Good day, welcome to the Stolt-Nielsen Limited third quarter 2018 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 G. Stolt-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 F. Grüner-Hegge, 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, I will go through each of the businesses. Jens will take you through the financials, we will open up for question and answers afterwards. Going on to page five, the net profit for the quarter is $3 million. That is after a one-time loss of $12.9 million resulting from an accounting reclassification related to the investment in Avance Gas. Compared with $9.5 million in the previous quarter, which included a one-time impairment loss of $11.8 million, which was the bitumen ships.
We are going from an associated investment in Avance Gas to an equity investment. Now, associated investment, we take our percentage share in the company to the net profit through our bottom line on this new equity investment. It will not go through our bottom line, it will go through the movement in the share price, will go through our OCI. Stolt Tankers reported an operating profit of $21.4 million. That is down from $26.5 million last quarter, mainly due to the reduced gains on the bunker hedges and an increase in bunker costs net of surcharge. I will go in more detail during the Tankers section. Stolthaven reported an operating profit of $18.6 million, that is flat compared to the previous quarter when excluding the one-off benefit of $1.6 million that we had in the second quarter related to a contract termination fee that we received.
Stolt Tank Containers reported an operating profit of $17.7 million. That is down from $18.8 million. Nothing really market related, it is more a seasonality of the summer slowdown. Stolt Sea Farm operating profit before fair value adjustment of inventories was $2.1 million, compared to $2.4 million in the previous quarter, reflecting a reduced margin, not in the turbot, in the caviar. Corporate and other reported an operating loss of $3.3 million compared to a loss of $20.9 million in the prior quarter, which again includes the $11.8 million impairment of the 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, a lower loss of AGHL or Avance Gas, better performance from Avance Gas. That resulted in an operating profit for the quarter of $54.8 million versus $48.5 million.
Again, I remind you, in the second quarter, we had the $11.8 million impairment of the bitumen ships. There is a clear reduction in operating profit, and that is primarily driven by Stolt Tankers. Moving on to page 6, which is the net profit variance between the second and third quarter. Excuse me. $9.5 million profit in the second quarter. We took the impairment on the Stolt ships of $11.8 million. Lower operating profit in Stolt Tankers of $5.2 million. Lower operating profit from terminals of $1.6 million. Lower STC operating profit of $1.1 million. The $3.5 million lower operating profit after the fair value adjustment, and higher corporate and other results of $5.8 million. You have the fair value adjustment of $12.9 million for the Avance Gas shares, bringing the quarter down to a meager profit of $3 million.
Moving on to Stolt Tankers on page 7. 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. Deepsea revenue for the quarter increased by 1.4%, reflecting an increase in bunker surcharges. When the bunker prices go up, actually our revenue goes up because we get the surcharges. The revenue from the regional fleet was flat. The Deepsea contract offer freight rates were down 1.6% for the quarter, and spot rates were up 1.8%. The average was basically unchanged. We had higher COA volume at the 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 offer 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. You can say that we are not seeing any improvement in the COA or in the tanker market. We're kind of bouncing along at the bottom, I believe. Moving to the operating profit variance between the second and the third. Lower trading results of $0.6 million. Bunker cost increases, net of bunker surcharges of $3.1 million. We have had a lower bunker hedge gain of $7.9 million on our paper hedges. We have the 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. Sustainable savings. We have the slight lower joint venture equity income and other $1.8 million, bringing it to $21.4 million.
Moving to page 9, the bunker costs. 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 consume. This is really what is driving the reduction in the performance of tankers. The COA bunker surcharge clauses cover on average 64% of the total volume that we ship. I remind you, 70% of our business is under contracts of affreightment. 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. You see here that on the third quarter 2018, we realized a gain of $4.4 million on what we consumed or what we used.
