Q3 2023 Ardmore Shipping Corp Earnings Call

Good morning, ladies and gentlemen, and welcome to the Ardmore shipping third quarter 2023 earnings Conference call. Today's call is being recorded and an audio webcast and presentation are available in the Investor Relations.

Speaker 1: Good morning, ladies and gentlemen, and welcome to the Ardmore Shippings third quarter 2023 earnings conference.

Speaker 2: Today's call is being recorded and an audio webcast and presentation are available in the investor.

Speaker 3: section of the company's website, ArdmoreShipping.com.

Section of the company's website Ardmore shipping dot com, we will now conduct.

Speaker 4: question and answer session after the opening remarks. Instructions will follow at that

A question and answer session. After the opening remarks instructions will follow at that time, a replay of the conference call will be accessible anytime during the next two weeks by dialing 187734475 to nine or 1412.

Speaker 5: A replay of the conference call will be accessible anytime during the next two weeks by dialing 1-877-344-7529 or 1-412-317-0088.

3170088.

Speaker 6: and entering passcode 8126419. At this time, I will turn the call over to Anthony Gurney, Chief Executive Officer of Ardmore.

And entering pass code 812.

6419 at this time I will turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore shipping.

Speaker 7: Good morning and welcome to Ardmore Shipping's third quarter 2023 earnings call. First let me ask our CFO Bart Callihan to discuss forward-looking statements.

Good morning, and welcome to Ardmore shipping third quarter 2023 earnings call.

First let me ask our CFO Mark Kelleher to discuss forward looking statements.

Speaker 8: Thanks, Tony. Turning to slide two, please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from those projected in the forward-looking statement.

Thanks, Tony turning to slide two please allow me to remind you that our discussion today contains forward looking statements actual results may differ materially from those projected in the forward looking statements additional information concerning factors that could cause the actual results to differ materially from those in the forward looking statements is contained in the third.

Speaker 9: Additional information concerning factors that could cause the actual results to differ materially from those in the forward-looking statements is contained in the third quarter 2023 earnings release, which is available on our website. And now I will turn the call to the next speaker.

Quarter 2023 earnings release, which is available on our website at <unk>.

Now I will turn the call back over to Tony.

Speaker 10: Thank you, Bart. Let me first outline the format for today's call. To begin with, I'll discuss highlights, current market conditions, and capital allocation, after which Bart will provide an update on tanker fundamentals and on our financial performance. And then I'll conclude and open up the call for questions.

Thank you Bart let me first outline the format for today's call to begin with I'll discuss highlights current market conditions and capital allocation.

After which mark will provide an update on tanker fundamentals and our financial performance.

And then I'll conclude and open up the call for questions.

So turning first to slide four for highlights.

We're pleased to announce strong third quarter results with adjusted earnings of $20 3 million or <unk> 49 per share.

Speaker 11: Please tune out strong third quarter results with adjusted earnings of 20.3 million or 49 cents per share.

Speaker 12: reflecting robust product and chemical tanker markets, which are continuing to strengthen into the port quarter, as you can see in the chart on the upper right.

Reflecting robust product and chemical tanker markets, which are continuing to strengthen into the fourth quarter. As you can see in the chart on the upper right.

Speaker 13: Our MRs are in 28,500 per day for the third quarter and 30,100 per day so far in the fourth quarter with 50% book.

Our MRO, it's earned 28500 per day for the third quarter and 30100 per day, so far in the fourth quarter with 50% booked.

Speaker 14: and our chemical tankers on a capital adjusted basis earn $22,100 per day for the third quarter.

And our chemical tankers on a capital adjusted basis earned 22100 per day for the third quarter.

Speaker 15: and $25,800 per day for the fourth quarter with 60% booked so far.

And 25800 per day for the fourth quarter with 60% booked so far.

Speaker 16: We believe we are now at a market inflection point with rates building into the winter period.

We believe we are now at a market inflection point with rates building into the winter period.

Speaker 17: In particular, we're seeing broad strength across all tanker sectors including crude and chemicals, which is a very good sign.

In particular, we're seeing broad strength across all tanker sectors, including crude and chemicals, which is a very good sign.

Speaker 18: Meanwhile, Ardmore continues to execute on its long-standing capital allocation policy.

Meanwhile, Ardmore continues to execute on its long standing capital allocation policy.

Speaker 19: We have today declared a quarterly cash dividend of $0.16 per share, consistent with our policy of paying out one-third of adjusted earnings.

We have today declared a quarterly cash dividend of <unk> 16 per share consistent with our policy of paying out one third of adjusted earnings.

