DHT Holdings Inc (DHT) 2017 Q4 法說會逐字稿

Thank you. Before we get started with today's call, I would like to make the following remarks. A replay of this conference call will be made available at our website, dhtankers.com, through the February 13, 2018. In addition, our earnings press release will be available on our website and on the SEC's EDGAR system, as an exhibit to our Form 6-K.

As a reminder, on this conference call, we will discuss matters that are forward-looking in nature. These forward-looking statements are based on our current expectations about future events, including DHT's prospects, dividends, share repurchases and debt repayment; the outlook for the tanker markets in general; daily charter hire rates and vessel utilization; forecast of world economic activity; oil prices and oil trading patterns; anticipated levels of newbuilding and scrapping; and projected dry-dock schedules.

Actual results may differ materially from the expectations reflected in these forward-looking statements. We urge you to read our periodic reports available on our website and on the SEC's EDGAR system, including the risk factors in these reports, for more information regarding risks that we face.

I'm joined today by DHT's co-CEOs, Svein Moxnes Harfjeld and Trygve Munthe.

And with that, I'll turn the call over to Trygve.

Thank you, Eirik. Good morning and good afternoon, everyone. And thank you for joining the DHT Fourth Quarter 2017 Earnings Call. Before we open up for your questions, we will go through a presentation, highlighting the key issues in the quarter.

In addition, we will give you a brief refresher on our strategy and highlight some of the key market drivers currently at work in the large tanker market.

The fourth quarter was as usual and disappointing in the VLCC market. Towards the end of the third quarter and into the fourth, we saw indications of a normal seasonal upswing in the VLCC freight market. Unfortunately, this freight recovery faded quite rapidly as we witnessed the market slowdown in the amount of cargoes being tendered in the Middle East in particular. Lists of available tonnage grew longer and too long to allow the market to recover, once the fixing activity got back to more normal levels.

So then to the quarterly highlights. We generated an EBITDA of $33.5 million in the quarter, resulting in a net loss of $7.5 million, equal to $0.05 per share. Adjusted for impairment of $1.1 million and loss on sale of vessels of $3.3 million, adjusted earnings per share came in at a negative $0.02. Our VLCC earnings came in at $23,200 per day, of which the spot ships earned $19,600 per day. And as of today, we have fixed 60% of our first quarter '18 spot days at the rate of $20,000 per day.

During the quarter, we fixed 2 additional VLCCs on 12-month time charters. Both the charters have base rates around cash breakeven levels with profit sharing on top, and there are no options attached to the charters. Following these new time charters, about a quarter of our 2018 VLCC days are covered.

Then onto the income statement. I've already mentioned the EBITDA and net income for the quarter. In addition, you should note that VLCC OpEx for the year came in at $7,800 per day. G&A for the fourth quarter was unusually low. The main reason for this is a part reversal of accruals for performance-based compensation. For the full year, we generated $152 million of EBITDA and net profit of $6.6 million. Adjusted for the noncash impairment charge and loss on sale of vessels, the bottom line came in with a profit of $18.7 million. And as you have already seen, we will pay a cash dividend of $0.02 per share for the quarter. This exceeds our capital allocation policy of 60% of ordinary net income, and in March, the 32nd consecutive quarterly dividend for DHT shareholders.

Let us then turn to the balance sheet. We continue to enjoy a healthy balance sheet. We'd like to highlight the following: first, at year-end, we had cash of $77.3 million. Additionally, we have $45 million available under our revolving credit facility. Second, leverage is moderate with interest-bearing debt to total assets at 50%, based on market values for the ships. And third, during the year, we have repaid $124 million of debt, 46% of it through ordinary scheduled repayments, 40% related to sale of vessels and 14% through buybacks of our convertible bond.

As you know, we are to take delivery of 4 newbuildings over the 2 coming quarters. Remaining CapEx, net of borrowings, amount to $40 million, with $16.5 million due in the first quarter of this year and net cash inflow of $9.2 million in the second quarter, and the balance of $33 million due in the third quarter. With respect to maintenance CapEx, we have a very light year. We have just taken the Aframax DHT Sophie through her third special survey, but have no further dockings scheduled for 2018.

