Q3 2023 Scorpio Tankers Inc Earnings Call
[music].
Hello, and welcome to the Scorpio Tankers, Inc. Third quarter 2023 conference call.
I would now like to turn the call over to James Doyle head of corporate development and I are please go ahead Sir.
Thank you for joining us today welcome to the Scorpio tankers third quarter 2023 earnings conference call on the call with me today are manually Laura Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief Operating Officer, Chris <unk>, Chief Financial Officer, Shawn Hanger head of U S chartering.
Earlier today, we issued our third quarter earnings press release, which is available on our website Scorpio tankers dotcom.
Information discussed on this call is based on information as of today November nine 2023 may contain forward looking statements that involve risk and uncertainty.
Actual results may differ materially from those set forth in such statements.
For a discussion of these risks and uncertainties you should review the forward looking statements disclosure in the earnings press release as well as Scorpio tankers, SEC filings, which are available at Scorpio tankers, dotcom and FCC Dot Gov call participants are advised that the audio of this conference call is being broadcast live on the Internet and is also being recorded for playback purpose.
This archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days it.
We will be giving a short presentation today. The presentation is available at Scorpio tankers Dot com under Investor Relations page under reports and presentations.
Besides will also be available on the webcast. After the presentation. We will go to Q&A for those asking questions. Please limit the number of questions that Jeff.
If you have an additional question. Please rejoin the queue now I'd like to introduce our Chief Executive Officer, and Meanwhile, anymore.
Yeah.
Thank you James.
Thanks, everybody for joining us today.
We are pleased to report another quarter of strong financial results.
In the third quarter, the company generated $200 million and adjusted EBITDA.
And despite the conclusion of summer driving season that motivated the refinery maintenance.
Rates experienced a steady sequential increase throughout the quarter.
Today. This increase continues and is driven by the same factors, which has led to an elevated rate environment for the last six quarters.
These factors are strong global demand for refined products.
Located refinery capacity and a constrained body time supply.
The cash flows have been significant and transformative for the company.
The quality of Scorpio tankers is in investment is improving each day.
Deleveraging and returning capital to shareholders is our primary focus our balance sheet continues to improve and the company has today, a net debt of $1 $3 billion.
We have reduced our sale leaseback financing from $2 3 billion in 'twenty to 'twenty, two to 713 million as of today.
In the fourth quarter, we expect to repay a further $460 million of any lease financings of which a 196 million have already been repaid.
We have more than $800 million in liquidity consisting of 520 in.
In unrestricted cash and nearly $300 million available under our revolving credit facility.
In the third quarter, we repurchased close to $80 million of company shares.
Year to date, we have returned over $530 million to shareholders.
Of these 490 million in share repurchases and $40 million in dividends.
Today, we have announced the renewal of our securities repurchase program for up to $250 million and we have increased our quarterly dividend from 25 to 35 per share.
Looking forward, we expect low global inventories robust demand and limited fleet growth to support strong product tanker fundamentals.
And with this I finished with my remarks, and I would like to turn the call to Robert Thank you.
Alright, Thank you Maria and good morning, everybody.
It's really it's fantastic Salt Dakota.
Really happy with the way the market has been shaping up.
It's already great springboard for the potential substantial rate improvement when the winter season kicks off in three to four weeks time.
And that's exactly what we expect.
Rates have steadily improved.
Early July.
The OPEC cuts and all the weakest season will help with the.
Headline demand for products has improved steadily as well well demand for product crude is expected to continue to grow further.
The result of post Covid economic activity low inventories I mean, it's not at the moment as a result of share for example, in the middle East or war escalation.
It's just pure economic demand and activity.
Present spot market, all our categories. According to Clarkson, indeed, our own trading desks or above the guidance. We have given today you can start the fourth quarter were truly very optimistic for the developments through the next months as we enter the strongest season.
This is a very consistent strong and broad rate increase that's very important to know July has been better than June August better than July September better than August October better than September and November better than October.
When it comes to the strongest season coming.
I am extremely confident that once again winter will come the northern Hemisphere I base this confidence primarily on historical precedent.
There is now quite a lot of data going back a few years showing the winter hits come every year.
Furthermore, the scientific community, whether full cost pre salt well she plays in young children.
In general agreement with the scientific community.
That winter will come.
Therefore, increasing the rate of demand growth.
There is much less certainty of product ton mile decline.
