Q2 2023 DHT Holdings Inc Earnings Call
Yeah.
Good day and thank you for standing by welcome to the Q2 2023 D. H D. DHT Holdings, Inc. Earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
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Please be advised that today's conference is being recorded I would now like to hand, the conference I bet you a speaker today Laila Halvorsen CFO . Please go ahead.
Thank you.
Good morning, and good afternoon, everyone welcome and thank you for joining DHT Holdings second quarter 2023 earnings call.
I'm joined by Dht's, President and CEO , Brian Smith.
As usual, we will go through financials and some highlights before we open up for your questions.
The link to the slide deck can be found on our website <unk> com.
Before we get started with todays call I would like to make the following remarks.
Replay of this conference call will be available at our website <unk> com until August 16.
In addition, our earnings press release will be available on our website.
Especially Edgar system as an extra Victor form 6K.
As a reminder, on this conference call, we will discuss matters that are forward looking in nature.
Forward looking statements are based on our current expectations about future months as detailed in our financial reports.
Actual results may differ materially from the expectations reflected in these forward looking statements.
We urge you to read our periodic reports available on our website and on the efficacy and of course system, including the risk factors in these reports for more information regarding risks that we face.
<unk> continues to show a solid balance sheet represented by low leverage and significant liquidity.
At quarter end financial leverage was about 18% based on market values for the ships.
That was just above 11 million per vessel.
The quarter ended with total liquidity of 315, 9 million consisting of hunker down $31 million in cash and $228 million available under our revolving credit facility.
Now over to the P&L highlights it was a strong quarter with robust spot rates for the Vlccs.
And we achieved revenues on TCE basis of hundred and $13 million and EBITDA of $90 million.
Income came in at six to 7 million equal to 35 cents per share.
Yeah.
Reported vessel operating expenses for the quarter.
$19 7 million and G&A was four and a half million.
Included in the Opex number for the quarter were some advanced costs for spares and consumables associated with chips that opinion yard in connection to some non recurring items.
The vessels in the spot market and $64800 per day on the vessels on time charters made $36200 per day.
The weighted average TCE achieved for the quarter was $56300 per day.
Earnings were impacted by six to one scheduled for R&D in connection with installation of exhaust gas cleaning systems for three vessels.
I'm scheduled off hire mainly related to the repair of a muscle.
On this slide we present the cash flow highlights.
We started the second quarter with hunters on 17, and a half million in cash and we generated 19 million in EBITDA.
Ordinary debt repayments and cash interest amounted to $13 6 million from 38 million was allocated to shareholders through the cash dividend pertaining to the first quarter of 'twenty to 'twenty three.
In addition to the cash dividend, we also allocated and $9 million to shareholders through share buybacks during the quarter.
20 million was invested in our fleet with 1.8 million and maintenance Capex $8 6 million for installation of exhaust gas cleaning systems.
And mine and a half million through a deposit for the acquired the vessel.
The quarter ended with hungry 30 $36 million in cash.
Switching to capital allocation.
In line with our dividend policy to pay out 100% of net income to our shareholders. We will pay 75 cents per share quarterly cash dividend.
The dividend will be payable on August 30 to shareholders of record as of August 23rd.
This marks the 54th consecutive quarterly cash dividend on the shares will trade ex dividend from August 22nd.
In addition to the cash dividend, we repurchased one 1 million of the company's shares during the quarter for a total consideration of $8 9 million.
The average price for the shares.
$25 per share and DHT policy is to retire the shares upon receipt.
With that I will turn the call over to Scott.
Thank you Elena.
As announced we went we entered into agreement to acquire a 2018 Bill gates received from nine to four and a half a million.
That's always so eco design was built for a high specification has a large deadweight capacity unless Peter's doing next oil gas cleaning system.
This addition is expected to be accretive to earnings and it will further improve our fleet efficiencies, including our E. R. R E O alright.
We took advantage of the dips in the freight markets are complete that are lost retrofit projects for <unk>.
<unk> got scanning systems during the quarter.
As such all of our ships that are fitted with these systems.
Subsequent to the quarter, we put in place a <unk> five program to potentially acquire our own shares after quarter close.
So thing and an additional 250000 shares bought up 846 per share.
We took delivery of the newly acquired vessels last week lull named DHT Appaloosa.
She was financed with available liquidity, but we have received commitments for a new secured credit facility of 45 million, which we expect to draw you into third quarter.
