Good day, ladies and gentlemen, and welcome to the Stolt-Nielsen Limited second quarter 2017 results presentation and conference call. For your information, 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 afternoon. Thank you for joining us for our second quarter 2017 results presentation. I will be referring to a presentation, which is posted on our website for you to follow if you're not hearing us. Moving to page three. Together with me, today is Jan Christian Engelhardtsen , CFO of Stolt-Nielsen. To the agenda on page four, we will go through the highlights of each of the businesses. Jan will take the financials, we will open up at the end for question and answers. Moving on to page five, the operating profit for Stolt Tankers, $27.6, that's down from $28. That is a reflection of the weakening of the market, but also higher bunker prices. Stolthaven Terminals operating profit $16.1, slightly down from $16.7 in previous quarter, mainly reflecting lower utilization at our terminal in Singapore.
Stolt Tank Containers, the operating profit $13.7. That is up from $9 million in the first quarter, reflecting higher shipping volume, also the first quarter is usually a slow quarter because of the Chinese New Year. Stolt Sea Farm operating profit before the fair value adjustment of inventory was at $0.7 compared to $2.2 in the previous quarter. If you include the fair value adjustment, we turn in a $1.7 million compared to a negative of $3.5. We will talk about that later, but what happened at the end of the quarter, the prices started to go up and then you have to write up the whole inventory. Corporate and others, an operating loss of $8.2 versus $4.6 in the previous quarter. Jan will talk a little more about that later. Legal expenses in the association with the separation or creating a standalone entity of Stolt Tankers.
Higher A&G expenses and slightly lower earnings from our joint ventures. Giving us a net profit for the quarter of $15.6 million compared to $15.2 in the previous quarter. Moving on to page six. This is the net profit variance analysis between the first and the second quarter. We had $16.2 in the previous quarter, slightly lower tanker operating profit, lower terminal profit, higher tank container profit, higher Stolt Sea Farm profit including the fair value adjustment, a negative higher corporate and other loss mostly due to legal and reorganization expenses. Loss on FX due to the weakening of the dollar compared to the EUR primarily. Higher tax expenses and others bringing it to $15.6, very similar to the previous quarter. Moving on to page seven, Stolt Tankers.
The operating revenue increased by 3.2% from previous quarter. That is mainly due to increased cargo volume in line with increased operating days and high utilization. Increase in operating days in the second quarter reflects more calendar days in the quarter. That is due to the delivery of new buildings. It is also offset by some of the recycling that we did and the redelivery of short-term time charter. COA renewals during the quarter were on average of the COAs that we renewed in the quarter, the average was down 4.9%. That compares to 6.1% in the previous quarter. Still down, you can interpret that maybe the decline is slowing down. Let's hope so. Moving on to page eight. This is the operating profit variance between the first and the second quarter. First quarter operating profit $28.5 million.
Higher trading results offset by higher bunker costs, net of bunker surcharge, higher equity income from our joint ventures. Bunker hedge variance compared to the first quarter of -$3.8 million and lower loss on sale of assets of a +$1.6 million, bringing us to $27.6 million. The bunker costs, a very big part of the tanker business, of course. Bunker costs net of surcharge, excluding bunker hedges, increased by $4.3 million. That is both the combination of higher bunker prices, also more operating days. The average price of IFO consumed increased to $316 per ton. That is compared to $306 per ton in the first quarter. The average price of the bunkers that we purchased in the quarter decreased to $311 compared to $328. Actually, going forward, we will burn that lower cost fuel, that should help.
The COA bunker surcharge cost covers on average 70% of our total volume year to date. In addition to the COA bunker costs, we have also some paper hedges. We have left some forward contracts and some call options. If you look at the 70% that is covered by COAs. We have today hedged half of the 30% until the middle of 2019 through these contracts. You can see the average price or forward price, the highest being $315 in 2018. Moving on to page 10. This is the order book. As we presented, this consists of 18 owners that we compare ourselves to. You can see, as we have been talking about for a long time, it is the order book which is the challenge. The order book, as it stands is 16.7% of existing fleet, which is basically all English steel at this time.
