Scorpio Tankers Inc.

Hello, and welcome to the Scorpio Tankers Incorporated First Quarter 2020 Conference Call. I would now like to turn the call over to Brian Lee, Chief Financial Officer. Please go ahead, sir.

Thank you, Operator, and thank everyone for joining us today. Welcome to the Scorpio Tankers 2020 First Quarter Earnings Conference Call. On the call with me are Emmanuel Loro, our Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief Operating Officer, Lars Decker Nelson, Commercial Director, David Morant, Managing Director, James Doyle, Senior Financial Analyst. Earlier today, we issued our 2020 first quarter earnings press release, which is available on our website. The information discussed on this call is based on information as of today, May 6, 2020, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release that we issued today, as well as Scorpio Tankers SEC filings, which are available at scorpiotankers.com and sec.gov. If you have any specific modeling questions, you can contact me later and discuss offline. As a reminder, in the variance explanation section of the press release, we gave guidance on future depreciation G&A and charter hire expense. And now I'd like to turn the call over to Emmanuel Loro.

Thank you, Brian. Good afternoon and welcome to our first quarter earnings call. Thanks for your time today. Firstly, I would like to express our solidarity with all affected negatively by the COVID-19 and its impact worldwide. The human toll in lives and on both physical and mental health is truly shocking. We stand with our employees, our customers, our shareholders and broader stakeholders in expressing our condolences, sympathies and support to first responders and health workers, as well as anybody else who's been affected. As far as the business is concerned, this quarter we report our best quarter since 2015, with the fleet averaging nearly $23,000 per day. On top of this, we believe that the disclosed second quarter bookings to date will result in consensus moving meaningfully higher. We have recently welcomed many new investors to our register who see the opportunity in the company's ownership of the world's largest bit of modern product anchors. Whilst the global economic backdrop is gloomy, our company is prepared, operationally, financially, as well as commercially. Our leadership in the LR segment is bearing fruit. We completed the acquisition of the modern Trafigura fleet as recently as September last year, further reinforcing this leadership. The present spot market on LR2s is now in excess of $100,000 per day. Since August of last year, many LR2s decided to trade in crude oil. As we know, once these vessels dirty up, they cannot easily return to carry clean products. the shift of vessels has significantly tightened supply for modern LR2s, and our fleet is now earning a significant premium in respect to their counterparts in the crude trade. Furthermore, amidst the current strong rate environment, we must remind you of the long-term trends that run in our favor, and if anything, have been further reinforced by recent events. Supply of new tonnage remains anemic against the backdrop of a rapidly aging fleet. Simply put, we have never seen an order book so low with rates so high. Many new refineries, particularly in the Middle East, are yet to come online, with a transformative positive impact on product anchors on miles. The euphoria of January surrounding scrubber installation has been replaced with almost universal gloom. By Q4, we expect the middle ground to prevail and have taken the opportunity to defer some of our installations, thereby freeing up around 500 revenue days between the second quarter and the fourth quarter this year. For the rest of 2020, we are comfortable that our tightened supply and increased floating storage provide solid market fundamentals even while the underlying economic picture needs time to improve. Every day, our cash accumulates. Furthermore, we are expecting our forward cover to increase as our customers require vessels for storage. In due course, we will provide an update on this cover as we capitalize on the current environment. My opening remarks are concluded, and I would like to turn the call to Robert Bugbee.

Thank you, Emmanuel. Good morning, everybody. These are obviously the worst of times, but for us at the moment, they're the best of times as well. As Emmanuel said, we're accumulating cash. These are great rates that we're taking. We expect the actual present market rates are significantly higher than in all classes than the guidance we've given for the second quarter. That's a cause for great optimism. We have Starting at the very end of the second quarter, really the third quarter, we've got quite a substantial charter book already of forward cover that Emmanuel says we won't give any details on today. But in the short time, we will come out and give a separate disclosure and details on that. So the company is... for want of a better phrase, I mean, it's enjoying it. It's in position at the moment. I mean, it's sequentially earning more money. It's very profitable. The cash is generating very fast. And today we're going to stick on things that we really know are going on. So I think we'd like to start with an update, bring you guys from wherever you are, right into our trading floor at the moment so you can get some idea from our head trader, Lars Denken Nielsen, what's actually happening right now today and why I can say with great confidence that our present markets are significantly higher than those averages that we've put in the book to date so far, which is really a trailing position. So Lars, if you'd like to Tell us what's going on right now. That would be great.