The new facility, so dht's type structure, which includes a 20 year repayment profile and a six year tenor.
The facility will be priced at the sulphur plus a margin of 180 basis points.
Okay.
Here with a brief fleet updates.
The DST Appaloosa was delivered last week and is currently in dry dock for special survey.
We have four time charter contracts that either have ended or due to in this quarter.
The DSD in Mustang in the DSD still then have both been delivered back to us.
The DHT colt is scheduled to return home later this quarter and the DHT Amazon contract will expire in Q3 early Q4.
Following this we will have four of our vessels on time charters and 20 ships on the dance floor and what we expect to be a rewarding freight markets.
During this quarter, we will drydock for vessels.
Three of which have been brought forward from this scheduled service dates in the fourth quarter.
In our view, we are taking advantage of the current freight market to position. These vessels for what we think is ahead of us as a result of having no drydocks planned for the fourth quarter.
Okay.
We will now go through the third quarter outlook.
We expect 500 or 30 days to be covered by our term contracts at an average rate of 35 400 per day.
We expect to have 50 to 160 spoke pace for the quarter of which about 1090 days equal to about 70% have been booked at an average rate of 46300 per day.
As of today and this suggests combined bookings of 78% of the total days for the quarter at weighted average earnings of 42800 per day.
You can compare these pop cooking numbers with our estimate the spot P&L breakeven or 25700 today for the third quarter, allowing you to model. Our net income contribution based on your own assumptions for the Unfixed spot base.
The market, thus far this quarter exceeds the general idea of what the weak third quarter periods it looks like.
On the graph to your left.
You see that Tcs recent and current vps are higher than the seasonal loss over the past five year period.
This is in addition to increased transportation distances, driven by seaborne crude volumes being in the upper band of the fiber at historical rates.
As illustrated in the graph to the right.
To us this suggests that the market is in the range between balanced and tight and easily triggered for upward movements in freight rates.
The current market is a bit lower than the start of the quarter allow mostly moving sideways.
And eco vessels fitted with exhaust gas cleaning system is currently worth about $30000 plus for one voyage in the east and about $40000 per day, although the U S. Gulf.
We maintained our robust breakeven levels.
The estimated P&L breakeven for the second half of the year for the fleet as a whole is about 27700 per day.
When adjusted for the fixed income that we have the P&L breakeven for the spot fleet is about 25900 per day.
The reason to stop P&L breakeven is marginally increasing for the second half when compared to the year as a whole is because we will have less vessels on time charter contracts.
For the remainder of the year, we estimate the cash breakeven for the fleet as a whole to be 19200 per day with the spot ships requiring to make 15 talks with 400 per day for the company to be cash neutral.
If you set out to compare these numbers with our peers you should keep in mind that our cash breakeven numbers include all to cash costs.
Opex G&A maintenance capex cash interest and debt amortization.
Okay.
This illustrates the headroom of about <unk> <unk> per day between cash breakeven net income breakeven for the fleet for the second half of the year.
This potential discretionary cash flow will be allocated to general corporate purposes.
We know you all can call ships. So please excuse us for maybe stating the obvious.
But this picture is quite remarkable as darrel deserves some air time.
The order book from your Vlccs now stands at one 9% of the saving fleets.
Insignificant would be an understatement.
This level of contracted new supply becomes even more insignificant when compared to 30% of the current fleet being older than 15 years of age and 14% being older than 20 oscillates.
To make this fleet development picture, even more compelling from a ship owner's point of view. There are some 90 ships that will turn 20 years. So it's up to the end of 2025.
Year to date eight vessels have been contracted consisting of two options are being declared earlier in the air and six new contracts. This summer.
There are some letters of intent for a few additional ships in place.
There are subject to financing unemployment.
Time will tell if they become firm contracts.
In the secondary markets there has over the past couple of years, great buying interest from Asia for older ships.
We now see a shift in interest towards younger vessels as many of these older ships that had been acquired are facing increasing as scrutineer to report state controls investing considerations by terminals and end users.
The result, being quite a large number of older ships for sale with.
With maybe reducing buying interests.
As we have suggested earlier some of these older vessels might end up retiring from the market, thereby starting to reduce the sailing fits.
These supply picture should become a meaningful tailwind for our business.
So let us some ups, our thoughts for our markets and our business.
As just mentioned we have an exceptionally constructed vessel supply picture.
