DHT Holdings, Inc.

Good day and thank you for standing by. Welcome to the Q2 2023 DHT Holdings Inc. Earns Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lila Halforsen, CFO. Please go ahead.

Thank you. Good morning and good afternoon, everyone. Welcome and thank you for joining DHT Holdings' second quarter 2023 earnings call. I'm joined by DHT's President and CEO, Svein Moxnes Harfjell. As usual, we will go through financials and some highlights before we open up for your questions. The link to the slide deck can be found on our website dhtankers.com. 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 until August 16th. In addition, our earnings press release will be available on our website and on the SSE 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 as detailed in our financial report. 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 SSE EDGAR system, including the risk factors in these reports, for more information regarding risks that we face. DHT continues to show a solid balance sheet represented by low leverage and significant liquidity. At quarter end, financial leverage was about 18% based on market values for the ships, and net debt was just above $11 million per vessel. The quarter ended with total liquidity of $359 million, consisting of $131 million in cash and $228 million available under our revolving credit facilities. Now over to the P&L highlights. It was a strong quarter with robust spot rates for the VLCCs and we achieved revenues on TCE basis of 113 million and EBITDA of 90 million. Net income came in at 57 million equal to 35 cents per share. Reported vessel operating expenses for the quarter was 19.7 million and G&A was 4.5 million. Included in the OPEX number for the quarter were some advanced costs for spares and consumables associated with ships that have been in yard in connection to some non-recurring items. The vessels in the spot market earned $64,800 per day, and the vessels on time charters made $36,200 per day. The weighted average TCE achieved for the quarter was $56,300 per day. Earnings were impacted by 61 scheduled off-fire days in connection with installation of exhaust gas cleaning systems for three vessels, and unscheduled off-fire, mainly related to the repair of one vessel. On this slide, we present the cash flow highlights. We started the second quarter with 117.5 million in cash, and we generated 90 million in EBITDA. Ordinary debt repayment and cash interest amounted to 13.6 million, and 38 million was allocated to shareholders through the cash dividend pertaining to the first quarter of 2023. In addition to the cash dividend, we also allocated 9 million to shareholders through share buybacks during the quarter. 20 million was invested in our fleet with 1.8 million in maintenance capex, 8.6 million for installation of exhaust gas cleaning systems, and 9.5 million through a deposit for the acquired vessel. The quarter ended with 130.6 million in cash. Switching to capital allocation. In line with our dividend policy to pay out 100% of net income to our shareholders, we will pay 35 cents per share as a quarterly cash dividend. The dividend will be payable on August 30th to shareholders of record as of August 23rd. This marks the 54th consecutive quarterly cash dividend, and the shares will trade ex-dividend from August 22nd. In addition to the cash dividend, we repurchased 1.1 million of the company's shares during the quarter for a total consideration of 8.9 million. The average price for the shares is $8.25 per share, and DHT's policy is to retire the shares upon receipt. With that, I will turn the call over to Svein.

Thank you, Leila. We entered into agreement to acquire a 2018 built DLCC for 94.5 million. The vessel is of equal design, was built to a high specification, has a large deadweight capacity and is fitted in an exhaust gas cleaning system. This addition is expected to be accretive to our earnings and will further improve our fleet's efficiencies, including our AER and our EEOI. We took advantage of the dips in the freight market and completed our last retrofit projects for exhaust gas cleaning systems during the quarter. As such, all our ships are now fitted with these systems. Subsequently to the quarter, we put in place a 10B5 program to potentially acquire our own shares after quarter close, resulting in an additional 250,000 shares bought at 8.46 per share. We took delivery of the newly acquired vessel last week, now named DHT Appaloosa. She was financed with available liquidity, but we have received commitments for a new secured credit facility of 45 million, which we expect to draw during the third quarter. The new facility has a DHT-style structure, which includes a 20-year repayment profile and a six-year tenor. The facility will be priced at the SOFR plus a margin of 180 basis points. Here with a brief fleet update. The DHT Appaloosa was delivered last week and is currently in dry dock for our first special survey. We have four time charter contracts that either have ended or are due to end this quarter. The DHT Mustang and the DHT Stallion have both been delivered back to us. The DHT Colt is scheduled to return home later this quarter, and the DHT Amazon contract will expire end Q3, early Q4. Following this, we will have four of our vessels on time charters and 20 ships on the dance floor in what we expect to be a rewarding freight market. During this quarter, we will dry dock four vessels. three of which have been brought forward from the scheduled survey dates in the fourth quarter. In our view, we are taking advantage of the current freight market to position these vessels for what we think is ahead of us, with the result of having no dry docks planned for the fourth quarter. We will now go through the third quarter outlook. We expect 530 days to be covered by our term contracts, at an average rate of 35,400 per day. We expect to have 1,560 spot days for the quarter, of which about 1,090 days equal to about 70% have been booked at an average rate of 46,300 per day. As of today, this suggests combined bookings of 78% of the total days for the quarter at weighted average earnings of 42,800 per day. You can compare these spot booking numbers with our estimated spot P&L breakeven of 25,700 per day for the third quarter, allowing you to model a net income contribution based on your own assumptions for the unfixed spot days. The market thus far this quarter exceeds the general idea of what a weak third quarter period should look like. On the graph to your left, you see that this year's recent and current dips are higher than the seasonal lows over the past five-year period. This is in addition to increased transportation distances driven by seaborne crude volumes being in the upper band of the five-year historical range, as illustrated in the graph to the right. To us, this suggests that the market is in the range between balanced and tight and easily triggered for upward movements in freight rates. The current market is a bit lower than the start of the quarter and now mostly moving sideways. An eco-vessel fitted with an exhaust gas cleaning system is currently worth about $30,000 plus for a round voyage in the east and about $40,000 per day out of the US Gulf.

