DHT Holdings Inc (DHT) 2018 Q3 法說會逐字稿

Good day, and welcome to the Q3 2018 DHT Holdings, Inc. 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. Good morning and good afternoon, everyone. Welcome and thank you for joining DHT Holdings Third Quarter 2018 Earnings Call.

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 November 9. In addition, our earnings press release will be available on our website and on the SEC 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; forecasts on world economic activity; oil prices and oil trading patterns; anticipated level 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 EDGAR system, including the risk factors in these reports for more information regarding risk factors we face.

The agenda for today's call is to go through financials, business update and market update. Before we open up for your questions. The link to the slide deck can be found on our website, dhtankers.com. Looking at the income statement. Our EBITDA came in at $25.1 million and a net loss of $21.5 million or $0.15 per share. The net result included a onetime noncash charge of $3.6 million related to the private exchange of convertible notes due 2019 and a noncash impairment charge of $3.5 million related to the planned sale DHT Cathy and DHT Sophie. Adjusting for these longtime noncash charges, net loss was $14.4 million, equal to $0.10 per share. OpEx for the quarter was 7,700 per day for the VLCC and 7,600 per day year-to-date.

Our Board of Directors have elected to pay a cash dividend of $0.02 per share. This marks the 35th consecutive quarterly dividend and will be paid on the 23rd of November to shareholders of record as of November 13.

The average earnings for our VLCCs came in at $19,600 per day in the third quarter with the ships-on-time charter earnings to $22,500 per day and the spot fleet earning $18,500 per day. As of today, we have booked 66% of our fourth quarter of $32,700 per day.

Moving over to the balance sheet. Our balance sheet remains sound and healthy. The quarter ended with $86.6 million of cash. This does not include our undrawn revolving credit facility with $55.5 million available as per September 30. As you may have noted we have also secured scrubber financing of $50 million. Financial leverage is moderate with interest-bearing debt to total assets of 54.7% based on ship value at quarter end.

In the third quarter, we have also entered into 5-year amortizing interest rate swaps agreements totaling $410.3 million with an average fixed interest rate of 2.96% compared to current 3 months LIBOR of 2.56%. After delivery of DHT Mustang this equals 48% of our outstanding mortgage debt.

Finally, EBITDA almost covered debt repayment and cash interest. However, there was a meaningful upbuild in working capital of $18.2 million for the quarter. This was caused by increases in receivables at the end of the quarter, in addition to increase from inventories and a decrease in accounts payable. The increase in receivables was related to outstanding freight losses, which was received during the first half of October and receivables have since normalized. Cash flow from investing activities compute $58.7 million mainly related to investment in vessels under construction. Cash provided by financing activities was $72.7 million related to issuance of long-term debt related to the delivery of DHT Bronco and the issuance of convertible bonds offset by cash dividends paid and scheduled repayments of long-term debt.

I'm joined by DHT's co-CEO, Svein Moxnes Harfjeld, and Trygve Munthe. With that I will turn the call over to Svein.

Thank you, Laila. We have extended 2 VLCCs to an oil major as what we deem to be an attractive structure. The term is for 3 to 4 years and will commence in the fourth quarter of this year and first quarter of the next year respectively.

The structure includes downside protection with a base rate significantly above our cash breakeven level. And importantly, it includes a profit sharing structure that offers significant upside potential and market participation. The 2 ships in question are included in our scrubber requisite program, and the expected favorable economics of the scrubbers will be shared with us. We are set to sell our 2 Aframaxes with expected delivery during the fourth quarter. As Laila mentioned, we recorded a book loss of $3.5 million during the quarter and it will net $15.4 million of cash upon delivery. DHT is now a pure VLCC company. We believe VLCC to have the most favorable exposure to a very promising freight market, essentially the workhorse in oil transportation. We have a modern fleet of 27 core VLCCs, all in the water and ready to roll. There is much discussion about scrubbers and many opinions flying around. To declare, we are neither for nor against scrubbers. It is, however, our responsibility to our shareholders to try to capture business opportunities for DHT. In a nutshell, this is what our scrubber program is about. Our announced time charter extensions to a large integrated oil company supports our review. We will not pretend to be an authority in analyzing the oil markets. We do however, travel extensively and our most recent customer visits in Asia, Europe and the U.S. provides meaningful input to our thinking. The takeaway suggests that there will be compliant fuels available. However, as one would expect, economics will play an important role.

