Good day, and welcome to the Stoke Nielsen Limited Third Quarter twenty eighteen Results Presentation and Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Niels Nielsen. Please go ahead, sir.
Thank you. Good morning, good afternoon. Thank you for joining us here in Oslo for our third quarter earnings presentation. Together with me is Jens Fredrik Grinehagen, Chief Financial Officer. I will be referring to a presentation, which is on our website.
The agenda is, as always, we will go through the highlights for the third quarter, then I'll go through each of the businesses. Jens will take you through the financials, and then we will open up for questions and answers afterwards. Going on to Page five, the net profit for the quarter is $3,000,000 that is after a onetime loss of $12,900,000 resulting from an accounting reclassification related to the investment in Avanskaz compared with $9,500,000 in the previous quarter, which included a onetime impairment loss of $11,800,000 which was the bitumen ships. So we're going from an associated investment in Avancegas to an equity investment. Now associated investment, we take our percentage share of the company through the net profit through our bottom line on this new equity investment.
It won't go through our bottom line, but it will go through the movement in the share price will go through our OCI. So tankers reported an operating profit of $21,400,000 That's down from 26,500,000.0 last quarter, mainly due to the reduced gains on the bunker hedges and an increase in bunker costs net of surcharge. I want to go in more detail during the tanker section. Stolthaven Terminal reported an operating profit of $18,600,000 and that is flat compared to the previous quarter when excluding the one off benefit of $1,600,000 that we had in the second quarter related to a contract termination fee that we received. Stolt Tank Containers reported an operating profit of 17,700,000.0 That's down from 18.8 Nothing really market related, it's more seasonality of the summer slowdown.
Stolt Sea Farm operating profit before fair value adjustment of inventories was 2,100,000.0 compared to 2,400,000.0 in the previous quarter, reflecting reduced margin, not in
the turbot, but
in the caveat. Corporate and other reported an operating loss of 3.3% compared to a loss of 20.9% in the prior quarter, which again includes the $11,800,000 impairment of two bitumen ships that we took in the second quarter. In addition to that, we had a lower profit sharing allocation because of the reduced profits, primarily in tankers and a lower loss of AGHL or Avanskast, so better performance from Avanskast. That resulted in an operating profit for the quarter of $54,800,000 versus 48.5 But again, I remind you, in the second quarter, we had the $11,800,000 impairment of the bitumen ships. So there's a clear reduction in operating profit, and that is primarily driven by Stolt Tankers.
Moving on to Page six, which is the net profit variance between the second and third quarter.
So
$9,500,000 profit in the second quarter. We took the impairment on the sold ships of $11,800,000 lower operating profit in sold tankers of 5,200,000.0 lower operating profit from terminals of $1.6 lower STC operating profit of 1,100,000.0 and then the 3,500,000.0 lower operating profit after the fair value adjustment and higher corporate and other results of 5.8 and then you have the fair value adjustment of $12,900,000 for the Avantgas shares, bringing the quarter down to a meager profit of $3,000,000 Moving then on to Stolt Tankers on Page seven. The total volume that we transported increased by 1.6%, and that was primarily driven by an increase in operating days and also higher COA volume. Deep sea revenue for the quarter increased by $1,400,000 reflecting an increase in bunker surcharges. So when the bunker prices go up, our actually our revenue goes up because we get the surcharges.
The regional fleet was the revenue from the regional fleet was flat. The deep sea contract offer frame rates were down 1.6 for the quarter and spot rates were up 1.8. The average was basically unchanged. So we had higher COA volume at a slightly lower rates and the lower spot space available. As a result of that, we were able to get slightly higher spot rates on average during the quarter.
The contract of affreightment freight rates renewal in the quarter were down on average 3.9 compared to a COA rate renewal decrease of 3.8% in the previous quarter. So you can say that we are not seeing any improvements in the COA or in the tanker market. We're kind of bouncing along at the bottom, I believe. Moving then to the operating profit variance between the second and the third. Lower trading results of 0.6, bunker cost increases net of bunker surcharges of 2.1 And then we have had a lower bunker hedge gain of 7.9 on our paper hedges.
And then we have a significant improvement of ship management costs. Some are one off, but also some are driven by our efforts in lowering the cost of running our ships, so sustainable savings. We had a slight lower joint venture equity income and other 1,800,000.0 bringing it to 21,400,000.0 Moving to Page nine, the bunker cost. The average price of IFO consumed increased from $437 per ton in the third quarter from $383 per ton in the second quarter. That's what we consumed, and this is really what is driving the reduction in the performance of tankers.
