Dorian LPG Ltd.

Greetings, and welcome to the Dorian LPG fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Additionally, a live audio webcast of today's conference call is available on Dorian LPG's website, which is www.dorianlpg.com. I would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young. Please go ahead.

Thank you, Christine. Good morning, everyone, and thank you all for joining us for our fourth quarter 2020 results conference call. With me today are John Hajibateras, Chairman, President, and CEO of Dorian LPG Limited, and John LaCouris, Chief Executive Officer of Dorian LPG USA. As a reminder, this conference call webcast and a replay of this call will be available through June 30, 2020. Many of our remarks today contain forward-looking statements based on current expectations. These statements may often be identified with words such as expect, anticipate, believe or similar indications of future expectations. Although we believe that such forward-looking statements are reasonable, we cannot assure you that any forward-looking statements will prove to be correct. These forward-looking statements are subject to known and unknown risks and uncertainties and other factors, as well as general economic conditions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions or estimates prove to be incorrect, actual results may vary materially from those we expressed today. Additionally, let me refer you to our unaudited results for the period ended March 31, 2020, that were filed this morning as part of our earnings release on Form 8-K. In addition, please refer to our previous filings on Form 10-K and Form 10-Q, where you'll find risk factors that could cause actual results to differ materially from those forward-looking statements. With that, I'll turn over the call to John Hadjibateras.

Good morning from Stanford, Connecticut, and thank you for joining us. I will say a few words before Ted, who will review the financials with you, and John will then talk about the fleet and the market, and Today, we also have with us on the line from Copenhagen, Tim Hansen, our Chief Commercial Officer, who will answer questions from you about the market, the current freight market. In my prepared remarks for our last call on February 4th, I said, our outlook for the coming calendar year remains optimistic. The coronavirus is, of course, a potential headwind. That was 16 weeks ago. In the intervening period, my priorities being the safety of the 500 seafarers currently serving on board our ships, as well as our shore-based staff and stakeholders, and I can report that our fleet has continued to operate thanks to the dedication of our seafarers and colleagues on shore, and that we are all safe, though mindful of the new peril that surrounds us. The most talked about disruption for us has been the difficulty to make crew changes. For a while, we could hardly make any. This inconvenienced both those who exceeded their contractual time on board and those ashore waiting to replace them, anxious to get back to work. We are starting to see opportunities to carry out crew changes now. What was a simple task in the past has become a logistical challenge. Transporting a COVID-free seafarer through airports and launches to the ship, trying to minimize exposure, and striving to ensure that the ship remains disease-free is no simple task, as you can imagine. It is encouraging, though, to start to return to normality. One of our second engineers will shortly be going home to meet his new baby, born at the end of April. I hope that you and all your families and friends are also safe and healthy. Our financial year 2020 concluded March 31st was our best since 2016. Continued growth of seaborne trade of LPG, a somewhat restrained order book, and renewed exports from the USA to China resulted in freight levels I would call good. These developments were supported by a continued expansion of U.S. shale production and of PDH demand in China and South Korea, as well as continued inroads of LPG for residential use in India and other Asian countries. The freight market was quite resilient, and the TCEs were also underpinned by a lower bunker cost. In the quarter ended March 31st, we achieved total utilization of 91.7%, and a daily TCE revenue over operating days, as defined in our filings, of $51,888 a day, yielding utilization-adjusted TCE or TCE per available day of about $47,594 a day. April continued robust, and we estimate that we have 75 percent cover of the current quarter, at near $50,000 per day. However, the current market, as expressed by the published Baltic Index, is now closer to $20,000 per day. We have read many forecasts, ranging from a little to very pessimistic. They're predominantly based on assumptions about a decline in U.S. shale production available for export. I do not pretend to know which forecast to believe, much less to make them. Will economic activity bounce or crawl back? Will there be permanent demand destruction? What I do know is that the order book is at about 12%. Propane as a fuel for several applications is among the most attractive options, avoiding greenhouse gas emissions. It produces fewer emissions than gasoline, diesel, and heavy fuel oil. And whereas natural gas, methane, produces fewer greenhouse gas per BTU than propane, if it released in air directly or from methane slip, it produces a global warming effect 25 times that of carbon dioxide. LPG, as has been shown in India, can improve the quality of life for a very large part of the world's population. Dorian has a young eco-fleet. Dorian has a strong balance sheet with low leverage and good liquidity and no significant CapEx commitments. As we previously reported, we completed two strategically significant transactions during April 2020, a Japanese sale leaseback, our seventh, and a refinancing of the commercial tranche of our main banking facility. These transactions increased our available liquidity reduced our financing costs, extended the maturity of our debt, and reduced our principal amortization. We are optimistic on the fundamentals of the LPG trade and confident that Dorian LPG is well positioned to continue to provide safe, reliable, clean, and trouble-free transportation for our customers and create value for our shareholders. Over to Ted to discuss our financial results.