Next, I'd like to take you through the cash flow highlights for the quarter. As you can see, we had positive cash flow from operations in as much as EBITDA-covered full debt service, maintenance CapEx and dividends. Further, net cash from sale of DHT Eagle and DHT Utah exceeded newbuilding CapEx in the quarter. The third ship in the unblocked sales, the DHT Utik was delivered to its new owners on the 12th of January. Net proceeds of $12.5 million from that sale is not included here, but will be the part of the first quarter '18 accounts.

Finally, changes in working capital consumed $18 million for the quarter. This was predominantly caused by increases in bunker inventories and receivables at the end of the quarter. This was a bit of an unfortunate combo with bunker bills just before year-end and receivables coming in just after new year. But receivables have since normalized.

And with that, I'd like to turn it over to Svein.

Thank you, Trygve. We'll go on the following slides to provide you an update on how DHT is positioned. We own a large modern quality fleet of primarily VLCCs. The fleet consists of 23 VLCCs and 2 Aframaxes in the water. Additionally, we have 4 VLCCs newbuildings set for delivery during the coming 2 quarters. Our VLCC fleet is modern, with an average age of 6.3 years and enjoys the healthy age distribution with more than 50% considered equal to competitive fuel economics.

14 of our VLCCs have ballast water treatment plants installed. Remaining part of our VLCC fleet has been grown to the extensions, resulting in IMO due dates between 2022 and 2024.

As Trygve mentioned, 24% of our VLCC fleet is on time charter for 2018. [Title] of the charters are of 12 months duration with no options and with base rate in line with our cash breakeven levels, complemented by additional tranches of profit or profit sharing due to us. The fixed time charter runs until 2021, with a base rate of $40,000 per day, plus a profit sharing structure.

We have a solid track record, and this slide illustrates our discipline in pursuing our strategy and doing what we have said we were going to do. Between the third quarter of 2013 and second quarter of 2014, we acquired 16 VLCCs in anticipation of a market recovery.

The acquisitions consisted of distressed secondhand assets, newbuildings as well as M&A.

During 2015 and 2016, a period of healthy earnings, we did a number of things: we paid a total of $1.40 per share in cash dividends and used additional cash flows to prepay some $121 million in bank debt. We also took advantage of the markets by securing or extending 11 time charter contracts. Lastly, we repurchased about 1/3 of our convertible bond at a discount.

During the second half of 2016, we've had some record identifying 2017 as a potentially interesting year for growth. We executed on this by contracting 2 VLCCs in January 2017 at very compelling terms. And importantly, acquired BW Group's 11 strong VLCC fleet during the first half of that year, resulting in a 50% expansion at what was accreted terms for DHT's shareholders.

We take the liberty to suggest that you should expect that continued discipline execution as the market evolves over time.

As we have stated time and time again, our focus on robust cash breakeven levels bodes well in the highly cyclical and volatile nature of our industry. We estimate that our spot VLCCs need to earn about $19,200 per day during 2018, in order to cover OpEx, interest, debt amortization, G&A and maintenance CapEx. Importantly, as cash breakeven seems to mean different things to different people, our cash breakeven includes debt amortization of some $6,500 per day for the VLCCs, totaling $59 million for the year.

The growth [then puts] our 2018 spot cash breakeven level in historical perspective. Annual averages have only 3 times since year 2000 been as low as VLCCs cash breakeven levels for 2018.

We believe this to be very competitive.

Following on from our focus on protecting the downside, we have still retained plenty of upside participation. On this slide, the y-axis illustrates estimated annual EBITDA for 2019, and the x-axis daily earnings per ship per day. The orange dots indicate annual EBITDA at different market levels in $10,000 per day intervals.

We have further made an illustration of what annual EBITDA in 2019 could be, assuming market levels equivalent to 2015. Apologize for some confusion here on the slide deck. So as you see in here, we have further made an illustration of what annual EBITDA in 2019 could be assuming market levels equivalent to 2015. [That illustrative] EBITDA is in excess of our current market caps underscoring the operational leverage in DHT.