Firstly, we would anticipate refineries to prioritize compliant fuels if it's profitable. If a refiner will have to forego other products in a shift to supply the marine industry, we think it's reasonable to assume such decisions to be based on profits rather than regulatory changes.

Secondly, we understand there to be insufficient opportunity to destroy heavy crude oils, hence it would be reasonable to expect the market to be in long days. As such, HFO will likely be cheap. We believe these 2 factors provide attention that will support economics of our scrubber program. We have extended our scrubber program to include retrofitting 4 additional VLCCs. The ships in question are built between 2006 and 2011. The installation will be done during 2019 and the ships will be ready for 2020. This will take our scrubber fleet to 18 VLCCs.

Beyond this, we have no further plans to install scrubbers. On the right-hand side, on the slide, we have illustrated the economics of a scrubber. There is, of course, uncertainty as to where the spread will be, but based on the spread between HFO and a compliant fuel of $250 per ton, the payback will be a little less than a year.

Importantly, the TCE these ships will earn is expected to be superior to comparable ships without scrubbers. And with that, I hand it over to Trygve.

Thank you, Svein. We have for some time expressed a bullish view on the market in the medium term. Well, it seems that we've gotten to that medium term now. So whilst we're not surprised by the move to the upside, we must admit we are impressed with the force with which this market has come up over the past 3, 4 weeks.

Over the past few quarters, we have argued that oil inventory drill downs coinciding with a growing VLCC fleet have been weighing on the freight market and provided the recent downturn. But we have also said that these factors will reverse and become constructive for the freight market and that seems to be exactly what is happening. Global oil production is now trending up and the VLCC fleet down. Couple that with seasonal factors and you have a very exciting freight market on your hands.

During the month of October, we have been around to see customers in Asia, Europe and the USA. From those visits, we are left with a strong feeling that there is little wrong with demand. There has been a lot of talk about the Chinese withdrawing from the U.S. crude export scene, but bases on visits with other Far Eastern refiners, we are not too concerned about this. Both Indians, Koreans and Japanese refiners have become regular takers of American crude. So we're convinced, the U.S. oil will find buyers even if the Chinese have been a bit erratic as a consequence of the trade bickering between Washington and Beijing. After a recent round of visits in Houston, we remain very bullish on the U.S. exports. Volumes are already significant and they will rise further in 2019.

And from the VLCC perspective, it is important to note that there are already more laden VLCCs coming out of the Atlantic then laden ships going in. This means that incremental VLCC exports will depend on more balusters coming in. And this of course, consumes significant fleet capacity and is therefore very constructive for the freight market. On the flip side, we take note that there have been no new VLCC orders since the 1st of June this year. We believe this stems from 2 factors. First, it is now too late to order new ships with scrubbers to be there when the new regulations kick in. And secondly, new building prices are up and the best buyers are now behind us. Rather, we believe the potential future transition to LNG powered VLCCs has a cooling effect on people's desire to commit to new ships at this point in time. The order book for VLs currently stands at 13.9% of the trading fleet, that is not insignificant. But everybody should recognize that we have now finally gotten to the point in time when a meaningful number of the old VLCCs have come to the end of their economic life.

Scrapping has indeed been very high this year, and it may not be repeated with equal force next year. But we argue, there will be meaningful scrapping also in the years ahead, simply because we now have quite a few old ships around. And in the midst of the current, almost monofocus on IMO 2020, one should not forget IMO 2019, i.e., [the ballast] for the treatment requirements are kicked in 10 months from now. As opposed to IMO 2020 this one requires CapEx to the tune of $2 million per VLCC, which of course comes on top of the regulatory operating expenses. We count 62 VLCCs that are new for fourth intermediate, fourth special or fifth intermediate survey in the 12 months immediately following the implementation of the new rules in September next year. We expect a good chunk of the owners of these ships to call it quits, rather than invest millions in order to trade for another 30 months. And if not, it is only because the market is strong, in which case, we're all happy.

So the bottom line is, we're not too concerned about the current order book. With that, we'll open now for your questions. Operator?

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

Couple of questions, hopefully pretty quick. Svein or Trygve, now that you have the 18 VLCCs identified for the scrubber fitting, and it looks like most of it will take place next year, can you just give us an update on the total CapEx associated with that? And the off-hire time associated with those 18 ships?