Thanks. My comments today will focus on our recent financings and our unaudited fourth quarter results. For the discussion of our fourth quarter results, you may also find it useful to refer to the investor highlights slide posted this morning on our website. John just touched on the two strategically significant financing transactions we completed during April 2020. On April 23rd, we completed the sale leaseback financing of the CRESC. After prepaying the debt on the ship, we netted $23.9 million in additional liquidity. With a floating rate of 250 basis points over LIBOR and an age-adjusted amortization profile of over 20 years, this financing represents attractive terms and met our goals of lowering our interest costs and extending the debt maturity in line with our strong balance sheet. On April 29th, we completed the refinancing of the commercial tranche of our 2015 debt facility. This transaction addressed a number of objectives. First, we turned out the next major refinancing to March 2025. And secondly, we added a $25 million revolving credit facility, which gives us access to additional liquidity should we need it. Thirdly, we achieved an immediate reduction in interest margin on our commercial tranche from 275 basis points over LIBOR to 250 basis points. We can also reduce the margin by an additional 10 basis points if we reduce the loan to value ratio on the vessels in this facility below 40%. Finally, we are extremely pleased to have added a sustainability feature by which we have the opportunity to reduce our interest margin further by achieving agreed levels of improvement in our average efficiency ratio, which is part of the Poseidon principles promulgated by the leading shipping banks, measures annual carbon emissions per deadweight ton, and targets consistent year-over-year decreases in this ratio in line with IMO guidelines. Finally, the new facility reduces the mandatory amortization on the commercial tranche from approximately $12.3 million per year to $600,000. With these two financings now completed, we have reduced the principal portion of our cash cost per day by approximately $1,330. Going forward, we will amortize about $9 million per quarter on the 2015 amended and restated facility and $4.3 million on all the Japanese financing arrangements. Thus, in total, we will pay down $13.3 million per quarter or $53.3 million per year, which is down from nearly $64 million a year. Again, turning to our fourth quarter results, We had a total utilization of 91.7% for the quarter and TCE per operating day of $51,888 a day, yielding a utilization adjusted rate of $47,594. Our spot TCE, which reflects our portion of the net profits of the Helios pool for the quarter, was $50,311 per day. Finally, to give you some additional insight into our overall spot chartering performance, The Helios pool as a unit, encompassing about 35 ships, recorded a spot TCE, including contracts of a freightment of approximately $51,500 per available day for the quarter. Daily OPEX for the quarter ended March 31, 2020, was $8,556 per day, excluding amounts expensed for dry dockings. It was $9,407, including those costs. OPEX per day, excluding the dry docking-related costs, modestly increased compared to last quarter's $8,413 a day. Since the March quarter, though, had fewer calendar days than December quarter, total OPEX was roughly flat on an aggregate basis, again reflecting our team's continued vigilance on operating costs. Total G&A for the quarter was $5.7 million, and cash G&A, i.e., G&A excluding non-cash compensation expense, was about $5.3 million. This level is generally consistent with our expectations for the first calendar quarter of the year. A reported adjusted EBITDA for the quarter was $67.2 million, which was a significant increase from the $14.1 million, excluding costs related to the unsolicited BWLPG proposal recorded during the same quarter last fiscal year. The strong rate environment and lower G&A accounted for most of the improvement. Compared to the prior quarter, EBITDA increased $7.3 million in spite of modestly