Delta recession as the weather turned the sphere of demand slowdown well, we believe the bet to candle in the winter winds.
Just for those people, who are new to the product tanker market on used to staying well those of you who may have forgotten it.
Neely.
It's not a winter with nearly a year ago winter is good it's really good for the product marketing product right.
You very much again, Florida field support and.
And I'll turn it over to James.
Thank you Robert Slide seven plays.
As Emmanuel said cash flows from the strong rate environment have been significant and transformative for the company over the last seven quarters, we've generated $2 5 billion in EBITDA reduced outstanding debt by $1 3 billion and returned $710 million on share repurchases and dividends.
Please.
We continue to reduce our expensive lease financing and have given notice to repurchase 76 vessels of which 56 had been repurchased as of today.
After repurchasing these vessels are either encumbered, a refinance that lower interest margins in your facilities.
Slide nine please.
While the year to date debt repayment has been slightly lower due to timing of lease purpose lease repurchases in the fourth quarter, we will repay $527 million in outstanding debt.
As you can see from the graph on the left our estimated December 31 debt balance is expected to be 155 billion.
You're right, we have refinanced a significant amount of lease financing.
Taking it down from $2 2 billion to $739 million to that.
Slide 10 please.
Since the December 2021.
Our net debt has improved by $1 $6 billion and today is at $1 3 billion with no new buildings on order, we have minimal capex today, we have $521 million in unrestricted cash and $280 million available under our revolver. The company is well positioned.
Final one in place.
Company has significant operating leverage in Q3, so far including time charters. The fleet is averaging close to $33000 per day at $30000 per day, the company generates almost $800 million in free cash flow per year now 40000, almost one 2 billion. This would equate to a 14 and $22 per share and free.
Cash flow of 26, or 41% free cash flow yield.
Slide 13 place.
For the last six quarters as rates have defined seasonality refinery maintenance and other short term headwinds.
As refinery maintenance concludes this month, we expect fundamentals in rates to improve over the last week, we have already starting to see at today's spot LRT rates are at $42000 per day, and Edmar Sept 34000 per day global inventories remain extremely low requiring an increase in product exports for more immediate consumption in the U S.
And then the rest of the world distillate inventories are well below their five year average, which could create a very tight market is heating oil and jet fuel demand increase in Q4 and Q1.
Slide 14 please.
Year over year, we expect fourth quarter demand for refined products to be $2 6 million barrels a day higher than last year and next year on average we expect demand to be one 3 million barrels of about 2020 'twenty period.
The increase in demand is leading to higher seaborne exports year to date CPP exports averaged one 4 million barrels a day about 2019 levels in September average 1.8 million barrels.
Given the low global inventories increased consumption will continue to be met through imports with product tankers reallocating barrels around the world not only in exports increase but barrels are traveling longer distances.
Slide 15 please.
While demand is above pre COVID-19 levels refining capacity is lower and more dislocated the impact of new export oriented refineries coming online as led to an increase in exports and ton miles.
2017, Middle East product exports have increased 30% while ton miles increased 78%.
Refinery closures have also created the need to replace lost production in places like Australia for product imports and increased 48% since closing two large refineries in 2020.
All of these changes are having an increase in ton miles as ton mile demand increases that some capacity is reduced and supply tightens.
Slide 16 place.
Just about refining capacity closing and opening in each region. There are different refinery configurations domestic needs and regulatory requirements.
Product tankers or the conduit for rebalancing surplus naphtha in the middle East to Asia or surplus gasoline from Europe to Asia and in many cases some of the largest product exporters are also the largest importers like the U S UAE and South Korea.
This dynamic creates increased triangulation of the fleet, which leads to higher utilization and rates. We expect this to continue.
Slide 17 please.
Russian exports of refined products have declined to more normalized levels of around one 4 million barrels a day, the gratefully or vessels that are servicing Russia. Currently stands at 453 vessels. Many of these vessels, which have moved into this trade or 13 years and older and will likely not return to the premium trades given their age and trading history.
This has and will continue to benefit the supply of vessels servicing nonfiction traits.
Slide 18 place.
Today in the order book is 10% of the current fleet, while the average age of the product tanker fleet is close to 13 years old is.
The strong spot market healthy long term time charter rates constructive demand outlook and aging fleet as led to margin got worse, but there are constraints to ordering new builds are extensive there are long lead times for delivery and uncertainty about propulsion systems to satisfy future environmental regulation.