Thanks, Robert, and good morning. Let me give everyone a quick sense of the market today. We are enjoying a historically strong market underpinned by very low cost fuel prices for our vessels. Our large LR2 vessels are seeing daily benchmark earnings right now, except VLTCs. This morning, in fact, we concluded a typical LR2 spot voyage on a normal trade lane for almost 40 days, at $178,000 per day. This isn't an outlier anymore. We've been trading firm at similar levels. This is a tight market. The lack of vessels is enhanced by storage, but also congestion and operational constraints that are causing vessels to take longer routes home. For example, vessels sailing around the Cape of Good Hope instead of transiting the Suez Canal, a significant increase to voyage distance and time, limiting tonnage supply. Storage is reinforcing this scarcity at the margin. Currently, over 250 product vessels are believed to be storing. Two hundred of these product carriers are identified to have contracted period of employment of more than 30 days, and all larger units tend to be minimum of four months and longer. But please keep in mind that product storage and the contango here is helpful and ties up tonnage, but is only a part of the picture. Products in transit or refined products underwater, which include vessels and storage, on longer-laden passages, waiting due to tank tops and congestions in general, have increased according to market research by 75 million barrels since mid-March. And there is about 480 million barrels of products currently underwater. It is not only the LR2s that are facing very strong levels. In the Arabian Gulf, The LR1 market is very tight, and we're looking at a market today trading around $80,000 to $90,000 per day. Indeed, we concluded a great void from the MED to Japan at $100,000 per day for over 60 days last Friday. Likewise, on the MRs, the Middle East market has been strong. In fact, we fixed three ships yesterday from the Middle East to varying destinations, with each vessel making between $50,000 and $65,000 per day. Now, as you would expect, there's a lot of rate volatility. Two weeks ago, handy rates in Europe went up 200 world-scale points, or from US$25,000 to US$72,000 per day, where we managed to fix. Then the market, true to form, dropped back 200 points again this week. However, we still find good pockets of strength, and yesterday we concluded a handy cargo from the Baltic to the Med at US$35,000 per day. This development is not dissimilar to the breather taken last week in the MRs in the West. And as the market stabilized, we saw cargos reentered, and we managed to fix MRs rates in the high 20s. We're also now seeing other cargos get pulled into the market strength. For instance, we concluded an MR yesterday in vegetable oils from Argentina to India at US$35,000 per day. For someone like myself, who has been in the product sector industry for close to 30 years, These are professionally very exciting times, especially with the largest and most modern LR2 fleet in the world, where we are continuously driving performance. But this should give you a good picture of the interesting developments live in the market right now. And I'll now hand back to Robert. So thanks, all of you, for your time. I'm going to leave and get back to trading the ships. Thank you. Bye-bye.

Lars, thank you. Lars, unfortunately, won't be able to join us anymore for the rest of the call because he's pretty busy. I think it's safe to say that if everyone's honest on this call, they'd love to be doing exactly what Lars is doing now. I mean, it really is great fun for anybody trading product tankers. I think that I would like to echo one thing that Emmanuel said earlier in the opening part of the call, and that is that one of the great things here is the is that the long-term here, the long-term dynamics look fantastic. Our fleet is aging. There are many, many vessels turning 15 years old, which is the critical age in the product anchor market over the next two to three years. The order book is extremely low. Yards are consolidating and financing is becoming extremely scarce. And that leads us to a position where when we actually get through to a full world recovery here, combined with the fact that there are more refineries coming up in the Arabian Gulf and longer haul routes, this could well set the time, and we would expect it would actually, for most probably a new super cycle in the product tanker industry. So I think on that note, we'll just open it up to our questions for this morning.

