Odfjell SE

OSE:ODF

Earnings Call Transcript 2018-Q2

[Kristian Verner Mørch, Chief Executive Officer]

Okay. Good morning, and welcome to the presentation of the second quarter and first half year results of Odfjell SE that we're presenting here in Oslo today. We are streaming the presentation live, so if I can please ask you to wait with the questions towards the end, then we will be available to answer any questions that you may have.Second quarter was a very busy quarter for Odfjell. It was not very exciting in terms of chemical tanker market. But everything that happened in the quarter was overshadowed by 2 very serious operational events that I'll talk to in a moment. But the markets were not very kind to us during the second quarter. In terms of the agenda today, I'll talk briefly about the highlights of the quarter, then Terje will come on and talk about the financials, and then I'll come back and take you through the operational review and the prospects. And then we'll take a Q&A towards the end.In terms of performance highlights, the chemical tanker market further softened during the quarter, the second quarter. But we did continue to perform fairly well in the market, mainly because we have strong COA nominations and a high degree of contracts to nominate from. And the result from Odfjell Terminals improved somewhat during the quarter compared to last quarter. We ended the quarter with an EBITDA of $37 million, which is up $3 million compared to last quarter. Tankers is still pulling the main load with an EBITDA of $28 million. That's up $1 million compared to the last quarter. And Terminals came in at $9 million, which is up around $3 million from the previous quarter. We also announced during the quarter that we have agreed to sell our terminal in Rotterdam. I'll speak much more about that later. But as part of that sale, we have had to recognize a loss on the balance sheet, around $101 million, where $58 million of that is impairments and $43 million is tax -- or writing off deferred tax.So the balance sheet takes a hit this month or this quarter. We have not yet recognized the transaction itself because it hasn't closed, but when it does close, it will bring around $100 million liquidity to Odfjell. So although it's a hit on the balance sheet, it's a significant liquidity event for Odfjell.The impairment in the second quarter means that the net result came out at negative $120 million in the quarter compared to negative of $12 million in the previous quarter.I already spoke about the agreement to sell the Rotterdam terminal to Koole, so that is not news in itself. What was news when this came out yesterday was that we have, as part of the ongoing exit by Lindsay Goldberg, we have agreed to buy Lindsay Goldberg shareholding in Antwerp, and that means that Odfjell will increase our shareholding in that terminal to 25%, and it will ensure that we have a strong foothold in Europe after we sell the Rotterdam terminal. I have a slide about that transaction later in the pack. If you look on the right-hand side, I don't want to repeat all those numbers. That's just comparing the quarterly performance with the previous quarters. Total EBITDA of $37 million. And when you dig further into the figures, we had an operational cash flow of just around $19 million to $20 million during a very difficult quarter. So yes, the markets have been unkind to us, but I think we do perform quite well despite that.We also say in the quote that we think that the transaction with Rotterdam and Antwerp will further strengthen Odfjell, and we will speak more about that as we get further on in the presentation. But at this stage, Terje, I'll let you take over and take us through the financials.

[Terje Iversen, Chief Financial Officer]

