Welcome to the Tsakos Energy Navigation Conference Call on the 15th June 2018 First Quarter 2018 Financial Results. We have with us Mr. Takis Arakuoglu, Chairman of the Board Mr. Nicholas Tsakos, President and CEO Mr. Paul Durham, Chief Financial Officer and Mr.
George Saroglou, Chief Operating Officer of the company. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today. And I will now pass the floor to Mr.
Nicholas Buenozis, President of Capital Link, Investor Relations Advisor of Tsakos Energy Navigation. Please go ahead, sir.
Hello, Mr. Brunois?
The company publicly released its financial results for the Q1 of 2018. In case you do not have a copy of today's earnings release, please call us at 212-661-7566 or e mail us at 10 10capitallink.com,
and we will e mail
a copy to you right away. Please note that parallel to today's conference call, there is also a live audio and slide webcast, which can be accessed on the company's website on the front page at www.
Tenn.gr.
The conference call will follow the presentation slides, so please, we urge you to access our presentation on the webcast on the website. Please note that the slides of the webcast will be available as an archive on the company's website after the conference call. Also, please note that the slides of the webcast presentation are user controlled, and that means that by clicking on the proper button, you can move to the next or to the previous slide on your own. At this time, I would like to read the Safe Harbor statement. This conference call and slide presentation of the webcast contain certain forward looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward looking statements involve risks and uncertainties, which may affect TEN's business prospects and results of operations. Such risks are more fully disclosed in TEN's filings with the Securities and Exchange Commission. Before turning over the floor to Mr. Tsakos, I would like to mention that we just came back from a very busy, productive and successful Posidonia week, where we visited the company's headquarters. 10 is celebrating this year 25 years as a public company, 25 years of continuous growth, growing the fleet from 4 to 66 double hull vessels.
We should also point out TEN's track record of uninterrupted dividend payments. Inclusive of the recently declared dividend, TEN will have distributed a total of $10.71 per share in uninterrupted dividends to its common shareholders since the company's listing on the New York Stock Exchange in March 2002 against an Easter price at the time of $7.50 And now before turning over the floor to Michel Tsakos, I would like also to point out how the company's prudent and balanced fleet deployment strategy has resulted in outperforming the spot market in the Q1 of 2018 by over 100%. Ladies and gentlemen, at this point, I would like to turn the call over to Mr. Nicholas Tsakos, President and CEO of Tsakos Energy Navigation. Mr.
Tsakos, please go ahead, sir.
Thank you and good morning to everybody. Thank you from Greece. And thank you for your good comments. And I hope that we will continue to many more profitable years. The Q1 of this year has not been a very positive quarter, but we looked at it as the bottom of the recent market.
We've been in a down cycle for, I would say, the last 2 years. And we hope and we have the feeling that the Q1 was the bottom of the cycle. We are looking it starts reminiscing, if you look at the graph of 2013 and by this the Q1 of 2013 was the weakest part and then the market for different reasons started turning around. However, in turn, we have followed a very prudent and sometimes boring model of running the commercial side of our business. And with 80% of our ships on long term time charters, We always cover our financial and operational obligations with the 80% of that fleet.
And it covers the whole obligations of the fleet. And that leaves us the 20%, of course, still a significant part together with another 20% of profit sharing to take advantage of a higher market. So although it has been a very difficult period, I think operationally, we have again more than 96% utilization, although we took the decision to take out of service 5 of our vessels and take advantage of this low market and pass the special surveys, which incurred, of course, expenses and downtime. We are very proud also of our operational record, 97% utilization. And also we have moved in year to date 600,000,000 barrels of oil and products, including gas, which is 6 days of world production of energy.
And all of this, and I knock on wood, with no operational issues, which is always very important. So we're looking forward to for a better quarter, the Q2, which we are into this quarter. We are seeing signs of weakness from a big part of this business and various segments of this coming mainly from the VLs and the Afras. We are seeing a big appetite of major oil companies for long term business, not only for new buildings, but for existing tonnage, which is always a very good sign and you know that we are always looking at this. We are proud to announce another after finishing in the Q4 of 2017, our 15 vessels in newbuilding program.
We are proud to be back in building responsibilitieships with employment for major oil companies. And this is something, again, which falls within the company's strategy and repeat business. Another segment that makes us believe that the Q2 will be significantly better or better from this quarter and the remaining of the year will turn back. Profitable has to do with the turnaround of the LNG market. And as we see today, we have the LNG market almost doubled in the recent within the last year.