Speaker 20: And we continue to invest in energy savings devices in accordance with our energy transition plan, thereby reducing carbon emissions but also boosting cash flow.

And we continue to invest in energy savings devices in accordance with our energy transition plan, thereby reducing carbon emissions, but also boosting cash flow.

Speaker 21: Overall, we continue to focus on optimizing our spot trading performance while managing costs and maintaining and even lowering our break even level, which now stands at 14,000 per day.

Overall, we continue to focus on optimizing our spot trading performance, while managing costs and maintaining and even lowering our breakeven level, which now stands at 14000 per day.

Speaker 22: And as a final point, our entire fleet is exposed to the spot market, including our time charter in vessels, allowing Ardmore to fully capture the benefits of this strengthening market.

And as a final point, our entire fleet is exposed to the spot market, including our time charter in vessels, allowing ardmore to fully capture the benefits of a strengthening market.

Moving to slide five our optimism is backed by some important near term factors.

Speaker 23: Moving to slide five, our optimism is backed by some important near-term factors. The EU Refined Products embargo, which commenced in February this year, is continuing to impact the market by creating additional 10-mile demand.

Have you refined products embargo, which commenced in February of this year is continuing to impact the market by creating additional ton mile demand.

Speaker 24: Also, as the winter market sets in, we expect to see, as always, weather delays, daylight transit restrictions, and localized rate spikes driven, for example, by cold snaps, all constricting supply or boosting demand.

Also as the winter market sets and we expect to see as always weather delays, they like transit restrictions and localized rate spikes driven for example by cold snaps all constricting supply are boosting demand.

And as you can see in the graph on the upper right global refined product inventory levels remain very low, leaving little margin for error and the oil product supply chain.

Speaker 25: And as you can see in the graph on the upper right, global refined product inventory levels remain very low, leaving little margin for error in the oil product supply chain.

Despite the significant levels of refinery maintenance in 2023 as compared to 2022 as shown in the chart on the lower right Prada.

Speaker 26: Despite the significant levels of refinery maintenance in 2023 as compared to 2022, as shown in the chart on the lower right,

Speaker 27: Product anchor demand has remained very strong. And as we expect to see fewer refineries offline going forward, we should anticipate further incremental demand.

Product tanker demand has remained very strong and as we expect to see fewer refineries offline going forward, we should anticipate further incremental demand.

Speaker 28: As well as this, reduce Panama Canal Transits for the next few months are likely to restrict traffic by up to 40%. thereby extending voyage times and keeping ships out of the market.

As well as this reduced Panama Canal transits for the next few months are likely to restrict traffic by up to 40%.

Thereby extending voyage times and keeping ships out of the market.

Speaker 29: and the implementation of the EU emissions trading system, which starts January 1st, and which BART will expand on later, we think could lead to logistical inefficiencies in the market, or the supporting PCE rates.

And the implementation of the EU emissions trading system, which starts January 1st and which part will expand on later, we think could lead to logistical inefficiencies in the market further supporting TCE rates.

Speaker 30: And finally, it's also important to remember that low scheduled new building deliveries should limit fleet growth for at least the next two years.

And finally, it's also important to remember that low scheduled new building deliveries should limit fleet growth for at least the next two years.

Speaker 31: Moving to slide six, we will discuss the E-Refine Products embargo in more detail.

Moving to slide six we will discuss the refined products embargo in more detail.

Speaker 32: As highlighted in the chart on the upper right, EU diesel demand has remained consistent, while diesel imports have declined over the past several months.

As highlighted in the chart on the upper right you diesel demand has remained consistent while diesel imports have declined over the past several months.

At the consequence, we've seen a substantial draw on inventory since the implementation of the embargo is highlighted in the chart on the lower left.

As a consequence, we have seen a substantial draw on inventory since the implementation of the embargo is highlighted in the chart on the lower left.

As inventory levels normalize, we believe that imports to this region are poised to increase significance.

As inventory levels normalize we believe that imports to this region are poised to increase significantly.

These additional volumes are likely to be sourced from far away, resulting in increased ton miles, thus further supporting the overall market.

These additional volumes are likely to be sourced from far away, resulting in increased ton miles. Thus further supporting the overall market.

And then turning now to slide seven on capital allocation.

We remain fully committed to our longstanding policy, which has a big influence on how we approach decision making.

We remain fully committed to our long standing policy, which has a big influence on how we approach decision making.

As a result of our strong financial position with low breakeven levels, we're now able to pursue all of our priority simultaneously.

As a result of our strong financial position and low break even levels, we're now able to pursue all of our priorities simultaneously. Namely, maintaining our fleet over time by investing in our ships to optimize performance, thus boosting earnings and cash flow.