Thank you. I will start with the P&L, comparing this quarter with the first quarter. As you can see from Tankers, we saw that revenue declined slightly. That is based on a rather flat market when it comes to the rates in the market. The volume was a bit up compared to the first quarter. But on the other side, we also had more off-hire in the second quarter compared to first quarter that reduced the gross revenue somewhat. Voyage expenses, and at USD 85.2 million, that is slightly down as well. That is also partly related to the off-hire in the second quarter and also that we had voyage expenses quite high in the first quarter related to we took in many new vessels into our fleet in the first quarter, which then increased the voyage expenses in that quarter. Time-charter expenses, under that USD 37.6 million, that is being reduced then compared to the first quarter, and that is in line with what we have guided. And that becomes more apparent if you compare first half this year compared to first half of '17. We see that the time-charter expenses has been reduced from USD 97.6 million to USD 78.2 million. And that kind of is also, as I said, we have guided. We have more owned vessels and more pool vessels and less vessels on time charter.Pool distribution, we took in one more pool vessel in the fleet this quarter. So that is increasing the pool contribution -- distribution to the external owners. OpEx continued stable, same level as first quarter. And also G&A, quite comparable to the first quarter.Then we had an EBITDA of USD 28 million compared to $26.9 million for the Tanker division this quarter. After depreciation and capital gains, we ended at an EBIT of $3.9 million compared to $4.4 million. And then we had net interest expenses that increased somewhat. That has to do with increased financing on our balance sheet, financing on new vessels coming into our fleet and also increase in the LIBOR interest. And then we had other financial interest -- financial items related to currency exchanges. So that led to an increase in net finance of minus $18.8 million this quarter compared to $14 million last quarter. After taxes, we are then delivering a net result of $16.2 million negative compared to $10.4 million negative in the first quarter. Although, as I said, that is mainly related then to the changes in the net finance and the currency exchange difference this quarter.Looking at Terminals, we see that revenue is increasing somewhat. That is related to Rotterdam that had increased activity this quarter. OpEx, quite the same as the preceding quarter, while G&A is then reduced from $5.3 million to $3.8 million. That has to do with the kind of a one-off that is cost related to the sale of Rotterdam of around USD 1 million. That has been booked as G&A kind of previously, but that has been now taken into account when we have kind of calculating the impairment. So that is kind of reducing the G&A this quarter compared to what you normally would see. And then we had the impairment at Rotterdam. As Kristian said, we haven't closed the transaction yet, but we have kind of adjusted the value of the terminal based on what we exceed -- expect to get in proceeds from the asset. And in that regard, we had to take an impairment of the assets at the terminal of USD 58.1 million in this quarter.And also see that we have also booked tax expenses of USD 42.4 million this quarter. That is also related to the sale of Rotterdam terminal. We had a lot of tax losses carryforward at that terminal. And of course, when we divest the terminal, we are not kind of able to utilize those tax assets anymore, so that is booked as a capital cost -- or a tax cost this quarter. So that leads to a net result of USD 104 million negative for the terminal compared to minus $2.8 million. But of course, that is then heavily impacted by $101 million in total impairment on Rotterdam and also some currency effects this quarter.Looking at the total for this quarter, we then ended at USD 120 million compared to minus $12.1 million in the first quarter. And if you adjust for the currency effects and adjust also for the impairment on Rotterdam, the net result was minus $14 million compared to minus $12.1 million in the first quarter, so actually quite comparable figures this quarter. Here is a table showing what is the impact actually on our P&L if you deduct Rotterdam from the terminal results. On the left, you will see the results from the Terminals' first and second quarter, adjusting for the impairment, we see that we then delivered minus $2.1 million in the first quarter and minus $2.8 million in the second quarter.If we then adjust and exclude Rotterdam from the figures, we see that the corresponding figures will be, the EBIT will then increase from minus $2.1 million in the first quarter to $2.4 million plus in the first quarter, excluding Rotterdam, while the EBIT second quarter will increase from $1.0 million to $1.4 million. And also we end up a net result this quarter, both first and second quarter, in positive territory compared to negative figures, including the Rotterdam figures. And also, we are showing here at the bottom what will be the impact on Odfjell SE using the equity method. Then we see that excluding Rotterdam, we will actually increase the EBITDA in Odfjell SE with $2.9 million in the first quarter and total $6.5 million for the first half in increased EBITDA when we're excluding Rotterdam. Just to give you a kind of an indication what it would look like going forward when we have divested Rotterdam terminal.The balance sheet, a few topics there. We see that the ships and newbuilding contracts is increasing somewhat. We took delivery of one vessel this quarter and also paid some installments on some of the newbuilds.Then we see that the investments in associates and JVs is reduced from $362 million to $245 million. That means that we had taken impairment into account, kind of valuating Rotterdam terminal, while still kind of around USD 100 million is then related to what we expect to get in proceeds from selling that terminal. That means that when we have concluded the transaction, around USD 100 million will be deducted from investments in associates and JVs and then added to the balance sheet as cash. So that means we will be around USD 145 million, and that's in investments in terminals after divesting Rotterdam.We have a strong cash position. We increased cash with around USD 10 million this quarter. We had the operational positive cash flow, but we did new investments. On the other side, we also did some refinancing that increased the liquidity this quarter. Equity is USD 665 million. That gives an equity percentage of 34%. That is down to around 39.7% in the first quarter and, of course, then impacted by the impairment of Rotterdam, but we are still within the kind of the range we want to be, within 30% to 40% equity share for the group as a whole.The