higher costs from dry docking. Turning to our financing costs, we look at cash interest expense on our debt as the sum of the line items, interest expense, excluding deferred financing fees and other loan expenses, and realize gain loss on interest rate swap derivatives. On that basis, Total cash interest expense for the quarter was $7.1 million, which was down about $300,000 from the prior quarter, largely due to continued debt pay down and somewhat lower LIBOR rates. We continue to benefit from our hedging policy and the favorable pricing of our Japanese financings, leaving us with a current interest cost, fixed hedge, and a small floating piece of 4.15%. For the coming quarter, with our new financings in place, we anticipate cash interest expense in roughly the same magnitude. approximately $7 million, as the lower LIBOR margin will be offset by slightly higher debt balances given our lower amortization. For the quarter, we had cash outlays for capital costs associated with dry dockings of roughly $9.6 million, or $4,398 per fleet day. Fleet day is, again, calendar days plus time charter end days, as those terms are used in our filings. Combined with amounts expensed during the quarter, our total dry docking cash outlay was $11.3 million. We also managed to repurchase $32.2 million of stock since the last time we reported in February, and that represents about 3 million shares. In total, we have now repurchased $49.3 million worth of stock, comprising 4.4 million shares, or roughly 8% of the shares outstanding prior to the announcement of the buyback in August. Turning briefly to our full-year results, we reported total adjusted EBITDA of $232.8 million, the highest in our history, and adjusted net income of $130 million. To put those levels in historical context, our TCE per available day for fiscal year 2020 was 40,824, and our daily TCE in 2016, heretofore our best year, was 51,266. The increase in profits off a lower TCE reflects the improvements in our cost structure, in the intervening years, as well as an increase in available days. For fiscal year 2020, we generated free cash flow, which we define as cash flow from operations less principal repayments, before dry docking outlays of $110.3 million and $85.2 million after all dry docking outlays, both expensed and capitalized. This equates to between $1.68 and $2.17 per share, based on the shares currently outstanding. Our cash flow and liquidity remains strong. Since quarter end through to May 26, 2020, our restricted and unrestricted cash and short-term marketable securities balance is up to over $148 million. In order to assist you in your modeling, please note that our quarter-ending debt balance, excluding deferred financing fees, of $646.1 million does not reflect the two transactions we completed in April. Those two transactions increased our total debt by $26.8 million, although our net debt was unchanged because we retained the cash proceeds of the debt increase for general corporate purposes. We expect, therefore, our debt balance in June 30, 2020 to be approximately $660 million, again, excluding deferred financing fees. Although we currently hold a 76-plus percent economic interest in Helios, we do not consolidate its balance sheet accounts, which has the effect of understating our cash and working capital. Thus, we believe it is useful to provide some additional insight in order to give a more complete picture. As of Tuesday, May 26, 2020, the pool had roughly $13 million of cash on hand, reflecting the fact that the pool has just paid the distribution at the end of last week. We feel that our liquidity and capital structure have positioned us well for whatever rate environment we face in the coming months, and we believe that allows our company to make capital allocation decisions from a position of strength. We still have over $50 million remaining under our share buyback authorization, and we also remain interested in the creative growth opportunities that meet our risk-reward criteria. With that, I'll pass it over to John LaCourse. Thank you, Ted.

