International Seaways, Inc. (INSW) Q1 2018 Earnings Report, Transcript and Summary

Good morning, and welcome to the International Seaways First Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would not like to turn conference over to James Small. Please go ahead.

Thank you. Good morning, everyone, and welcome to International Seaways earnings release conference call for the first quarter of 2018. Before we begin, I would like to start off by advising everyone on the call with us today of the following: During this conference call, management may make forward-looking statements regarding the company or the industry in which it operates, which could include, without limitation, statements about the outlook for the crude tanker and product carrier markets; changing oil trading patterns; forecasts of world and regional economic activity; forecasts of demand for and production of oil and petroleum products; International Seaways' strategy; purchases and sales of vessels included in the previously announced anticipated acquisition of Chinese-built VLCCs; anticipated financing transactions; expectations regarding revenues and expenses, including both vessel expenses and G&A expenses; estimated bookings and TCE rates for the second quarter first half or other periods in 2018 or other years; estimated capital expenditures for 2018 or other periods; projected scheduled dry-dock and off-hire days; the company's consideration of strategic alternatives and its ability to achieve its financing and other objectives; and economic, political and regulatory developments around the world. Any such forward-looking statements take into account various assumptions made by management based on various factors, including its experience and perception of historical trends, current conditions, expected and future developments and other factors management believes are appropriate to consider in the circumstances. Forward-looking statements are subject to risks, uncertainties and assumptions, many of which are beyond the company's control, which could cause actual results to differ materially from those implied or expressed by those forward-looking statements. Factors, risks and uncertainties that could cause International Seaways actual results to differ from expectations, include those described in its annual report on Form 10-K for 2017, and its forthcoming quarterly report on Form 10-Q for the first quarter of 2018, as well as in other fillings that we have made, or in the future, may make with the U.S. Securities and Exchange Commission. With that out of the way, I would like to turn the call over to our President and Chief Executive Officer, Ms. Lois Zabrocky. Lois?