We have on our books, 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 LTM, excluding the paper hedges, but includes the bunker costs that we have. Going up 5%, 10%, and 15%, 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 1st of January 2020, all ships 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 in scrubbers, but realistically, as it stands today, around 5% of the global fleet have announced or have installed scrubbers. 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 million. It is clear that unless we are 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. 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, to expect the ship owners to even take part of this cost is unrealistic. This cost will have to be passed on to the customers. Container lines are already starting to state their policy, and they will start it already in the 1st of January 2019. 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. Then you can see here the blue, the spot rate is the yellow line and the IFO, the dark lines are the fuel price. Really the reason we made money in 2015 and 2016, and in 2017 was not driven by higher volume or higher freight rates.
It was driven by the lower bunker costs. What has happened now is of course, because of oversupply of ships, their spot rates have been coming down since the end of 2016. At the same time, the bunker prices have been going up, that is clearly why you see a loss in the industry. If then the bunker price is going to increase by $300 per ton, you can figure it 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 18, still significant part.
The blue is what remains to be delivered in 2018. Then you're seeing it's coming down in 2019 and 2020. This is really what is driving what we believe is the turnaround in this market. We were hoping it was going to happen earlier, but we don't see it yet. Unless there's any new orders, and I don't think there's really an appetite right now to order new chemical tankers. 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. I remind you that you can see that the average COA rates that we are renewing now, we're at 3.9% reduction, and that really means those contracts are usually 12-month period, and the customers are, of course, taking advantage of the market, so they are asking for multi-year contracts.
That in some instances, we are forced to take on multi-year contracts because it will hurt us more not to take it on, so that these contracts will go well into 2019, some even into 2020, but primarily into 2019. 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. You can see in the fourth quarter of 2018, there is a significant. There's 16 new chemical tankers coming into this challenging market.
Then it will drop off significantly and you're 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 ballasting and lying around this summer waiting for weeks for business. The outlook remains stable for the fundamental petrochemical shipping demand. We don't see any change in demand. Again, it's a supply issue. There's a growing risk of adverse impact from the new tariffs on the chemical products. We're starting to see some of it. The product will be moved, but it will be a different trading pattern.
Instead of sourcing products from the U.S. Gulf or from China, products will be sourced maybe from the Middle East or from Europe. The volumes will be moved, but unfortunately, the impact might be less ton miles as a result. Let's hope that the progress in coming to an agreement between Canada and Mexico and Europe is progressing nicely. There is still some disagreements in regard to trade disputes between China and the United States, so we'll have to watch that closely. The MR market remains weak, which then impacts negatively on the chemical market. Higher fuel prices and excessive 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. Let's hope I'm right in that prediction.
Fortunately, Stolt-Nielsen have more legs to stand on. 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. That's more seasonality. Utilization for wholly owned terminals increased to 91.7% from 90.2% due to primarily to the increase in leased spot business that we were able to win in Singapore. Utilization in our joint venture decreased slightly to 90.2% from 92.2% last quarter. That was due to the lower utilization at Oiltanking Stolthaven Antwerp, which is more petroleum products than chemicals. Operating profit decreased by $1.6. I already said it from last quarter, driven primarily by the penalty that one of our customers had to pay last quarter. Going to page 15. The operating profit variance very quickly, $20.2 in the previous quarter.
The $1.6 impact from the fee we talked about, slightly lower In Houston, we had insurance one-off of $0.4, higher equity income from the joint venture, excluding one-off of $0.2, lower operating revenue of $1.3, lower operating expense of $1.8 and others bring us to $18.6. Overall, the terminal market is strong in the segment that we operate in. 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 remain strong. Again concerns growing over the U.S., China trade disputes. The Singapore market remains challenging. 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, utilization came nicely up. South Korean and Malaysian markets showing stable demand.
Europe remains stable for chemicals. Weak CPP, that's the result that you saw in our joint venture in Antwerp. 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. The expansion in Santos is fast to remain on schedule. Moving on to another profitable leg that we are standing on. Stolt Tank Containers revenue decreased by 0.9%. 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 remain stable. Going quickly to the variance analysis on the operating profit on page 18. $18.8 in the previous quarter, lower transportation revenue of $1.3, higher operating expenses of $0.3, lower agent A&G by half a million and other of $0.1, brings us to $17.7. On page 19, reduced seasonal demand in the quarter, driving down shipments by 4.2% and utilization by 3%. I'm not going to go through these points. The fundamentals in this segment is strong. 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 shipping and also the earnings from this segment. Stolt Sea Farm, very quickly. Turbot volumes increased with a 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%. There's a bit of a challenge on the caviar side. The fair value adjustment of inventory had a negative impact of $1.7 million, down from the positive impact of $1.5 million in the previous quarter. Moving to page 21, which is the excitement in Avenir. 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 Höegh taking 25%.