OPEC plus cutting production are typically not good for the tanker markets.
But there are some side effects that is softening the current law and that will build a stronger turnaround.
As implied by that especially in the oil markets are tight.
So for us refiners to source crude from further away.
I think Asia refiners buying more from the Atlantic.
This increase is transportation distances and is a key factor for the lowest this year being meaningfully higher than what most people expected.
The cuts are also driving refiners to draw in inventories.
Assuming the agency forecast of increased demand later this year is reasonably correct.
So not only they expect and need to satisfy demand, but also a potential stock rebuilding.
Keep in mind here that we can make a living or transporting supply.
And then situations when supply exceeds consumption token markets tend to rock.
Refining margins are on the rise again.
Expect this to drive refinery roads, and then product tanker rates only to front run crude tanker rates.
And if we may wrap up this call with a little twist on Wahler Winston Churchill, many great pulse stay calm and biotech stocks and operator over to you.
Thank you as a reminder to ask a question you will need to press star one on one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one and one again.
Please standby, while we compile the Q&A queue.
Our first question comes from the line of <unk> <unk> from Clarksons <unk> Securities. Please go ahead.
Thank you.
Thanks Robert.
Yeah, I would like to hear your thoughts.
VLCC spot market.
Specifically.
Where do you see that additional demand for vlccs.
Cognex problem going forward.
Obviously, we would have.
But the pension program.
A reverse and then.
Good partners.
But one of the reason that the growth in the past year has been the U S Gulf right on.
It seems to be a clear trend of a more of a VLCC, taking U S crudes into Europe .
Do you have any thoughts on this going forward.
Maybe as you see all the time.
It was a shift towards Asia.
You know you're right. There has been more these transporting crude from the U S into Europe is a posterior enough and then.
I think we have expectations that that will continue and these barrels have to a greater extent substitute.
Russian barrels from the Black sea and the Baltic.
But also in combination with increased production in the U S.
Whether the USA guys and the trade is that selling to Europe or to Asia. It's also somewhat driven by the level of backwardation and pricing.
I will also of course with higher interest rates when you.
Transport.
Or there is more of a cost associated with it.
So oil price pricing has to sort of support those differences but.
As I mentioned noted in the call, we do see a clear sign that.
That China in particular are sourcing more or now in the Atlantic.
Total U S. Gulf that's of importance here. It's also go yellow in Brazil in particular.
The increase their production. So all these combined these really.
Expanding transportation businesses.
Okay. That's good.
On the bigger picture I guess, one topic, we haven't talked to Bakken.
Long time I guess.
And does it transition on peak oil demand.
And I saw that the IEA has a report in June this five year outlook.
Report.
Or are they basically.
Forecasting a slowdown in our demand starting.
Next year.
Our peak.
Before Clinton.
And I guess the key issue for tankers.
Yes.
Trading distances.
All right.
What's your perspective on this broader topic.
Do you think it has an influence on the sub demand.
Investment decisions today.
I think to answer your last question first I do think it has an impact on investment physicians because it has a level of uncertainty on the longer term future of the market. So people are more hesitant to deploy capital.
It's not only about.
Expansion of total lines, but it's also about how much of the total demand is satisfied by seaborne crude.
And as he is shown here on the slide Tibor and it's now sort of at the 43 million barrel a day level, whereas.
Private average around $40 42.
And it's really to understand where is that future oil going to come from.
Yes.
Is the depletion is its steeper.
Non seaborne crude production or is it deeper on what is seaborne production and we are working hard to understand this picture and.
We have a particular project in place to try to why it's up a bit on this and if it's successful we'll be able to have some more meaningful I think details on this later on this year.
But.
We do have a suspicion that there.
Seaborne.
We will hold better than the general production level and thereby support transportation.
Maybe all of this is sort of a right to the fleet might shrink over the next few years.
I think when it close to a peak demand it depends who you talk to we see ranges from sort of peak demand in 2028 up to 2055. So it depends who you ask and who you believe in the what is behind that analysis.
If these views loaded locked by business agenda or not.
So I think it's hard to just pick one.
So this is this is definitely I think some people in the oil industry are suggesting that.
It is a bit on the conservative side than they are being challenged on the reviews that it's maybe be politically color to some extent in support for a sort of a green transitioning rather.
Being actual real numbers and what they expect will happen.
Okay.
Yeah.
The good part.
Thank you for that color.
Thank you for your questions.
Keith will now move on to next question.
