Ardmore Shipping Corp (ASC) 2018 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Ardmore Shipping's First Quarter 2018 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 1 week by dialing 1 (877) 344-7529 or 1 (412) 317-0088 and entering passcode 10119955.

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

Good morning, and welcome to Ardmore Shipping's First 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 first quarter 2018 earnings release and presentation. Tony and I will take about 15 minutes to go through the presentation and then open up the call for questions.

Turning to Slide 2, please allow me to remind you that our discussion today contains forward-looking statements. Additional results -- 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 first quarter 2018 earnings release, which is available on our website.

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

Thanks, Paul. So 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, after which Paul will provide the 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 $9.9 million and a loss of $5.2 million, or $0.16 per share, for the first quarter, reflecting earnings lower than we had hoped as a result of our market exposure in the Atlantic basin as well as timing and expenses, both of which are short-term factors.

The MR spot market remained challenged through the quarter. Strength early on was followed by reduced refinery throughput in February and March, putting downward pressure on rates, particularly in the Atlantic basin.

Overall though, we delivered satisfactory chartering performance with our MRs earning $12,700 per day, representing a meaningful increase on the fourth quarter of 2017, which was $12,130 per day, and with our chemical tankers performing well on a relative basis at $13,500 per day.

During the first quarter, we took delivery of the Ardmore Sealancer, a highly efficient, 2008-built Japanese MR with attractive financing under JOLCO structure.

We've agreed to terms for refinancing 2 of our 2013-built MRs under sale and leaseback arrangement with the top-tier Asian financier on attractive pricing and terms, which Paul will discuss later.

[And in spite] of the currently weak charter market conditions, the market outlook is positive. We don't say this lightly, but we believe that we will reach an inflection point in MR -- in the MR market later this summer given that refinery throughput is set to increase significantly over the next 4 months to the highest level on record, oil demand growth is very strong and product inventories are well below their 5-year average.

Looking ahead, the 2020 sulphur cap is now coming into focus. We believe this will have a positive tonne mile demand impact for MRs and will also benefit more fuel-efficient Eco vessels, such as those in our fleet.

Turning to Slide 6 for a quick look at our fleet profile. As you'll see, the only change to the fleet during the quarter was the addition of the Ardmore Sealancer, built in Onomichi, Japan and an identical sister to the Sealeader and Sealifter. This brings our total fleet to 28 MR product and chemical tankers.

Turning now to Slide 8 on the product and tanker market -- product tanker market fundamentals. We believe the outlook for the MR sector is increasingly positive. Refinery throughput is set to ramp up significantly with a 3.2 million barrel per day increase from April to August to a level of 83.3 million barrels per day, the highest level on record, and obviously, supportive of product tanker demand. Global oil demand growth is strong at 1.5 million barrels a day and is being matched with a similar level of refinery capacity expansion in export-oriented locations. And refined product inventories are now well below their 5-year averages, which should stimulate incremental trading activity.

Meanwhile, MR supply growth is now close to 0. We're forecasting 37 MRs to deliver over the remainder of 2018. Meanwhile, the scrapping run rate has increased to approximately 40 MRs per year. And as a consequence, the MR fleet growth net of scrapping is expected to be well below 1% this year and trending even lower into 2019.

Other factors to be taken into consideration include an increasing focus on the 2020 sulphur cap. This may begin to be felt in mid-2019 as refineries and downstream supply chain start to move over to MGO in order to meet the December 31 deadline. We believe this has the potential to be highly disruptive to distribution and storage and should provide a meaningful boost to MR tonne mile demand.

The MR sector has experienced downward pressure -- rate pressure from LRs and crude tankers over the past 6 months. We believe this should begin to ease in the second half of 2018 with even a slight improvement in these markets. Oil trader sentiment is turning more bullish on tightening oil market fundamentals. Increasing geopolitical risk is further contributing to oil price volatility and trading. And as noted by PIRA in a recent report, there is the makings of a potential scramble for crude supply this summer as refineries ramp up, which could aid tankers more broadly.