Ladies and gentlemen on the phone lines, if you'd like to ask a question at this time, please press star then 1 on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, you may press the pound key. And our first question comes from John Chappell from Evercore ISI. Your line is now open.

Thank you. Good morning, everybody. Good afternoon right now. Robert, it sounds like your dog wants to be with Lars. It's a really exciting time.

He's getting to love Lars' voice because he knows it's always good news. That's good.

Two questions. Warren, you had a time multi-parter. So understanding you don't want to tell us about the charter or the cover book right now, but if we go back to the last time rates were even remotely close to this good and the predecessor company, you guys really timed well locking in term coverage, which I think could be especially important right now given your strategic focus of the capital structure and the leveraging. So let me ask it this way. What's the market liquidity for charters in the LR1, LR2 segment with any type of duration? And what's your appetite to lock away shifts, understanding you may give away a little bit of the juice as it stands today, but giving you that cash flow visibility that enables you to deliver quicker?

I'll answer the second question in a different way. The first thing is that the appetite is across. Customers want to do different things. Some customers want to do one-year charters, some nine, some six, some three, some four, and some just spot. In our book, there's a case for every one of them. You want to have some security of charters, but on the other hand, I think we have to look at things realistically. The last two or three, four LR2s that we've been fixing, you could do the voids and then lay the ship up for the balance of a year and still be profitable. So you're not in a situation where you're rushing to do even one-year charters just for the sake of doing it. If you're putting a LR2 away at $130,000 to $180,000 a day, that's a pretty significant cash straight-up contribution. So you're not doing everything you can to desperately get every single charter you can. But we, across the board, and that's all of the vessels, whether they are LR2s all the way through to Handys have fixed already a reasonably significant amount of vessels forward, of which they will really start to... Many of them just get delivered later, so they get delivered from right at the end of the second quarter, early third quarter. And we think that the combination... it's all about the balance sheet. This is all about transferring the debt risk that the company has with its brand new fleet to equity value. Because as we pay down net debt as a combination of accumulating the cash that we're getting front up by a fantastic spot market, combined with securitizing cash flow above all in break-evens for later years, We are ensuring the enterprise and really creating equity value. I'd like to leave it at that, if I may, John. You may. That's completely clear.

The second question is being able to free up over 500 operating days in this type of market is tremendous. I mean, it's almost like getting ships for free. Yeah. If we think about just how that transpired, what's your ability to – well, first of all, are there any kind of penalties or fees to do that? Second of all, if we get to 21, when those delayed server installations are supposed to take place now and maybe the economics aren't as appealing, what's your ability to just move forward without even going forward with that process? And then third of all, maybe just an update on any premiums you've been able to achieve, with scrubber-compliant or with scrubber-fitted chips, or is that IMO 2020 premium completely back-burnered for now?

Okay, I'll let Cameron obviously answer that question. I mean, before he does, I'd like to say that overall we remain confident in the future of scrubbers. We would expect the spread to, as Emmanuel says, to start to regain itself you know, from later in the year, even as early as the fourth quarter and going into the longer future, 2021, 22, we'd expect a significant spread to developers the way that oil and oil pricing could develop. And again, before Cameron answers, I mean, I think it's fair to say that, yes, Lars and the trading department can get a lot of the acclaim right now, but the operations and technical department I mean, we should really, you know, sing their praises in this company to have dealt and keep the vessels so efficient, keep the downtime going, keep the ships running and being able to put us in this great position. So, you know, we should thank those as the shareholders. And Cameron, if you'd like to answer the rest, that would be great.

Sure. Thank you. John, we've... Manage to negotiate the deferral of our scrubber program as we announced. It would be impossible for me to cover every what-if scenario going forward. It was just in our mutual interest, ours and our suppliers, and the repair yards to postpone this CapEx and this work for the time being. There are no penalties involved. We will come back. later in the year, probably third, fourth quarter, and assess between the development of the spreads and, of course, the market itself, how, whether, when, in what sequence to reestablish that program. But for right now, it's basically a no penalty deferral. And I think Robert covered the other part of your question, just having to do with our view on the underlying price of bunkers, the spreads and the payback on the scrubber investment. Obviously, that has changed significantly in the last two months, but we're still confident over the long term that is the right decision for the vessels and for the shareholders. Got it. All right. Thanks a lot, Cam. Thank you, Robert.