Namely maintaining our fleet overtime by investing in our shifts to optimize performance, thus boosting earnings and cash flow.

Sustaining low leveraged through the market cycle, which of course improves the quality of earnings and provides the company.

sustaining low leverage through the market cycle, which of course improves the quality of earnings and provides a company with the financial strength needed for well-time growth.

With the financial strength needed for well timed growth.

Evaluating growth opportunities while maintaining a patient's and disciplined approach.

Evaluating growth opportunities, while maintaining a patient and disciplined approach.

and returning capital to shareholders where at present we're paying out one third of adjusted earnings.

And returning capital to shareholders. We're at present, we're paying out one third of adjusted earnings.

And as an aside, with the current market outlook and our significant operating leverage, we see the potential for much higher earnings and thus dividends in the coming quarter.

And as an aside with the current market outlook and our significant operating leverage we see the potential for much higher earnings and thus dividends in the coming quarters.

The essence of our policy is an acknowledgement that this is a cyclical business, where a financial strength can pay off hugely if it permits well-timed investment. But we must balance that with returning capital to shareholders, consisting of a portion of earnings in a manner that's conventional across industry.

The essence of our policy as an acknowledgment that this is a cyclical business, where our financial strength can pay off hugely if it permits well timed investments, but we must balance that with returning capital to shareholders consisting of a portion of earnings in a manner that's conventional across industries.

While we don't rule out special dividends or share repurchases, at the moment neither are part of our near-term plan. And with that, I'm happy to...

Well, we don't rule out special dividends or share repurchases at the moment. Neither are part of our near term plan.

And with that I'm happy to hand, the call back over to Bart.

Thanks, Tony building upon tonys comments on market conditions, we will further examine the industry fundamentals.

Thanks, Tony. Building upon Tony's comments on market conditions, we'll further examine the industry fundamentals.

Overall, the supply-demand dynamics remain highly favorable.

Overall, the supply demand dynamics remain highly favorable.

On slide nine, we discussed the significant supply demand gap.

Slide nine we discuss the significant supply demand gap.

The multi-year supply demand gap remains wide, with Shipyard Birth Availability continuing to be limited to 2026 and beyond.

The multiyear supply demand gap remains wide with shipyard berths availability continuing to be limited to 2026 and beyond.

The strong-ton mild growth, which is highlighted in the green bars in the chart, is driven by positive underlying fundamentals, and in 2024 is enhanced by the full-year impact of the EU embargo, which Tony has discussed indeed.

The strong ton mile growth, which is highlighted in the green bars in the chart.

It's driven by positive underlying fundamentals and in 'twenty 'twenty four is enhanced by the full year impact of the EU embargo, which Tony as discussed in detail.

Despite low scrapping levels, the charter market has remained strong, with the aging fleet representing further scrapping potential, creating additional market support through the cycle.

Despite low scrapping levels. The charter market has remained strong with the aging fleet, representing further scrapping potential creating additional market support through the cycle.

So overall, we believe the limited net fleet growth across the product and chemical tanker sectors, combined with increasing ton miles, supports current market strength.

So overall, we believe the limited net fleet growth across the product and chemical tanker sectors combined with increasing ton miles supports current market strength.

Moving to slide 10, where we highlight how the low MR product tanker order book contrasts sharply with the rapidly aging fleet.

Moving to slide 10, where we highlight how the low MRO product tanker order book contrasts sharply with the rapidly aging fleet.

As just discussed, supply fundamentals remain highly supported.

As just discussed supply fundamentals remain highly supportive.

Although we have seen some moderate ordering of product tankers, this represents only a fraction of the natural replacement cycle of the aging.

Although we have seen some moderate ordering a product tankers. This represents only a fraction of the natural replacement cycle of the aging fleet.

With only 18 million deadweight tons on order, versus nearly 70 million deadweight tons within the scrapping age profile in the next five years.

With only 18 million deadweight tons on order versus nearly 70 million deadweight tons within the scrapping age profile in the next five years.

And specifically for Mr's. The gap is even more pronounced the current MRO order book stands at a low six 5% of the existing fleet compared with the overall product tanker order book at 10%.

And specifically for MRs, the gap is even more pronounced.

The current MR order book stands at a low 6.5% of the existing fleet, compared with the overall product tanker order book at 10%.

As we mentioned on our last earnings call, it's important to point out that the AFERMAX crude tanker's net fleet growth is forecast at near-zero levels.

As we mentioned on our last earnings call. It's important to point out that the Aframax crude tankers net fleet growth is forecast at near zero levels.