Continuing on the topic of upside potential. We are on this slide comparing our current NAV to our current share price and NAV based on mid-cycle values. The NAV is calculated using our year-end balance sheet and the prime ship values from Clarksons. We are illustrating what implied ship values are at the 3 different share prices. Clarksons, the world's largest ship broker is currently valuing a resale at $84 million, a 5-year old at $63 million and a 10-year-old at $40 million. This is in stark contrast to the implied corresponding ship values in our current share price, reflecting a 15% discount to the estimated market prices for our ships.

Asset values have appreciated over the 9 months or so, although modestly. It seems that asset prices bottomed out last year and we've seen increasing buying interest for VLCCs, especially in the 7 to 8 years or younger category. The leading shipyards are now fully committed for 2019 and have consequently revised their prices upwards. For your easy reference, a 10% change in vessel values equal to $1.11 per share change in DHT's NAV.

I'll then hand it back to Trygve for some discussion on the markets.

Thank you. Let me now walk you through 3 quick slides to point out what we think are the key drivers for the freight market in the near to medium term. First, on the demand side, we would like to highlight the global demand for oil is robust and is growing. It should come as no surprise to anyone that the main engines of growth are China, India and Southeast Asia. And importantly, all of these regions need to import oil in order to meet the increasing demand. This bodes well for the freight market.

Further, the increased export of U.S. crude is becoming an important factor in the tanker market. We now see VLCCs ballasting from the Far East to load cargoes in the U.S. Gulf. The fact that it would have been completely incomprehendable just a few years ago.

And of course, this consumes significant tanker capacity and is therefore a positive for the tanker market.

But the main headache in the near term is, and has been for some time, the oil inventory cycle. This graph shows you how the inventory cycle has been driven by OPEC actions. In November 2014, OPEC announced an effort to defend market share. This led to the oil price collapse and to a significant inventory buildup. Then, in November 2016, OPEC reversed course and agreed with certain other countries to curb production and we have been in an inventory drawdown phase since then. And if you add VLCC spot rates to the graph, you see a pretty good correlation between the tanker market and the inventory cycle.

Last year, the wells consumed 800,000 barrels per day from inventory, and this is of course -- and this, of course, has been helped in the freight market. But the good news is that, we have been making meaningful progress towards the alleged goal of getting inventories back to 5-year historic averages. It has certainly been a tough period for tanker owners but we eye an end to the inventory drawdown phase in the not too distant future.

Finally, on the supply side, we see positive developments in the making. Last year, we saw a significant increase in scrapping. We saw 14 VLCCs going to the breakers compared to just 2 in each of the 2 preceding years, and the trend seems to continue. Just in January this year, we've seen 5 VLCCs committed to recycling. But even more encouraging is the accelerating replacement needs over the coming years. As you will see from the graph on the right, the number of VLCCs turning 20 will increase dramatically in the next couple of years. Last year, it was 8 ships. Next year, it is 19 ships. And in 2020, a full 37 VLCCs will face their fourth special survey. And we expect that many, if not most of these ships, will retire from the trading fleet.

So in sum, as we have stated before, we are currently being hit from both sides. Demand for tanker transportation is hit by inventory drawdowns. And on the supply side, we're hit by deliveries of newbuildings exceeding retirement of older ships. However, at some point in the not too distant future, we hope and expect both of these forces to reverse and that the tanker market will be pushed to the upside from both the demand and supply side.

And with that, we are ready to take your questions. Operator?

(Operator Instructions) And now we'll take our first person from the queue, Spiro Dounis from UBS Securities.

Just wanted to start off with the new time charters, which I guess are a rare thing this being in today's market; and just given your comments that you expect things in a not too distant future, to maybe turn around or improve. Can you just provide us some color on what the driver was behind chartering right here? And maybe what we can expect in terms of additional charters for the rest of the year?