We have committed the three of us of $183 million, plus $10 million 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 million. 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 remotes, stranded demand for the power business, the bunkering, the trucking, and industrial markets through supplying LNG using Avenir's ships, storage, and containers for distribution. Connect small scale LNG with underutilized large scale LNG infrastructure.
The importance here with Golar and with Höegh 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 stranded customers in small parcels. Most of these FSRUs are underutilized, we hope to 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 meters in Keppel Singmarine that are being built in Nantong, China. The first vessel to be delivered, the first two vessels, the third and fourth quarter of next year. The second two in the third and fourth quarter of 2020. We're also in the process of ordering two plus two 20,000 cubic meters.
We have taken a final investment decision on building the terminal in Sardinia. Very excited about this. We are seeing huge inquiries, more business opportunities than actually we are able to pursue right now in the small scale segment. Instead of Stolt, as I said earlier, this is actually a huge opportunity where we can use our logistical experience with the FSRU and the LNG experience of Golar and Höegh. I think we are very well positioned to capture some business in this market. That completes my part of the presentation. I'll give the word to Jens to take you through the financials.
Thank you, Niels. Good morning or good afternoon to all of you here, and good morning to those of you on the call from the U.S. I will, as normal, provide some further details about the results that were released today for the third quarter of 2018. Also give you some further guidance on some of the P&L items for the next quarter. I want to remind you that we have today filed our interim financials statements for the third quarter with the Oslo Stock Exchange. You will also find the press release that was issued this morning, the interim financials, as well as this investor presentation posted on our website at www.stolt-nielsen.com in the investor section under the heading Reports and Presentations. Talking about the net profit.
Operating profit before one-offs for the third quarter was, as Niels mentioned, $54.6 million, down from $61 million in 2Q18. Tankers performance declined from the prior quarter, driven really by the reduction in the bunker hedge gain, that was a reduction of $7.9 million compared to the prior quarter. Before one-time 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, whilst 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 $54.8 million. We are up from $48.5 million. That is because of the impairment that we took of $11.8 million in the prior quarter. Moving further down, you will see net interest expense of $33 million, slightly down from the prior quarter.
That is really offset by the FX loss due to the stronger U.S. dollar seen during the quarter. Other non-operating income was impacted by the negative $12.9 million that Niels mentioned earlier related to Avance Gas. Therefore net profit came in at $2.3 million for the quarter with EBITDA adjusted for one-offs and the fair value impact came in at $122.3 million. Moving over to the balance sheet. Happy to report that debt decreased by $61 million from the prior quarter. We are now under $2.5 billion at $2.446 billion. The debt to tangible net worth ratio decreased to 151 from the 155 that we reported in the prior quarter. Also worth noting, another component is the EBITDA to interest expense. That was 3.65.
That is slightly down from what we reported in the prior quarter, 3.77, 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 5 to 1, actually at 4.76. If you take the gross debt to EBITDA, that came in at 493, which was also a reduction as we have in previous quarters been above 5 to 1. That reflects an improvement on the balance sheet as we continue to focus on repaying debt. The average interest rate was 4.98%. That is pretty much flat from the prior quarter. Therefore the net interest expense we expect that to remain relatively steady also for the next quarter, the fourth quarter of 2018.
I wanted to talk a little bit about the effect of the recent establishment of the other new joint venture with Golar LNG and Höegh LNG as announced on Monday and as Niels explained earlier. Our part of the investment included equity in kind of $32.5 million and that represents really our new building contracts as well as the investment that we have in our terminal in Sardinia. In addition to that, we also put in $70 million in cash. So far, a total of $49.5 million. You will also see that we have committed up to 50% of the $182 million. The math would indicate $41.5 million on top of that. Could be reduced then once we go to the OTC.