We maintain our robust break-even levels.

The estimated P&L breakeven for the second half of the year for the fleet as a whole is about 27,700 per day. When adjusted for the fixed income that we have, the P&L breakeven for the spot fleet is about 25,900 per day. The reason the spot P&L breakeven is marginally increasing for the second half when compared to the year as a whole is because we will have less vessels on time charter contracts. For the remainder of the year, we estimate the cash breakeven for the fleet as a whole to be 19,200 per day, with the spot shifts requiring to make 15,400 per day for the company to be cash neutral. If you set out to compare these numbers with our peers, you should keep in mind that our cash breakeven numbers include all two cash costs, i.e. OPEX, G&A, maintenance capex, cash interest, and debt amortization. This illustrates a headroom of about 8,500 per day between cash breakeven and net income breakeven for the fleet for the second half of the year. This potential discretionary cash flow will be allocated to general corporate purposes. We know you all can count ships, so please excuse us for maybe stating the obvious. But this picture is quite remarkable and still deserves some airtime. The order book for new VLCCs now stands at 1.9% of the sailing fleet. Insignificant would be an understatement. This level of contracted new supply becomes even more insignificant when compared to 30% of the current fleet being older than 15 years of age and 14% being older than 20 years of age. To make this fleet development picture even more compelling from a ship owner's point of view, There are some 90 ships that will turn 20 years of age up to the end of 2025. Year to date, eight vessels have been contracted, consisting of two options being declared earlier in the year and six new contracts this summer. There are some letters of intent for a few additional ships in place, projects that are subject to financing and employment. Time will tell if they become firm contracts. In the second hand market, there has over the past couple of years been great buying interest from Asia for older ships. We now see a shift in interest towards younger vessels, as many of these older ships that have been acquired are facing increasing scrutiny through port state controls and vetting considerations by terminals and end users. The result being quite a large number of older ships for sale, with maybe reducing buying interests. As we have suggested earlier, some of these older vessels might end up retiring from the market, thereby starting to reduce the sailing fleet. This supply picture should become a meaningful tailwind for our business. Let us sum up our thoughts for our markets and our business. As just mentioned, we have an exceptionally constructive vessel supply picture. OPEC Plus cutting production are typically not good for the tanker markets. But there are some side effects that is softening the current blow and that will build a stronger turnaround. As the implied balances in the oil markets are tight, the cuts have forced refiners to source crude from further away. Think Asian refiners buying more from the Atlantic. This increases transportation distances and is a key factor for the lows this year being meaningfully higher than what most people expected. The cuts are also driving refiners to draw on inventories. Assuming the agency forecast of increased demand listed this year is reasonably correct, one should not only expect a need to satisfy demand, but also a potential stock rebuilding. Keep in mind here that we make a living of transporting supply. And in situations when supply exceeds consumption, tanker markets tend to rock. Refining margins are on the rise again. Expect this to drive refinery runs and then product tanker rates only to front-run crude tanker rates. And if we may, wrap up this Call with a little twist on one of Winston Churchill's many great thoughts. Stay calm and buy tanker stocks. And operator, over to you.

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again.

Please stand by while we compile the Q&A queue. Our first question comes from the line of Frode Morkedahl from Clarkson Securities. Please go ahead.

Thank you. Hi, Brian. Hi, Frode.

Yeah, I would like to hear your thoughts on the VOCC spot market. Specifically, where do you see the additional demand for VOCCs coming from going forward? Obviously, we have the potential for a reversal in OPEC volumes. But one region with growth in the past year has been the US Gulf, right? And it seems to be a clear trend of more VLCC taking US crude into Europe. Do you have any thoughts on this going forward?

Maybe you see a potential shift in this trade towards Asia?

You know, you're right, there's been more these transporting crude from the US into Europe this past year, year and a half. And I think we have expectations that that will continue. And these barrels have to a great extent substituted Russian barrels from the Black Sea and the Baltic. But also it's in combination with increased production in the US. And Whether the US guys and the traders are selling to Europe or to Asia is also somewhat driven by the level of accreditation and pricing. And now also, of course, with higher interest rates, when you transport oil longer, there's more cost associated with the trade. So oil price pricing has to sort of support those differences. But as I mentioned earlier in the call, we do see a clear sign that that China in particular are sourcing more oil now in the Atlantic. It's not only U.S. Gulf that's of importance here. It's also Guyana and Brazil in particular has increased their production. So all this combined is really expanding transportation distances.

