Good morning, ladies and gentlemen, welcome to Ardmore Shipping's Q2 2021 earnings conference call. Today's call is being recorded, an audio webcast and presentation are available in the investor relations section of the company's website, ardmoreshipping.com. We will conduct a question and answer session after the opening remarks. Instructions will follow at that time. A replay of the conference call will be accessible any time during the next two weeks by dialing 1-877-344-7529 or 1-412-317-0088 and entering passcode 101589, excuse me, 10158719. Again, 10158719. If you require operator assistance, please press star then zero. At this time, I will turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore Shipping.
Thank you. Good morning, and welcome to Ardmore Shipping second quarter 2021 earnings call. First of all, I ask Paul Tivnan, our Chief Financial Officer, to describe the format for the call and discuss forward-looking statements.
Thanks, Anthony. Welcome everyone. Before we begin our conference call, I would like to direct all participants to our website at ardmoreshipping.com, where you'll find a link to this morning's second quarter 2021 earnings release and presentation. Anthony and I will take about 15 minutes to go through the presentation and then open up the call to questions. Turning to slide two, please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from the results projected from those forward-looking statements. Additional information concerning factors that could cause the actual results to materially differ from those in the forward-looking statements is contained in the second quarter 2021 earnings release, which is available on our website. With that, I'll turn the call back over to Anthony.
Thanks, Paul. In terms of the format for today's call, to begin with, I'll discuss financial highlights and recent product tanker market activity. After which, Paul Tivnan will provide an update on product tanker fundamentals and financial performance, I'll conclude the presentation and open up the call for questions. Turning first to slide four. We're reporting an adjusted net loss of $7.6 million or $0.23 per share for the quarter compared to $8.6 million or $0.26 per share for the first quarter. The result of extremely challenging trading conditions as a result of the pandemic, with a recovery now in sight later this year, which we will discuss in depth later on. Charter rates improved in the second quarter, representing continued sequential improvement from the lows seen in the fourth quarter of last year, we're now into a seasonally soft summer period.
Our MRs earned $11,600 per day in the second quarter, compared to $11,200 in the first quarter and $9,700 in the fourth quarter of last year. For the third quarter to date, we've earned approximately $10,000 per day, with 40% of the quarter fixed, an expected decline given the time of year regarding the seasonal slowdown. Our chemical tankers continue to perform well relative to MRs, with earnings of $12,300 per day or $14,000 on a capital adjusted basis, but are now following the product tankers down in a seasonally soft summer period. Meanwhile, in the face of these challenging market conditions, we continue to focus on operating performance, financial strength, and executing on our energy transition plan.
Operationally, we're performing well relative to the market and our peers, in anticipation of improving market conditions are looking to build earnings upside, most recently by adding another time-chartered-in Medium Range tanker for a period of up to one year at a rate of $11,850 per day. Regarding balance sheet strength, we closed and funded a $25 million perpetual preferred issuance with Maritime Partners, we also refinanced two 2015-built ships on a sale-leaseback basis with an existing financier, providing net cash proceeds of $15 million. In terms of our energy transition plan, we closed the Element 1 transactions in June, and among other initiatives, we are working on deploying the Lean Marine FuelOpt system across the fleet, which will improve our fuel efficiency and represents an excellent return on incremental investment.
As of quarter end, we had total cash and undrawn lines of $77 million, consisting of cash on-hand of $55 million and available undrawn facilities of $22 million and net leverage of 48%. We're in a very comfortable position financially, despite the ongoing market challenges. Moving to slide six for a summary of MR charter market activity. Rather than walk through the slide here in detail, I'd like to make a few key observations. First is that the increasing level of market activity during the quarter resulted in the third successive improvement quarter from the market bottom. While the market's been weak, it's felt quite normal in terms of the type and the amount of trading activity.
Second is that this level of market activity was sufficient to result in real moves in charter rates when the Colonial Pipeline hacking incident occurred, meaning that there was a sufficient base in demand to support a market improvement with relatively little increment. The third thing I want to mention is that if you introduce on top of this base of demand another 3 million bbl- 4 million bbl a day as expected by the end of the year, you should have a very healthy MR spot market again.mm
Fourth and finally, the shutdown of the Kwinana Refinery in Australia, which is discussed on the slide, is a case study in refinery dislocation, resulting in another 32 MRs calling there in the quarter or about 10 a month and representing roughly a half % increase in global MR ton-mile demand. That's small, but it's nevertheless incremental and permanent, and resulting from the retirement of just one relatively small refinery in an ongoing trend of shutdowns. In terms of our own fleet deployment, as you can see in the call-out box on the lower left, in the second quarter, we were 55% east and 45% west. 23% of our revenue days were from chemicals, and 19% of our fleet was time chartered out, meaning that if you deduct TC out and chemicals, only about 60% of our revenue days were exposed to the very challenging MR spot market.
