Scorpio Tankers Inc
NYSE:STNG
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
53.23
83.53
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Scorpio Tankers Inc
You don't have any saved screeners yet
Hello, and welcome to the Scorpio Tankers Inc. Second Quarter 2019 Conference Call.
I would now like to turn the call over to Brian Lee, Chief Financial Officer. Please go ahead, sir.
Thank you, and thank everyone for joining us today. Welcome to the Scorpio Tankers' 2019 second quarter earnings conference call. On the call with me today are: Emanuele Lauro, Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer, Lars Dencker Nielsen, Commercial Director; David Morant, Managing Director; James Doyle, Senior Financial Analyst.
Earlier today, we issued our 2019 second quarter earnings press release, which is available on our website. The information discussed on this call is based on information as of today, July 31, 2019, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements.
For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the press release we issued today as well as Scorpio Tankers' SEC filings, which are available at scorpiotankers.com and SEC.gov.
Call participants are advised that the audio of this conference call is being broadcast live in the Internet and it is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days.
Information slides on the quarter and the company are available at scorpiotankers.com on the investor relations page under reports and presentations. If you have any specific modeling questions, you can contact me later and discuss off-line. As a reminder in the Explanation of Variances section of the press release, we gave guidance on future depreciation, G&A and interest expense. Now I would like to introduce Emanuele Lauro.
Thank you, Brian and thank you all for your time today. Our earnings bear witness to the unfolding recovery in the product tanker markets. We believe that the company is in an optimum position to profit from the widely expected upswing in this markets. Our second quarter time charter equivalent comparison year-on-year has improved more than 30% across all the
asset classes that we operate in. The third quarter time charter equivalent guidance year-over-year comparison as of July 31 has also improved substantially as you can see from our earnings press release.
EBITDA as well as the net cash flow from operations are again substantially better than this time last year enabling us in the first seven months of the year to repay close to $330 million of debt either through planned amortizations or through senior secured, senior unsecured notes retirements. Scorpio Tankers is the largest most modern and most liquid products tanker company. Our scrubber retrofit program is proceeding as planned, the product tanker order book stands a multi-year lows, the underwater fleet continues to age why demand normalizes back to its 20 year long GDP plus trend growth.
As already mentioned in the past, the enormous dislocation of the IMO 2020 measures will provide a step change in the size of the market for seaborne refined petroleum products which is unique in recent memory, it will expand physical arbitrages, it will create global distillates imbalances and between improved refinery margins.
As our commercial director will mention shortly, we think that after a slower second and third quarter due to refineries maintenance and turnarounds, the market is poised for substantial strengthening through the end of the year.
With that, I would like to turn the call to our Commercial Director, Lars Dencker.
Thank you, Emanuele. Good morning everyone. The trend is your friend of age is a reminder of the current seasonality which can come into play and affect the shipping markets. As anticipated and discussed during our Q1 2019 earnings call, the freight market is realized in the effects of stronger refinery turnaround season in Asia and the U.S. Gulf in the second quarter. These turnarounds were routine but also front loaded with an additional refiner focus to help prepare the marketplace for the upcoming IMO 2020 regulations and the incremental demand which is anticipated to be placed on the refining and marine transportation sectors.
The lack of incremental production due to the refinery turnarounds contributed to an anticipated seasonal decline in waterborne arbitrage markets and led to some market backwardation in Q2, affecting the returns is to serve with the heavily reduced naphtha cargo flow displaced by attractively priced RPG alternatives within the petrochemical sector. LR1 and LR1 markets shoulder the brunt of the effects of the reduced naphtha movement and that has scaled back some of the gains made in Q1.
The MR markets were in effect two tier. The Far East and Transpac markets overall had a steady performance over the quarter and although had its share turnaround was assisted by strong Chinese exports and the Boston mile demand with sustained Transpac jet arbitrage. The Atlantic basin and U.S. Gulf on the other hand encountered increased volatility with steeper backwardation. This correlates well with heavy front loaded refinery turnarounds and upgrades in the West, the Handy sized market historically the segment most impacted by seasonal trends and felt the brunt of the decline by the refinery enhanced maintenance narrative.
