Dorian LPG Ltd

NYSE:LPG

Earnings Call Transcript 2020-Q4

[Operator]

Greetings, and welcome to the Dorian LPG Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. Additionally, a live audio webcast of today's conference call is available on Dorian LPG's website, which is www.dorianlpg.com.

I would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young. Please go ahead.

[Ted Young, Chief Financial Officer]

Thank you, Christine. Good morning, everyone, and thank you all for joining us for our fourth quarter 2020 results conference call. With me today are John Hadjipateras, Chairman, President and CEO of Dorian LPG Limited; and John Lycouris, Chief Executive Officer of Dorian LPG USA.

As a reminder, this conference call webcast and a replay of this call will be available through June 30, 2020. Many of our remarks today contain forward-looking statements based on current expectations. These statements may often be identified with words such as expect, anticipate, believe or similar indications of future expectations. Although, we believe that such forward-looking statements are reasonable, we cannot assure you that any forward-looking statements will prove to be correct. These forward-looking statements are subject to known and unknown risks and uncertainties and other factors as well as general economic conditions. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove to be incorrect, actual results may vary materially from those we express today.

Additionally, let me refer you to our unaudited results for the period ended March 31, 2020, that were filed this morning as part of our earnings release on Form 8-K. In addition, please refer to our previous filings on Form 10-K and Form 10-Q where you'll find risk factors that could cause actual results to differ materially from those forward-looking statements.

With that, I'll turn over the call to John Hadjipateras.

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Good morning from Stamford, Connecticut, and thank you for joining us. I will say a few words before Ted, who will review the financials with you, and John will then talk about the fleet and the market. And today, we also have with us on the line from Copenhagen, Tim Hansen, our Chief Commercial Officer, who will answer questions from you about the market, the current freight market.

In my prepared remarks for our last call on February 4, I said our outlook for the coming calendar year remains optimistic. The coronavirus is, of course, a potential headwind. That was 16 weeks ago. In the intervening period, my priority is being the safety of the 500s seafarers currently serving on board our ships as well as our shore-based staff and stakeholders. And I can report that our fleet has continued to operate, thanks to the dedication of seafarers and colleagues onshore and that we are all safe though mindful of the new peril that surrounds us. The most talked about disruption for us has been the difficulty to make crude changes. For one, we would hardly make any. This inconvenience, both those who exceeded their contractual time on board and those at shore, waiting to replace them, anxious to get back to work.

We are starting to see opportunities to carry out crude changes now. What was a simple task in the past has become a logistical challenge. Transporting a COVID-free seafarer through airports and launches to the ship, try to minimize exposure and striving to ensure that the ship remains disease-free is no simple task, as you can imagine. It is encouraging, though, to start to return to normality. One of our second engineers will shortly be going home to meet his new baby born at the end of April. I hope that you and all your families and friends are also safe and healthy.

Our financial year 2020 concluded March 31 was our best since 2016. Continued growth of seaborne trade of LPG, a somewhat restrained order book and renewed exports from the USA to China resulted in freight levels, I would call, good. These developments were supported by a continued expansion of US shale production and of PDH demand in China and South Korea as well as continued inroads of LPG for residential use in India and other Asian countries.

The freight market was quite resilient and the TCEs were also underpinned by a lower bunker cost. In the quarter ended March 31, we achieved total utilization of 91.7% and daily TCE revenue over operating days, as defined in our filings, of $51,888 a day, yielding utilization adjusted TCE, or TCE per available day of about $47,594 a day.

April continued robust and we estimate that we have 75% cover of the current quarter at near $50,000 per day. However current market as expressed by the published Baltic Index is now closer to $20,000 per day. We have read many forecast ranging from little -- a little too very pessimistic. They're predominantly based on assumptions about a decline in U.S. shale production available for export.

I do not pretend to know which forecast to believe much less to make them. Will economic activity bounce or crawl back? Will there be permanent demand disruption? What I do know is that the order book is at about 12%.

Propane as a fuel for several applications is among the most attractive options avoiding greenhouse gas emissions, it produces fewer than gasoline diesel and heavy fuel oil. And whereas natural gas methane produces fewer per greenhouse gas per Btu than propane, if it released in air directly or from methane slip, it produces a global warming effect 25 times that of carbon dioxide. LPG as has been shown in India can improve the quality of life for a very large part of the world's population.