Yes. So there's no change in the plans. So the CapEx that we announced for the first 12 retrofits are $55 million, and $50 million of those $55 million are financed by the already announced facility. The 4 additional retrofits, we expect CapEx to be $4.8 million per ship. And we currently do not intend to raise any debt to finance that. As for installation, all this installations will take place during 2019, and we plan for 30 days off-hire per ship.

Got it. And then on the chartering strategy, that's really interesting the extensions that you spoke about. I'm just trying to understand, is the base rate including the scrubber spread? And then there's the profit sharing on top of that? Or is the profit sharing including some of the impact of the scrubber?

Well, the base rate is a fixed number per day, and it assumes the cost of the ship. But we have agreed a structure or formula, if you like, on the profit sharing that includes the benefit that the scrubber will have.

Okay, got it. And then in the last conference call, when I asked something similar, you'd pretty much said that the strategy was going to be to play the spot market with the scrubber ships with the anticipation that there'll be a super profit from that. Was this extension -- these charters just kind of a one-off because the charter came to you? Or do you maybe have a different plan on the employment of the scrubber ships now after speaking with a broader base of customers?

John, I think the main point was that, at the time of the last call, we had seen some time charters being done on scrubber-fitted ships, but on fixed-rate and that didn't really have much of an appeal to us. We think it's important that you have an upside participation of what we expect to be interesting times immediately following the new rules. So I don't think there's a contrast to what we said and what we're doing because we are getting a very attractive time charter out of it with full upside participation.

So as long as you keep the optionality, whether it's in the spot market or a profit during the time charter, you're pretty agnostic to how you employ those ships?

Yes.

Okay. The last one and then I'll turn it over. I'm just trying to understand. So in the -- in your last press release, you've done 60% of the third quarter days at $21,100, but then the average for the quarter came in at $18,500, which means that the remaining 40% had to be done at sub $15,000, which is the complete opposite of the way the market trended, as the back half of the third quarter was much stronger than in the first quarter. So was that a timing thing? Or you had got a pretty good rate above the market early in the third quarter? And then you just couldn't participate in the upside of the market and the rest of the third quarter? And the only reason I ask that -- the relevance, is because your fourth quarter to date is really strong, better than your peers. And I'm just wondering if we're going to see that same type of trend-off to the rest of the quarter because of timing?

I think it's fair to add that during the third quarter you have a dip in the freight markets, and also you had an increase in the cost of bunkers and there's some positioning in this, although not very much. So these markets are certainly volatile to the detail, from week to week. But I think that on our mix that we see ahead of us now, is sort of different, and we think that what developments we've seen so far, speaks very well of what we can expect this winter. We're not suggesting it's a straight-line trajectory upwards from here but it does look really healthy. So we can expect strong earnings going forward.

We will now take our next question from Randy Giveans from Jefferies.

A few quick questions from me. So obviously, you're committed to the dividend, $0.02 per share, even with kind of negative earnings. So with an increasing earning environment, do you expect to focus on dividend growth of that 60%? Or being more aggressive in share repurchases instead of kind of increasing the dividend? We're expecting 4Q to be well above $0.02 per share in terms of EPS.

Yes, as you say, our policy is the same, a minimum 60% of net income to be returned to shareholders, either in the form of dividends or buybacks. And at this point, we agree that chances are we're going to show profits and there will be then the policy will require for us. And as far as the split, it's too early to say, whether we're going to favor one over the other.

All right. And then I guess 2 quick questions. Looking at the sale of Aframaxes, are those for additional trading? Or are you expecting those to be sold for scrap in the coming months?

Well, they're sold for additional trading. So it's a private shipowner that are buying these ships and continue to operate them. The ships are in excellent condition as is typical with the DHT ships. So they have a several years -- several good years ahead of them with due respect.

Okay. So not folks like a cash buyer who will likely scrap immediately.

No, No, No they are trade, they're only 15 years old [indiscernible]. And the price is significantly above the steel value. So definitely for further trading.

Right. I didn't catch that. Last quick question, so for the scrubbers, just touching on those, what are your thoughts behind installing them on your 2006 to, I guess, 11 vessels and not maybe 2004 bills, so the 2015 bills?