So we have renewed the Maria Energy. She went up from $33,000 to $43,000 starting in April, and we will take this positive effect within this quarter. And of course, our Her employment will start in the 3rd quarter from Her employment will start in the Q3 from 19,000 to 38,000. So this goes straight to our bottom line as we speak. Also, there are things that are not completely on the day to day business that have to do with the legislations that we are seeing.
We're seeing the scrubber and the water ballast arrangements and legislation that will make a significant part of the world split either slow steaming or being out of service for fitting and upgrading its technical capacity. So I think we are looking at better times going forward. And then with that, I will ask George to tell us a little bit over the Q3 and his prospects. Thank you. Thank you, Nikos.
We announced today the operating results of the Q1 of 2018. However, since 2018 this year marks the company's 25th year anniversary. Allow me to try to summarize the 25 years in one slide. With that, you can understand it's not easy. But let me put out some key figures for the 1st 25 years.
As you know, we started with 4 modern vessels back in 1993 and we find ourselves today with a pro form a fleet of 66 vessels. Most of the vessels, especially since 1990 after 1997 have been built with new buildings meeting clients' requirements. The total net income generated since inception is $1,250,000,000 of which $565,000,000 a figure close to 55 percent has been returned to the company's shareholders in the form of cash dividends and buybacks. Turning now to the Q1 numbers. OPEC supply cuts and an oversupply of tonnage together with seasonal refinery utilization, continue to weigh on the crude tanker rates during the Q1.
The environment has been weak, but thanks to TEN's proven commercial strategy of fixing most of the fleet on medium to long term time charters, it paid dividends again as it helped the company to outperform the average spot market indices by beating them over 100% in all vessel categories that we operate. We believe that tanker rates have reached the low point of the current cycle and as we move into the Q2, we already see signs of improvement. For those of you who are connected to the Internet and our website, there is an online slide presentation, which format we will follow during the call. Turning to Slide number 4, with the key corporate highlights, We have announced today the company's agreement with an oil major to build 2 new state of the art Aframax tankers against long term contracts. We have also sold our oldest vessel, the 19 98 built VLCC Millennium after 20 years of profitable trade for the company.
With this order, has now TEN has now a pro form a fleet of 66 vessels and 25 vessels in the fleet have ice class capability. The average age of the fleet is 7.4 years against 10.3 years for the world tanker fleet. We have a balanced employment strategy that takes advantage of market peaks with profit sharing arrangements. Out of the 66 vessel pro form a fleet, 53 vessels are on secured employment contracts with an average duration of 2.5 years. The emphasis is on charters with profit sharing arrangements that enable them to take advantage of spikes and stronger freight markets.
We have secured minimum contract contracted revenue of $1,300,000,000 with potential additional revenues from profit sharing arrangements. We have a modern diversified fleet covering client transportation requirements in crude, products, shuttle and LNG and we have become the carrier of choice for many of the top oil majors, commodity traders and refineries. We have continued to keep very high utilization with the latest figure being closest to 97%. In the next slide, we have a breakdown of the fleet, 66 vessel pro form a fleet with 48 vessels being engaged in crude trading, 13 in products. We have 3 shuttle tankers and 2 LNG vessels.
The next slide has a main financial the next slide has basically the all in blue chip clients of the company with whom we are doing repeat business over the years, thanks to the modern fleet, the safety record and the quality of service. These ten names that you see represent 72% of the revenue generated for the company. Strong secured coverage with upside potential. We have so far announced during the year new charters and charter extension of a total of 15 vessels in the fleet. The charter period for these vessels ranges from 6 months to 3 years.
51 vessels out of the 66 vessel pro form a fleet are fixed under secured contracts, combination of time charters, time charter with profit sharing and contracts of abregments. 38 vessels are on market related charters, including the vessels currently trading spot, securing the company's ability to immediately capture the market upside. The revenues expected from the vessels in the fleet with secure employment cover the company's annual operating and financial obligations. We have seen in the LNG, we continue to see improvements in the LNG market with 2 of our vessels that we operate having secured extensions in the rates and charter periods of significantly higher levels, 30% in the case of 1 vessel and doubling the rate in the second one. On the next slide, we present basically the breakeven cost for the various vessel types that we operate.