And regionally the Americas wrestle furthermore with the reduced demand following the refinery fire at Irving, St. John and the demand effects following the Venezuelan sanctions. We experienced the markets dropping from a very healthy Q1 into 2Q and currently facing the aftereffects in the beginning of the third quarter. However we do expect a strong rebound as we move in the back end of the third quarter as we position into a seasonally stronger quarter enhanced by the supply requirements for IMO 2020.
Just to put things in perspective here from May to June 2019, there was an average of 6.2 million barrels per day of refinery capacity offline versus the five-year average of 4.9 million barrels per day make it a high point or 7.9 million barrels per day of capacity was offline. In addition this front loaded maintenance season lasted longer and peaked later in May and June versus the historical March and April.
Moving to the supply side, there continues to be a constructive outlook as we see a benign limited product tanker order book and for some fleets an accelerating aging fleet profile which has previously burdened the market with substandard tonnage availability. This will accelerate further as we move into 2020 and 2021.
I'll also highlight the not insignificant impact of Tier 1 tonnage supply in the fourth quarter as many scrubber fittings will increase downtime for the vessel targeted for the refit. We anticipate a higher degree of unintended consequences which will act as dislocated to market moves. The underlying positive undertone is that this season's lows are still markedly better than we saw last year as evidenced by the Arab segment seeing returns an average of 32% higher than we realized in 2018 providing a positive indicator of the market step change including the triangulation effect and enhanced equilibrium which is playing out within our markets and provides a strong platform as we look down the trading curves.
Q1 2019 and to a certain degree Q2 of 2019 were fundamentally important periods insomuch as they are underpinning the narrative and approaching stronger bullish story within the tanker freight markets. As we look into Q3, we anticipate continued challenges on the seasonal demand side in the front end of the quarter but optimism holds for the churn to start in the form of incremental export demand to pick up the positioning of distillate cargo base behind the 2020 supply around the world. This is likely not to kick off in earnest until we get closer to the end of the third quarter but we expect to see increased market volatility at the margin and incremental demand igniting this market moving forward into the fourth quarter and 2020. Thank you. And with that, I'll hand the call back to Robert. Thank you.
Thanks very much, Lars. I think the earnings release were pretty clear as is a very clean quarter and we all share the view as do our customers that we're continuing to see improvement in the market without the effects of the IMO 2020. And any moment the IMO 2020 switch could be turned on. As really like to see something stand out but just for everybody here there's a really good piece of research on the general tanker market itself.
So this is the crude and the products and it's you always will have a very much stronger product market, if you have a stronger crude market. And that piece of research is in the industrial side from lease and I would guide everybody as a question of interest just to read that let’s say what I would call an exceptional piece of research that should be read. And now I just think we'll just go straight to Q&A. Thanks. Operator?
Are we ready for questions?
Yes, please.
[Operator Instructions] Your first question comes from the line of Jon Chappell with Evercore.
Thank you. Good afternoon. Lars, glad you're on the call. I want to ask about two specific kind of bigger picture things first is opportunities. I mean you mentioned the reason why we've had the seasonal downturn the front end loading the impact into the third quarter but now just five months away from the onset of this. How do you view the opportunities for your fleet. How are you positioning the ships whether it's the MRs all the way up to the LR2s, how are you thinking about the dislocation and how do you plan to kind of maximize your advantage heading into that disruption?
Thanks Jon. I mean first of all the overriding point is that we try to balance between East and West. And then at the margin we would trade where we believe where we can see the opportunities arising in the front end. We've been quite fortunate in having a bigger position trading in the Transpac Asian markets. And the second point here as well is that what we need to do also with the fleet size that we have and the scrubber program is to make sure that we position the ships as efficiently as we can.
So as we've been moving in through 2019, we have been moving a lot of our bigger vessels into China what we are doing most of our retrofits and these things obviously play in when you make that kind of decision and it is a good question to say well what's going to go first. We believe in essence that Asia is very strong at the moment for the reasons, I just mentioned particularly with the Chinese exports that has been hampered in the beginning of the year a little bit by the larger crude delivery schedule on the new buildings on the Upper Max, Suez Max and also on the VLCCs, we can see that new building delivery schedule is going to taper off and we will anticipate with the large export program that we will start seeing larger volumes increasing there.