Thank you.

Thank you. And our next question comes from Amit Mehotra from Deutsche Bank. Your line is now open.

Thanks, everybody. I want to understand a bit better the lag effect of the spot rates and the time charter equivalents, obviously given the length of the voyages, which I think are getting longer, and just how volatile the market is. The 40% to 50% of the days that aren't booked or not booked for the second quarter are So maybe an obvious question, but do you expect those time chart equivalent rates on that remaining unbooked days to be higher than what you've booked so far? And I guess the voyages that you're booking today are kind of bleeding into the third quarter as well. So first of all, you can just talk about whether that's correct and maybe talk at a high level about what the trajectory of TCEs will be kind of going into the third quarter based on what you're seeing today.

So I think we... We made the statement that right now all of what you're booking, that 40% would be really almost reflective of what you're doing now, unless we were to add charters where the vessel would be delivered, let's say, in June. So part of it could be at more of a charter rate. But if you're fixing a ship right now on today's rates, that would take up part of that 40% that is – is there um the as a as a as it relates to june um i mean the third quarter yes very shortly i mean you know they're fixing way out now on some of the lr2 fixtures where you're almost starting now to fix um um third quarter dates i will give a clue that some of our time charters are actually rolled spot voyages where you have a spot voyage that then turns into a time charter, and that time charter would start in the third quarter. And then the lag effect is quite interesting in the sense that the lag effect of booking. So at the beginning, when a market moves up, the indexes obviously are ahead of what the actual vessels are earning because the vessel will get fixed. It won't load until a month forward. So always the actual reported numbers, like the company's reporting in estimates, et cetera, will lag an index. But you actually get the benefit later because you keep building. And later, if you were to put in a backward-aided curve, then your reported numbers are likely to be higher than the backward-aided curve because your reported numbers would hold the trailing part. So that, I think, is an important question that, by definition, the way that the accounting is done, you're underestimating the future in a backward-aided curve. You are overestimating the present in an accelerating curve.

Right, and so just as a quick follow-up to that point, just given the scale of your fleet, is it right to assume that in any given day, you've got a couple ships that are open to be fixed. Is that the right number? Is it greater than that? I'm just trying to understand, because obviously it depends on the voyage date, but if you assume 60, 90-day voyage days, depending on the vessel class, it's kind of like two and a half.

It's difficult. That's way too granular. I just think that you've got a very hard job as analysts right now to try and get you know, these accurate predictions, et cetera, et cetera. So I wouldn't necessarily fixate about that, and I would just take the general position that the rates are high, they're throwing off terrific cash flow, you know, they're deleveraging, you know, this company.

Okay, fine.

I would give the guidance that we gave at the end of the first quarter, which is the company is running its operations conservatively, We are doing all of our forecasts conservatively, and we are, of course, hoping for the best, but we're running the company conservatively, and we're just trying to manage what we can manage. And, you know, at the end of the day, it might turn out all right, just like the first quarter turned out all right. Right.

I wanted to ask my second question to Brian, and that's really understanding how the numbers that you're putting up, whether it's CPs or what Lars talked about, is actually translating into net debt reductions. and obviously break-evens are important in this regard. And so, Brian, is the right way, just correct me if I'm wrong, but is the right way to think about it is that any revenue, any TCE above $10,000 or so per day, which is, of course, your office and your interest, is that the right way to think about cash that's available for net debt reduction? And then the moving pieces we have to think about that is obviously the $52 million going out the door for dry docking and scrubbers and the $6 million dividends. But are those all the major moving pieces, or am I missing anything?

No, that's right. Well, one of the other ones, which I'm sure you're looking at too, is the repayment of the baby bond coming up here in a few days, May 15th.

