Star Bulk Carriers Corp. (SBLK) Q3 2018 Earnings Report, Transcript and Summary

Thank you for standing by ladies and gentlemen and welcome to the Star Bulk Carriers Conference Call on the Third Quarter 2018 Financial Results. We have with us Mr. Petros Pappas, Chief Executive Officer; Mr. Hamish Norton, President; Mr. Simos Spyrou and Mr. Christos Begleris, Co-Chief Financial Officers of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today and we now pass the floor to one of your speakers Mr. Petros Pappas. Please go ahead.

Thank you, operator. I am Petros Pappas, Chief Executive Officer of Star Bulk Carriers. And I would like to welcome you to the Star Bulk Carriers’ conference call regarding our financial results for the third quarter of 2018. Before we begin, I kindly ask you to take a moment to read the Safe Harbor statement on Slide #2 of our presentation. Let us now turn to Slide #3 of the presentation for a summary of our third quarter 2018 financial highlights. In the 3 months ending September 30, 2018, TCE revenues amounted to $128.7 million, a 105.8% higher than the $62.6 million for the same period in 2017. Adjusted EBITDA for the third quarter 2018 was $80.1 million versus $28.6 million in the third quarter of 2017. Adjusted net income for the third quarter amounted to $30.5 million or $0.35 gain per share versus $5.3 million adjusted net loss or $0.08 loss per share in Q3 2017. Our time charter equivalent rate during this quarter was $14,521 per day compared to $9,621 per day in the same quarter last year. During Q3 2018, our average daily operating expenses were $4,054 vessel per day. During the third quarter, we closed the stronger bulk and Augustea acquisitions adding quality vessel store fleets. On the financing side, we have been very active in refinancing loans of approximately $617 million eliminating maturities in 2018 and 2019 and improving our interest cost by 70 basis points. Finally, having repaid all our deferred debt amounts originating from our 2016 restructuring, the company now has no restrictions on vessel acquisitions, new debt or share buybacks. I will now pass the floor to our Co-CFO, Simos Spyrou for an update on our operational performance for the quarter.

Thank you, Petros. Slide 4 graphically illustrates the changes in the company’s cost balance during the third quarter of 2018. The fleet generated free cash flow of $19.6 million. After including debt proceeds and repayment from our refinancing, CapEx payments for our acquisitions, new buildings and scrubber installments and cash repayments we arrived at a cost balance of $238.2 million at the end of the third quarter. Slide 5 highlights Star Bulk’s strong liquidity position. Our lean cost structure with a breakeven of approximately $11,600 per day per vessel enables us to de-leverage our balance sheet and create value for our shareholders even at relatively low average charter rates. On the right hand side, we provide a breakdown of the net debt position of Star Bulk, which is currently close to $1.25 billion. Star Bulk has zero equity CapEx for the 3 remaining Newcastlemax newbuilding vessels as there is committed financing in place for the remaining CapEx payments. We expect to take delivery of these vessels during the first half of 2019. On the bottom right hand side, we saw the positive trend in our adjusted EBITDA and adjusted net income illustrating four consecutive quarters of positive profitability. Please turn now to Slide #6 where we summarize our operational performance for the third quarter 2018. The combination of our in-house management and the scale of the group provide us significant cost and quality benefits. OpEx was at $4,054 per day per vessel for the quarter and at $4,018 per vessel per day for the 9-month period of 2018. Net cash G&A expenses were at $918 per vessel per day for the quarter and 16.5% year-on-year decrease compared to the same period last year primarily attributed to synergies from the increase in the size of our fleet. Our low cost structure is complemented by excellent ship management capabilities as Star Bulk is ranked in the top three among managers evaluated by Rightship. Slide 7 illustrates that Star Bulk is one of the lowest cost operators among U.S. listed dry bulk peers based on latest publicly available information. Star Bulk is one of the leaders in cost efficiencies with OpEx approximately 15% below the industry average. In addition to our emphasis of cost control, we are very focused on having the higher standards of vessel safety and maintenance to meet the requirements of our most demanding clients. In Slide 8, we are providing an update on our scrubber program which is proceeding as scheduled. Total expected CapEx as of November 2018 is at $152.2 million. The graph below illustrates the estimated breakdown of the payments by quarter based on current forward FX rates and expected milestones. Note that we have secured approximately 70% debt financing for the scrubber program, which we will be drawing down gradually within 2019. By the end of the year, we will have completed the installation of scrubbers on 3 vessels, 2 Newcastlemaxes and 1 Capesize. We have already started preparatory work with riding teams in numerous vessels while at sea thereby reducing off-hire time and increasing our optionality for the timing and location of the final scrubber installation. We expect to have the entire fleet scrubber fitted by end of 2019 and we estimate about 5% off-hires across our fleet for 2019 for scrubber installations. I will now pass the floor to Hamish for a discussion on our scrubbers problem.

Yes, thank you, Simos. So I have a look at Slides 9 and 10. Given the recent discussions in the press on scrubbers, which I am sure has entertained many of you, we would like to layout a few relevant facts based on actual research. Sulfur is not a pollutant in the ocean, it’s a pollutant in the air, but not in the ocean, it’s a natural component of seawater and it already exists in very large quantities in the sea in the form of sulfate. According to two of the papers that are referenced in that slide, Nyman and Tokerud and Thurmann-Nielsen, if you basically create a layer of sulfur that’s already in the ocean it would form a layer of 5-feet thick or for those of you in Europe about 1.5 meters. Adding on top of that 1.5 meters of sulfur, all of the sulfur that exists in known oil and coal reserves, we would add a paper thin layer actually thinner than most paper, 30 microns. So several studies and of course field testing that scrubber owners that we have spoken with have done indicate that the sulfate increase from scrubber is completely insignificant when compared with the quantity already in the seas. Now, CO2 emissions have been mentioned by some and according to a 2012 paper by the Danish Environmental Protection Agency, they estimated that the refining of heavy fuel oil into distillates creates 400 kilograms of CO2 per ton of refined heavy fuel oil, essentially wasting that fuel creating excess CO2 whereas the use of scrubbers allows heavy fuel oil to be used with almost no excess CO2. Scrubbers not only remove sulfur, but they also remove inhalable particulate matter emissions and reduce those by approximately 80%, being most effective with the smaller particulates as well as the black carbon. Particulates in the air are hazardous to human health and if you don’t use the scrubber they then end up falling in the oceans. Moreover, if somebody without a scrubber burns compliant fuel, they emit harmful heavy metals and polycyclic aromatic hydrocarbons into the air, which then fall into the sea. With the scrubber you take those heavy metals and polycyclic aromatic hydrocarbons and wash them directly into the water without going into the air where they can be breathed and the concentrations in the wash water are orders of magnitude below the levels of concern as expressed by the IMO and also according to European Union water surface quality standards. So, scrubbers are one of the options on hand to meet the IMO’s regulatory requirements alleviating the air pollution caused by sulfur without having any proven negative effect on seawater. I will now pass the floor back to Petros for a market update and his closing remarks.

Thank you, Hamish. Please turn to Slide 11 for a brief update of supply. During the first three quarters of 2018 a total of 22.8 million deadweight has been delivered and 3.1 million deadweight was sent to demolition for a 19.7 million deadweight net inflow. By the end of 2018, the dry bulk fleet is projected to increase by 2.5%, a total of 22.1 million deadweight has been reported by Clarksons as firm orders up to now and an additional $8 million deadweight have been identified as LOIs or options. The order book currently stands between 10% and 12% of their fleet depending on how many identify their lives and options will be exercised. During 2019/20, deliveries are projected to expand at the similar pace to that of 2018. However, due to projected scrubber installations and tanks cleaning off-hires during 2019 and slow steaming and increased scrapping during 2020 effective supply is unlikely to expand by more than 1% to 1.5% per annum. As a result of the 15% average increase in 2018 bunker prices, the streaming speed of the dry bulk fleet has overall decreased to approximately 11.5 knots, which should in effect translate the equivalent of a 2% decrease in tonnage supply. Let’s now turn to Slide 12 for a brief update of demand. According to Clarksons, the 2018 dry bulk trade is projected to grow by 2.5% in tons and 2.9% in ton miles. Strong steel prices and profit margins have supported the 7% year-on-year increase in global steel production during Q3. This was led by China, which registered a double-digit growth of 10%. China’s environmental restrictions have also led to a 42% year-on-year decline of domestic iron ore production during the initial 10 months of 2018. Despite the combination of strong steel production and lower domestic iron ore production, Chinese imports of iron ore have experienced a decrease of 0.5% till the end of October 2018 as a result of increased use of scrap and the draw in iron ore stockpiles. Despite the increased production of the new SD11 mine, Brazil iron ore exports have to-date only expanded by 1.9% due to poor weather conditions, political unrest and the Anglo-American pipe leakage incident in the first half of the year. In the third quarter, Brazilian exports expansion recovered by 8.4% versus the same quarter of 2017. The positive ton mile effect created an unusually strong Capesize market during July and August. However, as of last September a wave of VLOCs in the Atlantic and the delivery of 9 VLOC new buildings, push the Atlantic Capesize market to oversupply. Australian iron ore exports increased by 3.2% in the first 9 months of the year, but during the last couple of months they have contracted the year-on-year basis. While the seasonal rebound of Australian iron ore exports was anticipated for Q4, the BHP train derailment on the November 5 proved to be a major setback to such expectations. China coal imports increased by 11.4% during the first 9 months of the year with strength seen in both thermal coal and coking coal, thermal coal imports demand has been supported by 7.5% growth in electricity generation, a sluggish rise in hydropower generation growth and flat domestic coal production. At the same time, Indian coal imports have increased by 8% between April and October 2018, while coal stocks continue to stand at critically low levels. China’s National Development and Reform Commission announced last week that it will tighten coal imports until the end of 2018. This appears to be a network to support the domestic coal industry and move downward pressure on international coal prices. However, it is still unclear if the import restrictions will apply to all Chinese provinces and we find it unlikely that the regulation will remain in place beyond Christmas. The U.S. China trade dispute and the imposition of 35% tariffs on U.S. imports by China, has had the significant impact of soybean trade this year. During the first 10 months of the year, Brazil soybean exports increased by 15.8%. The U.S. soybean season on the other hand is experiencing a very weak start with volumes down by approximately 40%, compared to last year. Chinese imports of soybeans are down 0.5% year-to-date and in mid-October the Ministry of Agriculture of China issued new standards of protein content in animal feed, which could help trim soybean requirements if adopted by farmers. Finally, we do not believe that the extent of the recent market sell-off is justified by underlying fundamentals and we expect cargo supply during 2019 to recover lost 2018 volumes. Furthermore, the IMO sulfur regulation is now only 13 months away and we expect it will lead to a decrease in overall supply of vessels through slow steaming and accelerated scrapping affecting markets positively. Without taking anymore of your time, I will now pass the floor over to the operator to answer any questions you may have.

Thank you. [Operator Instructions] And we will now take your first question from Jefferies with the line of Randy Giveans. Please go ahead.

Hey, everyone. This is Randy Giveans from Jefferies. How are you?

Good. Thank you.

Alright. Well first to Professor Norton we really appreciate the scrubber science lesson there, hopefully that clarifies. So what about the impact to marine life, with that, what are the plans for scrubber installations throughout 2019, should we expect a….

Well, we are going to put them all on in 2019 except for the ones we have already put on in 2018.

But in terms of how many days of downtime to install each and will you pull forward drydockings or do most of them come in…

Well, maybe Nicos Rescos should address that question.

Hello, everyone. I expect the full installations take place in about 18 days and we are still doing a little work at [indiscernible] teams, where we expect the time for full installation at the yard to be around 11 to 12 days.

So on average Randy, you should expect as we said 5% of our days in 2018 off-hires across the fleet.

Perfect. Alright then…

But also Randy, you can see the latest presentation that we have uploaded, we have a page with the remaining CapEx on the scrubbers that’s Page 8 of the presentation, which shows you how much we expect as outflow for the quarter in 2019. So we see that the major outflows are in Q1 and Q2 2019, which coincides with the majority of scrubber installations in our fleet.

Perfect. Yes, I wasn’t sure if that was a kind of front-leading CapEx before the installations later in the year went up, but that clarifies. And then looking at your short-term charters, have you about 25 or so vessels expiring in the next few months, what are you plans for those? Do you have a kind of good mix for spot versus charter?

Well, first of all, a couple of months ago when we were looking at the trade war, although we didn’t think that it was going to affect that much the market and as we were thinking that this would affect more of the smaller sizes, we took the decision to start fixing as vessels were coming out free, mostly through the first quarter of next year and a bit into the second quarter. So right now, we have fixed a number of vessels actually probably more than 25 or much more than 25 of our vessels. And as they come free depending on how things move, we may continue to charter for certain periods. The smaller vessels we are not actually installing scrubbers first, we are installing the scrubbers on the bigger vessels, the Newcastlemaxes and the Capes. And therefore January, I mean Q1 and Q2 are mostly dedicated to bigger vessels and then Q3, Q4 to smaller vessels. And for that reason, we have the flexibility to fix out. Now, if the spot market is low where vessel opens and we have much better income on short period will probably take the short period, because if we take the lower spot rate we may never recover so, we’re continuing the similar policy to what we had up to now.

Perfect. And then one more quick question congrats on the debt refinancing, I can pay a dividend so forth, but with your shares trading at a 40% discount to NAV, are share repurchases an option?

Yes, share repurchases are an option we’re looking into share repurchases and the primary areas of thinking are how to finance the share buyback, and how many shares to buyback? And we’ll get back to you when we figured it out.

Looking forward to it. Alright, thanks again. Happy Thanksgiving.

Thank you.

Thank you. We will take our next question from Deutsche Bank with the line of Amit Mehrotra. Please go ahead your line is open.

Hi, Amit Mehrotra Deutsche Bank. Hi everybody. So let me just push back on you on that share repurchase for a quick second, I mean one of the biggest problems with shipping companies is, does not on the float and for the stocks to trade liquidity is an issue why would you buy back stock, because that would just exacerbate the especially with Star Bulk, just given the consolidation of the share capital base already?

Yes, well you make a good point and liquidity is important while it just seems so stupid not to buyback shares at the discount to NAV that we are seeing right now that we are strongly considering it on I know this agreement that it has cost in terms of liquidity and so on, but, you know, it’s like the proverbial $20 bill on the sidewalk, you know, the economy says it can be there, because if that was really a $20 bill or somebody would have picked it up when feel like, we have to pick it up.

I guess, I mean, we could take it offline I just think further decapitalizing the company is not necessarily the right strategy but I understand what you’re saying let me just ask one follow-up on the scrubber installations, I understand the time I think that was really helpful the question I have is, you have to install like two per week or something like that next year, and it just seems like the question I have is your pre-welding all the pipes and stuff on when the ship is at sea, you’ve done three already, but what are the risks around this type of scale of installation and if you could just help us talk about your experience on the installations of the three that you already have and how that’s going because if everything goes well, that’s great, but what are the risks around this type of installation in the space and what you’re doing it?

So probably Nicos Rescos should answer that question.

Hello again well addressing the question goes back to the planning we’ve been doing for a year and a half and it goes to the engineering, which remains [indiscernible] most owners at the moment some, we’ve been taking care of for quite a while, owners supplies without the pretty rare materials like the special piping, but that’s not require welding, plastering for the epoxy you have secured all the suppliers in position and we’ll have multiple rising teams with expertise and scrubber installation from other industries taking care of what takes place at sea, all of its certified by class so none of the steps before or during the final installation of the shipyard takes place without having all the necessary approvals we expect by the end of the year to have completed a total of nine installations, three of them will be fully operational, the other ones waiting to be switched on later into 2019.

Yes, okay but how about the two that are already operational, any issues there in terms of the installation? I think there were two if I’m not mistaken, are there any issues that cropped up to, yeah?

You’re correct, we are very happy with the results we’ve been operating our first scrubber since early April we have been doing all the kinds of test to the system, we’re very happy with the operation, very happy with the consumptions, and the results and it’s a learning care for everyone, but most importantly is equipment is reliable and that’s why our choice is on selected majors on scrubbers have been based on that track record and materials and relevant warranties.

And these were the two early orders as a test case?

Yes, the decision was not to stop operating throughout the year even if we do not need to run them just to gain experience on exactly what we expect going forward with future installations so we’re very happy with the initial phase-in period.

Okay that’s helpful thanks and then just last, last question from me, on the scrubbers I think in addition to the 115 or so that you are going to install you’ve got options for 70 plus more scrubbers I would assume you have to take a decision on that pretty soon, just given the lead times so can you just update us on that and what you guys are thinking about doing there?

Well, we are looking at, sorry, yes [indiscernible].

Yes, we have arranged our options to be able to go ahead with them even the first few months of next year and we’re talking to various well, we have already discussed that we are considering whether we should be taking vessels on charter at some point and also, we are considering in doing cooperation’s with other companies that might need the assistance or procurement of such equipment, potential tools so we have them on the side and we can declare them anytime we like and this is a great advantage for our company.

Great. But would your CapEx budget next year change, if you declare those options?

It would change if we declare the options under most scenarios, we’re looking at some potential scenarios where the CapEx budget would not change, but where the scrubbers might benefit us more indirectly.

Okay. One quick one from me on the dividend questions, Randy asked started asking it, but just wanted to follow-up number one, do you want to pay a dividend and if so, what’s the timing around that decision with respect to the Board? And then third point, which is maybe the most important point, northern hemisphere probably been thinking lot about this as well is the philosophy around how to structure a payout, because there’s many different ways for shipping company restructure dividend payout, some more sustainable than the others can you just talk about that?

Well okay so the answer is we’d love to be paying a dividend we think given the share price right at this moment that a share re-purchase maybe a better way to return cash to the shareholders then a dividend right at this moment but over the medium-term, assuming that the market does a bit better as we expect it will then we would certainly be looking at dividends and if we can pay a large dividend, we’d love to be able to pay a large dividend.

And the philosophy around the payout structure?

Well, look, as we have said many times, our goal is to deleverage Star Bulk as much as possible and potentially completely, which would allow us to pay out almost everything, if we succeed in doing that and that’s our long-term goal.

I am going to hop off I have another question but I don’t want to hog the time so I will just get back in the queue thank you all for answer my questions [indiscernible].

Welcome.

Thank you. [Operator Instructions] And we will now take our next question from Stifel the line of Ben Nolan. Please go ahead your line is open.

Great. Hi, guys. This is Ben Nolan from Stifel. I had well that sort of ties into the dividend or buyback question or whatever you guys have options for several more of those ER vessels, your capital vessels that come due early next year with the shares trading, where they are relative to NAV how do you think about your use of capital rather to whether it move forward on those options or not?

Well, look the beautiful thing about options is that you don’t have to decide what to do with an option until it expires and we are going to get as much information about the market as we can before exercising the option to buy those ships. Now, of course Rickmers has an option that is not quite a mirror image of our call option to put the ships and of course that’s his option, not ours.

Right.

But you know what a third of that purchase price is payable by us in common shares at NAV.

Right, correct. And Ben, we expect the remaining two-thirds to be in cost, which are going to be financed by regular debt financing. So in a sense when options are going to be exercised, we do not expect to use our existing cost.

Okay. Well, that’s helpful. And I appreciate that there is the put on the other side just thinking through thematically, how maybe you are feeling about your – what you are doing with your capital relative to either spending it organically on the shares or buying more obviously low hanging vessels and I understand the option value there and just want to get out. But my next question relates to something that Randy brought up in terms of renewing the charters on some of the vessels and there I didn’t see the slide in there this time kind of outlining which vessels have charters, was just curious Petros if you can frame in anywhere on average you have re-chartered vessels relative to where rates are now or maybe the rates that you indicated that you booked so far in 4Q?

Well, we have chartered mostly our smaller vessels and we have chartered them I would say around 15% to 25% higher than where they presently are.

Okay, that’s very helpful. Alright, well. And I think you kind of covered a lot of what I would have asked within that. So I will turn it over there, but I appreciate the time guys.

Thank you.

Thank you.

And we will now take the next question from JPMorgan with the line of Noah Parquette. Go ahead. Your line is open.

Hi, yes. I just wanted to – I mean most things have been addressed, but on IMO 2020, I wanted to know if what your views were on compliance initially and then maybe over time?

Well, so I think the ability of ship owners do not comply has been exaggerated by a lot of commentators. So in particular as of March 1, 2020 it will be illegal to carry high sulfur fuel unless you have a scrubber and that opens up easy enforcement by port state control and so any port state that chooses to apply penalties to people who show up with high sulfur fuel oil with no scrubber can do so. And based on the history in eco zones, we expect the punishments to be pretty severe in most civilized places and the United States, the European Union, Australia, China we all expect to enforce this pretty vigorously. And if you look at those places, almost all cargoes well, certainly the vast majority of cargoes either begin or end at those ports. So by sometime in March of 2020, we expect compliance to be pretty thorough, one way or another.

And the penalties will not just be monetary, the penalties will be for example, a vessel goes to the port and has heavy fuel on board or blend, that doesn’t comply the vessel might be obliged to discharge all this fuel oil and that would be an extremely expensive exercise and a lot of loss of time so that would probably be worse than just the monetary penalty.

Okay, that’s very helpful. And I guess just to follow-up on the capital structure, dividend question I think in the past you said that, that’s placing the shipping company limited, given there is no tax benefits, and I think you said you have perfect capital structure, a sub-zero net debt at the market peak and I think you mentioned that was your long-term goal can you talk a little bit about little bit more detail about the way to get to that goal and what’s your time frame is and better?

Well, if you can tell us how the market will evolve over the next two or 3 years, we can tell you how we will do it but we are constrained by the dry bulk charter market in terms of how we’re going to get there and how long it’s going to take us in an ideal world, we’d have Capes earning 60,000 a day our share trading at 2.5x NAV, and then I would tell you we would get there pretty quickly but in a market where charter rates are much lower and the share is at a fraction of NAV, it’s much harder so, it’s one of these things, where knowledge of the future would be a great asset.

Okay, fair enough. Thank you.

Thank you. We will now take our next question from Morgan Stanley with the line of Max Shillalies. Please go ahead your line is open.

Hi this is Max Shillalies, from Morgan Stanley can you hear me?

Yes. Hi Max.

Perfect. Thank you. A couple of questions on slow steaming and I apologize, if I missed it, but what is your expectation for, kind of, what percentage of the fleet that it takes out of capacity what percentage of the fleet do you expect to install scrubbers and where is your fleet optimized speed wise with a scrubber and without a scrubber?

Petros, do you want take that or do you want me to take that?

Take this scrubber part, then I’ll take the rest.

Okay. So, with a scrubber assuming that heavy fuel oil is inexpensive relative to its price today on the optimum commercial speed of the fleet will be pretty high, and so we would expect ships to go in the dry bulk fleet with scrubbers to go on the order of 14 knots, if they can now we would by the way the all in favor of regulating fleets in dry bulk and other forms of shipping in order to reduce CO2 emissions so, I’m not talking about what we think is the right thing to do, but simply what the commercial optimum speed would be in the absence of regulation and of course, ships without scrubbers would go slower and maybe Petros, he wants to talk about that.

Yes, about a year and a half ago every such call I was finishing, advocating that vessel should actually there should be a mandatory speed limit on vessels because if you look, for example, decrease speed by 10%, the emissions decreased by 20% or thereabouts and that would be a very quick and efficient way short-term way until we find other ways to be able to reduce emissions so, I was doing it every time now it has a lot of people have caught on it and of course as Hamish said, we are in favor of it, if it’s ever going to take place now if vessels presently on the dry side are going at about 11.5 knots speed, so if speed the speed is a function of the charter rates and the price of bunkers so if bunkers are very expensive then speed goes down, but if the charter rates go up, then speed will go up again so, if a vessel is going at 11.5 knots and you reduce speed by, let’s say 1.5 knots down to 10 this would be this would actually mean a reduction of supply to the tune of about 10% so, of course, that would lead to a reduction of emissions by 30%, and it would lead to much stronger market as well.

Okay, that’s helpful. Thank you. And then I guess it’s becoming a little bit more clear that the larger vessels, Capesize vessels will be able to find heavy sulfur fuel on major ports so what’s your view on smaller vessels being able to find that fuel maybe at smaller ports, not as major ports?

Well, what one has to do is we’ll have to be organized a few months ago, people were worried about whether they would find distillates now it seems that this point has been settled now our vessels go through small and big ports so one thing one would have to do would be to supply heavy fuel oil through the smaller vessels whenever the opportunity arises and basically run the vessels with higher heavy fuel quantities then we would run them today so I do not think there is going to be a major problem in that I think there’s going to be a number of major ports that we will be able to find the heavy fuel oil level sometimes we may need to balance what they do or even in the extreme circumstances, we might need to get distillate but do not forget that the smaller vessels usually fill up in volume, not in dead weight, and therefore it is easy to fill up a vessels tanks up to 100% you’re not going to lose cargo, because of that so we don’t see foresee much of a problem here.

Yes, just to put some numbers on that the smaller ships have in excess of 60 days range, when they still their tanks full when people think of this is a problem they think about filling the tanks, the way they do it today, which is very seldom filling the tanks all the way full but I think in 2020 at least until we see what the situation is, our practice would be when we find heavy fuel oil to fill the tanks all the way.

Yes, and for example, a customer that takes 2,000 tons of fuel oil and especially if you go at lower speed, you can and you burn 20 tons you can actually sell for 100 days, that’s going from China to Brazil and back to China and then almost back to Brazil so I don’t think there’s going to be a problem there I was just reading the other day that there are refineries in South Africa for example, which is not a really major banking port that will have a problem, because they will have additional heavy fuel oil capacity I don’t think there’s going to be an issue, but one has to be organized and nevertheless the vessel go with half empty tanks.

I appreciate the color guys. Thank you.

Thank you.

And we will now take our next question from Deutsche Bank from the line of Amit Mehrotra. Please go ahead your line is open.

Hi guys. It’s Amit here from Deutsche again. Thanks for the follow-up. So obviously just one on scrubbers the big bet that you are making on scrubbers, I think, I mean, correct me if I am wrong, but effectively, it’s just a bet on the price differential between high and low sulfur fuels. And I wanted to understand Hamish, how confident you are on that aspect of that investment, because Paddy Rodgers and Euronav their objection to scrubbers is not just environmentally driven, it’s also their belief that the spread may not be as wide as what’s implied by compliant fuel?

First of all, yes, I mean we have an argument with anybody who says that scrubbers are not as environmentally friendly as burning other sorts of compliant fuel. We actually think that scrubbers are more environmentally friendly burning compliant fuel without a scrubber. But in terms of the business case, the more people who think that scrubbers are stupid from a commercial point of view, the happier we are. So we really don’t want to convince anybody that scrubbers are a good business decision and I am happy that as many people think that scrubbers are as stupid as possible.

I get it. But the question, I mean you are not really answering the question. The question is I think you sat on a board of a refinery a while ago. So you really know about the oil company’s ability to make compliant fuel in enough of oil…

Well, let’s put it this way. Do you think the price of heavy fuel oil is going up or down and do you think the price of low sulfur fuel is going up or down? So keep those answers to yourself, but I will tell you that at the current spread between heavy fuel oil and low sulfur fuel, we are happy.

Okay, that’s fair. Let me just ask one quick one nuance question on the buybacks. So is your view that you could just simply go to the open market and buy shares or could the company actually become a liquidity provider for one of the large shareholders has been in the capital base for a while? And the answer I think is important because…

We have no intention of buying back Oaktree shares.

Okay. That’s all I have. Thank you so much. Appreciate it.

We have no further questions at this time. So I hand back for closing remarks.

No closing remarks, operator. Happy Thanksgiving to everyone and thank you for attending.

Thank you. Ladies and gentlemen, that does conclude your presentation for today. Thank you all for participating. You may now disconnect.