I think, in general, there's very little liquidity in the true time charter markets. Importantly, the structure of these charters reflects our general thinking in DHT. They offer some protection to the downside. Yet, they offer full participation, or if not full, plenty of participation on the upside. So the rates are fixed at around our cash breakeven levels. These charters typically have a [free] zone up to in the 30s, whereby we will participate with 100% of the earnings; and then with a 50-50 profit sharing above that. And keep in mind that these charters are for 12 months only.

And we do think they offer some good downside protection for this year. And there are no options to these charters. And we are not been willing to entertain charters that are 1 plus 1 plus 1 years in the 20s and giving away upside as such. So to the extent we can do more of these, it's difficult to say. But again, the liquidity is very thin in the term market, in general.

Understood, and I appreciate the color. And then just turning to the dividend. Could you maybe remind us again how you view that? I think it's been a few quarters now where you sort of paid out that $0.02 cent level despite, as you noted earlier, that being outside your payout policy. Should we view that as basically the unofficial floor? At one point, do you just make that official? And then sort of tagging onto that, why is buying back your shares at today's prices not a better use of that cash?

Spiro, I think the key word here is at least 60%. So the board has elected on this occasion and also the prior quarter to exceed net income -- 60% of net income. Although, it's quite a nominal number, just to $0.02 per share. But that's what they've elected to do. And when you look at dividends compared to buybacks, I think this totals $2.8 million, and that really is not a meaningful buyback with that type of amount. And that's part of the reason why we're focused on dividends rather than buybacks.

And now we'll take our next question from the queue, Jon Chappell from Evercore.

Svein, you mentioned that 2017 was an interesting year for acquisitions and you certainly acted on that. How do you view 2018? In one regard, the market is obviously much more difficult and difficulties tend to breed opportunity. But at the same time, it is much poorer market than it was in 2017 and it seems at least with the time charter strategy, you're kind of preparing for the worst this year. Are there opportunities for you to continue to add at the bottom of the cycle this year? Or is it more about playing defense in 2018?

Firstly on from an asset price perspective, it has moved sideways if not marginally upwards since we made our acquisitions last year. But I think, from a DHT standpoint, our balance sheet does not allow us to really make any growth efforts this year, and our share price is well below NAV. So as such, it's not the currency that we intend to use and that would not be accretive to our shareholders. And, as such we'd not do it. So I think one of these things have to -- has to change, unless you can do, say a ship-per-share transaction and -- where it's fair pricing, NAV to NAV. Then we do not expect any growth until these things change.

That makes sense. And then, just to follow-up. You're one of the few companies that actually publishes a -- an NAV, and I don't know that's going to be consistent or if it's just -- given the wide spread right now, the discount is huge. Obviously, turmoil in the markets making it bigger by the day, it seems. As you mentioned, balance sheet is not exactly there for a lot of liquidity, but you do have some credit remaining on your facility, I think you said $45 million. Seems like an interesting arb opportunity to take some cheap leverage, especially given that you're only 50% levered right now to market values to buy back your stock. Is that something you'd consider in this type of broader market turmoil?

I think as we alluded to the development in the -- from the mid fourth quarter onwards, it took us quite frankly by a little surprise. And I think in this environment, we really want to play it pretty conservative and preserve our financial muscle, and until we get a clearer picture of how long this downturn is going to last.

And now we will take our next question from the queue, Fotis Giannakoulis from Morgan Stanley.

I would like to follow up on Jon's question and on your NAV slide. You obviously trade at a steep discount to the value of your fleet. What are the measures that you are considering of taking to try to close this valuation gap? And if you can also comment, how much excess liquidity do you think that you have that can be used for corporate actions, perhaps share buybacks or any other transaction that they will increase your stock price and bring it in line with your -- with the value of your fleet?

I think the general effort that we will make is, what we are partly doing on this call, we'll try to illustrate to the market in general terms, how we have protected the downside in our business. Yet, there is plenty of upside and call it price dislocation. But, I think everybody knows that this is not DHT specific. Our industry at large is currently trading at discounts to the underlying values. And I guess, the current turmoil is adding some more pain to that.