Overall, we believe that the market is poised to reach an inflection point in rates later the summer. The demand forces are described -- as described above are significant, and MR tanker supply growth is now close to 0.

Turning to Slide 9 on the chemical tanker market. Our chemical tankers averaged $13,500 in the first quarter, up from $13,370 in the fourth quarter of 2017. During the quarter, we (inaudible) our ships from an external pool and all are now traded in-house and performing very well. Looking to recent chemical tanker market activity, increased Indian palm oil import duties have display short-haul Southeast Asian imports into India with longer -- long-haul edible oil volumes sourced from the Atlantic basin.

UAN volumes from the United States have been ramping up on the back of 2.7 million tonnes of capacity additions over the last 2 years. Overall, however, the broader tanker -- chemical tanker market remains active, but continues to be affected by weakness in the product tanker market. We expect solid demand growth for commodity chemicals, coupled with continued production expansions in the U.S. Gulf and Middle East Gulf to boost export volumes and lengthen voyages.

The chemical tanker demand is highly correlated to the global economy. Accordingly, with global GDP forecast to grow at 3.9% in 2018, chemical tanker demand growth is expected to strengthen along with it. Meanwhile, the chemical tanker order book continues to decline and now stands at 7% of the existing fleet. Within that number, stainless steel tankers account for 60% of the overall order book and that comprised 10% of the existing stainless steel tanker fleet.

On the other hand, coated IMO2 tankers, like ours, currently account for 40% of the order book and account for only 5% of the existing coated IMO2 fleet. Overall, we expect net fleet tanker growth in 2018 of 3.5%, which should be well below demand growth.

And as a final point, our chemical tankers are continuing to perform very well. We anticipate that they will achieve around $14,250 per day for the second quarter this year. When you adjust for the lower capital invested as compared to MRs, the MR equivalent rate would be approximately $15,000 a day, which is a very respectable level.

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

Thanks, Tony. Moving to Slide 11, we'll run through the fleet days. As Tony mentioned, we took delivery of the Ardmore Sealancer at the end of January. And as you will see on the chart on the right, our revenue days increases by 3% for the full year to 9,986 days. We had 20 drydock days in the first quarter and expect 35 drydock days in the second quarter of 2018.

Turning to Slide 13, we'll take a look at our financials. As you will see on the second line, we are reporting a net loss for the first quarter of $5.2 million or $0.16 per share. Total overhead costs were $3.75 million for the first quarter, comprising corporate expenses of $2.9 million and commercial and chartering expenses of $800,000. 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 are expected to be $12.5 million, which works [out to] $1,250 per day per ship across the fleet. For the second quarter, we expect corporate and commercial cash overhead to be $3.5 million and noncash overhead to be $750,000.

Depreciation and amortization for the first quarter was $9.5 million. And we expect depreciation and amortization in the second quarter to be $9.65 million.

Our interest and finance costs were $5.7 million for the first quarter, comprising cash interest of $5.1 million and amortized deferred finance fees of $600,000. We expect interest and finance costs in the second quarter to be approximately $6.3 million, including amortized deferred finance fees of $600,000, reflecting the additional lease debts associated with the Sealancer acquisition in January.

Moving to the bottom of the slide. Our operating cost for the quarter came in at $17.3 million or $6,786 per day across the fleet, including technical management. OpEx for the Eco-Design MRs was $6,915 per day for the quarter, our Eco-Mod MRs came in at $6,632 per day, while the Eco-Design chemical tankers came in at $6,635 for the quarter.

Operating expenses came in higher than expected on the Eco-Design, primarily due to timing of crude costs, vessel stores and upgradings expense in the first quarter of the year.

Looking ahead, we expect total operating expenses for the second quarter to be approximately $16.4 million, a reduction from the first quarter and a more normalized run rate for the rest of the year.

Turning to Slide 14, we'll take a look at charter rates for the quarter. Overall, in spite of a soft charter market conditions, we delivered a satisfactory chartering performance during the first quarter, with pool and spot MRs earning $12,721 per day, while the fleet average came in at $12,897 per day.