You can see that the yellow represent what has been delivered in 2017. Blue represent what is going to be delivered the remainder of the year in 2018 and 2019. As we have said several times, we thought the turnaround was going to come in 2018. The latest that we have said in fact is that we hope that the turnaround or the improvement is going to come in 2019. This is very much driven purely by the supply of new tonnage coming in. COA rates. I am on page 11 now. COA rate cargo increased 74% from 71% in the first quarter. That is due to more assets being lifted in the second quarter. That is the asset that we load from Dakar to India and Aqaba to India. Big part of the business.
You can see the assets are such high volume, so when it's high asset movements, usually you see that the average COA rate for the quarter will also go down. Compared to previous quarter, the COA volume increased and spot volume decreased this quarter because days per operating days increased by 4% in the second quarter compared to the previous quarter. If you look at the charts, you can see that the STJS, Stolt Tankers Joint Service is still pointing downward trend. Let's be positive here. You can see also the bottom line, and you can see the red line, which I hope is a small sign of the spot market starting to pick up a bit. Page 12. The first quarter spot rate recovery is seen mostly in commodity rates that has stalled. Some markets show positive trends.
We have seen some positive signs in the U.S. Gulf and Far East. Let's hope that at least the slide has stopped and that we have seen a slowdown in decline. The MR market earnings dropped below $1,000 per day before recovering somewhat in recent weeks. Swing tonnage remains in the chemical trade, which gives a higher earning than the other trades. Spot, indicating that when the MR market is weak, it spills over into our market. Spot rates appear to have bottomed out, but weakness continues to pressure the COA renewals. The high order book continues to provide surplus tonnage and with an uncertain MR market, we expect rates to remain under pressure also in 2018.
Having said that, a lot of the contracts that we will serve in 2018 has already been renewed, and that's reflected in the announcements that we say in the first and the second quarter of this year. We go into the first and second quarter of next year, and that's the rates that we will operate on. Stolthaven Terminals, page 13. Revenue increased to $1.6 in the second quarter, was mostly due to some cleaning revenues in Houston and Singapore, but that was also offset by lower utility contributor revenue. Utilization dropped from 91.1% to 87.5% due to the expiry of certain contracts. Operating expenses increased 4.3% in the second quarter. That's mainly due to higher rail activities at Stolthaven in Houston and higher cleaning costs at Stolthaven in Singapore. Contribution from joint ventures improved 11.4% at the Lingang terminal.
The one that was closed for almost a year is now up and running again, and we're ramping up the terminal. Looking very quickly at the variance with operating profit variance on page 14. $16.7 in the first quarter lower gross operating margin by $100,000. Higher depreciation due to increased capacity, negative $300,000. Higher equity income from the joint venture of half a million and higher SG&A expenses of $0.7 giving $16.1. Just to give us a market update on page 15 for the terminal business. The Brazil market is back and is strong, driven by diesel imbalance. New tanks expansion has been approved to take advantage of that strong market. We just actually won a contract, a 20-year contract, solid 20-year contract in Santos. U.S. remains stable.
Construction of a new jetty in Houston has started, and we are implementing a new terminal management system at Houston and New Orleans. The Asian market, especially Singapore, remains challenged and the utilization drop that you see is very much driven by Singapore. Singapore market, the Singapore economy is a challenge. We have a utilization there of some 80%, which, of course, we're working on renewing some of the business that we've lost. It is a bit of a challenge. The Korean market is performing well, both chemical and petroleum products. Europe is stable. Our global project to improve the sustainable profitability and growth of Stolt is ongoing, with the main focus to confirm operational excellence and capital project excellence. Here is a picture of the famous east property. We have cleared it and are leveling it.
You can see the Houston Ship Channel at the bottom of the site. That is where we will build our new jetty. You can see the land there is all available for future expansion. Stolt Tank Containers, revenue up on page 17. Revenue up 14.1% in the second quarter due to increased shipments, improved demurrage billing, and higher additional charges. Shipments increased 7.7% on the back of strong demand in both food grade and chemical sectors in almost all regions versus the previous quarter. We saw a significant pickup in the tank container business. Just quickly before we talk about the market, page 18, operating profit, $9 million in the first quarter. Higher revenue due to increase in shipment of $16 million, offset by higher operating costs due to the increased number of shipment of $11.8 million. No depreciation due to one-off reduction in residual value in the first quarter.