The COF bunker surcharge clauses cover on average 64% of the total volume that we ship. I remind you, 70% of our business is under contracts on freightmen. The 64% is only what we covered through our bunker clauses in our contracts. The current market to market price of bunker hedges is on average $412 per ton on the paper hedges that we have remaining. And you see here that of the on the third quarter twenty eighteen, we realized a gain of 4.4 on what we consumed or what we used.
And we have on our books the unrealized we took a loss of 3.1 because of the future prices were actually lower. We also have a sensitivity analysis here, and this is a net impact on P and M, excluding the paper hedges, but includes the bunker clause that we have. So going up 5%, 1015%, you can see the net profit impact, again, without the paper hedges. Moving to Page 10. What is really a big issue in the industry is, of course, the low sulfur fuel changes.
On the January 1, all ship will have to consume low sulfur fuel with a sulfur content of 0.5%, down from 3.5% today. The options that we have is the MGO, which is marine gas oil or diesel, or new fuels of 0.5%, which is now being developed by the oil companies. Ships can fit fill in scrubbers, but realistically, as it stands today, around 5% of the global fleet have announced or have installed scrubbers, so a very small part of it. For us, if you take the current spread between MGO and IFO based on the consumption that we have of fuel, if we have an additional $300 per ton cost, our total cost per year is $150,000,000 So it is clear that unless we're able to pass that cost on to our customers, we will be going out of business very quickly. The industry will be going out of business very quickly.
So it is clear and it's the instructions that all of this cost needs to be passed on to the customer. If you look at the industry today, most shipping industry unfortunately are losing money. And to expect the ship owners to even take part of this cost is unrealistic. So this cost will have to be passed on to the customers. Contained lines are already started to state their policy, and they will start it already in the January 1.
And you can see here the effects of what has been going on. This is a slide at the bottom, which shows you the spot rate development since 2014 when we had expensive fuel costs. And then you can see here the blue the spot rate is the yellow line and the IFO, the dark lines are the fuel price. And really the reason we made money in 2015, 2016 and in 2017 was not driven by higher volume or higher freight rates. It was driven by the lower bunker costs.
And what has happened now is, of course, because of oversupply of ships, the spot rates have been coming down since the end of twenty sixteen. At the same time, the bunker prices have been going up, and that is clearly why you see a loss in the industry. And if then the bunker price is going to increase by $300 per ton, you can figure that out yourself, we will be going out of business very quickly unless we pass on that additional cost to our customers. Moving to Page 11, which is the index that we provide. You can see it was a slight downtick.
And we have also done a sensitivity here showing you the net impact per quarter based on the movement in this index. Moving to Page 12. The order book. It's 2018, still a significant part. The blue is what is to remain to be delivered in 2018.
And then you're seeing it's coming down in 2019 and 2020. And this is really what is driving what we believe is the turnaround in this market. We were hoping that it's going to happen earlier, but we don't see it yet. But unless there's any new orders and I don't think there's really an appetite right now to order new chemical tankers So unless there's no new orders or if there are no new orders, we do expect that the market should turn around hopefully in 2019. But I remind you that you can see that the average COA rates that we are renewing now were at 3.9% reduction, and that really means those contracts are usually twelve month period and the customers are, of course, taking advantage of the market, so they're asking for multiyear contracts.
In some instances, we are forced to take on multiyear contracts because it will hurt us more not to take it on. So these contracts will go well into 2019, some even into 2020, but primarily into 2019. So even though we expect the market to turn around because of the slowdown in supply, the market hopefully will return in 2019, but we don't expect any significant increase in earnings in 2019 because of the contracts that we're locking in today. If you look on the bottom side here, we have illustrated the same thing as above, but we've done it quarter by quarter. The blue bars are the number of ships per quarter, and the yellow is percentage of existing fleet.
And you can see in the fourth quarter of twenty eighteen, there's a significant 16 new chemical factors coming into this challenging market. And then it will drop off significantly around one little over 1% per quarter in 2019, and that's it. On Page 13, market development. Most markets remain subdued as tonnage deliveries continue to outstrip demand. There's strong competition on COAs with unpredictable spot market volume leading to an extended waiting times to find cargoes.
This is really the first time we've seen in a long time where ships not ours fortunately, but we have seen ships balancing and lying around the summer waiting for weeks for business. So the outlook remains stable for the fundamental petrochemical shipping demand. We don't see any change in demand, But again, it's a supply issue. There's a growing risk of adverse impact from the new tariffs on the chemical products. We started to see some of it.