Okay, that's good. On the bigger picture, I guess one topic we haven't talked about in... I guess, is the energy transition and peak oil demand. And I saw that the IEA had a report in June, this five-year output report, where they're basically forecasting a slowdown in oil demand starting next year and a peak before 2030. And I guess the key issue for tankers is trading distances. So what's your perspective on this broader topic? And do you think it has any influence on the sentiment and investment decision today?

I think to answer your last question first, I do think it has an impact on investment decisions because it adds a level of uncertainty on the longer term future of the market. So people are a bit more hesitant to deploy capital. But it's not only about, you know, expansion of ton miles, but it's also about how much of the total demand is satisfied by seaborne crude. And as we showed here in the slide, seaborne is now sort of at the 43 million barrel a day level, whereas, you know, the Fiber average is around 40, 40 and a half. And it's really to understand where is the future oil going to come from. And is the depletion, is it steeper on non-seaborne crude production or is it steeper on what is seaborne production? And we are working hard to understand this picture and we have a particular project in place to try to wise up a bit on this and if it's successful we will have some more meaningful, I think, details on this later on this year. But we do have a suspicion that Seabourn will uphold better than the general production level and thereby support transportation. And maybe all of this is sort of right, that the fleet might shrink over the next few years. But I think when it comes to peak demand, it depends who you talk to. We see ranges from sort of peak demand in 2028 up to 2055. So it depends who you ask and who you believe and what is behind that analysis and if these views are loaded or not by business agendas or not. So I think it's hard to just pick one estimate and say this is the estimate. I think some people in the oil industry are suggesting that the IEA is a bit on the conservative side and they are being challenged on their views. that it may be politically colored to some extent in support for sort of a green transition rather than being actual real numbers in what they expect will happen.

Yeah, that's a good point. Thank you for that, Karla. Thank you. Any questions?

Thank you.

We'll now move on to our next question. Our next question comes from the line of John Chappell from Evercore ISI.

Please go ahead.

Thank you. Good afternoon. Keeping on the topics from your closing remarks, there's seasonality and then there's also Saudi cuts. Can you estimate how much of the recent weakness, obviously with the higher floor, is associated with the cuts? And as we think about your comment about moving supply, even if demand were to recover in the fourth quarter, as it typically does seasonally, if the Saudis were to hold back increasing production for whatever their reasoning is, do you think there'd be a more muted winter season, or is the changing trade flows associated with what's going on with Russia still provide upside?

This is a difficult question, a complex question, but I guess I think from my chair, and I should be, you know, I'm humble enough to say that I'm not an oil analyst, but in I think Saudi's main objective, obviously, is price. And now it is working for them. Price is now up in the 80s. Of course, if they continue to hold back barrels and you see the forecast demand coming into the fourth quarter, then oil price will rocket. And that could, of course, also hamper demand. So let's see how this all plays out. I think they just want a higher price and then they will be able to offer more oil to the market when they see demand really being out there. So that's sort of our simple take on it. And it of course remains to be seen what the case will be. But of course they want to make revenues as much as possible. Right now, I guess the price increase is worth more than the loss of volume. So this is the key objective in our view. Exactly how much of the current sort of dip is due to the cuts or not, it's hard to put that into a spreadsheet and get an actual number. So one thing that we picked up, which we found a bit interesting, is that Saudi in particular, we understand they consume close to 700,000 barrels a day for energy and in particular running air conditioning during a very hot summer period. And we understand this year that they bought quite a lot of discounted Russian fuel oil for that consumption and maybe allowing cut to be less than one million barrel per day and i think we've seen some estimates that the cuts actually happening is more in the sort of 650 to 750 level so there is maybe 25 to 35 percent difference here but you know to get all these details i think we'll only figure out a bit later on it's hard to have all this information live frankly so so if i can't be more precise john but I think these are sort of the components of it in some shape or form.

Yeah, it's still very helpful. Also may explain the higher floor during the third quarter if they're really not cutting a full million barrels. Second question is hopefully a bit easier as it relates to the capital allocation. I mean, 100% dividend payout, but then you're also still buying stock. So, you know, clearly over 100% capital return. I just want some clarification on that buyback program. Is that kind of programmatic, uh, where you're just, you know, uh, you mentioned 10 B five one. So you're just buying stock kind of as the cashflow comes in, or is it truly kind of opportunistic? Whereas if we get a seasonal recovery in the, in the stocks, maybe you pull back on the, on the buyback.

It's the latter. So it's, it's optimistic. Um, but, uh, when we were approaching the end of the second quarter, the share price was still sort of in the, in the low eight and the, the 10 B five allows us to continue to buy in the blackout period. So in this case, we put up a maximum nominal amount to be bought, and we also put up a price grid for how much we want to buy at what prices, and there's also some volume limitations. This program expired today, so if there's going to be bought back more stock until the end of this quarter, it will be just purely management deciding whether we should do it or not. But we like the price in the sort of low 8s because that meant at the time that we were maybe at close to 20% discount to NAV. Now we are trading around NAV, so I don't think you should expect us to buy at these levels.

Okay, very clear. Thank you, Sain.

Thank you. We'll now move on to our next question. Our next question comes from the line of Omar Nocta from Jefferies.

