Ardmore Shipping Corp (ASC) 2017 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Ardmore Shipping's Fourth Quarter 2017 Earnings Conference Call. Today's call is being recorded and an audio webcast and presentation are available in the Investor Relations section of the company's website, ardmoreshipping.com. (Operator Instructions)

A replay of the conference call will be accessible anytime during the next 2 weeks by dialing 1 (877) 344-7529 or 1 (412) 317-0088 and entering passcode 10116752.

At this time, I will turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore Shipping.

Good morning, and welcome to Ardmore's fourth quarter earnings call. First, let me ask our CFO, Paul Tivnan, to describe the format for the call and discuss forward-looking statements.

Thanks, Tony, and welcome, everyone. Before we begin our conference call, I would like to direct all participants to our website at ardmoreshipping.com, where you'll find the link to this morning's fourth quarter and full year 2017 earnings release and presentation. Tony and I will take about 15 minutes to go through the presentation and then open up the call to questions.

Turning to Slide 2, please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from the results projected from those forward-looking statements and additional information concerning factors that could cause the actual results to differ materially from those in the forward-looking statements is contained in the fourth quarter 2017 earnings release, which is available on our website.

And now I will turn the call back over to Tony.

Thanks, Paul. On the call today, we'll follow our usual format. First, we'll discuss our performance and recent activity, followed by an update on the product and chemical tanker markets, then we'll highlight our recent value-creating activity, after which Paul will provide a fleet update and review our financial results, and then I'll conclude the presentation and open up the call for questions.

Turning first to Slide 5 on our performance and recent activity. We're reporting EBITDA of $46 million for the full year of 2017 and $11 million for the fourth quarter. Overall, we're reporting a net loss for the full year of $12 million or $0.37 per share and for the fourth quarter of $3.8 million or $0.12 per share. MRs spot rates remained challenged for almost all of 2017 on the combined impact of the persistent oil inventory overhang and low levels of oil trading activity as well as reduced refinery output in September and October in the aftermath of Hurricane Harvey, which, in particular, put downward pressure on product and chemical tanker rates late in the third quarter and into the fourth quarter.

Despite the soft market environment, we believe we delivered satisfactory chartering results, with MR rates averaging $12,975 per day for the full year and $12,131 per day for the fourth quarter. In November, we completed an accretive share repurchase acquiring 1.4 million shares at a significant discount to NAV as part of Greenbrier's secondary offering, and resulting in earnings accretion of approximately 3.5%. We continue to execute on our strategy of improving returns on invested capital and building value. We took delivery of the Ardmore Sealancer in January, a high-quality Japanese 2008-built MR product tanker with attractive financing under a Japanese operating lease arrangement. Of note, the purchase price of this vessel equates to a 30% discount to current newbuilding prices on an age-adjusted basis. As we will discuss in more detail, we believe the market outlook is positive. Oil demand growth is strong on the back of accelerating global economic growth. Global oil inventories are now almost back in balance. And the pace of MR newbuilding deliveries is decelerating, with MR net fleet growth in 2018 expected to be less than 1%.

As a final point, we're maintaining our dividend policy of paying out 60% of earnings from continuing operations. Consistent with this policy, the company is declaring no dividend for the fourth quarter.

Turning to Slide 6 for a quick look at our fleet profile. As you'll see, the only change in the fleet is the addition of the Ardmore Sealancer. This is a high-quality vessel built at Onomichi Dockyard in Japan, and it's an identical sister to the Sealeader and Sealifter. What attracted us to the ship was not just the price, but also the excellent stacking condition as compared to other candidates we looked at. This translates into meaningfully lower OpEx and drydocking costs and corresponding improvements in ROIC. This latest acquisition brings our total fleet up now to 28 MR product and chemical tankers.

Turning now to Slide 8 on the product tanker market fundamentals. As noted earlier, MR product tanker rates remain soft for the majority of 2017 despite some strength in the summer months. Rate weakness through the year stemmed largely from high oil product inventories and thus low levels of oil trading activity, putting downward pressure on product tanker demand and thus, charter rates. An improving freight rate environment late in the fourth quarter and into the first quarter of 2018 has resulted in significantly improved performance.

Nevertheless, we believe that the outlook for 2018 is overall positive for a number of reasons. Global oil inventories declined by approximately 370 million barrels throughout 2017, with year-end crude and product inventories back to 2014 levels. As and when futures backwardation eases or goes into contango, restocking and increased trading activities should resume on a full scale.