That said without new building orders this year the fleet was expected to shrink over the next few years.
Starting next year 8 million dead weight tons per year of product tankers will turn 20, each year. The equivalent of 160 Mr's by 2020, 693% of the fleet will be 20 years ago under.
The age of the fleet and upcoming environmental regulations will have a material impact on the fleet going forward.
By 19 place.
Next year's fleet growth is expected to be half a percent the lowest fleet growth since 2000 seaborne exports in ton mile demand are expected to increase three five and 12, 1% this year and 3.6 and six 3% next year vastly outpacing supply using minimal scrapping assumptions on average.
So it will grow less than 3% and 2% and 25 and 26 in less than 2% per year using higher scrapping assumption. In addition, one and three year charter rates remain at high levels, evidenced that our customers' outlook as one of increasing exports in ton miles against the constraints supply curve.
Confluence of factors in today's market, our construct is individually historically low inventories increasing demand exports in ton miles.
Relocations in the refining system rerouting of global flows limited fleet growth and environmental regulations collectively theyre unprecedented but that I would like to turn it over to Q&A.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you were using a speakerphone. Please pick up your handset before passing the keys before personally.
To withdraw your question. Please press Star then two.
Our first question comes from Jon Chapell with Evercore ISI. Please go ahead.
Good morning.
James if I could pick up where you left off a little bit on the winter preparations and especially the inventories I think a lot of people forget that the sanctions on Russia and diesel didn't go into effect until February this year. So they effectively had access Europe effectively at ASUR access to Russian diesel all through last winter, which was warm.
It feels like the inventories are just as low entering this winter don't have access to Russia, and I'm not sure anyone can underwrite back to back warmer than.
Normal winter. So have you started to see any sense of urgency from Europe as a continent as a whole to prepare for winter or is there maybe a little bit of lacks expectations that has the potential to make the market incredibly tight if theres an early cold snap this winter.
Do I end up almost like you don't want to say John Thank you, but first of all congratulations for all of US It's Joe on your wood.
The award for being nimble and shipping analyst well done on that thank you. So the.
I think we look generally across the we sort of things quite a lot of complacency full stop.
Whether it's Europe, whether it's you know the rest of the world that sort of thing.
Despite the low entry inventories despite the yeah. It does.
Its not matter, whether you really believe in a recession or not everyone is still saying that oil and product tanker demand is going to grow.
It's just an argument as to what the rate to Greg who'll be in inventories as you point out across the whole space to a law.
And with sensing.
You know.
Just stay everyone's pretty relaxed right now no.
We think what will happen is the.
You know that they are acting as if it's like any other winter and what normally happens is that.
It's Coatesville club and then people wake up and start to.
You do things so they're denying the risks they have in their inventory is the risk of what's going on in the world, whether it's Russia, Ukraine, where they do it.
<unk>, Israel, Palestine, or the risk of that.
<unk>.
Breading.
But I think it will come how everything comes home to roost the moment the weather turns cold.
Okay. Thank.
Thank you for that we're very confident we're very confident there's nothing in this market.
Market is just steadily got stronger and stronger and stronger without any kind of <unk>.
Action or preemptive moves too.
The ship product.
Got it the Mexican police sense, just for my second one shifting gears to Scorpio specifically.
Do you have a lot of debt repayment coming up in the next couple of months as we.
We think about target leverage I know, it's a number that you haven't tried to identify in the past, but just watching the buyback activity accelerate looking at the dividend moving up again this quarter, maybe unexpectedly do you feel that was do you have line of sight on over the next quarter or two puts you in a comfortable enough leverage position where.
Maybe the focus shifts a little bit more away from the deleveraging.
Capital return at this point of the cycle.
Yeah, I think so and I think that you know we had we had that.
Previously that.
Once we cross September.
You know in this earnings call, we would elaborate a little bit more on leverage targets et cetera.
All thinking has developed in the following way is we'd like to.
Get the leverage of the company.
Pretty much down to around scrap values with the fleet at that point.
Hmm.
That's around 800.
850 $900 million.
And at that point I think it's an arguable that the company would have very low leverage and be in a really safe position whatever it does at that point.
Whether it you know.
Whether it's buying stock, whether it's increasing dividends et cetera, et cetera, it would be really play with our shareholders' money our money without risking.
Bank loan et cetera.
The other thing is the tremendous benefits going forward, if we were to get that because of these interest rates.
You know if we were to house.
