Good day, and thank you for standing by. Welcome to the Q2 2022 DHT Holdings Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Laila Halvorsen. Please go ahead.
Thank you. Good morning, and good afternoon, everyone. Welcome, and thank you for joining DHT Holdings' Q2 2022 earnings call. I'm joined by DHT's President and CEO, Svein Moxnes Harfjeld. As usual, we will go through financials and some highlights before we open up for your questions. The link to the slide deck can be found on our website, dhtankers.com. Before we get started with today's call, I would like to make the following remarks. A replay of this conference call will be available at our website, dhtankers.com, until August 18th. In addition, our earnings press release will be available on our website and on the SEC EDGAR system as an exhibit to our Form 6-K. As a reminder, on this conference call, we will discuss matters that are forward-looking in nature.
These forward-looking statements are based on our current expectations about future events as detailed in our financial report. Actual results may differ materially from the expectations reflected in these forward-looking statements. We urge you to read our periodic report available on our website and on the SEC EDGAR system, including the risk factors in these reports for more information regarding risks that we face. The company continued to show a very strong and healthy balance sheet, and the quarter ended with $106 million of cash. At quarter end, the company's availability under both revolving credit facilities was $188 million, putting total liquidity at $294 million as of June 30th.
Financial leverage is about 28% based on market values for the ships, and net debt per vessel was $15.7 million at quarter end, which is well below current scrap values. Looking at the P&L highlights, EBITDA for the second quarter was $32.5 million, and net income came in at $10 million equal to $0.06 Per share. The result includes the gain related to sale of vessels and a non-cash gain in fair value related to interest rate derivatives. The company continues with a good cost control with OpEx for the quarter at $18 million, equal to $7,800 dollar per day, and G&A for the quarter at $4.2 million.
In the second quarter, the company achieved an average TCE of $24,300 per day, with the vessels on time charter earning $33,800 per day and the vessels in the spot market earning $21,200 per day. For the third quarter, 68% of the available days have been booked at an average rate of $23,600 per day, and 58% of available spot days have been booked at an average rate of $18,400 per day. We sold two vessels during the quarter, DHT Hawk and DHT Falcon, for $40 million and $38 million, respectively. The sales generated a combined gain of $12.7 million. In connection with the sales, we repaid outstanding debt on the two vessels of $13.3 million.
Both vessels were delivered during the second quarter, and net proceeds amounted to $62.9 million. Following these sales, the average age of our fleet has been reduced, and our AER and EEOI metrics improved. Part of the net proceeds were used to reduce debt. In June, we prepaid $23.1 million under the Nordea credit facility. The voluntary prepayment was made under the revolving credit facility tranche and may be reborrowed. On the next slide, we present the cash bridge for the quarter. We started the quarter with $58.6 million of cash, and we generated $32.5 million in EBITDA. Ordinary debt repayment and cash interest amounted to $9.1 million, while $19.2 million was allocated to shareholders through share buybacks and dividend payment.
$4.5 Million was used for maintenance CapEx, while net proceeds from sale of vessels amounted to $62.9 million. $23.1 million was, as mentioned on the previous slide, used to prepay long-term debt. $8.3 million was the initial cash recognition from Goodwood, and we ended the quarter with $105.8 million of cash. Switching now to capital allocation. During the second quarter, the company purchased 2.8 million of its own shares, equal to 1.7% of the outstanding number of shares as of March 31st, for an aggregate consideration of $15.9 million. In addition, the company will pay a dividend of $0.04 per share for the quarter. It will be payable on August 30th to shareholders of record as of August 23rd. This marks the fiftieth consecutive quarterly cash dividend.
With that, I will turn the call over to Svein.
Thank you, Laila. Following the share repurchases conducted during the second quarter, as discussed by Laila, we continue to buy back stock after quarter end under the 10b5-1 rule. We have third quarter to date acquired some 1.5 million shares at an aggregate cost of $8.8 million at an average price of $5.87 per share. Considering buybacks conducted in 2021 and buybacks made year to date, we have in total bought back close to 10 million shares, equaling some 6% of the company's capital. With a total consideration of $57 million, the average price of these repurchases is $5.77 per share. We consider this to be a great and an accretive investment, and all shares have been retired upon receipts.
During the quarter, we agreed to refinance the bilateral credit facility for the DHT Tiger with existing lender Crédit Agricole. The structure is in line with the DHT style financing. $37.5 million made up of $2.5 million per year of the remaining life of the ship. It has six-year tenure and a 20-year repayment profile. The pricing represents a new low for DHT's borrowing costs at a secured overnight financing rate, also referred to as SOFR, plus a margin of 2.05%. It includes a historical credit adjustment spread of 26 basis points between SOFR and LIBOR. As this is a new structure that will replace LIBOR, you should note for reference that this pricing is equal to a LIBOR plus a margin of 179 basis points.