This implies that an increased proportion of LR2's, most likely older vessels, will naturally transition to trading crude to cover the shortfall in Afro-Mex tank.

This implies that an increased proportion of LR twos, most likely older vessels will naturally transition to trading crude to cover the shortfall in aframax tankers.

And this is a trend in addition to the transition we have seen this year of more LR2 shifting from clean to dirty trade.

And this is a trend in addition to the transition we have seen this year more LR to shifting from clean to Dirty trade.

On slide 11, we depict a strong underlying demand growth in the product and chemical tank remarks.

On slide 11, we depict a strong underlying demand growth in the product and chemical tanker markets.

As discussed, the Russia-Ukraine conflict has heightened concerns around energy security and led to a persistent reordering of global products.

As discussed the Russia, Ukraine conflict has heightened concerns around energy security and led to a persistent reordering of global product trade.

Meanwhile, the long-term trend of refinery dislocation between east and west, supported by increasing consumption forecasts, will continue to drive incremental ton-mile demand.

Meanwhile, the long term trend of refinery dislocation between east and west supported by increasing consumption forecast will continue to drive incremental ton mile demand.

While acknowledging that there are macroeconomic pressures as a result of the high interest rate environments and uncertainties in the Chinese economy, we believe they are currently outweighed by the positive factors in the tanker markets. Moving to slide.

Well acknowledging that there are macroeconomic pressures as a result of the high interest rate environment and uncertainties of the Chinese economy. We believe they are currently outweighed by the positive factors in the tanker markets.

Yeah.

Moving to slide 13.

Ardmore continues to build upon its financial strength.

As a reminder, the chart on the bottom left notes that we have reduced our cash break even levels by $2,500 per day in a rising interest rate environment.

As a reminder, the chart on the bottom left we have reduced our cash breakeven levels by 2000 and $500 per day in a rising interest rate environment.

as a result of our effective cost control, lower debt levels, and access to revolving facilities, with the potential to further reduce break-even levels in 2024.

As a result of our effective cost control lower debt levels and access to revolving facilities with the potential to further reduce breakeven levels in 2024.

In addition, we have a strong liquidity position with 50 million of cash on hand and 220 million of undrawn revolving facilities at the end of the court.

In addition, we have a strong liquidity position with $50 million of cash on hand.

$220 million of Undrawn revolving facilities at the end of the quarter.

As always, ARD-MOR is focused on optimizing performance, closely managing cost in this inflationary environment, and preserving a strong balance sheet. ARD-MOR is focused on optimizing cost in this inflationary environment, and preserving a strong balance sheet.

As always Ardmore is focused on optimizing performance closely managing cost in this inflationary environment preserving a strong balance sheet.

Turning to slide 14 for financial highlights.

As noted, we are very pleased with our performance during the summer season as we report results of 49 cents per share for the third quarter.

As noted we are very pleased with our performance during the summer season, as we report results of 49 cents per share for the third quarter.

We are correspondingly reporting strong EBITDAR for the quarter and continue to frame EBITDAR as an important comparable valuation metric against our IFRS reporting period.

We are correspondingly reporting strong EBITDAR for the quarter and continue to frame EBITDAR is an important comparable valuation metric against our ifr S reporting peers.

There's a full reconciliation of this presented in the appendix on slide 25.

There's a full reconciliation of this presented in the appendix on slide 25.

Our significant revolving capacity has allowed us to manage or dot levels in 3.25, minimize our interest expense, even in this elevated rate environment.

Our significant revolving capacity has allowed us to manage our debt levels intra quarter and minimize our interest expense even in this elevated rate environment.

Please refer to slide 26 in the appendix for our fourth quarter 2023 guidance numbers.

Please refer to slide 26 in the appendix for our fourth quarter, 2023 guidance numbers.

Moving to slide 15.

At Tony mentioned earlier, in accordance with our Energy Transition Plan, we're making some exciting investments in our fleet to further optimize operating performance and improve earnings.

As Tony mentioned earlier in accordance with our energy transition plan, we're making some exciting investments in our fleet to further optimize operating performance and improve earnings.

We are now on schedule to complete an updated seven dry dockings this year and this reduces to five dry dockings in 2024, four of which are in the first quarter. Setting the stage for having our fleet refreshed and upgraded and producing full earnings.

We are now on schedule to complete an updated seven dry dockings. This year and this reduces to five dry dockings in 2024, four of which are in the first quarter setting the stage for having our fleet refreshed and upgraded and producing full earnings.

As discussed and within the bounds of the scheduled dry docking periods, we're installing new generation scrubbers and other efficiency enhancing technologies, which have high return profiles.

as discussed and within the bounds of the schedule dry docking periods, we're installing new generation scrubbers and other efficiency enhancing technologies, which have high return profiles.