Our interest and principal repayments are breakeven.
Collapse.
And we would end up being you know not only have the newest product suite is out there, but we'd always touch also had the lowest operating cash.
I think that operating cash breakeven I think that's great now, we're getting even more true for us as shareholders going through I think that's pretty achievable with very moderate positions I mean, it's not too far to go to.
To.
Down another $400 million buy.
So you can do that by March 31st and I think that we've already got $25 million with selling a ship will get in that 25 up to that so that's a 375 to go.
And you know we haven't set an excluded selling you know.
Two or three other ships so between earning something like 35 to 40 days in the market doesn't even have to improve if you ran your model and said well the market is going to continue to do that.
When 2000 call me and we carry on.
And we sell a couple of assets would be that bought at March 31st now that can come earlier, depending on.
If from what we sold and if rates do what we think they will do which would be to accelerate higher.
Yeah that all makes sense.
Yeah Big time, Thank you Robert.
Q.
Our next question comes from Omar <unk> knockdown with Jefferies. Please go ahead.
Thank you Hey, guys. Good morning. Good afternoon, Yeah, just just as a follow up to that line of discussion regarding the you know the the debt reduction that it looks like that's obviously top of mind here and in perhaps a buyback takes a bit of a back seat. Robert you you've mentioned, perhaps 850 to 900 of our leverage out there.
Company just to frame that just so I understand that it sounds just from your commentary with at March 31st target is that is that a net debt target or is that just total debt outstanding.
Yes.
The net debt target.
Okay, and then on that debt because I think that we would all agree that if it is that.
That is backed by.
The scrap value.
Fleet that is still relatively new to that.
We're pretty damn conservative at that point, and we will say with the debt facilities. We are putting in you know that that would be at a very efficient right.
And we would still have that would be well within our oh.
Our revolving credit lines that you are that would also imply.
Extra liquidity too.
Okay.
It's a net debt target with a company that's got a lot of liquidity.
Yeah.
And then Robert you mentioned that the breakeven has come down.
Able to venture sort of any kind of assuming you put down for a 500 million from here what kind of effect that will have on the on breakeven on a per day basis.
Yes.
Well on the interest.
Now the interest itself, it's going to.
Come down.
You know into a level, but I would think you'd be dropping that catch breakeven between.
Between the debt principal and interests you know somewhere in the region.
It's four four and a half thousand boes, but.
Yeah that that's significant.
Cubes.
Yeah.
So I guess, maybe just one final one are just that.
And in terms of once you finally get there so it's march 31st or perhaps in the spring and it definitely feels like it's sooner much sooner rather than later you know what happens once you get to that point, what well how do we think of the strategy of.
Deploying capital I mean is it buybacks is it acquisitions as you know you've got obviously the share price looks very attractively priced relative to NAV.
Just give me a sense if you don't mind kind of what happened.
Look we're not interested in spec buildings, we don't we don't need to buy and you ship it with.
You know with two to earn enough money, we're making considerable cash flow distributable earnings of our fleet.
We don't have.
We don't have.
Extraordinary maintenance Capex, so whatever we do.
We've done all the scrub was do we intend to put in a good crew.
So one way or other.
So you know the the capital is going to go to.
To us the shareholders at that point, and it's a pretty pointless activity to anticipate what will happen later.
You know I don't even think the NAV calculation would be relevant for a company that is.
The new fleet and very low leverage you should be moving away from you know it's not a question of how do we close the NPV graph.
Nat gas is.
Just to say the least the law valuation worries that kind of structure, we should be looking to.
Looking to close a some form of free cash flow valuation gap.
Because you would expect that any multiple you want to put it on free cash flow will increase.
Lower.
Or improve the actual investment itself. So we've got a lot of work to do in that regard.
Yeah, no. So it sounds like a very interesting set up as we get into you know into the next few months great. Thanks, Robert I'll I'll turn it over to Keith.
Our next question comes from Ken <unk> with Bank of America. Please go ahead.
Great Good morning.
So Robert first of all I wanted to check on the where the winter is going to come with that without a scientific Paul I just wanted to check on the math there.
But I just wanted to understand the.
The phenomenal rates right. If you think about scrapping activity I'm still somewhat moderate I E. What anything that drives that the scrapping demolitions going forward just in this rate environment. Maybe is there anything different this cycle do we see them just sticking around longer and I'm setting that up in the.