Having said that there's also a lot of expectations in the transit, in the Atlantic basin as we have seen the turnarounds coming to an end within July and we'll see an increase of the market there as well. It should be mentioned that with the refinery blowing up, you could see the market spike in the front end on that as well. It was only 300,000 barrels they're taken out on the AC. But if you consider that the huge amount of turnaround that's been taken place, it didn't really make a big dent in the market. But as the refiners are going to go back on stream and you have that dislocation in terms of the product supply, we also are pretty constructive in the Atlantic.
That's helpful. And then if I could just take the other side of it, there's a doomsday headline this morning saying minute to midnight. So we always think about the opportunity and the dislocation. But what about kind of managing risk. I mean you're not going to have the fleet fully scrubber fitted as of January 1. So how do you think about your exposure to the compliant fuel for the ships that are settled yet hedging, just managing the risk just to make sure that your full operation of full utilization of your fleet is hopefully the most opportune time?
Jon, maybe I can take. So one of the benefits we have in our position is scale. And so we've been very active over the last three to five months and we'll continue to be active in booking volumes forward for bunkers. And we do that, the pools do that both for the SGI ships as well as pool partners, in secure volumes based on projected trading patterns over the last couple of years, we have again consistent with what Lars is saying, we have a fair bit of insight into our demands at both first year what we call primary bunkering ports in the second and tertiary ports.
And so being active to secure volumes we've been having some success but we'll continue to book out our forward requirements through the third and fourth quarter. One thing we generally are hesitant about is securing fixed pricing at the same time where we secure volumes, fixing pricing or taking derivative positions to hedge our pricing is something we're a little less keen to do. Again our view is that the spread will widen mostly by virtue of a drop in the price of heavy fuel oil as we get closer to the end of the year. And so therefore, it doesn't necessarily make sense for us to hedge our pricing risk as the scrubbers are fitted.
Great. That's super helpful. Thank you. And then just one last quick one I've been asking a lot of corporate systems. I guess everything has been higher year-over-year quarterly, monthly but it's not quite explosive enough to bring it to sustainable profitability. At what point in the second half of the year, do you get bit worried that maybe this isn't going to have the bigger impact that we thought and Lars kind of at late 3Q if we're talking to you and in late October and we're still kind of in the mid teens on MRs in mid to high teens in LR2, you start to get worried that it's not going to be as disruptive or do you think that maybe has to be into the early part of next year?
No, I think if I have to look at the just the general season any way of the products regardless of whether we're in IMO 2020 or not. So let us sort of take IMO 2020 out of the equation. So right now that's what we've had all year and the year so far has been much, much stronger than the year of 2018. So if that were to continue you would expect to see a rally in the product market as usual as we approach Thanksgiving maybe even earlier maybe October. That's without IMO 2020.
So that's a lot of where the confidence is now is that you're not even reliant on IMO 2020, you're just back to nor you're looking just normal world economy if staying okay nothing happening in the world should lead to an increase of rates where they were last year. So if you added 20%, 25% on headline rates to last year's fourth quarter, you'd be in pretty good shape anyway even without IMO 2020. So it's not we wouldn't expect a worry to come from the market. The worry then would have to come from some geopolitical event.
That makes sense. All right. Thanks Robert, thanks Lars, thanks.
Your next question comes from the line of Ken Hoexter with Bank of America.
Hey, great. Good morning Robert, I just want to maybe follow-up on Jon's question there. Just given that you mentioned the markets still without the IMO benefit maybe you could just detail for us what's going on for that prep now. You talked about seeing demand. Are you seeing tanks being built or the drawdown of non-compliant fuel, just want to understand what data points you're looking for that that kind of highlights as Jon was mentioning that hey this wall is demand is going to come?
I think Lars you can add to this. But I mean the first thing you should see is a tick up in financial, in fixtures and the actual shifting of the compliant fuels itself. Right now you are in kind of a little bit of a nowhere land where in way IMO 2020 is acting as a negative despite the fact that the rate is stronger than 2018 and negative being that the refineries are trying not to produce so much of that heavy fuel. And until knowing that the rate to be paid that's a game everybody's trying to sort of wait to the last moment to go out and produce or buy what will become more expensive than Lars, what would be some specific things that signaled to you that were on the way as it were the switch is being turned on?