Meanwhile, we have successfully completed the technical management transfer of eight vessels, fully consolidating our fleet with our joint venture partner Anglo-Arden.

Meanwhile, we have successfully completed the technical management transfer of eight vessels fully consolidating our fleet with our joint venture partner Anglo Ardmore.

Also noteworthy, we had very strong on-hire availability for the third quarter as a result of the continued close coordination of our teams at sea and onshore.

Also noteworthy we had very strong on how your availability for the third quarter. As a result of the continued close coordination of our teams at sea and onshore.

Finally, we're prepared for the implementation of the EU emissions trading system or ETS.

Finally, we are prepared for the implementation of the EU emissions trading system or E. T S well.

Well, certainly a lot of planning has gone into this by our chartering and operations teams. In essence, from a financial perspective, this results in a pass-through voyage expense. Moving to slide 16. Here...

Well certainly a lot of planning has gone into this by our chartering and operations teams in essence from a financial perspective. This results in a pass through voyage expense.

Moving to slide 16.

Here, we're highlighting our significant operating leverage.

As you can see in the chart.

for every $10,000 per day increase in TCE rates.

For every $10000 pretty increase in TCE rates earnings per share is expected to increase by approximately $2.30 annually.

Burnings per share is expected to increase by approximately $2.30 annually.

with free cash flow increasing by nearly $100 million over the same time.

With free cash flow, increasing by nearly $100 million over the same time period.

Given the range of TCE rates shown on the slide it is important to remember that in this elevated highly volatile market dramatic shifts are possible.

Given the range of TCE rates shown on the slide, it is important to remember that in this elevated, highly volatile market, dramatic shifts are possible.

And just as we experienced last winter, there's the potential for the market rates to strengthen significantly in a short period of time to level toward the upper end of this scale and even beyond.

And just as we experienced last winter there is the potential for the market rates to strengthen significantly in a short period of time to levels towards the upper end of this scale and even beyond.

We certainly like Ardmore's positioning, heading into this winter mark.

We certainly like Ardmore is positioning heading into this winter market.

With that, I'm happy to hand the call back to Tony and look forward to answering questions at the end.

With that I'm happy to hand, the call back to Tony and look forward to answering questions at the end.

Thank you, Bart. So to summarize, first regarding the market, TCE rates continue that elevated levels through the third quarter during the normally week or summer and are strengthening into the winter season.

Thank you Bart so to summarize first regarding the market TCE rates continued at elevated levels through the third quarter during the normally weaker summer and our strengthening into the winter season.

Meanwhile, there are a number of near-term drivers, including, among other things, very low refined product inventory levels in Europe , expecting to drive long-haul imports into the region and further contribute to overall demand.

Meanwhile, there are a number of near term drivers, including among other things very low refined product inventory levels in Europe expecting to drive long haul imports into the region and further contribute to overall demand.

and the wide gap between tanker supply and demand should continue to underpin the market for at least the next couple of years.

The wide gap between tanker supply and demand should continue to underpin the market for at least the next couple of years.

And regarding the company, we're continuing to achieve strong TCE performance while managing costs in an inflationary environment.

And regarding the company, we're continuing to achieve strong TCE performance, while managing costs in an inflationary environment.

We're investing in our fleet to further improve operating performance and reduce carbon emissions.

We're investing in our fleet to further improve operating performance and reduce carbon emissions.

And our strong balance sheet and low breakeven level serves to enhance the quality of Ardmore's earnings while also allowing us to pursue all of our capital allocation priorities simultaneously. And with that, we're pleased to...

And our strong balance sheet and low breakeven level serves to enhance the quality of Ardmore is earnings while also allowing us to pursue all of our capital allocation priorities simultaneously.

And with that we're pleased to open up the call for questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone.

We will now begin the question and its answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.

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If at any time your question has been addressed and you would like to withdraw your question, please press

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Our first question comes from Omar Nocta with Jeffries. Please go ahead.

Your first question comes from Omar knocked a with Jefferies. Please go ahead.

Thank you. Hi, Tony and Bart. Thanks for the update. Tony, I was actually going to ask about the dividends, but you preempted my question in your opening remarks.

Thank you hi, Tony and Bert Thanks for the update.

Tony I was actually going to ask about the the dividends like you preempted My question, though in your opening remarks.

I think when you mentioned buybacks and specials in the near term aren't on the horizon. Just I guess in general, when you think about Ardmore and growth potential from here, and I know we've talked about this in several quarters in the past, you've done some low hanging fruit here recently, and you're working on that further with discover installations and efficiency upgrades on your existing fleet. But when you think just generally about growth for here and expansion for Ardmore, any updated thoughts or views on how that looks for the company?