Backdrop of a rising order book, that's gone from two 3% now to 10 or 11%.
So I guess ultimately if if if maybe that's the winter that that's kind of the overhang that is coming.
And in a different kind of winter backdrop, just want to understand your thoughts there.
I think the first thing you want to do is to look at the order book in perspective.
We don't try to not only.
Or is that a good.
Well I'll tell you you're going to end up trading at very low twos or even necessarily built relative to the contract with the ability to build in L. A to get some may not be coded.
Many are likely to go into the Aframax trade anyway.
First of all I don't think the order book is in products as high as 10 11.
And the order book is not one year. The order book is stretched over a period of Q.
2004, five and now you know pretty much three quarters of 2006.
The order book is still very contained even if its around two 3% average through that through that period.
The exact point at which you know we know that you know James was being very conservative talking about the number of ships the plus 20 and that's been you know.
The point that scrapping, but we also know that when these ships going into 16 and 17.
They're not <unk>.
Really to be competitive and trade properly in the.
The premium clean petroleum sleep.
So we think the order book is very contained at the moment.
And.
Going to be because you just don't have the yard capacity is my question is whether or not one is want to do things. So that's our perspective and that's what's creating a.
Aspect for.
A multiple years of a good market and the proof with People's expectation of what they're willing to pay for a second.
Secondhand modern ships, which have been rising a lot in the last month and the forward time charter book.
So where we are.
You know we're in pretty good shape, we haven't had a bull market like this in the last two or three.
30 40 years.
Being so little yard capacity at this stage.
Yeah.
In the prompt in the Coke.
So, let's let's suppose that around to then are you seeing.
Vessels may be actively leaving and going to the dirty given the rates or anybody else like it higher over there is that.
Well, it's interesting, but not until this week with an older product lines not just <unk>.
In certain cases there.
You know it's easier to trade. The other reason, we're seeing that as well.
Russia will adopt fleet.
The Russian trade.
People like Oh participated.
The people, who want to be buying any buying the older ships.
They don't have the same criteria to carry that Detroit or well.
Sanction trade so much if the fleet, that's being board being removed from let's say the international market.
Market a free market.
Gone into those things, but what's that drove their prices up but what's interesting in the recent developments in the last three months, there's been a lot of activity from all but two more muddled product tankers as evidenced today Bob.
Told them as acquisitions, there are a lot of twos and evidenced in the last three or four months of many vessels.
Vessels built 12, 13, 14, 15 16 changing hands.
Cause by is in the non Russian trade.
More confidence in securing.
Longer time charters.
Three or four years and more confidence in the and the length of the stronger market.
Along with it an ability of course to order new ships.
So just to I guess for my second one then you mentioned kind of selling.
So maybe talk about your philosophy on what gets you to do that versus and this kind of market, maybe just locking those older vessels up for for longer time charters.
Obviously, you still have stayed on the spot exposure. So is there a thought to.
To shift and lock in at these levels or are you now with some of the older vessels, and then sell them off or or it sounded like you have maybe thoughts on selling some in the near term.
I think the older vessels.
Is it like an easier situation, you're just getting your getting enormous price you're getting a record prices for these things to me.
The ships that you are.
Uh huh.
Your loving modern ships or that you haven't don't have any problem led to certain customers and you'll see it probably.
Out of two or three time charter two we'd do that fairly regularly we like to keep a lot of spot vessels, but we're happy to keep.
No, 10% or so.
Time charter market, but with the older vessels.
Yeah.
Yeah.
Great Oh go if the ships already 11 years old 12 years old.
Yep.
Then fine you're getting a great price and you can put the money to work brilliantly in either reaching that deleverage target or as we've been doing before.
I stopped pretty cheaply.
Great Robert I appreciate your thoughts as always guys. Congrats on a solid I built up the cash.
Thank you.
Our next question comes from Greg Lewis with D. T. I E. Please go ahead.
Good afternoon, good morning, everybody and thanks for taking my questions.
I guess I wanted to talk a little bit more about slide 11 in the free cash flow I'm, probably James L.
As as we look at that.
I guess, the right side of the slide and in cash flow generation.
What is kind of.
Like Drydocking off hires is that kind of all baked in for a while.
Are we looking at a slide for 'twenty 'twenty, four or just an illustrative slide and if we are looking at 'twenty four like what does that assume in terms of.
No maintenance Capex and just you know that kind of ongoing capex is that is there kind of a number you can talk to.