Global LPG volumes during the first quarter of 2020 total 26.9 million metric tons, a 3.6% year-over-year increase. while U.S. seaborne export volumes for the first quarter reached a record high of 11 million metric tons, which is over a 30% increase from the same period last year. VLGC lifting from the U.S. reached over 50 both in March and April, and the Middle East Gulf lifting reached 70 in April. So that's the highest level since June 2019 for the Middle East. Even though May has not concluded yet, we expect about 66 VLGC lifting from the U.S. slightly higher than May last year, while the Middle East listings were lower at 54, most likely on account of crude oil production cutbacks. Year-to-date seaborne exports of LPG from the U.S. were 5.3% higher than last year, while the Middle East has seen a 16.3% reduction year-on-year. On the supply side, U.S. NGL exports have continued strong in 2020, with capacity and infrastructure additions remaining unscheduled during this year by all major export terminals. Several projects related to dock expansions, additional fractionation capacity, pipeline commitments are all expected to complete during 2020 and early 2021, perhaps at a slower pace. The COVID-19 lockdowns and the oil price collapse of the last few months have led to poor market fundamentals in the U.S. and caused early production shut-ins refinery cutbacks, deferred drilling, and reduced processing volumes, which supported the Mount Bellevue NGL pricing and also absorbed NGL inventory volumes, which satisfied record export demand from two countries which were preparing for lockdowns and for their inventory builds. Although Chinese LPG inputs declined last quarter, mainly due to the COVID-19 lockdowns in that country. There was substantial demand growth from India, Japan, South Korea, and Indonesia during the same period. India imports grew 7.2% to 3.9 million metric tons, while Japanese imports grew 13.2% to 3.1 million metric tons, and Korea imports grew 36% to 2.2 million metric tons. Northwest Europe and Mediterranean demand for U.S. LPG is expected to recover now that the markets in Europe gradually return from lockdowns. And with crude oil prices recovering to above $30 levels, we find the propane to naphtha spread starting to turn in favor of LPG cracking economics. The VLGC fleet order book stands at roughly 12% or about 35 vessels according to Luxon's. Only four ships have been ordered this year, compared to seven at this time last year. The crude oil price collapse brought in lower bunker prices to the shipping markets. The absolute bunker fuel price levels and spreads we saw earlier this year have shrunk, but in relative terms, they have remained the same. High sulfur marine fuel oil, HSFO, with 3.5% sulfur content, still trades at about 25% to 30% discount to the new IMO 2020 0.5% sulfur-compliant fuel, also called VLSFO. All our scrubber-equipped vessels will produce consistently higher TCEs as they continue to benefit from the relative price discount spread of heavy marine fuel oil to those burning compliant fuel oils. Dorian remains committed to improving the environment, and I would note that scrubbers not only reduce sulfur oxides for vessel emissions, but also they deliver significant reductions in black carbon and in particular matter emissions, particularly when compared with emissions produced by very low sulfur fuel oils, which are normally blended and unstable, and are the compliant marine fuels of IMO 2020. We also continue to monitor closely and evaluate the potential for LPG as fuel. The current prices might marginally appear to make economics more attractive. However, it is difficult to make a long-term decision given the volatility in the underlying hydrocarbon prices and, more significantly, the capital investment required. Dorian LPG has currently in service nine scrubber-fitted vessels, seven of which were fitted with hybrid scrubbers during the last eight months, also completing their first special survey and their dry dockings. Two of those vessels also installed new ballast water treatment systems. We have now commenced the retrofit work on our tenth hybrid scrubber vessel, which is scheduled to complete next month, including completion of the first special survey and dry docking. Subject to market conditions in the second half of 2020, we are considering retrofitting scrubbers to those vessels which were originally committed when they are programmed to undergo their upcoming dry docking special service. Thank you, and now we'll pass it over to John.

