Torm PLC

CSE:TRMD A

Earnings Call Transcript 2021-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining TORM plc Third Quarter 2021 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Andreas Abildgaard-Hein. Please go ahead.

[Andreas Abildgaard-Hein]

Thank you, and thank you for dialing in. And welcome to TORM's conference call regarding the results for third quarter of 2021. My name is Andreas Abildgaard-Hein, and I'm Head of Investor Relations in TORM. As usual, we will refer to the slides as we speak. And at the end of the presentation, we will open up for questions.Please turn to Slide 2. Before commencing, I would like to draw your attention to the safe harbor statement. Please turn to Slide 3. The results will be presented by Executive Director and CEO, Jacob Meldgaard; and CFO, Kim Balle. I will now hand the call over to Jacob.

[Jacob Balslev Meldgaard, CEO & Executive Director]

Yes. Thank you, Andreas, and please turn to Slide 4. Thank you all for dialing in this afternoon. I'm really thrilled to be here today as we've now published our results for the third quarter of 2021, as already mentioned by Andreas. And here, in the third quarter, we were still impacted by the market downturn caused by the COVID-19 pandemic. This has, in general, lowered the global demand for oil products. And our third quarter ended with an EBITDA of USD 30 million and a loss before tax of $14 million. And here, the return on invested capital ended at minus 0.9%.The product tanker fleet in TORM realized an average TCE rate of $12,854 per day. And this was generally well supported by our largest segment, the MRs, where the achieved rates were $12,785 per day. Now looking into the fourth quarter of this year, we have so far secured bookings at $12,985 in a market that is showing clear signs of a recovery, especially in the West. We also now successfully integrated all of the Team Tanker vessels and the modern LR2 scrubber-fitted vessels we acquired earlier this year. And here, since the end of the quarter, we additionally secured operational lease financing for 9 of our existing MR vessels, with a sale and leaseback arrangement that will generate an increased liquidity of $76 million. Now kindly turn to the next slide, to Slide 5, please. The product tanker market, as I said, was challenged here in the third quarter, and MR benchmark rates touched actually multiyear lows at the start of the quarter. Despite the significant progress with the vaccine rollout here in Europe and also in the U.S., that had a positive effect on mobility and also on oil demand recovery in the West. But an outbreak of the more transmittable Delta virus in Southeast Asia led to renewed lockdowns in that region and subsequently, lower demand for product imports. Here in the second half of the quarter, we also experienced that Hurricane Ida closed down several of the refineries in the U.S. Gulf. They were off-line and that resulted in lower product exports from that region. This was further aggravated by the weak crude tanker market throughout the quarter that also led to an increase in the crude cannibalization, which we have also seen in previous times of lower freight rates.Please turn to Slide 6. In recent months, we've seen relatively robust improvements in the global oil demand, which have resulted in drawdowns of the excess inventories built up in the first half of last year. However, the recovery in demand has not been met by correspondent increases in supply, resulting in a situation where oil inventories have continued to be drawn down and, in some regions, to levels which are even below pre-COVID-19 lows. Much of the supply tightness is actually artificial. It results from OPEC+ having crude oil production quotas that are ramped up only gradually, and they have not been sufficient to meet demand growth. As long as supply growth remains below the demand growth, we'll continue logically to see stock draws. We expect the inflection point to be reached over the first quarter of next year with OPEC+'s gradual supply increases coinciding with seasonal slowdown in oil demand growth. However, this inflection point could be reached earlier if OPEC+ would react to the current political pressure from a number of large oil importing countries in the wake of high oil prices and release more oil to the market. It is also important to mention here that with inventories being drawn down to so low levels, inventories will need to be built up again at some point, which will then act as a demand boost to tanker demand in addition to more normal trade flows. As already mentioned, we've seen significant progress with vaccination rates in the West, which has allowed countries to keep their societies and economies open even as COVID-19 cases have moved higher. Even though many emerging economies in Asia are still lagging behind in terms of vaccination rates, significant improvements have occurred recently. Which makes me confident to believe that large-scale mobility restrictions as a political tool will be less prevalent even if new waves of infections should occur, as the political willingness to let the virus coexist has been increasing and the obstacles on transportation fuel demand recovery are largely being removed. Here, the demand for jet fuel is still lagging behind, especially when it comes to the international travel. But also here, we are starting to see more signs of improvement with the U.S. having recently reopened international flights, and as an example, Singapore