Yeah. So it's just gonna be an illustrative.
It's not going to factor in.
For example, the time charters rate, which would reduce breakeven or anything like that is going to take the next four quarters of that but it doesn't have the doesn't have the off hire and there it is.
Something that we could we could shower.
With the maintenance Capex, maybe next quarter, we do put it in the press release and the presentation on a different side, though.
Okay, Yeah, absolutely. Thank you for that and then and then some but Robert as you know you can get caught you mentioned and you can thank you for the Q4 guidance is always our and also you know you kind of highlighted where rates are today and it's interesting right. Because it's people talk about Nab people talk about cash flow I mean, just looking at where rates.
Salt right now it looks like your cash flow yield is around 20% and so you know how do you balance that.
Free cash flow yield that the stock is trading at and I mean.
It seems like this is an attractive time to be buying back stock is just thinking about that is it possible that we focus more on buying back stock as opposed to deleveraging just given.
Where we are.
Right now.
We like what we bought $490 million worth of stock ahead, right. We said great. We're going to anticipate the market is going to stay strong.
And instead of paying down all that and that we said most of the valuation we wouldn't buy that stuck there at least we put we put very heavily in buying stock back.
In the last whatever it is months interest rates, we can dramatically.
And you know quite high.
Risk out there in the little box product take the land is really we really got a great great deal of confidence, saying I mean, the fundamentals look fantastic.
Mark it's fantastic evening.
Even before the season starts.
But you know, we'll be respectful and humble enough to understand that the big box World Economics World financial markets geopolitical events is less certain.
But there is risk out there. It's we have no interest in driving the stuck up we've been very disciplined in the way we bought stock we're not that Oh boy.
Buy in at the top of the upper band et cetera, et cetera, with that to buy with great value.
The default position for US is to drive this debt down to around this meant that scrap value as fast as we can because that's going to permanently reduce our.
Operating cash breakeven at any point going forward and therefore, that's going to go.
Better free cash flow, we should be able to get a better multiple on that free cash flow of the investment itself should have much higher quality.
And.
But we're at the same time as we've shown all year.
Yes.
Wall Street sells thing down Dislocating it for its own reasons, whether it's fear of recession in oil will never be used again.
And the fundamentals remain intact will be that too so.
Stock and create great value for our shareholders.
As soon as we've accomplished.
What we need to accomplish.
Then yes.
It will be how do we return capital to shareholders that we're generating at that point.
Super helpful. Thank you very much.
Thanks.
Our next question comes from Pranav market now.
With Clarksons <unk> Securities. Please go ahead.
Thank you hi, guys.
Just a quick market questions for me.
You know the Panama Canal does that have any impact on the product tankers at all or.
I guess, obviously it's.
The largest ships in other segments that benefit the rest of it but I.
I suppose that.
Cutting all delays could impact the MRO market in the U S Gulf.
Possibly it.
Across the Atlantic and in General Whats your thoughts there.
Sean.
So I'm pretty sure. Some of you met him somebody you haven't he is head of our trading for the North America. He's ideally.
I used to answer this question.
Yeah. Thank you and thank you for the question, it's certainly interesting times in the Panama Canal, and it's very dynamic and fluid.
Things are evolving kind of everyday but to answer to your question is there an impact in the EMR space there absolutely will be I think.
So youre seeing a reduction in the number of transits it can happen and.
Affectively like the economic impact in order to get and Edmar through is going up substantially starting yesterday.
So in the canal Theres a reduction of water in the reservoirs at speed the lock system to move the ships through.
So traditionally you move kind of 36 37 ships.
The Panama Canal on any given day in any type of asset class of ship and that's already reduced to 24 today Panama.
Panama is ending the rainy season, which is what they need to replenish those reservoirs in October is generally the rainiest.
Month on record historically for them in this past October has been the driest month that they've had since we've been keeping records in the Panama Canal.
And so the expectation is for those 24 current transit slots to continue to reduce down to a low of 18 certain February 1st.
So what we're seeing is a couple of different factors one is like the cost to for charter to ship.
Vessels through the Panama Canal is starting to rise quite a bit as the impact of this is being digested by the marketplace.
And then second.
The expectation for how long do you wait to go through the canal either in ballast are laid in.
Yeah.
Is frankly, a bit of a question mark and can be quite expensive to get through and so what you are looking at as ballast alternatives to get back to the next load port. So just some rough numbers. If you do like it can taro, Chile in your Dallas to Houston going through the Panama Canal with no delay that's 14 days direct.
