Ardmore Shipping Corporation (ASC) Q2 2022 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen and welcome to the Ardmore Shipping Second Quarter 2022 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 at ardmoreshipping.com At this time I will turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore Shipping.

Thank you. Good morning and welcome to Ardmore Shipping's second quarter 2022 earnings call. First let me ask Paul 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 the participants to our website at ardmoreshipping.com, where you will find a link to this morning's second quarter 2022 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 second quarter 2022 earnings release which is available on our website. And now I will turn the call back over to Tony.

Thanks, Paul. the format of today's call. To begin with, I'll discuss highlights, recent market developments and overall Ardmore performance, after which, Paul will provide an update on product and chemical tanker fundamentals and financials. And then I'll conclude the presentation and open up the call for questions. So turning to Slide 4. The product and chemical tanker markets are continuing along at historically high levels, with many factors now contributing to ongoing momentum which we will discuss later on. Our MRs earned $30,500 per day for the second quarter, up from $15,900 last quarter. They're earning $46,600 so far in the third quarter with 45% fixed and are averaging $55,300 for fixtures concluded over the last two weeks. Additionally, our chemical tankers are now approaching similar levels on a capital adjusted basis. Given our operating leverage and spot exposure, this has translated into record earnings of $29 million or $0.82 a share for the second quarter and an estimated $65 million or $1.75 per share for the third quarter if these rates are sustained. Asset prices are also rising as buyers are now factoring in the strong market to their value estimates. Most recently the sale of a 2016 built Korean MR at $34.5 million, up 25% from $27.5 million at the beginning of the year. But despite the much improved market conditions, given the very challenging business environment we've just come through, our priority continues to be rebuilding financial strength in order to then continue through our capital allocation priorities once our leverage targets are met. To this end, we've just completed the refinancing of virtually all of our debt with our core lending banks, repaying most of our higher cost-lease portfolio, reducing it from 14 down to just two ships and thereby significantly lowering our debt cost. And we've also engaged in limited usage of the ATM program over the past quarter to further build financial strength. Operationally, we're very proud that our ships, the Ardmore Cherokee and the Ardmore Encounter, have recently won the Seafarer's Charity Maritime Safety Week competition, a testament to their crews' proactive approach to safety and their dedication to seafaring professionalism. Moving to Slide 5, on the product and chemical tanker market outlook. The market is being influenced by many factors but above all, a now deeply rooted energy crisis impacting virtually all energy classes on a global basis, most notably in Europe. While concerns about global economic slowdown -- about a global economic slowdown should temper expectations, there's nevertheless a growing consensus that the conditions causing the crisis and thus the strong product tanker market may continue for some time. High oil prices and volatility are reflecting in part the underinvestment in oil and gas exploration for many years. As a result of the Ukraine war, energy security is now an immediate priority globally which will take some time to resolve. And low global oil inventories, the difficulty of restocking in a supply-constrained market and strong competition for reliable supplies will likely continue to drive physical supply-demand dislocation and thus our markets for some time to come. Under these conditions, MRs in particular are playing a vital role as the most flexible and the largest tanker asset class by number of ships, as they can trade virtually anywhere in the world and they comprise fully 1/3 of the global tanker fleet. Also, it's important to point out that tanker demand is highly priced and elastic. The cost of freight even at today's high levels is less than 5% of the value of the cargo. So there would appear to be no practical upper limit on charter rates in terms of potential oil demand destruction. Meanwhile, chemical tanker rates are tracking MRs upwards as a similar dislocation in chemical and vegoil markets is driving tonne-mile demand in addition to which there is less competition for chemical cargoes from MRs. Moving to Slide 6 regarding Ardmore's commercial and financial performance. Our fleet employment strategy has positioned the company very well to maximize earnings in this market upturn. We made a deliberate move to spot trading away from time charter out going into 2022 in anticipation of an improving market. But of course, neither we nor anyone else anticipated the current strength. Technically, our fleet is trading 120% spot when including our time charter-in vessels, now totaling five, at an average TC-in rate of $12,600 per day. As mentioned, chemical tankers are now also doing very well on a capital-adjusted basis, notably engaging on very long haul voyages, reflecting a key driver in this market. In addition, the $40 million perpetual preferred issuance from last year has proven to be very valuable in managing financial risk, while leaving all the upside to our shareholders in this strong market. And then, in the meantime, we're continuing ahead with a business as usual approach regarding performance improvement in order to maximize earnings and cash flow, with an ongoing intense focus on trading performance and voyage optimization which is particularly important in this high bunker price environment. We're also continuing with vessel efficiency improvements consistent with our ETP but also cash flow. And then financially, the recently concluded refinancing will reduce our average credit spread from 3.2% down to 2.6%, resulting in roughly $2.2 million per annum saving. Assuming a continuation of strong market conditions, we anticipate a meaningful reduction in our leverage and our cash flow breakeven levels by year-end, thus opening up new capital allocation opportunities along with more sustainable ongoing profitability. And with that, I'll hand the call back over to Paul.