No equity income from the joint venture and others, bringing it to $13.7 million. Nice pickup in Tank Container. Page 19, strong demand in all regions. Working towards increasing both utilization and terms per tank, as always. Margin deterioration may have bottomed out. Price competition continues to limit revenue and margin growth. Working towards improving pricing and margins. The key, of course, is to control operating expenses and passing those increases through to our customers. Focus on system development and implementation of global platforms to increase efficiency and scale of operation while reducing overhead. Continue to develop and expand our depot network while expanding services in existing locations in order to support global operations. Lease tanks when needed to meet future demands. There are leasing opportunities there. Quite aggressive competition on the leasing side.
If we need any more containers, there are leasing deals out there that are quite attractive. The tank container market is usually a first mover, and it's very encouraging to see that the activity in tank containers has picked up. We transport the feedstock for manufacturing in tanks. People like to maybe ship more frequently with smaller volumes. Also, when the market starts picking up, we usually see it first in the tank container market. The challenge in tankers is not the demand side. The nominations are very much in line. They are not at pre-2008 levels, but the volumes being shipped are normal. It is the supply of new ships coming in. All of these 19,000 tonners and 25,000 tonners and some 30,000 tonners are now coming in in 2017. They are all over the place trying to find work.
It's not the demand side, unfortunately. It's the supply side. Moving on to fish. Volume of turbot on page 20. Volume of turbot was up 7%, but prices were down 10% due to higher seasonal wild catch entering the market. Volume of sole was up 17%, but prices were down 3% due to some promotions that we did. For caviar, volume and prices were down during the quarter due to the continued shift of direct sales. Fair value adjustment of inventory had a positive impact of $1.7 compared to the negative of $3.5 in the previous quarter. Quickly, page 21. First quarter was an operating profit of -$1.2. Lower gross profit from turbot, lower sole gross profit, lower caviar gross profit. Towards the end of the quarter, the inventory prices went up. When the prices went up, we had to write up our [inaudible] $3.2.
Same thing for sole and same thing for caviar. Slightly higher depreciation and higher A&G brings the operating profit for the quarter to $2.4. Last slide before I give the presentation to Jan. We did just the subjects on these two ships, the 7,500. Just to remind, the strategy here is there are so many projects out there that need this type of ships. We are in discussion with many companies. Our strategy is really not just to time charter out the ship. That's not really. It's a backup. We can do it, and we have several interested parties to take the whole ship in charter. Our idea is there are so many of these projects that don't need a full ship, the whole ship. Our job is to see if we can help, saying that you could take part of your ship.
We partial out an LNG carrier. In the start phase when companies are switching to LNG, you start up with low volume. That low volume doesn't justify a whole ship. We will put a package together. Through that, I think that we will be able to get, based on the numbers and based on the discussions that we are having now, superior and very good return. If we're not able to get a satisfactory rotation on that package, I think the timing of these ships coming in 2019, based on the commitments a lot of oil companies and a lot of power companies have in supplying LNG to the cruise line and to the ferries in the Mediterranean. I think the timing is very good, combined with the very good price. That completes my part of the presentation.
I will be back later in regard to question and answer, but now I give it to Jan for financials.
Thank you, Niels. I will, as normal, go through and give a little bit more comments to some of the figures that we have reported today. I also wanted to just say that we have filed with the Oslo Stock Exchange our interim financials for the entire six-month period from December 1 through May 31. That is with the Oslo Stock Exchange. In addition, you will find the press release, you will find the interim financials plus this investor presentation on our website. Going now to the next slide, the net profit slide. You can see here that operating profit before one-offs is $53.7 million, which is up from $51.8 million. It is worth then, that is before one-offs. If we look at the one-offs, you see here that we have a loss on sale of assets is significantly down from what we reported in the first quarter.