Please go ahead.

Thank you. Hi, Svein. Hi, Laila. Good afternoon. I just wanted to ask maybe just a bit more on the market and say the VLCC supply side of things. In the release, you mentioned that ownership brokers are noting that maybe 15% to 18% of the fleet is, or the VLCC fleet is trading in the shadow markets. You know, that's a pretty sizable, you know, 100, 150 VLs. I just wanted to see if you had any sort of color. How does that compare to what was in the shadow fleet maybe at the start of the year and perhaps how it looked pre-Russia-Ukraine war?

I think pre-Russia-Ukraine war, because it's now two years back, we estimated the VHC fleet and the shadow trade to be sort of around 60 ships. So it's a meaningful increase. And in addition to this, of course, you had a lot of Suez Maxis and Afro Maxis also now being employed in the shadow fleet. So overall, the shadow fleet has grown meaningfully. I think an interesting aspect for this, in our view, is that these two markets do not operate in the way that ships can sort of move from one market to another, which would be very efficient, right? So they tend to stick to their own markets because it's basically just very hard to switch and then go back. And this has reduced productivity of the fleet. So we think this, in a way, is a positive. So you're right, it's a big number. And at least for now, it will stay, we think. It's not only Russian barrels, of course. It's also Venezuela has increased a bit of their production. And Iran now also has increased production. And this is also going on these ships. So that's sort of the three main oil suppliers utilizing these fleets.

Okay, yeah, thanks. Thank you for that. And I guess that you mentioned, obviously, we've seen it that rates have thus far, you know, in the third quarter, even though they're softer, they're at a higher floor. Presumably, then this two pronged VLCC market, I guess, plays a role as well, and that you have a dislocated fleet that is contributing to the higher realized averages.

Yes, of course. But, you know, let's not forget that Shadowfleet, they do serve a purpose. They do transport oil to refiners that is being consumed, right? So they're working. It's not like they're doing some secret business, which is totally outside the global oil market.

Yeah, yeah. And maybe just follow up kind of a, you know, separately, you mentioned what we're seeing in the new building market and how the fleet is getting older, the replacement orders that we have seen thus far are nowhere near enough to offset the declining age. You know, we've seen the orders, now they're going out to 27. Prices are fairly expensive, but just wanted to hear kind of what's your view for DHT in terms of new buildings? Does placing an order make sense to you for DHT?

No, we have no plans to pursue new buildings. I think there are two key elements to that, or three. One is price, as you said. The other is that if we were to invest like we just did, we'd like to have assets in the water that can make money now. The delivery in N26 or into N27 is way out, so you end up having a lot of debt capital on your balance sheet, and that's not a very efficient use of money, we think. But also, of course, the last component there is what are the future fuels? And when people talk about they have ammonia ready and methanol ready and ready this and ready that, that's not a big chunk of capex. You know, the big capex will actually come when you need to add fuel tanks and fuel delivery systems on board the ship. So we don't think there's clarity on this yet. It's not a question of whether you like one fuel or another, but it's also to have a credible view of production capacity levels for these fuels and at what price. And will there be other industries that will compete with the maritime industry in buying these fuels that can impact the price? So one example is we read one report that seems quite confident that the agriculture industry will definitely be a competitor for green ammonia. So what will that do with the price of green ammonia once it hits the market in volume? So then you need to have some confidence in all this, right? And LNG, okay, it's maybe a transitionary fuel. It takes call it 20% of the carbon footprint of a ship, but it's not enough to meet their longer-term objectives. So this, I think, is not holding just us back from ordering, also a lot of other people. But again, just to answer your question, we have no plans to order ships.

Very good. Thanks, Fine, for that. I'll turn it over.

Thank you.

We'll now move on to our next question. Our next question comes from the line of Chris Fung from Webber Research.

Please go ahead.

Hey, good afternoon, Simon. How are you? I'm good, Chris. Thank you. Thanks. I wanted to ask for that new vessel, the Apparusa. It was financed for $45 million in line with DHT self-financing. Just working backwards, that implies an expected remaining life of 18 years. So this five-year-old vessel will trade for a total of 23. It's slightly longer than the average useful life. How will this vessel be depreciated, and does that change the useful life for other vessels when we flee?

Our depreciation policy is to depreciate vessels up to the age of 20. So when we talk about repayment profile, we have negotiated with all our banks, all our facilities, that the repayment profile of the loan is also up to year 20, so to match the commercial life of the ship. So the loan of 45, since the ship is five years old, has a 15-year sort of profile, so three million per year in Amort, right? But it's a six-year tenor, so after the sixth year, there will be a balloon equal to six years times three million. No, no, sorry, equal to nine years times three million. That's how we put the financings together.

Thanks for the clarification. Just one follow-up on your buyback. How much is left on your share buyback program?

We put in place in March a $100 million buyback program. We have only spent a little bit of it. If there are opportunities down the road when there are dislocations, of how we are trading in the stock market compared to where we think the business should be valued then we have ample capacity to to utilize that okay all right perfect that's for me i'll turn over thank you thank you there are no further questions at this time so i'll hand the call back to spain for closing remarks Thank you very much to all for listening in on DST and staying tuned, and we're wishing you all a great day ahead. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.