Thanks, Tony. I'll take a look at the fundamentals, then move to financial review and capital allocation. Starting at Slide 8 for demand fundamentals. The demand outlook for product and chemical tankers remains very positive. The IEA are forecasting global oil demand to increase by 1.7 million barrels a day this year and 2.1 billion barrels a day in 2023 in spite of a deceleration of global economic activity. In particular, aviation activity continues to support oil demand, with jet fuel demand increasing by 900,000 barrels a day or 18% since the start of the year. And the disruption to trade flows associated with the Ukraine-Russia war and the energy crisis are adding to tonne mile demand. For example, Europe is now sourcing refined oil products in the U.S. Gulf and the Middle East rather than Russia and this is unlikely to change anytime soon. Meanwhile, as we've been saying for some time, the ongoing trend of refinery dislocation will continue to have a positive impact on product tanker demand, providing an additional layer of growth. Over the next four years, there's 8.9 million barrels a day of export refinery capacity growth in the Middle East and Asia as compared to 5.9 million barrels a day of closures of local market-focused refineries in the U.S., Europe, Japan and Australia. The combination of these developments means larger seaborne volumes of refined products moving over longer distances. Overall, product tanker tonne-mile demand is expected to grow by 3% to 4% annually over the medium term which should be well above supply growth. Chemical tanker demand outlook is also very positive, driven by ongoing global GDP growth and increasing petrochemical output in the long term and favorable tonne-mile demand forces consistent with product tanker market in the near term. Moving to Slide 9. We'll take a closer look at the supply fundamentals. The supply outlook for product and chemical tankers is also favorable, driven by a low order book and increased scrapping levels. Net fleet growth, deliveries less scrapping, is expected to be well below demand growth for the coming years. Estimated net fleet growth in 2022 is 1.4% for product tankers and 1.1% for chemical tankers with the downward trend expected to continue, as you can see on the chart on the upper right. Scrapping has been running at more elevated levels for the past two years and given the age profile of the fleet, this should continue. 29 product tankers were scrapped year-to-date compared to 68 ships or 2% of the fleet scrapped last year. And while the resurgent market may slow scrapping in the near term, an aging fleet will ultimately see scrapping levels increase in the long term. Currently, 9% or 271 ships of the product tanker fleet and 13% or 239 ships of the chemical tanker fleet are over 20 years old and close to scrapping age. At the same time, the order book for product and chemical tankers remains low. The product tanker order book is at 6.2% or 179 ships and the chemical tanker order book is at 6.3% or 78 ships delivering over the next three years. New ordering activity is expected to remain low in the near term. There's very limited berth availability until 2025. And a lack of clarity on propulsion technology and emission regulations has dampened the willingness of tanker owners to order speculatively. Moving to Slide 11, we take a closer look at fleet and operational highlights. We are continuing to invest in the fleet to optimize operating performance. We expect to complete one drydocking and a ballast water treatment system installation in the fourth quarter with a total CapEx of $2.4 million. Forecasted revenue days for 2022 are approximately 9,750, including time charter-in ships, with chemical tankers representing 24% of fleet days for the year. And operationally, the fleet continues to perform very well with on-hire availability at 99.3% for the second quarter. Turning to Slide 12 for financial highlights and guidance. We're reporting earnings of $29 million or $0.82 per share for the second quarter, representing our strongest quarter ever. And in addition to a strong charter-in performance, we have continued our focus on cost control and efficiency improvements. Operating expenses are at $15.9 million for the second quarter compared to $16.4 million for the same period last year. And looking ahead, we expect OpEx for the third quarter to be lower at approximately $14 million following the sale of three ships. Charter-in expense was $2.3 million for the second quarter and will increase to $5 million in the third quarter, reflecting five ships on time charter-in which includes the charter-back with the three recently sold vessels. And as you can see in the chart, we have split the time charter-in expense between operating and capital components in our income statement from this quarter and more on that in a moment. Depreciation and amortization totaled $7.9 million in the second quarter, down $1.1 million from the prior quarter as a result of the sale of three ships. And we expect depreciation and amortization for the third quarter to be about approximately $8 million. Total overhead costs were $5.3 million for the quarter and we're forecasting them to be in line with the third quarter. Interest and financing costs, excluding nonrecurring items associated with the sale of the vessels, came in at $4.2 million for the second quarter and we expect it to be approximately $3.9 million in the third quarter following the prepayment of the debt associated with the vessel sales and the cost savings associated with the refinancing currently underway. And finally, this quarter, we are introducing EBITDAR which is EBITDA plus bareboat equivalent lease expense, as a metric to enable a comparable valuation with IFRS reporting peers. Ardmore reports under U.S. GAAP, while most of our peers report under IFRS. IFRS differs from U.S. GAAP in its presentation of lease expense by including it in depreciation, whereas U.S. GAAP does not. As a consequence, vessels that are chartered in for greater than one year result in higher EBITDA under IFRS than under U.S. GAAP. Therefore, to assist in the process of a like-for-like valuation, we are introducing EBITDAR as comparable to EBITDA reported by IFRS peers. The effect is that we will add back vessel lease expense which is the implied capital component of the time charter expense, to EBITDA to arrive at EBITDAR. And a full reconciliation of this is provided on Slide 20 to this presentation and also in this quarter's earnings release, Form 6-K released this morning. And turning now to Slide 13. We can immediately see the reality of the current market. The charter rates for the second quarter were very strong but they pale in comparison with the charter rates in the third quarter. Fleet average TCE was $27,800 in the second quarter, with MRs earning $30,500 and chemicals earning $22,000 per day on a capital adjusted basis. And for the third quarter, with 45% of the days booked, the fleet average is $43,300 per day, comprising MR TCE of $46,600 per day and chemical tanker rates of $32,900 per day. And to put this in perspective, on Slide 14, we're highlighting our operating leverage and providing some illustrative calculations of EPS and net income at different TCE rates. In the highlighted bars, you can see annualized net income and EPS based on charter rates for the second quarter and approximate charter rates for the third quarter. Based on a fleet average TCE of $27,500 per day which is approximate to what we reported in the second quarter, this translated to annualized net income of $120 million and EPS of $3.25. And using fleet average rates of $42,000 per day for the third quarter based on the bookings to date, this translates to annualized net income of $265 million or $7.15 per share. As you can see, with our operating leverage, the higher rate environment is substantially resulting in stronger financial performance. Moving to Slide 15 for the balance sheet. In the second quarter, we finalized the refinancing of our debt facilities with our existing banks for three separate loans for $308 million in the aggregate. The new loans have been used to refinance 19 vessels, including 9 vessels financed under leases. The loans comprise of $185 million fully revolving credit facility, a $108 million senior term loan and a $15 million receivables facility. The two main loan facilities are priced at LIBOR plus -- at an equivalent of LIBOR plus 2.25%, a significant reduction on the existing debt pricing. And all three loans are sustainability linked and include a pricing adjustment feature linked to carbon emission reduction and other environmental and social initiatives. The refinancing is hugely advantageous for the company. It is allowing us to eliminate the expensive leases, taking the number of leased vessels from 14 to two since the start of the year. And the average credit spread on the debt will substantially reduce from 3.2% to 2.6%, resulting in annual interest savings of $2.2 million per year. The final documentation is in progress and we expect it to be fully completed in October when all the leases are refinanced. And in addition to refinancing, we engaged in limited usage of the ATM to build financial strength. We issued 2.8 million shares in the period at a weighted average price of $7.40 per share, raising $20.5 million in net proceeds. And as a result of these initiatives and the favorable market conditions, we're well on course to build a fortress like balance sheet, consistent with our capital allocation objectives in a very short time frame. Finally, moving to Slide 16 for our capital allocation policy. Our capital allocation policy was introduced in March of 2020 and the overall objective is to build shareholder value in a highly cyclical industry. The policy is designed to ensure that Ardmore is well positioned to capitalize on opportunities through the cycle and developments in the industry. And our priorities remain the same. We maintain the fleet over time in terms of number of owned ships, reduce leverage to below 40%, grow accretively to scale and return capital to shareholders. And we've made significant progress towards these objectives over the past 18 months. The preferred share issuance in mid-2021 buttressed the balance sheet through the COVID weakness, while protecting upside for common shareholders. And the exceptionally strong charter market is now affording a great opportunity to further improve capital structure and reduce debt. And the priority now is to accelerate debt reduction and clear the pathway to consider different uses of cash when those targets are met. With that, I'd like to turn the call back over to Tony.