Looking at the various ship types, we had 15 Eco-Design MRs in operation, which earned an average of $13,146 per day for the quarter and the 7 Eco-Mod MRs earned $11,806 per day.

Although the TCEs for the Eco-Mods are lower, these vessels have much lower investing capital and overall, the returns on the Eco-Designs and Eco-Mods are about the same.

The 6 Eco-Design chemical tankers performed very well in the first quarter with average rates of $13,504 per day.

Looking ahead to the second quarter, as of today, the MRs are earning approximately $13,000 per day for voyages in progress, with 45% of the days booked, while our chemical tankers are currently earning $14,250 per day, which we expect will continue for the full quarter.

Overall, we are satisfied with our chartering performance. And in particular, the chemical ships are performing really well commercially with their in-house team.

Moving to Slide 15, we have our summary balance sheet, which shows at the end of March our total debt and leases was $451 million. Our leverage is 54%, which includes the lease debt associated with the Sealancer acquisition, which was drawn in January. Our cash on hand at the end of the quarter was $35.3 million, with $29.6 million in net working capital.

Turning to Slide 16. We remain focused on maintaining a strong liquidity position, and we are continuing to pay down debts. As mentioned, our cash balance at the end of March was $35.3 million, with $4.5 million undrawn from the revolving credit facility. We recently agreed terms for the refinancing of two 2013-built Eco-Design MRs under a sale and leaseback arrangement on very attractive terms for a high advance with a top-tier Asian financier. The transaction is subject to documentation, which we expect to complete at the end of May, and we will provide more details on the terms at that point.

The financing is expected to release cash net of repayment of existing debts of between $8.5 million and $9 million. All of our debts, including capital leases, is amortizing at $44.5 million per year, so we're continuing to delever and strengthen the balance sheet.

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

Thanks, Paul. So to sum up, the MR market remained challenged with our vessels earning $12,700 per day in the quarter. The chemical tankers performed very well, earning $13,500 and thus lifting overall performance.

But notwithstanding, we believe the market outlook is increasingly attractive on account of the following key points: Refinery throughput essentially increased sharply this summer by 3.2 million barrels a day, which is significantly higher than the 5-year average summer ramp up by -- in fact by 1.3 million barrels a day; oil demand growth overall is very strong at 1.5 million barrels a day; refined product inventories are now well below their 5-year averages, which should help stimulate incremental oil trading activity; MR supply growth is close to 0, given the lower pace of deliveries and elevated scrapping levels over the past 6 months; and we believe the downward pressure on MR rates from LR and crude tankers should start to ease in the second half of this year even with just a slight improvement in those markets.

Meanwhile, we continue to focus on balance sheet strength and liquidity as well as incremental earnings power through operating improvements and effective capital allocation, such as the recent MR acquisition and associated lease financing.

To conclude, the MR market over the past 2 years has turned out to be something of an endurance test. The fundamentals have been positive for some time, and we've been waiting for an improvement in rates. But we've been held back by specific oil market dynamics and downward rate pressure from larger tankers. Given the factors described above that are now lining up in our favor, we feel that the wait may soon be over.

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

(Operator Instructions) Your first question will come from Michael Webber with Wells Fargo.

Tony, just a couple of questions on IMO and then, Paul, liquidity question for you. But just maybe [kind of] high level, just considering kind of the ramp in activity and chatter we're seeing kind of heading into 2020, can you talk a bit about when you start to think about strategically positioning your fleet to kind of meet any shifts in tonne mile demand that might arise from that gradual transition towards the end of next year? And maybe how you would think about doing that in terms of geographical concentrations? Yes, so can you maybe kind of (inaudible) when you think about repositioning your fleet or tweaking your fleet to take advantage of that?

Yes, Mike, that's a good question. Honestly, it's too early to think about it. I think we need to identify where we feel that the flows will be coming from. And that could actually create some imbalances between the 2 hemispheres as well, but clearly a point that we'll have to focus on as we get closer to it.