In the first quarter, we did the recycling of Stolt Hilli, and on that we actually took a hit of $2.1 million. The $0.6 million in the second quarter is just a combination of a number of smaller transactions. Next worth mentioning here is the reorganization cost. Maybe it should rather say restructuring cost. This is related to an effort that we have going, which is to separate out Stolt Tankers into its own legal structure. That is a project that started last year, and we are now well into it by the end of the quarter. In this connection, we had adopted legal and tax advisory fees of just under $1 million. This part of the restructuring will be finished, if you will, by the end of the third quarter. Next time we meet, we expect to have that restructuring complete.
It is worthwhile to say that then we will have a clean legal structure starting with Stolt Tankers Limited as a Bermuda company, and with all the tanker activities under that structure. Let me just remind you, however, that the company will still be owned 100% by Stolt-Nielsen Limited. That is the project that we are talking about now. If you look below the operating profit line, net interest is in line with last year or last quarter. The dollar, as Nils already mentioned, we got that a little bit against us as it lost ground to the European currencies. Income tax is a bit higher, this is primarily because the Stolt Sea Farm results, as you saw, are higher due to the fair value adjustment to the inventories. Also in the first quarter, we had a couple of favorable tax adjustments, one in Singapore and another one in Santos.
Moving to the balance sheet. You can see here that the shareholder equity of $1.41 billion, that is very much in line with what we reported at the end of the first quarter. Debt is, you can see here, $2.53 billion, and that is up from $2.48 billion. It is up by $50 million. What did we actually do during the period? Well, we did refinance the Singapore terminal facility that we have. It is maturing later this year, but we already have replaced it, and we actually increased the amount to get a better loan-to-value on the terminal. That actually was a transaction that was signed up very last few days of the second quarter. That gave us additional liquidity of some $75 million. In addition to that loan facility, we also had the delivery of the fourth C38 ship from China.
In that regard, we drew down on the facility with the Chinese Exim Bank of also $48 million. That was the end of the quarter. The debt to tangible net worth, you can see here, is up to 1.6 to one, higher actually than what we would like, and it's up from 1.55. It is important here, to what I just said, that when we did the refinancing for the last few days in the quarter of the terminal in Singapore, we actually were left with $50 million of cash that we could not utilize to reduce the debt. It was at the end of the quarter. Therefore, the cash balance is significantly up from where it was at the end of the previous quarter.
If we had been able to take that excess cash, and just as we did actually into the third quarter, if we had used that $50 million to reduce the debt, we would have been down at 1.56 to one. Again, very much in line, slightly above the one and a half to one self-imposed limit, but nevertheless, very much in line with where we were at the end of the first quarter. EBITDA to interest, 3.56. That's down from 3.61. I talked about the cash of $122. Together with the remaining amount that we have on liquidity on the revolver, $247, of uncommitted lines of $85 million, basically talking about a liquidity right now that we could access of $454 million. Excuse me. Fixed in terms of interest on our loans are now just under 70% fixed, 31% is floating.
The average interest for the quarter was 4.4%. We're very satisfied with that. The interest that we seek per quarter will be roughly $30, $31 million. Going to the cash flow, this also needs a little bit of explanation. Cash flow generated by operation of $104 million. That is significantly up from the first quarter, and that ties in with the fact that during the first quarter, we had just acquired Jo Tankers. We were in the process of integrating their ships and their operations into our own operations. As part of that process, the accounts receivables related to Jo Tankers were actually building up. We were tying up more and more in not collected, and tying up more working capital. In the second quarter, all of that was corrected, and that's why you see the difference between the first and second.
Now it's just back to where we should be as far as the third quarter is concerned. Capital expenditures, we already mentioned the fourth ship from China, and we also did $25 million of investment in our terminals, a little bit spread to Houston, to Singapore, to Australia, to some of the other European terminals. In addition to that, we also made the last payment. This is part of the contract to when we acquired Jo Tankers. After we closed the deal end of November, there was a period where we went through in detail all the financials, the updates, and trued up the balance sheet transactions, and then the $21 million you can see here, Jo Tankers final payment, was made in the second quarter. This is all nothing new, doesn't change the price, it's just the cash impact.