So on the scrubber program, retrofit program now, there's 16 ships, and all these ships are built between 2004 and 2012. So the only ship that is built pre-2015 that will not have a scrubber is the DHT China and she's on a long-term time charter to the customer, and they are, at least not for now, interested in retrofit scrubbers. So she will operate where she is. But then for the ships built since 2015, these charters are the true eco-design ships, 8 of those 10 ships will not have scrubbers. It's only the 2 new buildings from [new] volume third quarter this year that will have scrubbers as from newbuilds. It is really the older end where the consumption is high -- it's really the older end of the fleet where consumption is higher where we see the biggest economic benefit from installing scrubbers.

Okay, that's the reconciliation, because your press release said 2006 to '11 but you're saying of the 2004's not on charter will also be retrofitted?

Yes. That was in the prior note -- the prior announcement we made for this -- all retrofits. We said that 2004 to 2012, both ships.

We will now take our next question from Michael Webber with Wells Fargo.

I wanted to look back -- circle back to the John's initial question on the profit share charters, just to make sure I understand that correctly. Super interesting and it makes sense as kind of a way you guys try to tackle the market going forward, just given the CapEx associated with scrubber insulation. But if I just think about the payback period on the scrubber itself, how much of that would actually come from the base rate versus any sort of variable revenue associated with the time charter extension? I wasn't totally clear whether there was actually some payback associated with the base rate. So...

I don't think -- it's not really broken off in what's sort of provided a return on the ship itself and to provide a return on the scrubber. So what we said is that the base rate is significantly above our cash breakeven levels, and then there's a 50-50 split to above that. So the key area's that, when you determine the rate that is going to be split to what the market is, there's a calculator agreed that is converting daily roll share numbers into TCE. And in that transition from roll share to TCE, importantly, you assume the price of heavy fuel oil as opposed to low sulphur compliant fuel. So you get to full benefit when you assess what the market really is on the TCE basis, you get the full benefit of the cheap fuel.

Right. I guess, I thought that you were going to sign just a flat (inaudible). Would the base rate be in line with the market charter for a non -- a vessel without a scrubber?

We're not disclosing really the details. But as you said, that in the base rate, the fixed rate per day per day is significantly above the cash breakeven levels of DHT. And then there's a participation of this share (inaudible) and there's no ceiling. So if this market goes to sort of historical heights, you know we can participate meaningfully. So...

Okay. Yes, no it make sense. I just wanted to try to get a bit more detail for modeling, but I can understand the commercial sensitivities around that. In terms of your TCEs in the quarter, just to revert back to another earlier question. Are you saying -- and just out of curiosity that some of the changes in revenue recognition standards, is that creating a -- do you think, a wider lag associated with maybe the published rate we would see versus what you guys are able to recognize in your P&L? And maybe by a week or 2 -- it's fine if it's not something you've looked at but just within your answer to the first part of the question, or the first question, it seems as though it's just maybe that the old paradigms we're using in terms of a lag associated with voyage length and revenue recognition might be a week or 2 too narrow now?

I think if we not only have [a little] of volatility in the basics of our market, but the new accounting rules, the IFRS 15 and so forth just adds volatility. And you might have periods where you have a negative adjustment going out of an earnings period, or it could be a positive adjustment coming into the next one. So it's a bit erratic, unfortunately, so -- but it is what it is.

Okay. Just one more, you mentioned your customer business and the comfort level you're having in terms of availability of fuel. I'm just curious, are you getting that level of comfort primarily from refiners and the produces? Or are you also getting that level of comfort from the actual bunker suppliers themselves? I'm just trying to get a sense of how comfortable are you that some of these suppliers are actually going to be able to have the working capital to handle the transition of their tanks and the availability of fuel. Would you say your comfort level's in line with -- for both refiners and bunker suppliers or do you think there's more risk further down the chain?

We have really been meeting with the partners, who happened to be our customers and not really the bunker [surprised] to such an extent. But you do get a sense also that the refiners are looking at an opportunity to capture a bigger share out of our premarket directly with customers and also to ensure quality and so forth. So I think there's some danger of too much creativity down the sort of food chain in the bunker business, it could hurt our business. And we all need to think hard about how we buy and manage fuel to minimize disruption in operating our ships. So it's really based on what we hear from refiners.

And I think also, Mike, it's important to recognize that in remarket you're really bunkering in the major [bunker rating hubs in the world]. So for our own part, the vast majority's happening in Singapore and Taiwan, those places are going to have bunkers available.

Yes, probably less of an issue for you guys. I just had one more, in that context, are you at a point where you think you would get a bit longer in terms of your looking forward to secure your fuel, and maybe getting a bit more exposed to some derivative contracts or some forward supply agreements associated with HSFO or is that something you think would be more of a 2019, 2020 event? Kind of walking that in.