sale of Rotterdam will, of course, have an impact on our balance sheet when it comes to the cash position. This is kind of an illustration of where we are today with the cash, what we get when we get the additional cash from Rotterdam, increasing the cash position with USD 100 million. And then we know we are going to pay $27 million for Antwerp NNOT. So we are kind of illustrating how we could have a cash balance of around USD 266 million. So what should we do with that? We are in a position where we have options now. And we know we have some bonds that are maturing in end of this year and also in September next year, so it could be an idea maybe to refinance or to just repay those. But we are, in principle, are planning to refinancing the bonds. And then we can then focus, I think, on deleveraging our balance sheet. We can lower the debt ratio on our fleet. And then we also will have flexibility when it comes to the terminals. We know that going forward, there will be kind of some working capital for the terminals to kind of do the ongoing business, but we will need to inject money if there are new larger projects coming up.Dividends, there could also be discussions around that, of course. The discussions haven't taken place in the board yet. This transaction, I think, have to close first and then we will see. And the board will discuss it. And then, of course, in the end, it will have to be decided by the general assembly. But as we have stated previously, we have a strategy to continue to pay regular and sustainable dividends going forward. Tanker division, we are not planning any investments there. So as I said, focus will, I think, will be on deleveraging our balance sheet and using the liquidity position that we are now gaining from selling the Rotterdam terminal.The cash flow this quarter, as Kristian mentioned, we had a positive cash flow from operation of USD 19.8 million. We did some investments. We took delivery of one CTG, was the last CTG vessel this quarter, and also paid some installments on the Hudong newbuilds. So that was minus $43.8 million.On the financing side, we were quite active. New interest-bearing debt of around USD 120 million. That includes financing of the CTG vessel, but that also includes some sale and leasebacks and also some refinancing. So net cash flow from financing, $35.4 million after FX, and that ends up with an increase in our cash flow this quarter of USD 11.5 million.Bunker cost, that is, of course, interesting to look at. That is one of our largest cost components. What we see here is that even though we see increase in the bunker prices in the market, and have seen them for many quarters now, we are actually kind of having a very stable bunker cost in our P&L. The main reason is that we have the bunker adjustment clauses that are kind of adjusting for that. And if you're looking at the bars to the left, we see that we had to pay kind of some of the advantages of the lower bunker price to the customers. That increased our bunker expenses, while in the 2 last quarters have received from our customer additional rates to compensate for the increase in the bunker cost. So we see actually that the last 5 quarters, the bunker expenses for Odfjell SE for our owned fleet has been between USD 39 million and USD 41 million per quarter. So that is being stable, and we expect that also to continue.We have bunker adjustment clauses in our contract portfolio of around 60% of our contracts. Kind of revenue going forward should be accounted for -- expected to be accounted for in our revenue, and that is kind of giving us a hedge going forward.Debt development, this is showing to the left. Expect the debt, going forward, we see that we expect that the debt will decrease somewhat in '19 and then increase somewhat in 2020. That has to do with the newbuildings being delivered. On the right side, you see what we are going to repay according to the existing loan agreements in the coming years. You see it's very stable from year-to-year. That means we don't have any kind of large balloons coming towards us. For the remainder of this year, we have, of course, focus on the bond that is maturing in December. We are watching the market, and we are considering to refinance depending on the terms that we can get in the market. But I mentioned, we could also just redeem that loan at maturity. So we are considering our options there. We did in this quarter, as I said, 2 sale and leasebacks that added around USD 30 million of liquidity. That was done at very favorable terms. The total IRR, around 7%. And actually, if you include advantage of the kind of the purchase obligation at the end of the lease, the total IRR were between 2% and 3% for those 2 financing. Going forward, we are continuing -- considering, of course, options for the bonds, but we also see that we have a strong support from our external banks. We are one of the few new ship companies that the banks want to do business with. And of course, we expect to take advantage also of that going forward. But as mentioned, I think deleveraging our balance sheet will be a focus going forward based on the cash position we have today. But of course, we have to consider it towards the market development and the earnings that we generate.This is showing a picture on the CapEx, what is kind of our changes in the CapEx when we are divesting Rotterdam. Without going too much into the details, we will actually reduce our CapEx for the coming 2 years with around USD 41 million, when we are excluding Rotterdam from the CapEx overview. So it's more transparent. It's much less CapEx on the next few years when we exclude Rotterdam.Actually, we'll see that -- you will see it down on the right, what is expected CapEx, the maintenance CapEx and expansion CapEx in the coming years. And we see that is -- that the expansion CapEx is between USD 2 million and USD 3 million, our share in total for the terminals when you exclude Rotterdam, where we have maintenance CapEx of USD 3 million for the remainder of the year and then $8 million expected for the coming years.This is the total capital expenditure program as it is for today, not very much changed since last quarter. We have the Hudong vessels that has been financed a long time ago now. And we see that we have kind of only equity installments is limited to USD 18 million to take delivery of the 6 vessels being built at Hudong. So that is quite limited. And we see that the planned expansion CapEx are quite kind of, I think, low numbers, I would say. And if you exclude Rotterdam, it will be even lower number. But of course, we expect -- we are planning to continue to develop our terminals, so there will be new projects coming out. There will be new investments in addition, but then we have to guide on those investments when we are actually deciding to do those investments. I think that was my part, and I'll just leave it to you.

