DHT Holdings Inc (DHT) 2018 Q2 法說會逐字稿

Good day, and welcome to the DHT Holdings Q2 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Laila Halvorsen, CFO. Please go ahead.

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 available at our website, dhtankers.com, through August 16, 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 market in general; daily charter hire rates and vessel utilization; forecast on 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 by DHT's co-CEOs, Svein Moxnes Harfjeld and Trygve Munthe.

With that, I will turn the call over to Trygve.

Thank you, Laila. Good morning and good afternoon, everyone. Welcome, and thank you for joining DHT Holdings Second Quarter 2018 Earnings Call. As usual, we'll go through some highlights before we open up for your questions. The link to the slide deck can be found on our website, dhtankers.com.

The second quarter was tough in the VLCC freight markets and that certainly affected our performance. EBITDA came in at $12.7 million and the net loss at $28.2 million, including a onetime noncash charge of $4.3 million related to the large refinancing we did in the quarter. Adjusted for that, EPS was negative $0.17 for the quarter.

The average earnings for our VLCCs came in at $14,700 per day with the ships on time charter earning $22,000 per day and the spot fleets earning $11,900 per day. As we talked about on the last earnings call, the industry has adopted new accounting rules this year, IFRS 15. And whilst we had a positive effect from IFRS 15 in the first quarter, we had a negative one in the second quarter. Had the new rules not been adopted, our earnings from the spot VLCCs would have been $13,600 a day for the quarter.

The third quarter is off to a better start, and we can inform you that we have to date 60% our spot VLCC capacity at $21,100 per day.

As previously announced, we took delivery of our 2 VLCC newbuildings from DSME in Korea during the quarter. We refinanced 13 of our VLCCs in the new bank facility in the amount of $484 million. And finally, we increased our revolving credit facility to $57 million. Then after quarter end, we have taken delivery of the first of our 2 newbuildings from Hyundai Heavy Industries.

We have entered into agreements to retrofit scrubbers on 12 of our existing VLCCs, and we have recently entered into 5-year interest rate swaps for a total of $159 million with a fixed rate of 3.01% as compared to the 3-month LIBOR rate of about 2.34%. The amount now fixed equals 22% of our current bank debt.

Looking at the income statement, it is easy to see that the weak results for the quarter were predominantly caused by weaker top line as well as higher interest expense. As already mentioned, the higher interest expense includes a noncash charge of $4.3 million related to the refinancing in the second quarter. Further, top line was negatively affected by IFRS 15 by some $2.7 million.

On the cost side, the company again demonstrated good control and delivered competitive numbers. VLCC OpEx for the quarter was just over $7,500 per day and G&A costs came in just below $4 million for the quarter. Our Board of Directors has elected to pay a cash dividend of $0.02 per share. This marks the 34th consecutive quarterly dividend. The dividend will be paid on the 31st of August to shareholders of record as of August 24.

Then on to the balance sheet. Our balance sheet remains in good shape both from a leverage and a liquidity perspective. Total liquidity stands at $134 million and interest-bearing debt-to-total assets based on market values of the ships is at 53%.

Then the cash rates for the quarter. So as you can see our cash position actually grew by $7 million through the quarter. On the operating side, we see that the EBITDA was insufficient to cover debt service and dividends, but when including the changes in working capital, the cash generation becomes positive. Further, as discussed on prior calls, we borrowed marginally more on the 2 new [VLCC] newbuildings than the final bill to the yard, so we saw some positive -- some cash inflow in connection with the delivery of these 2 vessels.

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

Thank you, Trygve. We recently announced the project installed exhaust gas cleaning systems also known as scrubbers on 12 of our sailing VLCCs. The ships in question are built between 2004 and 2012. The supplier is Alfa Laval, and we have secured shipyard capacity for the projects. All these ships are expected to be fitted during 2019 and as such ready for operation by the 2020 IMO implementation date.