If we look on the debt side, we did issue new long-term debt. I already mentioned the Singapore refinancing we did and the China Exim Bank. With regards to the Singapore, what is interesting there is the fact that we have been approached by a new consortium of banks. This was like UOB, DBS, OCBC and ANZ. That for us is a little bit of a new consortium that came in and said, "We want to finance the terminal. We want to be doing business with you." For us, that was very good so that we don't always have to rely on the European banks. We raised that financing. We repaid the financing that we were replacing in Singapore. We also paid dividends of $27 million.
You can see here then that caused an increase in the cash. Next slide, EBITDA. In this slide, as we always say, we take out any gain or losses on sale of assets. We take out any adjustments to the fair value of the inventory in Stolt Sea Farm. You can see here, yes, we had a little bit of headwinds in Stolt Tankers in the second quarter on the EBITDA. Stolthaven Terminals was more or less the same, very flat. Stolt Tank Containers shows a nice increase, and for the group as a whole, $116 million on a consolidated basis, which in a summary of analyst reports that I saw that we have done internally, I think the figure actually was 117. Not far away from that. A&G expenses here, $54.1 million, up from $51.7 million.
There's a little bit of increases in Stolthaven Terminals relating to some legal expenses that we have had of some $350,000. At the corporate level this is more a catch-up from the first quarter. I think we under-reported slightly some of the corporate A&G costs. You can see we were actually positive $1 million in the first quarter, against $0.9 million negative as an expense, if you will, in the second. Part of that actually should have been in the first quarter. I already talked about the $900,000 for the tax and legal consultancy fees tied to the restructuring of Stolt Tankers. Likewise, you can also see that the profit sharing in [inaudible] is down, again, given the performance so far. The figure that we have for third quarter is $54.6 million. Next, depreciation. Here we're at $64.2 million. Last quarter was $64.9 million.
Not really much to say other than in the first quarter, STC, as you saw from Niels chart, we did an adjustment to the residual value of our Stolt Tank Containers as the steel price went down. We actually made that adjustment in the first quarter, which hit the P&L by $1.3 million. It's all according to the IFRS rules. Going forward, $65.6 million is the depreciation, and of course, that reflects now the delivery of the new ships from China. Next, share of profits in JVs, slightly better than in the previous quarter. This also relates to the fact that we now get the full benefit, if you will, of the ships that we have in the joint venture with J.O. It's a joint venture company called Hassel4. That has, if you will, more ships, more days, and those ships are now trading in STJS.
We expect that this figure for Tankers will actually increase. The corporate one, negative $2.7 million, is of course us picking up our share of Avenir LNG where we have a shareholding. Going forward, I think we're saying for the quarter, $4.8 million. Taxes, I think we already talked about $3.4 million versus $2.4 million. Really tied mostly into the increase in Stolt Sea Farm because the fair value adjustment is positive tax. Capital expenditures, again, this needs some explanation. You can see here that the total in the second quarter alone was $88 million. Yesterday, Q 2017, for the first two quarters, we're at $217 million. For the remaining of 2017 plus the next four years, we're talking $538 million. That's the capital expenditure program that we have. Out of that $538 million, roughly 60% is in the rest of 2017 and into 2018. That adds actually up to $340 million.
Out of the $340 million, we have financing for $60 million because that's one of the ships, the last ship actually with China, the C38. We expect that in the same market that we are today, that there will be a cash flow over this period, the rest of 2017 and all of 2018, to about half a billion dollars cash from operation. We will repay $220 million of scheduled debt payments, that nets down to $340 million, which is basically taking care of the CapEx program. That's how it looks like. It's important then to add that then we have assumed that the balloon payments that we have, the maturities of existing debt in that period actually will be refinanced.