Thank you. We're ready to take questions from anybody who wishes to question us.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Omar Nato with Clarkson's Plateau. Please receive your question.

Hi. Thank you. Hi, everyone. You know, obviously, I'm very impressed with the performance on the stock market and the Very good results overall. Really, despite a lot of disruptions, John, that you mentioned that we're seeing here these past few months, I have a couple market-related questions, but also just wanted to ask about the refinancing here recently. You guys have unlocked a good amount of cash with the sale leaseback, and you've deferred to maturity with the 2015 refi. But you mentioned the annual repayments are now $53 million. Excuse me. From the 2019 10-K... you had 64 million due in fiscal 21 and 203 in fiscal 22. Are both years now basically the 53 million?

That's correct, Omar, yeah. You know, the annual landlord is now down to about 53.3 million from 63.964. And then most importantly, as part of the 2015 financing, we were able to extend out that maturity on the commercial tranche of our big facility To 2025. So, yeah, you're absolutely right.

Yeah. Right. Okay. And that includes the $53 million, that includes the lease tax as well? It does. Okay. Thank you. So, I also just wanted to ask about clearly the market backdrop that we're in. Clearly, you guys had a very strong performance in the first quarter. And, John, you mentioned booking 75% of 2Q, I believe, at $50,000. As we kind of think about how things are, and clearly the market's dropped off into the low 20s per day, the OPEC plus cuts, we think about it in the crude market as call it 10 million barrels a day out of the global trade of 40 million barrels of crude. Can you give us maybe an order of magnitude of how this is affecting the LPG trade? John, I recall you mentioned that in your remarks earlier. about 42 listings per month or 54. Do you mind just kind of going over that again and giving some perspective?

The question on the, can you just repeat the last bit of your question?

Yeah, just basically trying to understand when we think about the lost volumes that are coming as a result of, say, the OPEC cuts by themselves, Okay, okay.

All right, Omar. Why don't we let Tim take that, because he can give you a more current view of what's going on and how it affects, more specifically, how it's been affecting the market in the last few weeks.

Tim? Yeah, yeah. I would say, of course, we're seeing these cuts also – eating into the LPG volumes that is expected out of the U.S. And as John mentioned earlier, it's a little bit early to say exactly how much because LPG both origin from the crude drilling and the LNG drilling. And also the NGLs at the moment looks to be more profitable. So we're trying to figure out what If that is directly related to reductions, and we will see out of the U.S. to the reduction in barrels of oil drilled. But definitely we see some changes, and we are already seeing that, even though we have not seen cancellation yet. As I said, the NGL actually seems to be of high value comparatively to the oil. but you can say that there's probably almost reverse from oil, that there would be a shortage in the LPG markets due to high demand. So we would expect that the reduction of the production would be somewhat offset also by at the moment we have high inventories that will be eaten through the air until the production starts recovering. but exactly how much, I mean, you're mentioning $10 million barrels of crude per day, exactly what that is based on fuel price or oil prices and so on is quite uncertain projections at the moment, I would say. Yeah, okay. What do you think the oil price would be?

Yeah, that makes sense. I guess maybe... just maybe thinking about the May listings. I believe John Licorice had mentioned 52 or 54 listings for May. How does that compare to the prior May? John, if you don't mind, just to give a perspective.

It was 52. It was 52 listings the prior May. Sorry, I have a chart somewhere. I will get it to you during the... But it was a little bit lower. We thought it was on the back of production cuts. And perhaps towards – as we get into June, we'll see whether this reduction in liftings will continue in the Middle East. We're just talking here. Tim talked about U.S. Gulf, and I think you are talking about the Middle East. And true enough, Middle East has seen lower liftings this May. But I'll give you the number for last year this May. If you carry on, I will come back.

Okay. But I think you can say the U.S. from oil drills from the U.S. gives more LPG than when you have production cuts in the Middle East. So the ratio of LPG per barrel drilled is different from U.S. and the Middle East.

Got it. Okay, thank you. And then, sorry, maybe one more just on this because there's a lot of moving parts and a lot of, you know, you mentioned there aren't really cargo cancellations, but obviously limited ARBs and things happening very quickly and very fluidly. You know, we've seen in, say, the product anchor space and the MRs and the handies, a lot of logistical issues with access to murage and waiting times. Is this something that's happening in the BLGC trade as well?

We saw a little bit on India when they closed down that they bought more cargoes to take in because they expected the demand to be high when people were at home. So they bought extra cargoes which resulted in more waiting time in India. And then eventually they deferred some of the cargoes back east where there's more storage and we haven't seen those kinds of delays. But Yeah, you can see some searches for certain destinations where there will be a block up due to both lower offtake, especially like India where it's taken off on trucks and going through bottle plants and whatever, that is all not working efficiently in these times. So you could see congestions there. We are already seeing that.

Got it. Okay, well, really appreciate the call, guys. Thank you very much.

Omar, the liftings for 2019 May were 60 for the Middle East. And it looks like there are 54.

Thanks, Omar. Okay, thanks, guys.

Our next question comes from the line of Sean Morgan with Evercore. Please proceed with your question.