Yeah, but that's already included in the net debt calculation, right?

That's already included. You're right. I was just going to say, you know, we had receivables. increased $70 million between December and March, while net income only increased $34 million. So the big driver of that were the increased rates at the end of March. Because as you were pointing out before, we have voyages that were done in February that are rolling over into Q2. And they will, as Robert was saying, they're going to be replaced by higher rates now. So cash is coming out later. So it's 45 to 60 days on a voyage to get that cash coming in, and that's after the voyage begins. So it's taking a while.

That's a great point, but you guys do us a favor by providing the up-to-date cash balance, right? So that May cash balance and the relief reflects the unwind of the receivables, right? Okay. Excellent. Thanks, guys. Great job. Congrats on a good quarter. Appreciate it.

Thank you.

Thank you. And our next question comes from Greg Lewis from BTIG. Your line is now open.

Yes, thank you, and good morning, good afternoon. You know, I just had more of a general question. So, you know, we've been hearing a lot about demurrage and what that is, you know, how that is impacting the market. You know, just kind of curious if you guys could provide some color around the waiting times on vessels and really, you know, what you're seeing in the market. Any kind of color you could give around that would be super helpful.

Yeah, absolutely. I mean, we're generally seeing, as Lars pointed out, a lot of this is, you know, congestion. And a lot of this, I think people have to understand that the product market is different from the crude in the sense that in the product market we do a lot, it's mainly distribution, especially for the smaller vessels. And it's not about contango. It's not about storage. And this is one of the reasons that historically when you've had these sort of situations like storage before. It's why product storage generally lasts longer and the product market generally remains tighter than the crude market. And that's because even if you think even if MRs, where if an average voyage length for an MR is 24, 25 days, and you have as few as five days of just waiting to go into port because you've got to ingestion or you've got short tanks and some of these places that we take products to Brazil, Argentina, you know, Africa, you know, even Australia and New Zealand places like this, you know, Bermuda just don't have huge amounts of storage facilities. So the ship itself sits offshore waiting to go into port. So even if you had five days on average, you've now reduced the fleet by 20% just through congestion, nothing to do with a carry trade.

Okay, perfect. Hey, that was super helpful. Thanks, guys. Great.

Thank you. And our next question comes from Omar Nocta from Clarkson's. Your line is now open.

Hi, thank you. You gave, obviously, guidance that leaves plenty of upside. And, you know, given Lars' commentary and where spot rates are, and also, you know, the term activity that you just, I guess you'll give us later. And you may have just already answered this, Robert, but when you think of what's happening across the product space, especially given, you know, softer VL rates recently, are you surprised at just how firm the product market is? And maybe could you give us a reason or perspective why it has been firm relative to crude?

We're not surprised. I mean, it's a weird word, surprise. Of course, we would not have started back. We didn't have a crystal ball that said, wow, Lars is going to fix in the early May at $178,000 on LR2. Wow, we would have been really surprised if someone had told us that in January. But once the dynamic had been set up, then no, we're not surprised that the product market is strong. I mean, first of all, in the big classes, the LR2s and LR1s, it's far more consolidated. It's more consolidated than any other major crude or product market itself. There are few vessels with few players. The second aspect is that it's getting driven by... this increasing refinery capacity in the Middle East. So it has a good position there. The Middle Eastern countries have every reason to continue their product exports. It's better than selling crude at a discount. Your vessels do trade a lot to the east where those countries are, especially China has been opening up, Australia as well, etc. So that's good. And then we have this dynamic where the market is spread everywhere. So it's not so important for us that what the United States does. The United States is not a... We've never really taken much product to the United States. It's far more important for congestion, et cetera, that what it's like in terms of distributing products around the rest of the world. So... Yeah. I mean, there's no other way of saying it. The rates are what they are. I mean, what may be surprising, of course, is the forward rates have remained in backwardization now for nine, ten weeks. But the product market has still just continued moving from strength to strength. I mean, it may have periods of weakness. It has done it before, but It's very hard to see that all this goes away just in a moment. Rates may go lower at certain times, but they're still going to be, on a historical basis, very high. And even if we look at the most pessimistic view of forward curves in any reports or any analysis for the third quarter, they're seasonally superb. I mean, absolutely superb. I mean, the... I think the error that people could be if they're surprised is when they look at the curve itself and they focus on the fact that, oh, it's a steep drop in rates, and they don't have a reference point because they're inexperienced or new to the space of where they're dropping to. You're far better off looking at the average of the earnings that that curve will throw off to a shipowner than rather than saying, oh my God, the rates are 100, they're going to fall to 40. Because the average of 100 straight line into 40 is a huge positive cash flow. So what I would suggest people could do is, for fun, just take the curve. Say, fine, yeah, the curve's right. You'll find that the company earns a lot of money just off that basis.