[Kristian Verner Mørch, Chief Executive Officer]

Okay. Thank you, Terje. Next up is operational review, and we cannot call it operational review without spending a few moments on the 2 incidents we have had recently. I'm very sad to say that William Ambrosio, a pumpman, 32 years of tenure with Odfjell, passed away 5 days ago in a hospital in Dubai. He was performing a fairly routine task on board the Bow Sun during her transit of Gulf of Aden. And those of you who know Gulf of Aden, it's one of the most hostile areas in the world with piracy and so on. So when accidents do happen, it's tricky to get the right help. He was airlifted to a Japanese Navy ship, and then he went -- was airlifted further on to Djibouti and then to Dubai, where his family joined him. And unfortunately, he passed away 5 days ago. That's the worst thing that can happen, when it happens on your watch. And it was seemingly a very routine task, and then the horrible, horrible accident for Odfjell. The other incident I want to talk about is the Bow Jubail that some of you might have picked up in the press we had in July. During a berthing of the ship in Rotterdam, the ship accidentally punctured her bunker tank, and 217 tons of heavy fuel oil went into the Rotterdam harbor. Terrible, terrible incident. And we have been working very closely with the port authorities in Rotterdam and, of course, Gard, who is our insurance company, to mitigate the impact of that disaster, I will call it. No personal injuries, but impact on the environment and the investigation by the Dutch authorities ongoing as to exactly what happened. We, of course, have our own investigation done, but I will refrain from commenting on it until the official investigation has been done.This is just proof that although on all our safety test statistics, we are doing fine and below our targets, those statistics become meaningless when you have incidents like this.In terms of operational performance, this is a view of Odfjell Tankers. As you can see in the top left-hand corner, our exposure to the market is increasing. Our number of ship days in the market was 7,600 during the second quarter. As you can also see, the red dotted line is the Odfjell exposure to that market, and you can see that actually that's going down. That's because we are redelivering time-charter ships. You can see that our TC expenses are going down also on our P&L. We're redelivering time-charter ships, replacing them with our own ships and also with pool ships, where we have a profit share and a fee mechanism. So the downside is reduced, and we continue to increase our exposure to the market. So that's the picture. Another thing to note on this graph is, when you look at the gray bars below, we've had a fairly high number of off-hire days during the second quarter, 253 days, which is about 100 days more than in the previous quarter. And when you take 100 earning days out of your top line, that will hurt you as well. I think that's about $1.5 million to $2 million effect of those 100 days. So the performance, you can back that out to normalize it.On the right-hand side, the good news at the moment is we continue to have high COA nominations, contract nominations of 61%. And we are also happy to see that the share of contracts is going up despite the fact that we are growing our exposure to the market. Third and the fourth quarter is normally contract renewal season. That's going to be an interesting period. So we hope to be able to defend and maybe even further increase our contract portfolio during the remainder of the year.On the bottom right-hand side, you are seeing the ODFIX compared to the Clarksons Platou Index. As I mentioned, every corner, we are actually comparing a little bit apples to pears -- apples to oranges here. The Odfjell (sic) [ ODFIX ] index is a performance index. It has waiting days and everything else included, whereas the Clarksons index is a fuel market index, so you cannot really [ perform them ]. But what does make sense is to keep tracking the spread between the 2. And this quarter, you can see that the market index is falling quicker than the ODFIX is falling, and the explanation for that is the large contract nominations that we have under our contracts.For Terminals, our overall utilization of the terminal footprint is 93% and -- sorry, 90%, and our chemical capacity is 93%. And as you can also see from this graph, if you zero in only on Rotterdam and the oil mineral storage in Rotterdam, that's 74%. So by selling Rotterdam, it will definitely do something positive to our overall capacity utilization [ around ] terminals. What we're also showing on this slide, on the right-hand side, the top is the Houston terminal. The chemical market in the U.S. is very hot, we are at 99% utilization. So we are very, very busy in our terminal in Houston and that [ pressure ] seems to continue. I don't think there's anything else to point out on that. If I just speak a little bit about the acquisition or the increase of our shareholding in the Noord Natie Terminal in Antwerp. As part of Lindsay Goldberg's exit, it became clear to us that by selling Rotterdam would have some