But I guess, if history is anything to go by and with the inflection point down the line as Trygve talked about, capital markets have a tendency of kind of moving ahead of events taking place. We have experienced quite a bit of incoming interest for calls and meetings from investors; a combination of both new investors and investors that we have met in the past that are starting to do work on the tanker sector. And I guess, you guys as analysts must be seeing the same.

So I think, one could be -- one should expect at some point that the investor community, in general, will look at this space and pick the companies with good balance sheets and where kind of potential dilution is not there, or at least to minimize, and pick these companies as the winners.

As far as the second part of your question, on the firepower: I think, of course, with the moderate leverage we have, we could potentially lever up some. But it really flies in the face of our desire to have a competitive cash breakeven. And we think where we are today is where we need to be in this part of the cycle. So it -- we don't think it's very likely that we will lever up to buy cheap assets at this point.

I would like to focus a little bit more on the drivers of the recovery. You obviously mentioned the end of destocking that at some point it's going to come. I also want to ask about U.S. exports. How do you view them developing and how the -- your activity has changed? Do you see more demand for VLCCs through reverse lightering to export crude out of the U.S.? And what is your outlook about the U.S. exports in the next couple of years?

I think as you saw from our slide deck that there has been a marked pickup in exports in total, and certainly an amount of VLCCs loading in the Gulf. And part of it is by lightering and as you alluded to. Going forward, it is -- it seems to us that the main players in this are there to sell their domestic production on the international market. But of course, it's dependent on relative pricing between different types of groups. But having spoken to the people on the ground in Texas, and our impression is definitely that this continue -- trend is going to continue as U.S. production is keep climbing -- climbing up.

And we also see people making investments in the infrastructure to make logistics more competitive. So that's another signal, I think that they expect to stay in this business.

Can you remind us what is the incremental cost for loading VLCCs through reverse lightering? What is the burden of the reverse lightering? And what kind of WTI brand spread do you think that we need to have in order to see the continuing ramp up in U.S. crude exports?

Fotis, I think, there are other people that have more up to date figures for you, in terms of lightering cost today. But speaking from my own experience in this trade, some years ago, it typically was $0.50 a barrel or something like that to do a proper lightering at that time. And a reverse lightering, I would imagine isn't very much different. And it would, of course, come and go a little bit with the general Aframax market in the region. But that's just my $0.02 worth, and as I said, not very up to date.

And now we take our next question from the queue, Herman Hildan from Clarksons.

I very much agree with your current perspective on the market. I'm just a bit curious. And obviously, I'm not sure if you're going to answer this. But in other way, exiting the typically strong part of the year and we're looking at Q2, Q3, which typically isn't the fun part of the tanker market. Kind of what's your view on the potential strength in the [Vees]? Do you think that's something that's a cue for possibly 2019? And then, Trygve, do you think that we can see some strength before that?

As we have said before, we think it's very hard to pinpoint when this is going to happen. But we have tried to position DHT so that we are in good shape whether it's happening very, very quickly or if it's going to be a couple of quarters down the road or more. So again, it's very much our strategy, protect your downside and don't give away your upside. And I think with 25% of the fleet on time charters with the base rate and profit sharing and the rest in the spot market, we have more than or -- plenty of upside participation. Yet, we maintain a very competitive cash breakeven. So we, in all modesty, do believe that DHT is well positioned for these uncertain times. And we will not be standing as [delusive] whether the market takes away in a month from now or if it's going to be a year from now.

And if I may add to that. Some 4 weeks back, we experienced a rather quick bounce in the spot market. There were probably only a couple or 2, 3 ships too few for some positions. And the spot market reacted by some -- almost 15 [vertical] points, equivalent -- I think, equivalent to about $10,000 a day. That gain has since been lost. But I think it indicates that the underlying balance is not totally out of whack. So it doesn't take much to move the market either.

I appreciate that point. Also, your guidance for Q1 '18. Obviously, [Euronav] had, I guess slightly higher but significantly lower share of the quarter being fixed. That -- what is a good spread to what the official rates are? Could you possibly provide some color? Obviously bunker prices have moved up and that could explain parts of it. But there's still a pretty decent gap between what official, call it, rates are on the run-through basis and what you are actually able to achieve. Have you kind of skewed your fleet towards the rest of market or kind of how do you explain that difference?