Oil demand remains strong with 1.3 million barrels per day of growth forecasted for 2018, which, when matched with refinery capacity growth in export-oriented locations, should lead to continued increases in tonne mile demand.

China continues to grow in importance for MRs. Export quotas for oil products are set to increase by 30% in 2018 and destinations are increasingly farther afield.

Overall, we believe that increased cargo volumes, regional product slate imbalances, emissions regulations, ramping up of Chinese product exports and increased trading complexity overall are continuing to drive demand growth at around 5% annually.

Looking at supply, the MR order book is now at all-time lows of 4.1% of the existing fleet and net fleet growth is correspondingly low as well. For 2018, we're forecasting 42 MRs to deliver against scrapping of 20 to 25 units, which results in net fleet growth of 1% or less for the year. Shipyard capacity remains constrained with continued rationalization and limited incremental product tanker orders. There remain only 7 active MR yards currently, down over 60% from the 20 that were active in 2008.

Turning now to Slide 9 on the chemical tanker market. Chemical tanker rates improved in the fourth quarter, with our chemical tankers averaging $13,369 per day versus $11,949 for the full year, which is actually a very respectable performance compared to the MRs. The combination of increased Southeast Asia veg oil volumes and the shortage of veg oil-suitable ships enabled freight rates to tighten on these trade lanes. European soy imports also increased following an import tariff reduction, resulting in firmer South American volumes in this direction. Overall though, despite some strength in veg oils, the chemical tanker market continues to be affected by weaknesses in the broader CPP market.

Looking ahead, fundamental chemical tanker demand is highly correlated to global economic activity. With global GDP forecast to grow at 3.9% in 2018, according to the IMF, chemical tanker demand growth should increase as well. Expected solid demand growth for commodity chemicals, coupled with production expansion in the U.S. and Middle East, will boost exports in long-haul voyages.

Meanwhile, the chemical tanker order book is continuing to decline, and at current levels, it is 8% of the existing fleet. As we've said before, there is a difference in the order book as a percentage of existing fleet to stainless steel tankers versus our type, which are coated IMO2 tankers. The stainless steel order book as a percentage of that segment of the fleet is 11.3%. But for the coated tankers, which are our type, it's only 5.8%. So it's much smaller in comparison. Overall, chemical tanker net fleet growth for 2018 is estimated to be 3.4%, which should be well below demand growth.

Turning to Slide 11 for an overview of our recent value-creating activity. As mentioned, we completed an accretive share repurchase in November, acquiring 1.4 million shares at a discount to NAV as part of Greenbriar's secondary offering, which will deliver EPS accretion of approximately 3.5%. Greenbriar has now fully divested of their 17% holding, and the overhang around the timing of their exit is now fully removed. Posttransaction, Ardmore has a highly diversified shareholder base with no shareholder above 10% of ownership and in fact, just 2 shareholders above 5%. Long term, we believe that the increased public float and trading volume as a result of the offering will benefit all shareholders.

Meanwhile, management remains focused on activities intended to drive continued improvements to Ardmore's ROIC. Recent transactions also demonstrate our focus on effective capital allocation and long-term value creation, most notably the acquisition of the Sealancer, the share repurchase in November. And as a reminder, the acquisition of the 6 Eco-Design MRs in June of '16 from Frontline at a price that's as yet unmatched in the S&P market, and which was indeed significantly accretive to earnings even under current market conditions.

And with that I'll have the call back to Paul to provide an update on our fleet and our financial performance.

Thanks, Tony. Moving to Slide 13, we'll quickly run through the fleet days. As Tony mentioned, we took delivery of the Ardmore Sealancer on January 23. And as you will see from the chart on the right-hand side, our revenue days increases by 3% for the full year of 2018 to 10,058 (sic) [10,030] days. We had 1 drydock in the fourth quarter for the Seamariner, and we expect to have 18 drydock days in the first quarter of 2018.

Turning to Slide 15, we will take a look at our financials. As you will see on the second line, we are reporting a net loss for the full year of $12.5 million or $0.37 per share, and a $3.8 million or $0.12 per share for the fourth quarter.