strategic implications. I think if we're serious about having terminals and the synergies about offering integrated services, it's important for us to have a foothold in Europe, and Antwerp is by far the most important chemical port. So the port itself is actually more strategic than Rotterdam is. And it also, from a strategic perspective, it makes sense to have a European foothold, and it makes sense to be in Antwerp. So that -- there are some quite strong strategic arguments. But apart from the strategic arguments, we think that it's just a good deal as well. It's a good investment. The terminal has been performing very well in the past and is performing very well at the moment. It has consistent utilization of around 95%, EBITDA margin of around 50% constantly and 2017 return on invested capital of around 23%. And the expansion program that you are looking at on the right is financed by their own cash flow. So the terminal is performing quite well. Dividends are coming out. It's a healthy, well-performing terminal. And we think it's attractively priced at 11x EBITDA.So this is also a sign for us that we are serious about our Terminal division. It's a sign that we are ready to put money back in. We have been doing a number of changes to our portfolio that I'm going to talk about just in a little while.Now the -- if I just back off just a little bit. If you -- from a higher perspective, looking at what is it that has been going on in our Terminal division. We, in 2016, we said that we wanted to focus on terminals that we operated ourselves, and a number of terminals didn't really fall into that category. That was Oman and Singapore. Exir was the small terminal in Iran, and that was sold for different reasons. But for Oman and Singapore, that was the rationale behind those sales. What we didn't know in 2016 was that Lindsay Goldberg were seeking an exit. And when a partner decides to launch into an exit process, it's also natural for Odfjell to stop, to pause and, like, consider other things that we should do differently to our Terminal portfolio. And of course, the discussion quite quickly zeroed in on Rotterdam because Rotterdam has been, in many way, a very painful journey for us. We think we had a great plan for Rotterdam, but it would be a quite significant commitment in terms of CapEx to build that terminal to its full potential, and we continue to have performance disappointments in Rotterdam. The alternative was to keep, hang on to Rotterdam, get a new shareholder then in Rotterdam that was eager to push forward in an accelerated fashion in terms of spending CapEx, and that was just a very scary picture for us. So the idea of selling Rotterdam was strategically the right thing for us, and I think we have a much healthier portfolio now. The $100 million impairment that we are taking on Rotterdam, of course, hurts us in the second quarter. But if you look at it in a bigger perspective in terms of the portfolio changes we have done, with all the terminal changes we have done, we have taken a total of $344 million in cash out of those transactions. We are now putting $27 million back into Antwerp. But net of that, that's $317 million. And that's actually been the only reason why we have been able to do all the things to our terminal -- our chemical tanker portfolio that we have and strengthen the balance sheet at the same time. So it has been extremely important for us. Also, the $100 million impairment on Rotterdam has to be seen in comparison to all the other balance sheet effects of the other terminals. And although we are taking $100 million or $101 million here, the net of all the changes means that it has been a positive effect of $80 million. I also mentioned before that the Antwerp acquisition, based on the current footprint, is sold to us for 11x EBITDA. We think that, that's fairly priced. It's attractively priced. And we are comparing it here to the multiple of the other terminals. We put a big asterisk next to Rotterdam because 22x Rotterdam is, of course, because the Rotterdam terminal is not performing to its full capacity. So take that with a big grain of salt. But anyway, in terms of well-performing assets, I think acquiring a European asset at 11% -- 11x is an attractive investment.So if Rotterdam closes, as we think it will, and we expect it now to close actually sooner rather than -- more sooner than we thought, it might be even be within September, if that closes and Antwerp closes, then we will be having a footprint in Europe with the Antwerp terminal; we will have Houston and Charleston in the States; and in the Far East, we will have Ulsan, Dalian, Jiangyin and Tianjin. That's a global footprint of 1.5 million cubic meters and a portfolio of terminals that's making money. We still have Charleston and Tianjin that's in the buildup phase, so they are not performing on industry average. But that's a natural thing when you invest in terminals, that there is a period where you build it up. But the remaining terminals are performing well and generating returns.We have been going backwards for quite some time now on terminals. And I think Terje also alluded to it that with