We extend that same boat down through the Magellan Straits. It's 30 days. So you Gotta Incrementals 16 days to get back into the Gulf or if you sent that boat to Jim to load in.
The med that'd be 26 days or a few balance sheet Trans Pacific It would be 33 days.
So there's obviously a lot of different factors here, there's economic factor of where the.
Chile, Peru, Ecuador, West Coast Central American West Coast, Mexico rely heavily on imports in order to stay supplied.
So whether those imports come from Asia, whether they continue to come from the U S. Gulf.
Those type of things and how flat price plays into it will play out over the coming days weeks and months, but.
There will be an impact to the EMR fleet and the number of ships available will be less efficient than what we have today.
Okay.
Perfect. That's great color. Thank you that's all for me.
Our next question comes from Liam Burke with B Riley. Please go ahead, yes. Thank you.
Do you is looking to enforce the Russian price cap, how do you how do you expect that to affect us.
Your vessels.
Jan do you want to take that tone or whatever.
Sure I can take it.
Obviously Liam.
There has been some leakage in so far as sanctions have not been strictly enforced.
So it's not a bright line between.
Say our market in the dark fleet.
Anything that creates a stronger fence or or moat between the two obviously, we'll tighten up our market because you'll have less.
<unk> toggling back and forth.
So we welcome stricter enforcement of sanctions and the price capped by the EU.
Great. Thank you and there was during the prepared comments and the Q&A you talked about.
Time chartering on the smart on typically smaller vessels.
Why would you think that there is more interest by the shippers to lock in smaller vessels on a longer term since I had a scarcity problem or is it just something that.
The the operators need to do based on the age of the fleet.
I just bought a festival it looks optically it looks that way because there's many many more smaller vessels than the logs are allowed to.
Anymore and secondly.
A lot to owners.
And the.
I'm not saying they are stronger, but the just plain you know, they're just playing harder.
There's no they're not feeling the.
Requirement, they see a lot of potential upside here between what they can do in the product market and what they can do trading in crude.
Probably more reluctant and they are allowed to market to fix out to these levels.
And then the rest of them to left for them to buy so in the product line. The a malls we've seen a lot of people by modern ships, and then turn around and fix them.
Two three years for the cash flows on purchase.
Great. Thank you Robert.
Yeah.
Our next question comes from Sam Bland with JP Morgan. Please go ahead.
Yeah, Hi, Thanks for taking the question I just have one please.
It's on the slide 18, you've got this 9% of ships to be more than 20 years old by 2026.
To what extent did those ship sort of.
Fall out of the supply demand balance.
Our school peers concerned once they sort of get over that 20 years a limit yet is that are they.
Is that almost equivalent to those ships being scrapped or not as far as the rate is concerned.
Thank you.
Yeah, I think that's a good way to put it we've done some work looking at older vessels and what we've seen is that.
A lot of the older tonnage kind of 20 years and owners carrying crude oil or dirty products like fuel oil, where there's not a strict requirements around coatings and things like that and then there's a fair bit of coastal trade, So Indonesia, India, where you've got kind of a 21 year old product tanker that's carrying these.
Salt from one refinery to another and just diesel.
But youre right in many ways those vessels are not competing.
It's going to be pretty significant because while we're just focusing on that 20 year, Mark it's probably a little bit earlier.
You know somewhere between 15 and 17 two that these vessels start to move out so.
On an effective basis, even with the additional orders that.
The fleet is probably still going to shrink over the next few years.
Have you seen I know we.
Willingness sorry, Okay, sorry, that's also going to add in Cameroon plague fleets.
Elaborate if he wishes that there is just there's a lot of cost.
Well two going through maintenance dry dockings more than it's not a straight line. It gets it gets much deeper once you cross 20 years old.
Yeah, just to elaborate that.
Amount of steel that has to be replaced on a whole but get.
Past third special survey starts to take.
Take your dry docking and maintenance costs are not linearly up but almost parabolic Leah.
Yeah.
Yeah, and it has that been have you seen any willingness by charterers too.
Look at older ships as the <unk>.
Rates have moved up sort of artificially increase supply.
Happy to take a stab at that one I mean, you you will see some charters take a look at those both I mean, some of it depends on the rigors of their betting system, sometimes it depends on.
