Ardmore Shipping - Q3 2020
November 4, 2020
Transcript
Operator (participant)
Good morning, ladies and gentlemen, and welcome to Ardmore Shipping's third quarter 2020 earnings conference call. Today's call is being recorded, and 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 10149100. At this time, I will turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore Shipping. Please go ahead.
Anthony Gurnee (CEO)
Thank you, Debbie. Good morning, and welcome to Ardmore Shipping's third quarter 2020 earnings call. First, let me ask our CFO, Paul Tivnan, to describe the format for the call and discuss forward-looking statements.
Paul Tivnan (CFO)
Thanks, Tony, and 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 third quarter 2020 earnings release and presentation. Tony 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 differ materially from those in the forward-looking statements is contained in the third quarter 2020 earnings release, which is available on our website. Now I'll turn the call back over to Tony.
Anthony Gurnee (CEO)
Thanks, Paul. Let me first outline the format for today's call. To begin with, I'll discuss quarterly highlights and then the market outlook, after which I'll provide some thoughts on the energy transition. Following this, Paul will provide a summary of product and chemical tanker fundamentals and a detailed financial update. Then 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 $6.6 million or $0.20 per share for the third quarter, and an adjusted net profit of $13.6 million or $0.41 per share for the first nine months of the year.
Our MRs earned $13,000 per day for the third quarter and $17,850 per day for the first nine months, reflecting the recent decline in rates, but overall still good results year to date. Meanwhile, Ardmore is maintaining a strong balance sheet and financial flexibility, with cash at $60 million as of October 30, net leverage of 49%, and a demonstrated ability to obtain attractive financing terms. Our capital allocation policy has resulted in good progress toward lower leverage and stronger cash reserves in the face of the difficult charter market, but our priorities may now shift given equity market conditions.
We announced a $30 million, 3-year share repurchase plan at the end of September, and in the meantime, our share price has dropped to levels well below analyst consensus NAV of $7.10 a share and around depreciated replacement value estimate of $9.50 per share. The tanker market is at very low levels across all sizes, both crude and products, as a result of the evolving economic impact of the pandemic, including the second wave of contagion. Our fleet average TCE for October was down to 10,750 per day, reflecting what we believe is the market trough, and which, of course, represents just 1/3 of the quarter. We do expect rates to improve toward the end of the year, but given the reduced underlying oil demand, not to typical winter market levels.
Looking ahead into 2021, we expect product tanker demand to recover fully post-pandemic, and then continue on a normalized 2%-3% growth trajectory. As we will discuss later, the energy transition may pose challenges for the tanker sector overall, but for companies such as Ardmore, it's also a significant opportunity. Turning next to slide 5 and starting with the near-term outlook. Tanker spot charter rates are running at very low levels. The near-term outlook is challenging, but there could be surprise to the upside for tankers, going into 2021 in the form of oil price volatility as OPEC balances output, price, and quota compliance.
In addition, and specifically for product tankers, we believe that output cuts from older refineries are incrementally boosting product tanker ton mile demand, and we expect geographical imbalances of oil products to result in greater cargo movement going into a recovery. The chemical tanker sector, where Ardmore has a presence through our fully IMO II chemical tankers, as well as our crossover trading strategy, looks to be on a more positive demand trajectory than products, which, of course, is positive for our earnings prospects. Turning to the medium term, the most recent IEA report, which we believe provides a comprehensive and unbiased oil forecast, predicts a full oil demand recovery post-pandemic and oil demand growth of 0.85% thereafter out to 2030.
Because of ongoing trends relating to the location of new refinery construction and products trade development, product tanker demand has always run higher than oil demand growth. For example, over the past 10 years, product tanker demand growth has been 4%-5% versus 1.1% for oil demand growth. Using the 0.85% figure from the IEA, we expect slower but still substantial product tanker demand growth of 2%-3% post-pandemic, with chemical tanker demand growth expected to be higher. Beyond the short-term closures, the refinery industry is now facing permanent shutdowns of older, less efficient refineries being replaced by new export-oriented capacity, and thus resulting in greater seaborne volumes over longer distances. This is an important point, which Paul is going to discuss later in detail.
And our next topic is going to be the energy transition, and in particular, the new EEXI regulations, which target a reduction in existing shipboard emissions and are expected to have a big impact on tanker supply. So overall, as a consequence of these many factors, we are very positive on the prospects for modern, fuel-efficient product and chemical tankers, such as those in the Ardmore fleet. Turning to slide six now, on the energy transition. The push to reduce shipping carbon emissions is, if anything, accelerating, with very little patience being shown for gradualism. The IMO framework to reduce carbon emissions in shipping, firstly, intends to do that through near-term efficiency measures, in other words, EEXI, and then through a longer-term switch to zero carbon or carbon-neutral fuels.
In particular, it appears that the rollout of EEXI will marginalize older, less fuel-efficient ships in the coming years. The graph in the upper right on this slide shows what might be in store between now and 2030 if these regulations force the scrapping of product tankers at 20 years of age. Typically, it's at 23-24 years of age. A further set of regulations to phase out the use of carbon-based fuels will come later, but many NGOs and national bodies believe this will be too slow and are putting pressure on the industry. As a consequence, for example, the European Union Emissions Trading Scheme for Shipping is under discussion for possible implementation by 2023.
So it's clear that the energy transition will have a profound impact on shipping, and we think that most of it's positive. There'll be increased pressure on inefficient ships to exit. The transition to cleaner fuels is already underway. For example, dual-fuel, LNG, and methanol vessels being built and ordered against long-term charters, which is a trend that we expect to accelerate. While tanker demand growth is expected to flatten as we approach peak oil, product and chemical tankers are expected to fare better with continued growth in trade beyond peak oil demand. We believe Ardmore is well positioned to take advantage of these opportunities. First, all Ardmore vessels are expected to be compliant with the new EEXI regulations, and we believe that's one of only two listed tanker companies that are going to be in that position.