And as you can see, the cost base is very low. In addition to the low shipbuilding cost, we must highlight the purchasing power of our technical manager, Tsakos Columbia Ship Management and the continuous cost control efforts by management in order to maintain a low OpEx average flow for the fleet, while keeping a very high fleet utilization rate quarter after quarter that we believe qualifies as full employment. With 80% of the fleet on secured employment, the revenue these charters generate cover the company's operating and finance expenses including the dividend. In addition, the combination of time charters with profit sharing, product of affreightments and spot charters guarantee for TEN a share of the market's upside every time we have a spike or a sustained strong freight market. Based on the current number of vessels operating in the spot market and in time charter with profit sharing, for every $1,000 increase in the spot market, we have a positive $0.07 impact in annual earnings per share.
The next few slides from 10 to 12 tell us what we see in the market. Despite the weakness we have experienced in the market, we are near the bottom or we have passed the bottom of the current cycle and we see positive signs that point to the market's recovery. Some of these things are first of all the solid global economic background, which translates to strong global oil demand. Hence, the growth for global oil demand in 2018, it marks the 4th year in a row with global demand growing by at least 1,400,000 barrels per day against the long term demand growth figure of closer to 1,100,000 barrels per day. This trend appears to be holding strong as the International Energy Agency in their latest report forecast the same demand growth number of 1,400,000 barrels per day for 2019 as well.
With global oil stocks currently below the 5 year average level that OPEC was targeting in order to reduce oil oversupply, the pre introduction of economic sanctions against Iran by the United States and with key OPEC producers suffering continuous production declines, OPEC and France appear to be ready to increase production by a figure of up to 1,500,000 barrels per day following their June 22 meeting. Increased OPEC production historically has always been positive for tanker demand and freight rates. The U. S. Continued to develop as a major crude oil exporter to the world.
During 2017, the average U. S. Exports were in excess of 1,400,000 barrels per day. The latest Department of Energy 4 week average have U. S.
Crude oil exports exceeding 1,900,000 barrels per day. The growing U. S. Exports have created new long distance trade routes mainly to Asian destinations adding to ton mile growth. High scrap prices and a weak market resulted in a significant increase in tanker scrapping, the highest that we have seen in quite some time.
The average age of the scrapped vessels is coming down to about 20 years. With the upcoming regulations for the water ballast in 2019 and the global sulfur cap from 2020, we believe in the company that owners of older vessels will continue to prioritize in scrubbing their older tonnage rather than passing them through an expensive Ford special survey, the effect of which will be a lower net fleet growth for the next couple of years. In view of all the above, we announced today another dividend of $0.05 to be paid on August 8 to the shareholders of record on August 2. In total since 2002, TEN has paid $10.71 in cash dividends or in excess of $466,000,000 and this compares with a listing price in our IPO of $7.50 The average yield since the New York Stock Exchange listing in 2002 is 5.25 percent per annum. We believe that we have turned the quarter and we are going to be positive again in 2018.
And with that, we are turning to the numbers.
Paul? Thank you, George. Well, as Nikos described, the tanker market in quarter 1 was not conducive to generating strong results by any large tanker company, Although we probably fared better than most others, our net loss was limited to $11,900,000 thanks to our time charter cover and our fleet enjoying full employment. As a result, our vessels earned significantly better than market rates with an average daily TCE rate of nearly $18,000 We had 16 vessels on spot, Aframaxes and Suezmaxes at least comfortably covering their running costs. The spot MRRs performed relatively well with an average TCE of $13,000 We had 5 vessels drydocked as Nikos mentioned, 4 losing their time charter revenue, including Shuttle Tanker Brazil losing $53,000 daily.
However, our time charter vessels still managed again to generate enough cash to cover our operating overhead and finance costs, but leaving a smaller surplus than in recent quarters. Our average daily OpEx per vessel increased, but we regard this as a temporary aberration due to the 5 drydocks, the heavy restocking of vessels and a weak dollar. In quarter 2, we expect to reduce drydock schedule, regular supplies to vessels and a stronger dollar. So average daily OpEx per vessel should return to normal levels. Our daily overhead cost per vessel remains stable as there is no management award and vessel management fees remain stable as they have been for 6 years.