Well I mean the simple answer really is that as you see the online capacity coming back on stream, you going to start fixing a lot more. The volatility of the market has moved up a lot since we saw the flat lining of 2018. So it doesn't require very much for the market to respond. We see very big jumps in 2019. This tells you that the capacity utilization is at a much higher level this year. So as these findings come back on stream after the maintenance, we will start seeing the markets respond very positively.
On top of that to the larger vessels that the naphtha movement starts coming back on stream, we talked a little bit about it during the first quarter earnings call as well. But it also add to the fire. So the triangulation, the ability to utilize the vessels on its backhaul voyages as well still remains. And there's a lot of business out there.
So perhaps you can kind of follow that maybe at inventory levels, you're looking at to see again on that draw down of the heavy or build-up of post refinery maintenance, is there are there stats that you're looking to see, okay now we've inflected.
I think it's as simple as what Lars is saying. Just simply what's in the spot market. It's first of all that type of information is in the real mirror. Secondly the United States which is an exporter and this is the only one with any kind of up to date information on a regular basis. The whole most of Asia is not accurate enough. So the most prevalent piece of data is the actual fixed account that I'm guessing.
Okay, it’s helpful. Thanks Robert. The last one from me just a quick follow-up maybe Brian. There was a couple hundred day delay in some of the docking and ballast in the second quarter and a big up tick in the third quarter. Should we read anything into that or their delays in either scrub or ballast water or normal dry docking timing in terms of what you expected from second quarter or third quarter or anything you can give us some color on it?
Ken, no it’s the normal activities might have been flat. There are some delays but nothing significant.
Yes, okay. So a couple hundred day delay from 2Q to 3Q that could be timing of vessels pulling in versus trouble getting to the ballast water or scrubbers or anything?
No there is no trouble getting in.
Ken yes maybe I can help here. We don't foresee material delays in both the delivery or allocation of the equipment or installation at the shipyards. What I would say is that you will see some yards a fair bit of congestion. In other words some yards we know have overbooked their capacity. They're trying to prioritize certain customers. Again I think we will see that our planning has paid off. But what I would say is that again scale is to our benefit here a lot of smaller owners who try to opportunistically look the installation of scrubbers will face much more significant delays and problems as they show up in that because it is a constraint.
Great, I appreciate the time and thoughts. Thanks guys.
Your next question comes from the line of Amit Mehrotra with Deutsche Bank.
Thanks operator. Thanks for taking my questions guys. Robert or Emanuele, I guess from a broader perspective just a higher level first, stings obviously has this massive operating leverage product tanker spot rates to IMO 2020. You guys know probably better than most the operating leverage can cut both ways, if the developments that you, me and everyone else seems to expect does not materialize.
So you've got a lot of cash. You also have almost $3 billion of growth that you have high breakevens with the scrubber and lease financing. So how do you just manage the business from a risk perspective. So basically you're not back to where you were a year ago having to raise equity at rock bottom prices, if the influx in kind of never materializes or doesn't come to the extent that we all think it does.
I don't think you need the inflection like we think it's going. I don't think we need that. We think the market has got 50,000 a day for LR2s and 30,000 a day for MRs. We don't need that to operate a usual, a non-IMO or just some kind of from where the market is right now. All you need is some general seasonal improvement to go back into full cash break even or above.
And so that would certainly be that itself would certainly take you a long way into the process.
Well. What it really I mean, I mean I guess if I can get Brian in here to talk about that because when you look at the debt, the debt pay down that's needed, the interest expense associated with the financings and also G&A even if you adjust for stock based compensation, your break even unless I'm totally wrong which is possible is in the low $20,000 day level this year and actually steps up a little bit next year. So Brian is that the correct bogey for where TCE rates have to do to get you to all cash and breakeven levels like how should we think about that?
Amit, Emanuele can go through your break even better that is.
Yes, if you weigh out, if you just give the audience rough guide on all-in cash breakeven?
All-in would be 17 with some vessels being in dry dock, so you can go to 17.5, if you wanted to do it that way.
Got it. And that doesn't fluctuate because I mean the quarterly debt or?
It doesn't fluctuate really much at all and I mean that 17, 17.5 is it's fully amortizing debt repayment to. And as you can see we're in the dog days of summer and the guidance we're giving right now is not that far off that position and certainly even last year, the rate environment without any IMO effect again. And last year being weaker than what we've seen so far between sort of October and March was above the 2017 position as you pointed out $1 billion of cash.