Total overhead costs were $14.6 million for the full year, comprising corporate expenses of $12 million and commercial and chartering expenses of $2.6 million. As mentioned before in many companies, the commercial and chartering costs are incorporated into voyage expenses, which means that our corporate cost is a comparable overhead. Our full year corporate costs were $12 million, which works out to $1,200 per ship per day across the fleet. For the first quarter of 2018, we expect total overhead, that's corporate and commercial, to be approximately $3.8 million for the first quarter of '18.

Depreciation and amortization for the full year was $37.2 million and $9.6 million for the fourth quarter. And we expect the depreciation and amortization for the first quarter 2018 to be approximately $9.5 million.

Our interest and finance costs were $20.9 million for the full year, comprising cash interest of $18.4 million and amortized deferred finance fees of $2.5 million. And we expect interest and finance costs for the first quarter '18 to be approximately $6.1 million, which includes amortized deferred finance fees of $650,000.

Moving to the bottom of the slide, our operating cost for the year came in below budget at $62.9 million or $6,298 per day across the fleet, including technical management. OpEx for Eco-Design MRs were $6,185 per day for the year, Eco-Mod MRs came in at $6,597 for the full year and Eco-Design chemical tankers came in at $6,282 for the year. Looking ahead, we expect total operating expenses for the first quarter to be approximately $16.3 million.

Turning to Slide 18, we take a look at the charter rates for the full year and the fourth quarter. Overall, as Tony said, in spite of a softer charter market, we delivered a satisfactory chartering performance. Full year TCE for the pool and spot MRs was $12,970 per day and the fleet average came in at $12,709 per day.

Looking at the various ship types, the 15 Eco-Design MRs in operation which earned an average of $12,902 per day for the full year, and our 6 Eco-Mod MRs came on -- came in at $12,975 per day. Our 6 Eco-Design chemical tankers performed well in the fourth quarter, with average rates of $13,369 for the fourth quarter, and the full year TCE came in at $11,949 per day. And looking ahead to the first quarter of 2018, as of today, the spot MRs are running approximately $13,300 per day for voyages in progress with 45% of the days booked, while the chemical tankers are currently earning approximately $12,000 per day with 87% of the days booked for the first quarter. Overall, we are satisfied with our chartering performance. The fleet continues to perform well in spite of a challenging charter market over the course of 2017.

On Slide 17, we have our summary balance sheet, which shows at the end of December our gross debt was $453 million, which net of deferred finance fees was $442 million. And our leverage at the end of the year was 54%. Our cash on hand at the year-end was $39.5 million. And pro forma for the delivery of the Sealancer and drawdown of the financing, cash at the end of January was $44.8 million.

Moving to Slide 18, we have a strong liquidity position and we're continuing to pay down our debt. As mentioned, our cash balance at the end of January was $44.8 million and our gross debt is $463 million, following the drawdown of the lease on the Sealancer and some scheduled debt repayments in January.

In the fourth quarter, we completed an attractively priced $15 million revolving credit facility. And as of January 31, we have approximately $11.4 million drawn down, leaving us with additional financial flexibility. As you all know, all of our debt is amortizing with principal repayments of roughly $44 million per year. And based on scheduled debt repayments for the remainder of 2018, our year-end debt will be approximately $425 million.

And with that, I would like to turn the call back over to Tony.

Thanks, Paul. So to sum up, we're reporting EBITDA of $46 million and a net loss of $12.5 million or $0.37 per share for the full year. The MR spot market remained challenged for almost all of 2017, persistent oil product inventory overhang and thus, low levels of oil trading activity as well as reduced refinery output in September and October put downward pressure on rates.

In spite of the market, Ardmore delivered satisfactory chartering performance with MR tankers averaging $12,975 for the full year. We completed an accretive share repurchase transaction in November, acquiring 1.4 million shares at a significant discount to NAV and resulting in EPS accretion of approximately 3.5%.

In January, we took delivery of the Ardmore Sealancer with attractively priced financing under a Japanese operating lease.

Overall, the market outlook is positive, and we believe primed for a recovery. After years of challenging charter markets characterized by heavy fleet supply growth and oil inventory overhang dampening demand, conditions are now in place for a sustained upturn and in fact, feels very similar to that stage of previous cycles. Meantime, we're continuing to execute on our strategy and we're waiting for the spark that typically ignites a full recovery.

And with that, we're now pleased to open up the call for questions.

(Operator Instructions) And our first question will come from Noah Parquette of JPMorgan.