Dorian has a young ECO fleet. Dorian has a strong balance sheet with leverage -- low leverage and good liquidity and no significant CapEx commitments. As we previously reported, we completed two strategically significant transactions during April 2020 a jump in new sale leaseback and a refinancing of the commercial tranche of our main banking facility. These transactions increased our available liquidity, reduced our financing costs, extended the maturity of our debt and reduced our principal amortization.

We are optimistic on the fundamentals of the LPG trade and confident that Dorian LPG is well positioned to continue to provide safe, reliable, clean and trouble free transportation for our customers and create value for our shareholders.

Over to Ted to discuss our financial results.

[Ted Young, Chief Financial Officer]

Thanks. My comments today will focus on our recent financings and our unaudited fourth quarter results. For the discussion of our fourth quarter results you may also find it useful to refer to the investor highlight slide posted this morning on our website.

John just touched on the two strategically significant financing transactions we completed during April 2020. On April 23, we completed the sale-leaseback financing of the Crest. After prepaying the debt on the ship, we netted $23.9 million in additional liquidity with a floating rate of 250 basis points over LIBOR and an age adjusted amortization profile of over 20 years. This financing represents attractive terms and net our goals of lowering our interest costs and extending the debt maturity in line with our strong balance sheet.

On April 29, we completed the refinancing of the commercial tranche of our 2015 debt facility. This transaction addressed a number of objectives. First, we turned out the next major refinancing to March 2025. And secondly, we added a $25 million revolving credit facility which gives us access to additional liquidity should be needed.

Thirdly, we achieved an immediate reduction in interest margin on our commercial tranche from 275 basis points over LIBOR to 250 basis points. We can also reduce the margin by an additional 10 basis points if we reduce the loan-to-value ratio on the vessels in this facility below 40%.

Finally we are extremely pleased to have added a sustainability feature by which we have the opportunity to reduce our interest margin further by achieving agreed levels of improvement in our average efficiency ratio which was part of the Poseidon principles promulgated by the leading shipping banks, measures annual carbon emissions per deadweight ton and targets consistent year-over-year decreases in this ratio in line with IMO guidelines. Finally, the new facility reduces the mandatory amortization on the commercial tranche from approximately $12.3 million per year to $600,000.

With these two financings now completed, we have reduced the principal portion of our cash cost per day by approximately $1,330. Going forward, we will amortize about $9 million per quarter on the 2015 amended and restated facility and $4.3 million on all the Japanese financing arrangements. Thus, in total, we will pay down $13.3 million per quarter or $53.3 million per year, which is down from nearly $64 million a year.

Again, turning to our fourth quarter results, we had a total utilization of 91.7% for the quarter and TCE per operating day of $51,888 a day, yielding a utilization adjusted rate of $47,594. Our spot TCE, which reflects our portion of the net profits of the Helios Pool for the quarter, was $50,311 per day.

Finally, to give you some additional insight into our overall spot chartering performance, the Helios Pool, as a unit, encompassing about 35 ships recorded a spot TCE, including contracts of affreightment of approximately $51,500 per available day for the quarter.

Daily OpEx for the quarter ended March 31, 2020, was $8,556 per day, excluding amounts expensed for dry-dockings. It was $9,407 including those costs. OpEx per day excluding the dry-docking related cost modestly increased compared to last quarter's $8,413 a day. Since the March quarter, though, had fewer calendar days than December quarter, total OpEx was roughly flat on an aggregate basis, again, reflecting our team's continued vigilance on operating costs.

Total G&A for the quarter was $5.7 million and cash G&A, i.e., G&A excluding non-cash compensation expense, was about $5.3 million. This level is generally consistent with our expectations for the first calendar quarter of the year.

Our reported adjusted EBITDA for the quarter was $67.2 million, which was a significant increase from the $14.1 million, excluding costs related to the unsolicited BW LPG proposal recorded during the same quarter last fiscal year. The strong rate environment and lower G&A accounted for most of the improvement. Compared to the prior quarter, EBITDA increased $7.3 million in spite of modestly higher costs from dry-docking.

Turning to our financing costs. We look at cash interest expense on our debt, as the sum up the line items, interest expense, excluding deferred financing fees and other loan expenses and realized gain/loss on interest rate swap derivatives. On that basis, total cash interest expense for the quarter was $7.1 million, which was down about $300,000 from the prior quarter, largely due to continued debt paydown and somewhat lower LIBOR rates.

We continue to benefit from our hedging policy and the favorable pricing of our Japanese financings, leaving us with a current interest cost, fixed, hedged in a small floating piece of 4.15%. For the coming quarter, with our new financings in place, we anticipate cash interest expense in roughly the same magnitude, approximately $7 million, as the lower LIBOR margin will be offset by slightly higher debt balances, given our lower amortization.

