments.
And the interim on the debt side.
Alright.
And well keep in mind that some of that debt that's coming due is going to be refinanced and we're working on the refinancing of debt So and maybe I just hear explain what goes on and when we refinance right.
And how liquidity is created from that.
Ships are refinanced with a repayment profile not the term of the loan but the repayment profile. So that when the vessel reaches about 15 to 16 years of age with the vessel's debt free and the vessels useful life was 25 years. So that's 10 years.
Debt free and industrial but sort.
And given an example.
Refinance a 5 year old ship for $30 million.
Payment profile is 10 years, so each year, we paid $3 million.
So the initial debt balance goes down by 10% each year, but under normal conditions, our 5 year old vessels, not going down by 10%, yes. It can but again I said normal conditions and.
If we use a simple straight line and about.
20 year life, the vessel value would go down by 5%, but that's not realistic. If you look at a discounted cash flows where the reduction is significantly less and that for a vessel. That's between 15 years and 19 years, it's not a 5% differential.
Closer to 2% and when you do discount and cash flows again also keeping in mind that.
Therefore vessel values as him and what he said have increased here and this year and half and Ken and this is not the historic highs and has a ways to go up and historic high therefore on a refinancing comes across.
And I'm, sorry, we have the ability to get some liquidity out of there. So that's where we're going with that so it is not.
A normal transaction, when especially when you're dealing with 131 vessels.
You say the average term of 6 years, we're talking anywhere between at a minimum 9 vessels to up to 30 vessels are refinanced each year. So again, that's how liquidity is replaced and so that rapid repayment of debt when you go to refinance.
And what's up additional cash there. So that's why we're able to do that.
Okay, and just thoughts on that.
And Brian.
Wrapping up with the <unk>.
Timing of the water ballast and scrubbers and my right you've pushed some of that out or is there still capital coming on on those that you've pushed out.
Furthermore, we ramping that program up.
Both of those programs are being drastically reduced going forward here I think we have like $20 million. The rest of this year, we have some next year, but going forward.
Dramatically reduced so yes.
Alright.
Thanks for the thoughts.
Thanks, guys.
Your next question comes from the line of Greg Lewis with BT and EE.
Thank you and good morning, everybody and Brian and just following up a little bit on the harm and Ken's line of questioning.
Yes, we saw that asset prices are moving moving and the right direction as you look to refinance.
But maybe just maybe paint some broad strokes like if if I were to think about and realizing that the debt financing and asset line lease financing market or fluid market.
And we kind of look around and like over the next couple of quarters. It looks like there is a run rate of around you have about $280 million of debt that needs to be repaid.
A more amortization is there kind of is there kind of a rough way to think about hey, we're paying $2.80 of that but we can probably than refi since we're paying and that we can refinance 40% 50% of that 30% is there any kind of realizing that you have different age vessels across the fleet is there any.
And a way to think about that just as we try to think about.
And what your cash.
Cash commitment.
Yeah.
All right.
And and and really maybe the.
I think a lot of people look at the cash on the balance sheet and say, okay. We look at the debt repayment schedule and there is a real pressure to increase panic and generate cash from operations, but just kind of any color around that I think probably be helpful.
And it does.
No secret Formula as you're pointing out is fluid and it's the age of the vessel that's involved where it isn't.
Loan.
I don't have a magic formula to give you here.
But we have.
Part of my answer to Ken was to give an example of where liquidity is raised and and each 1 of our vessels now free where to go out and refinance we would get more liquidity. So.
It would be the age of the vessel is there I think we've been transparent and every quarter, saying, what we're working on and we've tried to be realistic and.
Somewhat conservative and what we've said so I think.
We will continue to do that and as we say right now and is what $59 million up over 13 vessels that were working on them and.
And again some of those debt repayments that we're looking at here.
We'll be refinanced just a matter of time and when it comes across and that's why we're showing it that way.
And so like as I think about advance rates from.
Yeah.
Leasing houses as they're kind of like.
And then I'll have those trended where are we today, if we're looking to refinance the vessel what type of advance rates and we get on.
And on an asset and does it different and does it differ if the vessel is under 5 years old versus over 5 years old.
And it can make a difference there, but youre generally.
Also the valuation is going to change so it's not going to be significantly different. So if you are looking at a finance lease youre, probably looking up until 85% and depending on what Youre doing and then.