But too early to say, there is a -- there's been a growing emphasis on kind of maintaining the healthy presence in the Atlantic basin more so than you already have. Is it too early?

Yes. At the moment, we're about 2/3 in the Atlantic basin, 1/3 in the East. And that didn't work out too well for us in the first quarter. But actually, at this point, the markets have rebalanced. So that they're roughly at same levels, East versus West. It'll be interesting to figure out where the -- what the broad direction of flow is going to be of the MGO required for bunker fuel, and then to figure out how to position against that.

Again, it's on a higher level, just thinking about the industry in general and maybe kind of just getting your take on the product tanker space and then maybe shipping in general. In terms of scrubber penetration, when you think about where we are now versus where we could get to by 2020. Is that number in 2020 sub-10%? And is it having sub-5% in terms of where you think it will actually shake out and ultimately, drives kind of the mix you guys ultimately would be carrying?

Yes. That's, again, good question. We're looking at this pretty carefully. On the other hand, we don't -- we're not looking at it with a view toward participating. It seems like scrubbers work much better on the bigger ships. In theory, you want to put the scrubber on the biggest smokestack you can. Ideally, that would be ashore, but we have to do something on ships. But that's clearly big container ships, VLCCs, capes, et cetera. The other thing is that you need to be in a position -- you need to be trading in a pattern where you can be confident regarding your access to 3.5% sulphur high -- high-sulphur fuel oil. So that makes it a much bigger challenge for smaller ships like ours, both in terms of the economics and the availability of the fuel, because we just -- we trade very randomly around the world. So my understanding is that the best -- well, it's clear that the best time to install scrubbers is during a drydocking and requires some advance planning. So I would say that I'm not sure there's really much time left for companies to plan ahead or to kind of decide now. So I think whatever is in the works is probably the number. Like I said, it'll be probably quite a bit larger. I'm only aware of 4 MRs that are being fitted with scrubbers that are new buildings. So I think it's going to be potentially real windfall for the ships that do fit them in the bigger sectors. But then the question is how long will that last in terms of the emergent 0.5% fuel oil and a differential to 3.5%.

The payback period is certainly a question. I appreciate that. That's helpful. And then Paul, just one more for you and just to make sure I'm following this correctly. When I look at your liquidity profile and you kind of go through this on Slide 16, thinking about $44.5 million of your amortization, you're sitting on it, (inaudible) in Q1, but just sitting on $35 million in cash and almost $4.5 million of undrawn revolving capacity. How should we think about your ability to kind of meet that (inaudible) profile if we do sit at this kind of a rate complex for the better part of the year?

I think we're -- so if we -- $35 million as of the end of March plus when we complete the sale and leaseback, we'll be up to kind of mid-$40s million or $45 million. At these rates -- and it's certainly trending upwards in the second quarter and hopefully a bit better. But leaving that aside, at these rates, you're kind of burning somewhere around $3 million mark per quarter. So I think we're in a really strong position from a defensive standpoint, but obviously, if you're to do something more, you would -- we wouldn't have surplus cash to do kind of big acquisitions. But I would say, in terms of our ability to -- I don't think we make any changes to the amortization profile. I think if we -- if these continue, you might do another refinancing of some of your ships. But I think we're in a really good position. We have -- leverage-wise and liquidity-wise, I think we're strong and certainly able to, hopefully, make the best out of these markets with the balance sheet we have.

And our next question comes from Ben Nolan with Stifel.

So my -- I guess my first question relates to sort of the market dynamics. In talking to handful of MR operators in particular in the last few weeks, it sounds like at least some people are experiencing a lot lower waiting periods for cargoes or effectively, they're beginning to see already right now the effective utilization of the fleet tightening. Was curious if you are -- although apparently that hasn't translated into pricing yet. But was curious if you're seeing the same thing? And if that is what is beginning to give you confidence that we're close to an inflection point?