easing travel restrictions to visitors from an increasing number of countries, with several other Asian countries planning to do the same. Furthermore, we also see that the potential gas-to-oil substitution amid the current natural gas shortage can give a further boost to oil demand over the winter.Please turn to the next slide, to Slide 7. Part of the recent supply tightness has been due to the effect of the forementioned Hurricane Ida on the U.S. crude production and refinery runs, hence, having a more temporary nature. Hurricane Ida shaved off around 20% of U.S. Gulf refinery runs and product exports, but also resulted in significant product inventory draws in the U.S. East Coast, which needs to be built up again, hence, supporting transportation demand going forward. Here, over the past couple of weeks, we've seen a strong pickup in the product tanker freight rates in the U.S. Gulf as refiners are coming back from Hurricane Ida-related outages and plant maintenance, resulting in strong recovery in clean product exports. We're well positioned to take advantage of the increasing exports from the U.S. Gulf with about 1/4 -- 25%, 30% of our MR fleet located in the Americas. Spot rates for the largest segment, for LR2s, has also been on the rise. And TCEs are as of late, above $20,000 per day for modern units. Please turn to Slide 8. To sum up on the main demand drivers influencing the market, we can see that significant progress has been made from where we stood a year ago. And although in many cases, we are not back to pre-COVID-19 levels yet, the outlook for the next 12 months indicates further improvements, not least due to increasing vaccination rates that will be supportive of oil demand recovery. There's also the increasing OPEC crude supply and global refinery runs, and last but not least, the need to rebuild depleted stocks in oil-consuming areas. And here, please turn to Slide 9. When we look at the more medium- and long-term demand drivers, the COVID-19 pandemic has accelerated the pace of refinery closures, with 2.5 million barrels per day of refining capacity having closed down or set to close and another 1 million barrels per day potentially being shut down. Most of this capacity is located in regions which are already large importers of refined oil products, such as Europe, U.S. West Coast, U.S. East Coast, Australia, New Zealand, and also South Africa. If we focus then on Australia and New Zealand, especially, the closures are of significant importance with 2 out of 4 refineries in Australia and a sole remaining refinery in New Zealand closing down. At the same time, more than 4 million barrels per day of new capacity is scheduled to come online, mainly in the Middle East and China, regions which already today are exporters of oil products. Both these developments are positive for trade flows and ton mile in the post-COVID-19 world, with only a few projects that are less positive for trade. Slide 10, please. Our positive outlook for the demand for product tankers over the coming 3 to 5 years coincides with the supply side, which is the most supportive for at least 25 years. In the third quarter, ordering of product and crude tankers combined was at the second-lowest quarterly level for 20 years, reflecting the record high newbuilding prices, the limited shipyard space after record high container vessel ordering activity seen earlier in the year. Consequently, the order book-to-fleet ratio for product tankers remained at a historical low level of 7%, further supported by a similarly historical low 8% order book-to-fleet ratio for the crude tankers.Now on the other hand, the pickup in scrap prices have incentivized increased scrapping of product tankers, with more tonnage being removed from the market year to date than during any full year in the past 10 years. These 2 drivers are further supporting the case of a very modest fleet growth in the next 2 to 3 years, which we expect to be around 2% a year, only half the pace seen in the past 5 years.Now in my concluding remarks on the product tanker market, we expect improvements in the key market drivers for the next 12 months, with more oil supply coming to the market at the same time as the impact of mobility restrictions on global oil demand is fading. The need to rebuild depleted crude and product inventories is adding extra support to the market. And seen over a medium and long term, refinery dislocation, the low order book that I mentioned, that is still supportive to the product tanker market. Please turn to Slide 11. Now looking at TORM's commercial performance. We have outperformed the peer average in 24 out of the last 26 quarters in our largest segment, the MRs. And here, as I mentioned, in the third quarter of 2021, we achieved rates of $12,785 per day. And here, unfortunately, we do not yet have our peers' performance to compare against. In general, I am very satisfied that our One TORM platform continues to deliver significant above-market results on a day-to-day basis. Please turn to Slide 12. And here, you will see a key deciding factor for delivering this above-average TCE is driven by our continued focus on positioning our vessels in the basins with the highest earning potential. In the third quarter of 2021, we had an overweight east of the Suez, where we also saw an outperformance when looking at the full quarter. Now I'll hand over to my colleague, Kim, for further elaboration on our cost structure, liquidity position and balance sheet. Over to you, Kim.

[Kim Balle, Chief Financial Officer]

Thank you, Jacob. Please turn to Slide 13. TORM has a constant focus on operating expenses. Since the origination of the pandemic, COVID-19 has introduced new challenges to ship operators, primarily driven by logistic challenges. During 2020, operating expenses increased from 2019. But because of our One TORM platform, we have managed to reduce expenses to $6,467 per day in the third quarter of 2021. Looking at the first 3 quarters of '21, OpEx per day has increased 3% compared to 2019. But when corrected for COVID-19-related crew expenses, OpEx per day has been reduced by 1%. Slide 14, please. TORM has consistently, through our performance-generated liquidity, to renew and increase the fleet to the now largest number of vessels ever. This has been done while maintaining a stable and conservative capital structure over time. After the end of the third quarter, TORM has successfully obtained commitment from a Chinese financial institution for the sale and operational leaseback of 9 MR vessels, which will generate liquidity of $76 million and which will further provide TORM with the optionality to buy the vessels during and at the end of the leasing period, if we deem that to be attractive. Please turn to Slide 15. As of 30 September 2021, TORM had available liquidity of $186 million. Cash totaled $110 million, and we had undrawn credit facilities of $76 million. The total cash CapEx commitments relating to newbuildings were $78 million as per 30 September 2021. With TORM's strong liquidity profile, the CapEx commitments are fully funded. Please turn to Slide 16. After having finalized the larger refinancing in 2020, we have eliminated all major refinancing up until 2026, which provides TORM with financial and strategic flexibility to pursue value-enhancing opportunities in the market. As displayed, we do not have any major repayments until after 2025. Further, we have, in the third quarter, secured stability in our interest rate expenses by increasing our interest rate hedge levels to approximately 75% on average over the coming 5 years. TORM's new sale and leaseback agreements are expected to add $1.6 million per year to the debt repayment schedule. Please turn to Slide 16 (sic) [ Slide 17 ]. I would now like to sum up our financial position in terms of key metrics, such as net asset value and loan-to-value. The value of TORM's vessels, including newbuildings, was just below $1.9 billion by the end of the quarter. Outstanding gross debt amounted to $1.053 billion as of 30th September 2021. And as mentioned, TORM's sale and leaseback of 9 MR vessels will add USD 76 million to the outstanding debt. All in all, we have a strong and attractive price debt structure with reputable banks and leasing institutions, and we have, hence, demonstrated our strong access to diversified funding sources in the market. We are very satisfied with our debt position.Finally, as of 30 September 2021, we had outstanding committed CapEx of $78 million related to our newbuilding program. And as mentioned, our cash position was $110 million. The net asset value was at $938 million as per 30 September 2021, which corresponds to $11.6 or DKK 74.5 per share. And just before commencing this call, TORM shares were trading at just above DKK 50. I'm pleased that our conservative balance sheet supports our strategic flexibility as well as our financial strength. With that, I will let the operator open up for questions.

[Operator]

[Operator Instructions] The first question is from the line of Joe Kapoor (sic) [ Jon Chappell ] from Evercore.

[Sean Edmund Morgan, Analyst]

This is actually Sean Morgan on for Jon Chappell. So just housekeeping items on the Chinese leaseback. So I was just wondering what was the gross amount borrowed for the 2 separate MR facility and the LR2 facility? Because I think you mentioned the kind of net liquidity raise, but there's probably some offsetting-related debt paydowns. So I'm just kind of wondering what the growth was. Hello?

[Jacob Balslev Meldgaard, CEO & Executive Director]

Thanks for raising the question. So I'll hand it to Kim. So...

[Kim Balle, Chief Financial Officer]

Yes. So the -- I will answer like the LTV for the sale and leaseback financing is 100%. So it's -- I'll just get the number here. It is, 2 seconds, USD 167 million, to answer your question.

[Sean Edmund Morgan, Analyst]

Okay. So that's for both the LR -- oh, okay. Sorry, go ahead. That's for the LR2s and the MRs, both facilities?

[Kim Balle, Chief Financial Officer]

No, the MRs. No, for the MRs, the 9 MRs.

[Sean Edmund Morgan, Analyst]

Okay. For the 9 MRs, great, $167 million, okay. And then so on Slide 7, you talked about just the kind of -- maybe it's a new pattern or maybe it's just kind of a recent phenomenon. But just the number of natural, weather-related disruptions to refining in the U.S. And so I'm just wondering if this is a pattern we're going to be seeing kind of recurring. Is there any trading volatility or arbs that sort of arise to sort of offset some of the negative impact of refinery outages? Or should we just kind of look at that as just kind of a market negative whenever it happens?

[Jacob Balslev Meldgaard, CEO & Executive Director]

I think it depends a lot on the duration of the outage. And what was a little different with Hurricane Ida was that I think that the industry, the energy complex at large in the U.S. Coast was well prepared. As usual, for safety measures, you close down. However, when you then had assessed if there were any repairs, et cetera, to come back into operation, the issue here was actually not so much physical on the refining side, but it was that there were a lack of electricity to turn it back on. So I think that was a bit unusual. I would expect in the future these outages to be more short term, i.e., you close it down and then you sort of turn the switch back on within a relatively short time frame. That is our understanding of this. So the difference here was actually the duration of -- the duration impact that you had.

[Sean Edmund Morgan, Analyst]

Okay. So the duration kind of, I guess, made it worse. And then just -- you talked about the order book being pretty favorable. And I guess, favorable-r, but the mid low rates is something you might expect. But how responsive do you think the order book would be to kind of resurgence and an improvement in product tanker rates? Do you think there's a lot of sort of latent demand that could come to the fore if the market starts to improve? Or do you expect that kind of regardless of future rates, that you'll see conservatism?

[Jacob Balslev Meldgaard, CEO & Executive Director]

Yes, that's a great question, Sean, because obviously, in history we have seen that, as you point to, if freight rates, they increased, that ship owners and investors respond immediately and then fill the void sort of, and go and order a bunch of ships. And this time around, what is surely quite supportive when we get -- when we turn the corner and freight rates are improving further from what they've already done, then the lead time to ordering is today at least 2 to 3 years. And even in that scenario, I think that it's very clear that currently, shipyards really favor different types of assets to be built. So I don't think even a strong and longer period of elevated rates would not immediately mean that you will have a very responsive ordering. Obviously, this is -- that we're not talking quarters but years, then it will be a different matter. Because then the whole ecosystem of -- also of shipbuilders and investors will find ways to get the contracts done. But sort of in the very immediate future, I see the likelihood being low of a lot of new contracting taking place.

[Operator]

The next question is from the line of Ulrik Bak from SEB.

[Ulrik Bak, Research Analyst]

Yes. Just a few questions from my side as well. You mentioned that you expect the inflection point for tanker rates to be during Q1 and possibly Q4 if OPEC increases its output schedule. But based on this current output schedule by OPEC, you expect that in Q1, do you see any other significant factors than this input increase, which could either accelerate or slow this tanker rate recovery during 2022? And how do you see the likelihood of either factor playing out?

[Jacob Balslev Meldgaard, CEO & Executive Director]

I think that's a very, very good question. I think it's always so that these events that triggers the market is very easy to see in the aftermath. So I wouldn't be able to give you a very clear and precise answer. I think markets generally have a tendency to overreact in both directions. And currently, what we are seeing is that there is a strong underlying demand for the larger tonnages, as I mentioned. We are now experiencing rates well above $20,000 for the LRs, which we've not seen for some time. What we would normally think is that, that freight rate environment for the larger ships can still push the rates higher. But obviously, our customers, they will, over time, split these cargoes into smaller stems, and that you will sort of have a filtering down into the smaller segments. But given that the smaller segments, for instance, the MR, that we're also experiencing freight rates at and above $20,000 as I mentioned in the U.S. Gulf currently, then you could argue that it's already now teeing up for the -- if sort of the fundamental demand continues to build, then there's only one thing to do. That is that the whole freight rate environment will go higher. So I'm not suggesting that we are in that inflection point, but I think it could happen any time. The real switch on, the point about OPEC, is obviously that if you have a step change in the supply of oil to the market, that will stimulate demand for oil. Everything else being equal, I think oil price will then stay -- or the risk of a significant further step-up in oil price will be lower in that scenario. And at the same time, the need for transportation of oil-related products will also increase.So I think that's a real switch on in the market. And that could put the market on fire, especially if it happens in the current freight rate environment, where we are seeing rates push -- being pushed up and our customers more and more coming back asking questions related to our tonnages.

[Ulrik Bak, Research Analyst]

Okay. And another question regarding whether you have any tailwind at the moment. Obviously, rates are very low at the moment, but we've seen in dry bulk and container space that there's a lot of tailwind from congestion. Is that also a theme in the tanker space? Or is it not something you see at the moment?

[Jacob Balslev Meldgaard, CEO & Executive Director]

No. I think the -- so there's 2 types of containers. I think it's a great point that in the containerized freight, especially, it is related to the port infrastructure. And it's maybe then secondly related to COVID-19 restrictions in relation to the crew that is on board. And we are not experiencing any of the -- I think a big point to think about here is that currently, a lot of the oil that we consume on a daily basis is actually just taken off the shelf. It is taken from inventories. So that also means that the pressure that we are seeing in ports are not there. There is one exception, but that's not really a port or a COVID issue. That is that currently in the strait of Bosphorus, larger vessels have waiting time up between 2 and 3 weeks. So obviously, if you think about a relatively short duration, cargo movements in that area on larger ships, they are heavily impacted by that. But that's a weather-related issue. Apart from that, we are not experiencing in this sector.

[Ulrik Bak, Research Analyst]

Okay. That's very clear. And then a final question to your liquidity position. You mentioned the 9 sale and leaseback agreements that you've made. But -- and in that context, how comfortable are you with the current liquidity position if the tanker market does not pick up? Obviously, everyone expected to pick up during 2022. But if that doesn't happen, what do you think of your liquidity position at the moment?

[Kim Balle, Chief Financial Officer]

Thank you, Ulrik, for that question. We have -- you've seen our liquidity position as we just presented it here. And we have embarked on these 9 sale and leaseback transaction for several reasons, one of them being what you're alluding to here or directly addressing that. What if in these challenging markets, things are not happening as we expect? And so we've added this. So we are very comfortable even if we enter into quarters that are not promising, but as we've seen in recent quarters. So that is one of the main reasons for doing that. Others are, of course, also, if we see markets pick up as we've seen, adding to both the purchase but also the possibility to add on any strategic opportunities that would arise in the coming year. So we are very comfortable with the liquidity position we have today and even more adding the 9 sale and leaseback agreements into our infrastructure.

[Ulrik Bak, Research Analyst]

Okay. And is there more you can do in terms of adding more liquidity, making more sale and leaseback agreements? Or...

[Kim Balle, Chief Financial Officer]

Yes. If we wanted to, we could of course. There are still room to add more leverage to our balance sheet if we decide to do that. This is why we are very comfortable with this, Ulrik. So this is what we see fit right now. This is exactly what we need at the moment.

[Operator]

[Operator Instructions] The next question is from the line of Anders Karlsen from Kepler Cheuvreux.

[Anders-Redigh Karlsen]

Just a couple of questions, a little bit on following up on what you said, Kim, in terms of opportunities. If you were to expand further beyond what you have done recently, what segments would that be in? And -- or if you have any preference? And I guess that would be in the form of potentially adding on secondhand tonnage.

[Jacob Balslev Meldgaard, CEO & Executive Director]

Yes. I can give an answer to that. We do look, obviously, at all the opportunities that are out there. And if I were to zoom it in a little, then as you point to, I think it will be existing units with modern features. So let's say, tonnage that are built within the last 5 to 8 years. That would be our preference. And in the segments, if we're going to point at anything, and I think the 3 segments that we are focused on, as you can also see, would be MR, LR1 and LR2. And then it would really depend on the specific opportunity. We can't really design the opportunities ourselves. So we are open to study the opportunities out there, which fits with what I've just described.

[Anders-Redigh Karlsen]

Okay. And then another question on the market. I mean with the weak crude tanker market, I guess you see some competition from newbuilds entering the product tanker market as their first cargo. Are you seeing any easing off of that? Or is that still an issue for you guys?

[Jacob Balslev Meldgaard, CEO & Executive Director]

That has been an issue throughout the year. Currently, there's a bit of an easing, but it's more actually because the number of newbuilds have gone down a little, and that will pick up again in the first half of next year according to the data we have. So I think if the prevailing markets remain, if the crude tanker market is not picking up from where we are, we will see a continued flux of cannibalization on maiden voyage from crude tankers also in the first half of next year, when there is a when it is an order book where you can say that it is relevant.

[Operator]

The next question is from the line of [ Urama Kadal ] from Clarkson Securities.

[Unknown Analyst]

Just curious about the timing of the sale and leaseback transaction you did. Was this maturities that you had to refinance? Or, yes, why did it happen now?

[Jacob Balslev Meldgaard, CEO & Executive Director]

Yes, this is Jacob. No, it was actually not specific maturities that we had to act. It a relationship that we have been working on for a number of years, and where we've, sort of with our counterpart have, over time, identified what would be a suitable size of a deal, and what would be our first sort of structure that fits both on their side and on our side. So it was actually, over time, just identifying a pool of assets. And as Kim mentioned earlier, just shy of $200 million was sort of the sweet spot for them as sort of the first type of deal with us. And so this was a group of vessels where it made sense for us to also do it. So there was no pressure as such, but it was a strategic choice that this made sense to have this particular financing institution as part of our debt structure going forward.

[Unknown Analyst]

Yes, makes sense. I mean you have a lot of cash now, basically, right? $185 million or so. And...

[Jacob Balslev Meldgaard, CEO & Executive Director]

It was a strategic choice that we're not -- I mean this was not something we had to do, but we do feel very -- I would say, very comfortable in general, as Kim also said. Whether this is then the scenario where this needs to be used as defense or whether we have the luxury to use it as offense, in either direction, this is a sizable pool of cash that we can utilize to the means that we have. Currently, the markets, as I mentioned already, are pointing in the direction that we have been waiting for. Of course, we would like to see that for more than 2 weeks. But it is -- there are really strong signs of fundamental step change in the market currently. And then we have this cushion of cash as you point to.

[Unknown Analyst]

Yes. Interesting. Yes, so how you think about investment opportunities now? I mean you're basically finishing off the scrubber retrofit program, 53 vessels, which seems to be have been a great success when I look at today's scrubber agreements at least. And you have only 2 newbuilds left on order. So how do you think about your fleet now? And how are you going to position yourself in the upcoming regulations and, yes, in that sense? Can you give something -- color about that?

[Jacob Balslev Meldgaard, CEO & Executive Director]

It's a good point. I mean so if we look at sort of our future commitments, I think you point to that on scrubber, we've finalize that program. And where maybe if we had this call a year ago, there would be some conversation around was that really a sound choice. Because spread between high sulfur and low sulfur were at that time, well below $100 today. As we all know, it's come up again. So it's -- I think, over time, we're very comfortable with that investment and with that decision. And then there is volatility in the spread, currently very much to our -- in our favor. Now if we look at the fleet and the potential CapEx, yes, we've got these 2 newbuilds that seems to be coming out of yards at an impeccable timing here towards end of this year and early of next year, the 2 LR2s, and then we don't really have anything. So if I were to script it, I think we would still prefer to up our investments in the larger vessel, simply because strategically, we already today have a significant role to play in the MRs. So if I could choose myself for, I think, investment opportunities in the LRs. But of course, at the end of the day, it depends on the pricing structure. And we don't feel that newbuilds is the right way to go. We don't need, from a strategic point of view, to go to elevated prices. Also because when we look at sort of our climate commitment, that there, we feel very comfortable that with our own fleet, the fleet composition, that we were well in advance of 2030 be meeting all of our IMO requirement. And hopefully, we can even up the game on that as we progress, and as we make all the sensible investments into additional fuel efficiency gadgets on existing vessels. So we are very comfortable with utilizing existing vessels, both from our own fleet but also obviously from potential new investments.

[Unknown Analyst]

Great. Would you also consider share buybacks given your discount to NAV? What do you think about that?

[Jacob Balslev Meldgaard, CEO & Executive Director]

I think we need to think about it, but I think let's take that discussion -- I mean, first, I would like to have the discussion with our Board. Because so far, we have been careful around our movements, including share buybacks. For -- so let's see that the market really starts to return. And then we have the distribution policy where we, every half year, can pay back 50% of the net result. And that can, of course, be distributed in terms of a straight dividend or share buyback. So I think that the -- let's turn a few pages here in the calendar, and let's come back on that issue when we've seen a couple of quarters of considerably higher earnings than what we experienced the last quarter.

[Unknown Analyst]

Yes. Fair enough. Just a final question for me on the market. I mean seems to be very strong refining margins across regions. But still, there's fairly low refining utilization. You mentioned it's coming up in the U.S. But what's keeping these refiners from basically processing more crude and producing more products, do you think?

[Jacob Balslev Meldgaard, CEO & Executive Director]

So that is actually the point that we also made around Hurricane Ida having a profound effect, was that there are outages because of lack of energy. You see the same in China, that actually, you see the government imposing restrictions on the utilization of energy. And that is also hurting, for instance, the Chinese refiners. It is also has been a problem in the refinery sector in U.S. at large, that there has been a lack of energy basically to -- for these big, complex facilities to up the end, even though the economic rationale is clearly there. So let's see when some of this energy crisis also, I'm going to say, find its feet and you can release some of the energy again to this sector. Then clearly, there's an incentive, as you point to, for them to ramp up their production.

[Operator]

There are no more questions at this time. I hand back to Andreas Abildgaard-Hein for closing comments.

[Andreas Abildgaard-Hein]

Thank you. We actually have a question here on the webcast that we will just pick up on. So here's the question from [ Howard Shuzen Lee ] from Danske Bank Markets. What is the total sum of the Chinese leasing for the 3 LR2s?

[Kim Balle, Chief Financial Officer]

Yes, I can answer that. The sum is, in total, just above USD 103 million. So I hope that's the answer you're looking for, [ Howard ].

[Jacob Balslev Meldgaard, CEO & Executive Director]

Okay. Thank you. This concludes the earnings conference call for the third quarter of 2021 results. Thank you all for participating.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.