Finance costs increased by $6,000,000 mainly due to the loans relating to the new vessels and increased interest rates. Unlike the prior quarter 1, there was no capitalized interest and no gains from early termination of interest rate swaps in this quarter 1. There were no new loans in quarter 1. Repayments amounted to $42,000,000 bringing our outstanding balance to $1,720,000,000 Net debt to capital was 51%. Our average cost of debt in quarter 1 was only 3.9%.
In quarter 2, we have successfully refinanced the debt on 11 of our vessels, extending the original life of the debt on these vessels for another 5 years with a reduced margin. We have also refinanced the Shuttle Brazil providing an extra $16,000,000 cash. Our old VLCC Millennium was sold and $10,000,000 worth of debt repaid from sale proceeds. We soon expect to complete negotiations to finance the 2 newbuilding Aframaxes just announced at very competitive terms. And this concludes my comments.
And now I'll hand the call back to Nikos.
Thank you, Paul, and thank you, George. And as we said, this has been a challenging quarter, but the prospects look positive and we hope that 2018 will be another profitable year. It has in many ways, it is a reminiscence of the end of 'thirteen and when the market started turning around. And we see a lot of this because of the appetite of the major oil companies for long term business happening almost on a daily basis and big names, all the majors are out there to take in vessels. And I said, again, not new buildings, just vessels out of the market.
So with that positive note, I would like to open the floor for any questions.
Thank you, ladies and gentlemen. We will now begin the question and answer session. Your first question comes from the line of Donald McLee from Berenberg. Please ask your question.
Good morning, guys.
Good morning.
So just to start with the new buildings, could you provide any details around the Aframaxes in terms of just pricing, expected delivery, contract tenure, etcetera, just things that would be helpful from a modeling perspective?
We will tell you this in private when you're going to offer to finances it. No, I'm just well, I think these are vessels capturing all the new Tier 3 technology, which is required. And it's in the low 50s depending on the extras that the major company is going to be to adding. Yes, it's very close to $250,000,000 or $100,000,000 depending on the specification on the price.
And then just in terms of the tenure on the contracts attached to the Aframaxes?
It's anywhere between 5 7 years. I mean, 5 is the minimum and then there are options up to 7 years.
Okay. That makes sense. And then just taking a step back in the past, you talked about taking time to digest the recent CapEx program when referencing potential LNG carry orders. But with that Aframax order on the books, could you provide an update on if you still see LNG as a near term avenue of growth and if there's been any change to the level of activity for your negotiations around those orders?
No, no. As I said, we are digesting it took us 1 quarter to digest our growth program. And of course, LNGs are in the forefront of our growth program without wanting to take out of without stopping the day to day business, which this order has to do with.
So I guess compared to 3 months ago or 6 months ago, however, has there been any progress in the negotiations there? Is it kind of the same?
There is a vast appetite of the companies that are involved, the end users of gas into wanting more vessels and we're participating in this.
All right. And then one more on the press bar turn it over. You have about $100,000,000 that becomes redeemable in H2. How do you prioritize potentially paying those prefs off against pursuing near term growth opportunities?
I think our aim will be to fully repay the prep as soon as possible or as early as 2019. I mean, our preps, the first one is due in July next year and the other one is in 2020 in October 2020. So they have a year end EBITDA point. I think it will be a 2019 the first one will be repaid in 2019. This is our priority, of course, because this is our obligation.
And then just sticking with that. So I think after July 2019 October 2019, there is an escalation in the yield. What would be the increase if it went beyond that period?
I do not know the increase because we're not planning to get into that. It's not October 2019, it's October 2020, the second one. The Series C? Yes.
Okay. That's it for me. I can turn it over now.
Thank you. Thank you. Thank you. Your next question
comes from the line of Jon Chappell from Evercore. Please ask your question.
Thank you. Good afternoon. Two quick follow ups on the new builds. When is the delivery set for those? Is that mid to late 2020?
Perhaps, yes, perhaps as early as the last quarter of 'nineteen for the first vessel.
Okay. But that might slip. I mean, you probably don't want to take a December 2019 delivery date.
Yes. So although these charters are pushing because they need the ships, but you are right, this is what we would do.
Okay. And then, Nick, you were on the record earlier this year saying that your constituents,
I'm not sure if that's
the right term, but your fellow owners in Intertenco would shoot you if you ordered new builds. So can you explain with the Aframaxes that you have on your fleet today on the spot market, why those ships couldn't be used for this particular charter?