Hey, guys. So I just want to touch back. I think Ted mentioned that the interest rate on some of the new loans that were refinanced, there's a component of it that's tied to an environmental Poseidon principle type element. And I just wanted to figure out how material that is. And I think in the past you talked about there's, I think, BLGC that you could potentially retrofit for for LPG propulsion, and I know some of your competitors are kind of implementing that and pushing ahead with it. So just wondering if there's any kind of incremental savings that might be material enough to push you towards LPG or whether you think you get enough benefit to realize those savings from scrubber retrofits alone, or does this kind of change the strategy at all in terms of how you approach the environment and just propulsion of the vessels?

Ted will give you a little bit specific on what the incentive is in kind of percentage terms. But we, of course, are looking at the one competitor who is moving to retrofit ships and others, of course, who are building ships that are LPG-fueled. And it's not something which we have – excluded from the possibilities for ourselves. We were always interested in that LPG as an alternative fuel for the ships, and we continue to be. Until now, we've chosen to have the advantage of a second mover, but we're very much aware of what's going on, in touch with the manufacturers, the shipyards, and we'll see. I don't know whether the banking is enough to incentivize, but Ted will tell you what comes out of it.

Yeah, I mean, I think like any – the short answer to your question, Sean, is it's a 10 basis point reduction in the commercial tranche of our facility, which represents about a third of the entire facility. So it's more of a way that the banks are putting – their money where their mouth is. And so we certainly support that. I think like any business decision that we make here, it's the economics that drive it. And if the economics of the investment are supported by the future fuel savings, then as John suggested, and we're comfortable with the technical aspects of it, then it's something we'll obviously look at. But the financing differential alone wouldn't drive the decision.

Okay. And did the banks give you an indication of what they view as the most green-friendly, or is it not that specific yet?

No, we just have to – at this point, it's – I think, you know, generally within the sustainability world, LPG seems to be viewed as a bridge fuel, so better than the existing alternatives. You know, not as green as, you know, I don't know, wind or solar or hydrogen or something, but those aren't really on the table at this point. And so the metric is really a calculation that measures our year-over-year average efficiency ratio across the fleet. And it's data we capture anyway. And, you know, the IMO has promulgated an improvement curve, and that's the basis on which this potential interest margin saving is calculated. So if we can hit the levels that are already out there, then we will enjoy further interest savings.

Okay, thanks.

And I should be clear, it's up to five basis points year one, five basis points year two. So it's not ten basis points all at one go. Although we might try for that if we do a really good job on our emissions reductions.

Okay. And then it looks like you kind of, in terms of this whole year, you've accelerated buybacks into your, you know, Fiscal year, four Qs, so one Q, calendar year. But if I look at the average price, I mean, I can kind of assume that some of it was done in January, February, and some of it was done more recently. So are you guys, you know, in light of potentially weaker BLGC rates and lower LPG exports, Are you getting a little more cautious in terms of using that $50 million of buyback authorization you sold outstanding, or do you think you'll try and be aggressive in light of the lower share price?

We've always been cautious, and we look at it in terms of a value and an opportunity. So I think we will continue in the same way.

All right. That's all I have. Thanks, guys.

Thanks, Sean.

We were afraid I'd tell him it's cheap.

Our next question comes from the line of Randy Dimmons with Jefferies. Please proceed with your question.

Howdy, gentlemen. How's it going? Hey, Randy. Hi. Hey. Just following up on the question about scrubbers and LPG dual fuel, what is the cost differential for adding those incremental scrubbers? I know I think you still have two planned for later this year. versus possibly going, you know, on the dual fuel LPG side?

Okay. Well, Randy, it's significant enough to say that it's on the high single digits in millions of dollars, the differential. So, it's over probably six to ten, maybe, you know. We believe that from what BW reported the other day. Yesterday, they have, it looks like it's over $9 million per ship from what they reported. But we believe it's a little bit more than that, perhaps even over $10 million. But this is where we think it is. But our interest remains. We will see how cost and pricing of the fuel develops, and in the meantime, the scrubber provides an intermediate solution for us, which is very satisfactory compared to compliant fuels. Got it.