the capacity we have to invest now, we will be looking at how can we improve further the footprint that we have within these terminals. We don't -- I don't see any immediate plans to go outside of it. But we do have unused land, for instance, in Houston, that it makes sense to explore how we can use best possible when that terminal is operating at 99% utilization.Prospects and markets update. A lot of discussions at the moment around the trade war and what does that mean, and the picture is changing day by day. So it's really difficult to predict what's going to happen next, but we have been trying to take a closer look at the -- at some of the commodities that has been affected.And the top 2 bars was really the first wave of products that was hit by taxes to China. And what you're looking at, the largest commodity there was EDC. So when that was announced, when you're looking at the right-hand side, what happened was actually the darker blue bars, you can see that the export from U.S. to China actually fell a little bit. But what you also saw, at the same time, was that suddenly export to other Asian countries increased quite dramatically. So what's happening from a trade perspective, because the margins are so healthy at the moment, the product will find its way to the markets. So whether that means that it's now transported or shipped to Korea, it's reloaded, new bill of lading, then it's sold from the Korean receivers to China, and then you have a short season of distribution into China. And I think that's the picture we expect to see also for other commodities. After the first wave of commodities, now we're moving to methanol, which would potentially have a much larger impact on trade flows for chemicals. But again, if you look at the cash cost of a tonne of methanol in the States, it's $150; and if you have a total C&F value in China, $400. Even if you add 60 million, 70 million -- $70 per tonne in terms of freight and 25% tax, there's plenty of room in that margin to keep that product flowing. And if it doesn't flow straight into China, it will find other ways of getting there. And the same picture you are seeing for ethylene glycol with a $460 margin per tonne at the moment. So although it's a dangerous and somehow also uncomfortable conclusion, but when we look at it and analyze it, we don't see it having a significant impact on trade flows. But I think it would be a mistake not to be cautioned anyway. So we're, of course, following developments the best that we can and in the meantime make sure that our portfolio is as competitive as possible and we have as much contract coverage as we can possibly have.In terms of the market outlook, not a lot has changed. This picture is the one we showed last time and also on our Capital Market Day. We still expect global demand for seaborne transportation of chemicals to grow around 4%. And to those 4%, you can add whatever factor you believe in terms of increasing tonne mile. If you are very negative in terms of distance, you can add around 1%. If you're very bullish about distance, everything goes long haul, then you can add 3%. But bottom line is that we expect the demand to grow from anywhere between 4% and 6% over -- per year over the coming 3 years. And at the same time, on the supply side, it's an unchanged picture. We expect supply to grow with an average of around 2% in the coming 3 years. It's worth noting that Q1 was the peak of deliveries. So from now on, the order book will trail off fairly quickly. It's also worth noting that for the past 6 months, there has been 0 new orders in core chemical tankers. And so we are not seeing addition to the order book that currently stands at around 8% of the current fleet.So when we say that the fundamentals are there for the markets to pick up, this is the picture we are looking at. Of course, the discussion about what happens in the CPP market, the product tankers, I think for a substantial increase in the market, we need the clean markets also to come. But in isolation, this is a healthy picture for the chemical tankers.Summary and prospects. We think that the sale of Rotterdam and the acquisition of Antwerp together will strengthen Odfjell. We have much more visibility in our CapEx. We have a Terminal division that's making money. We have $100 million extra liquidity. We do have to make an impairment, but all in all, we are standing on a stronger and more predictable platform than we were with Rotterdam. The chemical tanker markets continue to be challenging, but we do think that there are arguments in the fundamentals to say that the markets will come towards the end of the year. I don't want to pick exactly what quarter and how it's going to happen, but at least if you trust the fundamentals, it is bound to happen. In the near term, we think that the third quarter will be more or less in line with the second quarter, both on Terminals and on Tankers. And then as I said, we think that the Rotterdam transaction will be completed during the second half, and it might even be during September.So that's what we had in terms of the presentation. Now we are happy to take any questions you might have.