Yes, you are right, but you have missed my quotation, which is build responsibly, like drink responsibly. So I think I've always said that we cannot stop anybody ordering ships that a client will give to somebody else unless they are there to do it. So we're not looking to build opportunistic ships because of low prices of new builds or so. But we have never and you know this because we just took delivery of 15 ships last year. We never shy out of doing business.
One of the reasons and one of the reasons that we feel that the market will also be positive is, as you know, we have moved for environmental reasons into Tier 3 and new designs of engines and more environmental and a lot of charters might for specific trades require this type of vessels instead of existing. Our priority has been to offer them existing ships, but they need new technology.
Okay. So is the other maybe another way to ask it then is, is there a 2 tiered market developing for time charters? I mean, if you have a handful of 2,007 to 2010 built Aframaxes in your fleet when the customer comes to you, they specifically wanted the new technology and maybe even be involved in the oversight of the new build process rather than take existing ships?
Many of the clients that are asking for new buildings, because I said we have a lot of business for existing charters by the major oil companies. And I think this is also very encouraging because it's not the we see I would say 75% of the business out there for existing ships, for the 2007s, 2010s, 2012 vessels. And we're planning to announce some of this business, I think, later in within the Q3 like this. But there are some specific clients as we had started earlier later in 2017 that need specific ships for specific ECA trades, yes.
So that leads then to my last question. I mean, you laid out a pretty optimistic view on the bottoming of the cycle and the near to medium term outlook. And you do have a fair amount of spot ships today, but a bunch of contracts rolling off too in the relatively near future. It sounds from that comment that you're still looking to kind of recharter ships and maintain the current time charter coverage as opposed to maybe getting a bit more spot exposure and what you think would be a recovery market. Is that accurate?
Yes, because I mean, actually, Jonas, you know that as I said in the beginning, we are a bit of a boring company because we tend to have long term charters. And because of the company's reputation, we tend not to have time to have a ship open for too long before the next client comes for a long term employment. And as you know, I'm here with our chartering team and we have this type of examples on a daily basis. And if you recall, I think we made an announcement back in March, that already in March we had we chartered 16 vessels from the existing fleet to charter. So there is appetite for that.
I think you have big companies out there like the actions, the sales that are looking for cover for existing deals.
Okay. Final thing, more of a comment rather than a question and I've spoken to some of my peers about this as well. It's June 15, we're 15 days away from the end of the Q2 and most of your peers have reported weeks, if not months ago. If possible, as far as staying relevant with the investor community, if you can kind of move the timeframe up a little bit and be closer to the peers, I think that'd be helpful to the company, to us as the analysts and to your valuation and that's just an observation. So thanks for your time, Nick.
Thank you.
Randy, your line is open. Please ask your question.
Hey, thanks operator. So
a few quick questions here. On Slide 5,
you show that your 3 LR2s and your 2 LR1s are currently operating on the crude trade. How hard or easy would it be to switch those vessels to transporting refined products? And is that something you're thinking about doing?
I think operationally, it's not those ships have been designed as they're building the best yards. Operationally, it's not more than 1 week and perhaps depending who pays for about $250,000 of expenses to turn them from dirty to cleaner trades.
Okay. Is that something you're thinking about doing? Or are you pretty committed to the crude trade on this?
Well, I think that the ships are on charter employment. So the owners are I mean, the charterers are working now more on the crude trades, but they can turn into clean.
Sure. Okay. And now with those two buildings basically to be delivered that were recently ordered, any other plans for fleet growth or maybe additional fleet sales, now that you've already sold the Millennium in the coming quarters?
I think, yes, on specific segments, we are looking, as we have discussed, like gas is a growth priority for us. And all of our, I would call them, 1st generation ships as we started with the Millennium are held for sale. And we're some of them we are negotiating closely.
Got it. Okay. And then back to the market. Can you give some guidance on quarter to date or maybe current spot rates on some of your open Suezmaxes or even open Aframax crude tankers? Obviously, the headline rates according to some of the brokers are pretty low.
Obviously, I would assume you're outperforming those.
Yes. I mean, just to I can give you the comparison in the Q1. I think our and again, this has to do because we have coverage of our ships in a market that our VLCCs performed close to 27,000 about 27,000 in a market of 11.5, as well as MAX is 18 in a market of 5, Aframax is 18 in the market of 7 and so on and so forth. So I think today, some of these markets, mainly the Aframaxes have recovered substantially. And we're seeing a bit hope also on the Suezmax trade.