Thank you. Music playing Thank you. Thank you.

Good morning and good afternoon, everyone. Welcome and thank you for joining DHT Holdings' second quarter 2023 earnings call. I'm joined by DHT's president and CEO, Svein Moxnes Harfjer. As usual, we will go through financials and some highlights before we open up for your questions. The link to the slide deck can be found on our website, dhtankers.com. 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, until August 16th. In addition, our earnings press release will be available on our website and on the SSE Edgar system as an exhibit to our Form 6K. 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 as detailed in our financial report. 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 SSE Edgar system, including the risk factors in these reports, for more information regarding risks that we face. DHT continues to show a solid balance sheet represented by low leverage and significant liquidity. At quarter end, financial leverage was about 18% based on market values for the ships, and net debt was just above 11 million per vessel. The quarter ended with total liquidity of 359 million, consisting of $131 million in cash and $228 million available under our revolving credit facilities. Now over to the P&L highlights. It was a strong quarter with robust spot rates for the VRCCs, and we achieved revenues on TCE basis of $113 million and EBITDA of $90 million. Net income came in at 57 million, equal to 35 cents per share. Reported vessel operating expenses for the quarter was 19.7 million, and G&A was 4.5 million. Included in the OPEX number for the quarter were some advanced costs for spares and consumables associated with ships that have been in yard in connection to some non-recurring items. The vessels in the spot market earned $64,800 per day, and the vessels on time charters made $36,200 per day. The weighted average TC achieved for the quarter was $56,300 per day. Earnings were impacted by 61 scheduled off-fire days in connection with installation of exhaust gas cleaning systems for three vessels, and unscheduled off-hire, mainly related to the repair of one vessel. On this slide, we present the cash flow highlights. We started the second quarter with 117.5 million in cash, and we generated 90 million in EBITDA. Ordinary debt repayment and cash interest amounted to 13.6 million. and 38 million was allocated to shareholders through the cash dividend pertaining to the first quarter of 2023. In addition to the cash dividend, we also allocated 9 million to shareholders through share buybacks during the quarter. 20 million was invested in our fleet with 1.8 million in maintenance capex, 8.6 million for installation of exhaust gas cleaning systems, and 9.5 million through a deposit for the acquired vessel. The quarter ended with 130.6 million in cash. Switching to capital allocation. In line with our dividend policy to pay out 100% of net income to our shareholders, we will pay 35 cents per share as a quarterly cash dividend. The dividend will be payable on August to shareholders of record as of August 23rd. This marks the 54th consecutive quarterly cash dividend and the shares will trade ex-dividend from August 22nd. In addition to the cash dividend, we repurchased 1.1 million of the company shares during the quarter for a total consideration of 8.9 million. The average price for the shares is $8.25 per share, and DHT's policy is to retire the shares upon receipt. With that, I will turn the call over to Svein.

Thank you, Laila. As announced, we entered into agreement to acquire a 2018 built DHTC for 94.5 million. The vessel is of equal design, was built to a high specification, has a large deadweight capacity, and is fitted with an exhaust gas cleaning system. This addition is expected to be accretive to our earnings and will further improve our fleet's efficiencies, including our AER and our EEOI. We took advantage of the dips in the freight market and completed our last retrofit projects for exhaust gas cleaning systems during the quarter. As such, all our ships are now fitted with these systems. Subsequently to the quarter, we put in place a 10B5 program to potentially acquire our own shares after quarter close, resulting in an additional 250,000 shares bought at 8.46 per share. We took delivery of the newly acquired vessel last week, now named DHT Appaloosa. She was financed with available liquidity but we have received commitments for a new secured credit facility of 45 million, which we expect to draw during the third quarter. The new facility has a DHT-style structure, which includes a 20-year repayment profile and a six-year tenor. The facility will be priced at the SOFR plus a margin of 180 basis points. Here with a brief fleet update. The DHT Appaloosa was delivered last week and is currently in dry dock for our first special survey. We have four time charter contracts that either have ended or are due to end this quarter. The DHT Mustang and the DHT Stallion have both been delivered back to us. The DHT Colt is scheduled to return home later this quarter, and the DHT Amazon contract will expire end Q3, early Q4. Following this, we will have four of our vessels on time charters and 20 ships on the dance floor in what we expect to be a rewarding freight market. During this quarter, we will dry dock four vessels, three of which have been brought forward from the scheduled survey dates in the fourth quarter. In our view, we are taking advantage of the current freight market to position these vessels for what we think is ahead of us, with the result of having no dry docks planned for the fourth quarter. We will now go through the third quarter outlook. We expect 530 days to be covered by our term contracts, at an average rate of 35,400 per day. We expect to have 1,560 spot days for the quarter, of which about 1,090 days equal to about 70% have been booked at an average rate of 46,300 per day. As of today, this suggests combined bookings of 78% of the total days for the quarter at weighted average earnings of 42,800 per day. You can compare these spot booking numbers with our estimated spot P&L breakeven of 25,700 per day for the third quarter, allowing you to model a net income contribution based on your own assumptions for the unfixed spot base. The market thus far this quarter exceeds the general idea of what a weak third quarter period should look like. On the graph to your left, you see that this year's recent and current dips are higher than the seasonal lows over the past five-year period. This is in addition to increased transportation distances driven by seaborne crude volumes being in the upper band of the five-year historical range, as illustrated in the graph to the right. To us, this suggests that the market is in the range between balanced and tight and easily triggered for upward movements in freight rates. The current market is a bit lower than the start of the quarter and now mostly moving sideways. An eco-vessel fitted with an exhaust gas cleaning system is currently worth about $30,000 plus for a round voyage in the east and about $40,000 per day out of the US Gulf.

We maintain our robust break-even levels.

The estimated P&L breakeven for the second half of the year for the fleet as a whole is about 27,700 per day. When adjusted for the fixed income that we have, the P&L breakeven for the spot fleet is about 25,900 per day. The reason the spot P&L breakeven is marginally increasing for the second half when compared to the year as a whole is because we will have less vessels on time charter contracts. For the remainder of the year, we estimate the cash breakeven for the fleet as a whole to be 19,200 per day, with the spot chips requiring to make 15,400 per day for the company to be cash neutral. If you set out to compare these numbers with our peers, you should keep in mind that our cash breakeven numbers include all two cash costs, i.e., OPEX, G&A, maintenance capex, cash interest, and debt amortization. This illustrates a headroom of about 8,500 per day between cash breakeven and net income breakeven for the fleet for the second half of the year. This potential discretionary cash flow will be allocated to general corporate purposes. We know you all can count chips, so please excuse us for maybe stating the obvious. But this picture is quite remarkable and still deserves some airtime. The order book for new VLCCs now stands at 1.9% of the sailing fleet. Insignificant would be an understatement. This level of contracted new supply becomes even more insignificant when compared to 30% of the current fleet being older than 15 years of age and 14% being older than 20 years of age. To make this fleet development picture even more compelling from a ship owner's point of view, There are some 90 ships that will turn 20 years of age up to the end of 2025. Year to date, eight vessels have been contracted, consisting of two options being declared earlier in the year and six new contracts this summer. There are some letters of intent for a few additional ships in place, projects that are subject to financing and employment. Time will tell if they become firm contracts. In the second hand market, there has over the past couple of years been great buying interest from Asia for older ships. We now see a shift in interest towards younger vessels, as many of these older ships that have been acquired are facing increasing scrutiny through port state controls and vetting considerations by terminals and end users. The result being quite a large number of older ships for sale, with maybe reducing buying interests. As we have suggested earlier, some of these older vessels might end up retiring from the market, thereby starting to reduce the sailing fleet. This supply picture should become a meaningful tailwind for our business. Let us sum up our thoughts for our market and our business. As just mentioned, we have an exceptionally constructive vessel supply picture. OPEC Plus cutting production are typically not good for the tanker markets. But there are some side effects that is softening the current blow and that will build a stronger turnaround. As the implied balances in the oil markets are tight, the cuts have forced refiners to source crude from further away. Think Asian refiners buying more from the Atlantic. This increases transportation distances and is a key factor for the lows this year being meaningfully higher than what most people expected. The cuts are also driving refiners to draw on inventories. Assuming the agency forecast of increased demand listed this year is reasonably correct, one should not only expect a need to satisfy demand, but also a potential stock rebuilding. Keep in mind here that we make a living of transporting supply and in situations when supply exceeds consumption, tanker markets tend to rock. Refining margins are on the rise again. Expect these to drive refinery runs and then product tanker rates only to front run crude tanker rates. And if we may wrap up this Call with a little twist on one of Winston Churchill's many great thoughts. Stay calm and buy tanker stocks. And operator, over to you.

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again.

Please stand by while we compile the Q&A queue. Our first question comes from the line of Frode Morkedahl from Clarkson Securities. Please go ahead.

Thank you. Hi, Brian. Hi, Frode.

Yeah, I would like to hear your thoughts on the VOCC spot market. Specifically, where do you see the additional demand for VOCCs coming from going forward? Obviously, we have the potential for a reversal in OPEC volumes. But one region with growth in the past year has been the US Gulf, right? And it seems to be a clear trend of more VLCC taking US crude into Europe. Do you have any thoughts on this going forward?

Maybe you see a potential shift in this trade towards Asia?

You're right, there's been more of these transporting crude from the US into Europe this past year, year and a half. I think we have expectations that that will continue. These barrels have to a great extent substituted Russian barrels from the Black Sea and the Baltic. But also it's in combination with increased production in the US. Whether the US guys and the traders are selling to Europe or to Asia is also somewhat driven by the level of accreditation and pricing. And also, of course, with higher interest rates, when you transport oil longer, there's more cost associated with the trade. So oil price pricing has to sort of support those differences. But as I mentioned earlier in the call, we do see a clear sign that that China in particular are sourcing more oil now in the Atlantic. It's not only US Gulf that's of importance here, it's also Guyana and Brazil in particular has increased their production. So all this combined is really expanding transportation distances.

Okay, that's good. On the bigger picture, I guess one topic we haven't talked about long time, I guess, is the energy transition and peak oil demand. And I saw that the IEA had a report in June, this five-year output report, where they're basically forecasting a slowdown in oil demand starting next year and a peak before 2030. And I guess the key issue for tankers is trading distances. So what's your perspective on this broader topic? And do you think it has any influence on the sentiment and investment decision today?

I think to answer your last question first, I do think it has an impact on investment decisions because it adds a level of uncertainty on the longer term future of the market. So people are a bit more hesitant to deploy capital. But it's not only about the expansion of ton miles, but it's also about how much of the total demand is satisfied by seaborne crude. And as we showed here in the slide, seaborne is now sort of at the 43 million barrel a day level, whereas the fiber average is around 40, 40 and a half. And it's really to understand where is the future oil going to come from. And is the depletion, is it steeper on non-seaborne crude production or is it steeper on what is seaborne production? And we are working hard to understand this picture and we have a particular project in place to try to wise up a bit on this and if it's successful we will have some more meaningful, I think, details on this later on this year. But we do have a suspicion that Seabourn will uphold better than the general production level and thereby support transportation. And maybe all of this is sort of right, that the fleet might shrink over the next few years. But I think when it comes to peak demand, it depends who you talk to. We see ranges from sort of peak demand in 2028 up to 2055. So it depends who you ask and who you believe and what is behind that analysis and if these views are loaded or not by business agendas or not. So I think it's hard to just pick one estimate and say this is the estimate. I think some people in the oil industry are suggesting that the IEA is a bit on the conservative side and they are being challenged on their views. that it may be politically colored to some extent in support for sort of a green transition rather than being actual real numbers in what they expect will happen.

Yeah, that's a good point. Thank you for that caller. Thank you. Any questions?

Thank you. We'll now move on to our next question. Our next question comes from the line of John Chapelle from Evercore ISI, please go ahead.

Thank you. Good afternoon. Keeping on the topics from your closing remarks, there's seasonality and then there's also Saudi cuts. Can you estimate how much of the recent weakness, obviously with the higher floor, is associated with the cuts? And as we think about your comment about moving supply, even if demand were to recover in the fourth quarter, as it typically does seasonally, If the Saudis were to hold back increasing production for whatever their reasoning is, do you think there'd be a more muted winter season or is the changing trade flows associated with what's going on with Russia still provide upside?

This is a difficult question, a complex question, but I guess I think from my chair and I should be, you know, I'm humble enough to say that I'm not an oil analyst, but I think Saudi's main objective obviously is price. And now it is working for them. Price is now up in the 80s. Of course, if they continue to hold back barrels and you see the forecast demand coming into the fourth quarter, then oil price will rocket. And that could, of course, also hamper demand. So let's see how this all plays out. I think they just want a higher price and then they will be able to offer more oil to the market when they see demand really being out there. So that's sort of our simple take on it. And it of course remains to be seen what the case will be. But of course they want to make revenues as much as possible. Right now, I guess the price increase is worth more than the loss of volume. This is the key objective in our view. Exactly how much of the current dip is due to the cuts or not, it's hard to put that into a spreadsheet and get an actual number. One thing that we picked up, which we found a bit interesting, is that Saudi in particular, we understand they consume close to 700,000 barrels a day for energy and in particular running air conditioning during a very hot summer period. And we understand this year that they bought quite a lot of discounted Russian fuel oil for that consumption and maybe allowing the cut to be less than 1 million barrel per day. And I think we've seen some estimates that the cuts actually happening is more in the sort of 650 to 750 level. So there is maybe a 25 to 35% difference there. But to get all these details, I think we'll only figure out a bit later on. It's hard to have all this information live, frankly. So if I can't be more precise, John, but I think these are sort of the components of it in some shape or form.

Yeah, it's still very helpful. Also may explain the higher floor during the third quarter if they're really not cutting a full million barrels. Second question is hopefully a bit easier as it relates to the capital allocation. I mean, 100% dividend payout, but then you're also still buying stock. So, you know, clearly over 100% capital return. I just want some clarification on that buyback program. Is that kind of programmatic, where you're just, you know, you mentioned 10b51, so you're just buying stock kind of as the cash flow comes in, or is it truly kind of opportunistic, whereas if we get a seasonal recovery in the stocks, maybe you pull back on the buyback?

It's the latter, so it's opportunistic. But when we were approaching the end of the second quarter, the share price was still sort of in the low eights, And the 10b5 allows us to continue to buy in the blackout period. So in this case, we put up a maximum nominal amount to be bought. And we also put up a price grid for how much we want to buy at what prices. And there's also some volume limitations. This program expired today. So if there's going to be bought back more stock until the end of this quarter, it will be just purely management deciding whether we should do it or not. But we like the price in the sort of low eights because that meant at the time that we were maybe at close to 20% discount to NAV. Now we are trading around the NAV, so I don't think you should expect us to buy at these levels.

Okay, very clear. Thank you, Simon.

Thank you. We'll now move on to our next question. Our next question comes from the line of Omar Nocta from Jefferies. Please go ahead.