Thanks, Paul. So to sum up then. MR charter rates are now at levels offering impressive returns. For this quarter, earnings are $29 million or $0.82 per share, representing an annualized return on equity of about 40%. And for the third quarter to date, with 45% fixed, potential earnings of $65 million or $1.75 in EPS and an annualized return on equity of about 90% if these levels are sustained. We believe the product tanker market is being influenced above all by the energy crisis. While the prospects of a global slowdown should temper expectations, there is growing consensus that the energy crisis will not be resolved anytime soon. Meanwhile, product tanker supply-demand fundamentals also look favorable with solid demand growth expected on the back of strong oil demand growth even after recent downward revisions and product tanker supply constrained by shipyard berth availability and continued scrapping. As a company, we remain focused on operating performance and are making good progress in addition toward our capital allocation policy objectives, in other words, leverage reduction and fleet size management which, when met, will allow us to pivot to other priorities, in other words, further growth and returning capital to shareholders. In addition, our energy transition plan is still very much at the center of our thinking, most immediately driving efficiency improvements and progress with our e1 Marine joint venture, while continuing to seek opportunities in a gradually but nevertheless profoundly changing business landscape. And on a final note, I want to take this moment to thank our CFO, Paul Tivnan, for all his effort, great results and companionship over these past 12 years and wish him the very best in his future endeavors. At the same time, as you will see in our separate press release, we're very pleased to welcome our new CFO, Bart Kelleher, to the team and we look forward to working with him from September 1. And with that, we're happy to open up the call for questions.