The projected CapEx that you will see on the CapEx slide includes $66 million in 2019, that will now become the responsibility of this new joint venture. That will fall away from our capital expenditure schedule. I'll remind you when we get to the CapEx slide. Overall, if you look at the total, our share of $182 million, the overall projected investment earmarked for LNG from our side will be approximately the same as it is today. Also worth noting is that all the debt that we will raise in Avenir will be non-recourse to SNL. Moving over to cash flow, the next slide. You'll see cash flow from operations was a positive $100 million, and that was up from $91 million 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. That's driven predominantly by the bonds. Tax payments and also some higher prior non-cash items in prior periods. During the quarter, cash spent reflected the terminal expenditures of $23.6 million. I'm referring here to the capital expenditures of $42 million that we had in the quarter. $23.6 million was made up of terminal investments. $8.5 million was tied to dry dockings of ships, $3.1 million 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 small loan at Stolt Sea Farm.
During the quarter, we also repaid about $20 million on our revolving credit line. The cash balance therefore at the end of the quarter was $85 million, which was just marginally up from $80 million in the second quarter. As I mentioned, our focus still remains on reducing debt. We're having a very critical eye on every CapEx item. We are also focusing on maintaining control over our operating expenses. Moving over to EBITDA, just to remind you that SNL's EBITDA figure as presented here excludes any impact of the IFRS fair value adjustment to Stolt Sea Farm's inventory. It also excludes gain or losses on sale of assets and other non-cash one-time events, and that includes the $12.9 million related to Avance Gas. If you look at Tankers, EBITDA decreased really mainly due to the lower bunker, as Nils 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 Stolt Sea Farm terminal. STC's EBITDA decreased really following a strong second quarter, more than any weakness indicated in the third quarter. As a result, SNL's EBITDA for the quarter decreased from $128 to $123 million. Going over to some of the expense categories. The A&G expenses for the quarter decreased to $52.2 million. That's down from $57.5 million in the second quarter, and also below the guidance that we gave for the quarter of $57 million. In the third quarter, we had a lower profit sharing, which it's tied to the overall profitability of the group, and other SNL corporate costs.
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 cost across the businesses. Our guidance for the fourth quarter is for a slight increase on the current quarter, where we estimate just shy of $55 million. Moving on to the next slide, depreciation and amortization. Depreciation and amortization for the third quarter was $68.6 million, and that was compared with $68.2 million from the second quarter. We gave a guidance of $68.8 million, 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 as a result of additional days that we had in the quarter, so more days to depreciate the assets over and some higher dry docking amortization. As you will see below there, we have the impairment of $11.8 million that we took in the second quarter related to the two different ships. For the next quarter, we are expecting $68.8 million in depreciation and amortization. Moving over to share of profit of JVs and tax. Our share of profits in our joint ventures was $6.9 million for the third quarter, and that's slightly down from $7.1 million in the prior quarter. Our regional tanker JVs in Asia had a large decrease 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 $5.8 million gain. That's down from $7.3 million in the prior quarter, and that reflects the $1.6 million one-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 million, right in the middle between the second and the third quarter. Looking at taxes. Tax expense for the quarter were $4 million, and that was a slight reduction from $4.9 million in the prior quarter. The reduction is predominantly related to our Stolthaven Terminals division. Move on to the next slide. Here we have the capital expenditures program. Capital expenditures spent in the third quarter alone was $41 million. Out of the $102 million spent year to date, $41 million 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. Tank expansions at our terminal in Santos, Brazil, expected to come online mid-2019. The total committed capital expenditures at the end of the third quarter was $406 million, the number you see down at the bottom right of that slide. This includes the $66 million that I mentioned earlier for Stolt-Nielsen Gas. If you take that out, if you assume that we are committed up to our share of the $182 million, that would mean a remaining $41.5 million. You add that, our committed CapEx going forward is just shy of $400 million at about $399 million. Tankers CapEx going forward. That includes about $44 million for ballast water treatment systems.