With that, I'd like to hand the call back to Paul.
Thanks, Anthony. On the next two slides, we will take a look at the product tanker demand drivers, primarily underlying oil consumption and increasing ton-mile demand as a result of accelerated refinery dislocation. Looking firstly at global oil demand on slide eight. The global oil demand recovery is well underway. Current oil consumption is expected to increase by approximately four million barrels a day by the end of the year. Road fuel demand is coming back strongly and expected to exceed pre-COVID levels this September, while the recovery in aviation fuel remains constrained by border closures. Overall, demand across all refined products is expected to return to pre-COVID levels this winter as the vaccine rollout continues. At the same time, oil production is expected to increase to meet demand. OPEC+ are reversing their cuts, while other producing regions are gradually increasing their output.
Finally, oil product inventory surpluses have been worked through with current stock levels in line with the five-year trailing average. Moving to slide nine, we take a look at refinery dislocation developments, which is the key driver of ton-mile demand growth. Dislocation means shutting down of locally oriented refineries in developed areas, and subsequently supplying those markets with refined products transported by sea from refineries which are opening in the Middle East and China. As you can see on the map on this slide, there's a very clear trend in where the refineries are closing and where refineries are opening. Over the past few years, we have seen a redrawing of the global refining map, specifically closures in less efficient refineries in the U.S., Europe and Australia, and Japan. At the same time, significant refinery capacity expansions in the Middle East and Asia.
These new refineries are larger and much more efficient. While the trend has been ongoing for some time, the pandemic has accelerated the closure of smaller refineries. Approximately 4 million bbl a day of refinery capacity has been closed or announced since the start of last year. Most recently in June, it was announced that the 200,000 bbl a day refinery in St. Croix would close again indefinitely. Meanwhile, the new 400,000 bbl a day Jizan refinery in Saudi Arabia and the 600,000 bbl a day refinery in Al Zour in Kuwait are scheduled to come online later this year. Overall, refinery dislocation developments are providing a significant boost to our market, which will become more evident in the coming months as oil consumption returns to more normalized levels. Turning to slide 10, supply growth for product tankers remains constrained.
The significant increase in ordering activity in other shipping sectors is resulting in a crowding out of tankers and curtailing future supply. The order book is already very low. As you can see on the graph on the upper right, the product tanker order book is 6.7% of the fleet, with 208 ships delivering over the next three years. Net of scrapping, which we will go through in more detail below, we expect fleet growth of less than 1% for the next two to three years. On the graph on the lower right, you can see that the product tanker scrapping has significantly increased with levels so far this year, double 2019, 2020 full year numbers despite COVID-related challenges. 40 product tankers have been scrapped so far in 2021, equating to a run rate of 70 ships for the full year.
The scrapping levels are encouraging, particularly given the delays at scrapping facilities in Southeast Asia, where activity has been hampered by COVID restrictions. We also expect scrapping to increase in the coming years. Firstly, increased emissions and efficiency targets associated with the energy transition will put pressure on older and less efficient ships. Secondly, the product tanker fleet is aging. Currently, 240 product tankers are over 20 years old, equating to an average of 50-60 ships to be scrapped annually for the next five years. Looking further out, there are 930 ships over 15 years old, which would indicate a much higher scrapping rate over the next 10 years. Overall, based on the low order book and current and anticipated scrapping levels, we expect products and chemical tanker supply growth to be muted for the next three years.
Moving to slide 12 for a summary of our quarterly performance and financials. We're continuing our focus on cost control and efficiency improvements. Operating expenses are under budget at $15.1 million for the second quarter compared to $14.3 million for the same period last year, reflecting operational constraints in 2020. Looking ahead, we expect operating expenses for the third quarter to be approximately $16.5 million. Charter-in expense was $1.4 million for the second quarter, and we expect costs for the third quarter to be $2.3 million with the additional ship chartered in in June. Depreciation and amortization totaled $9.2 million for the second quarter, and we expect depreciation and amortization for the third quarter to come in at $9.3 million. Total overhead costs were $4.9 million for the quarter, comprising corporate expenses of $3.8 million, commercial and chartering of $600,000, and $500,000 of non-cash items.