Their internal policies, but they definitely become harder and harder to trade as you get to that point. So the trade efficiency of those boats goes down quite a bit.
Yeah.
Okay understood. Thank you.
Yeah.
Our next question comes from Chris Robertson.
Thank.
Just just wanted to say I like to add to this whole thing to go back to the ER.
No the scrapping or.
Just understand that the new buildings were really spread over a large amount of time.
This is the supply side is very very compelling if we if you just take the acid test.
Assume something is very very unlikely.
There are no scrapping zero scrapping during that period.
And although no removals from the product trade during that period.
And still you are going to get to a no.
A.
Pretty good supply and demand curve.
Right Sorry next question please.
Our next question comes from Chris Robertson with Deutsche Bank. Please go ahead.
Hey, good morning, everyone. Thanks for taking my question guys I just wanted to go back to a follow up on on <unk> question around the breakeven.
Could comment where the breakeven is maybe today or at least at the end of the quarter and then just to confirm that could come down by another four to four and a half thousand per day.
Should you be able to.
Deleverage down to the targets that you talked about earlier.
Probably so.
Please Chris.
Yeah, Chris the the break Evens today, you know in the probably in the 17 little bit higher range per day.
As Robert has been saying we are still in the middle of this deleveraging cycle.
And so we have.
Big amount of debt to be repaid between now and say the middle of the first quarter.
And there's still some expensive leases on our books that we can target to bring down that number further so right now it's I would call it a bit of a moving target and you know where we're working on it but incrementally.
Sure Yeah, but.
It sounds like a pretty compelling inflection point for the company over the next few quarters here. So I think it is definitely an important point.
It is but that's.
What we what Chris is telling you.
Is that you're looking at I'm looking at what I'm, saying and position. Once it's finished and then the masses real simple right. You've got you would taking $1.3 billion worth of debt and choppy.
Shopping that down to 500, and what I was what I said was the combination between the principal and the interest.
And at the same time you you are.
Hum.
You're knocking out that that is much more than what is coming in at so you have two things working so I don't really you'll be able to give proper even better diets.
Coming down in January but you can just take the number and just been just produce the actual principal by the halls, and it's not too hard.
To get to that you know approximate figure that I'm, giving at the end of the process.
But the most important thing is not the accuracy of it because that sometime in the future. No way you can you can create a model for this quarter well its starting from next quarter because I gave so many caveats to how we get to that level at around 800 900 by the end of <unk>.
March next year.
Yeah.
Right Yeah. Thanks for that Ravi, we're going to say youre going to significantly.
Drop your daily dollars per day breakeven because your debt is.
Quite significant at the moment and interest rates are very high with the legacy leaf.
Leases as well.
Yeah. It makes a lot of sense.
I guess final final question for me, just turning back sorry to belabor the point on the.
On the older ships here, but I mean, it just sounds like.
It's really going to have more of an impact on the dirty trade on the on the crude fleet more than anything but.
Just to drill down a little bit more is there anything that they may wait wait wait wait wait, but that's just the way that James Crane slide about the ships that in 'twenty.
Could also claim a slide that talks about chips, turning 15 years old over the next.
The months or years to.
Sure and that that goes to my question. Robert is there anything owners can do today.
Or at least with the cash available they have today at these rates that they can better maintained ships past that traditional 15 years of age or has technology not really changed the landscape not really changed too much in it and it's kind of like that's still a good hard and fast rule to to look at.
I believe that right now.
Yes. Please.
Yes, so just simplistically a vessel is a steel box girder.
Objected to corrosion and fatigue.
And.
The the.
Customers are our clients the oil majors don't count the dollars they spend on a time charter or.
For a particular spot fixture they count the liability in the case of a of an existential event.
Like the Erica.
Or the Exxon Valdez.
And this type of enterprise risk has established an enormous.
Structure around vetting and compliance within our customers.
And there is very little of an owner can do to preemptively strengthen.
The steel or protect the steel from that type of wear and tear.
Technology around coatings around surveys around intermediate surveys.
All of that is advancing but it doesn't do a material or make a material difference to the overall life expectancy of a vessel, particularly given the type of condition a vessel faces in service.
Okay. Yeah, that's really helpful. Thank you for the clarification on that I will turn it over.
This concludes the question and answer session I would like to turn the conference back over to.
Laura for any closing remarks.
Thank you operator, we do not have any closing remarks apart from thanking everybody for your time today and looking forward to speaking with you all soon have a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.