For the quarter, we had cash outlays for capital costs associated with dry-dockings of roughly $9.6 million, or $4,398 per fleet day. Fleet Day is again calendar days, plus time charter in days, as those terms are used in our filings. Combined with amounts expensed during the quarter, our total dry-docking cash outlay was $11.3 million.

We also managed to repurchase $32.2 million of stock since the last time we reported in February and that represents about 3 million shares. In total, we have now repurchased $49.3 million worth of stock, comprising 4.4 million shares, or roughly 8% of the shares outstanding prior to the announcement of the buyback in August.

Turning briefly to our full year results. We reported total adjusted EBITDA of $232.8 million, the highest in our history and adjusted net income of $130 million. To put those levels in historical context, our TCE per available day for fiscal year 2020 was 40,824 and our daily TCE in 2016, heretofore our best year was 51,266. The increase in profits off a lower TCE reflects the improvements in our cost structure in the intervening years, as well as an increase in available days.

For fiscal year 2020, we generated free cash flow, which we define as cash flow from operations less principal repayments before drydocking outlays of $110.3 million and $85.2 million after all drydocking outlays both expensed and capitalized. This equates to between $1.58 and $2.17 per share based on the shares currently outstanding.

Our cash flow and liquidity remains strong. Since quarter end through to May 26, 2020, our restricted and unrestricted cash and short-term marketable securities balance is up to over $148 million. In order to assist you in your modeling, please note that our quarter ending debt balance excluding deferred financing fees of $646.1 million does not reflect the two transactions we completed in April. Those two transactions increased our total debt by $26.8 million, although our net debt was unchanged because we retained the cash proceeds of the debt increase for general corporate purposes. We expect, therefore, our debt balance at June 30 2020 to be approximately $660 million again excluding deferred financing fees.

Although we currently hold a 76 plus percent economic interest in Helios, we do not consolidate its balance sheet accounts, which has the effect of understating our cash and working capital. Thus, we believe it is used to provide some additional insight in order to give a more complete picture.

As of Tuesday May 25, 2020, the pool had roughly $13 million of cash on hand, reflecting the fact that the pool has just paid the distribution at the end of last week. We feel that our liquidity and capital structure have positioned us well for whatever rate environment we face in the coming months. And we believe that allows our company to make capital allocation decisions from a position of strength. We still have over $50 million remaining under our share buyback authorization and we all remain interested in accretive growth opportunities that meet our risk reward criteria.

With that, I'll pass it over to John Lycouris.

[John Lycouris, Chief Executive Officer, Dorian LPG USA]

Thank you, Ted. Global LPG volumes during the first quarter of 2020 totaled 26.9 million metric tons, a 3.6% year-over-year increase, while U.S. seaborne export volumes for the first quarter reached a record high of 11 million metric tons, which is over a 30% increase from the same period last year.

VLGC liftings from the U.S. reached over 50 both in March and April, and the Middle East Gulf lifting reached 70 in April. So that's the highest level since June 2019 for the Middle East. Even though May has not concluded yet, we expect about 66 VLGC liftings from the U.S. slightly higher than May last year while the Middle East liftings were lower at 52 -- 54, most likely on account of crude oil production cutbacks. Year-to-date seaborne exports of LPG from the U.S. were 5.3% higher than last year, while the Middle East has seen a 16.3% reduction year-on-year.

On the supply side, U.S. NGL exports have continued strong in 2020 with capacity and infrastructure additions remaining on schedule during this year by all major export terminals. Several projects related to dock expansions, additional fractionation capacity, pipeline commitments are all expected to complete during 2020 and early 2021 perhaps at a slower pace.

The COVID-19 lockdowns in the oil price collapse over the last few months have led to poor market fundamentals in the U.S. and caused early production shut-ins, refinery cutbacks, deferred drilling and reduced processing volumes, which supported Mont Belvieu NGL pricing and also absorbed NGL inventory volumes with satisfied record export demand from two countries, which we're preparing for lockdowns and for their inventory builds.

Although Chinese LPG imports declined last quarter, mainly due to the COVID-19 lockdowns in that country. There were substantial demand growth from India, Japan, South Korea and Indonesia during the same period.

India imports grew 7.2% to 3.9 million metric tons while Japanese imports grew 13.2% to 3.1 metric ton -- million metric tons and Korea import grew 36% to 2.2 million metric tons. Northwest Europe and Mediterranean demand for U.S. LPG is expected to recover now that the markets in Europe gradually return from lockdowns. And with crude oil prices recovering to above $30 levels, we find the propane to NAFTA spreads starting to turn in favor of LPG cracking economics.