We typically have a mix of spot and fixed employment for our fleet. However, it is not formulaic with a percentage of the fleet employed one way or another, but the focus on the nominal rates and tenors that in our view will contribute meaningfully to the business. We have entered into a five year time charter for the DHT Osprey at $37,000 per day. Delivery is planned for August, and the customer has options to extend for an additional two years at $40,000 and $45,000 per day respectively. The key attraction to this time charter is the tenor, as we would not find this rate attractive for a two or three year charter. We see an increased level of inquiries for time charters and will selectively engage with our customers if and when meaningful business can be conducted.
We have committed $25 million to retrofit an additional eight ships with scrubbers. The combination of decreased scrubber costs, early delivery of equipment, and continued elevated spreads between heavy fuel oil and very low sulfur fuel oil makes this a compelling investment in our view. Considering the current average spreads in Fujairah and Singapore, the payback on these investments should be inside a year. The work will commence in the fourth quarter, and we expect completion during the first quarter of next year. We plan to take each ship out of service for 30 days, give or take. This is a highly efficient schedule that will be executed by our experienced team at one of our go-to shipyards. Upon completion, we will have a total of 23 VLCCs fitted with scrubbers, with these additions expected to boost earnings for the company.
To sum it all up, we continue to stay disciplined, focusing on execution of our business model and strategy. This includes key building blocks in delivering value for our shareholders. We are well structured for cyclical markets with probably the strongest balance sheet amongst the peer group. Ample liquidity enabling us to invest in the business and act on opportunities should they arise, all with robust downside protection without having given away the upside. The tanker market recovery has started, and we are tuned for this recovery through our actions and structure to create value. This includes a reduced number of outstanding shares through buybacks and an expanded and fast-tracked scrubber program that will boost earnings. We have substantial operating leverage in the business combined with a significant capital distribution potential. With that, we open up for questions. Operator?
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. We will now take the first question. Please stand by. The first question comes from the line of Omar Nokta from Jefferies. Please go ahead. Your line is open.
Thank you. Hi, Svein. Hi, Laila. Good afternoon. Yeah, just wanted to ask, you know, Svein, you sort of touched on the five-year contract and, you know, the duration is what made it so compelling. You know, clearly we haven't seen this much sort of time charter activity, or at least that type of duration for the past, I don't know, several years, but at least I would think a decade plus. How would you characterize the liquidity in the charter markets today? As you mentioned, the recovery has begun. We haven't necessarily seen a resurgence in VLCC spot rates, but how would you say the time charter market is at this point?
The liquidity for this sort of tenure is very, very thin. There is quite a few clients asking for one, maybe two years, and they also want a lot of options for sort of shorter durations. We don't find that very attractive, and we are very constructive on what to expect for next year and 2024. Obviously beyond that, it's always hard to sort of have a specific number. Hence we found this five year charter to be attractive. There are some additional discussions or incoming discussions to us. You know, it could be that we over time will build more fixed income. Hopefully that will be at increased rates going forward, and it will also maybe be with forward delivery. Let's see.
To your point, liquidity is thin for now, so.
Okay. All right. Thank you. Just to follow up sort of maybe a bit more broadly on the market itself. You know, we've seen clearly the mid-size crude tankers and the product tankers lifted, as you highlighted in the release. On the VLCCs, can you give maybe a sense of just how the market here recently, maybe within the past, call it four to six weeks, how that's been developing in terms of what you're seeing from your lens in terms of activity levels out of the Middle East and then maybe the Atlantic Basin?
The market is clearly on the rise, and the rates are moving up. The sort of latter part of what we have booked are at higher rates than the earlier part. We are in discussions, as we speak, you know, negotiating spot voyages at the rates meaningfully higher than what we have on average booked quarter to date. This looks to be robust. It's not like a fast-moving, super volatile, you know, change in rates, as you know, can see on smaller ships, but it's certainly going in the right direction. There is a mix of inquiry both in the Atlantic and in Asia.
I think a key point here is that, you know, oil has been steeply backwardated for quite a while. The backwardation between the fourth quarter this year and the fourth quarter next year is about half in the last few weeks. This will enable more Atlantic routes to go long haul into Asia. We see some of that already, some requests to load in the U.S. and then to discharge in Asia. Of course, this will certainly be good for our markets.
Okay. Thank you for that color, Svein. I'll turn it over.
Thank you.
Thank you. We will now take the next question. Please stand by. The next question comes on the line of Frode Morkedal from Clarksons. Please go ahead. Your line is open.