Okay. So 2Q rates higher than 1Q for the spot vessels?
Excuse me?
2Q rates higher than 1Q for the spot vessels?
Yes, mainly VLX and Aframaxes are the ones that started reacting more positively.
Sure, sure. Okay, last question. Share price,
obviously, still trading at a pretty steep discount to NAV. Are share repurchases part of your kind of return to capital plans this year? Or are you just focused on buying back those preferreds first?
I think buying back the preferreds is our priority and maintaining our dividend is the number one the 2 of the first priorities.
Great. All right. Thanks again and good chatting with you.
Thank you.
Thank you. Your next question is from the line of Ben Nolan from Stifel. Please ask your question.
Yes. Thank you, operator. So my first question relates to, I guess, just the newbuild and ultimately the returns on them kind of backing into it, it sounds like your unlevered returns are 10%, 11%, if that's correct. Correct me if I'm wrong, but which is I think probably in line with where things have been historically for longer term contracts on newbuilding. But as you look forward, are you seeing any changes there, any evolutions in terms of what you guys in the market will and do require in terms of kind of a minimum level of return in order to be incentivized to build new vessels?
I think, Paul, our equity return is closer to the mid teens rather than 10%, 11%. I think we try we have lost a lot of business to others at 10% 11%. There are other people that would go for that. I think
I agree. I mean, we've always in the past, we've aimed for
as much as 15%.
But of course, that's been whittled down over the past few years, our target that is.
So
I think we would be well, we are very happy to get 10% or 11%, but even that these days can be a bit of a struggle. But we feel that by the end of the year, we'll be up again around the 12% level.
Yes, I only Paul's comment has to do with the return on the fleet overall, but my comments have been on the time charter market. But we let other people get the 10% 11% on long term charters. We're looking at something with mid teens. I think 15% is our sweet spot and we have examples in businesses that we let it go when people undercut the market.
Thank you. Are you ready for the next question?
Yes.
Next question is from the line of Fotis Giannakoulis from Morgan Stanley. Please ask your question.
Yes. Hi, guys. Hi, Nick.
I also want to ask about your capital allocation, your how comfortable you feel with your liquidity. I know that you want to have plenty of cash in your balance sheet for opportunistic acquisitions. Given the fact that you have to and you plan to repay back the 2 preferreds, which is $100,000,000 and you have also some equity to contribute for the new buildings. What are the sources of liquidity that you can have? And if you would consider of raising any external capital?
Well, I mean, as I said, our intention is we have the 2 preferreds. The first one will be repaid, I think, within 2019. The second is due in October 2020. And we're planning to, as a priority, to repay those preferreds or at least to refinance them. In the market, as you know, our preferreds have performed very, very, very well and they're performing very well because we have a very constant dividend from that side.
Also we're looking at ship sales and to create liquidity and we're doing that. We're enhancing the company's liquidity, which as we said is always on the high side for these reasons. And we are securing businesses that the equity So I think the existing growth of the company will come from existing cash flow for the new ships.
So is there any minimum threshold of cash that you want to have in your balance sheet? And you mentioned earlier your first priority for the repayment of the preferred the preferred will be to issue new preferreds? Is this the game plan here?
Well, it depends how the market conditions are going to be at the time. I mean, it's something we do not exclude.
Okay. Thank you. And Nick, you are except of being the CEO and the Chairman of or the CEO of TEN, you're also the Chairman of Inter Tanko, the Association of the Tankers Ship Owners. I want to ask your view as with both hats about the implications of the IMO 2020 and the way that your fellowship owners are reacting to that? We heard earlier this week, one of your peers in the drybulk sector mentioning that they have already ordered a number of scrubbers for Capesize vessels, very similar size of the Suezmaxes that you own.
Is this something that you expect to have a wide adaptation now that the first tests have already been done and it seems that the cost is a little bit lower than we previously thought?
Well, I think, first of all, we will have to take you will have to spend here up to dinner time New York to discuss this issue. But I will try to give you a small summary of our thoughts here. I think everyone has his own right. We believe that scrubber is one of the solutions. We believe scrubber is a short term solution.