I think when you mentioned buybacks and special in the near term aren't on the horizon.

Just I guess in general when you think about Ardmore and growth potential from here I know we've talked about this in several quarters in the past.

You've got some low hanging fruit here recently and you're working on that further with the scrubber installations and efficiency upgrades on your existing fleet, but when do you think just generally about growth for here and expansion for Ardmore any updated thoughts or views on how that how that looks for the company.

Sure, Omar, how you doing? Yeah, good question. You know, again, just to reiterate, we're paying out a third of our earnings as a dividend at the moment, as, you know, for the quarter that we just reported, about a half went into cat-back.

Sure Omar How're you doing.

Good good. Good question you know again just to reiterate we're paying out a third of our earnings as a dividend at the moment as you know for the quarter that we just reported about a half went into capex.

And so the amount that we're using to continue to delever is quite a bit less than, for example, last year. So it's just, you know, and then the question is, okay, what are we exactly investing in? I think the most important point is that the incremental returns are really excellent. So we, you know, we would estimate that the upgrades that we're making to the ships as investments themselves, you know, are going to provide about a 30 to a 35% yield.

So the amount that we're using to continue to delever.

A bit less than for example last year. So it's just you know and then the question is okay. What do we exactly investing in.

I think the most important point is that the incremental returns are are a really excellent. So we you know we would estimate that the upgrades that we're making to the ships as investments themselves are.

Are going to provide about a 30% to 35% yield.

It's also going to result in our fleet once we get through this program, which will be kind of into the second quarter of next year, will be an upgraded fleet generating a lot more cash flow, we think.

It's also going to result in our fleet once we get through this program, which will be kind of you know into the second quarter of next year.

We'll be a an upgraded fleet generating a lot more cash flow we think.

Also, the ship will all be back from dockings off higher, et cetera. So I guess the question is, where do we go from there? You know, we will remain focused on the sectors we're in. We're going to remain focused on fuel efficiency and carbon reduction. You know, we're looking to engage in well-time growth.

Also the ships will all be back from dockings off hire et cetera. So are the I guess the question is where do we go from there.

We will remain focused on the sectors. We're in we're going to remain focused on fuel efficiency and carbon reduction.

You know, we're looking to engage in and well timed growth.

So we'll just have to see what the market offers in that timeframe. And we're always pleased to pay out more capital if it makes sense at the time. But at the moment, we discussed in detail where we're allocating the capital. And we think that's the best for long-term value.

So we'll just have to see what what the market offers in that timeframe and you know we're always pleased to pay up more capital.

If it makes sense at the time, but at the moment.

We discussed in detail, where we're allocating the capital and we think that's the best for long term value.

Thanks, Tony. That's helpful. And I guess, generally speaking, when you think about the growth opportunities, do new buildings, do they make sense in this context? Or is more of your focus on, you know, say, targeted secondhand transactions?

Thanks, Tony.

It's helpful and I guess generally speaking when you think about the growth opportunities that the new new buildings do they make sense and in this context or is more of your focus on you know say targeted secondhand transactions.

I don't think we would take anything off the table because, obviously, when you talk about chemicals as well as MRs, you're talking about a pretty broad range of shift types in yards and secondhand sellers, etc., so hopefully we've demonstrated over the many years now that we're pretty focused on value and pretty disciplined.

I don't I don't think we would take anything off the table because obviously, what you know when you talk about chemicals as well as M. Ours, you know you're talking about a pretty broad range of chip types in yards and in secondhand sellers et cetera. So.

You know where.

You know hopefully we've demonstrated over the many years now that we're we're we're pretty focused on value and pretty disciplined.

Thanks, Tony.

Thanks, Tony. One final one, just kind of operationally. I noticed your eco mods outperformed quite a bit at 36,000 in the third quarter versus the standard, or I guess not the standard, the eco designs themselves are in 26. It's a pretty big spread, you know, 10,000 there. Any color you can give there on why such a deviation?

Just one final one just kind of operationally notice the U a.

Eco mod outperformed quite a bit at that 36000.

In the third quarter versus the you know the standard or that's not the standard the eco designed themselves from 26, it's a pretty big spread yes 10000 there.

Any color you can give there on why such a deviation.

No. It's it's it's really just a small sample set on the you come out. So I'd say, we just you know we had a particularly they it could easily have been you could eco design ships in those positions for fixing.

No, it's really just a small sample set on the EcoMod side. So we just, you know, we had a particularly, it could easily have been EcoDesign chips in those positions for fixing. Okay.