We have typically not entered into any derivatives when it comes to fuel. The long-scale price system is such that fuel is sort of passed through to the customer and it is reflected on all the fuel costs and what you've been paid sort of every day are lump sum. So to make sort of a front on cost of fuel is really making it best on the oil market and that's not really part of our business, what we're trying to educate ourselves, so it's only to see to what extent can you secure cash flows or profits or earnings from scrubbers and looking at spreads . So I think at least what we learned so far there's a lot of sort of settlement risk in executing on this and a lot of uncertainty, it will also tie up a lot of capital. So at least for now we are not looking too favorably upon this. And I think we've sort of made our bed and we are well positioned the way we are without sort of adding these sort of spikes to the mix.

We will now take our next question from Noah Parquette from JPMorgan.

So I guess it's typical for shipowners to use some cash flow on deleveraging it going into an upturn. But you guys have done a pretty good job of staying ahead of that. How do you feel about your leverage level now? Are you going to be comfortable with just kind of, be it regular amortization or do you think there is something more proactive there?

No, you're right, Noah, it's higher and our priority is to strengthen the balance sheet when the opportunities present themselves. So don't be surprised if the freight market continues strong, that in addition to returning capital to shareholders, we will allocate capital towards debt reduction.

Okay. And then just coming back on the scrubbers, I guess, opponents of scrubbers kind of site a couple of risks, the potential regulatory risks from an environmental perspective, and kind of a lower spread from HSFO to kind of the new blends. So how did you guys look at those risks? And how do you think about that when you're going through the process?

I think IMO has been very clear that the implementation from 2020 stands. And I think everyone should recognize, to sort of come up with new regulations and change in regulations and get them implemented, there's a meaningful time lag in there. People suggested looking at 22 months for such as change to happen. So -- and I think we've all been aware of this thing coming up for a long, long time. So that the industry now is suddenly saying now, we're not ready yet. I appreciate that the regulators are not looking too favorably on that. And I'm going to stand firm on this and get it done. And I see it really -- of course there is some uncertainty in relation to pricing on this but again, we think these refiners are rational people and they will produce this product if they can make a profit on it and there will certainly be demand. So for compliant fuel cost to fall out of bed at least personally I have a hard time to see that coming. I think if anything is going to be achieved, it's going to be HFO, that will be fully in abundance in the market.

We will now take our next question from Ben Nolan from Stifel.

I wanted to circle back to the time charter contracts they have with a profit sharing. Just thematically, obviously, the intent there is to try to benefit from the dislocation between the cost of low and high sulphur fuel with the HFO-linked profit sharing. I'm curious if there are -- if you guys have given any thought about other ways of doing that, maybe doing something with a contract on a purely spot basis. But worldscale off of an HFO or something else -- is there -- are you looking to and is there a way to maybe guarantee or lock-in that you're getting some sort of a spread on your scrubbers without necessarily having to lock in a fixed rate?

Ben, we already have a COA in place and that is indeed quoted in a worldscale, so depending on what ships we use, if we have a scrubber fitted ship, we'll, of course, go onto a cheaper fuel, and we'll get the benefit of it. But the difference between a COA and a time charter is that you get that guaranteed rate, it certainly has some attraction from different angles or for a whole host of reasons.

Right. That's interesting. And does that COA -- is it pretty substantial with respect to the utilization of a decent number of your scrubber-fitted vessels or just kind of a one-off?

Yes. We've listed the numbers of cargoes under the COA, but as we say, it's all market-related. So it's just a backbone for our whole program, if you may. It's not guaranteeing you a minimum income or anything like that, but it gives you access to cargoes for sure.

Yes. And also, the Delta -- the potential Delta between the price of high and low sulphur fuel. Well, that's interesting, is that something that you think you could expand upon in the future in an effort to kind of guarantee that you're not simply passing on the fuel savings or the cost of the scrubbers effectively, or not able to benefit from the cost of the scrubbers from your customers?