The products will be moved, but it will be a different trading pattern. So instead of sourcing products from The U. S. Gulf or from China, products will be sourced maybe from The Middle East or from Europe. So the volumes will be moved, but unfortunately the impact might be less ton miles as a result.
So let's hope that the progress in coming to an agreement between Canada and Mexico and Europe is progressing nicely, but there is still some disagreements in regards to trade disputes between China and The United States. So we'll have to watch that closely. The MR market remains weak and which then impacts negatively on the chemical market. Higher fuel prices and excess of newbuilding tonnage will limit the gains in the years ahead. Although we believe that the market has bottomed out, we do not expect a meaningful recovery to start until later in 2019.
So let's hope I'm right in that situation. Fortunately, Stolt Basin have more legs to stand on, and we are seeing steady improvements in terminals. This is on Page 14. The revenue decreased by 1.3% from last quarter, driven primarily by the decline in utility revenue, so that's more seasonality. Utilization for wholly owned terminals increased to 91.7% from 90.2% due primarily to the increase in leased spot business that we're able to win in Singapore.
Utilization in our joint venture decreased slightly to 90.2% from 92.2 last quarter, and that was due to the lower utilization at oil packing, Stolthaven and Antwerp, which is more petroleum products than chemicals. Operating profit decreased by 1.6%, I already said, from last quarter, driven primarily by the penalty equity sorry, the penalty that one of our customers had to pay last quarter. Going to Page 15, the operating profit variance, very quickly, dollars 20,200,000.0 the previous quarter, the 1,600,000.0 impact from the fee we talked about, slightly lower in Houston that we had insurance one off of 400,000 higher equity income from the joint venture, excluding one off of $0.2 lower operating revenue of 1,300,000.0
lower operating expense of $1,800,000
and others, bringing us
to $18,600,000
Overall, the terminal market is strong in the segment that we operate in, and I expect to continue to see improved performance, steadily improving going forward. On Page 16, Houston performing well with increased revenue driven through high utilization rates and excess throughput and railcar activities. Exports remained strong, but again, concerns growing over The U. S.-China trade disputes. The Singapore market remains challenging, but we achieved a strong improvement in utilization during the quarter, having secured short term spot business, even though that business was at slightly lower rates.
Our utilization came nicely up. South Korean and Malaysian markets showing stable demand. Europe remained stable for chemicals and but weak CPP, and that's the result that you saw in our joint venture in Antwerp. But potential impact on The U. S.
Trade war is that some Chinese products may be moved to Europe as evidenced by some recent inquiries in the market. That could be positive for our terminal activity there. We continue to pursue the development of long term contracts with potential pipeline connected industrial customers. Major capital projects, including the jetty that we're building in Houston, is expected to be completed by the first quarter and the expansion in Santos capacity remains on schedule. Moving then on to another profitable navy that we're standing on, Stolt Tank Containers.
Revenue decreased by 0.9%, and that was driven mainly by lower transportation revenue as a result of 4.2% lower fewer shipments, which is seasonality related. We continue to develop the global network to support our business, along with also developing further on our systems. Utilization down to 71.6% from 74.6%, reflecting the seasonality weaker summer markets. The margins remained stable. Going quickly to the variance analysis on the operating profit on Page 18.
Dollars 18,800,000.0 in the previous quarter, lower transportation revenue of $1,300,000 higher operating expenses of 300,000.0 lower A and G by $500,000 and other of $100,000 based off to 17,700,000.0 On Page 19, reduced seasonal demand in the quarter, driving down shipments by $4,200,000 and utilization by 3,000,000 I'm not going to go through this point. The fundamentals in this segment is strong, and we expect to continue to grow our fleet by acquiring new tanks and leasing new tanks. The market is active even though there was a seasonal slowdown, and we will continue to see growth both in the number of shifting and also the earnings from this segment. Sea Farm, very quickly. Turbot volumes increased with strong momentum in prices, driving turbot revenue up by 5.5%.
Volume of sole sold remained flat. Prices increased 4.4%. Caviar volume increased by 9%, but prices decreased 20.4%. So there's a bit of a challenge on the caviar side. The fair value adjustment of inventory had a negative impact of $1,700,000 down from the positive impact of $1,500,000 in the previous quarter.