Okay cool.

Well, thank you I'll turn it over.

Thank you.

Again, if you have a question, please press star, then 1. Our next question comes from Ben Nolan with Stiefel. Please go ahead.

Again, if you have a question. Please press Star then one our next question comes from Ben Nolan with Stifel. Please go ahead.

Hey, guys, so I may be following on to a few of Omar's questions when with respect to some of the modifications and things that you're making to the vessels. And Tony, you talked about the rate of return that you expect to get on those. I'm just curious how once all of those are done from an efficiency standpoint, how does how would one of your.

Hey, gosh, so I yeah.

Maybe following on to a few of them ask questions when with respect to some of the modifications and things that you're making to the vessels and Tony you talked about the rate of return that you expect to get on those I'm. Just curious how you want once all of those are done from an efficiency standpoint.

How does how would one of your.

Modified ships stack up to say a new building from efficiency and then along those lines. How do you think about sort of the useful life of those assets within your fleet as a more efficient asset?

Modified ships stack up to say a new building from efficiency and then along those lines. How do you think about sort of.

The useful life of those assets within your fleet as a more efficient asset.

Yeah, so look, I think the very newest designs coming out of yards are, they're very, very fuel efficient. So that's something that those levels are probably unattainable on any secondhand ships, certainly, you know, kind of five years and older.

Yeah, So look I think the.

The very newest designs coming out of yards are there theyre very very fuel efficient. So you know that that's something that you know.

That's the those levels are probably unattainable.

Any secondhand ships, certainly you know kind of five years and older.

What we're doing is really building our TCE performance, and I think we've been doing that for a while, if you look at our performance over the last kind of year or two years.

What we're what we're doing is really building our TCE performance and I think we've been doing that for a while.

If if you look at our performance over the last kind of year or two years.

versus the peer group and you know component of that You know comes from the upgrades

Versus versus the peer group and you know a component of that comes from the upgrades.

So, you know, we're now, many others have done this before, but we're now, you know, installing scrubbers. New generation scrubbers that are, you know, cheaper and more efficient. And we think are, you know, have some environmental features which we really like. And of course, those should bump up those ships that are equipped. They'll be bumping up their earnings by two to $3,000 a day. Give them where it's spread.

So you know where were now many others have done this before but we're now.

Installing scrubbers, new generation scrubbers that are that are cheaper and more efficient.

And we think our you know had perhaps some environmental features which we really like and of course those should should bump up those ships that are equipped they'll be bumping up their earnings by two to $3000 a day.

Given where spreads are right now.

Right and I mean it once once they're fully Kitted and everything else you know

Bryan in and he I mean, it once once they're fully kitted and everything else you know it.

it would do they would they potentially make sense for you to guys to have them in your fleet for in their 10 years or you know how

Do they would they potentially make sense for you guys to have them in your fleet for another 10 years or how are you.

you know, like a protracted period of time that maybe... Yeah, sorry, I forgot. Apologies for not answering that question as well. Yeah, no, it's a good question and one where we're gonna wait and see. Our policy at this point has been to operate them until around 15 years of age. The difference is these are ships that we actually built.

You know like a protracted period, yes.

Sorry, I forgot I apologies for not answering that question as well, but yeah no. It's a good question and one where we're going to wait and see.

Our policy at this point has been to operate them until around 15 years of age.

The difference is these are ships that we actually built.

and we've been running them for a long time, obviously, and I think we have a higher degree of confidence in their conditions.

And we've been running them for a long time, obviously and and I think we have a higher degree of confidence in their condition.

and they're going to be very, very fuel efficient for what they are. So it's very likely that we'll operate them, you know, beyond 15 at the stage.

And they're going to be very very fuel efficient for what they are so it's very likely that we will operate them beyond 15 at this stage okay.

Okay, and then bar stuff. Maybe maybe just to add to like, you know, these different capex upgrades, the, I mean, the payback periods on them are, you know, one, two years and change. So as we're thinking about it, obviously, you know, lots of flexibility thereafter, but we're getting paid back very rapidly. And to add to that, I think that, you know, the point being that we're, you know, there are things that we would consider on new buildings today that we just, you know, can't do on chips that are eight years old. Okay.

<unk> got something he maybe Ben just to add to like you know these different capex upgrades.

The payback periods on them.

One two years and change so as we're thinking about it obviously lots of flexibility thereafter, but we're getting we're getting paid back very rapidly and to add to that I think that you know the point being that we're in there are things that we would consider on new buildings today that we just can't do on chips that are eight years old.

Well I know that.

connects to the second question I was going to ask.