Just wanted to ask, Tony, you talked about China product exports increasing this year. What you've seen operationally in terms of where these cargoes are going and perhaps what it's displacing?

Thanks, Noah. The Chinese exports typically have just gone south to kind of Singapore in that area, so that was effectively a backhaul, it didn't really add much, but we've observed that they've been going as far as West Coast South America, West Coast U.S., into the Atlantic Basin, on occasion. And that's a meaningful improvement. I don't think they're necessarily displacing anything or at least we couldn't identify it, but we think that, historically, China has just not been a factor in the MR space, but now it is. And we think that's overall a good thing.

Okay. Great. And then I just wanted to ask one more about the 2020 sulfur regulations. What is your view on how the product tanker market will respond and what your strategy is for the use of scrubbers versus low-sulfur fuel?

Yes. I think the 2020 SOx -- sulfur limit is, in summary, fairly simple, in detail, it's very complex. But in summary, we don't believe that very many ships in the MR space are going to put scrubbers on. The consequence, the MR sector is going to be burning MGO and possibly some ultra-low-sulfur fuel oil grades if they get developed in time. Overall, there's going to be a significant increase in demand for MGO as bunker fuel. We believe that, that's going to result in a lot of cargo movement, specifically relating to MRs. In other words, moving MGO around the world to meet the needs of local bunker markets. It's also a possibility that MRs get picked up for storage at least on a temporary basis while the transition takes place and shore tankage gets cleaned out. So we think it's -- I think the overwhelming approach and response from MR owners is going to be MGO or ultra-low-sulfur fuel oil. And on the demand side, we're expecting that it's going to have a perhaps meaningful impact and a positive impact on demand.

And the next question comes from Jon Chappell of Evercore.

Tony, a couple comments on asset values without maybe focusing on them too much. You mentioned that the prices you got for the Frontline ships in mid-'16 haven't been replicated since, so that indicates that they're moving up. And then interesting comment from Paul about the every $1 million increase in vessel values and the accretion to your NAV. It seems from broker reports that asset values have been moving up despite kind of the volatility within the charter rates, but you obviously see things a lot closer than we do as you inspect ships. Can you confirm that asset values have been indeed been inching up in the MR space specifically and up against your outlook for the market this year, what your anticipation is for 2018 asset value momentum?

Yes. I think the story for the older ships is a bit different than the newer ships. So there perhaps hasn't been a move up in the values for older ships. But for the newer ones, particularly Eco-Designs, which is, in reality, the bulk of our fleet in terms of value, they do appear to be moving up. Obviously transaction volumes are very light, but there've been a couple reported sales at meaningfully higher numbers. And so it seems like the sentiment has shifted a bit and the trend line is up. And indeed, every $1 million per ship is about $0.90, isn't it, Paul?

$0.86.

$0.86, yes.

Is there a way to kind of gauge -- and once again, we get the broker reports weekly so we can kind of make our own estimates, but you're in the market closer. That accretive acquisition, that was a great chart that you put in there on what the buyback did to your EPS at different rate assumptions. Is there any way to gauge kind of how much asset values are up since you made that transaction in late November?

In late November, you could -- I mean, you could argue that the modern ships have increased in value by $1 million, $1.5 million.

All right. So that's incredibly meaningful. You bought stock at a discount to NAV and your NAV is up at least $1 since that time. So that just leads to my last question, and maybe we've talked about this in the past in a different way. But if I look at your fleet, there's 4 ships that are, I think, 12 years or older, 3 of them are 14 or older. And it seems to be like a tremendous arb right now of your stock trading at a massive discount to NAV. Would you look at potentially monetizing those ships kind of focusing on the core Eco fleet, the very modern ships and then executing another buyback to get that same type of accretion that you did through the Greenbriar transaction?

It's an interesting idea. I think the challenge with share repurchases that given our average daily trading volumes it's difficult to do anything in scale, which is why the Greenbriar transaction was such an opportunity for us. But yes, if especially at current levels, if we saw a way to kind of meet all of our other considerations and buy back a meaningful number of shares at these levels, obviously, that would be attractive.

All right. Final one for me and I'll turn it over. It seems also from broker reports that the Time Charter markets also have been strengthening a little bit amid the volatility. And at least to me, it seems like there's been a 2-tier market kind of widening where Eco ships are getting maybe in the high-$13,000 up to $15,000 a day and maybe some of the older ships a little bit lower. Once again, can you confirm that? And obviously, you wouldn't be expected to lock in ships at time charters at the perceived trough of the market, but kind of how does that translate then into these, on asset values as well?