I think some of the result here is that -- it really depends on your trading strategy for each quarter. But there's some component of triangulation in this. So combination [invoices] is that is serving as well. But I think it's important that the investors and analysts as well will get their performance over time. And we think the start of the first quarter, as you say, competitive spot market, it's a good start for us. But it will be volatile. So it's hard to say that you can do this quarter in, quarter out every time. But I think if you look back since we started operating ourselves, our performance is not really standing back from anyone. So...

Okay. And my final question is on, I mean, it's the first time you really spent time talking about the NAV. And obviously as you mentioned quite a few times, you're well positioned with a strong balance sheet and low breakeven and fully capable of taking the delivery of your newbuilds. And still have a quite an excessive margin, if you include the undrawn amount on the revolving facility. When the market comes, if you fast-forward, what you see today in terms of pricing relative to underlying values, should we then expect that DHT is more likely to, call it, repurchase their own shares, until this -- the valuation in the stock market reflects then the quality breakeven value of the company? Or do you think it's originally going to be cash payments to the extent that you can actually make comments on the behalf of the board, I guess?

I think it's going to be one of those boring answers I have on that. It's really is up to the board to decide on that. But we're certainly very aware of the big discounts to NAV and it's something that irritates us. And we'll do everything in our power to close the gap.

And now we'll take our next question from the queue, James Jang from Maxim Group.

Most of my questions have been answered. I just have 2 quick ones. With the Euronav January merger, has there been any more inquiries into possible business combinations with DHT?

You know that it's only a rather modest part of the large tanker market that is public. So as you've seen on our M&A efforts over the past couple of -- past few years, this has been bringing private fleets into the public domain through M&A. So it doesn't necessarily have to be public efforts. But I think as we commented earlier, what is restricting us right now is that our share price is not the currency that can be used to make accretive acquisitions.

Got you. And one on the chartering side. You guys consistently outperform the spot rates, the reported spot rates. Can you tell us where the fleet was trading on Q4? Was it more Caribbean based? Were there any loadings from [Iran]? What helped boost the rates?

In the fourth quarter, we did not have much Western cargoes. Our tactics was partly positioning the fleet for an anticipated upturn in the winter market. That didn't happen. So as such rates were -- although they were better than maybe [roki] quotes, it's not that level where we are dealing with the (inaudible). But then, I think, we have a better start to the first quarter. So let's see how things will play out.

Now we'll take our next question, Noah Parquette from JPMorgan.

I wanted to ask with bunker prices kind of going up from here. Can you talk a little bit about the spread that you get on your eco-VLCCs versus your non eco-VLCCs? And if there is any sort of slowdown and delayed in the ballast speeds?

To your first question, the eco fleet today is earning some $6,000, $6,500 premium over a standard type of VLCC that would, kind of, be 10 years old, if you like -- the average fleet is close to 10 years old. On the speed, we're trying to manage that as good as we can. So but we only really control the ballast's speed. So there, we are slowing down to not kind of add too much waiting time and also, of course, to save bunker cost.

Okay. And just a follow-up on what you mentioned about ships ballasting to U.S. to pick up cargoes. How sensitive do you think that is to spot rates at $6,000 a day? Would that go away or is it profitable enough that you think that will be kind of a part of the market for the future?

I'm sorry, I didn't get that full question. Could you repeat please?

How much -- we've been talking about ballasting from the Far East to the U.S. Gulf, empty? How much of that is just a function of spot rates being where they are? Do you think that's sensitive to that? Or is it going to be a permanent part of the market now?

I think you know, when you trade a ship, you look at all your options and the way you can trade a ship and what your expected TCE level is. And there is -- there are freights that you expect to get when you get to the Caribs or to the U.S. And you look at that on round voyage basis compared to tramping NAG or doing all the types of combinations are going to West Africa. So as we get call on a regular basis and to what extent do you expect cargoes being available for your ship. So most of our, kind of, Atlantic to the Far East trade has been in combination if the cargo is going West. But now, you do see more cargoes heading east from the Americas. So there is an imbalance there. So some ships in empty, we will have to ballast to pick up that cargo.