Owners are doing are taking this stance. However, whichever way it will go, even if scrubber becomes much more acceptable day to day, the disruption and the dislocation that this will create in the market will be very positive for H, both in tankers, dry cargoes, and I'm not sure what will happen with containers because containers is where actually the majority of the CO2 comes out from. So I think any disruption of that sort, either by slow steaming, either by people going to the yards waiting for fitting scrubbers is going to make a big change for the market within starting early in 2019. And that's why I say that now my opinion is that scrubbers is a short term solution that might pay to fit them. So I think everybody is taking a chance on that.
There are not enough scrubbers in the world to fit all the world's vessels with scrubbers. A lot of older ships will go for scrap. But I think you mentioned that I sound optimistic. I'm not overly optimistic. I'm just looking also at the supply and demand figures, which you are much more analytical about.
There are, let's say, more than 120 VLCCs in the order book, but close to 200 of those ships are above 15 years old and more than 30 of those ships are George has all the statistics. So really, if you imagine that some at least of the 20 year old ships will not for sure as we did with the millennium will not go through the scrubber or the water ballast treatment scenario then the market is much, much more balanced than we think. And that was the reason that we feel optimistic. Our opinion as an association, where in my intasempo had about scrubbers, it's a short term cure with no real positive long term effect for the environment I'm talking about. But every owner takes his own economical decision.
The truth is, whichever way it goes, it's going to be positive for the market because it will create significant disruption.
Can you also give us your view about the level of compliance that you see after 2020? And also, if you believe that this date is set in stone or there might be some extensions similar to what happened with the ballast water treatment?
What I can tell you is that as we speak today from now until September, a lot of very important discussions will be taking place in all the legislative fora. And by September, there will be a decision. If you would ask me based on supply and demand, supply of 'five and demand for 'five, I would believe that some sort of transition time has to be given for vessels to comply. But I think in September, the final decision we'll be taking and then we will know much more and the effect on the market depending on that will be significant.
And jumping to the U. S. Golf market and the ramp up in exports, it seems to be one of the high expectations for the tanker sector. Can you give us an idea of how many vessels they are engaged in U. S.
Exports right now, either VLCCs or Suezmaxes, Aframaxes Maxs for reverse lightering? And how many vessels do you expect that will be engaged in the future if we have this growth in U. S. Exports? People are talking about 4,500,000, 5,000,000 barrels per day growth?
Well, I mean, as we have seen, it is this is a market that stake is biting more and more into the demand for transportation business. The Aframaxes are basically used, as you rightly said, for a change for reverse lightering, and we have the first couple of VLCC cargoes that have been exported and Suezmaxes. But so far, the market that has been more affected, and we see this because it's the best performing market in 2018, is the Aframax golf market. And I mean today it has gone close to $20,000 a day, which is very important.
Thank you very much, Nick. Thank you, everybody.
Thank you.
Next question comes from the line of Magnus Fuhr from Seaport Global. Please ask your question.
Yes. Hi, good afternoon. Just two follow-up questions. I guess, first on the scrubbers. We've seen some of the oil companies taking a bigger interest in putting these on their ships.
Maybe you can tell me a little bit about your on these 2 most recent time charters for the 2 Aframaxes. Was there any talks about putting scrubbers on these?
Yes. I think scrubbers is one of the options that is being discussed and evaluated with the shipyard. And as you know, there are various types of scrubbers. We're learning more about scrubbers than we ever envisioned in our life when we started out, open loop hybrid scrubbers. So yes, these are options that have been discussed very, very seriously.
All right. Thank you. And then second question on the LNG market. I know we've set out on some goals here a few years back. We're mid-twenty 18.
We still have 2 LNG ships. Are the returns getting closer now? We've seen some longer term charters being awarded that you think you could have maybe 1 or 2 ships more by 2020?
Yes. I think you are right. We went through a period that I think some owners for their own reasons more out of because they had a significant amount of ships idle and the spot market as we said, the spot market has almost doubled in some segments of that. And that carries some weight on the long term side of the business. I think some of the owners that had idle ships have now employed them at low respectable level, and the market is going through a period that we are approaching our returns that I mentioned earlier of the mid teens returns that we need at least for our equity.
Thank you. Next question comes from the line of James Jang from Maxim Group. Please ask your question.
Hey, good afternoon guys. So I know you mentioned that LNG is a focus for the near term, but any plans on replacing the Millennium?