Alfa Laval is the leading supplier of ship products exhaust gas cleaning systems, with more than 100 scrubbers in operation. Alfa Laval's track record offers credibility with respect to timely project execution and reliable operations. We have been working on preparing DHT for the IMO 2020 deadline since 2017 and come well equipped for what we regard as an opportunity rather than a threat. The ships once fitted with scrubbers will potentially create a super profit through their ability to consume in regular heavy fuel oil versus compliant fuels that are expected to be priced at a meaningful premium. We have received numerous proposals to finance the project and this is currently work in progress. We have a whole host of avenues available to us.

We consider upping existing mortgage debt, refinancing or export credit agencies as the most attractive. In addition, we have investors keen to get in on economics, customers willing to fund to the employments as well as commodity traders and fuel suppliers offering various structures.

As such, we are confident to finance the majority of the project at attractive terms. You should note that the well-established scrubber suppliers have increasingly committed their capacity to deliver in 2019. Hence, we are pleased with the timely project that we have put in place.

As for the freight market, we still retain our positive outlook with the following 4 key reasons teeing up for a rewarding future. One, healthy and steady global oil demand, with 1.3 million barrels per day expected for the remainder of the year and 1.2 million barrels per day for 2019; two, the inventory drawdown gain is in the second half and likely in the last quarter; three, negative fleet growth year-to-date possibly in the amount of 10 VLCCs; four, order book at 14% of the total fleets and this should be compared to 24% of the fleet in excess of 15 years of age. Further, we'll try to shed some light on the near-term events and their impact on the freight markets.

The recent trade debacle between the U.S. and China is resulting in China reducing imports of U.S. shale oil. We understand that some 375,000 barrels per day of U.S. shale might be lost from this trade. Whereas this sounds as a negative, we see signs of the North Sea and South America stepping in to fill the void and these trades are also VLCC trades. Importantly, these trades involve lightering too and are of similar duration as the U.S. export trade, hence it could be neutral for VLCCs. South Korean refiners have upped their import of U.S. shale and this trade has recently represented 4 to 5 VLCC cargoes per month. We also note that India is increasing U.S. shale purchases, reported to be about 10 million barrels for August.

U.S. shale could also divert sales to Europe to partly replace loss of uranium barrels and likely in smaller ships. Saudi recently increased its supply, and this might hint that growth is to come later this year and during the winter. And China is expanding its refining capacity this year and a total of 1.2 million barrels per day of new capacity is due to come on stream later this year. Combined with the domestic production in decline, we expect imports to bounce back once the maintenance season ends later this quarter. And lastly, there has been further commercial consolidation in the freight markets, and we welcome stronger and well-behaved players.

And with that, we would like to open up for questions. Operator?

(Operator Instructions) We will now take our first question from Jon Chappell of Evercore.

Want to ask a couple of questions on the balance sheet because you've been very proactive in that regard with the recent refi and the interest rate hedging. Obviously, you're looking at a lot of different avenues for the scrubbers as well. So I imagine we'll get some update on that in the next 3 months. But just thinking about the next 12 months or so, the convert is the next big repayment. Have you started discussions on potential refinancing of that? Or are you looking at other options to deal with the convert in 2019?

Jon, I think we discussed this very topic on the last call as well, and we still have the sort of the same answer for you that we think there are different avenues that this can play out. As we stressed last time, it doesn't take a whole lot of vessel value appreciation in order for this convert to be actually in the money, and we can see conversion. On the other hand, it doesn't take a very big step up in rates in order for us to generate sufficient funds to take it out. So I think we still feel very comfortable that this is very manageable. But of course, we would also, as we get closer, start to explore ways to potentially refinance if that's alternative as well.

Right. And that's why I asked. Just looking for an update 3 months down the road without much market improvement. Second, on the interest rate hedging, that's very interesting transaction and the way you laid out the economics in the press release makes it seem very appealing. 22% is meaningful, but there's a lot more floating rate debt out there especially given maybe some of the other facilities you may be taking on in near future. So is more interest rate hedging in the cards? Is it even possible? And do you think you can get similar terms to what you've already been able to achieve?