Ben, it's Tony. The tonnage lists for both U.S. Gulf and for Europe have been shortening. They're not at bullish levels yet, but they're trending in the right direction. So -- and much improved compared to 1 month or 6 weeks ago. So that is something we're seeing as well. The U.S. Gulf market has improved significantly in the last few weeks. And so things seem to be much more reasonable in the Atlantic basin. At the same time, unfortunately, rates have trended down in Southeast Asia and in the Far East generally, so that now rates are -- in both hemispheres are roughly at the same level. But there is a tightness in terms of waiting lists and it does feel better.

Okay. And I don't know if this was just sort of my perception or not, but it seemed like in your prepared remarks there, Tony, you talked a bit more about the chemical tanker market than maybe you had in prior quarters. That might not be right. But it seemed that way at least to me. Is that an area where you're beginning to be a little bit more constructive? And maybe, obviously, it's a small portion of your fleet now, but as we go forward looking out longer term strategically, is that something that you would envision growing?

I think we're really happy -- I think we like the exposure we have there because it does add something to the MR trading activity as well in terms of what we do, and there's a very heavy overlap between MRs and the type of chemical tankers we have and -- regarding cargoes and customers. So there is that benefit. I wouldn't imagine us stumbling down or kind of increasing our exposure to chemicals just at this moment. We think that there is better opportunity in the MR space. But we did want to talk a bit more about chemicals in this call because we are doing well. And I think it speaks as much to the sector as it does to our ability to operate them and the quality of the ships that we build. These are very fuel-efficient ships, and they are nice size, they fit a good niche. And that particular niche has a very low order book at the moment.

Okay. That's helpful. And then lastly from me, and I'll turn it over. You're now -- it sounds like you're out of the pool business. Just curious what the thinking is there? I mean, ultimately, do you expect to be able to lower your costs? Or what's the advantage of doing things in-house as opposed to even partially being in the pool?

We've always felt that we were quite agnostic when it came to participating in pools. We were simply looking for the best mode of employment and returns. And we had just gotten to the point where we felt that we developed our own platform, and we could manage operationally better and produce better results. The other thing that's important to highlight, there's not -- typically, people don't talk about overhead very much in shipping, but the reality is that our ability cost-wise to operate ships in terms of stock trading is at about 2/3 or less the cost that it would be if we're paying pool fees. So there is the cost savings. We think that they're performing quite well, gives us better control over the operations, and of course more scale as well, which helps the other ships.

Your next question comes from Magnus Fyhr with Seaport Global.

Just a couple of follow-up questions. First, on the chemical market. I thought you said the average rate booked for 2Q, $14,200, and you expected that to continue for the remainder of the quarter. Can you just refresh our memories about the seasonality in this market? I mean, is Q3 typically a weaker market? Or how do you see that this year?

With the type of ships we have, there's such a heavy overlap with CPP that they pretty much follow the same seasonality. And it's just interesting to note that going back a couple of years ago when the CPP market was strong, our ships were trading 50% or more in refined products. And now that, that market's weak, they're doing roughly 1/4 to 2/3 products, right? So I think there's a very, very significant overlap. And that means, they more or less move together. We are benefiting at the moment from strength in the veg oil trades, in particular. And we think that will continue for a while longer.

All right. Good. And there hasn't been much new building in the MR space. I've seen a few orders. But what do you have from the yards there? Are they getting more aggressive or they're focusing on the larger ships?

The yards that build MRs are what I would like to describe as in a kind of a drip-feed mode. They're just taking orders as they need to keep everything ticking over. And in reality, there's only 1 yard at the moment that people are ordering at. That's (inaudible). STX is talking, but otherwise, there's really nobody very active at the moment. Maybe a little bit in China and a tiny bit in Japan.

And what would you say the price talks for new MR? $35 million, $36 million? Or you're seeing lower pricing?