I mean, yes, big ships are always interesting, and there is a big appetite for big ships by the by oil companies. So it is a segment that we are looking not as a priority, more opportunistic. And we're looking also at that are resales.
Okay. And Ingo, since you are the Chairman of Intertenco, can you give us some insight into whether Intertenco is working with someone like Alfa Laval on the scrubbers?
I think Intertango is not Intertango is giving information to its members for every technology available. We have an annual meeting for 5 beautiful days in Rome next week. And I know that the majority of those are days we will be talking about scrubbers and water bottle treatment. So it must we will not be we will have to bring a lot of grab by Italy to stay as to listen to all these technical issues. But yes, I mean, we are providing a forum for suppliers to come and talk to our members.
We're not influencing them. We're not a commercial organization as you can tell, but we have had in Houston in our last year around your meeting, we had a lot of the water ballast treatments with the U. S. Coast Guard approval presenting the technology. We will have Alfa Laval and others presenting the technology in our annual meeting now.
But I mean, we're not making a profit out of this. We're only telling our members what is out there as an option. I mean, wouldn't it benefit,
I guess, the industry if you guys have come to some type of consensus on a scrubber system to help with costs? Or is that not part of the discussion at this point?
I mean, we have strong opinions on scrubber technology, and we have a very we have a very competent technical team in Intertango dealing with issues like this. But their aim is not to our aim is not to influence one technology.
Got you. Okay. And one last one is, you mentioned that you believe that the sector is kind of exiting the trough right now. What are you seeing kind of to support that outlook?
You're talking about why we believe that the market has turned the corner?
Yes.
Perhaps I said before, it is it reminds us very much if you look also in the brush of where we were in the same time same period in 2013, which was again a very low period of time. We had a difficult summer in 2013 for those of us who have long memories to remember. And then I think October that year, the market turned the corner without specific reason. We didn't have any major wars other than the usual Iraq Skirmishes at the time. The reason is now because we are seeing that supply and ships are getting older.
And the supply other than the VLs where the number sounds is a bit scary is in balance. And the other segments that we're seeing is the dislocation that you guys are mentioning that if people have to go and slow steam or have scrubbers fitted on their ships, they will have to have a lot of time out of service. And that will create significant market disruptions, dislocations. We expect the rates as long as demand, as George mentioned in his presentation, stays increases where we expect to increase, we're going to see a positive remaining of the year. I mean, we know how many ships are coming in.
We know and we hope we have already had, let's say, more than 70 ships since in the 1st 6 months in tankers have been scrapped, 15 VLs, 10 Swiss MAXs, 20 Aframaxs and then about 22 smaller ships. So that's a good sign.
Okay. And one final one is on the 2 new contracts. I think John touched upon this. Currently, you have the Saipura and the Aragya Princess off charter. Why were these vessels not looked at as candidates for the charter?
Is it just because of the age or the technical specs?
No, no, no. Actually, the ships are affreightment with major oil companies. They're not on just because the ships are not on chartered does not mean that they are not operating. Actually, they're operating in the spot market. And if you look, our utilization of 97% is way, way above the industry average of 80% to 85%.
Yes. Okay.
So the ships are operating and there is a big appetite. I mean, let's say, one of the major companies is out there as of this week looking for this type of vessels for long term employment. Now if they meet the rates that we believe it's appropriate, we might charter them long term. But the ships are working with 96% utilization. So they're working the majority of every single day.
All right. Thank you. One quick one. The 2 new Aframaxes, are they coated?
Of course, yes.
Okay. Great. That's all I have. Thank you. Thank
you. Thank you. There are no further questions at this time.
Okay. Thank you, Will. We would like to thank you very much for your interest in the company and the questions. Our team will be out in Marine Mining next week. So you can see and have any more clarifications with our results being out.
We believe that it has been a tough start for the year, but our strategy of 80% employment and more than doubling, outperforming by double the spot market has put us in the right direction. We still had a positive cash production, a small one, but still our strategy with 80% of the fleet to obtain all our operational and financial obligations has started to operate. It's been the 1st real quarter that we have a full fleet working. We took the decision to take a number of our ships out of service and pass the special surveys because of the low market. This is something we will not have, I think, in this degree at all in the Q2.
So hopefully, our news will be even much better when we talk to you after the summer. And with that, we would like to thank all of you very much. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.