Then moving to Page 21, which is the excitement in As you might have seen, on Monday, we announced the formation of Avenir LNG, where we have gotten two industrial partners with us, Golar taking 25% and Herc taking 25%. We have committed the three of us of 183,000,000 plus $10,000,000 that is going to be raised by strategic investors, followed by an OTC listing on the OTC here in Oslo. We have commitments or we will soon have commitments of a total investment of $350,000,000 So we have raised half of it basically or have a commitment for half of it in the market. Our strategy and our vision is to become a leading provider of small scale LNG for the power remote stranded demand for the power business, the bunkering, the trucking and industrial markets through supplying LNG using Avenir ships, storage and containers for distribution. Connect small scale LNG with underutilized large scale LNG infrastructure.
So the importance here with Golar and with Herc is with their fleet of FSRU globally, we hope to be able to develop distribution using those as hubs and distributing small scale LNG to standard customers in small parcels. Most of these FSRUs are underutilized. So we hope that we'll be able to use that excess capacity to further distribute downstream. We have currently two ships on order, and we have exercised additional two of the 7,500 cubic meter in Keppel Xingmarine that are being built in Dantong, China. The first vessel to be delivered the first two vessels in the third and fourth quarter of next year.
We also and then the second two in the third and fourth quarter of twenty twenty. We're also in the process of ordering two plus two twenty thousand cubic meters. And also, we have taken an investment final investment decision on building the terminal in Sardinia. Very excited about this. We are seeing huge inquiries, more business opportunities than actually we're able to pursue right now in the small scale segment.
And instead of Stolt, as I said earlier, this is like I a huge opportunity where we can use our logistical experience with the FSRU and the LNG experience of Golar and Hoegh, I think we are very well positioned to capture some business in this market. Then that completes my part of the presentation. I'll give the word to Jens to take you through the financials.
Thank you, Nils. Good morning or good afternoon to all of you here, and good morning to those of you on the call from The United States. I will, as normal, provide some further details about the results that were released today for the 2018 and will also give you some further guidance on some of the P and L items for the next quarter. I want to remind you that we have today filed our interim financial statements for the third quarter with the Oslo Stock Exchange. And you'll also find the press release that was issued this morning, the interim financials as well as this investor presentation posted on our website, www.stoltnilsen.com in the Investors section under the heading Reports and Presentations.
So talking about the net profit. Operating profit before one offs for the third quarter was, as Niels mentioned, 54,600,000.0, down from $61,000,000 in 2Q twenty eighteen. Tankers performance declined from the prior quarter driven really by the reduction in the bunker hedge gain, and that was a reduction of $7,900,000 compared to the prior quarter. Before onetime adjustments, terminals operating results were flat. STC had another strong quarter, though decreasing slightly due to reduction in shipments tied to the quieter summer months, while Stolt Sea Farm's performance continued to benefit from the rising turbot prices.
Including the one offs, reported operating profit increased by 6.3% compared to the prior quarter of $54,800,000 were up from $48,500,000 And that is because of the impairment that we took of $11,800,000 in the prior quarter. Moving further down, you will see net interest expense of $33,000,000 slightly down from the prior quarter. That's really offset by the FX loss due to the stronger U. S. Dollars seen during the quarter.
And other non operating income was impacted by the negative $12,900,000 that Nils mentioned earlier related to Avance Gas. And therefore, profit came in at $2,300,000 for the quarter with EBITDA adjusted for one offs and the fair value impact came in at 122,300,000.0 Moving over to the balance sheet. Happy to report that debt decreased by $61,000,000 from the prior quarter. So we're now under $2,500,000,000 at $2,446,000,000 And the debt to tangible net worth ratio decreased to 1.51% from the 1.55% that we reported in the prior quarter. Also worth noting, another covenant is the EBITDA to interest expense that was $3,650,000 Now that's slightly down from what we reported in the prior quarter of 3,770,000.00 mostly due to the weaker EBITDA that we had in this quarter.
The net debt to EBITDA ratio, which drives the pricing of our revolving credit line, remained below five:one, actually at 4.76. And if you take the gross debt to EBITDA, that came in at 4.93, which was also a reduction as we have in previous quarters been above five:one. So that reflects an improvement on the balance sheet as we continue to focus on repaying debt. The average interest rate was 498%. That's pretty much flat from the prior quarter.
And therefore, the net interest expense, we expect that to remain relatively steady also for the next quarter, the fourth quarter of twenty eighteen. I wanted to talk a little bit about the effect of the recent establishment of the Avenir joint venture with Golar LNG and Hoegh LNG as announced on Monday, and as Nils explained earlier. Our part of the investment included equity in kind of $32,500,000 and that represents really our new building contracts as well as the investment that we had in our terminal in Sardinia. And then in addition to that, we also put in $70,000,000 in cash. So, so far, a total of $49,500,000 And you will also see that we have committed up to 50% of the $182,000,000 So the math would indicate $41,500,000 on top of that.