Okay. And then just one more kind of general market question on possible expansion or just a completion, I guess, of the mariners 2 and 2S and kind of coming out of Marcus Hook up there, as well as kind of this Pembina project on the west coast of Canada. Have you heard any updates about either of those for this year?

Nothing was found out in the public.

Tim, let Tim take that.

Tim, are you?

Yeah. As far as we hear, the Mariner 2 is still moving ahead and should come on later this year, which is also I think we haven't heard of more delays, but of course there has been a lot of last-minute problems there before. But so far, it seems to be on time now. And out of Canada, I have heard no news on the Canada project. But of course, we have seen the price changes and the the sharp ends of turning and so on, that could, of course, impact, but I have no particular figures on this. Sure, sure.

All right. Well, hey, thanks for the call. Thanks, Randy. Thank you.

As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Eric Havelson with Pareto Securities. Please proceed with your question. Your line is live. Hi, Rick.

Yeah, sorry. Sorry about that. I just want a question on the time chart range strategy. I mean, you added another one now. Can you first give an indication on the rate on that second one? And secondly, what is the strategy here? Is it always going to be to balance your chart route coverage with new ships or the other way around? Or because this is obviously adding a layer of risk to the setup in a way.

Yes, yes. I mean, I think Tim is perfectly able to give you what goes into our thinking with respect to charter in and charter out.

Yeah, I think these shifts that have been added this year has been done a while ago. One was a new building, so contracted and termed off a few years ago. And the last one, at least six to eight months ago, I think we concluded the contract. So I can see that the time travel has been more opportunistic, but we have seen where we thought the market would go and was confident to increase exposure a bit. And then we have charted out also, you can say, to balance this a little bit and log in a margin or if you have had any changes in the markets to chart out. And also you can say the periods are different, so the The time chart out that is done through the pool is very short term, so 6 to 18 months. And then the time chart out that we've done a story in is more, you can say, three or plus years, where it's more like a financial decision to lock in something. And there's also, I just want to... A little bit more.

Yeah, and I just want to add there's also a strategic element to chartering out. If a good customer requires a long-term charter, there is that aspect to it as well.

Understood, but sort of, I mean, where is the three-year time charter today and where was it back in February, so to say?

Where is it, and how do you mean where is it? Is it above or below the current market?

What are you paying? I would obviously assume it's above the current market, but where, if you can be a little bit more specific.

It is – I don't know that we can be more specific because we have confidentiality clauses, and it has been – considerably below the market, and now it may be, if the market is in the 20s, it probably is below, above the market, above the market, but not by very much. The thing is that we have this question often, and this is one of the disadvantages of, or a disadvantage of reporting on a quarterly basis, because deals like this, basically can only be reconciled at the end of the day. You can have including charter out or charter in. Last year we had ships chartered out and at the end of the calendar year they were very deeply out of the money because the market had gone up to the $60,000, $70,000 levels and we were fixed in the 20s. In the meantime, however, those ships In the early part of that period, we're providing a very good cash flow buffer for us. So it's very difficult to look at these on a kind of flash basis. You have to look at it as consistent all the time on a rolling basis.

No, I agree on that. But just if we can maybe understand a little bit more the – the strategy because is this an intention to kind of continue to build on this you know expand the fleet via time charter in agreements because obviously now with rates being a little bit lower then you can say there should be ample opportunity to charter in ships at you know rates that at least three months ago seemed attractive I don't know I'm just trying to kind of understand yeah Ted is just pointing out to me

Yeah, Ted is pointing out to me that we can disclose a number.

Well, you can calculate it, Iric, from the numbers that we've disclosed. So, you know, it's fair to say that, you know, it's 24 to 26 a day. I'll call it 25 and change, or so, 25-ish a day. You can extrapolate that from the numbers we've disclosed.

On your next question, our chartering window is open, and Tim can tell you whether you can tell your chartering people to give us a call or not.

Yeah, I think as a strategy also, so we took a longer-term time charter from a new building, is that to have a mixed portfolio of owned and TCT on it. So, yes, if there are opportunities, we can look at it if we believe it makes sense. And as you say, rates are probably lower than they were a couple of months ago.