Thank you. Hi, Svein. Hi, Laila. Good afternoon. I just wanted to ask maybe just a bit more on the market and say the VLCC supply side of things. In the release, you mentioned that, you know, ship brokers are noting that maybe 15 to 18% of the fleet is, or the VLCC fleet is trading in the shadow markets. You know, that's a pretty sizable, you know, 100, 150 VLs. Just wanted to see if you had any sort of color, you know, how does that compare to what was in the shadow fleet maybe at the start of the year and perhaps how it looked pre-Russia-Ukraine war?

I think pre-Russia-Ukraine war, it's now two years back, we estimated the VLTC fleet and the shadow trade to be sort of around 60 ships. So it's a meaningful increase. And in addition to this, of course, you had a lot of Suez Maxis and Afro Maxis also now being employed in the shadow fleet. So overall, the shadow fleet has grown meaningfully. I think an interesting aspect for this in our view is that these two markets do not operate in the way that ships can sort of move from one market to another, which would be very efficient, right? So they tend to stick to their own markets because it's basically just very hard to switch and then go back. And this has reduced productivity of the fleet. So we think this in a way is a positive. So you're right, it's a big number. And at least for now, it will stay, we think. It's not only Russian barrels, of course. It's also Venezuela has increased a bit of their production. And Iran is now also has increased production. And this is also going on these ships. So that's sort of the three main oil suppliers utilizing these fleets.

Okay, yeah, thanks. Thank you for that. And I guess that... You mentioned, obviously, and we've seen it, that rates have thus far, in the third quarter, even though they're softer, they're at a higher floor. Presumably, then, this two-pronged VLCC market, I guess, plays a role as well, in that you have a dislocated fleet that is contributing to the higher realized averages.

Yes, of course. But let's not forget that the shadow fleet, they do serve a purpose. They do transport oil to refiners. that is being consumed, right? So they're working. It's not like they're doing some secret business which is totally outside the global oil market.

Yeah, yeah. And maybe just follow up kind of separately. You mentioned what we're seeing in the new building market and how the fleet is getting older. The replacement orders that we have seen thus far are nowhere near enough to offset the declining age. You know, we've seen the orders now they're going out to 27. Prices are fairly expensive, but just wanted to hear kind of what's your view for DHT in terms of new buildings? Does placing an order make sense to you for DHT?

No, we have no plans to pursue new buildings. I think there's sort of two key elements to that, or three. One is price, as you said. The other is that if we were to invest like we just did, we'd like to have assets in the water that can make money now. The delivery in N26 or into N27 is way out, so you end up having a lot of debt capital on your balance sheet, and that's not a very efficient use of money, we think. But also, of course, the last component there is what are the future fuels. When people talk about they have ammonia ready and methanol ready and ready this and ready that, that's not a big chunk of capex. The big capex will actually come when you need to add fuel tanks and fuel delivery systems on board a ship. So we don't think there's clarity on this yet. It's not a question of whether you like one fuel or another, but it's also to have a credible view of production capacity levels for these fuels and at what price. And will there be other industries that will compete with the maritime industry in buying these fuels that can impact the price? So one example is we read one report that seems quite confident that the agriculture industry will definitely be a competitor for green ammonia. So what will that do with the price of green ammonia once it hits the market in volume? So then you need to have some confidence in all this, right? And LNG, okay, it's maybe a transitionary fuel. It takes call it 20% of the carbon footprint of a ship, but it's not enough to meet their longer-term objectives. So this, I think, is not holding just us back from ordering, also a lot of other people. But again, just to answer your question, we have no plans to order ships.

Very good. Thanks, Fine, for that. I'll turn it over.

Thank you.

We'll now move on to our next question. Our next question comes from the line of Chris Fung from Webber Research.

Please go ahead.

Hi, good afternoon, Simon. How are you? I'm good, Chris. Thank you. Thanks. I wanted to ask for that new vessel, the Apparusa. It was financed for $45 million in line with DHT self-financing. Just working backwards, that implies an expected remaining life of 18 years. So this five-year-old vessel will trade for a total of 23. It's slightly longer than the average useful life. How will this vessel be depreciated, and does that change the useful life for other vessels when you flee?

Our depreciation policy is to depreciate vessels up to the age of 20. So when we talk about repayment profile, we have negotiated with all our banks, all our facilities, repayment profile of the loan is also up to year 20. So to match the commercial life of the ship. So the loan of 45, since the ship is five year old, has a 15 year sort of profile. So three million per year in Amort, right? But it's a six year tenor, so after the six year, there will be a balloon equal to six years times three million. So, no, no, sorry, equal to nine years times three million. That's how we put the financings together.

Thanks for the clarification. And just one follow-up on your buyback. How much is left on your share buyback program?

We put in place in March a $100 million buyback program. So we have only spent a little bit of it. So if there are opportunities down the road when there are dislocations, of how we are trading in the stock market compared to where we think the business should be valued then we have ample capacity to to utilize that okay all right perfect that's when you turn over thank you thank you there are no further questions at this time so i'll hand the call back to spain for closing remarks Thank you very much to all for listening in on DST and staying tuned. And we're wishing you all a great day ahead. Thank you.