Regular banks you can go up to 65% now we're seeing some places we're seeing bank markets come back to and as well at the same time.
Okay, Great and then just clear I'm, just kind of and I wanted to follow up on <unk> questions around and methanol.
And we're like at a certain point it seems like with all these new alternative.
Tools.
It's gonna be real like it's gonna be infrastructure is what's going to be required.
Where do we stand in terms of.
The methanol infrastructure right now realizing the methanol.
Trade that you have.
Vessels debt.
And in support methanol use it and use it.
What is that infrastructure like right now.
I would say thanks for the question and I would say it's.
Obviously, a fraction of the infrastructure of conventional fuel yet.
And it exists.
Be it piggyback off of the.
Existing sort of oil major dominated and refine our dominant dominated fuel infrastructure.
And see at the end of the day, we're talking about dual fuel which implies <unk>.
<unk> capability for the vessel and.
And so if you look at where is the most feasible place to go from here. It is some sort of dual fuel.
The propulsion system not.
Ammonia or hydrogen those those things.
Arent even.
Conceived as far as their.
And there.
Infrastructure requirements.
At this time.
The nice thing is that there is infrastructure that exists for methanol and obviously it hasnt.
And to develop to a matured yet, but there is a clear path by which it can develop and can develop easily and practice pragmatically. So so that's part of the reason we're so drawn to this as a.
And as an area of further study.
Perfect day, and thank you for the thoughts everybody.
Your next question comes from the line of Jon Chapell with Evercore ISI.
Thank you good morning, and good afternoon.
Emmanuel if I can start with you you mentioned the secondhand values are really strong and it's something that we notice basically weekly and it seems like the disconnect between the underlying rates and the market.
And the asset values is widening probably on the path that large laid out and the optimism around it.
And prior cycles, you guys have used sale and leasebacks.
Kind of refinance and keep the liquidity elevated which is just another way of adding that with 131 vessels a ton of operating leverage already and it's widening disconnect have you considered maybe just monetizing some of those shifts and a strong secondhand market, while so in order to retain substantial operating leverage but also.
And liquidity without adding more debt.
Thanks for the question I think that is.
We are always open and.
And considering whether we should buy or sell.
Whilst we are running our ships it is difficult to pinpoint the time and which.
Youre going to strike and.
Sales some of the best sales are.
Our.
Go the other way and add to it as far as selling ships.
Selling a couple of vessels today wouldn't really change anything strategically.
Do are and remain optimistic and.
Are happy with the positioning of the company and whilst we've sold in the past Opportunistically some of the vessels, which we heads at the time, where we perceived debt specific pricing being at a premium to market for which we would.
Consider selling at anytime really when there is a premium.
Paid.
And the deal makes sense I do know thing debt at this stage, we are and are positioned to.
Let go of some of our vessels because we think that the opportunity is in front of us and we would be sending prior to.
The cash generation of the <unk>.
Assets actually following up the asset depreciation et cetera.
Right, but I guess, that's the time value of money, if you can realize that cash and the asset immediately.
Instead of waiting for a recovery that continues to get pushed to the right.
Maybe it's a lesson.
Yes.
Overbearing method of of.
Adding liquidity versus sale and leasebacks, just wondering about that and then.
It is guys. However.
And if we were going to go down with the liquidity generation.
The idea, we would need to sell a number of ships, which I don't know how many buyers and there would be therefore a.
A large number of vessels so we've actually.
<unk> taken since many months now a different approach and not only focused on the sale leasebacks, but also on the refi.
Our refinancing and green refinancing green loans and.
And went through that process of refinancing or sold facilities, which we hadn't had inherited from previous acquisitions were.
And we had sale leasebacks, and we actually converted them into conventional financing and still we're able to generate.
Cash and so it's a little bit there as well, how and which.
Specific volume to the facilities, which we are which are maturing are coming too.
And maturing debt debt the point, but I take your point, but I hope I've answered your question yes.
And I appreciate that.
Second question for Lars.
We are so focused on the western world and the pace of vaccinations here and.
TSA numbers and driving numbers and the U S and Europe.
But it seems like the latest varian and really starting to hit Asia, and causing more lockdowns there whether that's related to travel.
And China, or whether it's related to manufacturing in Vietnam, and Malaysia and Indonesia.
I don't I'm, not asking you to to time of recovery of demand and in Asia, but I think the question is more along the lines of what does that and due to the fleet not just your fleet the DMR product tanker fleet or the LR, 2 product tankers fleet, and causing disconnects across basins in and Keating tree.