Thank you. Hi, Svein. Regarding the final comment you made on the backwardation, I actually read the IEA report this morning, and they now actually predict a global inventory build of close to 1 million barrels per day in the second half of this year and 0.5 million barrels in the first half of next year. To me, this seems to be very positive for tankers. I just wanted to hear from you how you would expect this to be impacting the tanker market dynamics going forward.
We certainly agree with you. We think that the inventory cycle is a sort of key metric in understanding the tanker cycle. As you all know, the oil inventories have been brought down over many years now. You know, at some point, there has to be more feedstock. We spoke about this on our prior call and also during Marine Money conference. We certainly think this is a positive. There will likely be more movements or more supply, if you like, or into the refineries, and this should certainly be good for large tankers. VLCCs are really you know, the real workhorse of the crude market. VLCCs have on average handled about 46%-47% of all crude being transported.
With Atlantic still being long oil and the big demand picture being in Asia, this is truly a VLCC business from a fundamental perspective. Although, of course, some of the smaller ships will still enjoy benefits from the disruptions we are seeing following the hostilities between Russia and Ukraine. Overall, we are very constructive on this period going forward.
I agree. Yeah, you've been buying back shares and now announced investment in your own ships with scrubbers, which makes total sense to me. That's great. On the scrubbers, I'm curious to know if there's been any development in the technology since you last did these retrofits. Seems to me to be a quite good price versus the obvious benefits.
No, there's not really any development. These scrubbers are fairly simple. These are essentially washing machines or the model of washing machines with the capacity to handle sort of 30,000 cubic meters of water per day, a handy size tanker, right? But the cost of building them has come down. I don't think, you know, the cost was, as far as the producer, very much higher a few years back, but it was a new thing. It was very sort of hyped up, and they probably had higher profit margins on them. They are available to us now at one of our two key suppliers at a much lower cost than what we did last time. With the 25 area, you will see that we budget just over $3 million per ship to do this, right?
Which is a significant improvement in the CapEx. The technology is basically the same, so there's no change.
Perfect. Thank you. That's it.
Thank you. We will now take the next question. It comes from the line of Sherif Elmaghrabi from BTIG. Please go ahead. Your line is open. Sherif Elmaghrabi from BTIG, please. We will go to the next question. Please stand by. It comes from the line of Jonathan Chappell from Evercore ISI. Please go ahead. Your line is open.
Thank you. Laila, can I start with just a couple of modeling questions for you? First of all, my apologies, I missed the spot to date. I thought I caught $18,400 for the third quarter. Is that correct? And what percentage was that for?
Just the spot?
Yeah, just the spot part.
Yeah, the spot was 58% at $18,004.
Okay. Thank you. Svein, you said 30 days roughly for the scrubber retrofittings. Should we assume four in the fourth quarter, four in the first? My other question regarding to the scrubbers and the model is how should we think about the depreciation of those? How much will it reset the depreciation higher once completed?
It's exactly which day we will enter this will depend a bit how we schedule the ships in the spot market, and we want to discharge as close to the yard as possible. If we can do six ships in the fourth quarter, we will do it in the fourth quarter. It's a bit hard to say this, John. Sorry, not being able to be more precise, but we are very confident in the fourth and the first quarter schedule. You will sort of be at liberty to do this the way you want, but we can't give you a more precise guidance, I'm afraid. The equipment is ready and the yard is ready. If we can do it sooner, we will do it sooner.
If we want to optimize the fleet to get as little off hire and positioning cost as possible, it might be, you know, a bit dragged out, but it will not be beyond first quarter. On the-
Understood.
Yeah, on the depreciation profile, we will communicate this on the third quarter with the third quarter results. I think it's a reasonable lead to look at what we did last time, which was a three-year depreciation profile, but it's not finalized yet, so.
Okay. Then final bigger picture question. We talked about this last quarter, Svein, on the deployment of cash as it comes in. You know, it seems asset values have moved, and at least in the situation with VLCCs far before the rates have themselves. You know, if ships weren't an attractive investment maybe six to nine months ago, just mathematically, they're probably even less so today. You've made significant headway with the buyback and there's a ways to go there clearly. Would you say that at this point you remain firmly in that your stock is less than NAV and capital return is the top priority of cash?
Do you think that at a certain point you have to start pivoting to thinking longer term, and start making investments in assets, even if the rates don't necessarily catch up to the asset values in the short term?
I think, you know, when it comes to investments, we are not excited about the current values from a buying perspective. It has to be very special opportunities if we are going to buy something. When it comes to buying back our own stock, of course, NAV is also a moving element there. We are very happy with what we have done all sorts of below $6 mark and which compares well to where the stock is trading today. As I think everybody knows, our capital allocation policy states minimum 60% of ordinary net income to be distributed. It could be that we will, you know, reduce the debt level even further.