Could be reduced then once we go to the OTC. But the projected CapEx that you will see on the CapEx slide includes $66,000,000 in 2019, and that will now become the responsibility of this new joint venture, so that will fall away from our capital expenditure schedule. I'll remind you when we get to the CapEx slide. So overall, if you look at the total, our share of $182,000,000 the overall projected investment earmarked for LNG from our side will be approximately the same as it is today. But also worth noting is that all the debt that we will raise in Avenir will be nonrecourse to S and L.
Moving over to cash flow, the next slide. You see cash flow from operations was a positive $100,000,000 and that was up from $91,000,000 in the prior quarter. This was predominantly due to timing on interest payments, which tend to come sort of in six month lumps versus the expense being recorded on a regular quarterly basis. And that's driven predominantly by the bonds. And tax payments that were also and also some higher prior noncash items in prior periods.
During the quarter, cash spent reflected the terminal expenditures of $23,600,000 I'm referring here to the capital expenditures of $42,000,000 that we had in the quarter. So $23,600,000 was made up of terminal investments, 8,500,000.0 was tied to drydockings of ships, 3,100,000.0 is on tankers capital expenditures and then a little bit on Stolt Sea Farm as well. On the financing section of the cash flow, the net proceeds from debt is really due to an increase in the loan in the small loan at Stolt Sea Farm. But during the quarter, we also repaid about $20,000,000 on our revolving credit line. And the cash balance, therefore, at the end of the quarter was $85,000,000 which was just marginally up from $80,000,000 in the second quarter.
And as I mentioned, our focus still remains on reducing debt. We're having a very critical eye on every CapEx item, and we're also focusing on maintaining control of our operating expenses. Moving over to EBITDA. And just to remind you that SNL's EBITDA figure is as presented here, excludes any impact of the IFRS fair value adjustments to Stolt Sea Farm's inventory. It also excludes gain or losses on sale of assets and other noncash onetime events, and that includes the $12,900,000 related to Avance Gas.
And if you look at Tankers' EBITDA decreased really mainly due to the lower bunker, as Niels discussed earlier, the lower bunker hedge gain, I should say. Terminals also decreased due to the second quarter one off in Antwerp and some slightly lower utility revenue that we had at our Stolthiv and Houston terminal. STC's EBITDA decreased really following a strong second quarter more than any weakness indicated in the third quarter. And as a result, SNL's EBITDA for the quarter decreased from 128,000,000 to 122,000,000 Then going over to some of the expense categories. The A and G expenses for the quarter decreased to $52,200,000 That's down from $57,500,000 in the second quarter and also below the guidance that we gave for the quarter of $57,000,000 In the third quarter, we had a lower profit sharing, which is tied to the overall profitability of the group and other S and L corporate costs.
And we had the closure of the Bergen office, which was really part of the final stage of the integration of JO Tankers, and that helped to reduce the overall expenses as well as some minor reductions in costs across the businesses. Now our guidance for the fourth quarter is for a slight increase than the current quarter, where we estimate just shy of $55,000,000 Moving on to the next slide, depreciation and amortization. Depreciation and amortization for the third quarter was $68,600,000 and that was compared with $68,200,000 from the second quarter. And we gave a guidance of $68,800,000 which is actually consistent with our guidance for the next quarter. The increase in tankers depreciation was really the main driving force behind the increase sorry, behind the increase as a result of additional days that we had in the quarter, some more days to depreciate the assets over and some higher dry docking amortization.
And as you will see below there, we have the impairment of $11,800,000 that we took in the second quarter related to the two different ships. So for the next quarter, we are expecting $68,800,000 in depreciation and amortization. Moving over to share of profit of JVs and tax. Our share of profits in our joint ventures was $6,900,000 for the third quarter, and that's slightly down from $7,100,000 in the prior quarter. Our regional tanker JVs in Asia had a large decrease really due to a generally weak market situation, and that was partly offset by some improved results in our deep sea tanker joint ventures.
At Stolthaven, in the current quarter, we reported a $5,800,000 gain. That's down from $7,300,000 in the prior quarter, and that reflects the $1600000.0.01 off that was related to the penalty fee we earned in the prior quarter at our Antwerp joint venture. Our guidance for the next quarter is 7,000,000 right in the middle between the second and the third quarter. Looking at taxes. Tax expense for the quarter were $4,000,000 and that was a slight reduction from $4,900,000 in the prior quarter.