With that in mind, it's fair to say that we do believe that the debt to cash flow net forward will not change much going forward through this period on the assumption that the market stays more or less at the same level. Of course, there are things we can do to hold back on the CapEx should the market conditions change. Next slide, which is the debt maturity slide. The blue is just the regular amortization. The green is the balloon payments and the orange, the bonds. In 2017, since the end of the second quarter, we have actually already repaid half of the balloon payment that you see here for $100 million and we're in the process of doing the rest. We don't see really any problems for them. For 2018, there's a bond, as most of you know, in April, $164 million.
Depending again on the market, we will test out the market later on in the second half of 2017 or early 2018. Part of the green bar for 2018 is actually related to financing that we took up in connection with the acquisition of Jo Tankers. Some of you may remember that or recall that we got the $200 million where that financing was short term, two years. We're just going to seek to roll that over. Again, talking to the banks, talking to the parties involved, we believe that that will be done without any issues. With that, back to you, Niels.
Thank you, Jan. Net profitable quarter, $15 million, very much in line with the first quarter. The integration of Jo Tankers is progressing as planned, focusing on realizing the synergies and improving the overall operations. We see a continued soft market in tankers with a significant new building order book deliveries. Strong demand in tanker trades and the fundamentals in terminals remain solid. Stolt Sea Farm while were above price is negatively impacted by [inaudible], so I think that will come back. As Jan told you, we have access to competitive funding. We have unencumbered assets, several terminals that we can use as collateral. The group has sufficient liquidity, and the CapEx is partly funded. However, we have gone up to 1.55, as Jan said, and our focus will be on debt reduction and also getting cash flow from the investments that we have made. That completes our presentation.
We will now open up for questions and we will be able to answer them. Operator, we will start here in Oslo, and I will try to repeat the questions on the listening so I open up the other questions. Any questions in Oslo? Yes.
You had mentioned the sort of priorities for using your cash flow that you generate in the space and you want to reduce debt. Bar in 165, 166. Regarding also the dividend.
Of course, we need to have historically, as you know, I would think over the last 14 semiannual dividend payments, we have paid around $1. We have on occasion reduced it to $0.50 or two times $0.25. If we feel that the debt is not coming down fast enough, that is, of course, something that we will consider, which of course has a quick impact on our balance sheet. We continuously have a five-year plan, and we update it. Based on the latest updates that we have done for Stolt Tankers , we believe that 2018 is going to be tough. It's going to remain the same as 2017, so no recovery in 2018.
With that scenario and assumptions for the other businesses, we think that will come down to 1.5 next year without doing anything. Then it will go dramatically down as you see that our capital expenditures are reducing. Of course, that is something that we do not do anything for on term investments, but I do want to get it down as quickly as possible. There are other things that we can do and that we are considering. There are, I would say, some gold nuggets of non-strategic importance in the company which we can sell, which we are considering selling. I am not going to rush out. I will only sell those nuggets if we can get a good price, and that might take some time, but that is something that we are working on non-strategic assets that has been collected over the years in the various businesses.
Yes, it is above one and a half to one, and it limits us from pursuing opportunities, which we would love to do. I feel that we have quite a few optional cards to play with to get it down or to manage the situation if the market should change. There are things that we can hold back on investment. I question the ability for us to be able to use the remaining CapEx that is scheduled for 2017, that most likely will be pushed into 2018 and 2018 into 2019, et cetera. There are things we can do.
Does that raise based on those 15 or those 17 today? I think it is like
No, not really. We will tell you once we have done it. It is marketable assets which, yeah, there is a market for.
Would there have been a thought to sell it to set up this structure for the tankers by others?
We have, over many years, tried to make various approaches to J-O, buy others. We have talked to several operators and looked at it. What we have said earlier is Stolt Tankers have split our fleet into two, parcel tankers and chemical tankers. Parcel tankers are the large, sophisticated, with high segregation ships. The chemical tanker fleet are still stainless steel, but less sophisticated and smaller ships. We most likely will continue to build our own ships for parcel tankers. There's a relatively small market for those ships that have 40+ segregations, 38,000 deadweight. There's few operators and very few ships in the second market. On the chemical tanker side, there are many more operators and more opportunities. That is also where it's a big challenge because there's an oversupply, but that's where there's room for consolidation.