I think that those are sort of the key metrics, but I don't think you should expect us to, one, buy ships at the current valuations. Two, we'll probably not buy stock at the current levels either. We will leave that to our investors and then focus on returning money to shareholders in the sort of future.
Okay. My last one is kind of a follow-up to that last point. You know $0.04 dividend certainly off your
Minimum, so to speak, of $0.02 in a quarter where if we take out gains, it was still a loss. Should we think about now as we're in the early stages of a recovery, assuming, you know, all else stays the same, is $0.04 kind of a new base dividend, and then we'll transition to that minimum 60% payout once you're more sustainably in the profitability?
No. You know, the 60% in this quarter is actually based on the net income reported, because contrary to some of our peers, we don't exclude sort of elements in the P&L that is cash input, so such as the sale of a ship profit. We tend to include that when we consider the dividend. This is just the way we've always done it. It's not a new low, it's just a pure reflection of what was the income for the quarter.
Okay. That makes sense. Thank you, Svein. Thanks a lot.
Thank you. Now the next question. The next question comes from the line of Anders Karlsen from Kepler Cheuvreux. Please go ahead. Your line is open.
Thank you. Quick question on your fleet. I mean, you sold, you know, the 2006 and 2007 built ship. Do you have more left or the same ones? With the firming market, are you considering more sales, or is that off the table now?
I think for now, we will be very selective. It could of course be that we elect to sell one or two ships, but I think we like to see, in particular for the scrubber-fitted units, you know, appreciation in both asset values, but also give them the opportunity to earn money, which we expect them to do. I don't think you should plan for our fleet to be much smaller than what it is today.
Okay. Just a quick one on the market. You were mentioning backwardation as one factor that is holding back. What other important drivers do you see in the short term here?
Of course, the supply. OPEC is a bit tight on, you know, handing more oil into the market. Their key argument is that they feel that they're sort of meeting current demand and they are questioning the macroeconomic picture. I think these last couple of days we've seen some tidbits here and there suggesting that inflation might sort of be leveling off and maybe giving some ease to some of the prior macroeconomic concerns. If that is the case, you know, maybe we'll have more oil to the market. I think that's been the key reason holding things back is that OPEC has been tight, which we assume is they wanted to enjoy the ride of the strong prices for as long as they can.
Okay. Thank you. Then just a final question. Have you seen any pull from the EU in terms of building inventory? I mean, from an energy security perspective, I guess EU is short energy and would be required to build substantial inventories of everything they can get their hands on. Have you seen any signs of that as of yet?
No, I can't say I've seen that. Of course, the gas has been more of a hot topic for Europe, because oil is not really used so much for heating or for energy production, right? It's more for transportation and for petrochemicals. I think there are other areas where you've seen this focus.
Okay. Thank you. That's all for me.
Thank you. We will now take the next question. Please stand by. Next question comes from the line of Climent Molins from Value Investor's Edge. Please go ahead. Your line is open.
Good morning, and thank you for taking my questions. I want to ask about the disruptions you're seeing from the sanctions on Russia. The effect mostly revolve around smaller vessels, considering VLCCs cannot dock on Russia's western ports. Could you provide some commentary on the ship-to-ship transfers and their effect on the overall market?
We are not involved in those type of operations, but we are aware that they've been taking place in the Atlantic basin. There's been say, Aframaxes coming out of the Baltic, and Black Sea could also potentially be Suezmaxes, but this is mainly we think it's a Baltic business. Then they reload it onto the VLCCs and then transport it to the Far East, with China particularly being the destination. To our knowledge, it's not a huge business tying up many ships. There's been you know, a few of these transactions being done. It's a bit on the sideline of the conventional markets.
All right. That's helpful. Considering the high energy price in Europe, do you expect to see any additional crude imports as substitution for natural gas volumes during this coming winter?
It could, of course, happen. There are some suggestions that the, you know, fuel oil will be used for heating this winter, but we haven't seen any sort of clear evidence of it or at least not to our knowledge. I think this will be defined also by the cost differential between heating oil and gas.
All right. That's all for me. Thank you very much for taking my questions.
Thank you.
Thank you. Once again, as a reminder, if you wish to ask a question, please press star one one on your telephone. We will now take the next question. It comes from the line of Michael Musgrave from MRM Capital. Please go ahead. Your line is open.
Question answered. Thank you.
No problem. Thank you. There are no more questions at this time. I would like to hand the conference back to the speakers for final remarks.
Well, thank you to everyone who's been on the call and are following these today. That's greatly appreciated and wishing you all a good day ahead.
That does conclude our conference for today. Thank you for participating. You may all disconnect.