And the reduction is predominantly related to our Stolthaven Terminals division. If I may move on to the next slide, here we have the capital expenditures program. Capital expenditures spent in the third quarter alone was $41,000,000 So out of the $102,000,000 spent year to date, 41,000,000 was spent in the third quarter, primarily driven by terminal expansions, including the jetty build out at Houston that's expected to become operational in about January 2019 as well as tank expansions at our terminal in Santos, Brazil, expected to get become online mid-twenty nineteen. The total committed capital expenditures
at the
end of the third quarter was $4.00 $6,000,000 the number you see at the bottom right of that slide. This includes the $66,000,000 that I mentioned earlier for Stolt Nielsen Gas. So if you take that out and if you assume that we are committed up to the our share of $182,000,000 so that would mean a remaining $41,500,000 you add that. Our committed CapEx going forward, it is just shy of 400,000,000 about $399,000,000 Tankers CapEx going forward, that includes about $44,000,000 for ballast water treatment systems. And for terminals, we have $21,000,000 remaining for the Houston jetty,
dollars
27,000,000 for capital improvements at the Houston terminal, some $9,000,000 related to the expansion at the Brazil terminal in Santos and most of the remaining earmarked for really ongoing maintenance CapEx for Stolthium terminals. Just to remind you, we also have at Sol Sea Farm constructing two new farms, one in Servo and one in Torcha, Servo in Spain, Torcha in Portugal for the production of Sol, and that will be completed mid- late mid- and late-twenty nineteen. The last slide before I hand it back to Niels. The debt maturity profile, it shows our expected debt repayments through 2022. Includes our regular principal payments that you see shown there at the bottom in dark blue.
The orange sections are our balloon payments and the light blue are the bond maturities. The $156,000,000 payment in 2018 is the orange part is actually the facility we raised in conjunction with acquiring JO Tankers back in 2016. We are in the process of refinancing that and expect to have that concluded before our fiscal year end, so by mid November. And that's going to be done in the form of a Japanese operating lease, which will be secured by nine of the 13 ships that currently secured that facility. The 2019 bond payment at SeaRest were $148,000,000 That doesn't mature until September, so we have plenty of time to watch the markets.
And if the bond market is not there, then we will make sure to have ample liquidity available so that we can pay that off with alternative means. We believe we have a well balanced debt maturity profile, so comfortable with this going forward. And with this, I would like to hand it back to Nick.
Thank you, Jens. Some key takeaways, just to summarize what we just said. We have established a joint venture with some industrial players in Avenir with $182,000,000 of committed equity from the three partners. And a net profit of 15,300,000.0 for the quarter if you take away the one off from Avanskars. The tanker market remains challenging with excess tonnage and rising bunker prices.
But I would say, with the growing GDP global GDP and global trade, this excess will be absorbed in due course, and we expect that the market should be more balanced in 2019. I remind you that even though 2019 is a turnaround point where probably we'll see stronger spot prices, it will take some time to get those increases into the contracts and subsequently the earnings. Solid fundamentals in Stolthaven terminals with increased utilization across the networks. We are getting our operating costs down, and I think we are able also to capture a better paying business. Stable demand in salt tank containers, so we think that, that will continue.
We expect continued increases in the turbine prices, and hopefully, we'll get the salt volume up and running. So we'll get earnings from the salt, too. Strong earnings base, so we have more legs to stand on, ensures positive free cash flow. And the target, as Jens pointed out, is to reduce our debt, which, yes, we have started to do. So we have, over the many years now, expanded significantly with acquisitions, with acquiring assets, building new assets.
We have now the assets that we need for the time being, and we can provide ample growth with those assets without taking on additional debt. So our debt level will be going down. And I believe the earnings the revenue will be going up because of the assets that we have acquired and that we have built. And of course, if the tanker market returns, eventually, we will have we're well positioned with an expanded fleet. And Jens also said that we have access to competitive funding and good liquidity.
To also just add on in regard to the bond market, if the bond market shouldn't be there in 2019 or it shouldn't be attractive, we have alternative ways of financing that. We have uncollateralized assets. We have several terminals, which we have no debt on. So we will easily be able to raise additional funds should the bond market not be there. That concludes the presentation.
We will now open up for questions here in Oslo, and then we will take some questions from the phone if there are any. Any questions here in Oslo? Yes?
About Avenir. If I remember correct, it was, at some point, talked about GasLog and entering.
We never said GasLog, but rumors were that they were one of the that we considered.
The question is more that you're now teaming up with Agnoblar. Could you sort of explain to us how the strength and that team was put together and how you're thinking about developing this going forward?