Yeah, that's a good point, Robert, and thanks for that.

And when it comes to the word surprise, I mean, you know, we've all been humbled in a good way or a bad way by what's happened in the last two months. So, you know, we shouldn't be surprised of anything right now.

Right, yeah. And just on the term market, you mentioned the dynamic of the spot charter that rolls into a T.C., it seemed like maybe two or three weeks ago the entire tanker market was just in a frenzy or the charters were in a scramble to look for any ships. It seems to have abated a bit optically outside looking in, at least when it comes to the crude tanker space. On the product, is it still fairly active, charters coming to you with inquiry for TCs as before?

Well, as I said, without looking at it in detail, I mean, you know, the market has all sorts in it for the spot market to be where Lars is saying he's fixing ships. These aren't fantasies. This isn't, you know, as is referred on one conference call yesterday, fairy dust. This is reality fixtures. You know, that would indicate that there are also people there who are willing to take a discount to the spot rate by doing term charters too. That that's what happens in the strong market. Um, you know, the crude oil is much more volatile to actually crude oil pricing. For all we know, in two weeks' time, the Saudis and the Russians might say, well, you know, the Americans looks like we're looking like patsies to the Americans. The Americans aren't cutting back on what they said they would cut back, and the shale people are producing more, and Texas didn't end up agreeing to doing cuts. So maybe we'll just increase exports by two or three million barrels, and wham, you know, back comes the crude oil play again. You know, the product market is just slightly different to that market.

Yep. Robert, maybe just one more. You know, you mentioned this in your opening remarks, or I think it was Emmanuel, but, you know, there was a lot of pressure on Scorpio, you know, going back six, eight months ago on converting or pushing your LRTs into the dirty crude trade. Obviously, it's a smart decision, you know, hanging back, sticking with product, And when you think about it now, there has been some talk, I'm not sure how prevalent it is, but that some of those dirtied up LR2s would come back to clean. Are you seeing that? Is that happening? And is that something to be concerned about here in the near term of those having a supply effect on the market?

It's not easy to bring back from dirty to clean. I mean, and I think that some of those Articles were misprints that had still been corrected, and they were actually referring to the other way. The vessel's going from clean to dirty. They got the words wrong from an Asian publication. So that really isn't... There can always be one or two somewhere that were residual, anticipating, and so they would have started six months ago, and maybe one or two have done it. But it's really not easy to... to do that at this particular point. But yes, I think that, you know, the people, I think the archival department made a very strong, bold, and obviously a decision that paid off on the spread.

Absolutely. Okay.

Yep. Okay, Robert, we'll appreciate it. Thanks for everything.

Thank you. And our next question comes from Randy Givans from Jefferies. Your line is now open.

Howdy, gentlemen. How's it going? Good, thank you. All right. So, yeah, obviously, solid quarter, setting up to be a record quarter in 2Q. So you'll have pretty ample free cash here in the next few months and quarters. And obviously you remain focused on those debt repayments. So with that, what are your kind of target leverage ratios for strengthening the balance sheet or maybe specifically looking at the $3.2 billion in debt? Do you have a year-end goal for this matter?