It's really, yes and yes, on those questions. We -- don't be surprised if we announce that we will lock in some more, and we believe the economics is going to be similar. As a matter of fact, the one we just announced was put on in less than a week ago. So we don't think the market has moved any material way since then. So we think we can add on onto very similar levels.

Okay. Great. And then the last one is, you mentioned the term super profits a couple of times now, which is pretty eye-catching. Just curious as to the assumptions you're putting into that. Is that just based off of kind of current spreads? What do you think the payback period can be on this investment? And are you already getting inquiry from charters where you can have some kind of visibility on what a time charter could be for a vessel like that versus a vessel that doesn't go through that conversion?

When we talk about super profits, it's at the current theoretical spread, over $250 per ton. You're looking at $12,000 a day hire TC on a average VLCC on say a standard Middle East, Far East routes. And then this will, of course, vary a bit whether you are looking at ships with more economic consumption or what you do longer out so to speak. But also I think there are expectations that this spread could widen. So of course, that will drive even better economics. So as such the payback is certainly, well short of 1 year given these economics. Following the announcement we made on these retrofits, we had a number of incoming calls from customers wanting to secure tonnage with scrubbers. But we are mindful of one thing, in particular, is that we are not so keen on fixing them out at sort of fixed rate money. So we want to participate in the potential that this equipment has. So -- and there are opportunities to do that. So this is things that we are in sort of early discussions on and again, you shouldn't be surprised if you see business develop over the next 12 months in that regard.

We can now take our next question from Michael Webber of Wells Fargo.

So a general question on the balance sheet. Maybe I'll start off with kind of the topic today and maybe some of the more recent news flow around Chinese tariffs. I know it's pretty early. But have you been able to get a sense yet of how that might impact trade flows and throughout the remainder of Q3? I know Q3 is, obviously, typically difficult quarter for the tanker market. But just curious, any impact thus far? And how do you think it plays out assuming that -- you make the assumption that last through the end of the year. What impact is it having on the long-haul market?

Thing is, it's hard to opine on the duration of politics and then these discussions between U.S. and China, but from what we understand as we stated, we understand that the amount of trade that is currently impacted by this, you're looking at, say 375,000 barrels per day and if you do that over a month, you're looking at some 5 to 6 VLCCs that will probably not pick up U.S. shale going to China. But we have seen increased activity in -- with the Chinese then buying North Sea barrels and also South American barrels due to sort of fill the void. So we're not so sure that this will negatively impact the market. But in general, these things causes disruption and that tends to be good for our business. But I think also what we've seen so far in the third quarter is that -- is just slowly, the market is turning on the positive, and we see some of the things that we are expecting just to get stronger over time to start to play out, although it's sort of early days. So you're right, the third quarter is, you could say, surprising compared to the second quarter. But if the social speaks of a balance in the market that is not as bad as some people want it to be that they certainly could pick up cargo and look at these sort of levels. So it's maybe a little bit of an impact also, of course, the positioning and stuff like that, but I think our guys in the trading desk have done really well in looking what we have in place so far for the third quarter.

Great. And that's helpful. So you're kind of getting, I guess, the point I was trying to make with the volumes that are making up -- they'll probably make up the delta there are coming from probably North Sea and the Atlantic Basin. So from a ton-mile perspective at this point it looks maybe not a wash, but it looks like it could come close to balancing out?

Yes. And then as we also mentioned we see South Korea is increasing their purchases of U.S. oil. And so within that so all of this is certainly favorable, and also long-haul business.

Okay. Helpful. That's helpful. Just one or two on the scrubbers. You guys roughly halved the fleet, have to be fitted -- or were already fitted rather. Just curious you've already compared the yard capacity. How much of that was just due to the scale that you'd be throwing through that yard versus the provider? And do you think your ability to secure that yard availability before the end of the year is --, I guess, I'm trying to get a sense of how replicable that will be for smaller owners, considering that we've seen a lot of momentum towards the installation of scrubbers.