Thank you very much, James. Good morning, everyone. Thank you for joining International Seaways earnings call to discuss our first quarter 2018 results. During the first quarter, we achieved significant progress on executing our fleet growth and renewal strategy, and increasing our liquidity. Positioning the company for a market recovery. In the current difficult tanker environment, we also continue to draw upon of our lean and scalable model to operate effectively. Please turn to Slide 4. Here, we review the first quarter of 2018 highlights and our recent accomplishments. Looking at the first bullet, I will begin by providing an update on our pending VLCC transaction. Following the agreement, we entered into, in December of 2017, to acquire six modern VLCCs from Euronav in connection with the Gener8 Maritime acquisition. We have made considerable progress towards closing the transaction, and we remain on track to complete the acquisition in the current quarter. We look forward to adding these highly efficient, modern sister ships to our fleet, positioning the company to strengthen its fleet profile and operating leverage, while enhancing our upside potential for capitalizing on a market recovery. As we work towards completing the acquisition, we continue to expect to assume the $311 million Sinosure debt, which matures between 2027 and 2028 and carries an attractive annual interest rate of LIBOR plus 2%. We intend to fund the balance of the purchase with available liquidity. Let me explain how that works. Continuing to the second bullet, since announcing the transaction, we have taken important steps to maintain our strong balance sheet and significantly enhance our liquidity position, which was $141 million at the end of Q1, up from $91 million at the year-end. We are pleased to have put in place the necessary cash funding for the acquisition. In April, our joint ventures with Euronav, which own the FSO Africa and FSO Asia floating storage and offloading service vessels closed on a $220 million credit facility. Based on our 50% ownership in the joint ventures, we received $110 million in proceeds. We appreciate the ongoing support of our leading banking group in arranging this attractive and opportunistic financing, which we believe, highlights the strong performance of our FSO joint ventures, the sizable contracted cash flows they generate and the significant value of these assets. Additionally, we completed the sale leaseback of two 2009-built Aframax vessels during the quarter, on which we hold attractive purchase options, enabling the company to both increase our liquidity position and retain the earnings power of these shifts ahead of the market recovery. With a focus on maintaining balance sheet strength and enhancing financial flexibility, we also repaid the outstanding $30 million balance on our revolver during the quarter. Moving to the third bullet on Page 4. In the first quarter, and 2018 year-to-date, we have continued to execute on our fleet growth and modernization strategy. Since our spin-off, in December of 2016, we will have counter-cyclically invested over $600 million in nine modern vessels with an average age of 2.3 years, including our agreement to acquire the VLCC, two modern Suezmaxes and one modern V. Complementing our success capitalizing on attractive asset values at the bottom of the cycle, we have also opportunistically sold older ships with an average age of 16 years. Together with the acquisition of newer vessels, our fleets age will have been reduced by close to three years. Specifically, over the past 12 months, we have sold five older MRs, built between 2001 and 2004, and one 2000-built VLCC. During the quarter, we also agreed to sell a 2001-built Aframax. Further, in connection with our VLCC acquisition, we have agreed to sell our 2003-built idled ULCC to Euronav. Together, the initiatives combined to fund the cash requirement for the VLCC acquisition, while also adding to total liquidity, which we expect to be close to $200 million, even after acquiring the VLCCs. As part of our fleet renewal, we renewed four MR charters with flexible terms and attractive rates. These renewals reinforced our commitment to the product sector. Moving to the last bullet, while the tanker market continued to remain difficult during the first quarter, our lean and scalable model allowed the company to remain essentially cash flow breakeven from operations, even after taking into consideration debt service and maintenance CapEx. For the first quarter, we reported an adjusted EBITDA of $6.5 million on time charter equivalent revenues of $48.8 million. Net loss was $29.3 million, which reflects a loss of $6.6 million related to vessels sold during the quarter. The net loss excluding vessel sales was $22.7 million or $0.78 per share. The results also reflect costs associated with the previously mentioned vessel sales, including positioning cost, extra idle time and costs such as inspections and gas freeing. Turning to Slide 5; we summarized specific progress we have made executing our fleet renewal strategy and positioning the company to increase our fleet size and scale for the benefit of shareholders. As you can see in the table at the top left of the slide, in terms of our success, improving the fleets age profile, the nine vessels we have acquired and are set to acquire including Vs have an average age of just over two years, while at the bottom left, the average age of the eight vessels sold is close to 16 years. Based on our actions taken and upon delivery of the VLCCs, the table on the right side of the slide shows the weighted average age of our fleet will be reduced from 11.6 years to 8.8 years, or by 24%. We will also have increased our deadweight capacity by 23% to nearly 7 million deadweight, compared to 5.6 million deadweight in January of 2017, even after factoring in the vessel sales. Now please turn to Slide 6; we provide an update on tanker demand. First, we continue to see strong oil demand, evidenced by the IEA increasing its global oil demand forecast to 1.5 million barrels in 2018 compared to its previous to 2018 forecast of 1.4 million barrels. China continues to be the main demand driver with Chinese imports setting a new record in January of 2018 at 9.6 million barrels per day. In addition, March of 2018 represented the second-highest record with 9.2 million barrels per day imported. As you can see in the top-right chart, global oil demand is expected to increasingly outpace supply in 2018. Second, global crude and product stocks declined in the first quarter, continuing the reduction in inventories which began in 2017. The IEA estimates OECD's commercial stocks continue to fall in February, with stocks now near five year averages, as you can see in the chart at the bottom right of the slide. As another indicator of this reduction, at the end of 2018, OECD stocks, excluding SPR were down to 60 days forward demand with compared with 66 days at the beginning of 2016. Also of note, oil products inventories in the United States have fallen to under 800 million barrels. This is the lowest level since the second quarter of 2015. Please now turn to Slide 7; where we provide an update on tanker supply. I'll start by providing an update on the order book. In the first quarter, we saw 13 VLCC newbuildings ordered, though other sectors showed less ordering activity as can be seen in the chart at the top-right hand of the page. For 2018, we still expect substantial crew deliveries. However, the amount is expected to be down from 2017. An important point to note is that strength in the dry bulk and container sectors is putting limits on tanker new billing birth availability at the shipyards. Now turning to scrapping; we started to see some activity start in 2017 after nearly two years of no scrapping, due to the very weak rate environment and stronger steel prices. Specifically, 13 VLCCs were scrapped in 2017, and an additional 22 VLCCs have been sold for scrap thus far in 2018. An additional 62 VLCCs, 15 years or older face dry-docks this year. We think this bodes well for further scrapping in 2018, considering the substantial capital investments that will be required. In addition to VLCC scrapping levels, Suezmaxes and Aframaxes have also experienced a surge in scrapping with a total of 9 and 23 ships, respectively, sold for scrap thus far in 2018. In terms of VLCC fleet growth, following growth of an average of 5% over the last three years, we expect fleet growth of only 1% in 2018. I will now turn the call over to Jeff to provide additional details on the first quarter results.

Thank you, Lois, and good morning, everyone. Let's move directly to reviewing the first quarter results in more detail. Before turning to Slide 9, let me quickly summarize our consolidated results. Net loss for the quarter was $29.3 million or a negative $1.01 per share compared to net income of $18.1 million or $0.62 per share in the first quarter of 2017. This net loss reflects a decline in TCE revenues compared with the first quarter of last year, a reduction in equity and income of affiliated companies of $5.3 million and a net loss on vessel disposals during the 2018 period of $6.6 million. As Lois mentioned, net loss excluding this loss in vessel sales was $22.7 million or $0.78 per share. Now please turn to Slide 9. In the chart on the top left of the page, right -- consolidated TCE revenues for the first quarter 2018 were $48.8 million, compared to $84.1 million in the first quarter of last year. This decrease was principally driven by lower daily rates this quarter compared to Q1 of last year as well as fewer net revenue days due principally to idle days on the company's ULCC and the sale of four older MRs between August 2017 and February 2018. Additionally, the costs associated with preparing vessels for sale had a negative impact on costs and revenues during the quarter. Let me now discuss the results of our business segments beginning with the Crude Tanker segment at the top far left. TCEs for the Crude Tanker segment were $29 million for the quarter compared to $56 million in the first quarter of last year. This decrease was primarily due to a lower average budget rates in all sectors, particularly the VLCC fleet sector, which accounted for $18 million of the overall decrease. An additional $6 million of the decrease represents the impact of our only ULCC being idle for the entirety of the quarter and the 2000-built Seaways Raphael being held for sale as of the end of January 2018. Also, the impact of a reduction in full-service jobs reducing revenues and the Crude Tanker Lightering business contributed to the decline. This was partially offset by increased revenue days contributed by the two 2017-built Suezmax vessels and one VLCC that we acquired in the second half of 2017. TCE revenues for the Product Carrier segment were $20 million for the quarter compared to $28 million in the first quarter of last year. This decrease was primarily due to a decline in average daily blended rates earned by the MR, LR1 and LR2 fleets, with spot rates declining to $11,200, $11,600 and $13,900 per day, respectively. This decline in blended MR, LR1, LR2 rates compared to last year kind of puts at $5 million of the decline in TCE revenues. The revenue was also lower due to the sale of four MR vessels between August 2017 and February 2018, and the redelivery of a bareboat chartered-in vessel late in December 2017. Looking at the chart on the top right-hand side of the page, adjusted EBITDA was $7 million for the quarter compared to $47 million in the same period of 2017. This decrease mainly reflects lower daily rates in the first quarter compared to the first quarter of last year and the previously mentioned costs of preparing vessels for sale. In terms of the trailing 12 months, you can see in the chart at the bottom right of the slide, adjusted EBITDA was $77 million compared to $184 million for the LTM Q1 '17. Turning now to Slide 10. The financial summary for Q1 and Q2, we have broken out spot rates for the modern VLCCs in our fleet and the spot rates booked for all VLCCs overall in the chart at the top of the page. Reiterating a point that we made last quarter, at low points in the tanker cycles, such as the current period, older VLCCs earned lower rates. As the market recovers, this gap will narrow significantly and rates for older VLCCs will more closely reflect those for the overall VLCC growth. In the short term however, even if the gap persists, Seaways is well positioned to benefit from the improved rates for modern VLCCs, based on the significant progress we've made implementing our fleet growth and renewal strategy. Going forward and working across the spot chart at the top, we've booker over 50% of available days for our modern VLCCs and at the rate of approximately $14,000 a day, and 60% of our overall VLCCs spot days at an average of approximately $10,000 per day, 48% of available Suezmax spot days at a rate of approximately $11,000 per day, 49% of Aframax LR2 spot days at an average of approximately $10,000 a day, 39% of available Panamax LR1 spot days at an average close to $18,000 per day and finally, 44% of our second quarter MR spot days at an average of approximately $13,000 a day, an increase from the first quarter. Overall, while the crude market remains weak despite robust demand, as Lois discussed in her remarks, in large part because of OPEC restrictions, note that the smaller vessels in our fleet, MRs, Panamax's and LR1s have begun ticking upward in Q1 as we look forward also to Q2 as just highlighted. We believe this shows the benefits of our diversified fleet strategy. At the bottom of the slide, we have combined the rates earned by our vessels in the spot and time charter markets in an effort to provide maximum visibility regarding expected earnings for the entirety of the second quarter. Before we turn to the next slide, I'd like to point out that the significant progress we have had implementing our fleet growth and modernization strategy has positioned International Seaways to increase our revenue days and enhance our upside potential for capitalizing on a market recovery in both the product and crude tanker sectors. A $1,000 increase in spot rates in every vessel class would result in an increase of over $17 million in cash flow, while $5,000 and $10,000 increase is what will add over $86 million and $173 million in cash flow, respectively. Now if I could ask you to please turn to Slide 11. Given our low cash breakeven rates, the company was essentially cash flow breakeven from operations in Q1, even during one of the most challenging points to the tanker cycles. Working across from the left, the cash cost TCE breakeven for the 12 months ended March 31, 2018, were $14,400 for VLCCs, $12,400 a day for Suezmax, $12,800 per day for Aframax, $17,700 per day for Panamax and $12,000 per day for MRs. International Seaways overall breakeven rate was $14,200 per day for the 12 months ended March 31, 2018. These rates are the all-in daily rates our owned vessels must earn to cover operating costs, dry-docking, CapEx, G&A expense and debt service costs, which means scheduled principal amortization as well as interest expense. Of note, on the far right, taking into consideration distributions from our JVs, the overall breakeven rate for the company dropped to $10,800 a day. Providing a little more detail on the slide and a view going forward, our last 12 month OpEx which corresponds to the dark blue columns on the chart, per revenue day by vessel class was as follows: VLCCs were $9,500; Suezmax, $8,200; Aframax, $8,500; Panamax, $9,400; and MRs, $7,200. The targeted amounts per operating day for the full year 2018 on the various classes are as follows: VLCCs, $9,200; Suezmax, $8,100; Aframax, $8,500; Panamax, $8,200; and MRs, $7,700 per day. Dry-dock and CapEx, fixed cash expenses, the light blue bars for the last 12 months were $19.8 million or spread across the fleet $1,300 per vessel day, but as you can see from the bars, it's a little different by class, the VLCCs were $610 per day, Suezmax were none, Aframax, $50 per day, Panamax, $3,800 per day and MRs, $590 per day. Going forward for all of 2018, we expect dry-dock and CapEx cash expenses to be $16.5 million or $1,100 per vessel per day. This is significantly lower than the previous guidance of $31 million for the year, due to savings on dry-dock and CapEx as a result of selling our older vessels. Our cash G&A for the last 12 months which corresponds to the yellow bar on this page, was $19.1 million or $1,300 per vessel per day. Our target for 2018 is $22.2 million or $1,500 per vessel per day. Debt service, which is in white, for the last 12 months was $44.3 million or $3,000 per vessel per day. With respect to our term loan facility for all of 2018, we expect debt service to be $59.6 million or $4,000 vessels per day. This excludes debt from the VLCC acquisition. Now if we could turn to Slide 12, this provides the cash bridge for the quarter. So moving from left to right, we began the first quarter with a total of cash of $71 million. During the quarter, we generated $7 million of adjusted EBITDA, this amount includes $8 million in equity income from the JVs, which is a non-cash item. So it's therefore deducted in order to reach a cash figure, the cash distributions for the JV was $9 million. In addition, we expended $3 million on dry-docking and maintenance CapEx, the sale of vessels contributed $57 million. We expended $30 million in repayment of the revolver. Debt service was $14 million in the quarter; finally, changes in working capital under non-cash items had a positive impact of $3 million. The net result was the end of the quarter with approximately $91 million of cash, even after repaying the revolver by $30 million. Total liquidity therefore increased by $50 million from $91 million at the end of December 31, 2017, to $141 million at the end of Q1. These amounts of course before the announced FSO financing, so as a result, our liquidity is more than $100 million higher than that today as we speak. Let me please ask you to turn to Slide 13, and we can talk about the balance sheet. Left-hand side of the slide. As of March 31, we had $1.1 billion of vessels, against $501 million of long-term debt. In addition, as you see on the right-hand -- sort of the middle, we have a $50 million revolving credit facility that after repaying $30 million during the quarter, as I said before remains undrawn. At the bottom left-hand side of the slide, we have noted book values for our two joint ventures, which we believe are representative of their fair values. As of the end of the quarter, and again, before drawing on the new credit facility, the FSO had a book value of $248 million and the LNG, $112 million. Looking at the bottom on the right, you can see total debt to capital stood at 32.9%, and net loan to value of 45%. Overall, our strong balance sheet and low cash breakevens combined with contracted revenue and cash flows provides protection in a challenging environment, while our spot vessels provide significant upside opportunity as the market turns. Moving away from the slide for a minute; I just wanted to say as well as mention, in April, we see the $110 million in proceeds and a drawdown of our JV credit facility, which represents our 50% ownership in the joint ventures. We expect to use the proceeds for the general -- for general corporate purposes, including to partially fund the previously announced agreement to acquire the previous VLCCs from Euronav. The joint venture facility has an interest rate of LIBOR plus 2% and steps down over the remaining terms of the five year contracts with North Oil Company, the new operator of the Al Shaheen Oil Field, off the coast of Qatar in July 2022 and September 2022 for the FSO Asia and FSO Africa, respectively. In terms of financing the acquisition of the VLCCs, we are pleased to have now funded the cash purchase price. For the debt portion of the acquisition, we continue to expect to assume this unassured debt, which is currently secured by the vessels. Turning to Slide 14, we've outlined our chartered-out and chartered-in fleet. Regarding our eight chartered-out vessels, we have 691 fixed days at a blended rate of $10,685 a day in 2018. Regarding our chartered-in vessels, we have four MR time charter-ins that have been extended into 2019. For these vessels, remaining charter hire expense for 2018 is $14.4 million. We offset two MR bareboat-ins that we delivered through Q2 2018, with remaining charter hire expenses of $0.7 million. And two Aframax bareboat-ins as a result of the sale leasebacks executed in March of 2018 that we deliver in 2024 with remaining charter hire expenses of $4.7 million for 2018. That actually concludes my comments. So I'd now like to turn the call back to Lois for her closing remarks.

Thank you very much, Jeff. If you could please turn to the summary page on Slide 16. During the first quarter of 2018, our strong financial position, our low leverage and our low crash breakeven enabled International Seaways to remain essentially cash flow breakeven at a challenging point in the tanker cycle. Maintaining a strong financial position remains a priority for us. And we are pleased that with the recent signing of credit facilities for our FSO joint ventures, we have enhanced our financial flexibility. We're receiving proceeds of $110 million. As noted earlier, overall liquidity increased by $50 million during the quarter to $141 million. Our ongoing success implementing our fleet growth and modernization strategy continues to provide tangible benefits. As we have proactively taken steps to decrease the age of our fleet by close to three years, and increased deadweight capacity by 23%. This strengthens our earnings potential ahead of a market recovery. The combination of our balanced fleet deployment strategy and moderate level of predictable cash flows from our joint ventures and our contracted fixed-rate charters has helped International Seaways to weather the weak points in the current tanker cycle and positions us to capitalize on a market recovery in both crude and product sectors. We are pleased that our ongoing success, growing and modernizing our fleet, combined with our lean and scalable model have further enhanced our operating leverage and our upside potential, while the additional liquidity and modern vessels also safeguard the company during this weak point in the cycle. Since our spin-off, we will have invested over $600 million in our fleet, including the six VLCCs. Importantly, based on the significant progress that we've made enhancing our liquidity position, we have now put in place the necessary cash funding for the acquisition and are progressing towards closing the transaction in the current quarter. Going forward, we will continue to maintain a disciplined capital allocation strategy, and note that following the VLCC acquisition, we will continue to have one of the lowest loan-to-value profiles in the sector. When we became an independent publicly traded company close to 1.5 years ago, we set out to further strengthen our fleet profile and our earnings power. Through our disciplined execution of our fleet growth and our modernization strategy, success maintaining a level of predictable cash flows and an intense focus on financial strength and liquidity, we are pleased to have further enhanced our upside potential and ability to create value for all of our stakeholders as we head towards a market recovery. That concludes my comments, and we will now open up the call for questions. Operator?

[Operator Instructions] Our first question comes from Magnus Fyhr with Seaport Global.

Just first question on capital allocation strategy. I mean, despite spending about $600 million on fleet renewal, looks like you're going to have about $135 million of liquidity after funding these VLCCs. And given the challenging outlook for tankers, would you be comfortable in deploying more capital? Or do you prefer to have some cushion here to see the market -- see a recovery in the market before you deploy further capital?

Yes, Magnus. We are a 100% focused on concluding our VLCC transaction. And we are very acutely watching the tanker market. And we will be a good steward of our capital and are not looking to deploy further cash in the market.

Yes, I'd just follow up. Your quick math is good on the cash. But actually when you add in undrawn revolver, the liquidity would be about $50 million higher than what you said, Magnus. But that said, exactly as Lois said, as we went through on the call, with this amount of renewal, 23% growth and 24% decrease in the age of the vessels, we feel, we will have accomplished -- substantially accomplish our goal of fleet renewal. So we think the right thing to do is just run a good company.

And if you were to deploy more capital. I mean, given the more challenging outlook for the crude tankers. I mean, do you believe that there are still opportunities in the product tanker space? Or given that people are getting more optimistic there, there would be further opportunities in crude tankers as far as acquisitions?

Yes, Magnus. So what you will see on the products side is that we have renewed our four in-chartered MRs with a lot of optionality and flexibility. So we are still committed to that sector. But we reiterate that we're focused on running a good company. And really focused on concluding our transaction.

And just one last question. Looking at -- on Page 10, what was going on with the Panamax LR1s, I mean, they were booked at significantly higher rate than the first quarter. Was it something -- can you kind of give a little color on that?

The -- our Panamax's are involved in a joint venture with [indiscernible] and Ultragas. And those vessels do consistently outperform certainly all other LR1s in Panamax markets. And so we've seen some strength in that sector ahead of the other crude sectors.

And just in general, I think that what should come out of our slides and our comments is, as that -- we -- far away from us they could be calling anything as far as the market goes. But you can certainly see it that while there is continuing weakness in the larger segments, the smaller segments have ticked up now, the MRs for two quarters in a row. And then as you saw the Panamax -- well not a product segment but the one again -- one of the smaller segment has significantly ticked up. So we'll continue to follow that closely. But that's a positive development.

Okay. And you -- I guess you renewed the chartered-in on four MRs, there's two bareboat charters too that are getting delivered in 2Q. What's the status of those two?

Those two vessels will redeliver. They are dry-dock due, and so though they will go back to the head owner at this time.

Our next question comes from Noah Parquette with JPMorgan.

You guys touched on, obviously, the really high scrapping rate for VLCCs in the first quarter. But in April, that's come down a bit. Can you talk about what do you think is driving that? Is that just regular volatility? Is there a change in sentiment? What are your expectations for the rest of the year?

Yes, we'll have Derek Solon, our sale and purchase expert take that question.

Noah, thanks for the question. I think we'll see -- as you pointed out, we've got a lot of scrapping to do in the first quarter. I mean, a lot of that had to do with the lower rates in the VLCCs and the high scrap prices. I think as we saw a lot of ships sail into the South Asian recyclers, you started to see prices come down from there. And now we're kind of heading into that upcoming monsoon season, so we might see a bit of a slow down because of the seasonality and the environmental factors in South Asia. But we would expect that to tick off post-monsoon come the autumn.

Okay, great. And I wanted to ask also, going down the route where you raised money at the JV, does that impact your expectations for distributions from the JVs going forward? And so what do you think the new number will be?

That's a great question, Noah, and it does impact, so we will still have strong cash flows coming from both of our joint ventures. So on the FSO, we still anticipate in calendar year 2018 to receive $18 million. And in 2019, we are projecting over $20 million in cash flows coming from the FSO. On the LNG, either in the second quarter or early in the third quarter, we anticipate close to $11 million distribution coming from that joint venture. So we're still looking at combined nearly $30 million cash flows coming from the joint ventures in 2018.

Okay, great. And then just one last one. I mean, just kind of a broader industry question. What do you expect the VLCC segment, how it's expected to react to the 2020 software regulations? And I guess, have you looked at putting scrubbers on any of your ships, particularly the new ones you're about to buy? Or how are you approaching that?

Yes, we are deep in the study of the scrubber question. And I do believe that this will be a true market disruptor on fuel oil movement, the bunker markets and the freight market. So we are in the midst of studying what our reaction would be to the scrubbers. And our likelihood, if we were to install scrubbers, it would be on the larger vessels where you get the bigger efficiency and saving.

[Operator Instructions] Our next question comes from Poe Fred [ph] with Noble Capital Markets.

Just a couple of questions about your sales activity. It looked like your total sales was about $19 million in the first quarter as far as actual sales. And then, the sale leasebacks, do they add about $40 million to that asset sale total in your cash flow bridge?

That's about right, yes.

Okay, got you. And then when I look at the additional sales that you might close from the second quarter, you quantified the $29 million. How about the -- any ballpark on the Aframax and the ULCC as far as numbers that -- once they close?

The ULCC is publicly disclosed, isn't it? Correct, James?

That's -- I believe that's right. Yes.

So that's $32.5 million on the ULCC. On the secondhand, Aframax, we'd rather not say at this time until we successfully deliver the vessel.

But you know, Paul, in all of our renewal we've been selling vessels right around where you would expect, right? The loss on sale vessels that we reported in this quarter was really related to those Aframaxes and it's kind of unique as when you do a sale leaseback, you can't really look at the sale price as the same as an outright sale because, you're leasing back. So it's the totality of the deal you have to look at, which as Lois mentioned, we had very nice purchase options on that. So really, you should expect to see us selling vessels at market.

And I think, Jeff, you said that the -- there was some costs as far as repositioning and preparing the vessel for sale in the first quarter. Would you care to quantify that?

I'd like to, except it's impossible, right? So we talked about a lot, but that -- the point behind the disclosure was to make it -- maybe I'll start and let Lois finish. Anecdotally, it could be on the cost side for extra bunkers for -- related to a transition. Or thinking of more like this, you have to dead -- kind of dead head a vessel from a place where its last voyage was for the place where the buyer is going to buy it. And you don't make any revenue on those days. So they're not like technical off-hire days but it just take the tract from revenue and -- but Lois, do you want to add to that?

Yes, no, no, I know you're looking for a quantification. But you know it's -- you know where you gas free, you got inspectors come on the shift. With the Raphael, it's the decision reacting real-time to where the market is and to pop up in the recycling market to where prices are at, right? So there's a lot of movement out of the fleet and that results in those extra expenses. But very difficult to give an exact number or math.

But clearly, millions of dollars. But that's a very acceptable trade-off for what's going on, which is, they generated the liquidity which we've talked about a number of times on this call. That puts us in position to close on the transaction and still have a lot of liquidity. So while it was a bit of a transitional quarter in that sense. We kind of look at it as an investment in the future since it's really those kind of things -- actions that cost a little bit -- put us in the place to close on this. Kind of an overused word but transformational acquisitions that we'll see done in the second quarter.

And just -- would there be any lingering impact, Jeff, into the second quarter as far as the additional sales activity or is something that you should -- we should see dissipate over time?

I mean, it will dissipate our time, but for example, the ULCC, the Laura Lynn, we'll only change hands upon the closing on the transaction, which we expect in the second quarter. So that vessel is presently idle. So that's an example of something that you should run in your analysis.

Yes, if you're building a model, you should do that. And as Lois said otherwise, that it will be some affect from that but gradually taper off.

This concludes our question-and-answer session. I would like to turn the conference back over to Lois Zabrocky for any closing remarks.

I just want to thank, everyone, for joining our call and taking time out of your day. And we're looking forward to the market's improvement. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.