For terminals, we have $21 million remaining for the Houston jetty, $27 million for capital improvements at the Houston terminal, some $9 million related to the expansion at the Brazil terminal in Santos. Most of the remaining earmarked for really ongoing maintenance CapEx for Stolthaven Terminals. Just a reminder, we also at Stolt Sea Farm are constructing two new farms, one in Huelva and one in Tocha. Huelva in Spain, Tocha in Portugal, for the production of sole, that will be completed mid and late 2019, we say here. The last slide before I hand it back to Niels. The debt maturity profile. It shows our expected debt repayments through 2022. It includes our regular principal payments that you see shown there at the bottom in dark blue. The orange sections are our balloon payments. The light blue are the bond maturities.
The $156 million payment in 2018, 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, expect to have that concluded before our fiscal year end, by mid-November. 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 secure that facility. The 2019 bond payment that you see there is for $148 million. That doesn't mature until September of 2019, we have plenty of time to watch the market. If the bond market is not there, we will make sure to have ample liquidity available that we can pay that off with alternative means. We believe we have a well-balanced debt maturity profile, comfortable with this going forward.
With this, I would like to hand it back to Niels.
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 million of committed equity from the three partners. We had a net profit of $15.3 for the quarter if you take away the one-off from Avance Gas. Tanker market remains challenging with excess tonnage and rising market prices. 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 will 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 Stolt Tank Containers, and we think that that will continue. We expect continued increases in the term prices and hopefully we'll get the sole volume up and running, so we'll get earnings from the sole too. Strong earnings base, we have more legs to stand on, ensures positive free cash flow. The target, as Jens pointed out, is to reduce our debt, which yes, we have started to do. 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.
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. Of course, if the tanker market returns, eventually we will have very well positioned with an expanded fleet. Jens also said 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 as 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 entering.
We never said GasLog, rumors were that they were one of that we considered.
The question is more that you're now teaming up with Höegh and Golar. Could you sort of explain to us how the strength and that team was brought together and how you're thinking about developing the business going forward?
Well, it is known that of course the FSRUs that they're sitting on as floating storage. Most of those assets are underutilized. To be able to have access to that capacity and access to LNG through those FSRUs will give us good points to further distribute. We are looking at projects in all over the world, but in South America, there's no doubt that Golar has the Golar Nanook where we have access to that additional capacity for further distribution, which is something that we are currently working on. I think GasLog is a good shipping company. Höegh 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.
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. Might be opportunity 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. 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 then. You were talking about floating or to bring it to the OTC this year, and at that point sell $10 million of shares, that was from your own stake, was it?
No. What we're doing now is we're raising $110 million total. $11 million coming from the OTC. The shareholders have committed to $182, in case nobody invests, the shareholder committed to $182 for a total investment of $350. Of course, that might change depending on what we do. We are now looking at selling to some strategic investors, $11 million or 10% of the $110. The shareholders, because we have taken a $350 million commitment, have committed themselves to a total of $182. Us 50%, the others 25% each. Out of the $110, $11 million will come from potential investors. Then we will do a listing quite quickly.
Just one final. In terms of your adjustment costs that you were going back on in the press there, I can see on the bunkers.
$150 million of additional cost, we have to pass that through.
Yeah.
The industry has to.
The question, I suppose you already have a set of bunker adjustment costs in place, but are you done populating that towards the new type of fuel, or how do you, in practice, try to pass it on?
The contracts that we are renewing now, basically what we have said is that we have a walkaway right. 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. The additional cost of the MGO needs to be compensated which is not currently included in the bunker clause. 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. 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 that that cost, you can see the shape of the industry. We have to pass that on.
Final question in terms of terminals in 2020. One would think that, or at least you can tell, that this will also be positively affecting the tankage demand. The Brits have sent them out some new progress, to have some storage facility on that as well. Are you trying to do something in terms of new business on the tanking side for terminal side?
Not related to 2020, we are clearly seeing inquiries coming up. We are focusing on chemicals. That's our main business. 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. We are not taking any position towards that segment. Yes.
What's your view on installing scrubbers this year?