The first question is from Sean Morgan of Evercore.

I'm on for John today. He wanted me to relay our sentiments to Paul and wish him luck in his new endeavor. And I'm not sure where he's planning to go but if it's New York, I'm sure we can make room for one more Irishmen here. So just on the e1 Marine business, I think it's been about a year since that's closed. Are you guys seeing -- is it commercially ready to start licensing out for royalties? Or where are we sort of commercially with that business line?

So yes, e1 Marine has made a lot of progress at Ardmore Corp. Indeed, it has made a lot of progress over the last number of years, particularly in the last 12 months. In terms of commercialization, yes, they are at the stage that they could issues licenses. The focus has been for the moment to get the technology marinized and to that end, the Hydrogen one vessel which was announced last December, is -- construction is well underway. I think on the last call, we announced that they've got approval of principal from Lloyd's. And Hydrogen one maritime partners, our JV partner, have also, I think, just appointed their -- or ordered their fuel cells to partner with e1 system. So a huge amount of progress on the commercialization and marinizing the technology. And I think in terms of next steps, you'll see kind of commercial progress and perhaps licensing over the next couple of quarters.

Okay. And then just a follow up for Tony, I think, on the broader market. We've had obviously a nice improvement here in rates on the clean MRs. And I'm just wondering how much of that do you ascribe to sort of dislocation from Russia versus the changing geographies of clean product production and then, I guess, just kind of return of travel demand? And how sustainable do you think this nice, tight rebound we have is?

Yes, that's a good question, Sean and that's what we try to focus on in the presentation. So I think you're hitting at a few things there. One are fundamentals, a return to jet fuel most particularly. So I think that underlying all this is a pretty healthy dynamic in terms of supply and demand. What we're seeing and kind of hearing more about now is just more broadly an energy crisis that obviously is in part being driven by the Ukraine war but it's -- there are other factors at play. And this happens at a time when a lot of consumers are running with very low inventories and are having to go look very far away for a reliable source of supply.