Yes. Well, is known that, of course, the SSRUs that they're sitting on as floating and storage, most of those assets are underutilized. To be able to have access to that capacity and access to LNG through those FSRU will give us good points to distribute further distribute. We're looking at projects in all the world. But in South America, there's no doubt that Golar has the Nanook, where we have access to that additional capacity for further distribution, which is something that we are currently working on.
So I think GasLog is a good shipping company, but Hurt and Golar, I would say, is a better strategic fit because of both the upstream for Golar with the production of LNG to get access to LNG, but also through the FSRUs and also their knowledge in the shipping market. So I thought that that's a very good strategic fit. Our vision is not really to be a shipping company. It is not the time charter market that we are going to pursue. There might be opportunities short term because of good timing on the ships that we have ordered, but our wish is to become a supplier of small scale LNG.
In other words, source the LNG, ship it, store it and distribute it and sell that LNG. And I think there are great opportunities for that. With their expertise, we don't have that deep expertise. We have logistical expertise. But with those partners, we have gotten access to some very knowledgeable people.
Just a quick follow-up. You were talking about closing or to bring it to VLCC this year. And at that point, sold $10,000,000 of shares. But that was from your own stake, was it?
No. So what we're doing now is we're raising $110,000,000 total, 11,000,000 coming from the OTC. So the shareholders have committed to 182,000,000 but in case nobody invests, the shareholder committed to 182,000,000 for a total investment of $350,000,000 But of course, that might change depending on what we do, so we are now looking at selling to some strategic investors $11,000,000 or 10% of the $110,000,000 But the shareholders, because we have taken the $350,000,000 commitment, have committed themselves to a total of 182,000,000 us, 50% the others, 25% each. So out of the $121,000,000 will come from potential investors. And then we'll do a listing quite quickly.
And just one final. In terms of you were just told that you were going backwards in the press there, I can see. On the bunkers
$150,000,000 of additional cost? We have to pass that through. The industry has to.
The question, I suppose you already have a set of bunker adjustment costs in place. Are you done formulating that towards the new cycle of fuel? Or how do you, in practice, try to pass on? The
contracts that we are renewing now, basically what we have said is that we have a walkaway right. So if we don't come to an agreement on the revised bunker clause, either party can walk away. We have stated quite clear that the reference price needs to be on the MGO, on the cost of that additional cost, or the MGO needs to be the additional cost of the MGO needs to be compensated, which is not currently included in the bunker clause. So the only thing that we have done so far, and we have not fixed any contract yet where there's a clause stating that the customer will automatically take over all the costs. But what we have said and what we're doing is that there is an exit clause if we don't come to an agreement.
The customers, they will, of course, say, hey, it's the market of demand that will determine how much of that cost can be passed on. My message here, my message to our investors, to our customers is at that cost. I mean you can see the shape of the industry, but we have to pass that on.
Final question in terms of terminals in 2020. One would think that or at least that this will also be positively affecting the tankage demand. So brings us back about some new products to some sort of some storage facility on that as well. Are you trying to do something in terms of new business on the banking side or terminal side?
Not related to 2020, but we are clearly seeing inquiries coming up. We are focusing on chemicals. That's our main business. But as a result of potential demand coming from what you're talking about, we are cautiously optimistic that we can see improvement in the terminal market. But we are not taking any position towards that segment.
Yes? What's your view on installing scrubbers? Yes. Think scrubbers is we have some scrubbers, and we are considering additional scrubbers. Think scrubbers is a short term solution.
I think the spread between the marine gas oil and heavy fuel or low sulfur fuel will be coming rapidly down, so maybe two, three years. But the potential savings using scrubbers is so big, so it's a payback period, can be very quick. So scrubbers is absolutely an option which we are considering. But it's not a long term solution. The long term solution is low sulfur fuel that is being going to be developed.
And would you what type of ships would you be? The larger ships, not the younger ones right now because they are not scheduled for dry dock and they are more fuel efficient. So it's the large, less fuel efficient ships. Scrubbers is not an alternative for small ships because they don't have the space. So it's the large, less fuel efficient ships.
Yes?
You mentioned you have seen limited change in demand over the past quarter. And just in light of the race tax tariffs between China and U. S, have you not seen any shift in demand from certain products, say soybeans for U. S. To China, for example?
Have you not seen any shift in demand here? Soybeans? Soybean oil? Yes. We ship soybean oil?