[Kristian Verner Mørch, Chief Executive Officer]

Yes?

[Unknown Analyst]

I was wondering about the 2020 outlook. That's been addressed for -- well, by most shipping companies over the past quarters. While this is, well, not the case here, so both from a sort of a scrubber perspective, if you may, but also from a demand perspective in terms of chemical or also then oil tanker demand, because this is going to be more products needed to store, and I would suspect that to have some demand implications on your terminal side as well.

[Kristian Verner Mørch, Chief Executive Officer]

If I just start with the last part of your question, if I can. I think if we sell Rotterdam, the remaining 1.5 million cubic meter of capacity we have will be almost all chemicals. So I think from a terminal demand and the fuel for 2020, I don't think that will have an immediate impact on the chemical storage of our terminals. On the shipping demand, overall, I think there are healthy arguments to suggest that the oil companies will try to solve the challenge of providing compliant fuel by blending and moving components around. You will see bunker or bunker components move around the world much more than you do today. So I think there are healthy arguments to say that it can actually lead to a pickup in demand. I'm reading reports that says that can be anywhere from 0 to fantasy numbers, as -- so I would prefer not to give an opinion on that because I don't have an informed opinion about exactly what number it's going to be. But I think there's a healthy train of thought that says that it will have a positive impact. In terms of 2020 in Odfjell, it is something that we spend a lot of time analyzing and trying to understand. I think, fundamentally, we have difficulty seeing why an industry with 60,000 ships should try to solve a problem that's actually a problem that should be solved ashore. The people -- the suppliers to a bunker market will have to adapt to whatever regulation goes on in that market. I mean, to try and fix it in terms of all the customers in the same market just intuitively doesn't make a whole lot of sense. But that being said, there are, of course, scenarios where scrubbers could make sense if the spread between gasoil and compliant fuel is like $300 or whatever it is today, and you could sell that spread forward. I mean, it would be, from a payback perspective, it would be quite -- could be quite an attractive investment. We -- but it would be a $90 million to $100 million decision by Odfjell. And we are not convinced that, that spread will stay as wide as it is. And you cannot trade it beyond 2020 anyway as it is today. We are convinced that the availability of low sulfur compliant fuel will be there. There is a pricing discussion. But you have to remember, when you do that math for a super-segregated chemical tanker, it's not the same as doing it for a VLCC. We spend around 50% of our time in port, where a scrubber is pointless. And at the same time, as you can see from Terje's numbers, we have bunker adjustment clauses in our contracts that will protect us from swings in bunker cost. And we are -- and actually, our customers share the same frustration as us, they don't know what's going to happen to fuel cost for transportation. So I think we assume that we are able to find a solution where our bunker adjustment clauses will also capture the fact that the increasing -- or the fear of the increasing bunker cost if we have to burn [ in fuel ] for a period. But it is a subject where we have changed our mind over the last year, and we might change it again. It's really a frustrating thing to analyze, honestly. And I think as 2020 gets closer, it may change. And to make sure that we are on the forefront with that, we are considering to install scrubbers on just a few ships to make sure we understand the technology and the implications of operating scrubbers. They are not as easy animals to operate as most people will make them, so we need to understand that we -- and make sure we understand the technology. But at the moment, we don't think scrubbers make sense. That's a long answer for a no, but I hope it explains why we say no. Yes, yes, yes, go for it.