We have said that we will build the parcel tankers, and we will buy and operate in the commodity chemical tanker segment, but the price needs to be correct. We looked at J-O, was there really a replacement for the parcel tanker segment? Told us that we need it. If we're going to do a second deal in the chemical tanker segment, it needs to be a good price. If it's not a good price, forget about it. You know the yard situation, how many ships are out in the market. No, you're never going to be able to get a return if your acquisition cost is too high. We need to be disciplined to make certain that we acquire secondhand ships or do a consolidation at the right terms.
If that situation, if the market is not there now, well, if the opportunities are not there or we're not able to come to an agreement, we adjusted the J-O deal where Stolt Tankers can stand alone as it is.
You think by your asset involvement in assets and also some ships, is that right? Is that so?
No. We're open for chemical tanker, but as I said, we need to get the right price. Yes.
You're using [inaudible] selling at the same time as you are investing in this new area, LNG, which by its own should be considered to be non-competitive. If I read you correctly, are you further away from investing in LNG today than what you were six or nine months ago given your more focusing on the tanker side and more focusing on capital preservation?
Of course. We took the step. We believe the deal that we had with Capital for those two ships were too expensive. We've been able to get an extension several times. We listed the subject. We wanted to have more business for those ships, but we have been convinced that by the time those two ships have been delivered, we will have plenty of work for them. We will have good business for them. We are very convinced, and that's why we listed the subject. Had our balance sheet been stronger, I think that we would have been more aggressive in our growth within LNG. Our appetite to grow in that segment, in that small scale segment, is still there. As you point out, we need to be a little careful with our balance sheet.
Although we have a stronger balance sheet.
We couldn't automatically assume $220 million in net income to exercise on the three options.
Not as it stands now, unless, of course, we can do. There are things that we can do structurally also. We can look at partnerships and such and such.
How about the ships?
We have to be disciplined. I want to get the debt level down. Yes, go on.
The [third pier] for the new jetty in Houston will be completed sometime after the expansion of the terminal previously. Could you just in layman explain a bit why there is a delay between expansion of the terminal and the new jetty coming inside? I'm sure it's an almost stupid idea that you need a jetty. It might be what their permitting process takes a long time expected or?
I'm sorry for the viewers that are calling in, it's difficult to see but if you see, part of this is Oiltanking or Enterprise it's called now. This area here, basically where you see all the small tanks, are our tanks. Not this.
Right.
All of this, you can't see all of it, is for the existing jetty. There, two and three. We bought strategically, my brother actually did it, 12 years ago, this piece of land. The only expansion that we have done for this property are those tanks. As you point out, it took quite a long time. It's been taking quite a long time to get a permit from the authority to build. We had to change the design because you can't go too far into the channel. We were talking about it. We came up with a design that was finally accepted. It makes sense. It's investing. It's a $45 million investment to build. You need to dredge, and you need to build.
We cannot expand our Houston terminal until we have more jetty capacity because first of all, the dock is full here and the utilization of our existing two jetties is full. For us to be able to develop this land, we have to be able to build a jetty. Those tanks are connected also to the existing. Our plan is that all of these tanks should be able to be used with those jetties. The bottleneck for us to further expand our Houston terminal is the jetty capacity. Of course, also when you have more jetty capacity, waiting time at the terminal, even though that doesn't show up on our P&L on our terminal side, but it will improve on and reduce the waiting time for our ships.
A big part of the decision to build an additional jetty is to get the waiting down. Most of the terminal customers are tanker customers. We're trying to push our tank customer to our terminal so that we reduce the number of ships that we do in the Port of Houston.
You're saying owners first?
Yes. The question could be asked, what are we going to do with this land? This is prime real estate. This is good stuff. As you read, chemical industry with all the expansion plans coming as a consequence of shale gas and shale oil is highly sought after property. We are consistently or continuously challenging our own strategy about owners first and pushing these partial customers. The alternative is to have pipeline customer, 20-year contract, less sophisticated, maybe higher throughput, less operate. We're looking at a stand-alone terminal business. We're looking at what gives us the highest return. Is it to continue to serve the chemical tanker customers, or is it to look at the It can be a chemical tank customer, but not necessarily the higher sophisticated small parcels. It's something we consider. The business is there.