No. It's probably around that, maybe $35 million, $35.5 million for a tier 3-type vessel. But just to remind the audience that -- or anybody that's listening that, that's the contract price when you add on some extras, et cetera, you're very quickly up another $0.5 million. And then you got capitalized interest and supervision costs. So the $35 million, $35.5 million contract price will deliver that $36.5 million or $37 million.

Okay. Great. And just one last question for Paul, talking about the liquidity. Is there -- what's the minimum liquidity covenant now turned? I know you have a pretty good cash position, but just refresh my memory on that one.

Yes. The liquidity, it's 5% of (inaudible). And it's just -- it's a pretty simple calculation. It's around the $21 million mark currently. So we got lots of headroom on it. And as we paid on debt, obviously, that number comes down as well. So we're in pretty good shape.

And our next question comes from Noah Parquette with JP Morgan.

I just wanted to follow up on the OpEx. You mentioned that some of it was due to timing this quarter. Are we going to see all those benefits kind of at the reversal of the timing in Q2? Or will these spread out over the course of the year?

Noah, yes, I suspect you'll see it -- for the most part, you'll see it's spread over the course of the remaining 3 quarters. It just happened you had a few things come all at once in the first quarter. We had some crew changes, which is front-loaded and also some stores and then some kind of upgradings, elective stuff that we did, plus the Sealancer delivery as well. So just a combination of small things in the first quarter, which should certainly you feel the benefits of it for the remaining. I wouldn't say it will all come in the second quarter, I'd say it will come over the remaining 3 quarters. So tracking for the full year, for the remaining quarters, it's about 16 -- $16.4 million per quarter. And average for the full year should be about $6,500, $6,550 per ship per day. So you'll certainly see that come back in the second, third and fourth quarters, so.

Okay. Great. And then just follow up. I think, Tony, you mentioned that 4 MRs are going to have scrubbers installed during construction. Is -- do you see that number increasing material from -- materially from here? Or you expect almost no new builds to have scrubbers?

Yes. I think, first of all, some of them are being fitted to be scrubber-ready. And others -- and very few are actually delivering with scrubbers installed. We're not actually actively tracking it, but I'm just commenting on what occurred. And so far, I'm only aware of 4 ships that are coming out of the yard with scrubbers fitted. And I haven't heard anybody that's retrofitting.

Okay. That's helpful. And then just lastly, I think you mentioned you are 2/3 exposed to the Atlantic. Do you see yourself having, like, organizational flexibility to change that? Or does that require more kind of moving around people or investment?

It's really -- it's simpler than you think, which is that it's not very easy to deliberately move ships from one hemisphere to the other. The trade will take you there or it won't. And sometimes, you could force the trade if you feel very strongly, but it seems very often, if you do that, you're going to be punished as often as you're going to be rewarded, because it takes a long time to get there and then things change. Bottom line is that the ability to deliberately swing significantly from one hemisphere to the other is quite difficult.

And our next question is from Amit Mehrotra with Deutsche Bank.

This is Chris Snyder on for Amit. My first question is around IMO 2020 regulations. There seems to be multiple potential demand tailwinds for the product tanker sector come 2020, whether it's just better refinery margins, the shift of bunker transportation to product tankers or the -- just the need for refineries to import low sulphur blending components. So when you kind of think about the demand impact of the regulation, what part gets you the most excited?

There are really 2 pieces to it. One is the disruption in the lead up to the transition and then the impact thereafter. So I'm looking at the PIRA report from April. And one of their sub-headlines is that IMO 2020 will be one of the most disruptive events ever seen for refining. So it's going to be a big, big event for the refining industry. That's inevitably going to result in a lot of cargoes or a lot of different grades moving in different directions and that, of course, will help us. Another interesting thing that we have no evidence of or have heard no other discussion of, but we think is a possibility, is that while the [shore] storage and the [bunker parts just after going through] this transition of cleaning up from heavy fuel oil to gas oil, they need extra storage. And perhaps that will be floating storage. So I think that's another consideration. So I think it's the disruption possible storage activity in the final months leading up to December 31, 2019. And then the ongoing movements after that to basically get the MGO from where it's produced to where it's going to be needed, which is probably a much greater volume and a much different pattern of distribution that exists today.