Well, it is correct that time charter rates for MRs have been moving up, especially for the newer ships. And what's happening is that, in particular, oil traders are taking on more tonnage and rebuilding their controlled fleets. They're trying to do it quietly, but they're doing it at higher levels than, let's say, 3 months ago. And that's clearly a very strong signal. I mean, they're the most knowledgeable people in our segment. And so when they start doing that, that's a very bullish sign. And that also bodes well for asset values longer term.

And the next question comes from Ben Nolan of Stifel.

So I have a handful. The first one is, I suppose, Tony, maybe a little bit theoretical. But one of the things that we've been trying to wrap our head around is what is -- well, what is causing the weakness in the product tanker market despite strong demand. And I think that the consensus view is that the inventory drawdowns have been the culprit there. I'm curious if you guys have sort of thought through what the ultimate impact of that would be or maybe another way to think about it is, inventory drawdown is neutral, what do you think the product tanker market would look like today?

Well, we are in a much improved rate environment from 3 months ago. So I think that's one important point to make. Rates have come off just recently, the last couple of weeks. But even firm markets or firmer markets are a bit volatile, and we don't think the winter is anywhere near over. So we think -- in fact, even the last day or 2, rates have been strengthening quite a bit. So I think we should -- we believe we're set for a reasonable winter market. I think what's holding back the MR market at the moment is probably 2 factors. One is that even though inventories are at a low level right now, oil prices have increased significantly, therefore, bunker prices have gone up a lot. If we were dealing with oil prices from 6 months ago, our TCE would probably be $3,000 a day higher, but that's all been taken away because of higher bunker prices, but that's just the way it is. But on top of that, the oil market, at least the last look I had, was in backwardation. And that's not good for storage activity. So I think if you see a return to a contango shape in the curve and combined with currently low levels of inventories, you would see a lot more activity, a lot more trading activity and a lot more cargo going -- or product going into storage. And that would be good for the business. I think there is a component of demand that could return to the market very quickly under those conditions.

And so to that extent, is your view that the market is sufficiently tight enough currently such that should the curve flatten or whatever and trading activity pick up that it would have a meaningful impact on day rates and ultimately, earnings?

Yes, yes, we think so.

So then my next question is, something that we've kind of been hearing around a bit is that a number of your private competitors, in particular, have been facing some more severe cash flow challenges as of late given the market conditions that have been a little bit persistent. Are you seeing any distressed opportunities beginning to materialize? Obviously, asset values for modern ships have held in reasonably well or going higher, but again, we're kind of hearing that there were some issues in the market for certain owners. Is that materializing in any way with respect to opportunities that you've seen?

I think, in short, not yet, but it could. But then, of course, the challenge is always to make sure that the opportunities represent ships that we would actually want to own.

Okay. And then lastly, following on something that Noah had bought up in your answer to his question on the potential demand side developments of the low-sulfur emission regulations. You've mentioned that obviously there will be a lot more MGO needed and that would translate into demand for our MRs carrying MGOs. Curious what that looks like today? How much gas oil are you moving currently and what would that delta perhaps look like in a 2020 environment?

That's a really good question. I don't have that at hand. We'd have to kind of think that through. But I think the global bunker requirement is like 5 million barrels a day. And if something like 2/3 of that or 3/4 of it went from heavy fuel oil to MGO, that's probably a significant increase in demand for gas oil and middle distillates, in general. And my favorite quote around the topic is from a while back that this oil analyst said that, there appears to be enough distillate production to meet the requirements that are going to come into place in 2020, but the problem is that, that production is not in the right place.

And our next question will come from Mike Webber of Wells Fargo.

Tony, I wanted to try to tie together a couple lines of thought here just around the conversation you just had around MGO and the 2020 regs with a comment that you thought that higher crude prices were providing a headwind for TCEs in the back in the form of bunkers. In a scenario where we're actually short MGO and post-2020 and we've got to store and/or have some less efficient tonne-miles or kind of less efficient moves to get that into the right spot, is the right way to think about this that, that kind of a scenario would actually end up being a headwind for MR rates unless you're actually the one providing the MR for storage or that particular move? Wouldn't that have a larger impact on bunkers and ergo your TCE levels? What I'm asking is that...