Okay, thank you. Thanks, Eirik.

Our next question comes from the line of Chris Sung with Webber Research. Please proceed with your question.

Hey, guys. How are you today? Good. So I just kind of wanted to get a couple of questions on the Scribble program going in. I know there's the plan to retrofit 12. We've done 10. There's about two left for the rest of the year. Given the spread on bunker prices and the benefits you get from lower emissions and the black smoke and everything, are there plans to, one, suspend it because the spreads aren't there, or maybe perhaps expand it to kind of meet my next question, which is the sustainability metric that you guys are trying to hit on that refinancing?

We are doing one chip now. Okay. we have further two scrubbers to fit and several ships due for dry docking this year. So in time, when the ships go to dry dock, we will decide whether to fit them or not to fit them. We may fit them this year or we may defer and do it at a later time on ships that are dry docking next year going forward. But We have it under review. As you said, the spread is closed in a lot. So we're happy to have the scrubbers that we have on board because we still have the saving that they produce. And, you know, if the market is 20,000 or close to 20,000, you know, $3,000, $4,000 a day makes a lot more difference than it does between 50 and 55.

Yeah. And you had another question, Chris, about the financing?

Yeah. Yeah, thanks. Just one more on Scrubber. I know in the last quarter that they were being done like around 33 to 35 days, and I know the shipyards were having trouble due to corona. Has there been any sort of delays? The one that's in dry dock now at Constitution, are we still aiming for like the 33, 35 days?

It seems to aim to be at 40 days. That's the plan. We are hoping to do it sooner, Chris. Okay.

No, it makes sense. Thanks. And, yes, for the financing, I guess I was wondering if you can go into a little bit more detail. I think Sean covered this earlier, but for the Average efficiency ratio, I mean, is it based off a certain benchmark or is it an absolute unit, a specific unit gram of CO2 per ton mile that you guys are trying to achieve? I just want to get a sense of, like, what are the goals there that either you set or the bank has set that you guys are trying to achieve?

It's about it. It's really IMO guidance. It's not the guidance the bank set. It's about a 2.7% reduction per year, and it's based on the dead weight of the ship. There's a There's a metric that the IMO puts together, and for a ship of this much dead weight, this is the kind of emissions that you ought to be targeting. When we file the 10-K in a couple weeks, the loan agreement will be appended as an exhibit, and there's a couple pages that outline the terms there, and I think it's probably best that we not get into the details until we disclose it, not because there's anything so setting or incendiary, but I don't need to file an 8k in advance of filing my 10k. So, you know, I think there's, there's, there's plenty of meat in there. I guess I'd be, I guess, I guess, I guess to give all credit where it's due, you know, ours looks similar to what international seaways did. That seems to be a market. That seems to be kind of a market standard.

Chris, it's just based on the energy efficiency operational indicator, or in short, called EEOI. Most of the people use that, and it has to do with the CO2 emission per unit of transport work done, if you want to know. But you will see more details, I'm sure, in the press and in our filings.

All right. Yeah, great. Thanks. I mean, I know you guys have seen that we put out like a sustainability report and a score per score card and pick something that I'm digging into right now. So I was excited about this. I'm sorry for more color than actually is necessary. And I guess just for like the last question that I have is the 40% LTV for margin reduction. Is it that sort of tethered to the NAV at the date that it was done? Or is it like more or less floating where If it's above 41% or 40%, it goes up 10 basis points. If it's below, then it drops down and it changes quarter over quarter?

Not quite. It's tethered to the actual LTV at every quarter based on the vessels in the security package and that amount of debt. There's sort of been no harm, no foul range, which is between 40% and 60% or 59.999%. It's 250 basis points. If it goes above... 60 or below 40, that's when the benefits kick in. So there's sort of a wide range of LTV before there's a change in the margin. I see. I see. 20% back.

Got it. Great. Great. Thanks, Ted. Thanks, everyone. That's it for me. Thanks, Chris. Okay.

Thanks. Bye.

We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Thank you all very much, and stay safe, have a good summer, and talk to you soon. Bye-bye.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.