No. I think that we think that, as I pointed out earlier, that we're trying to shift the value creation and shifting the debt and paying down debt and deleveraging and And I think it's not worthwhile in having a goal right now or even if we had that goal indicating what it is. I think we'll all know when we get there what it should be. We'll all know at the point where we're not having such a steep discount to the NAV because of perhaps the fear that there is in the balance sheet. We'll know from our shareholders and we'll know from the market that more or less where that appropriate leverage should be. David, if you're still on, I'd love you to add to this if you can.

Yeah, very happy to, Robert. Thank you. I think, Randy, to answer your question, it's very clear that as we pay down debt, it's accreted to our equity. I think implicitly as we increase the equity mix in a capital structure, we believe our cost of capital will trend lower. So in many ways, we feel that is the best use of the cash that we expect to generate over the coming quarters. And certainly, as Robert said, I think we'll know where we are in terms of our optimal capital structure. We'll see that come through in the rating of the stock. I'll hand it back to you, Robert.

Okay, thanks. All right, and then, Robert, as you mentioned, we have a pretty hard job here estimating rates. So just to kind of cross-check, Headline rates we're seeing with current rates being booked, what are some of those levels? I know you mentioned one kind of one-off, LR2 at $170,000 or whatever. Can you give maybe an average for the last couple of days for LR2, LR1, MR?

I haven't really done any averages for the last couple of days. I mean, obviously, the averages for the last two weeks are significantly higher than what they were the two weeks before. And the two weeks before were significantly higher that way. I mean, it's been an upward curve on the bookings. And if you were to put in, you know, the fixes I've seen for the last two, three days on MRs range from, you know, 30 through to 75,000 a day. That's for this week. And, you know, the LR1s are ranging from, you know, 63 to 102, somewhere around there. And the LRs are almost just huge. It is huge.

Okay. All right. Well, those are pretty large ranges, so I won't come back to that.

Yeah, but that's what it is.

No, yeah. Understandable. All right. Well, I'll just ask another question that I'm sure you can answer. How have kind of net asset values or just asset values in general kind of been impacted by the current market strength? You know, 20 seconds ago, you mentioned a steep discount to NAV. So just trying to get a better sense for kind of updated NAV estimates or just... I mean, no idea.

We haven't done a calculation, a proper calculation ourselves. I mean, it's, you know, that's changing every day with the actual cash generation. So the cash generation is positive. I can't imagine that any product anchor that's, you know, less than five years is, you know, not at least maintaining, if not going up in value in this rate environment, especially against a forward book that's virtually non-existent. I can, you know, obviously it's great, you know, once you get vessel product anchors over 10 years old, then, yeah, then because they've only got like three or four more years of useful life in products, and it could materially hurt their values if the market's weak for a year or two, then, yeah, maybe their values are a little bit softer or whatever, but we don't have any of those, so we don't really focus much on that. And we don't know what they are exactly. You know, we're not out there looking to buy more ships, and we're obviously not there to sell any.

Got it. Okay.

But these rates, to give you some idea, I mean... you know, think how much that LR is earning in that short period. I mean, there is no way that the value of that ship is declining right now.

Sure. I would think the same for the MLRs. Cool. Well, that's it for me. Thank you.

Thank you. And our next question comes from Ken Hoxter from Bank of America. Your line is now open.

Hey, good morning, Robert, Brian, Cam, Lars, and Emilio. So, Robert, the cost per day was up 1.8% year over year, but down sequentially. Can you maybe just talk about the moves you're making on the cost side? Because that looked to actually improve as well. I know the rates are the big focus, but I just wanted to ask on the cost side real quick.

Cameron, Brian?

Hi, Ken. Well, there's a few things going on. Obviously, the biggest part of that is the deferral of the CapEx for the scrubbers. Now, bear in mind, there is already a regulatory dry docking schedule that we cannot avoid. But all that marginal or, say, optional capex on top of that, we've now pushed back at least until 2021, maybe further. Now, when it comes to normal operating expense, you know, in this environment – Obviously, the logistics around supporting vessels and the personnel on those vessels becomes much more complicated. Thankfully, it hasn't been a terribly costly exercise, but you can imagine the job of getting people to and from vessels, getting spare parts, victuals, other essential services surveys to those vessels becomes challenging, and then sometimes the cost will creep up. But we think that's a short-term phenomenon, particularly as it Asia starts to reopen or loosen some of the more stringent restrictions they've had in place. So the effect on OPEC hasn't been very material. As far as the other costs, maybe I'll hand it over to Brian to see if he has anything else to add.