Jade and really dampening.
The magnitude or timing of any recovery, even though up until last week most of the headlines around.
Our areas of the world, we're pretty positive towards the demand recovery.
Yeah.
Thanks, John and Mike.
I think there.
When you look at India, which was the cause of concern.
A little while back the other V shaped recovery that you've seen the gasoline.
Consumption has been quite astounding.
And it's impressive how that actually can turnaround.
And look at the immediate numbers on Chinese and.
And consumption at the moment with what's going on in China with the Delta Varian and the 2 kind of Lockdowns, Vietnam and June and and that's at Beijing as well.
You look at the numbers from and as you aspects and it doesn't seem to have that big of a ship. So it is.
It's a good question, you know who knows what's going to happen when it comes to Malaysia, and Indonesia, and timeline of course and they've been hit.
But when we then look at our ships and what's going on right now and we take a snapshot as of the fifth of August.
And the markets and Mars and the allowance and the.
Asian markets have they rocketed 30, 40 points over the last couple of days.
No the allowed to market and starting to move up and.
And the arbitrage volume that I referred to my and my prepared notes, we starting to see a lot of this volume moving further field increasing ton miles a lot of trans Pac because this is not taking place.
Not only gasoline and distillate, but we've seen jetblue is now moving from North Asia.
And to the U S West Coast, we've seen products moving into Peru, we have done business from Asia on Air miles into New York Combo, which is something we haven't seen for 18 months. So theres a lot of different kind of volumes that are moving around and different ways, which I find very interesting and these things and I'll bridge debt connected to each other and if I wanted to go into a bit.
More detail on what's going on and the AG at the moment you are seeing a very strong market and then.
And suddenly you see and L..1 market that suddenly has been so quiet for such a long time somebody move up as well and that goes into the LR twos before we would have 1 market move and the other 2 would start.
Substituting and through their either per cube kind of the current.
Congress together or they split the Congress up depending on where they can see the weakness suddenly you're seeing 3 markets, albeit and early doors here and start moving in unison.
And that's the biggest problem that we have been facing.
And in the first half of the year has been the very weak crude market, where the new buildings on the Vlccs in particular had been kind of taking a lot of other business that otherwise would have been done on <unk> and other ones, primarily and that really has depressed.
And the tobacco market and the long haul market.
Going to Europe. So when you then look and say well what does it look like and the second half do you believe that OPEC plus and with it.
It's opening up is going to support the.
Crude markets you know the argument would be to.
And to the risk to the upside of that and.
You will start seeing as well that there are much fewer new buildings coming out and the second half of the year. That's historically always the case, so you can start saying well.
Things might dynamically change as we move forward. So I am constructed 1 and suddenly see this volatility happened as quickly and everybody thinks Oh My gosh. This is a not so good with the <unk>.
And with the Lockdowns debt on it seem to take place, but then you drill down to it and you look at the actual numbers and what that means to shipping somewhat changes and.
Well, John I hope that answered your question.
Yes, that's very helpful. Thank you so much.
Thanks Emmanuel.
Yes.
Thank you John.
Your next question comes from the line of Randy <unk> with Jefferies.
Good day, gentlemen has gone.
Hey, Randy.
A few quick questions from me first.
On the scrubber installs for 'twenty, 2 I think you have 8 of them scheduled and the opportunity to pull those forward to kind of reduce the off hire days next year.
Other noise can you want to take this otherwise sure sure. Thank you Emmanuel.
Alright.
The ideal way to schedule the installation of a scrubber is for that installation to coincide with and other wise regulatory mandated drydocking.
And you can do those things in parallel.
The mandated drydocking.
Theoretically could be moved forward, but you would do so at the expense of the.
Tail and lifetime of the assets.
Moving your birth day around.
Yep.
We generally keep to the <unk>.
Class require dry docking schedule the mandated schedule and then we do as much work at the same time.
Concurrently while the vessel is in the dark.
And as possible and that's what drives the.
Scrubber schedule.
The way maybe the easiest way to respond is yes, we're thinking about the most efficient way to do this work the most cost effective way and the way to minimize off higher and Thats reflected in the schedule that you see.
Got it okay.
And then we mentioned right and some drivers and last few minutes here, but your third quarter core day rates, clearly well below the second quarter quarter to date rates.
And what kind of rates are you booking today and.