And now we'll take our next person from the queue, Robert Silvera from R.E. Silvera & Associates, Marine Surveyors.

First of all, let me thank you, gentlemen for your conservative approach and your very transparent presentation of all the numbers. My questions are going to center around the rate premiums for newer ships versus the older ships. First of all, you have 6.3 years as your average age. Does that include the newbuilds that you will be launching during 2018?

Yes. And their count of that is zero years old this year.

Okay. So they are part of the 6.3, thank you. Now, the rate premiums for new ships versus older ships, are you seeing that premium expand, stay the same, shrink, et cetera? And in your minds, does that give some indication of what's going on in the market as far as the near-term future?

I think there are 2 types of premiums; one is the premium that relates to the fuel efficiency that is better on newer ships. So they consume less bunker simply and that will impact your earnings. When you look at ships that are typically older than 15 years of age, then there is more waiting time involved and the less customers that can use your ships. So that is an added dimension if you like of increasing the spread between a very new and an older ship.

Okay. Yes, I realize that it can change the spread. But I'm asking you about what is the trend now? Do you see an increasing spread? Or is it basically staying consistent -- constant?

I think, in a spot market, it is important to recognize that it's really driven by the cost of bunkers. So we -- on the eco-ships, you consume 20 tons or so less than on a conventional tanker. And as bunker prices go up, your savings or the delta increases. But if you're referring to the period market, that's a different type of premium. And I hate to say it, but I think the majority would really go to the time charter. And that's quite frankly, why we try to keep our eco-ships in the spot market.

Our next person from the queue is Richard Diamond from Castlewood Capital.

This is really more about current markets. If the U.S. introduces sanctions on crude imports from Venezuela, how would that impact ton-mile demand? I would assume it would increase it, but I would enjoy your thoughts.

I think we would agree with you on that. If the Venezuelans were forced to leave the U.S. market, they would have to sell their barrels elsewhere. And it would be 9 out of 10 longer transportation, and the U.S. would need to substitute the void after the Ven barrels. So I think all in all, that should be a positive for ton-miles for the tanker bit.

Is it significant enough that it could tighten the market? Or would it just be additive on the margin?

I think it will depend a bit on what type of crude the U.S. refineries will substitute the Venezuelan imports with. So if it's domestic crude, then you'll get lesser impact as if it's being substituted by, say, Middle Eastern crude. So it depends really how all that plays out. And it will be the spreads between the WTI and Brent and so forth that will impact it. And I guess also, what type of crude they can crack, and it depends on the products that they want to -- the refined products that they want to sell.

So if you get the Venezuelan exports going, say through Asia, and the lack of Venezuelan imports being substituted from the Middle East, of course, that's double positive in a way from the tanker market, and it will certainly be positive.

And now we'll take our next person, Spiro Dounis from UBS Securities.

I did have some more questions and I wanted to get your updated views on IMO 2020. I think you're a bit unique in your decisions to have the newbuilds come with the scrubbers installed. So as far as we've heard, I think most owners are shying away from scrubbers, especially on the retrofit. So do you view that as part of the IMO 2020 solution? And would you consider retrofitting some of your older vessels? And just some updated thoughts there, would be great.

I think, fundamentally, we don't think scrubbers is a long-term solution to the laws of regulation. But of course, there could be an opportunity for a ship with an ideal dry-dock position before this event. And maybe you can make a good payback in a year or 2. But this is really not high up on our agenda. We are, of course, looking at the cost and what it will take and so forth. But we expect the market really to consume compliant fuel. And we understand from some of the larger refiners that they do have that fuel available, and -- but it will have a price. So that's really the game plan if you like, and the cost of this will have to be borne by the end users.

But at the same time, Spiro, we've seen one of the majors being in a market to take newbuilds with scrubbers installed for 3-year time charters and so forth. So somebody is concerned about the availability of compliant fuel and are there to actually take ships with scrubbers at this point.