My view is that any source of employment or demand for MRs is good for the overall sector because MRs are completely fungible. So if you're taking ships out of the market for storage, just like with VLCCs, it definitely helps. So we think that, that additional cargo movements and potential storage increases demand. Now if you're in a relatively tight market to begin with and bunker prices go up, then the shipowner is in the driver seat and can actually negotiate higher rates. The difficulty is when the markets weaken and bunker prices go up or let's say, bunker prices go down. Even then, then the charterer is able to extract that value in the negotiation.

Right, right. So the expectation is the market is firm enough that any sort of knock-on impact on demand is going to supersede the inevitable bump in bunker prices globally if everybody is basically short?

Yes. So the question is what happens first?

Right. And I guess if we're in a scenario now where higher crude prices are already weighing on TCEs, I guess it just seems a little too rosy, I guess, to suggest that it would only be a net positive.

Well, it will be a net positive, but it won't only be positive. And clearly, everything else being equal, the higher bunker prices that we pay because we're burning MGO will obviously take away from our TCE. But again, this is our experience in '15 is that when bunker prices dropped, freight rates didn't. In fact, freight rates went up because the shipowner was -- it was basically a -- effectively a seller's market, right? So in this situation, if demand is increasing, and hopefully we're in a good -- in a much better place anyway in 18 months so that we're in a strong charter rate environment, any incremental demand is going to help things and any incremental cost associated with burning a more expensive fuel, I think it'd be fairly effectively passed on.

Okay. Yes, no, I mean, a lot of moving pieces to that, so I appreciate you swinging at it. One more for me, and you touched on this a bit earlier, I think, with Jon's questions around buyback. But the dividend policy, while you're not paying a dividend now, the policy is actually working as intended, right? You're not paying something out and getting over your skis. So it seems prudent and probably the reason why this policy is in place to begin with. I'm just curious, as you look at '18 and 2019, are there any factors that you think could ultimately change that, I guess, your thinking around that longer term or when you evaluate your policy around return of capital, what are the bigger things you're looking out for in terms of potential pivots?

Well, I think we frame up our dividend policy, which we're quite happy with at the moment, in terms of overall capital allocation, not just return of capital. And that's really what we want to focus on is, how do we -- what capital allocation decisions can we make over time that will maximize value in a very cyclical business. So far, we think we got it right. We've returned a lot of capital. In fact, we've returned about $1.50 through dividends and share repurchase, perhaps even more with share repurchase since we went public 5 years ago. And that's a pretty large number. At the same time, we've made some pretty astute investment decisions as well, we think. So our focus is on the aggregate factors that play into overall capital allocation. And at the moment, we're happy with our dividend policy.

Fair enough. One more and I'll turn it over. Just in terms of what you're seeing today within the Chinese trade, obviously, a lot of pressure on naphtha, which I think is stemming from the new tax laws. Have you seen any structural changes there in terms of what that might mean for your inbound mix and whether you see any potential -- I know it's going to be mostly, I guess, LPG that would make up the difference, but whether there's any sort of, kind of petchem kind of knock-on that you could potentially benefit from there?

Well, that's a good question. And to be honest, I'd have to go back and talk to Gernot about that to get a proper answer. But what we're observing is that there are some fairly long-haul MR voyages taking place with naphtha. So there is an arb and it has been employing MRs, in particular, or at least on a larger scale. And that's been good for us. But there is this ongoing battle between naphtha versus LPG as feedstock for petrochemicals. I think that's more of an issue for LRs than for MRs.

And next, we have a question from Magnus Fyhr of Seaport Global.

Just a question on the 2020 regulations. Seems like the shipping industry is getting ready for 2020, but this seems like a huge logistical challenge for the refinery sector. In your conversations with them, what do they say about getting ready for this within 2 years? And do you think they're going to be ready?

I don't really have an educated response to that. I can talk about what we're hearing from other shipowners and maybe oil traders a little bit in terms of -- as it pertains to kind of trade and cargo movements and that kind of thing. But the complaint is that the IMO wasn't sufficiently clear far enough in advance to give the refineries confidence to make the capital investments required to produce the grade needed, but somehow I think they're going to manage it. And as I mentioned earlier, I think it's more a question of where is it produced versus where it's going to need to be consumed. And that could result in a lot of cargo movement, in particular, on MRs.