As Trygve said earlier, when these time charters were done earlier this year and maybe in the last year, people were willing to fix their ships with scrubbers out of fixed rates, i.e., no benefit for the shipowner, we are not entertaining any shortage of that type at all. So I think if you look at how VLCCs operated through the cycles fundamentally, we like to have some fixed income in place in our fleet but not at the bottom of the market. So we've done these charters now. They have a meaningful tender at a very good structure. It's through the strengthening of the market and this upside where we can develop more charters, that certainly benefits the DST. We will look at that. But I think right now, really, we have exposed this tier with almost all the fleets of market and what is a very promising period ahead of us and we want to capture as much as we can out of that.

Yes. And I totally agree and that wasn't what I - wasn't implying, I think that's the right strategy. My question is more around ways to ensure that you're capturing the economics behind the investment in scrubbers rather than simply allowing your customers to receive the benefit of it and obviously you give that away if you just have a fixed rate time charter. So -- but I think these 2 charters are theoretically indicative of that. And really the question is, are there other ways to get to that same scrubber capital recapture?

Yes, 2 time charters was splitting of the profits above a base rate compared to that 25 -- excuse me, 24, with the full benefit of the spot market. And we've seen it from our eco ships, we've kept them in the spot market, then as you know the spot is quoted on a lump-sum basis and you get to keep all the savings to yourselves, and we expect the same to take place with the scrubbers. If you've been in the spot market, your customer doesn't really care whether you have a scrubber or not, they care about the lump sum they have to pay to get the cargo moved.

We will now take our next question from Magnus from Seaport Global.

Just a question on discrimination of older ships. You mentioned 22% of the fleet is above 15 years of age. In a strong market, owners tend to hang on to their older ships, and I was just curious, your thoughts, where the critical age or the critical survey is for older ships? I mean, guys are taking 3 of your 2004 built ships and putting scrubbers on them. I kind of just want to know your thinking about the useful life of those in a stronger market?

We use 20 years' economic life for our ships -- economically in DHT, but there are certainly clients out there who have put a hard line on ships when they turn 15, Total and Chevron, are 2 cases in point on that. There are some others as well. But as you rightly say, it's a bit of a rubber band with some customers, when the market is strong they tend to be more accommodating or more experienced that is. But there -- some of the trades that really own the ships with poor, I think, some with CAP 1 rating and so forth, they get a lot of waiting time and it's a lot of aging in there and there's some challenges in operating in that with a big utilization. So I think you have to assume really some more waiting time and idle time than a new one. I think when it comes to the 3 ships that we will take to third specialist, or next year with scrubbers, they are in excellent condition. I think we have customers that can certainly use them. So we expect to have good utilization on those. In terms of CapEx, of course, as Trygve mentioned, it's really the first [flight] after September next year that will sort of be a fork in the road for many lease-owners. You have, of course, the third special survey and you need to decide whether you want to have a Cap 1 or a Cap 2 rating on your ship, and the consequence of that position could be very costly. So -- and you only buy yourself 30 months of trading from that perspective because the next trial out is at 17.5 and then next one is 20. So it's sort of like, from year '16 onwards, it gets increasingly difficult or meaningful to make those decisions.

All right. And just one more question, in your travels to the U.S., talking to some of the refiners here, seems there's some bottlenecks on the U.S. export, it seems like some of the pipeline issues are being addressed next year. What's the biggest concern among your clients when they're looking at U.S. exports going forward as far as bottlenecks, both forward capacity and pipelines?

Yes. I think one of the big concerns of course we took notice of is that they're concerned about the availability of VLCCs in the U.S. Gulf. As we mentioned, there is far less laden VLCCs coming in than was going out. And to get people to sort of balance in there, that's a bit of transition in mentality. So some of these guys that see a meaningful ramp-up in their export capacity and export need, quite frankly, next year, they are concerned about ship availability.

We will now take our next question from Max Yaras from Morgan Stanley.

The 4Q fixtures look a bit above what I'm calculating as the quarter-to-date market average. Just wondering on the progression on those and what you're able to fix, I guess, the most recent fixtures at?

Yes. I think if you just look at the daily fixture reports you see in the market coming up and we saw a triple-digit Worldscale rates being paid here recently. And on a straight round voyage basis, you're looking at rates in the -- starting with the 6 -- in the 60,000s. Then it pulled back a little bit. So the rates are quite strong at the moment. Last week was particularly busy, and it comes and goes a little bit. But for us, it seems that we are now at the higher level, and we don't really see it slipping back. And I think everybody will see as time progresses their average rates for whatever Q being in the quarter or the month, are going to go north.