I think as we mentioned also, we have -- we come well prepared. We've been working on this for quite some time and managed to secure, of course, the equipment from leading supplier, very timely. All these conversions will be done at our go-to yard, where we typically dry-dock the vast majority of our ships. So we have a good relationship, and that secures the capacity there. And we also see that the more experienced and credible suppliers are now basically sold out for 2019. So if you are willing to take on more, say, a technical operational and our execution risk, of course, you can go to smaller and less reputable suppliers. But then if you risk doing this, going into 2020 and even later sort of a economic benefit is big time diluted, so it's not that attractive. So I think it might be tough to at least replicate a project of this magnitude. But as we hope that you recognize what we've done so far, you should also assume that we are on top of what's available to us with respect to potentially keeping additional ships in our fleet, if we so wanted to. So at least we decide to go ahead, we will most certainly let the market know. So...

That's helpful. And then just one more on that end and I was actually looking at your -- one of your slides where you kind of -- you break out all your counterparties and it's basically every major trading out to major -- oil major and it's a slide we see in those decks but it got me thinking about the vetting process. And after this flurry of activity has gone between now and 2020 when we emerge into other side of it, they're kind of notorious sticklers for detail around those settings. Do you have a sense yet around where the line might be drawn for majors when they're looking at the types of scrubbers that are installed? How they were installed? Where they were installed? The data they'll be looking at? Yet -- are you trying to manage yet for that post-2020 period where -- it's involved some pretty major work on just about every ship that has one installed. The impact on the vetting process and maybe kind of a group of have or have-nots as you kind of emerge through 2020? I guess, the question is any -- are you noticing any significant preference developed within your customer base for the types of scrubbers, whether it's sold? Or any specific detail?

I think it's fair to say that for the discussions we've had so far with our customers that are interested in using these ships, of course, they are very also keen on understanding the credibility and the quality of the supplier. So I think you cannot just come into the room with any sort of yard or manufacture the equipment with an old track record and get the business from the real big customers. So they want to ensure, of course, that the equipment that they're going to also use say through the time charter will operate. But in the spot market, it's, of course, our responsibility to ensure that this equipment works and that we comply with the regulations. Hence also our focus on going with the highly credible operators been in this particular type of business for 40 years and have well over 100 systems in operation.

We can now take our next question from Espen Landmark of Fearnley.

Just a few casual questions on the commercial side. I mean, if you split the DHT fleet into 3 and call them equal, nonequal and older, could you talk a bit around the trading patterns for those vintages, I mean, if you're doing more long haul on the modern ones? And maybe what kind of TC differential you're seeing at the prevailing bunker prices.

All our ships are younger than 15 years. So we don't really discriminate so to speak or have to discriminate our ships when it comes to a geographical trading perspective. But there are, of course, earnings differences. I mean, the current environment, the 8 eco-ships are the most modern ships, are earning some $6,000, $7,000 a day more than, say ships in the, say 10- to 15-year bracket, right. And we have some ships in the middle that also earnings-wise are in the middle.

Let me just add to that and you may have seen that the ships that we do have on time charter is not eco-ships. So the flip side, of course, is they're all out. All our eco-ships are in the spot market, and that's not a coincidence. We have found it beneficial to keep them to ourselves and enjoy the fuel savings directly through playing in the spot market.

All right. And maybe as a follow-up in 2020, which is not far away, you have the equal benefits and then hopefully, there's a scrubber benefit as well. For forecasting purposes, this quite easily becomes quite a messy metric. How do you suggest we go about this?

The eco-ships, of course, consume less fuel. So if you have a scrubber on a eco-ship, the payback or the benefit would be less, but it's still a meaningful benefit, right. I think you easily will have consumption in sort of 11,000, 12,000, 13,000 tons per year if it called for the eco-ships. And you're looking at 17,000, 18,000, 19,000 tons for sort of 10-year old ships. So that's the sort of the numbers you might want to use when you look at the spread and the earnings potential.