Okay. And just one question on the -- I guess, the fixed bookings for 1Q. It seemed like the percentage was pretty high for the IMO and the chems at 87%, should we read into anything of that why was that number a little higher than normal?

It really -- it's just -- we have a relatively small number of those ships. And they can sometimes engage in fairly short voyages and other times on very long-haul voyages. So in particular, they're doing some very attractive veg oil voyages at the moment, which are filling up the quarter almost completely now.

(Operator Instructions) And our next question will come from Fotis Giannakoulis of Morgan Stanley.

Tony, I want to ask -- to follow up on the weakness of the market that we saw since the beginning of the year. It seems that part of that has been the weak demand out of Europe because of the drop in refinery margins. And last few days, European refinery margins have started to pick up, and I'm wondering if you start seeing some better activity out of Europe that will spread the fleet wider throughout the Atlantic?

Yes. Thanks, Fotis. The Americas' market is also tightening at the moment. The tonnage list is relatively short and there have been a lot of cargoes in the last few days. So that's definitely firm. Europe remains -- the trend there is also firming. So we think that the Atlantic Basin should look a lot different in a week or 2.

Okay. And how do you expect this tightening market in the Atlantic to play out during this turnaround season? When shall we expect to see rates reaching or even exceeding the level of the period contracts indicate right now?

Well, at the moment, probably activity in the Atlantic is probably up to around $12,000 a day. And so if you're talking about when your TCE rate is going up in the mid- to high-$13,000, we could get there fairly quickly. I mean, we were over that level 2 weeks ago. So we think that -- it's -- my own view is that the winter is far from over, that we have a lot of weeks and months ahead of us which should deliver some pretty good results in the Atlantic and in the Far East. So overall, we're relatively bullish at least for the next few months. But I think overall, there is a dampening of activity relating to the higher fuel price which -- higher oil price which has squeezed refinery margins and pushed the market into backwardation and that discourages storage activity.

Tony, can you give us a little bit more color about the financing of the latest acquisition. I think you mentioned in your press release that you did an operating lease, does this mean that it's a sale and leaseback, it's off-balance sheet this vessel again? And can you indicate for how long is this operating lease?

Yes, 6 years. It's called -- I mean, the terminology is a Japanese operating lease. However, we're booking them as capital leases because of the -- just the U.S. GAAP requirements and the interpretation of that. So these are being booked as debt or capital lease obligations on our balance sheet.

Okay. That's clear. And one last question. The last few months, if not a year, there is a lot of discussion about private fleets controlled by financial investors that they might be looking to, in one way or another, to exit their position or even going public either directly or through a reverse merger with an existing player. I understand that at this point issuing stock below NAV wouldn't make any sense, but if there were an NAV-to-NAV transaction, is this something that you would consider? Are there any discussions that might be in development and that we might see something in the future?

Yes, obviously, we wouldn't comment on any activity, but I would say that in principle, an NAV-to-NAV transaction could be attractive, but it's got to be with the right ships and it's got to result in a continuation of our current shareholder profile and distribution. So it certainly is in principle something of interest, but at this point, it's more theoretical than practical.

And our next question will come from Randy Giveans of Jefferies.

This is Chris Robertson on the phone for Randy. My first question is in regards to current rates, could you provide any details regarding current rates versus the headline numbers that are out there?

Which headline numbers are you referring to?

Just in terms of what's published, either through Clarksons or Howe Robinson and kind of the things that are public and out there?

Yes. I think the Howe Robinson report is a particularly good one. If you're looking at the daily one that's got like the 40 or 50 different routes on it. And if you look at the one column versus the other it's not Eco-Design, it's actually just Eco-Speed. So in reality, the markets -- and they have enough routes that they come up with a good balance. And I've always noted that I think that's actually a pretty fair assessment of where the market is. And so that would indicate today that the MR market globally is probably around $12,000 a day, but that's down significantly from a couple weeks ago.

Okay. And then my second question is in regards to Slide 13. I was wondering if you could provide any additional -- any color around your drydocking cadence for the year, specifically the number of ships you expect?

Yes. I think we have 6 ships in drydock this year and approximately CapEx on that between $5 million, $5.5 million. So under $1 million per ship, kind of between $600,000 and $900,000. And that would include some ships that are in boiler surveys and special surveys as well.

And this concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.