The next question is from Ben Nolan of Stifel.

Good luck to you, Paul. but I guess I would start from a sort of a bigger picture, a macro question. You addressed this a little bit in the capital allocation with a target of 40% leverage. I mean these kind of daily rates, you're going to get there really fast, especially with the addition of the ATM that you've been somewhat on there. I guess, Tony, for you, big picture. If this market can sustain here or at least at reasonably healthy levels and the leverage gets down, where do you want Ardmore to be, I don't know, a year from now or two years from now? How would it look different now that things have sort of transitioned from theoretical to actually possible?

Well, I think that it's going to be a year or two years from now. If the market continues at anywhere near these levels, we'll obviously have reached our leverage targets, et cetera, well before then. And we'll be in a position and probably be returning lots of capital to shareholders under those conditions. And also being then well positioned to find the right opportunities for growth. If the market isn't sustained, we believe we'll be in a position to, I think -- as you pointed out, I think our financial strength is going to build very quickly and that's going to give us a lot more flexibility about capital allocation priorities. So we -- just to take a step back. The overriding objective when we set out the capital allocation policy was to position the company for well-timed and therefore, highly accretive growth, as well as a more regular return of capital to shareholders.

Right. Although, I guess -- I suppose the trade-off in this is always -- seemingly, the case in shipping -- I mean, you addressed in the presentation that MR values have come up a lot. It's always a trade-off. Do you pay for growth even though maybe prices are higher versus, again, return of capital? I'm just trying to get a sense of, again, how you think about executing on growth.

I think you know well enough to know that we're not momentum players. So we'll be quite prudent in terms of how and when we engage in growth. The last big step we made was quite a while ago now, was the Frontline fleet acquisition. And we bought those ships, their MRs -- eco-design MRs when they were about a year old. We got them for $29 million each. And now a six year old ship is worth $34 million or $35 million. So we don't need to necessarily do that well in acquisitions. But we do think that there's potentially pockets of opportunity that could arise over the next year or two even in relatively strong market conditions. But otherwise, we can be patient. And we have got a great fleet -- we have a great fleet that's going to be able to generate a lot of cash flow for the next at least three years.

Right. And then lastly for me. I think I caught this at the end when you were talking about just sort of the chartering strategy and so forth. Are you guys looking to maybe lock-in or -- well, lock-in gains, let's say, on some of the charter-ins by chartering out those vessels, securing cash -- some cash flow visibility? And is there -- what's the shape of the curve there? I mean is it a substantial decline for time charter versus spot?

At the moment, it's very heavily backward dated. So we're looking -- we talked about spot rates. One year TCE is probably around $20,000 now, substantially lower. And then it's maybe flat for a couple of years. So we're not drawn to those kind of numbers yet. It also depends on our view on the next kind of one to two years at the time that opportunity arises. But also you have to factor in who the counterparty is and how reliable they are to perform even if rates fall off.

All right. And Paul, I'll miss our conversation.

Thanks, Ben. Will talk to you soon.

The next question comes from Omar Nokta of Jefferies.

Yes. Congrats obviously on a very strong quarter. And it looks like you set up the third quarter to look even better. And also, Paul, congrats on your 12 years with Ardmore. It's been a pleasure and definitely look forward to seeing what you have coming next. And definitely not a bad way to go with those refinancings here the past couple of months. I wanted to ask about -- just kind of going back to Ben's question about capital allocation. Obviously, your priorities in order are maintaining the fleet, followed by getting the target leverage below 40%. That's obviously -- it seems like that's a bit different than in the past, where the target was to get to 40%. Now it's below which makes sense. How far below 40% do you want to get to?

You're probably reading a bit too much into the below, Omar. I think we're happy with -- if we include the pref in the leverage component, then I think we're happy below 40% on a mid-cycle basis. So we'll -- but it seems like there's a lot of momentum heading towards that target right now.

Okay. You think that's something that -- obviously, it's all projections. But is that a figure you think you can get to by year-end based off of how things are playing out so far?

Yes, based on how things are playing out now, definitely. Just look at the forecast for 3Q. And if you even have a moderate assumption for 4Q, I think that probably gets us there. And then we're very pleased when that happens because then it opens up all sorts of other opportunities, notably returning capital to shareholders but also looking for growth opportunities without playing into a hot market.