I mean, of course, it's the spread that's going to determine whether it's a nonscrubber eco-ship or a scrubber fit as the conventional ship that's going to earn the most TCE. But what you don't want to have is really a non-ECO ship without the scrubber in January of 2020. That's in our approach.

We can now take our next question from Fotis Giannakoulis.

You reported that you have already 60% of your earnings at $21,000. That's quite a large improvement from the previous quarter. Can you explain to us, where this improvement has come from? If you've seen more volume flowing from the Middle East and Saudi Arabia, and if you have seen any impact from the fact that at least the front part of the curve has turned into contango, if you have seen any more delays, or floating storage emerging during the last few weeks?

To the last part, I don't think we've seen much ship locking storage. But of course, we have sort of both -- or retired 33, 34 ships this year, which is on the older end and these ships are typically also been willing to engage in much lower freights and have that downward pressure on rates. So a lot of these ships are gone although there's still some -- a fair amount of amount there. And then also the overhang of ships has been worked down meaningfully, so the balance in the freight market is very, very different than just 3 months ago. So all this have been able to move things up. And of course, also, on the backing of slightly more cargo. So you see these sort of moving slowly in the favor of -- and although it's hard to point out one event that does move the needle.

And then to your question on loading [in terms] of Saudi, we see a bigger program for August than what we saw in July.

Can you remind us a little bit the seasonality because this looks a little bit unusual -- usually, it seems that -- my understanding was that during this time of the year, Saudi Arabia domestic demand is higher. So usually, exporters are lower. Why we have this reversal this time?

Right. There was an OPEC meeting in the end of June, and then agreed to, or committed to increase in production on exports. So I think that's what's trickling in.

So you expect that this is a little bit more of a structural. It's more permanent. It's not -- it's because of the OPEC meeting, and it's going to last. And how much do you think that after this seasonality start taking place in September or October that the flow is going to increase? And what will that mean for vessel demand and charter rates?

We were certainly bullish, Fotis. And we think this Saudi increase is not just a 1-month event. And as we also mentioned China is expanding its refining capacity and certainly, want more feedstock through the full year. And that is combined with production -- old production in decline as well as coming out of the maintenance season are favorable aspects. And this -- the drawdown is basically on the [inventory] and cannot go on forever. So all these things are kind of changing and gradually, all the stars are sort of aligning to make it a more favorable market environment.

One last question. You have a convertible bond that matures next year. What are your thoughts of refinancing this or paying it in cash through some -- through just levering up some of your existing vessels? So how shall we think of the repayment of this convertible?

Fotis, I think we actually answered that question when Jon Chappell asked at the beginning of the call. So see your answer in the transcript.

We can now take our next question from Noah Parquette of JPMorgan.

I was just hoping you can give a little more detail or maybe some color around the total CapEx needs for the scrubbers next year. And perhaps how many just days of hire it will be to install them to help with our modeling?

Yes. So the total budget for these 12 retrofits is $55 million, and we used as a sort of thesis the 30 days of hire per ship. Keep in mind that the 3 of the 12 ships already have both natural dry-dock dates next year. So when the retrofit will be done in connection with that dry-dock, so it's really 9 ships and that will each have say 30 days of hire.

Okay. That's great. And I wanted to ask, you guys obviously were a little earlier than some of your competitors about arranging this. When you look at the kind of the market response and the capacity, do you think there will be any sort of limits on the global ability to install scrubbers ahead of 2020? Will demand outpace supply or is that not really a factor, do you think?

I think, Noah, as we have said before that when January 2020 comes around, the vast majority of tankers are going to show up without the scrubber. What is going to be 10-90 or 20-80 percentage, it's difficult to tell. But we just don't see it at all possible that you'll see the majority being fitted over the next 17 months.