Yes, I think it is 17 all-in, I think if it is 17 all-in, you are right, I mean 15th. You can't prove relatively close to second quarter. I guess I'll just take that off line with Brian and maybe sharpen my pencils on that one.
But we’re very confident for everybody else out there that is 17 approximately is the all-in number.
Got it. Okay great. That is good.
Yes, please take offline with Brian.
Yes, that is all I had guys. Thanks.
Your next question comes from the line of Greg Lewis with BTIG.
Hey guys and good morning everybody.
Good morning, Greg.
I guess since you threw out the number of $17,000 today cash break even, how should we think about use let’s just say charter rates average $20,000 a day across the fleet. How should we be thinking about that. What the plan is with that excess free cash flow, is that balance sheet and shareholder return how do you think about that?
We pretty well said and we repeated it again and we'll repeat it one more time that we would expect that the rate structure certainly fourth going into the first quarter is going to be significantly above that level even that level you indicated and we'll repeat what we said on the last conference call that prior to the moment is to keep paying down that to reduce that breakeven level.
We have a number of different ways we can do that in terms of paying back the leases early or taking out higher cost baby bonds things like this. And in either event, we will continue to do that regardless of even if the market is very much stronger than what we're thinking could be until we get into February, March because it's after that date that our actual CapEx starts running down very materially. So you wanted to I don't think you're not going to see any increase in the dividend on see et cetera, et cetera apart from that until then.
Okay great. Just and then just a couple final questions, obviously just given your bunkering needs your fixed forward three to five months. And you mentioned the Tier 1 ports the second tier ports tertiary ports. Are you seeing any divergence in between what first tier ports are offering in terms of their fuel suite of offerings versus sort of the second tier and tertiary ports?
Absolutely Greg. Thanks for the question. As you get into smaller ports bunker suppliers and the supply chain are in a very uncomfortable position because they don't know how to allocate their resources and obviously their capital to make the most of the future allocation or future portfolio of what they're trying to sell.
So what you find is that they are quite keen to book contracts with credible counterparties not just us but other big, big players just so they have some certainty in their business plan. So this is why it's a great time to be out there trying to book forward volumes just so they have that security and frankly there is some discounting, obviously discounting going on for those that act early and book those positions. But yes it's rather confused or anxious marketplace once you move away from the refinery or as a physical supplier.
Okay, great. And then just one quick one from me following up on Ken's question. Just in looking at some of the scrubber the timings of some of the scrubbers. Yes, I think initially at least I was kind of budgeting around 30 days per going in the shipyard. Are do you guys feel comfortable with that number of around 30 days or do we think that would be lower or higher?
We are comfortable with the estimate of 30 days based on what we're seeing you could have that number moves lower as our program progresses. There are a lot of efficiencies in repetition and booking the same shipyards for the work et cetera, et cetera but we're comfortable with a conservative estimate 30 days.
Okay guys, thank you very much.
Your next question comes from the line of Randy Giveans with Jefferies.
How are you gentlemen? How's it going?
Good.
I would say for the scrubbers you have installed, it looks like there's been six thus far have all of those been done at the same port or shipyard and then for those are you able to use some of those in the active zones currently getting it below 0.1%?
So right now of the scrubbers we've fitted no they've been installed at different shipyards and we haven't yet positioned those back to the west for use in the ETA zones. But your point is correct. They're fully commissioned, so they're available to use and yes we could use them in that way.
Perfect, fine and then on the 1Q 2018 earnings call. I think Robert mentioned that LR2s will quoting expand their premium over other asset classes. Currently LRs are earning lower rates than LR1s and even per your quarter date rates even lower than MRs. So I guess two questions when do you think this premium per se will expand and then you can give kind of a ballpark on a full-year average in 2020. Do you expect this premium to be $2000, $5000, $10000 like what is your expectation for this premium?
Lars, you want to cover that?
You're right to say that by now the LR2s are trading below the LR1s, the LR1s frankly outperforming and doing better than we anticipated. That is down to a strong degree of triangulation and arbitrage move that fits with the LR1s, the LR2s are impacted primarily by the reduction in the massive flows that we have seen because of the substitution by the lower prices on the OPG, as that changes and the refineries come back on stream, I'm quite competent to say that we will start seeing LR2 move out again at the margin.