That's interesting. Have you reached out to a lot of your charter counter parties to run through this and sort of make them aware the fact that ultimately, they're going to bear this cost? And what sort of reactions have you gotten so far?

Of course, we have made our customers aware that we have ships coming with scrubbers. And people are looking at this and studying this. But it's still almost a couple of years ahead. So we haven't really seen anybody pulling the trigger to make any quick decisions on this, with exception of one customer, that one big oil company that we understand are now in the process of taking maybe up to a handful of ships with scrubbers for '19 delivery.

Understood. One more for me. Do you guys have the ability or even the appetite to delay any of the newbuildings that are coming this year, just given where rates are?

That is -- there's not really a point in that. We have meaningful amount of capital put in, and to delay them, it will have to be -- to get to 2019 in the birth certificate, which is a long time. So we don't really see any sense in that. So we'll take delivery of these ships and get them going, get their SIRE approvals in place and then it will be a fully ready for anything that could happen in 2019.

Our next question from the queue is Espen Landmark from Fearnley.

Just a question on what's going on at the moment. I mean, in January, there was the worst market in many years. And it comes from the back on December being the worst December since early 2000. I guess that you can point to the inventories but it seems that the number of cargoes fixed in the spot market for the last couple of months has been well above 3Q levels. And then, by the looks of it, 4Q deliveries was down quite substantially. And I guess in January, you only saw a handful of the VLCCs versus 12, I think in the same period last year. So I mean the current poor market, is that just a reflection of the structural overcapacity? Or is it something else we're missing? And I guess -- I mean what does that mean for the typical seasonality that you have?

Part of this is also a lot of psychology. Of course, the market is currently over supplied with ships. But the question is by how many. And I think if you ask different people, you'll get different answers. But I think what we've experienced 10 days into January is that on a Monday or Tuesday, when the market was moved rather quickly by just a couple of more cents. I think it is an indication of the underlying balance. But, it takes a bit now to work down the number of ships that are available in the Middle East in particular. And certainly, people get maybe too cocky and they hold back cargoes for too long. And then you get this famous capture perfect with too many guys coming in on a Monday morning with cargoes again and that could quickly move the market.

But as Trygve pointed out earlier, we are not too hopeful for the year as a whole to be a strong year. But it really depends on when this inventory drawdown phase is going to be over, or really coming to a close.

And we'll take our next person, Randy Giveans from Jefferies.

Just one quick question on the time charters. So it looks like you locked in the rate around cash breakeven of around $19,000 a day or something like that, whereas current time charter rates are $24,000 plus for the 1 year. So obviously, you had that 50% upside. Is that something that you were leaning towards, or the charterer kind of wanted a lower rate with higher upside?

I think, it's the latter. I mean keep in mind that some of these [brokering] quarter $24,000 a day, it's not something that you can go out and do. And if you [aren't] going to entice a counterparty to be involved in this, they will typically ask for options at least one year if not 2, at the rate that we think are frankly unattractive. So we'd much rather have the structure that we have in place where we kind of protected the downside, get plenty of upside participation. And we importantly kept the duration of the charter to 12 months.

And now we will take over next one as a follow-up from Robert Silvera, from R.E. Silvera & Associates Marine Surveyors.

I wanted to make one additional observation that I think is -- what you're doing is the right approach, not going after buying shares at this disturbed level. But with the market disturbed as it is, it's better to conserve your cash; keep yourself in a very well-known position by knowing how much you have in cash, et cetera; and running the business the way you were -- are running it now.

In the future, the market will recognize fully the good job you're doing. And as things improve, the stock price will follow. This is simply a opportunity for people like ourselves who have invested in you to get some more at very depressed prices. So I encourage you to not go out and buy shares in the marketplace at this point in time, except for your preferred, if they become available. Okay. That's just my comment.

And there are no further questions over the phone at this time, sir.

All right. And it remains for us to say thank you for your continued interest and have a good day.

Thank you. So ladies and gentleman, that will conclude today's conference call. Thank you for your participation. You may now disconnect.