And do you have a time expectation for when you expect to see a more meaningful recovery.
Okay.
I think as far as the recovery of the more meaningful recovery alluding to what I was saying before and what Lars is set as well and his comments is something that we think has been delayed probably towards the second half of the year and as Laurie said.
The latter part of the second half so lets say Q4.
And to see a meaningful upswing in rates as we speak and I'm sure as you've seen from the industry is actually there has been and the last 2 to 3 days.
We are experiencing.
And increasing the rate.
As.
And as of course, its welcome we welcome it and when it comes but from a structural standpoint, we see.
Q4 as being the.
The period in which the market should move more.
Strongly having said that we are booking today voyages and.
And cargoes that thought of returning higher Tcs compare to the average is that we have.
Outlined on the release so today, if we had to pinpoint we're making more money than those.
<unk>.
Out there.
And how meaningful the spike is going to be it's difficult to say, but that's that's where we are.
Got it.
Alright, and I guess last question and the last call.
You it seemed very confident and your liquidity position.
How do you kind of feel currently on that liquidity position and you mentioned you continue to exchange the converts you and advanced discussions for further liquidity increases.
And you've clearly appear to be in good shape, if youre spending money on vessels and still paying a dividend, but what are your kind of comments on current liquidity position.
Hi, Randy it's Brian.
We're very confident I think.
We're doing things to create liquidity when we need it and we're not.
Not being overly aggressive as I said about.
Vessels that are being refinanced or when they are up so when they come due here again youre talking anywhere between around 20 vessels a year have to be refinanced.
And when that happens there's cash that comes out of it.
So I think we're pretty happy with our liquidity. The same question all the time, but it's there and every quarter. We go through this and I think we have pretty good balance here with a $280 million as of.
June 30th and you know.
260 as of today.
268 as of today.
And we had it.
December 31, we had 187 now and we have again 282 as of June 30.
That's a significant increase and I think we're happy with that.
Got it all right well I just want to go.
And all the opportunity and to stay so thanks, so much thanks Randy.
Thanks Randy.
Your next question comes from the line of Ben Nolan with Stifel.
Hey, guys.
And it's been hashed over and let me just follow up on that last bit.
On the on leases, Brian. So I think you said there are and the release and said 59 million and sort of what you're expecting to get out and you just said and 20 ships or so a year that are available for refinancing.
And sort of given where asset values are today.
Is there a good number where you think okay and I don't know if its 59, but annually.
And if we're refinancing 20 of these ships and what's the.
And relative to your current leverage position and asset values and.
And so it was sort of.
And what's a good number of cash that you could sort of annually recycle out of the existing assets.
And I haven't done the math, there and that's dependent upon a few things 1 the age of the vessel, which vessels are we coming up for refinancing and.
Our financial institutions go through waves of.
Liquidity available for them to do that day.
Lending and and then they close their books and then they opened it from time to time so.
I Couldnt really give you a proper answer right now, but I think historically, we have each quarter here. We have said, what we're doing and it has come through so you know whether we want it I can't say $60 million is a good number for each quarter or not right now.
A lot of math behind that and looking at it so okay.
Alright fair enough.
And then on the market side and maybe this is for Lars R. R.
Emmanuel and whoever.
And you guys have talked about it.
And we don't know when things are going to improve but I think 1 other things that at least I've noticed and maybe this is wrong, but at least I have noticed in the past and as sort of the Canary in the coal mine with respect to predicting market movements are the activities the chartering activities of the traders.
Has there been any notable changes that you've seen in terms of appetite for.
Term contracts or durations or anything else that makes you feel like.
Some of the market movers here or are looking to take cover or be opportunistic or anything yet to this point.
Yes, so I can say categorically that there's a lot of activity.
And interest and the markets, particularly for forward positions.
Modern units and for medium to long term charters.
And.
We get requests or inquiries.
On a weekly basis, if not on a daily basis.
Total market tends to be split up today and like to.
And the types of markets and see it.
Okay.
The bottom feeder that wants to go in and do the 1 to 3 months prompt position and you see how cheap they can get it and if they have any kind of launch cargo.
And at around that could push that position further down the road they would do that and.
And then you have the more kind of strategic oil company oil trader element that could see well I need.
And ammo on <unk>, 2 and electric hybrid and 1.2 or 3 years, but I would like to have deliveries from let's say October and those plans.