[Unknown Analyst]

You addressed that now also, but in Houston, we sort of -- we've heard those words in similar ways before. It seems there's a great opportunity, while Antwerp is what is announced now. When are we going to hear about building out the Houston terminal?

[Kristian Verner Mørch, Chief Executive Officer]

I think you have to remember -- well, I mean, we would have liked to do it already, but I think we are in a position where we do not know who's going to end up being our joint venture partner in Houston because Lindsay Goldberg is in the process of selling their shares. And what we have said is to embark on a massive CapEx expansion project without knowing who is going to be our partner in Houston just doesn't make sense. So we are trying to get to a finish line and create that clarity in Houston as soon as we can, and then we will move on with the story in Houston. So in many ways, the Lindsay Goldberg exit came at a time which was inconvenient for us. But I think we need to know who we're partnering up with before we make these decisions.

[Unknown Analyst]

Could you expand on that? How is that process going in terms of who is going to fill in?

[Kristian Verner Mørch, Chief Executive Officer]

The only thing I can say is that the process is ongoing, and it's been going on for now 6 months. So -- and it didn't slow down over the summer period. So it's very much a live and active process, and we hope that we will have answers to that question in the near future. I'm weighing my words here, but yes.

[Unknown Analyst]

In terms of Houston, if you were to take a decision to expand, what is the time line that you look at? Is that a 6-months construction period? Or is it a year or 2 years? Or...

[Kristian Verner Mørch, Chief Executive Officer]

In terms of coverage for that expansion? Or I'm sorry...

[Unknown Analyst]

No I'm saying if you decide to expand, how long does it take to add capacity?

[Kristian Verner Mørch, Chief Executive Officer]

Well, it depends on what kind of capacity because we have several opportunities in Houston. We talked a lot about the ethylene project, which is going to require us to build out actually a greenfield -- brownfield area with new wharves and waterfront and everything. So that will take a while if it's an ethylene project. I think we expect that to be, from start to finish, 18 to 24 months-ish.

[Unknown Analyst]

But if you take a terminal, you have 99% utilization, so if you add an oil tank or 2 tanks or whatever?

[Kristian Verner Mørch, Chief Executive Officer]

Yes, what's actually going on -- what is going on now in Houston is that we are freeing up land on the terminal itself. I mean, we used to have the control center in the middle of the terminal. We're moving that away, and that's freeing up space to build more conventional tanks, and that can happen much faster than 18 months. But I would prefer not to go into exactly how much capacity, where and when, because it would depend very much in terms of what partner we are getting in as a shareholder. But I do think anyone who buys into the Houston terminal will see the pressure on that market and would want to add that capacity. And then we think that will be a good decision as well. But in terms of specifics of how that will happen, I think that would be speculation at this point. No last-minute question? All right. We are also going to be around afterwards if there are any questions. But in the meantime, thank you very much for listening, and stay safe, everybody.