As mentioned before, in many companies, the commercial and chartering costs are incorporated into voyage expenses, which means that the corporate cost is a comparable overhead. Overall, Ardmore's cost structure is amongst the lowest of our peer group despite our smaller size, with significant incremental improvement possible through scale. Currently, our internal commercial overhead costs are approximately 50% of market rate prevailing pool fees. For the third quarter of 2021, we expect total overhead, incorporating corporate and commercial, to be $4.9 million, including cash and non-cash items. Interest costs came in at $3.7 million for the second quarter, compared to $4.8 million for the same period last year. The lower interest cost reflects the floating to fixed swap entered into in May 2020. Currently, $270 million of our debt, or 70% of our debt, is fixed at a margin plus 32 bps through May 2023.
We expect interest and finance costs for the third quarter to be approximately $4.8 million, including amortized deferred finance fees of $460,000. As you can see on the chart on the lower right, we're maintaining a strong liquidity position with $55 million in cash on hand as at the end of June, with an additional $22 million available in undrawn lines. Turning to slide 13 for fleet and operations highlights. We're continuing to invest in the fleet to optimize operating performance. We had no dry dockings in the second quarter, but we have three dry dockings scheduled for the third quarter, including one ballast water treatment system installation. In total, we're forecasting CapEx of $6.2 million for 2021, comprising three dockings, one ballast water treatment system installation, and performance-enhancing upgrades. Forecasted revenue days for 2021 were 9,410.
We have five vessels fixed on time charter at attractive rates, representing 19% of revenue days for the third quarter. Overall, the fleet continues to perform well, with all COVID-related challenges continuing to be carefully managed. Turning to slide 14, we take a look at charter rates. As mentioned, rates have improved slightly from the prior quarter. We reported a fleet average TC of $11,800 per day in the second quarter, up from $11,350 per day for the first quarter. MRs averaged $11,650 for the quarter, comprising $11,800 on Eco-designs and $11,130 on Eco mods. Meanwhile, the chemical tankers are performing very well on a relative basis. As with previous quarters, we are presenting the charter rates on the chemical tankers on an actual and capital adjusted basis. The purpose here is to present the rates for the various vessels on a comparable basis to an MR.
Chemical tanker rates report at $12,308 per day for the quarter, and on a capital adjusted basis, the chemical ships reported $13,964 per day. Looking ahead, as of today, and already mentioned by Anthony, for the third quarter, we have 40% of our days booked on the MRs at $10,000 per day and similarly $10,000 per day on the chemicals with 35% of the days booked. Turning to slide 15. We are continuing to prioritize financial strength. We have a strong balance sheet and liquidity position. Total net debt is $321 million, with corporate leverage on a net debt basis of 48%. We refinanced two MRs with existing financiers on a sale-leaseback in June, with cash proceeds of $15.5 million after prepayment of debt.
In June, we completed the drawdown of $25 million on the preferred equity from Maritime Partners. The second tranche of $15 million is subject to final request and approval. Debt reduction remains a key priority under our capital allocation policy, with all of Ardmore's debt amortizing. We have scheduled debt prepayments, repayments of $19.6 million for the second half and are maintaining revolving credit facilities for financial flexibility. The preferred share issuance provides flexibility to prepay debt, reduce costs and cash breakeven levels. Finally, we have unrestricted available liquidity of $3.1 million per owned ship, which is amongst the highest of our peer group. With that, I would like to turn the call back over to Anthony.
Thanks, Paul. To sum up on slide 17, product tanker charter rates improved quarter on quarter, but we're now in a seasonally slow period. Chemical tanker rates are performing very well on a relative basis, with rates outperforming product tankers for the last three quarters, a trend we expect to continue. We also expect product and chemical tankers to lead an overall tanker market recovery given the expected very rapid recovery in Clean Petroleum Products demand. While the exact timing of a market recovery is unclear, we do expect to see meaningful improvement in tanker rates towards the end of the current quarter and into the next, as economies reopen in earnest and international air travel begins again.
Meanwhile, the MR supply outlook is very positive, with the scrapping rate now 3x-4x the level of 2020, and an ordering boom in other shipping sectors taking up yard capacity and driving up pricing. As we await a market recovery, operational performance and financial strength remain our top priorities. We also continue to pursue our Energy Transition Plan initiatives. We closed the Element 1 transactions in June and are working on other initiatives to drive improvement in fleet performance and emissions reduction. As a final point, we recognize that the purpose of these calls is to discuss economics, but we must remember the very real impact of COVID-19 on our operational world. In particular, our thoughts remain with our seafarers and their families, and we're working every day to ensure their health and safety through the pandemic.
We're very pleased to have co-led the Seafarers' International Relief Fund fundraising effort initiated in May, and we want to thank those of you who participated. With that, we're happy to open up the call for questions.
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Jon Chappell with Evercore ISI. Please go ahead.