The VLGC fleet order book stands at roughly 12% or about 35 vessels according to Clarksons. Only four ships have been ordered this year compared to seven at this time last year.

The crude oil price collapse brought in lower bunker price to the shipping markets. The absolute bunker fuel price levels and spreads we saw earlier this year have shrunk, but in relative terms, they have remained the same.

High sulfur marine fuel oil, HSFO, with 3.5% sulfur content, still trades at about 25% to 30% discount to the new IMO 2020 0.5% sulfur compliant fuel, also called VLSFO.

All our scrubber equipped vessels will produce consistently higher TCEs as they continue to benefit from the relevant -- from the relative price discount spread of heavy marine fuel oil to those burning compliant fuel oils.

Dorian remains committed to improving the environment and I would note that scrubbers not only reduce software oxides for vessel emissions, but also they deliver significantly reduction -- significant reductions in black carbon any particular matter emissions, particularly when compared with the emissions produced by very low sulfur fuel oils which are normally blended and unstable to -- and other compliant marine fuels in line with IMO 2020.

We also continue to monitor closely and evaluate the potential for LPG as fuel. The current prices might marginally appear to make economics more attractive. However, it is difficult to make a long-term decision given the volatility in the underlying hydrocarbon prices and more significantly -- the more significantly the capital investment required.

Dorian LPG has currently in service nine scrubber-fitted vessels, seven of which were fit with hybrid scrubbers during the last eight months also completing their first special survey and their drydockings.

Two of those vessels also installed new ballast water treatment systems. We have now commenced the retrofit work on our tenth hybrid scrubber vessel which is scheduled to complete next month including completion of the first special survey in dry-docking.

Subject to market conditions in the second half of 2020, we are considering retrofitting scrubbers to those vessels which were originally committed when they are programmed to undergo their upcoming dry-docking special surveys.

Thank you and now I'll pass it over to John.

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Thank you. We're ready to take questions from anybody who wishes to question us.

[Operator]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Omar Nokta with Clarksons Plateau. Please proceed with your question.

[Omar Nokta, Clarksons Plateau]

Thank you. Hi everyone. Obviously, I would say impressive performance on the spot market and very good results overall. Really despite a lot of disruptions John that you mentioned that we're seeing here these past few months. I have a couple of market-related questions, but also just wanted to ask about the refinancing.

Here recently you guys have unlocked a good amount of cash with the sale-leaseback and you deferred maturities with the 2015 refi. Ted you mentioned the annual repayments are now $53 million. From the 2019 10-K, you had $64 million due in fiscal 2021 and $203 million in fiscal 2022, are both years now basically the $53 million?

[Ted Young, Chief Financial Officer]

That's correct Omar. Yes. The annual amort is now down to about $53.3 million from $63.9 million -- $64 million. And then most importantly as part of the 2015 financing, we were able to extend out that maturity on the commercial tranche of our big facility to 2025. So, yes, you're absolutely right.

[Omar Nokta, Clarksons Plateau]

Yes. And then -- right. Okay. And that includes -- the $53 million that includes the leaseback as well?

[Ted Young, Chief Financial Officer]

It does.

[Omar Nokta, Clarksons Plateau]

Okay. Thank you. So, -- also just wanted to ask about clearly the market backdrop that we're in. Clearly, you guys had a very strong performance in the first quarter. And John you mentioned bookings 75% of 2Q, I believe 50,000 as we kind of think about how things are and clearly the markets dropped off into the low 20s per day. The OPEC+ cut, we think about in the crude market is call it 10 million barrels a day out of say global trade of 40 million barrels of crude. Can you give us maybe an order of magnitude of how this is affecting the LPG trade? John, I recall you had mentioned in your remarks about 42 liftings per month to 54. Can you mind just kind of going a little bit that again and giving some perspective?

[John Hadjipateras, Chairman, President & Chief Executive Officer]

The way the question on the – can you just repeat the last bit of your question?

[Omar Nokta, Clarksons Plateau]

Yes. Just basically trying to understand, when we think about the lost volumes that are coming as a result of say the OPEC cuts by themselves what impact.

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Okay. Okay. All right, Omar. Why don't we let Tim take that, because he can give you a more current view of what's going on and how it affects more – more specifically, how it has been affecting the market in the last few weeks. Tim?

[Tim Hansen, Chief Commercial Officer]

Yes. Yes, I would say, of course we're seeing these cuts also eating into the LPG volumes that is expected out of the U.S., as John mentioned earlier. It's a little bit early to say exactly how much because LPG both are written from the crude drilling and the LNG drilling and also the NGLs at the moment looks to be more profitable. So we're trying to figure out what – if that is directly related to the reductions that we will see out of the U.S. to the reduction in balance of rebuild but definitely see some changes.

And we are already seeing that even though we have not seen cancellation yet. As I said, the NGLs actually seems to be of high-value comparator to the oil but as you can say that there's probably almost three were from oil that there will be a shortage in the LPG markets due to high demand. So we expect that the – you can say the reduction of the production will be somewhat offset also by at the moment you have high inventories that will be even through the year until the production starts recovering.

But exactly how much, I mean you're mentioning 10 million barrels of crude per day. Exactly. What that is based on fuel price or oil prices and so on, it's quite uncertain projections are at the moment I would say.

[Omar Nokta, Clarksons Plateau]

Yes. Okay. That’s…

[Tim Hansen, Chief Commercial Officer]

That's what you think the price would be. Yes.

[Omar Nokta, Clarksons Plateau]

Yes. That makes sense. I guess maybe – just maybe thinking about the major listing. I believe John Lycouris had mentioned 52 or 54 liftings for May. How does that compare to say the prior May? And John, if you don't mind just to give a perspective?

[John Hadjipateras, Chairman, President & Chief Executive Officer]

It was 52. It was 52 liftings the prior May. Sorry, I have a chart somewhere. I will get it to you during the – but it was a little bit lower. We thought it was on the back of production cuts and perhaps towards – as we get into June, we will see whether this reduction in liftings will continue in the Middle East.

We're just talking here. Tim talked about U.S. Gulf and I think you are talking about the Middle East and true enough, Middle East has seen lower liftings this May. But I'll give you the number for last year this May. If you carry on I will come back.

[Omar Nokta, Clarksons Plateau]

Okay.

[Tim Hansen, Chief Commercial Officer]

But I think you can say, the U.S. from oil drills from the U.S. gives more LPG than when you have production cuts in the Middle East. So the ratio of LPG per barrels drilled is different from U.S. and the Middle East.

[Omar Nokta, Clarksons Plateau]

Got it. Okay. And then sorry to just one – maybe one more just on this, because there's a lot of moving parts and a lot of weather, you mentioned there aren't really cargo cancellations but obviously limited and things happening very quickly and very fluidly, we've seen in say the product tanker space and the MRs and then handy is a lot of logistical issues with access to voyage and waiting time. Is this something that's happening in the VLGC trade as well?

[John Hadjipateras, Chairman, President & Chief Executive Officer]

We saw a little bit on India, when they closed down that they bought more cargoes to check in because they expected the demand to be to be higher when people were at home. So they bought extra cargoes, which resulted in more waiting time in India. And then eventually they deferred some of the cargoes back East where there is more storage and where we haven't seen those kinds of delays. But, yeah, you can see some charges for certain destinations where whether there will be a block up due to both lower offtake especially like India where it's taken off on trucks and going through bottle plants and whatever that is all not working efficiently in these times. So you could see congestions there. We are already seeing that.

[Omar Nokta, Clarksons Plateau]

Got it. Okay. Well, I really appreciate the color guys. Thank you very much, and best of luck for next quarter.

[Ted Young, Chief Financial Officer]

Omar, the liftings for 2019 May was 60 for the Middle East. And this looks like they are 50. Thanks, Omar.

[Omar Nokta, Clarksons Plateau]

Okay. Thanks. Thanks guys.

[Operator]

Our next question comes from the line of Sean Morgan with Evercore. Please proceed with your question.

[Sean Morgan, Evercore]

Hey guys. So I just want to touch back. I think Ted mentioned that the interest rate on some of the new loans that were refinanced are -- there's a component of it that's tied to an environmental beside principle type element. And I just wanted to figure out how material that is.

And I think in the past you talked about there I think 16 VLGCs that you could potentially retrofit for LPG propulsion. And I know some of your competitors are implementing that and pushing ahead with it. So just wondering if there's any incremental savings that might be material enough to push you towards LPG or whether you think you get enough benefit to realize those savings from scrubber retrofits alone? Or does this change the strategy at all in terms of how you approach the environment and just propulsion of the vessels?

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Ted will give you a little bit specific on how the incentive -- what the incentive is in percentage terms. But we, of course, are looking at the one competitor who is moving to retrofit ships. And others, of course, who are building ships that are LPG fueled.

And it is -- and it’s not something, which we have excluded from possibilities of -- for ourselves. We were always interested in that LPG as an alternative fuel for the ship. And we continue to be -- until now we've chosen to be -- to have the advantage of a second mover. But we continue -- but we're very much aware of what's going on in touch with the manufacturers, the shipyards and we'll see. I don't know whether the banking is enough to incentivize, but Ted will tell you what comes out of that.

[Ted Young, Chief Financial Officer]

Yeah, I mean, I think like any -- the short answer to your question Sean is, it's a 10 basis point reduction in the commercial tranche of our facility, which represents about one-third of the entire facility. So it's more of a way that the banks are putting their money where their mouth is. And so we certainly support that.

I think like any business decision that we make here is the economy to drive it. And if the economics of the investment are supported by the future fuel savings then it's -- then as John suggested and we get -- we're comfortable with the technical aspects of it then it's something we'll obviously look at. But the financing differential loan wouldn't drive the decision.

[Sean Morgan, Evercore]

Okay. And did the banks give you an indication of what they view as the most green friendly, or is it not that specific yet?

[Ted Young, Chief Financial Officer]

No we just have to -- at this point, it's I think generally within the sustainability world, LPG seems to be viewed as a bridge fuel. So better than the existing alternatives, not as green as I don't know wind or solar or hydrogen or something. But those aren't really on the table at this point. And so the metric is really a calculation that measures our year-over-year average efficiency ratio across the fleet. And it's something we -- it's data we capture anyway. And the IMO has promulgated an improvement curve. And that's the basis on, which this potential interest margin saving is calculated. So if we can hit the levels that are already out there then we will enjoy further interest savings.

[Sean Morgan, Evercore]

Okay, thanks…

[Ted Young, Chief Financial Officer]

And I should be clear it's up to 5 basis points year one, 5 basis points year or two. So it's not 10 basis points all at one go. Although, we might try for that if we do a really good job on our emissions reductions.

[Sean Morgan, Evercore]

Okay. And then it looks like you kind of -- in terms of the total year you accelerated buybacks into your fiscal year 4Q so 1Q calendar year. But if I look at the average price, I mean I can kind of assume that some of it was done in January, February and some of have done more recently.

So are you guys in light of potentially weaker VLGC rates and lower LPG exports are you getting a little bit more cautious in terms of using that $50 million of buyback authorization still outstanding? Or do you -- you think you'll try and be aggressive in light of the lower share price.

[John Hadjipateras, Chairman, President & Chief Executive Officer]

We've always been cautious and we look at it in terms of value and opportunity. So I think we will continue in the same way.

[Sean Morgan, Evercore]

All right, that’s all I have. Thanks guys.

[Ted Young, Chief Financial Officer]

Thanks Sean.

[Operator]

Our next question comes from the line of Randy Giveans with Jefferies. Please proceed with your question.

[Ted Young, Chief Financial Officer]

Hey, Randy.

[Randy Giveans, Jefferies]

Hi. I am just following up on the question about kind of scrubbers and LPG dual fuel, what is the kind of cost differential for kind of adding those incremental scrubbers? I know I think you still have two plans for later this year versus possibly going on the dual fuel LPG side?

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Okay. Well Randy, it's significant enough to say that, it's on the high single digits in millions of dollars, the differential. So it's over probably 6 to 10, maybe we believe from what BW reported the other day, yesterday they have -- it looks like it's over $9 million per ship and from what they reported. So but we believe it's a little bit more than that perhaps or even over 10, but this is where we think this. But our interest remains. We will see how cost and pricing of the fuel develops. And in the meantime, the scrubber provides intermediate solution for us, which is very satisfactory compared to compliant fuels.

[Randy Giveans, Jefferies]

Got it. Okay. And then just one more kind of general market question on possible expensing or just a completion I guess of the Mariner 2 and 2s and kind of coming out of Marcus Hook up there as well as kind of this Pembina project on the West Coast of Canada. Have you heard any updates about either of those for this year?

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Tim, let Tim take that.

[Ted Young, Chief Financial Officer]

Tim are you?

[Tim Hansen, Chief Commercial Officer]

Yes. I -- so as far as we hear the Mariner 2 is still moving ahead and should come on later this year which is also I think -- we haven't heard of more delays, but of course there has been a lot of last-minute problems there. We’ve also -- but so far, it seems to be beyond time well. And out of Canada have heard no news on the Canada project. Well of course you have seen kind of the price changes and the shut-ins of trading and so on that could of course impact. I have no particular figures on that.

[Randy Giveans, Jefferies]

All right. Thanks for the color.

[Ted Young, Chief Financial Officer]

Thanks Randy.

[Randy Giveans, Jefferies]

Thank you.

[Operator]

[Operator Instructions] Our next question comes from the line of Eirik Haavaldsen with Pareto Securities. Please proceed with your question.

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Hi.

[Operator]

Eirik Haavaldsen, your line is live.

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Eirik?

[Eirik Haavaldsen, Pareto Securities]

Yes. Sorry about that. Hi. Just one question on the time chartering strategy. I mean, you added another one now. Can you first give an indication on the rate on that second one? And secondly, what is the strategy here? Is it always going to be to balance your charter-out coverage with new ships or the other way around? Because this is, obviously, adding a layer of risk to the setup in a way?

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Yes, yes. I mean, I think, Tim is perfectly able to give you what goes into our thinking with respect to charter-in and charter-out.

[Tim Hansen, Chief Commercial Officer]

Yes. I think, these ships that has been added this year, has been done, yes, a while ago. One was new building, so contracted and termed off a few years ago. And the last one at least, yes, six to eight months ago, I think, we conclude the contract. So I can see that the time charter-in has been more opportunistic, where we have seen where we thought the market will go and was confident to increase the exposure of it.

And then we have chartered-out also, you can say, to balance this a little bit and lock in a margin or you haven't had any changes in the markets to charter-out. And also, you can say, the periods are different. So the time charter-out that is done through the pool is very short term. So six to 18 months. And the time charter-out and that we have done a story in a small you can say three-year or plus years where small like a financial decision to lock-in something.

[John Hadjipateras, Chairman, President & Chief Executive Officer]

And also I just want to add. Yes. And I just want to add, there is also a strategic element to chartering out. If a good customer requires a long term charter, there is that aspect to it as well.

[Eirik Haavaldsen, Pareto Securities]

Understood. But, sort of -- I mean, where is the three-year time charter today? And where was it back in February, so to say?

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Where is it? And how do you mean where is it? Is it below --

[Eirik Haavaldsen, Pareto Securities]

What are you paying? I would obviously assume it's above the current market, but where -- if you can be a little bit more specific.

[John Hadjipateras, Chairman, President & Chief Executive Officer]

It is -- I don't know that we can be more specific, because we have a confidentiality clauses. And it has been considerably below the market. And now it may be -- if the market is in the 20s, it probably is the low -- above the market, above the market, but not by very much.

The thing is that, we have this question often and this is one of the disadvantages of -- or a disadvantage of reporting on a quarterly basis, because deals like this basically can only be reconciled at the end of the day. You can have including charter-out or charter-in.

Last year we had ships chartered out. In the end of the calendar year, they were very deeply out of the money, because the market had gone up to the $60,000 $70,000 levels and we were fixed in the 20s. And in the meantime, however, those ships in the early part of that period were providing a very good cash flow buffer for us. So it's very difficult to look at these on a kind of flash basis. You have to look at it as a consistent over time on a rolling basis.

[Eirik Haavaldsen, Pareto Securities]

No, I agree on that. But just if we can maybe understand a little bit more the strategy because is this an intention to kind of continue to build on this expand the fleet via time charter in agreements because obviously now with rates being a little bit lower than you can say there should be ample opportunity to charter in ships at rates that at least three months ago seemed attractive. I don't know I'm just trying to kind of understand.

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Yes, Ted is pointing out to me. Yes. Ted is pointing out to me that we can disclose the number.

[Ted Young, Chief Financial Officer]

You can calculate it Eirik from the numbers that we've disclosed. So, it's fair to say that it's 24 to 26 a day, call it 25 in change or so 25-ish a day. You can extrapolate that from the number we've disclosed.

[John Hadjipateras, Chairman, President & Chief Executive Officer]

On your next question our chartering window is open and Tim can tell you I can tell your chartering people to give us a call or not.

[Tim Hansen, Chief Commercial Officer]

Yes, I think as a strategy also so we took a longer term time charter from a new building is that to have a mixed portfolio of owned and TCE tonnage. So, yes, if there are opportunities we can look at it if it really makes sense. And let's just say rates are probably lower than there was a couple of months ago.

[Eirik Haavaldsen, Pareto Securities]

Okay. Thank you.

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Thanks Eirik.

[Operator]

Our next question comes from the line of Chris Tsung with Webber Research. Please proceed with your question.

[Chris Tsung, Webber Research]

Hey guys. How are you today?

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Good.

[Chris Tsung, Webber Research]

So, I just kind of wanted to get a couple of questions on the scrubber program going in. I know there's fine to retrofit 12. We've done 10. There's about two left for the rest of the year. I mean given the spread on bunker prices and the benefits you get from lower emissions in a black smoke and everything. Are there plans to one to spend it because the spreads aren't there or maybe perhaps expand it to kind of meet my next question which is the sustainability metric that you guys are trying to hit on that refinancing?

[John Hadjipateras, Chairman, President & Chief Executive Officer]

We are doing one ship now. So, we have further two scrubbers to fit and several ships due for dry-docking this year. So, in time when the ships go to dry-dock, we will decide whether to fit them or not to fit them. We may fit them this year or we may defer and do it at a later time on ships that are dry-docking next year going forward. But we have it under review as you said the spread is closed in a lot.

So, we're happy to have the scrubbers that we have on board because we still have the saving that they produce. And if the market is closed is 20,000 or close to 20,000 $3000, $4,000 a day is a lot -- makes a lot more difference than it does between 50,000 and 55,000.

[Ted Young, Chief Financial Officer]

Yes. And you had a follow -- you had another question Chris about the financing.

[Chris Tsung, Webber Research]

Yes. Thanks. Just one more on scrubber. Just I know last quarter that the – they were being done like around 35 – 33 to 35 days. And I know the shipyards were having trouble due to Corona, has there been any sort of delays, the one that's in drydocking on constitution is this – are we still aiming for like the 33, 35 days?

[Ted Young, Chief Financial Officer]

Is aimed to be at 40 days. That's the plan. We are hoping to do it sooner, Chris.

[Chris Tsung, Webber Research]

Okay. Makes sense. Thanks. And, yes for the financing, I guess, I was wondering if you can go into a little bit more detail. I think Sean covered this earlier but for the average efficiency ratio I mean, is it based off a certain benchmark or is in absolute unit, your specific unit gram of CO2 per tonne-mile that you guys are trying to achieve. I just want to get a sense of like what are the goals here that either you said or the bank has said that you guys are….

[Ted Young, Chief Financial Officer]

It's about – it's really IMO guidance, it's not the guidance of the bank set. It's about a 2.7% reduction per year. And it's based on the deadweight of the ship. There's a metric that the IMO puts together and we – and on a – for a ship of this much, deadweight, this is the kind of emissions that you ought to be targeting.

When we filed the 10-K in a couple of weeks, the loan agreement will be appended as an exhibit and there's a couple of pages that outline the terms there. And I think it's probably best that we not get into the details until we disclose, it not because there's anything so exciting or extend are but I don't need to file an 8-K in advance of filing my 10-K. So I think there's plenty of meat in there. I guess, I'd be – I guess to give all creditworthy – ours look similar to what international seaways did. That seems to be a market that seems to be kind of a market standard.

[John Lycouris, Chief Executive Officer, Dorian LPG USA]

Chris, it's just based on the energy efficiency operational indicator or in short called EOI, most of the people use that and it has to do with the CO2 emission per unit of transport work done, if you want to know. But you will see more details I'm sure in the press and in our filings.

[Chris Tsung, Webber Research]

All right. Yes, great. I mean, I know you guys – you've seen that we put out like a sustainability report in our corporate score card and a company that I'm digging as you right now. So I was excited about this sorry for more color than actually is necessary. And I guess just for like the last question that I have is the 40% LTV for margin reduction, is it that's sort of tethered to the NAV at the date that the deal was done? Or is it like more or less floating where it's above 41% or 40%, it goes up 10 basis points it was below then it drops down and it changes quarter-over-quarter?

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Not quite. It's tethered to the actual LTV at every quarter based on the vessels in the security package and that amount of debt. There's a rate – there's sort of been no fall – no harm no fall range, which is between 40% and 60% or 59.999%. There's – it's 2.5 – 250 basis points. If it goes above 60 or below 40, that's when the benefits kick in. So there's sort of a wide range of LTV before there's a change in the – before there's a change in the margin.

[Chris Tsung, Webber Research]

I see, I see. A 20% band. Got it. Great. Thanks, guys. Thanks, everyone. That’s it for me.

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Thanks, Chris.

[John Lycouris, Chief Executive Officer, Dorian LPG USA]

Thanks.

[Operator]

We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

[John Hadjipateras, Chairman, President & Chief Executive Officer]

Thank you all very much and have a good stay safe. Have a good summer and talk to you soon. Bye-bye.

[Operator]

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.