Thank you. And our next question comes from Ben Nolan from Stiefel. Your line is now open.

All right. Well, I'm not Brian, but I do have a few questions. The first is, as it relates to, and Cam, maybe actually this is for you, as it relates to those 19 scrubbers that are delayed, you kind of talked through earlier that ultimately it's a decision that you might make to not have them installed at all, depending on the market dynamics. It's great that you can delay them without any fee, but would there be any fee if you were to choose to cancel those outright?

Absolutely. Thanks, Ben. You know, I'm just going to take a pass on that because we have an ongoing dialogue with our supplier who's been very understanding. There are a lot of levers in place. There's a small amount of advance payments that have been made for the manufacture and delivery of some parts, not a huge portion of the overall spend. So it's just not a question I'm able or in a position to answer right now. Okay, perfect. Completely understand.

And then just, let's say, sort of modeling but not really, there's a handful of, I think, three handies that are chartered in that were coming off contract. Looks like there was a short-term extension of those. Should we expect that beyond May those are likely to remain in the fleet or probably not? Any thoughts there?

It's the Manuel event. We will deliver those ships by the end of June latest. So those three vessels you're referring to are going to exit the fleet.

Okay, perfect. Thanks. And then lastly, sort of a capital allocation question. Obviously, you clearly are using all of the excess cash flow that you're generating to strengthen the balance sheet. Just Hoping that we might be able to dive down a little bit more deeply into exactly how you envision that happening. In this kind of a market, obviously you're making your required debt repayments. Does everything else, do you anticipate it just sitting in cash, or do you think about maybe prepaying some of the secure debt or maybe buying back some of the converted? which is trading below par here, any thinking about sort of how you're staging that liquidity with respect to sort of capital allocation?

No, right now you're just focusing on booking it, and as Brian says, there's a lag before we get the cash. So we'll get the cash and then look at the set of opportunities at that point. Okay.

All right. Well, that does it for me. Thanks, guys. Thank you.

Thank you. And our next question comes from Liam Burke from B. Reilly FBR. Your line is now open.

Yes, thank you. Brian, you discussed earlier in the call about the receivable spiking based on the higher rates, etc., With demurrage, are you seeing any extension of terms with your customers, or are you being paid on time, or would you anticipate any extended terms on the receivables?

No, we're getting paid on time through the pools, and the pools are collecting on time as well. So, you know, there will be some delays with ports, and maybe Cam or Emmanuel could say a little bit more what's going on with that, but we're getting paid on time. Okay.

Yep. Just to reiterate what Brian's saying, the payment of freight hasn't changed. The payment of demerge hasn't changed. The amounts have gone up. So our counterparties and their creditworthiness has not, or their performance has not been a question. Demerge, that portion, for those that don't know, reflects extra waiting time and is a separately negotiated rate. That waiting time, but the price we charge for that waiting time has gone up, but the payment of demerge hasn't changed, or we haven't seen it change since the start of the first quarter.

And just to follow on, are there any rumblings on changing those terms of demerge?

There have not been. Maybe you could refer back to what Robert and Lars said, which is, not changing the terms for a voyage that's already been contracted, but for new voyages, many customers are pricing in storage options on the back of a completed voyage, which is one way to say that some customers are wisening up to the expense they're incurring from all this demurrage and negotiating a storage contract up front. And we've seen a fair bit of that. Thank you.

Okay.

Thank you very much.

Thank you. And that concludes our question and answer session for today. I'd like to turn the conference back over to Brian Lee for closing remarks.

I'd like to thank everyone for joining us today, and we will speak to you soon. Thank you. Bye.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect.