Ardmore Shipping Corporation (ASC) Q4 2017 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to Ardmore Shipping’s Fourth Quarter 2017 Earnings Conference Call. Today’s call is being recorded and an audio webcast and presentation are available in the Investor Relations section of the Company’s website ardmoreshipping.com. We will conduct a question-and-answer session after the opening remarks. Instructions will follow at that time. A replay of the conference call will be accessible anytime during the next two week by dialing 1-877-344-7529 or 1-412-317-0088 and entering passcode 10116752. At this time, I will turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore Shipping.

Good morning and welcome to Ardmore Shipping’s fourth quarter earnings call. First, let me ask our CFO, Paul Tivnan to describe the format for the call and discuss forward-looking statements.

Thanks, Tony, and welcome everyone. Before we begin our conference call, I would like to direct all participants to our website at ardmoreshipping.com where you will find a link this morning’s first quarter and full year 2017 earnings release and presentation. Tony and I will take about 15 minutes to go through the presentation and then open up the call to questions. Turning to Slide 2, please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from the results projected from those forward-looking statements and additional information concerning factors that could cause the actual results to differ materially from those in the forward-looking statements is contained in the fourth quarter 2017 earnings release, which is available on our website. And now, I will turn the call back over to Tony.

Thanks, Paul. On the call today, we’ll follow our usual format, first we’ll discuss our performance in recent activity, followed by an update on the product and chemical tanker markets, then we’ll highlight some of our recent value creating activities after which Paul will provide a fleet update and review our financial results, and then I’ll conclude the presentation and open up the call for questions. Turning first to Slide 5, on our performance and recent activity. We are reporting EBITDA of $46 million for the full year of 2017 and $11 million for the fourth quarter. Overall, we’re reporting a net loss for the full year of $12 million and $0.37 a share and for the fourth quarter $3.8 million or $0.12 per share. Ardmore’s spot rates remained challenged for almost all of 2017, on the combined impact of the persistence oil inventory overhang and low levels of oil trading activity as well as reduced refinery output in September and October and the aftermath of Hurricane Harvey which in particular put downward pressure on product and chemical tanker rates late in the third quarter and into the fourth quarter. With respect to stock market environment, we believe we delivered satisfactory chartering results with MR rates averaging 12,975 per day for the full year and 12,131 per day for the fourth quarter. In November, we completed an accretive share repurchase acquiring 1.4 million shares at a significant discount to NAV as part of the Greenbriar secondary offering and resulting in earnings accretion of approximately 3.5%. We continue to execute on our strategy of improving returns on invested capital and building value. We took delivery of the Ardmore Sealancer in January, a high quality Japanese 2008-built MR product tanker with attractive financing under Japanese operating lease arrangement. Of note, the purchase price of this vessel equates to a 30% discount to current new-building prices on an age adjusted basis. As we will discuss in more detail, we believe the market outlook is positive. Oil demand growth is strong on the back of accelerating global economic growth. Global oil inventories are now almost back in balance and the pace of MR new-building deliveries is decelerating with MR net fleet growth in 2018 expected to be less than 1%. As a final point, we are maintaining our dividend policy of paying out 60% of earnings from continuing operations. Consistent with this policy, the Company is declaring no dividend for the fourth quarter. Turning to Slide 6 for a quick look at our fleet profile. As you’ll see the only change to the fleet is the addition of the Ardmore Sealancer. This is a high quality vessel built at Onomichi Dockyard in Japan and it’s an identical sister to the Sealeader and Sealifter. The attractiveness to the ship was not just the price, but also the excellent stack and condition as compared to other candidates we look at. This translates to the meaningfully lower OpEx in drydocking costs and corresponding improvements in ROIC. This latest acquisition brings our total fleet up now to 28 MR products and chemical tankers. Turning now to Slide 8, on the product tanker market fundamentals. As noted earlier MR product tanker rates remain softer the majority of 2017 despite some strength in the summer months. With great weakness through the year stand largely from high oil product inventories and thus low levels of oil trading activity putting downward pressure on product tanker demand and thus charter rates. An improving freight rate environment late in the fourth quarter and into the first quarter of 2018 has resulted in significantly improved performance. Nevertheless, we believe that the outlook for 2018 is overall positive for a number of reasons. Global oil inventories declined by approximately 370 million barrels throughout 2017 with year improved product inventories back to 2014 levels. As and when futures backwardation eases or go to the contango, restocking and increased trading activity should resume on the full scale. Oil demand remain strong with 1.3 million barrels per day growth forecasted for 2018, which were matched with refinery capacity growth and export oriented allocations should be to continued increases in ton mile demand. China continues to grow in importance for MRs, export quotas to oil products are set to increase by 30% in 2018 and destinations are increasingly harder to feel. Overall, we believe that increased cargo volumes, regional products slate and balances, emissions regulations, ramping up with Chinese product exports and increased trading complexity overall are continuing to drive demand growth at around 5% annually. Looking at supply, the MR order book is now all time lows at 4.1% of the existing fleet and net fleet growth is correspondingly low as well. For 2018, we’re forecasting 42 MRs to deliver against scrapping of 20 to 25 units which result in net fleet growth of 1% or less for the year. Shipyard capacity remains constrained with continued rationalization and limited incremental product tanker orders. There remain only 7 active MR yards currently down over 60% from the 20 that we’re active in 2008. Turning now to Slide 9 on chemical tanker market. Chemical tanker rates improved in the fourth quarter with our chemical tankers averaging 13,369 per day versus 11,949 for the full year, which is actually a very respectable performance compared to the MRs. The combination of increased South East Asia oil, veg oil volumes and shortages of veg oil suitable ships enable freight rates to tighten on this trade lines. European Soy imports also increased following an import tariff reduction resulting in firmer South American volumes in this direction. Overall though despite some strengthen veg oils to chemical tanker markets continue to be affected by weaknesses in the broader CPP market. Looking ahead, fundamental chemical tankers demand is highly correlated to global economic activity with global GDP forecast to grow at 3.9% in 2018, according to IMF, chemical tankers demand growth should increase as well. Expected solid demand growth for commodity chemicals coupled with production expansion in the U.S. and Middle East will boost exports and lengthen voyages. Meanwhile, the chemical tanker order book is continuing to decline, at a current level, it's 8% of the existing fleet. As we’ve said before, there is a difference in the order book as a percentage of adjusting fleet to stainless steel tankers versus R-type which are coated IMO2 tankers. With the stainless steel order book as a percentage of that segment of the fleet is 11.3%, but for the coated tankers which are R-types, it’s only 5.8%. So, it’s much smaller in comparison. Overall, chemical tanker net fleet growth for 2018 is estimated to be 3.4%, which should be well below demand growth. Turning to Slide 11 for an overview of our recent value creating activity. As mentioned, we completed an accretive share repurchase in November acquiring 1.4 million shares at a discount to NAV as part of Greenbriar secondary offering, which will deliver EPS accretion of approximately 3.5%. Greenbriar is now fully divested of their 17% holding and the overhang around the timing of their asset is now fully removed. Post-transaction Ardmore has a highly diversified shareholder base with no shareholder of about 10% of the ownership and factors two shareholder of about 5%. Long-term, we believe that the increased public float and trading volume as a result of the offering will benefit all shareholders. Meanwhile, management remains focused on activities intended to drive continued improvements Ardmore’s ROIC. Recent transactions also demonstrate our focus on effective capital allocation and long-term value a creation, most notably the acquisition of the Sealifter, the share repurchase in November, and as a reminder, the acquisition of the six Eco- design MRs in June of 2016 from Frontline at a price that as yet unmatched in the S&P market and which was it is significantly accretive to earnings even under current market conditions. And with that, I’ll hand the call back to Paul to provide an update on our fleet and our financial performance.

Thanks, Tony. Moving to Slide 13, we’ll quickly run through the fleet update. As Tony mentioned, we took delivery of the Ardmore Sealancer on January 23rd; and as you will see from the chart in the right-hand side, our revenue days increases by 3% for the full year 2018 to 10,058 days. We have one drydock in the fourth quarter for the team R&R and we expect of 18 drydock days in the first quarter of 2018. Turning to Slide 15, your will take a look at our financials. As you will see on the second line, we’re reporting a net loss for the full year of $12.5 million or $0.37 per share and a $3.8 million or $0.12 per share for the fourth quarter. Total overhead costs were $14.6 million for the full year comprising corporate expenses of $12 million and commercial and chartering expenses of $2.6 million. As mentioned before in many companies, the commercial and chartering costs are in corporations to avoid expenses, which mean that our corporate cost is the comparable overhead. Our full year corporate costs were $12 million which works at a $1,200 per ship per day cost of fleet. For the first quarter of 2018, we expect total overhead at the corporate and commercial to be approximately $3.8 million for the first quarter of 2018. Depreciation and amortization for the full year was 37.2 million and 9.6 million for the fourth quarter and we expect the depreciation and amortization for the first quarter '18 to be approximately 9.5 million. Our interest in finance cost were 20.9 million for the full year comprising cash interest of 18.4 million and amortized deferred financings of 2.5 million, and we expect interest in finance costs for the first quarter ’18 to be approximately 6.1 million which include amortized deferred finance fees of 650,000. Moving to the bottom of the slide, our operating cost for the year came in below just at 62.9 million or 6,298 per day across the fees including technical management. OpEx Eco-design MRs was 6,185 per day for the year. Eco-Mod MRs came in at 6,597 for the full year and Eco-design chemical tankers came in at 6,282 for the quarter. Looking ahead, we expect total operating expenses for the first quarter to be approximately 16.3 million. Turning to Slide 18, we take a look at the charter rates for the full year and the fourth quarter. Overall, as Tony said in spite of a softer charter market, we delivered a satisfactory chartering performance. Full year TCE for the pool and sport MRs was 12,970 per day and the fleet average can now 12,709 per day. Looking at the various ships types, the 15 Eco-design MRs in operation, which had an average of 12,902 per day for the full year and our six Eco-Mod MRs came in at 12,975 per day. Our six Eco-design chemical tankers performed well in the fourth quarter with average rate of 13,369 for the fourth quarter and the full year TCE came in at 11,949 per day. And looking ahead to the first quarter of 2018 as of today, the spot MRs earning approximately 13,300 per day for voyages in progress with 45% of the days booked, but the chemical tankers are currently earning approximately $12,000 per day with 87% in the days booked for the first quarter. Overall, we are satisfied with our chartering performance. The fleet continues to perform well in spite of challenging charter markets over the course of 2017. On Slide 17, we have a summary balance sheet which shows at the end of December we grossed at 453 million, which net of deferred finance fees of 442 million, and our leverage at the end of the year was 54%. Our cash in hand at the year-end were 39.5 million and pro forma for the delivery of the Sealancer and drawdown of the financing cash at the end of January with 44.8 million. Moving to Slide 18, we have strongly liquidity position and we are continuing to pay down our debt. As mentioned, our cash balance at the end of January was 44.8 million and our growth has 463 million following the drawdown of the lease in the Sealancer and some schedule debt repayments in January. In the fourth quarter, we completed and attractively priced 15 million revolving credit facility, and as of January 31st, we’ve approximately 11.4 million drawdown living us with additional financial flexibility. As you all know, all of our debt is amortizing with principle repayments of roughly $44 million per day and based on scheduled debt repayments for the remainder of 2018, our year-end debt will be approximately 425 million. And with that, I would like to turn the call back over to Tony.

Thanks Paul. So to sum up, we’re reporting EBITDA of 46 million and a net loss of 12.5 million or $0.37 per share for the full year. The MR stock market remained challenge for almost all 2017, consistent oil product inventory overhang and thus low levels of oil trading activity as well as reduced refinery September and October put downward pressure on rates. In spite of the market, Ardmore delivered satisfactory chartering performance with MR tankers averaging 12,975 for the full year. We completed an accretive share repurchase transaction in November acquiring 1.4 million shares at a significant discount to NAV and resulting in EPS accretion of approximately 3.5%. In January, we delivered the Ardmore Sealancer with attractively priced financing under Japanese operating lease. Overall, the market outlook is positive and we believe primed for recovery. After years of challenging charter markets characterized by heavy fleet supply growth and oil inventory overhang dampening demand, conditions are now in place for a sustained upturn and in fact feel very similar to that stage of previous cycles. Meantime, we’re continuing to execute on our strategy and we’re waiting for the spark to typically ignite the full recovery. And with that, we’re now pleased to open up the call for questions.

Thank you. [Operator Instructions] And our first question will come from Noah Parquette of JP Morgan.

I just want to ask, Tony, you talked about China product exports increasing this year. If you -- what you've seen operationally in terms of where these cargos are going? And perhaps where it starts displacing?

Thanks, Noah. The Chinese exports typically have just gone to south to kind of Singapore in that area. So that would effectively a backhaul that didn’t really add much, but we observed that they’ve been going as far as West Coast South America, West Coast U.S. and into Atlantic Basin on occasion. And that’s the meaningful improvement. I don’t think they're necessarily displacing anything at least we couldn’t identify it, but we think that historically China has just not been a factor in the MR space, but now it is and we think that’s overall a good thing.

And then I just want to ask one more about the 2020 sulfur regulations. What is your view on how the product into market will respond? And what your strategy is for use of scrubbers versus more scrubber field?

Yes, I think that these 2020 sulfur limit is, in summary fairly simple, in detail it’s very complex. But in summary, we don’t believe that there are many ships in the MR space that are going to put scrubbers on. The consequence, the MR sector is going to be burning NGO and possibly some ultra low sulfur fuel great at the development time. Overall, this is going to be a significant increase in demand for NGOs tanker fuel. We believe that that’s going to result in a lot of cargo movement specifically relating to MRs. In other words, moving NGO around the world to meet the needs in the local tanker markets, it’s also a possibility that MRs get picked up or storage at least on a temporary basis, while the transition takes place and short tankers get cleaned out. So, we think it’s -- I think the overwhelming approach and response from MR owners is going to be NGO or ultra oil sulfur fuel oil. And on the demand side, we’re expecting that it’s going to have a perhaps meaningful impact -- positive impact on demand.

And the next question comes from Jon Chappell of Evercore.

Tony, a couple of comments on assets, I may be focusing on them too much. You've mentioned that the prices you got for the frontline ships in mid-16 haven't been replicated since, so that indicates that they’re moving up. And then interesting comment from Paul about the every 1 million increase in vessel values and the accretion to your NAV. Seems some broker reports that asset values have been moving up, despite kind of the volatility within the charter rate, but you obviously see things a lot closer than we do as you expect ships. Can you confirm that asset values have been indeed inching up in the MR space specifically? And up against your outlook for the market this year, what your anticipation is for 2018 asset value momentum?

Yes, I think the story for the older ships is bit different than the newer ships. So, there perhaps hasn’t been move up in the values for older ships. But for the newer ones particularly Eco-designs, which is in reality the bulk of our fleet in terms of value. They do appear to be moving up. Obviously, transaction volumes are very light, but they’ve been a couple of reported sales at meaningfully higher numbers. And so, it seems like the sentiment has shifted a little bit and the trend line is up and indeed every $1 million per ship is about $0.90 right, Paul.

Is there way to kind of gauge, I mean, once again, we get the broker report weekly, so we can kind of make our own estimates, but you are in the market closer that accretive acquisition now the great chart that you put in there on what the buyback get to your EPS at different rate assumptions. Is there any way to gauge kind of how much asset values are up since you made that transaction in late-November?

So in late-November, I mean you could argue that the modern chips have increased the value by 1 million, 1.5 million.

So that’s in terms of meaningfully bought, you've bought stock at a discount NAV and your NAV is up.

Yes.

And then roughly a $1, we get time, so that just leads to my last question. And do we talk about this in the past in a different way, but I look at your fleet, there are four ships that are, I think, 12 years are older or 14 years older. And it seems to be like a tremendous right now of your stock trading at a massive discount to NAV. Would you look at potentially monetizing those ships kind of focusing on the core eco fleet, the very modern ships and executing another buyback to get that same type of accretion that you did in Greenbriar transaction?

It’s an interesting idea. I think the challenge with share purposes that given our average daily trading volume, it’s difficult to do anything in scale, which is why the these Greenbriar transaction was such an opportunity for us. But yes, if we -- especially at current levels, if we saw a weighted to kind of meet all of our other considerations and buyback in the equal number of shares of these levels obviously that will be attractive.

Final one for me and then I’ll turn over. It seems also from broker reports that the time charter markets also been strengthening a little bit, I mean the volatility and the least to me it seems like there is been 2 Tier market kind of widening where eco ships or could you maybe in the high 13,000 up to 15,000 a day and maybe some of the older ships a little bit lower. Once again, can you confirm that? And obviously, you wouldn’t be expected to lock in ships of time charters to proceeds trough of the market, but how does that translate then into these owned assets values as well?

Well, it is correct that time charter rates for MRs have been moving up especially for the newer ships. And what’s happening is in particular oil traders are taking on more tonnage and rebuilding their controlled fleets. They’re trying to do it quietly, but they're doing it at higher levels and let say three months. And that’s clearly a very strong signal. I mean they are the most knowledgeable people in our segment. And so, when they start doing that, that’s a very bullish sign, and that also bodes well for asset values longer-term.

And the next question comes from Ben Nolan of Stifel.

The first one is I supposed timing a bit theoretical, but one of the things that we’ve been trying to wrap our head around is. What is -- well, what is causing the weakness in product tanker market despite strong demand? And I think that the consensus view is that the inventory draw downs have been a culprit there. I’m curious, if you guys have sort of thoughts or what the ultimate impact of that would be? Or maybe another way to think about it is, inventory draw downs neutral, what do you think the product tanker market will look like today?

Well, we are in a much improved rate environment from three months ago. So, I think that’s one of the important points to make. Rates have come off just recently, the last couple of weeks. But, even from markets or from the markets are bit volatile, and we don’t think that winter is anywhere near over. So, we think in fact in the last day or two, rates have been strengthened quite a bit. So, I think we should -- we believe we’ll set for reasonable winter market. I think what’s holding back the MR market at the moment is probably two factors. One is that even though inventories that are at low level right now, oil prices has increased significantly, therefore bunker prices have gone up a lot. And if we were dealing with oil prices from six months to ago, our TCE recovery would be $3,000 a day higher, but that’s all been taken away because of higher bunker prices, but that’s just a way it is. But on top of that, the oil market that at least the last look I had was in backwardation and that’s not good for storage activity. So, I think if you see a return to a contango shape in the curve and combined with currently low levels of inventories, you would see a lot more activity, a lot more trading activity and a lot more cargo going -- product going into storage. And that would be good for the business. So, I think there is a component of demand that could returns to the market very quickly under those conditions.

And so to that extent, is your view that market is sufficiently tied enough currently such that should be occur flat? And whatever in trading activity pickup that it would have a meaningful impact on day rates and ultimately earnings?

Yes. Yes.

So, then my next question is something that we’ve kind of been hearing around a bit is that a number of other your product competitors in particular have been facing some more severe cash flow challenges as of late given the market conditions that have been a little bit persistent. Are you seeing any distress opportunities beginning to materialize? Obviously asset values from ownerships have held in reasonably well gong higher, but again we’re kind of hearing that there are some issues in the market for certain owners. Is that materializing in any way with respect to opportunities that you’re seeing?

Yes, I think in short not yet, but it could. And of course, the challenges always to make sure that the opportunities represent ships that we would actually want to own.

And then lastly, following on something that Noah had brought up in your answer to his question, on the potential demand side of elements of the low sulfur emission regulations, you’ve mentioned that obviously there would be a lot more NGO needed and that would translate into demand for MRs, carrying NGOs. Curious, what that looks like today? How much gas or oil you're moving currently? And what would delta perhaps look like in a 2020 environment?

That’s a really good question. I don’t have it at hand. We would have just kind of think that through, but I think the global bunker requirement is like 5 million barrels a day, and it’s something like two-thirds of that or two quarters have been went from heavy fuel oil to NGO. That’s probably a significant increase in demand for gas oil and middle distillates in general. And my favorite quote around the topic is from a while back, but its oil line will say that there appears to be enough distillate production to meet the requirements that are going to become in place in 2020. But the problem is that those -- that production is not in the right place.

And our next question will come from Mike Webber of Wells Fargo.

Tony, I wanted try to get a couple of lines of thought here just around the conversation just had around NGO and in the 2020 rigs, with the comment that that you thought that higher crude prices are providing a headwind for TCEs in the back or former bunkers. In a scenario where we’re actually sure NGO and post 2020, and we’ve got to store and/or hasn’t left efficient ton miles or to kind of what efficient moves to get that into the right spot. Is the right way to think about this that kind of a scenario is would actually being headwind for MR rates? And what’s you’re actually the one providing the MR for storage or though that particular move that? Wouldn’t that kind of a larger impact on bunkers and ergo your TCE levels?

A lot of movement here for any sources of employment or demand for MRs, it’s good to be overall sector because MRs are completely fundable. So if you’re taking shifts out of the market for storage just like with BLCCs, it definitely helps. So, we think that additional cargo movements and potential storage increases demand. Now, if you’re in a relatively tight market to begin with and bunker price is go up then the ship owners in the driver seat can actually negotiate higher rates. The difficulty is when the markets weak and bunker price is go up or let’s say bunker prices go down even then the charter is able to extract that value and the negotiation.

So, the expectation is the market firm enough that any sort of knock on impact on demand is going to supersede the inevitable bump in bunker prices globally is everybody basically short?

Yes, so the question is what happens first.

Right, I guess we're in a scenario now where the higher crude prices are already winning on TCEs, I guess it just seemed a little too early to I guess this is just that it would only be a net positive?

Well, it will be a net positive but it won’t only be positive. And clearly, everything else being equal to higher bunker prices that we pay because we’re burning NGO will obviously take away from our TCE. But, again this is our experience in 2015 is that when bunker prices dropped, freight rates didn’t impact, freight rates went up.

Okay.

Because the ship owner was basically effectively sellers market, right. So in this situation, if demand is increasing and hopefully we’re in a good -- in a much better place anywhere in 18 months so that we’re in a strong charter rate environment. Any incremental demand is going to help things in the incremental cost associated with burning in more expensive fuel. I think it would be fairly effectively passed on.

No, I mean a lot of moving pieces of that, but I appreciate you swinging at it. One more for me and you've touched on this a bit earlier I think with Jon’s questions on around buybacks. But the dividend policy, while you’re not paying the dividend now, it’s the policy actually working as intended. Right, you're not paying something I think getting your view SKUs, so it seems prudent and probably the reason why this policy is in place to begin with. I’m just curious as you look at 2018 and 2019, are there any factors that you think can ultimately change this? I guess you're thinking around that longer-term or when you evaluate your policy around return on capital. What are the bigger things you’re looking out for in terms of potential pivots?

Well, I think we frame up our dividend policy which we’re quite happy with at the moment in terms of overall capital allocation not just returning capital. And that’s really what we want to focus on is, how do we -- what capital allocation decisions we make overtime will maximize value in a very cyclical business? So, if I think we’ve done it right, we’ve returned a lot of capital in fact we’ve returned about $0.50 through dividends and share repurchase perhaps even more with share repurchase. Since we went public five years ago and that’s a pretty large number. At the time, we’ve made some pretty astute investment decision as well think. So, our focus is on the aggregate factors that play in into overall capital allocation. And at the moment we’re happy with our dividend policy.

Fair enough. One more and I’ll turn it over. Just in terms of what you’re seeing today within the Chinese rate. Obviously, a lot pressure on naphtha, which I think is stemming from the new tax laws. Have you seen any structural changes there in terms of what that might means for your inbound mix and whether you see any potential -- I don't know if it's mostly, I guess LPG will make out the difference whether there is any sort of petchem kind of knock on potentially benefit from there?

Well, that’s a good question and to be honest, I have to go back and talk to Gurnee about that to get a proper answer, but what we’re observing is that there some currently long-haul MR voyage is taking place with naphtha. So, the reason our and it has been in employing MRs in particular or at least on a larger scale. And that’s been good for us, but there is an ongoing battle between naphtha versus LPG at feedstock for petrochemicals. I think that’s more of an issue for LRs than for MRs.

The next we have a question from Magnus Fyhr of Seaport Global.

Just a question on the 2020 regulations. Seems like the shipping industry is getting ready for 2020, but it seems like a huge logistical challenge for the refinery sector. In your conversations with them, what do they say about getting ready for this and within two years and you think they’re going to be ready?

I don’t really have an educated response to that. I can talk about what we’re hearing from other ship owners and maybe oil traders a little bit in terms of as with pertains to kind of trade and cargo movements and that kind of same, but the complaint is that the IMO was insufficiently clear far enough in advance to give the refineries confidents to make the capital investments require to produce the grade needed. But somehow, I think they’re going to manage it, and as I mentioned earlier, I think it’s more a question of where it's it produced versus where it’s going to be consumed. And that could result in a lot of cargo movement in particular on MRs.

And just one question on the -- I guess the bookings for 1Q. It seems like the percentage was pretty high for the IMO and the chems at 87%. Should we read into anything of that why was that the number a little higher than normal?

It really, it’s just -- we have relative small number for those ships, and they can sometimes engage and fairly short voyages in other times I’m very haul voyages. So, in particular they're doing some attractive agile voyages at the moment, which are filling up the quarter almost completely now.

[Operator Instructions] And our next question will come from Fotis Giannakoulis of Morgan Stanley.

So let me -- I want to ask to follow up on the weakness of the market that we saw since the beginning of the year. It seems that part of that has been the weak demand out keep up of because of a drop in refinery margin. In the last few days, European refinery margins have started to pick up and I’m wondering, if you starting seeing some better activity out of Europe that will spread the fleet wider throughout the Atlantic?

Yes, thanks for this. The Americas market is also tightening at the moment. The tonnage list is relatively short and there is been a lot of cargo in last three days. So that’s definitely firm. Europe remains, the trend there is also firming. So we think that the Atlantic basin should look a long-term different in a week or two.

Okay. And how do you expect this tightening market in the Atlantic to play out during this turnaround season? When shall we expect to see rates reaching or even exceeding the level of the period contracts indicate right now?

Well, at the moment probably activity in the Atlantic is probably up to around 12,000 a day. And so if you’re talking about when you’re TCE rates been up in the mid to high 13s, we can get there fairly quickly and we were over that level two weeks ago. So, we think that it’s -- my own view is that the winter is far from over that we have a lot of weeks and months ahead of us which should deliver some pretty good results in the Atlantic and far East. So, overall we’re relatively bullish at least for the next few months, but I think overall there is a dampening of activity relating to higher fuel price -- higher oil price which has skew refinery margins and pushed the market in degradation and that has that storage is storage activity.

Thank you, Tony. Can you give us a little bit more color about your the financing of the latest acquisition. I think you mentioned in your press release that you did an operating lease. Does this mean that it’s a fair lease but it’s a balance of this vessel again? Can you indicate this for how long is this operating lease?

Yes, six years, it’s called I mean the terminology of the Japanese operating lease. However, we’re booking them as capital leases because of the U.S. GAAP requirements and the interpretation of that. So, these are being book as that or capital lease obligations on our balance sheet.

Okay. That’s clear. And one last question, the last few months if not year. There is a lot of discussion about private fleets control by financial investors that they might be looking to in one way to elaborate to exit their position or even going public either directly or through a reverse merger with an existing player. And the stands up at this point issuing stock below NAV wouldn’t make any sense. But, if there would an NAV to NAV transaction, if it’s something that you would consider out of this – are there any discussions that we are that might be development and that we might see something in the future?

Yes, obviously we wouldn’t comment on any activity. But I would say that in principle NAV transactions could be attractive, but it’s got to be with the right ships and it’s got the result in continuation of our current shareholder profile and distribution. So, it certainly as principle something at interest, but at this point it’s more theoretical than practical.

And our next question will come from Randy Giveans of Jefferies.

Hi, this is Chris Robertson on the phone for Randy. Thanks for taking my call. My first question is in regards to current rates. Could you provide any details regarding current rates versus headline numbers that are out there?

Which headline numbers are you referring to?

Just in terms of what’s published either through Clarkson's or how Robinson and kind of the things that are public and out there?

Yes, I think how Robinson report is particularly good one, if you’re looking at the daily one that’s got like 40 or 50 different roots on it. And if you look at the one column versus the other, it’s not Eco-design it’s actually just Eco-speed. So, the reality is the markets and they have enough roots that they come up with a good balance, and I’ve always noted that I think that’s actually pretty fair assessment of where the market is. And so that would indicate today that the MR market globally is probably around 12,000 a day, but that’s down significantly from a couple of weeks ago.

And then my second question is in regards to slide 13. I was wondering, if you could provide any additional, any color around your drydocking cadence for the year, specifically the number of ships you expect?

Yes. I think we have six ships in drydock this year and approximately CapEx notable price $0.5 million, so under $1 million per share kind of [indiscernible]. And that would include some ships that are into our service and special service as well.

And this concludes our question-and-answer session. The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.