We're looking at quite a few businesses. To develop this, it's expensive. Right now, we'll get the jetty up and running.
What do you think was the price of the three $405,000?
$40 million?
$40 million. How much each?
Yeah, that's approximately the cost that Anchorage or, what's the name of the company? Chemtran paid for them, right? Chemtran? Is it Chemtran? Yeah, Chemtran paid for them. That's approximately the delivered cost for Chemtran. I think that the new building market has come off slightly. I think that it's a great rule by Stolt. It's good for the industry. They get the ships that they need and without ordering any new ships, I think it's good news. If it's possible to get $1 million, but in three a time, $1 million here and there. I think it's a fair price.
Not that the position declined 1.4% from the previous quarter. During that quarter, are you referring to the operational contract there?
Singapore.
Yeah. Do you expect to get back up to the original contract?
Singapore terminal is still very profitable, there is an ExxonMobil contract there that we had, which was a big part of our business. Part of that business went to one of our competitors. We are looking for a replacement, and there are quite a few leads, the market out there, it's a bit sluggish in Singapore. That's straight to the bottom line if you get a new business. There are leads, and we're working on it, we don't have anything firm now.
On the technical side, you said margins and costs, you believe prices are bottoming out. Some partners are saying that the margin, if you need to chop in cost, will the prices continue to decrease is what you are telling us?
Well, the liners have been very good at getting their prices up. What they charge us has gone up, which is a pass through cost for them, of course. It is also usually good when the liner market starts going up. Our margins or our pass through also goes up. I think some of the improvement that you have seen is just the activity has picked up, but with the increase, in some trade lanes, you have seen some [inaudible] increases from the liners. We have benefited from that too. Yes, we continue to have cut costs, the key to the difference is being able to reduce the number of empty repositioning. Yet we have cost exercises everywhere and sometimes have to cut back and keep it forward. I think that the activity has picked up.
You see our utilization is now up to 74%, 75%, which is helpful. There is cost cutting and there is the liner increase, there is more activity.
How about competitors?
I think, as I said earlier, I think that we have been at the level where they're losing money, or some of them are losing money. It's very difficult to know because we are the only one that are public, so it's very much rumor based.
From the [inaudible] return in LNG, it's pretty good guidance on that.
If we achieve the strategy or the project that we're working on parceling out the small ships, we will get higher than that. There on paper, it's just to be able to secure and operate it, but it looks pretty good. If we want to and just time charter the ship out for a 10-year or 5-year period, then we will get less than 15%, and we get 8 or wherever is the lowest requirement on the return. That's not really what we're after. It's always a backup, but what we're after is trying to, again, build up a program, a rotation in the Mediterranean where we are into COA, so park time charter for ships there, where we will get the ship and hopefully not go empty. It's quite difficult because you serve the cruise ships.
The cruise ship is there at five o'clock, and you have to be there at five o'clock. It's possible. It's exciting. With the opportunity, we are being approached. Everyone now is converting their ships to be powered by cats. It's quite a few of them, and quite a few of the oil companies are also have committed themselves to supply that LNG. I think there are a lot of opportunities. I'm not going to start swearing yet. It's very exciting. I think that if this is where we, the rotation of ships and triangular trade, that's what we are good at. Operator, could you ask if there's anybody on the phone that would like to ask some questions?
Certainly, sir. Ladies and gentlemen, if you would like to ask a question via the telephone, please begin by pressing the star or the asterisk key, followed by the digit one on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open to ask your question. Please state your name before posing your question. Once again, it's star one to ask a question via the telephone. We'll pause for just a moment to allow everyone to signal. There are no questions in the telephone queue, sir.
Thank you. Thank you all for coming. I wish you a good summer. That completes our second quarter earnings news. Thank you.
Ladies and gentlemen, this will conclude today's conference call. Thank you all for your participation today. You may now disconnect.