I think scrubbers. We have some scrubbers, and we are considering additional scrubbers. I think scrubbers is a short-term solution. I think the spread between the marine gas oil and heavy fuel oil or low sulfur fuel will be coming rapidly down, so maybe two, three years. The potential savings using scrubbers is so big, so the payback period can be very quick. Scrubbers is absolutely an option which we are considering. It's not a long-term solution. The long-term solution is low sulfur fuel that is going to be developed.
What type of ships is this? Younger, older?
The large ships, not the younger ones right now because they are not scheduled for dry dock, and they are more fuel efficient. It's the large, less fuel efficient ships. Scrubbers is not a long alternative for small ships because they don't have the space. It's the large less fuel efficient ships. Yes.
You mentioned you have seen limited change in demand over the past quarter. Just in light of the raised back tariffs between China and U.S., have you not seen any shift in demand for certain products, say soybeans for U.S. to China, for example? Have you not seen any shifts in demand here?
Soybeans? Soybean oil?
Yeah.
We ship soybean oil? We have one contract with a large Chinese customer of MDI being moved from China to the U.S. The MDI is on the list, which will affect our business. The customer will most likely source that MDI from Europe and ship it. We will still move it, but at a shorter distance. As we stand right now, 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 or 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. Yeah.
Regarding your MSC Flaminia case.
Yes.
Could you provide some color on the next step here and if this fine stands as it is would you be covered by some insurance?
Yes. Thank you for asking because this is important. We have MSC Flaminia, which there was an explosion and unfortunately, lives were lost, and the ship caught fire. There has been a trial in the U.S. between the parties, Conti being the owner of the ship, MSC being the operator of ship, Deltech, which is the owner of the product and Stolt Tank Containers with the tank container. Also, the freight forwarder and the port that handled the product, the terminal handler. All parties were involved. During the finding of facts, it was determined that all parties had a fault. Where the container was stowed, what temperature the product was loaded, where the tank containers were sitting during the summer period and heated up. It's a long story. During finding of facts, it was determined all parties had fault.
When the ruling came a couple of weeks ago, it was a bit of surprise to all parties that Stolt and Deltech 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 million for the ship. When I say we, this is all covered by insurance. There will be at no impact, cash or any wise, nothing on Stolt-Nielsen's numbers. It's all covered by our underwriters. Together with our underwriters, we are surprised of that ruling, and that ruling most likely will be appealed, of who was at fault.
The lawsuit which they are doing in the U.S. of claiming for $162 million for the ship is against the U.S. law states that you cannot sue and claim for money beyond the value of the ship before it exploded. From the numbers I received, is that the value of that ship before it exploded was $45 million or $40 million or $45 million. Now that they have spent money, instead of taking it as a total loss, they have spent money on fixing it and spent $162 million. According to U.S. law, you decide to go and build it and redo it. That's not the most economical way of recovering. This is not over. Most likely it will be appealed in regard to who is at fault.
When who's 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 million or is it the $42 million? It's a long way to go. I repeat, this is insurance coverage, so it will not have an impact for Stolt. Any other question here in Oslo before I open up for the phone? Operator, there's no further questions here in Oslo. Is there any questions on the phone?
If you would like to ask a question, please signal by pressing star one. We will now take our first question from Mr. Lukas Daul from ABG. Please go ahead, sir. 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? What would be the number of vessels that you could realistically equip with scrubbers by 2020?
Currently we have four scrubbers installed. We are considering or we are most likely going to install an additional 14 scrubbers. That's realistically the scrubbers that we will install on our fleet.
Okay, good. It's 18 in total. Then back to the discussion regarding passing through the bunker costs. I guess it's already a topic for you and your clients. 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, "Yeah, we'll take part of it," but they are driven by what is out there. 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.
For us to be able to recover it, we need, what is it, 15%-60% increase in our freight rates.
Okay. I think this year you have seen a very fierce competition on your competitors taking or fighting for the renewal of COAs, right? I guess it remains to be seen how they will respond to this issue two years from now. Don't you agree?
Absolutely. I mean, it is how fast you will burn out your balance sheet if you don't do it, and how long you can survive. It's clear that we cannot take on such an additional cost. It needs to be shared.
Okay. Thank you.
Thank 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.