On top of that, we also anticipate that the strong exports out of North Asia will benefit the LR2s more than the other segments as they suddenly get back their market share from a lot of the new buildings that have been taken out from the crude side. So you look at a year-to-date there is still a big differential between the two segments. And I think that as we go into second half proper, you will start seeing that move out again.
Okay and then for the degree of the premium in 2020?
It is strongest, I think it is stronger the market, stronger the premium is going to be. So that will be a seasonal position. But if you had 30,000 a day in MRs, you're going to have probably 50,000 a day in LRs which was more or less the spread of that started having towards the end of December last year. Now lower spreads could be wider, if you took a non-scrubber fitted MR that is a scrubber fitted modern LR2 because now you've got, now you have the fuel as well as the market position in there.
Got it. All right. Well one could only hope those rates come to fruition. Thank you for the time.
Your next question comes from the line of [indiscernible].
Hi guys. Following up on the new story on arguing that ship owners are unprepared for a fuel switch. Are you seeing that the other owners are preparing in line with you guys and maybe some color and how this will impact the market?
I can give that a shot. We can't really give representations on what other owners are doing. Our impression however is that consistent with any other regulatory change, you have a wide variety of responses from owners from the serious and say sophisticated which are generally the larger players both private and public and a variety of smaller owners who believe they can either cheat to evade or defer planning and hope things work out and act opportunistically.
This is no to us, this is no exception. You see the same range of behaviors. Now everything we've been given to believe is that compliance particularly in our key markets will be strict and immediate. But like I said, the fact that others are wandering into the end of the year unprepared or thinking they can skirt these regulations or somehow evade them. I think only works in our favor.
Thanks, that's helpful. And also they are looking at your MR guidance that was also pretty strong relative to the market. So any insight on what drove the beat and how much was driven by the East Coast refinery closure?
Lars?
Well, thanks for that comment. I think to be honest we've been quite fortunate as we've gone into the third quarter to have grasped the opportunities particularly in the Trans Pacific and Asian markets. We've been good in locking in the good voyages into Mexico as the market that's fluctuated wildly in the U.S. Gulf. Also on the back of the refinery closure on the Atlantic coast and so I think we've moved quite well on the positions that we have globally on the MR, consistent with the weakness that we have seen because of the offline capacity of the refinery maintenance.
It is quite tricky to make sure that no one to take because you can see the movements of the market moving across most markets up and down and trying to fix the voyages which give you the demerge exposure at the market is low just to make sure you get fixed and then hold back as you see the coast inflect. So we have been pretty fortunate, I'd say in the way that we have been fixing our ships on the MR side during the third quarter so far.
Thanks. That's helpful. That's it from me.
Your next question comes from the line of Ben Nolan with Stifel.
Hey good morning guys. So I have a couple of questions that hopefully can stay away from IMO on scrubbers or anything else. Number one is especially as it relates to the LR2s and all of the craziness that's going on in the Middle East around the Straits of Hormuz. I know that's primarily in LR trade. How do you envision that impacting supply and demand and how you're responding to what's going on over there specifically for the LR?
Lars?
I’m sorry can you say one more time please?
Yes sure, basically how is all of craziness in around Straits of Hormuz going to. How would you envisage that impacting supply and demand for LR2s and other ones and what are your -- how are you approaching doing business in that region?
Thank you. Well obviously it is a central concern the safety of our people first and foremost and then the safety of our vessels as well. We have no particular angle or insight on what's happening other than the sort of commonly accepted narrative that this is a tit for tat exchange. The most recent events a tit for tat exchange with the British. Obviously we are in contact with our Flag State and also the U.S. military as it comes to mapping and planning transits and the locations of our vessels.
You haven't seen a lot of market reaction apart from insurance. The insurance market, I would think something more serious or more prolonged or sustained would be required for either the market to respond in a meaningful way or for us to take more drastic action to avoid certain trading lanes and particularly the area generally.
So it's something we're watching very closely. You can take some precautions and we are taking those and taking it all quite seriously but unfortunately it's a bit of a wait and see game right now. And we have to wait again and wait and determine how this risk is going to develop because there's nobody has the answers here. Nobody knows except perhaps the White House and the Iranians what's in store in the next weeks and months. So we're watching as carefully as everybody else.
Okay, that's helpful. But so far no real market impact I guess. Okay, I appreciate that. So my next question goes to something Lars that you'd mentioned and you came up in the first quarter call about Naphtha being cannibalized by LPG trades, it seems though that LPG exports out of the U.S. are still extremely high. And there's another new export terminal that's coming online in a few weeks. How is there a way that that reverses or at least more naphtha begins to move in and if it doesn't, what are the implications for the LR2 market?
It's a very, very good question Ben. I mean history repeats itself, prices revert to mean in any case and naphtha price. So Ben these things obviously move that kind of day basis and are constantly in flux. So I just think it's a question of time before we start seeing large positions of naphtha moving again, I mean we thought was a big naphtha move in the back end of last year, it slowed up a little bit as we talked about in the fourth quarter conference call it has probably compounded a bit more now and it is now big positions in terms of where the LR2 incremental barrel is being moved.
That has to be seen with the backdrop of the reduction of the capacity from the refineries as that moves back on stream again, this is by the way the major refiners the Jam refinery in India, these are coming on stream in the fourth quarter. I mean there are so many different kind of points which add to the whole mix of causes that are going to have to be shipped, so it doesn't require that much to change that whole kind of balance, so of naphtha which will have to move at some point reverts into position where it prices itself back in then you've got to sell small market quickly.
Okay, now that's helpful. And then lastly from me just real quick given all of the scrubber installations and associated dry docking winds up late next year, maybe what type it should there be any dry docking at all in 2021 should we expect there to be sort of a dry dock holiday once all the scrubbers are installed.
I think many, if you're referring to the market generally or us specifically.
Maybe both.
We’re not unlike many others in this position where if you have a regularly scheduled in dry dock in 2021, you would logically try and bring that forward to fit the scrubber and then take advantage of the spread as soon as possible. So the whole market is acting in that logical way. So I would expect lots of yard capacity, repair facility capacity open up in 2021. And similarly the number of dry dockings whether it's us or anybody else to go down accordingly.
Okay. All right, appreciate that again. Thanks.
Your next question comes from the line of Liam Burke with B. Riley.
Thank you. Good morning. You are pretty clear in terms of your capital allocation and addressing the balance sheet and the investment you're making in the fleet. Looking at the individual vessels do you see any opportunity to either add or subtract assets as you get closer to IMO 2020?
Emanuele, you could add? Go ahead, Emanule.
Sorry, I was saying that, I do not think that we are looking. I do not think that adding individual vessels will change the story much nor the structure of the company from both financial or commercial perspective. So we are not looking at adding one or two shades going forwards. We need to be a phenomenal opportunity for us to move in that direction.
Likewise on divesting and eventually selling a number of vessels, we are not we're happy with the profile of the fleet we have. We're happy with the age and specification of the fleet that we are currently operating and not looking at divesting any of the current units. So I would assume that by phenomenal opportunities on one sense or the other, you should assume that fleets to remain as it is now.
Great. Thank you.
And our final question comes from the line of Espen Fjermestad with Fearnley.
Hey, good morning. Just one question for you Lars around the refinery turnarounds, are you at all worried that some of this reduced throughput just reflected the lack of demand on crude and product and I guess what has been poor margins for light products is gasoline and naphtha for most of 2019?
The short answer is no, I’m not worried about that. I think that most of these refineries they are already and poised for what they anticipate as well to be a strong, we say back into the market with the advent of IMO 2020. A lot of these refiners they are ongoing refiners and they have to refine most of the stuff that we've been seeing has been routine with the added element of the front loading as we've talked about a few times.
These refineries need to go back onstream. I believe that they need to move the product as well. We also consider the backdrop of that, we have from the five-year average probably some of the lowest stocks around the globe particularly in Europe and so on.
It's a question of that, this has to leave at some point, you get an add on to the fact that if the product base changes into a more of a Contango market at some point well then you start seeing storage, you start seeing all sorts of other elements too as well. So I would say that we are very constructive in terms of getting these refineries back online.
All right, fair enough. Thank you very much.
And there are no further questions in queue. I will now turn the call over back over to the presenters for any closing remarks.
Thanks everyone for joining us today and we look forward to speaking to you soon. Have a good day. Thanks.
Thank you for participating and you may now disconnect.