To be I don't we have seen we have one contract with a large Chinese customer of MDI being moved from China to The United States, which is now the MBI's on the list, which will affect our business. But the customer will most likely source that MBI from Europe and ship it. So we will still move it,
but at a shorter distance.
So as we stand right now, we don't see we haven't seen the impact, but we believe we're starting to see concrete examples of what might happen. Soybean oil is we do carry oils, vegetable oils, but it's not our main business out of U. S. Gulf. Out of U.
S. Gulf, our primary products are sophisticated small parcels of chemicals. Yes. Regarding coming out, please. Yes.
Could you provide some color on the next steps here? And if this time stands as it is, could you be covered by some more insurance? Yes. So thank you for asking because this is important. So we have MSC Flaminia, which there was an explosion and unfortunately, lives were lost and the ship caught fire.
And there's been a trial in The United States between the parties, COMT being the owner of the ship, MSC being the operator ship, Deltek, which is the owner of the product and still tank containers with the tank container, also the freight forwarder and the port that handled the project, the terminal handler. All parties were enrolled. During the finding of facts, it was determined that all parties had a fault, where the container was stored, what temperature the product was loaded, where the tank containers were sitting during the summer period and heated up. So it's a long story. During final fact, it was determined all parties had fought.
So when the ruling came a couple of weeks ago, it was a bit of surprise to all parties that Stolt and Deltek got the full blame. Now the ruling was that we, the two companies, were at blame. There was no fine. The judge didn't say how much the cost is. What has been done is that the cargo on the ship and the cargo claim has been settled.
So that's gone. What is now being disputed is that Conti is suing for $162,000,000 for the ship, which is so we when I say we, this is all covered by insurance, right? So there will be no impact cash or any wise, nothing on stock and instance numbers. So it's all covered by our underwriters. But together with our underwriters, we are surprised of that ruling and that ruling most likely will be appealed of who was at fault.
But the lawsuit which they are doing in The United States of claiming for $62,000,000 for the ship, is against really The U. S. Law states that you cannot sue and claim for money beyond the value of the ship before it exploded. And from the numbers I received is that the value of that ship before it exploded was $4,545,000,000 dollars And now that they have spent money, instead of taking it as a total loss, they have spent money on fixing it and spent $162,000,000 According to U. S.
Law, you can't go after you decide to go and build it and redo it. That's not the most economical way of recovering. So this is not over. So most likely it will be appeal in regard to who is at fault and then who is at fault, how is that going to be divided amongst the parties and what the total amount can be. The total amount, is it 162,000,000 or is it the 42,000,000 So it's a long way to go.
But I repeat, this is insurance coverage, so it will not have an impact for salt. Any other questions here in before I open up for the phone? Operator, there's no further questions here in Oslo. Is there any questions on the phone?
We will now take our first question from Mr. Lucas Dowell from ABG. Please go ahead, Your line is open.
Thank you. Good afternoon, guys. Just on the issue or on topic of scrubbers, can you repeat how many scrubbers have you already sort of decided to install? And what would be the number of vessels that you could realistically equip with scrubbers by 2020?
So currently, we have four scrubbers installed. And we are considering or in the we are most likely going to install an additional 14 scrubbers. And that's the realistically the scrubbers that we will install on our fleet.
Okay. Good. So it's 18,000,000 in total. And then back to the discussion regarding passing through the bunker costs. I guess it's already a topic for you and your clients.
But can you sort of describe a little bit what direction it is taking and what would be sort of the optimal
way to solve this issue? The optimal way to solve the issue is that the price increase between heavy fuel oil and marine gas oil will be passed on. If that's realistic, the only thing I can say is that how long can an industry last when we're currently losing money to be able to not pass it on. The customers, they don't disappoint us. They are, of course, trying to say, yes, we'll take part of it.
But they are driven by what is out there. So our position is that we will pass all of it to our customers. If some of our competitors will do otherwise, well, we'll have to see. We have not yet been able to get a blank kind of agreement from our customers that, that additional cost will be passed on to the customer. But it's for us to be able to recover it, we need what is it, 15%, 16% increase in our freight rates, I
think this year you have seen a very fierce competition on your competitors taking, or fighting for the renewal of COAs. Right? So, I guess, it remains to be seen how, you know, how they will respond to to this issue, two years from now.
Absolutely. Don't you I mean, it is how fast you will burn out your balance sheet if you don't do it. So and how long you can survive. But it's clear that we cannot take on such an additional cost. It needs to be shared.
Okay, thank you. You. Is there any other questions or phone calls, operator?
There are no further questions at this time.
All right. Thank you very much for participating. That completes our third quarter earnings release. Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.