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DHT Holdings Inc
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Good day ladies and gentlemen and welcome to the Quarter One 2018 DHT Holdings Earnings Conference Call. Today's conference is being recorded.
At this time, I would like to turn the conference over to Mr. Eirik Uboe. Please go ahead, sir.
Thank you. Before we get started with today's call, I would like to make the following remarks. A replay of this conference call will be available at our Web site dhtankers.com through May 14, 2018. In addition, our earnings press release will be available on our Web site and on the SEC's EDGAR system as an exhibit to our Form 6-K.
As a reminder, on this conference call, we will discuss matters that are forward-looking in nature. These forward-looking statements are based on our current expectations about future events, including DHT's prospects, dividends, share repurchases, and debt repayment, the outlook for the tanker markets in general, daily charter hire rates and vessel utilization, forecast of world economic activity, oil prices and oil trading patterns, tanker world economic activity, anticipated levels of newbuilding and scrapping and projected drydock schedules.
Actual results may differ materially from the expectations reflected in these forward-looking statements. We urge you to read our periodic reports available on our Web site and on the SEC's EDGAR system, including the risk factors in these reports for more information regarding risks that we face.
I'm joined today by DHT's Co-CEOs Svein Moxnes Harfjeld and Trygve Munthe.
And with that, I will turn the call over to Svein.
Thank you, Eirik. Good morning and good afternoon everyone. Thank you for joining DHT's first quarter 2018 earnings call. We are going to take you through a presentation with the highlights of the quarter, and include commentary on our recently announced refinancing. We will further provide an update on cash breakeven levels and operating leverage, rounding it up with some market observations, before we then open up for Q&A.
With no income market to start off from, the first quarter proved to be a very tough period. Our bottom line resulted in a $9 million equal to $0.06 per share. All things considered, we are nevertheless pleased with our operating performance.
Results derived from our VLCCs earning $21,400 per day, of which spot earnings was $20,200 per day. The result includes a onetime effect as a consequence of our industry in general implementing IFRS 15 starting this year. It's not adopted and in the spirit of full disclosure, spot earnings will otherwise have been $18,400 per day. Still a decent number, when considering the lackluster market.
As of today, we have booked 55% of our second quarter capacity, at $14,200 per day. Market-wise, we do not offer much encouragement for the remainder of the second quarter, other than the commitment from everyone at DHT continuing to work hard towards a best possible performance.
As recently announced, we refinanced 13 of our VLCCs and increased our revolving credit facility. Trygve will provide more color to this later on.
Subsequent to the first quarter, we took delivery of the first of our four newbuildings scheduled for this year. DHT Stallion was delivered on April 27 from DSME.
Then to the income statement; our EBITDA came in at $24 million. Net results was a loss of $9 million, equal to $0.06 per share. OpEx for the quarter was $7,600 per day for the VLCCs and tracks our average OpEx in 2017 of $7,800 per day. This competitive number is not a response to the weak market. It is simply a result of our long term focus on quality operations and quality assets, combined with focused work from everyone on-shore and on-board of our ships. Let us take this opportunity to say well done to all.
G&A of $5 million for the quarter, includes non-cash charges, typically expensed during this period.
We have enacted to pay a cash dividend for the 33rd consecutive quarter. A dividend of $0.02 for the quarter is payable on May 30 to shareholders of record as of May 31.
We then move on to the balance sheet; our balance sheet remains sound and healthy. The quarter ended with $70 million of cash. This does not include our undrawn credit facility of $57 million, hence this provides additional liquidity. Financial leverage is moderate, with interest bearing debt to total assets just below 50% based on market values for the ships.
As mentioned, we have started to take delivery of our four newbuildings this year. Total remaining newbuilding CapEx net of borrowings now amount to only $3.5 million. This consists of net positive of $9.2 million during the second quarter, as we will borrow slightly more than the final installments due to the shipyard. Less $12.7 million during the third quarter for the last two years.
Next, we will walk you through the cash flow highlights for the period. We had positive cash flow from operations, as EBITDA covered debt amortization, interest paid and maintenance CapEx. Quality operations, we had net proceeds of $12 million from the sale of DHT Utik and paid $17.5 million in newbuilding installments. As such, ending the quarter with $17 million in cash.
And then over to Trygve.