Plenty around and look at that and then the question of course is what what do they consider to be a fair market price and everybody can see on the deals that have been done over the last quarter.
Maybe 4 months that.
People are willing to pay some quite hefty numbers for and forward position on a modern units.
And relative to what the spot market and sprinting today.
Mhm and.
And I guess my question is have you noticed any change and the cadence there.
Are people being more aggressive than they were and maybe a month ago or is it still sort of where it was.
And I'd say, it's more or less where it was.
Obviously, we've got the height of the summer right now so it's quite normal debt.
Maybe activity is a little bit slower when people have gone to the beach and whatever but.
It certainly is.
And I would say pretty much the same and the cadence would be pretty much the same.
Okay.
Alright I appreciate it thank you.
Your next question comes from the line of Liam Burke with B Riley.
Yes, Thank you and good morning.
Brian you generated for the first half of the year you are basically cash flow breakeven.
And what was a pretty tough rate environment.
Looking at and are proving right environment sometime in later 2021.
Does that give you confidence on your refinancing ability and the ability for you to generate cash or how does that factor into your comfort.
No that's definitely a factor of a refinancing and to generate additional liquidity because the volume will increase and as that happens so values have gone up and anticipation of the market getting better and.
And its fundamentals behind that if you could just.
James prepared all the slides and I if anybody's interested they can go look at the fundamentals over there, including order book and what's going on at refineries and that will increase rates and then values will then.
Come on top of that which would mean, if we want to.
And when we refinance getting additional liquidity, but at that point I don't think we would.
Have the desire to do it.
We would not need it but that's always available so it's a very good point and Lam.
Great and on the refinery closings throughout the World and this has been a process beginning last year.
How is that factoring in the direction of <unk>.
And it's really the second half of this quarter and of the fourth quarter.
Yeah.
Hey, Amit.
It's James I'll go ahead and intelligence.
I'll pass to you I'd say, it's going well.
The ones we listed on our.
And our presentation are.
Causing or have closed I think there are a couple more refineries, probably and North America, specifically Europe that will make that decision.
<unk> seen some output reductions and some conversion. So I think these things are all positive.
We've certainly seen this best example, with Australia, and and wires that deals with that a little bit more than I do so I'll pass that over to him.
Yes, I mean, we've talked about Australia, a couple of times before but it is a good example of what happens with some of your closed out and refinery. So we can immediately see the net increase of.
And in particular and malls and allows that suddenly are being kind of fixed and addition to what was done previously and of course, we've just had the closure of the excellent total refinery and they've shot crude imports I think from end of July.
That and itself I believe would be additional age and mileage per month that moved into Australia and all of this of course is accretive to the ton mile picture.
And then suddenly you start, adding and the complexity of stocks global stocks and how they had been kind of moving and drawn over the last time periods and pretty much since last year, Europe youre going to see a lot of.
<unk>.
And you start seeing.
Products, moving and smaller units going into New York Harbor, which is 1 that I mentioned earlier on.
And stuff going into South America, the stuff that goes into Australia somebody is not going to come from North Asia is off and are comfortable with at least a couple of other places.
We last year, we were doing some.
And the pictures from the U S Gulf into the Australia and show to.
Certainly the supply and below so the point is that as these things close it's a pretty clear that's kind of a logical thought process.
And they obviously still need the product and they need to find out what it's going to come from it. So the question is how do you get this oil to market and where does it come from someone tomorrow is going to mean more ton miles and that will obviously mean that the market will start increasing as that takes capacity.
Great. Thank you.
Your next question comes from the line of Magnus <unk> with H C. Wainwright.
Yes. Thank you good morning and afternoon Brian.
1 more question on the liquidity.
Of the 13 vessels that you are currently discussing how far do they stretch out do they go all the way into the fourth quarter and first quarter or are they just and the third quarter.
It might go into the fourth quarter, it's probably because let's say within the next 3 months here.
Timing paperwork and few other things where it shifts are positioned to do that.
Through the refinancing like that happens, but yes.
So would it be fair to assume that you could potentially have another 10 to 15 vessels between fourth quarter and and second quarter.
Oh, yes, absolutely.
Alright, that's all I had thank you. Thank you Mike.
Thank you.
And there are no further questions I will now turn the call back over to the speakers for any closing remarks.
I want to thank everybody for joining us and we hope to speak to you soon have a good day. Thank you.
This concludes today's conference call you may now disconnect.
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