We can now take our next question from Randy Giveans of Jefferies.

Quick questions. I mean, it seems like you are committed to a dividend of at least $0.02 per share. So in an increasing earnings environment, do you expect to focus on dividend growth or using 60% net income to be more aggressive maybe in share repurchases and just maintain the current $0.02 dividend?

As you refer to, we have the policy saying minimum 60% in ordinary net income to be returned to holders either through dividends or buybacks. And I think that is the answer to the question. And once earnings pick up, of course, there may be more dividends and a combination with buybacks or just straight dividends, but that's too early to tell at this point. But we're certainly committed to the policy.

Okay. Okay. Excellent. And then one more question on scrubbers. So for the 9 that are not kind of scheduled for dry-dock, would you just pull forward that dry-dock and just get kind of -- get both the scrubber installed and the dry-docking out of the way?

This is very ship-specific, and it depends on the service life of the ship and in some occasions, it might be possible. But in most situations, it might not. So that is not really a deciding factor at all. So we'll look at what might be most convenient for each particular ship.

Okay. And then last question on the scrubbers. One last question for the call I guess. So what were your thoughts of installing the 12 and not kind of more and not -- or not less, I guess, on this?

So we looked at the -- predominantly, the older end of our fleet first as they are the ships that consume more fuel, and that's where the benefit also is the greatest. So that was sort of the low-hanging fruit so to speak. But as we mentioned, we are not excluded shipping more, and we know what's available to us. And if we decide to do more, we will certainly let the market know in due course.

We can now take our next question from Robert Silvera of R.E. Silvera Marine Surveyors

And my first question is, your preferred shares, did you buy any back at all?

Yes. We don't have any preferred shares outstanding, but we did not buy back any securities during the quarter.

You didn't buy any back. Okay. My phone is getting funny here. I'm a little hard of hearing. So taking my phone off speaker is difficult for me. Let me try it now. You speak of the 60% that are earning $21,000 per day on an average. Is that a profitable level at this point with expenses where they are?

It's north of our cash breakeven, but on a profit and loss or income statement basis, it will not be reaching our breakeven total profit. But importantly, it's north of the cash costs.

Very good. Well that keeps us running, so. Anyhow sold vessels, you spoke of the vessels that are out of service for you. Do you know what the final destination as far as those ships were concerned? Are they going into service for somebody else as competitors? Or what is their status?

You mean the 33, 34 ships that's retired this year. They have been sold for demolition or scrapping. And they will typically go to India, Pakistan, Bangladesh and be dismantled and the steel will be -- and the equipment will be recycled.

Okay. No, I meant the specific vessels that we got rid of, that we sold. Did they get sold and scrapped? Or did they get sold and put into reuse by some other vendor?

Yes. So in the last 18 months, we have sold 6 aging VLCCs. Three of those got sold for conversion into floating storage units, and 3 of them got sold for continuous trading.

I see. Okay. Very good. What is the status of -- we've talked a lot about the new ships that are being outfitted with scrubbers. What is the status of the rest of our fleet as far as scrubbers? Do some of them have scrubbers? Or what has been status of that?

So the 2 newbuildings being delivered from Hyundai in the third quarter this year, both have scrubbers installed. As of now, we have no scrubbers installed on any of our sailing ships but we have committed and announced the project, whereby we will retrofit 12 of our existing ships with scrubbers during next year.

Okay. The rest of the fleet then, which is without scrubbers, how will they service? Will they service at a lower rate as we've been talking about?

So on the assumption that no scrubber is installed, they will then consume compliant fuel, which will be more expensive than heavy fuel oil. But keep in mind that these ships -- most of these ships are so-called ECO ships with lower daily consumption. So the economics of the scrubber is different, but we have not excluded ourselves from doing further projects. But for now, we are committed to retrofit 12.