Okay. And then there's been some concern about the 3.5% HFO maybe becoming a lower quality or higher sulphur. Do you share that concern or is there any concern about running higher sulphur on your scrubbers?

I think the scrubber has no restriction as to whether the fuel 3.5% sulphur or 4.5% sulphur or 5%. It's really the main engine on the ship where they can consume even a dirtier product and several ships can. So you just need to look at the viscosity and the (inaudible) in particular -- each particular fuel that you get. I think where we address some concerns is that there won't be different types of compliant fuels in the market, to what extent can you come in on these on board and use 2 different bunker stems from 2 different suppliers, and things like this. So in anticipation of this, we have done a lot of work over the past few years on our ships. All the newbuilds we have, we have designed to be able to hold several grades, we've sort of fixed our existing -- our older ships in order to do the same. So I think that's really the crunch, it's going to be the compliant fuels where there will be some challenges ahead. But then again, I think if you start to buy from really credible suppliers with good contracts and recourse and all that, like the integrated oils, I think you will sort of handle that risk meaningfully. So...

Okay. And then you mentioned that you're kind of assuming a $250 spread. Is that kind of assuming that there's a blend between HFO and MGO? Or is it a new fuel -- kind of how do you get to that $250?

We're not assuming $250, we gave you an example of what the payback would be at $250. So I think the big integrated oil, there's not going to be much blending, it's going to be a new product. There will maybe be bunker suppliers or traders who are going try to do blending and provide sort of ultra-compliant fuels to the market and this is going to be sort of the challenging waters, right? And who do you buy from and how do you manage the fuel.

We'll now take our next question from Frode Morkedal from Clarksons Securities.

Curious about the 3 and 4 year time charter deals you have made. Basically the duration of the contracts, which are long, of course. Is this a function of the scrubbers? Or do you actually see more length or duration in the time charter market and what do you could be -- is the implication for ship values ahead?

I think this is an existing client of ours, and they have steady needle ships. They also want to position themselves with respect to having scrubbers. They probably see also, like most refiners, they will have an outlet of HFO. They look at us as a highly credible and reliable service provider, I think, it's fair to say. So we are very pleased with extending our partnership. So there is a good, sort of customer/supplier dynamics in this. Of course, as to margin -- spot market increases, I think chances are you will have more opportunities to develop [turn factors] and this could, of course, impact those [values]. I think the biggest drive now is that it's a very healthy spot market, you already see indications that values is going to go up because people also have ships in the water immediately. So, and I think our after sale is certainly a step up in terms of what has been sold. If you look over the past 12 months, there's a huge fleet of (inaudible) and sort of similar (inaudible) that have been sold between $9 million and $10 million, $10.5 million. So to now bring these up to sort of $12 million plus is a step up.

And maybe one on the market as well. I think next week, you have the Iran sanction coming in force. What's your feel on the implication for the tankers in the short term?

We think that we fit in with what a lot of people have been stating that the main effect from an Iranian sanction is that the Iranian fleet is -- becomes nontradable or some of these ships are being used for storage and so forth. We think that other people will fill the void after them in terms of export volumes. So that should be a net-net 0 maybe, despite the fact that some ships are leaving the trading fleet, that's of course, a positive.

(Operator Instructions) We will now take our next question from Robert Silvera from R.E. Silvera & Associates.

My question has to do with the sale of your 2 Aframaxes, which you have done. Do you anticipate any sale or scrapping of any of the fleet at all within the next 2 years?

I think for the moment, we are very happy with our fleet and we want utilize this fleet to gain as much money as we possibly can and its anticipated upturn. But I think if you've seen our behavior in the course of turns, there will be a chance or an opportunity for us to also divest some older ships at a later point in an upcycle. So should not be surprised to see that happen but that's not any -- there's no immediate plans to do that. So, it's really now we have built earnings' power and we want to get the most of out of that.

We're very pleased with our current position and I will just let the market play out.

I see. Okay, I heard one of the comments before that you intend to take excess capital and reduce debt if that ends up being possible, and I definitely would like to encourage you on that. I remember very distinctly back years ago when Frontline did not do that and the net result when the market turned was the bankruptcy, et cetera. I don't want to see that for us. I like the attitude that you have had that you are willing to take excess capital and reduce additional debt to strengthen the balance sheet.

As there are no further questions in the queue at this time, I would like to hand the call back for any additional or closing remarks.

Well, thank you to everyone for your continued interest in DHT. Have a good day.

Thank you.

Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.