And it seems like the disruption could come before 2020. Is that kind of what -- how you're seeing it? Like, when do you think we're can kind of start feeling this on the -- just from like a product tanker standpoint?

I think the earliest would be the 2019. But that -- once you get past that, the reality is that from January 1, you have to be burning MGO or have a scrubber fitted or using LNG or something. And -- but the other -- and then the other factor is that you're allowed to have high-sulphur fuel oil on the ship, but only until March 30 -- March -- to the end of March. So you have 3 months to get rid of any surplus or any extra onboard. Everybody will be trying to burn that down and that -- because that -- after that, it's just going to be shutting out cargo. So I think it's unlikely very many ships are going to have heavy fuel oil onboard unless they're fitted with scrubbers after the turn of the year, which means that, that whole process of changing over is going to have to happen quite a bit earlier.

Okay. Makes sense. And then just next question's around liquidity. Your LTV metrics suggest to us that you guys kind of have incremental capacity here. But at the same time, liquidity's at pretty low levels. Do you think the low liquidity will have any impact on your guys' ability to explore potential acquisitions or purchases over the next year or so?

In short, no. I think it will be business as usual in terms of how we approach opportunities. Our principles are to remain financially conservative and to just look at opportunities that are accretive. We're not able to take advantage of every opportunity that goes before us and that's fine as well.

(Operator Instructions) And our next question is from Randy Giveans with Jefferies.

So I know there's been some concerns about cash burn, but it looks like you had about $5 million or so in positive operating cash flow in the first quarter. So what are the cash breakeven rates for your MRs in chemical tankers?

Randy, so they're cash breakeven. Net income breakeven is about $14,500 and it's the same for cash breakeven before drydocks. So on a normal operating basis, you're running at kind of $14,500. So a little bit below that right now. And then CapEx this year will be about $4 million to $5 million in terms of the drydockings, et cetera. So hopefully that answers your question.

Yes...

And (inaudible) MR is around the same.

Sure. And then you announced half the quarter at $13,000 a day on the MRs and about $14,250 for the chemical tankers. So 2 questions on that, kind of why the outperformance by the chemical tankers? I know -- I think Tony was saying there's some benefit from the strength in the veg oil trades. So kind of talking to that outperformance. And then second, do you expect the rates for the rest of 2Q to be higher or lower than the first 6 or 7 weeks?

Well, the outperformance, like we said, they typically, if you look over time, if you adjust the rate for the invested capital and for the [25s], for example, it's 15% or 16% below, and for the [37], it's about 5% below an MR of equivalent age, et cetera. So when you make those adjustments, they typically track it around the same levels, which is no great surprise. At the moment, we've been benefiting, as I mentioned, from some very good veg oil trades. In reality, the rate that they've earned quarter-to-date is huge. It's much higher than $14,250. But we think the follow-on voyages partly will be kind of back-haul-type voyages will be lower. And we think we're going to finish up the quarter around $14,250.

Okay. And then to the MRs?

The MRs, we think that the $13,000 a day that we mentioned is a solid number.

All right. I guess, one more question on modeling. So drydocking. 35 days for 2Q, I'm assuming that's for 2 vessels. And then how many vessels do you expect kind of the rest of the year, 3Q, 4Q?

So you've got -- you don't know...

Excuse me, it's 2 dockings, but there are also some [in-water] surveys. So it's not like each docking is going to be 17 days. You can probably take probably 14 days after the actual dockings. And then a couple, few days each for the in-water surveys.

Okay. Any guidance for the rest of the year?

And then for the rest of the year, then you will have -- in the third quarter, you will have 2 more dockings. And in the fourth quarter, you will have 2 more dockings as well. So you've 2 more special surveys in the third and 2 more special surveys in the fourth quarter. And then as Tony said, you got some in-water survey.

And this concludes our question-and-answer session as well as today's conference. We thank you for attending the presentation, and you may disconnect your lines at this time.