Thank you. Good morning. Good afternoon.
Hey, Jon.
Hey, Jon.
Paul, my first one's for you. The Ardmore Seawolf and the Ardmore Seahawk refinancings. They freed up a fair amount of cash relative to the size of your balance sheet. Just curious, did you have to change the terms of those financings, take on a bigger spread? Then also, are there any other ships in your fleet, where you have the potential to do a similar refinancing and free up the same type of liquidity?
Good question, Jon. Specifically on those two ships, it's an existing financier, but they've moved from a bank facility to a sale-leaseback structure. The terms and the pricing of that would reflect the more leasing-type structure. A slight increase on the margin there. Yes, we would've a number of other ships in the fleet that we could put into those type structures if we need to. As Anthony pointed out, and I pointed out in my comments as well, we've got a strong liquidity position now, and that it doesn't feel like there's any immediate need for any financings like that for the next quarter or so.
Okay. Could you just say how many ships? It's good to know you have that option without a more dilutive necessity if need be.
Oh, yeah. No, we have, I think it's approximately eight or 10 ships on senior bank financing which we could transfer to if need be.
Great. My second question. I know you said you have 80 dry dock days coming up, as I read about this Lean Marine FuelOpt system and installing it on the entirety of your fleet, is this something that can be done in voyage? Is it something that's done just during the normal dry dock? Will there be an acceleration of dry dock days in the quarters forthcoming to do this? Maybe if you can just explain a little bit more the financial benefits of using this technology.
Sure. I'll answer and then pass it over on Anthony. No, the Lean Marine system, we've had it on one of our existing ships, trialing it for a period of time. That doesn't require any additional dry docking. It can be done on the run. The dry docking days, yeah, we had ships scheduled for dry docking in the second quarter. Yard constraints, they all now would be done in the third quarter. The 80 days would be pretty standard for that. In terms of the fuel benefits and payoffs, the payback on these things is a matter of months. I don't know, Anthony, if you have any further comments on that.
Yeah, it's probably close to $2 million across the fleet. We'll roll it out over time. There's no meaningful time out of service, and it can be done on the run, as Paul said. The IRR is about 75%.
Okay, great. Thanks, Anthony. Thanks, Paul.
Thanks, Jon.
The next question comes from Randy Giveans with Jefferies. Please go ahead.
Howdy, gentlemen. How's it going?
Hey, Randy.
Hey. Looking at the one -year time charter in, I really like that deal there, under $12,000 a day for the 2009 built MR. Is there a big discount there relative to maybe a modern or eco 2015, 2016 built MR? Any further appetite for further time charter ins here?
We're pretty selective in what we do. Probably an Eco-design would cost maybe $1,000 more because that's the additional incremental earnings from the fuel efficiency and a bit of commercial flexibility in the design. Yeah, time chartering in now, you could consider it a core part of our business.
Great. All right, then I guess second question. Obviously, the E1 deal is complete. You raised the $25 million in the preferred. Congrats on that. Any updates on timing for the additional $15 million in preferred equity and in maybe the use of capital, that $25 million or even $40 million?
Thanks, Randy. I'll take this. No update on timing. It's in the works. It's likely after the summer break at this point. In terms of use of proceeds, there's nothing earmarked for it right now. I think maintaining financial flexibility is a key priority for us. In terms of use of proceeds, debt reduction or opportunistic acquisitions or just investment in the energy transition. I think that the main priority right now is maintaining a strong liquidity position and maximum financial flexibility.
Got it. All right, well, that's it for me. Thanks so much.
Thanks, Randy.
Thanks, Randy.
Again, if you have a question, please press star then one. The next question comes from Magnus Fyhr with H.C. Wainwright. Please go ahead.
Yeah. Hey, guys. Just a couple of questions left just on the hydrogen joint venture. It's been six months in now. Can you kind of give us a little update on what's going on there and what our expectations should be over the next 12 months?
Thanks, Magnus. I guess e1 Marine, it officially closed at the end of June, on June 17th. The management team there, we put a managing director in place, and a marketing director will be joining in the next few weeks. They're busy. Right now they're working on class approval for the system and getting it marinized, I suppose, for the want of a better phrase. I think that it's possible we could have sales on the board this year, but more likely it'll be in 2022. I think right now they're working on the regulatory marinization. Significant inbound interest from the shipping community as well across all sectors. I think it bodes very well for that business. I would say likely 2022 before we get proper sales on the board.
All right, very good. That's it from me. Thank you.
Thanks, Magnus.
This concludes our question-and-answer session and today's Ardmore Shipping second quarter 2021 earnings conference call. Thank you for attending today's presentation.