Our next question comes from the line of Jon Chapelle from Evercore ISI. Please go ahead.
Thank you good afternoon.
Keeping on your topics.
Topics for any closing remarks, theres seasonality and then Theres also salary cuts.
Can you estimate how much of the recent weakness obviously with the higher floor is associated with the cuts and as we think about your comment about moving supply even if demand were to recover in the fourth quarter as it typically does seasonally if the saudis were to hold back.
<unk> production for whatever their reasoning is do you think there'll be a more muted winter season or as the changing trade flows associated with what's going on with Russia still provide upside.
This is a difficult question a complex question, but I guess.
I think from from my chair and I used to be you know I'm hopeful it often say that by local oil analyst.
I think saw this main objective obviously is price and no there isn't.
Is working for them prices go up and the Apis.
Of course, if they continue to hold back barrels and you see the forecast of demand coming into the fourth quarter and oil price will rocket.
And that could of course also help for demand.
Let's see how this all plays out but I think they just want the higher price and then they will be able to offer more oil to the market when they see the mountain there are really being out there.
So that's sort of our simple take on it.
Of course, it remains to be seen what the case will be but of course, they want to they want to make revenues as much as possible right.
Right now I guess.
Price increase is worth more than the loss of volume. So this is this is Tokyo victory in our view.
Exactly how much of the current sort of bps due to.
The capsule ops.
It's hard to put that into a spreadsheet and get to an actual number but.
So one thing that it did is it picked up which we found it interesting.
Saudi in particular, we understand they consume close to 7000 barrels a day.
For energy.
And in particular running air conditioning during a very hot summer period and.
And we understand this year the favorable to quite a lot of discounting for the vessel fuel oil.
Thats the consumption and maybe allowing.
To cut to be less than 1 million barrels per day, and I think <unk> seen some estimates that the cuts actually happening it's more in the sort of $6 50 to 750 level. So there is maybe a 25% to 35% the difference here.
Yeah.
Forget all these details I think we're all to figure out.
A bit later on and it's hard to have all this information a liar frankly, so sorry, if I can't be more precise.
I think these are sort of the components of it.
In some shape or form.
No. It's still very helpful. Also may explain the higher floor during the third quarter. If they are really not cutting 4 million barrels.
Second question is hopefully a bit easier.
As it relates to the capital allocation I mean, 100% dividend payout, but then youre also still buying stock. So clearly over a 100% capital return I'm just want some clarification on that buyback program is that kind of programmatic.
Where you are just you know.
Mentioned <unk>, so youre just buying stock kind of is the cash flow comes in or is it truly kind of opportunistic, whereas if we get a seasonal recovery in the in the stocks maybe you pull back on the on the buyback.
Hey, it's still effort so it's opportunistic.
But when we were approaching the end of the second quarter. The share price was still sort of in the low eights and the <unk> five allows us to continue to buy in the blackout period. So in this case, we put up a maximum nominal amount to be bolt on or do you also picked up a price grid.
For how much we want to buy at what prices and Theres also some volume limitations. This program expired today. So so if theres going to be bought back more stock until the end of this quarter. It will be just purely management deciding whether we should do it a lot, but we like the price.
Sort of low ASP because that meant at the time that we were maybe at the close to 20% discount to the Navy now we are trading around <unk>. So we don't.
I don't think you should expect us to buy at these levels.
Okay very clear thank you Scott.
Thank you, we'll now move on to our next question.
Our next question comes from the line of Oman Noxa from Jefferies. Please go ahead.
Thank you.
<unk> highlighted a.
Good afternoon, I just wanted to ask maybe just a bit more on the market and say the VLCC supply side of things.
The release, you mentioned that ship brokers are noting that maybe 15% to 18% of the fleet or the VLCC fleet is trading in the shadow market, that's a pretty sizable 100 150 Ngls.
Just wanted to see if you had any sort of color how does that compare to what was in the shadow fleet, maybe at the start of the year and perhaps how it look pre pre Russia, Ukraine War.
I think it pre erosion of Ukraine vertical it's now two years back.
We estimate that the VLCC fleet in the shadow trade to be sort of around 60 ships. So it's a meaningful increase in.
In addition to this of course, you had a lot of Suezmax and Aframax is also now being employed in the shuttle fleet. So overall this other pizza has grown meaningfully.
Interesting aspect for this in our view is that these two markets do not operate.