Yes. And I guess -- yes, just kind of on that note of looking at fleet opportunities. Would you think it will make sense -- I know a couple of years back, after that floating storage boom, you had a good amount of excess free cash and you went out -- you bought an MR. It was a bit older. It was a quality shift. But it was, I think, a 2010 built. How do you think about the next time you deploy capital in buying ships or a ship? Could you see you doing something opportunistic like that again? Or do you focus more on going younger?

That's a really good question. Look, we're really happy with that one acquisition we made. It did use quite a bit of cash. But the reality is that, that ship then and even today has a breakeven rate, including full overhead allocation, of $11,700 per day; so that always works. We obviously, over time, need to consider how to rebuild, build and modernize our fleet. We think our timing is pretty good in that respect in terms of what the right type of ship will be for the future, meaning that nobody really knows quite yet but hopefully, we'll have visibility on that in a year or two. And if in the meantime, interesting, either in the product or chemical space, opportunities come to buy more modern ships at a good price in some form, obviously, we'll take a hard look at that.

And just one final one just on -- you did sell three of the older MRs. You've seen asset values go up here tremendously over the past several months. Any interest in monetizing another portion of the Ardmore fleet, whether it be the Handys or the chemical tankers? Or you're happy with what you have at the moment?

Yes, those ships -- we actually kind of held out to sell the ships for about a year, always with the intention of taking them back on a medium-term time charter basis so that we could efficiently exit ships that were approaching 15 years of age but keep them in the fleet from an earnings standpoint and kind of commercial platform standpoint. So what's interesting now is that rates -- and I think we've seen this in the dry bulk market. Rates are so strong that they're actually kind of monetizing themselves through cash flow. So we don't feel that -- I think there will come a time that people will look back in hindsight and say, "Yes, that was the time to sell." And that's very difficult to call looking forward. And I don't think that's really in our mindset at the moment anyway.

Got it. And again, Paul, a pleasure working with you and good luck in the future.

Likewise, Omar.

The next question is from Chris Tsung of Webber Research.

On the new sustainability linked loans replacing the existing facilities, can you expand a bit on the factors that were considered to secure these new rates? And what do the pricing adjustments look like?

Great question. I think when you think about sustainability-linked loans or if you think about the way the shipping finance market is going, I think if you want to get access to attractive funding, well priced funding from top-tier banks, you have to show your credentials on sustainability and sign up to some pretty robust targets in terms of where you want to go to in your carbon reduction. So I would say in terms of the loans themselves, the fact that we're able to get very sharp loans at what is -- given the overall economic environment at a pretty sharp price and a big saving on our existing debt, that's achievement number one. And then specifically on the pricing adjustment, it's approximately five basis points plus or minus which is market for sustainability-linked loans. But I suppose -- the main point, I would say, is in terms of accessing kind of top-tier financing at competitive pricing with the leading banks, you need to have a pretty robust sustainability feature built into them.

Got it. Yes. Congrats on securing that. That's looks great. And then maybe just thinking about Ardmore's scale and perhaps bandwidth, like how long do you -- you maybe, Tony, continue to commercially manage those three chemical tankers?

Chris, you faded out there at the end. Could you repeat the question?

Yes. Sure. So just when thinking about scale and bandwidth for your operations, like how long do you continue to commercially manage those three chemical tankers?

It's on an ongoing basis but I think they're really pleased with the results they're achieving right now. So hopefully, it will be with us for a while. But yes, then -- but those brings the fleet up to 30 ships all together which we think is okay for the time being in terms of commercial platform and market reach.

Right. Okay. And for the three vessels that you sold and chartered back for two years, when would those options need to be declared? And are the rates firmer or softer than the current charter-in rates?

Yes. So those are -- we haven't specified what exactly the rate is. But if the structure is two years firm and then an option one year -- and I would -- I think the one year option is probably declarable probably a few months before the end of that two year period. They're just starting now. The rate, if you combine it with the other two chartered-in ships, the average of the five ships is $12,600 per day. So that's way below current levels.

Great. And lastly, just from all of us at Webber Research, congrats and best of luck to you, Paul.

Thanks, Chris. And hopefully, we'll speak to you all soon.

This concludes our question-and-answer session and today's conference. Thank you for attending today's presentation. You may now disconnect.