Thank you, Svein. As previously announced, we recently entered into a new credit facility, and that will be placed for existing facilities, one of which was coming to maturity in the fourth quarter next year. We are very pleased with the structure in terms of the new facility, and we are honored by the massive support received from our known banks. All banks are participating in the new deal, and it was oversubscribed by some 60%.
We consider this a good refinancing for DHT for three main reasons; one, we have preempted some potential refinancing risk associated with the Samco facility, which had final maturity in the fourth quarter next year.
Two, we increased liquidity by about $32 million. About $19 million net from the additional borrowing and $13 million from the increase of the revolver.
Three, despite the increased borrowing, the refinancing reduces our cash breakeven, albeit marginally. This is possible through a reduced margin, some 10 basis points lower than the average of the four retiring facilities, and by a longer repayment profile.
Then onto cash breakeven, our spot VLCC cash breakeven currently stands in the high $19,000s per day. This is somewhat higher than what it has been in the past, and is primarily a consequence of lower fixed rates in the ships and time charter. It is not a reflection of inflating costs.
While at the topic, we should remind everyone that our cash breakeven includes full debt amortization, which amounts to some $6,600 per day. You should keep this in mind, when you compare our numbers to that of other tanker owners, who may not have similar debt amortization built in.
We also have competitive cash breakeven and our healthy balance sheet gives sustained power in a low market, the operational leverage of DHT gives us tremendous upside participation, once the market recovers.
In this slide, we have looked at the relationship between spot grades and estimated earnings per share for 2019. At historic average rates from $43,800 a day over the past 20 years, we estimate an EPS for about $1 in the quarter for 2019. And if and when we get to rates in the mid-60s, like we had in 2015, we should EPS north of $2.50.
We think this combination of financial sustaining [ph] power and serious upside potential will make DHT a compelling investment proposition at this point.
It is never easy to call the turning points of the tanker market. So rather than guessing on that, we would like to highlight what we consider the main tanker market themes, that ought to be recognized and monitored in the months ahead. First, we should not forget that global oil demand is strong. IEA is forecasting 1.5 million barrels per day growth this year, and importantly, 60% of that comes from Asia-Pacific, and they need seaborne transportation, most of it long haul and in big ships.
Second, the freight market remains weak and has disappointed this winter. We believe there has been too much talk about the market being oversupplied. We may consider semantics that we think of it as, 'underdemanded.' According to ClipperData, the number of VLCC loadings out of the Arabian Gulf over the past four quarters is down some 106 cargos compared to the proceeding four quarters. That equates to 9 VLCC cargos per month, which is not insignificant. The OPEC production cut is certainly taking its toll.
Third, as a consequence of the OPEC cuts, we are in a significant oil inventory drill down phase. In the fourth quarter last year, the world consumer some 1.5 million barrels per day from inventories. In February this year, the growth was almost 1 million barrels a day, three times the normal for the month according to Energy Aspects. Clearly, this cannot go on forever, and once the inventory cycle changes, it will be good for the tank market.
Fourth, U.S. crude exports is going from strength to strength. We have seen weekly data indicating exports pushing towards 2.5 million barrels per day. Last week, we saw 9 Caribbean VL Cargoes in the market at the same time and five of them were from the United States.
A lot of capital is going into projects to facilitate exports from the U.S. Gulf, be it in pipelines, tank space, terminals or dredging projects. To us, this means that U.S. crude exports is real, it is growing, and it is here to stay. Good news for tankers of course.
Lastly, [indiscernible] VLCC replacement needs are now behind us. This is simple demographics. In past years, only very few double haul VLCCs came to the end of their economic lives, simply because there were few VLCCs built in the mid-1990s.
Going forward, this will change. Some 188 VLCCs will face fourth intermediate or fourth special survey over the next four years. So we have finally come to a point, where we have a more normal age distribution of the fleet. And going forward, recycling of older ships will become a regular phenomenon, also for VLCCs. And that should of course be taken into consideration, when evaluating the order book.
And with that, we would like to open up for your questions. Operator?
[Operator Instructions]. We take our first question from Jon Chappell from Evercore. Please go ahead. Your line is open.
Thank you. Good afternoon. Guys, good job with the refinancing, obviously the market has been challenging and there is not much you can do about that. So you take care of what you can take care of. Both of my questions are on continuing to do that, taking care of what you can take care of. So the first one is on convert; obviously, we are still over 12 months away from the convert, but it seems to be an overhang, not just for DHT, but for any companies that have kind of pending expirations of those. So I am sure the refinancing was kind of step one towards addressing that, but how do you think about that, and what are kind of the arrows in your quiver to address that one, so we get closer to the day?
Yeah thanks Jon. I think on the convert, of course, we have bought back about a third of it at an average discount of about 6%, and how we are going to handle the rest, we see, it can play out in a couple of different or a few different ways. Number one, is just to remind everyone, it would really only take some 10% increase in ship values for our NAV to reach the strike price, and we think that this could quite easily happen over the next year and half.
Secondly, there is $105 million outstanding, and if you ask the question, what would we need to earn over the next five quarters in order to generate the $105 million of free cash, the answer is about $28,800 per day. And whilst we are certainly below that today, it's not really a big stretch of the imagination to see that we could make an average of that, going through third quarter next year.
And then of course, we could sell ships, be it outright or on a sale leaseback basis, and then finally, we have the revolver now, $57 million that could be used in combination of either the sort of increased earnings or some sale leasebacks or outright sales. So we quite frankly think that we have sufficient ways to deal with the maturity of the convertible in October next year.
Okay, great. And then my second one, and it kind of goes together too, but you have a very unique return of capital to shareholders policy, where it's not just dividend, but you give yourself the optionality of doing dividends and buybacks. Last quarter, you -- can't remember if you gave the exact number, but insinuated a range of your NAV. But it seems like in the last three months, you just stuck to the dividend and there were no share buybacks, despite the stock still at a discount. How do you think about that overall, and let's add the buying back to the convert in there as well? Do you feel it's important to keep the $0.02 dividend for the investors through this downturn, or could you be a little bit more nimble with either buying back the common equity or the convert?
Of course, it’s the Board's decision quarter-to-quarter of how we are actually going to allocate it. But I think, we have felt it has been important to return some capital to shareholders, and of course, $0.02 amounts to about $2.8 million per quarter, and in term of buyback, that doesn't really get too very far. So I think that's part of the rationale why we have elected to pay the $0.02 in cash flow than in formal buybacks.
Then, would you imagine, and I know once again, poor decision, but you have laid out, not an optimistic view, but give me a realistic view that we are at the bottom of the tanker market, and as we kind of come off the bottom there, maybe maintaining the $0.02 base, just as a placeholder, and then maybe shifting some of the newfound operating cash flow to buy back. So it might be a better way to manage the beginnings of eventual recovery?
I think that makes a lot of sense, I would agree to that.
Okay, great. Well thanks for the time guys.
Thank you.
Our next question is from Fotis Giannakoulis from Morgan Stanley. Please go ahead. Your line is now open.
Yes. Hi gentlemen and thank you. It seems the liquidity has been strengthened significantly after the latest refinancing. I want to ask about the forming of newbuildings; it seems that you still have availability of another $96 million. Is that correct? Can you draw down the entire $96 million from the $300 million facility at this point?
No. I think that's part of the refinancing. So if it's the two Hyundai ships you are talking about, that is now part of the new [indiscernible].
Okay, thank you. And can you give us comparison of the numbers that you reported? I assume, we are -- for the second quarter, the IFRS numbers. What will be the impact, if they were in -- with a previous system, just trying to compare apples-to-apples with other companies?
Well, so the bookings for second quarter today is essentially a discharge sum. There is no IFRS adjustment in those. All in all, those numbers, when we exit the accounting period for the quarter, whether there is positive or negative carryover.
Okay. That's very clear. And can you talk about asset values we have seen, all the vessels, everything above 15 years old pretty much is selling for scrap. Do you view that these vessels pretty much, they have no more useful life, and how do you expect asset values to move forward? It seems a little bit strange, the fact that the market is so weak at this point. But more than ships, they seem to have moved higher rather than lower. Are there opportunities for you to take advantage of the weakness and try to snap a few more assets at this point, and perhaps even issuing shares to companies that they would like to do a stock transaction? Is this something that you would consider?
I think our balance sheet today, we will keep it as it is, we will not use the balance sheet. The reserves, we have to acquire ships. If those transactions stay similar to what we did last year when we acquired BW Group's VLCC fleet, we issued stock at NAV and bought the ships at a like-for-like transaction, and that transaction was immediately accretive to the shareholders, and if there are similar opportunities, we will certainly take a very close look at that.
When you talk all the ships, it's not so that they necessarily will be obsolete. But of course, it’s the question of when you buy them, and the older ships get closer to the recovery, should they essentially be. And I think that some of the pricing on the ships that are in the, say 15 to 20 year old range today, are impacted by that so to speak. Current earnings are meager. You have maintenance CapEx coming up, and there are some regulatory challenges as well. So that's why the delta around the scrap is so thin.
So of course, if you time it perfectly, you buy a 15 or 18 year old ship two weeks before the market recovers, could be a very good investment. But there are some risks to that.
When it comes to -- just a comment on asset prices. So you see newbuilding prices now up at least 10% over the past, I would say, I would say 10, 12, 15 months. See if you recall in January last year, we contracted two ships, big deadweights with a high specifically, including scrubbers, gets around the $80 million mark. If you want to repeat that today, it will start with a 9, and delivery would be second half 2020 and some yards even will close that in 2021.
I think that impacts the pricing of specialty ships, that are, say up to the four, five, six, seven year mark. So very few things to buy, and if you have a quality ship coming from a quality shipyard in that vintage, I think it will be quickly sold.
And can you remind us about the upcoming costs from the new regulations? It seems that the ballast water expense is moving lower? What would that be for VLCC right now? I assume that the $1.5 million we are talking about a year ago, seems too high at this point. And also, if you can comment about the steps that the refining industry is taking, in order to meet their 2020 low sulfur regulation, and whether you think that there is a chance that there is going to be a problem with availability over low sulfur fuel, that might create some postponement over the implementation of the new regulation?
Well to answer your ballast water treatment question first; the cost of the equipment itself is close to $1 million, and if you were to retrofit the ship, you need to -- there is a lot of other work, in terms of allocating space, pipelines, pumps etcetera. So I think you are still looking at the $2 million to $2.5 million total cost. On this, I am sure that you already do this, in connection with the scheduled drydock for ballast water treatment.
And on to the 2020 sulfur aspect, and there is a myriad of analysis and opinions out there, and I think, especially in shipping, in general, people are at least a step away or removed from the refining industry. When talking to refiners, you get a sense that at least the number of the big ones are confident that compliance will be available in some shape or form. But there is a price. They at least, say, talking on their own books, they could be expensive. Whatever that price delta will be, of course, time will tell how this will pay out.
But we really-really think that compliant fuels will become available. Maybe not everything on January 1, 2020, but that the industry will have adopted this and they certainly are able to do that.
We also met some other people and you see a lot of entrepreneurial spirits even moving into this field. Also looking to ensure compliant fuels can be made available from smaller refining plants and so forth. So at a rather limited CapEx. So I think there will be a lot of developments up to this date, and it's very hard to say that its one answer to all of this.
Thank you very much Svein.
Sure.
[Operator Instructions]. So our next question comes from Noah Parquette from JPMorgan. Please go ahead.
Hey great. Thanks. I wanted to ask about the refinancing. Sounds like the BW facility is part of that. What other facilities are or vessels are part of that refinancing?
The BW is the one that's not part of it.
Did you say the $96 million on the newbuilds is part of the refinancing?
On Fotis' question, there is two sets of newbuilds. There's two from DSME that came with the BW transaction. They are not part of the refinancing.
And that's $96 million. That's part of the BW facility.
Yeah. Noah, in note 4, you will see these facilities. And it's the one with ABN AMRO, $180 million outstanding. It's the Nordea Samco facility with $215 million and the Leopard with Nordea that's being refinanced, plus the newbuilding facility for the Mustang and Bronco from Hyundai.
Okay. Great. Thanks. And just a follow-up on the software regulations; remind me, do your newbuilds have scrubbers installed, and in terms of your existing fleet, are you considering retrofits?
The two newbuildings from Hyundai, the Mustang and the Bronco, they have scrubbers. We are of course looking closely into this. We have had a number of meetings with equipment suppliers, done some desktop engineering on what will it take to retrofit and so forth. So there is no conclusion beyond the decision to put scrubbers on the two Hyundai newbuildings as of yet.
Okay. And then just finally, have you given some thought on to how the regulations will affect VLCCs on the demand side? How much is fuel oil freight part of your cargo mix and what other things are you thinking about?
In terms of transporting heavy fuel oil, you mean? Is that the question? Yes, of course --
What do you think the effects on the demand cycle will be?
Firstly, I think it’s a bit hard to say. But some folks analysis suggest that the market will be lone heavy fuel oil, and you know, maybe that needs to find new homes and so forth. But the question of course then comes to, who is going to take it. And that's the confusion of the analysis.
Some other research suggests that the refiners will kind of move up to the challenge, and won't try to create different products out of also these type of feedstock. So it's a question of geographically, where will this stuff be available, and are there other products they can produce? I think it's very hard to have a specific opinion on this. We think that long term, the problem really here is that the market will end up consuming compliant fuel, and then, it's so few ships today that is being fitted with equipment to handle heavy fuel oil, that the refining industry, I think would be doing a rather daring stunt, if they are betting on big offload of heavy fuel oil to the marine industry.
Okay. Thanks. That's all I have.
We now move to our next question from Michael Weber from Wells Fargo Securities. Please go ahead. Your line is open.
Good morning guys. How are you?
Good. Thanks.
Just wanted to follow-up on slide 13, which is down the slide up [indiscernible] in the mid-cycle evaluation. I know you touched a bit on forward-looking asset values. But just curious, how wide right now is the bid/ask in terms of, maybe just from VLCC? If you think about values in the mid to low 80s, I think roughly $83 million, $84 million. Do you think the worse is behind us from an asset value perspective, and which should imply -- are we seeing the lowest we are going to see in this cycle from your NAV?
I don't think -- its important to recognize. It's not like transactions every day here. So it's not like you can sit and push a button and buy or sell a ship. So there was a couple of resales made available here for over the past few months. One owner was looking at that, if my recollection is correct, that is -- the bid/ask delta was a couple of million. I think the project sort of fizzled out and because those ships didn't have a specification that maybe the buyer essentially wanted. So they won't have to order their own ships, so -- and those ships are available, but the price tag of those have been moving up over the past six months.
I think earlier this year, that owner was willing to resale these contracts, but looking at a number somewhere in the low 80s. Recently, that has been pushed up and you know, in the mid to high 80s. So but then, very few datapoints so to speak. So it's not much activity. But I think if you, say [indiscernible] for that, those contracts, we are willing to put down and getting 86, 87, 88 scrubber, we probably get them.
Got you. All right. I wanted to follow-up on IFRS 15 actually. It looks like you guys are a bit fortuitous and so the space, was in general around adoption there, at a point, where earnings were tough, so it was a bit less accentuated to think you actually got a penny or two benefit out of it for the quarter. I am just curious, when you look at it on a go forward basis, you want to think like it should introduce a decent amount of extra volatility into our earnings tranche, just the way -- in terms of the way you are recognizing laden and non-laden revenue and expenses. Do you have a sense -- one, do you have the ability to smooth that out at all, in terms of maybe shorter interim contract structures that might account for ballast led revenue in some other way? And then two, around the disaggregation of your contract, I think you actually chose not to disaggregate based on the fact that overall effectively, applied to the same trade. I am just curious, is there a contract length or tenure associated with the charter that would have forced you guys to disaggregate that? That's more of a question just around how the sector adapts to the new standards?
I think it's important that it really only applies to spot voyages. So time charters continues with interim change to accounting. And sure enough, there would be added volatility, because under the new regimes, you will have longer periods, and according to IFRS 15, you have no revenue. And then once you have revenue, you will have a higher revenue. So if you have a small fleet, it can be very erratic. But of course, once you get up in size there sort of quarter-to-quarter volatility should be quite limited. And keep in mind, that throughout last year, we along with, I guess everybody else were recognizing revenue from the charter party dates until discharged. So it wasn't like in old days, when it was really from discharged port to discharged port. And now we are taking one step further, it's not from the time rented and the spot contract, it's from the time we load the cargo.
For us, and I think for the entire industry, we have been scratching our heads how to get around this, and there has been an industry taskforce in dialog with the big accounting firms and with the SEC and so forth. And I think it's pretty uniform how we have all landed on it, that we will have to recognize, only from the little port. But that we actually capitalize without great expenses from charter party dates until the [indiscernible] port.
If I may just add, I think this is really a demonstration of the brain trust in the accounting industry, probably to make an [indiscernible] of accounting standards. This total disregard for how this industry commercially would work, everybody knows that you consider voyage, you look for discharge to discharge and that's the numbers in how we operate. So unfortunately, we have to live up to this, it's the way it is, and everybody will have to do it. So this creates a bit more challenge, I guess, ahead for everybody to really get into the details of what the numbers mean.
Great. No it's certainly going to impact on our end as well. But I will stop there and turn it over. Thanks for your time guys.
Thank you.
We now move to our next question from James Jang from Maxim Group. Please go ahead. Your line is open.
Hey guys. Good afternoon. So recently scrapping started to pickup, and it seems like it's finally good news for the supply side. But what have you guys seen in terms of capacity at the scrapyards over in Southeast Asia? I think with the monsoon season coming up ahead -- yeah?
It's fair to say there are quite a vast number of yards that connects to take ships and dismantle them. I think the key here is, what is the demand for that type of recycled steel to the local steel mills. What is the financing available for people to buy ships for cash and hold it on until they get them dismantled, I guess, to sell all the bits and pieces. So this probably where the sort of hurdle is. But there seems to be good activity, and we count at least 23 ships year-to-date in our numbers, and we would not be surprised to see that hit at least 40 ships this year, that could easily go further. The prices seems to be relatively stable, although they moved down, say from 450, 460, down to 430, 435. But it's still a good number, and considering sort of complicated on a weak freight market, a good price for longer ships to retire, and with upcoming CapEx, certainly it's a good argument for these guys to call it off.
But we could expect the trend to --
But you can give -- yeah sorry, go ahead.
We expect the trend to continue, but maybe not on a truly annualized basis, as we hope you have seen at the get-go.
Okay. So in your opinion, let's say LDT prices, they are in the 430 to 450 range now. If they fall to the 380s like they were in 2016, do you think that scrapping will kind of decelerate a bit, or do you think that the upcoming CapEx requirements are going to still push ahead these -- all the tonnage to be scrapped?
It's hard to be that specific again. But I think, if you look at this in like -- on the assumption that, if the freight market continues at current levels, of course, that doesn't give much encouragement to some of these guys. But these things come together, and so 380 in historical context is also still a decent number.
Okay. And our thesis has been around U.S. exports expanding per mile. But with the U.S.-China trade war ongoing right now, do you see more loadings, Russian loadings to China, supplanting U.S. cargoes, or you do not see that as the case?
A meaningful portion of Russian barrels to China is spotlined [ph]. There is a freight from Russian Pacific, Kozmino, specifically going into China. That's an Aframax business. There has been some Suezmaxes also doing that. But it's not like this is substituting the bigger volumes from some of the other suppliers.
And then also a question on, if it's a trade war. Yes, or is it more kind of decent ships and trying to get the best deal possible and get things sorted. And at least currently, it seems to be rather a tough public negotiation more than anything else.
Yeah. Okay. And so, earnings, they don't look good in Q2, but you guys have been able to charter your vessels at much higher rates than what the market is getting. So where do you see the near term opportunities for the VLCC sector in Q2 and Q3?
We think that the main catalyst is really going to be the inventory cycle of accrued. So once that turns, you will see a good shot in the arm on our demand side, and we think that's going to transform or change the mentality in the whole freight market.
I think on the margin, you see the old position being a little bit tighter. And of course, some people argue that -- are taking courage from what's being seen on the public side on MRs and so forth, that the question is, is this kind of an early sign on what is to come. Some analysts are suggesting that. We are not saying it's going to be tomorrow, but we think it will certainly change the earnings picture, once they happen.
And so, just going back to the fleet, would you guys look to -- if you guys were to sell vessels to help pay off the convert, will it be safe to assume that the two Aframaxes would be the best candidates for our sale, or would you look at selling some of the older VL tonnage?
Yeah, I think your observation that -- we have raised it recently. We are two Aframaxes away from being a pure VLCC company, and with that, you should interpret that we don't think of the two Afras as really strategic assets for us. So you are right, that would be easy to sort of part ways for them, given that the price is right. But other than that, everything is available for the right price.
Got you. Okay. That's all I have. Thank you guys.
Our next question now comes from Robert Silvera from R.E. Silvera and Associates Marine Surveyors. Please go ahead.
Hello gentlemen.
Good morning.
Hello?
Yes hello. Good morning.
Hi. Can you hear me clearly?
Absolutely.
Good. I am trying to get a little bit more clarity on what your observations on what has been scrapped during the first quarter here, and are they truly going out for steel or is any of it going for any other purposes of the market, since storage seems to be diminishing these days? What are your observations on there, and I think I heard you say, that the value of the scrap vessels has remained about constant. And could you clarify for me about what that value is?
Yeah so, you get really paid for the lightweight of the ship, VLCC sort of average weight about 42,000 tons, and the market today is about $435 per light ship ton. So call that an $18 million plus for a ship. There are a couple of new ships so far this year, that has gone some sort of conversion project as well. So that's also of course a way of retiring ships. But the vast majority of the numbers that we count today are for true demolition, why the ships are being dismantled and the steel is being recycled.
How many of those did you see during the first quarter?
I think year-to-date we have the tally at 24 ships, maybe it's 23.
Good. Thank you. Okay, the other question I have is, your debt, the interest bearing debt has been dropping nicely, since, I believe the second quarter of last year. The nature of this debt is the principle fixed and you just pay interest on the debt and retire principle as you desire, or is it scheduled principle retirement?
It is the latter. It's a scheduled debt amortization on all our mortgage debt.
I see. Can you explain to me then, why from quarter four of last year, when the interest bearing debt -- quarter three rather, which was 826 dropped to 786 in quarter four, which is a nice drop. And then on the $22 million into quarter one of this year.
Part of that is, we sold some ships in that timeframe. So once you sell a ship, of course, you retired the remaining debt on her. So in the sort of the changes in the debt, you see ordinary debt repayments and you see repayments connected to ship sales.
Okay. And the ordinary is fixed principle reduction per month type of thing?
Per quarter. Yes.
Okay. Well thank you very much and I am very pleased with the way you are retiring debt. You seem to be managing very well and we are pleased as shareholders.
Thank you for your support.
Thank you therefore from me.
Thank you.
We will now take our next question from Herman Hildan from Clarksons. Please go ahead sir. Your line is open.
Good afternoon guys. I just have a very brief question, have you made up your mind on what you are going to do with the newbuildings? Are you going to charter them out, as they deliver from the yards? It seems that missed there [ph], the ships with scrubbers are quite popular these days?
The plan is to -- at least in this market, to keep them in the spot market. We have not been too -- we haven't been enticed really by the time charter rates, that's on offer. Further, some of the scrubber charters, people only want delivery end of 2019. So there is not really any benefit in this, we think. And the scrubber investment position on two Hyundais, is the cost that we have already taken on board, and you don't intend to give that away cheaply. So we think those ships will make very good money for the full period of time, that scrubbers will be good equipments.
That's how you are kind of taking -- so you are taking a wait and see approach basically as of now, in terms of kind of chartering out the scrubber fitted vessels?
I think in general Herman, if you look at the ships we have put up in time charters, it's not really the eco-ships and that is very much by design that we would like to keep those in the spot market, where we can reap the fuel efficiency gains over here or superior performance and keep that to the shareholders. So to the extent it's possible to continue to do that and put some of the conventional ships and time charters, and keeping the modern units in the spot, we would prefer to do it that way.
Keep in mind, some of the charters that have been for offer for scrubber-fitted ships. The customers come to it with some sort of cost based pricing approach, right, which we don't have too much time quite frankly. So we have made this investment decision. We have the great value, and we want to make as much money as we can on those investments.
That's very clear. Thank you very much.
[Operator Instructions]. We now move to our next question from Ben Nolan from Stifel. Please go ahead. Your line is open.
Thanks. And I appreciate it has been a long call, but haven't you guys, in particular, but not exclusive to you, have been doing better with this, even making adjustments for the accounting policies, have been doing better with your spot vessels, than sort of what at least is being reflected in, the industry indexes and what not. Was curious if you just chalk that up to being good operators, or if maybe, there is a little bit more of a fundamental change? In other words, in the product tanker market for instance, where you see a lot of triangulation, it's sometimes hard to get a good fix on it, and with all the U.S. cargoes and Atlantic cargoes in general coming to market, are you starting to see more triangulation that may be helping that spot number be better than what would otherwise be seen?
I think Ben, it's kind of a combination I think. So firstly, we have a high quality fleets, and also with good fuel economics broadly and the ships have an excellent resting statistic and can really fix with pretty much everybody. So that's a starting point that you have with a top notch equipment.
And I think secondly, our team has been able to trade the ships very well, with some triangulation here. But there is also mix of other types of niche trades with the more traditional routes. So it’s a mix of things, it's not just one thing that stands out.
Okay. So at least in your view, there is not a shift in sort of how we should think about spot rates for the industry and trying to think through increased triangulations?
I think what's important to recognize and remind about is -- what you see on the ship broker reports, is typically sort of a conventional 10 year old ship or whatever on a round trip for AG East, and that's the return it would give on the current world scale rates with the current bunker prices. And as Svein said, if you have an equal ship, your numbers are going to be some $5,000, $6,000, $7,000 a day better than that. And if you can get better utilization than a 50% ballast, that's also going to help. So all of these factors play into it. But I think the most important is really the assumptions going into the broker reports.
Okay. All right. That's very helpful. I will turn it over. Thanks.
Thank you.
Our next question is from Randy Giveans from Jefferies. Please go ahead. Your line is now open.
Hey, thanks and good morning guys. So a lot of questions to follow-up on earlier, but I will follow-up on that event most recent one there. So current VLCC crude rates, Clarksons are saying like $4,100 a day, Howe Robinson is saying $7,200 for Vs and $12,000 for Eco-Vs. what are current rates at? I know you said the first 55% of the quarter was already kind of given, but what are rates kind of this week, that you're seeing?
If you take a 10-year old ship on AG Far East, a round trip to China, market is $8,000 there I would say. Although you know average, but still good 10-year old ship. West Africa is may be $1,000 or $2,000 a day higher. If you add an ecoship into that, you are looking at $13,000, $14,000, $15,000 depending on the ship and the route. And if you then manage to do the longer triangulations or even round trips, also again, then with a modern ship, you are moving into the kind of mid-teens potentially. But then the liquidity in that freight is of course thinner than those in the AG Far East route. But this is moving every week. And then keep your mind, you know, it comes down to what kind of bunker inventory do you have on your ship? Is it 30 or 40 days old at a normal price than what the bunker price is today, then your return might be better.
It's hard to kind of sort of jam in all this into a spreadsheet I am afraid.
Sure. That's fair. And then again, just one other question, looking at G&A; I know the fourth quarter had that reversal of accrued expenses, totaling I think $2.4 million, so that would have been around $4 million. Now 1Q increased about $5 million, still well below the $6.3 million in 1Q 2017. So its jumping around a little bit, so just trying to get a good run rate for G&A throughout 2018-2019?
Just keep in mind, that the first quarter G&A includes non-cash charges of $1.2 million. That is then predominantly associated with shares issued to the management and board, and that typically takes place in the first quarter. For cash G&A, it's certainly lower than $5 million.
Sounds good. Thanks again.
Thank you.
Our next question comes from James Jang from Maxim Group. Please go ahead. Your line is open.
Hey guys. Just one final question, with the spot market kind of tough right now, have you had more inquiries on period rates, or like what's the status of that? As it seems period rates are a lot stronger than the current short term rates?
I think you know liquidity in the current market at this juncture is very-very thin. Of course, if you are willing to fix out these to see and below $15,000 a day, you might get someone to buy it. But the challenge today, if you are going to have meaningful rates, people would like to have options, maybe not just one year but two years, and the rates for those options are fixed at very attractive numbers frankly. So we haven't spent too much time on this, because, we don't think that such type of business is of any interest to us.
Okay. And have you had any inquiries on the newbuilds that are being delivered this year of period rates, or is that the same thing with the vessels right now?
No. We have opportunities to look at those, both with the delivery ex-yard, but also with forward delivery. But again, we don't really think those numbers are very attractive.
Okay. All right. That's all I had. Thank you.
And just to confirm, that we have no further questions in the queue at this time. So I will turn the conference back to gentlemen for any additional or closing remarks. Thank you.
We will just say thank you to everybody for your continued interest in DHT. Thanks a lot and have a good day.
Ladies and gentlemen, just to advise, this now concludes today's conference call. Thank you for your participation. You may now disconnect.