In the way that ships can sort of move from one market to another which would be very efficient right. So.
So they tend to stick to that.
Markets, because it's basically just very hard to switch and then go back and this.
<unk> productivity of the fleet so.
And the way it is a positive.
You're right, it's a big number and then.
At least for now it will stay and we think it's not only restaurant barrels of course, it's also Venezuela increased their production and the wrong. It's now also.
Increased production and this is also going on these ships. So that's the sort of the three main oil suppliers utilizing these fleets.
Okay. Thanks, Thank you for that and I guess that.
You mentioned, obviously, we've seen it that rates have thus far.
In the third quarter, even though their software they're at a higher floor.
Presumably then this two pronged VLCC market I guess plays a role as well and that you had a dislocated fleets that is contributing to the higher realized averages.
Yes of course.
Let's not forget that this other fleets that they do serve a purpose to do to transport oil to refiners.
Being consumed so so they're sort of they're working it's not like they're doing some secret business, which is totally outside of the global oil market.
Sure.
Yeah, Yeah, and then maybe just a follow up kind of a separate.
Firstly, you mentioned that.
We are seeing in the new building market and how the fleet is getting older. The replacement orders that we have seen thus far are nowhere near enough to offset the declining H.
We've seen the orders now theyre going out to 2007.
Prices are fairly expensive, but just wanted to hear kind of what's your view.
For DHT in terms of new buildings does that does placing an order it makes sense to you.
For DHT.
No we have no plans to pursue new buildings I think those are the two key.
Elements of that three one this process as you said there are there is that if we were to invest like we just did we like to have assets in the water that can make money now.
The delivery in 2006 or into 2017 as say way out. So you end up having a lot of that capital on their balance sheet and that's not very efficient use of money we think.
But also of course the last components here is what are the future fuels and.
And people talk about they have them on when they're ready and methanol red in readiness and ready that.
<unk>.
A big chunk of Capex, the big Capex actually common when you need to add fuel tanks. If you will delivery systems on board a ship so.
We don't think there is Florida, obviously it is not a question of whether you like once you will know that there is also to have.
Credible view production capacity levels for these fuels and at what price and will there be other industries that will compete with the maritime industry and buying these fuels that can impact the price.
One example is to be read <unk> report that.
It seems quite confident that the agriculture industry will definitely be a competitor for green pneumonia. So we'll put that to the price degree NIM on that one it's the marketing volumes. So so then you need to have some confidence in all of this right.
LNG, Okay, maybe transitioning any fuel takes call it 20% of the carbon footprint of a ship.
It is not enough to meet their longer term objectives. So this I think is not holding us back from ordering also a lot of other people. So.
Again to answer your question, we have no plans to order ships.
Very good thanks, Brian for that I'll turn it over.
Thank you we will now move onto our next question.
Our next question comes from the line of Chris Chung from Webex Research. Please go ahead.
Hi, good afternoon spine how are you.
Great. Thank you.
Thanks.
So that new vessel the athlete.
<unk> finance were $45 million in line with DHT self financing this working backwards that implies an expected remaining life of 18 years.
Five year old vessel would trade for totalled 20 can be slightly longer than the average useful life of that how old. This vessel will be depreciated and does that change the useful life for all of the vessel fleet.
So all.
Our depreciation policy is to depreciate vessels up to the up to the age of 20.
So when we talk about repayment profile, we have negotiated with all of our banks or facilities.
Repayment profile of the loan is also up to 'twenty, So to Mexico commercial life of a ship so the loan of 45.
Since the ship is five year old has a 15 year sort of profile sort of $3 million per year and in a more credits, but its a 68 Taylor. So after the 68, there will be a balloon equal to six years' time $3 million.
No no no.
Sorry equal to net to nine years totaled $3 million. So that's how we put the financings together.
Alright, thanks for that clarification, and just one follow up on your buyback how much is left on your share buyback program.
So we have put in place in March $100 million buyback program. So we have always spend a little bit of it. So if there are opportunities down the road when there are dislocations.
How we are trading in the stock market compared to where.
Where we think the business should be rather than we have ample capacity to utilize that.
Okay, Alright, perfect that's very ill turn it over thank you.
Thank you there are no further questions at this time, so I'll hand, the call back to Simon for closing remarks.
Thank you very much to all for listening in on the ESPN staying tune and wishing you all a great day. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect speakers. Please standby.
Okay.
Okay.
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Okay.