Connects to the second question I was going to ask I mean it.

New bill in prices are pretty elevated and I know that you're not You mentioned you're not taking anything off the table obviously the financial flexibility to do a lot of things right now I guess my question is given inflation and where the order book stands and everything else do you think about

Hum nuclear when prices are pretty elevated and I know that you're not you mentioned youre not taking anything off the table. Obviously you have the financial flexibility to do a lot of things right now.

I guess my question is given inflation and where the order book stands and everything else do you think about.

The risk profile a little bit differently, or maybe what the appropriate mid-cycle asset value is, is it meaningfully higher going forward or something else such that maybe maybe buying a ship or ordering a ship at current levels.

The their risk profile, a little bit differently or maybe what.

What what the what the appropriate mid cycle asset value is is it is it meaningfully higher going forward or something else such that yeah, maybe maybe buying or buying a shipper or ordering a ship.

At current levels. It might've been on tenable, a few years ago and today you just don't think that there's the same level of downside risk.

It might have been untenable a few years ago and today you just don't think that there's the same level of downside risk.

I think you're hitting on a really important point, which is that there is a long-term inflation trend. You know, if you look back 20 years, and you can kind of project to where we are today or, you know, assess on that basis, and it's clear that new building prices have overshot that line.

I think you're hitting on a really important point, which is that there is a long term inflation trend.

You look back 20 years, and you can kind of project, where we are today or you know it was asked on that basis, and it's clear that new building prices have overshot that line.

But we're not going back unless there's a big, big change in the structure of the shipbuilding industry. We're not going back to the pricing levels that we saw 10, 15 years ago.

But we're not going back unless there is a big big change in the structure of the shipbuilding industry, we're not going back to the to the to the pricing levels that we saw 10 to 15 years ago.

So, you know, it's an interesting thing to think about, but so, you know, I think certainly we're realistic about what represents a fair price today, or, you know, kind of a reasonable mid-cycle type price today for new building. And it's very different from kind of 12, 13 years ago when we were building our ships.

So it's a it's an interesting thing to think about but so.

You know I think certainly we're realistic about what represents a fair price today or you know kind of a reasonable mid cycle type price today for new building and it's very different from kind of 12 13 years ago. When we were building our ships.

Right. OK. So we'll see. But at the moment, in the moment, certainly in key shipbuilding regions, the current prices have overshot.

Right Okay.

So we'll see but at the moment in a moment certainly and keep you key shipbuilding.

Regions. The the current prices have overshot.

Right Alright, and then the last one just going back to the embargo.

And then the last one, just going back to the embargo slide that you talked about, I'm curious, I understand that a rising tide is going to lift all boats, but it seems like a lot of those

Side that you talked about I'm curious I understand that a rising tide is going to lift all boats, but it seems like a lot of those.

trades, whether it's from the Middle East or maybe even from the Gulf Coast to Europe , would lend themselves a little bit more easily to LRs versus MRs. Is it, am I off on that, or how do you think about, sort of, your positioning on that restocking of European...

Trades, whether its from the middle east or maybe even from the Gulf Coast to Europe would wouldn't lend themselves a little bit more easily to al ours versus Mr's is it am I off on that or how do you think about sort of your positioning on that a restocking of European D.

No.

No, I mean, it's look, I think, depending on where the cargo, the stock is coming from it, you know, I think there's this misnomer or this misconception that, you know, LRs do all the long haul trade.

No I mean, it's it's a look I think depending on where the cargo with the stock is coming from it.

There's this misnomer. There's this conception that you know L ours do all the long haul trade.

That's not even what LR stands for, but that's another matter. So, but the fact is that, you know, MRs do very long haul voyages and a lot of the liftings, for example, out of the U.S. Gulf, you know, most of that is MR.

That's not even what L. A R stands for but that's another matter. So but the fact is that you know mr's do very long haul voyages and a lot of the lifting for example out of the U S. Golf you know most of that is M. R.

You know, if you're coming in from the Far East or from the Middle East with an LR-2, for example, there are only a very small number of ports you can get into, so then you're talking about lightering.

If you were coming in from the far east or from a you know from the middle East with an L. R. Two for example.

There are only a very small number of ports you can get into something that you are talking about light.

Light ring.

you know, the whole cost structure changes.

Hum.

The whole cost structure changes.

So, you know, I think they'll benefit equally.

So I.

I think I think they'll bill benefit equally.

All right, I appreciate it. Thank you, guys.

Okay, Alright, I appreciate it. Thank you guys yeah for sure. So that's good.

Yeah.

This concludes our question and answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

This concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Okay.

Yeah.