Right. Okay. I noticed in your chart that's on the website that the debt level, okay, the interest-bearing debt level -- and by the way on the chart, you have the columns, but the columns are not titled. So it's hard to understand exactly, which quarter is et cetera listed. So that's a correction that should be done the next time around. But anyhow the interest-bearing debt and the last one that's highlighted is up to $856 million. And up from the prior quarter, I assume of $764 million. So the debt is increasing. If you look at it with ships going away our debt per ship then is increasing if you average it across all of them. Are we making significant efforts to keep that debt level per ship even? Or what did you forecast along those lines?

I think the reason why you see an increase in interest-bearing debt is that we have taken delivery of 2 newbuildings in the quarter. So that is the reason why it's increasing. So it's really as simple as that.

It's increasing. But then if you averaged all the debt across all the operating ships, it's actually lowering then, that's what you're saying to me?

We're paying back. We're amortizing our mortgage debt every quarter and this quarter was no different. But what was different was the retrofit delivery of the 2 newbuilds from DSME. And with that was some additional debt. We're following the schedule, and it's important to us that you repay debt on the depreciating assets.

(Operator Instructions) And we will now take our next question from Herman Hildan of Clarksons.

Herman Hildan. First question goes on the $55 million for the 12 scrubbers, $4.6 million per scrubber. Can you give some more color on what that number includes?

And the answer to that is no. But I think as a general, the -- I think most people will say that it's sort of a 40, 40, 20 type of calculation, so with scrubbers, shipyard and then engineering and ancillary expenses. So roughly that's what people are, in general, looking at, but no more specifics in that.

Okay. So I was kind of trying to figure out whether that includes, call it, positioning cost and stuff like that. Whether it's an all-in cost or whether it's the pure scrubber cost on its own?

So the expected CapEx in this project is $55 million for these 12 ships, and then average is 30 days of hire per ship that has not got natural dry-dock space.

Yes. And then I heard you on the Q&A, you talked about the potential structure for time charters on the scrubber fitted vessels. And obviously, it's premature and you can't guarantee or say much about it. But I'm just kind of curious I mean, in light of, obviously, what we read in many other places and what you just said as well, that there is limitations on how many scrubber fitted vessels there will be in the market in 2020. How do you see the, call it, negotiating position in terms of reaping the benefit of, call it, the fuel advantage? Is that typically a 50-50 type of situation? Or do you think that's kind of -- is it possible to give an indication on how -- is that where you're negotiating? Or is it more on the total structure? Or how that contract would look like?

I think firstly, Herman, we have committed to this project on the basis that these ships will operate in the spot market because we believe, again, like it will be very good economic benefit for DHT and its shareholder. That being said, we are not too anxious to do time charters, but it's important for us that we participate in the upside on these scrubbers. So if -- we'll certainly, if you are in such negotiations, it will be a factor of where is the base rate, what type of calculator are you using for the profit sharing and so forth. There a lot of details and this is very hard to give you a particular sphere on that. But we have seen people there, say in the kind of, when they look at the 50-50 share or maximum earnings above a certain base rate, so that is what we've seen being discussed so far, but there are other ways to skin this gap as well so.

Yes. Okay. And then by what time do you -- I mean, obviously, you have quite an extensive part of your fixed portfolio expiring in the other part of 2019. What time do you expect to do more time charter opportunities? Or is that just kind of takeaway since the approach to what happens in the market?

I think our general approach to time charter is more a factor of where rates are. And the 5 charters we entered into at the end of last year, they're only of 12 months duration. They had a base rate at about our cash breakeven, with a profit-sharing element on top. And we're not really there to entertain longer-term charters at the rates that were available at that time. And we do think it's sort of timely that these ships come off time charter in the not too distant future, and if there are long-term opportunities once the rates stock up meaningfully appreciate then we'll look into that. But we're not going to make a long-term business that is loss-making so.

Thank you. As there are no further questions, I'll hand back the call to our host for any additional or closing remarks.

So we'll then just say thanks to everyone for participating in the call and have a good day.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.