Second, we have a long-standing focus on innovation around efficiency, and as a consequence, we already are already 10% ahead of the Poseidon Principles curve, their annual target, and we intend to keep or increase that lead. And third, we already have a meaningful presence in non-petroleum cargoes, which is likely to grow over time. Overall, we believe the energy transition will present opportunities to companies that have modern, fuel-efficient fleets, technical and operational expertise, and access to capital needed to fund the industry's requirements for new generation vessels. And on that note, I'll hand the call over to Paul.
Paul Tivnan (CFO)
Thanks, Tony. Moving to slide 8 and building on Tony's points, we will go into some more detail on the product and chemical tanker fundamentals. Global oil demand is recovering from its lows in April, while the global economy is expected to sharply rebound in 2021. Substantial stimulus packages are expected to result in GDP growth of 5.2% next year, as compared to -4.4% in 2020. Current oil consumption is 92 million barrels per day, which is 7.4 million barrels per day below January 2020 levels, primarily related to the decline in jet fuel consumption. The IEA is expecting oil consumption to increase substantially through 2021 as the economies reopen, with continued growth reaching 106.8 million barrels a day in 2030.
Meanwhile, the global refinery industry is facing a massive shakeup following recent events. Latest estimates are that 2.5 million barrels per day of refinery capacity is under threat of closure in Europe, North America, and Australia over the course of the next three years. In Australia, all four refineries totaling 475,000 barrels a day are at risk, with the first closure formally announced. A few weeks ago, BP announced that their 150,000 barrel a day refinery in Perth will close within six months and be converted to an import terminal. In Europe, Gunvor intends to mothball its 115,000 barrel a day refinery in Antwerp, while Total is considering converting a 90,000 barrel a day refinery in Paris to biofuels, as essential repairs are looking uneconomical.
These three cases are just examples from a very long list. In total, Wood Mackenzie has listed 11 refineries in jeopardy in Europe alone. At the same time, large export-oriented capacity increases in the Middle East and China, totaling 4 million barrels per day, are coming online over the next 3 years. These projects are, in many cases, complete, or in some cases, construction is well underway. In September, the new 400,000-barrel-a-day refinery in Jazan, in Saudi Arabia, came online with its first shipment of products, while the Al-Zour 600,000-barrel-a-day refinery in Kuwait, which will be the largest in the Middle East, is now 95% complete and expected to come online in early 2021. China is rapidly becoming a refining powerhouse and refined product exporter, with substantial refinery projects underway.
A 400,000-barrel-a-day refinery in Zhejiang is starting trial runs, while work is underway on a $21 billion Yulong refinery complex in Shandong, scheduled for completion in 2024. These projects and ongoing refinery expansion in China substantially exceed Chinese domestic refined product demand, and as a consequence, we expect significant increase in exports. Turning to supply, product and chemical tanker supply remains low. Product tanker order book is 6.1%, delivering over the next three years, and we expect net of scrapping, fleet growth of 1%-2% per annum over the period. The chemical tanker order book is similarly low at 4.1%, delivering over two years, and net of scrapping, we expect fleet growth of less than 1% per annum over the period.
In the near term, new ship ordering will remain low until such time as there is clarity on propulsion technology and an economic justification. Meanwhile, the energy transition is getting underway and will result in a major transformation of the global fleet and accelerated scrapping of older ships. Based on the age profile of the fleet and as a consequence of anticipated increased regulations concerning greenhouse gas emission targets, approximately 1,800 ships could be scrapped over the next 10 years, which is far above recent scrapping levels. Moving to slide 10 for a summary of our financial performance. We're reporting a net loss of $6.6 million, or $0.20 per share for the third quarter, reflecting a sharp decline in charter rates related to the pandemic.
Charter market weakness is continuing into the fourth quarter, but Ardmore remains profitable for the year to date, with net profit of $13.6 million, or $0.41 per share for the nine months ended September, and we expect to be profitable for the full year. As always, we remain very focused on cost control and efficiency improvements. Corporate cash overhead came in at $3.3 million for the quarter, in line with prior quarters, but for the year to date, September 2020, costs are slightly down year-over-year. Commercial and chartering costs were $800,000, in line with prior periods, and as mentioned before, in many companies, the commercial and chartering costs are incorporated into voyage expenses, which means that our corporate cost is the comparable overhead.
On commercial and chartering, as a comparison, even with our moderate scale, our costs are running at 50% of standard industry pool fees. For the fourth quarter, we expect total overhead, incorporating corporate and commercial, to be $5 million, including cash and non-cash items. In October, we completed a rigorous budgeting process for 2021, and we're expecting a flat budget for the year, despite insurance increases in line with the broader market. Operating expenses are in line with full year estimates. Total operating costs for the quarter was $16.1 million, and looking ahead, we expect operating expenses for the fourth quarter to be $16.5 million, reflecting the additional ship in operation for the quarter. Interest costs are substantially down year-on-year.
We executed a floating to fixed swap in May, locking in LIBOR at 32 basis points, and as a consequence, interest costs came in at $4 million, well below the $4.8 million for the second quarter. Looking ahead, we expect interest and finance costs in the fourth quarter to be approximately $4.1 million, which includes amortized deferred finance fees of $400,000. Depreciation and amortization totaled $9.8 million for the third quarter, and we expect depreciation and amortization for the fourth quarter to come in at $10.2 million. Overall, Ardmore's cost structure is amongst the lowest of our peer group, despite our smaller size, with significant incremental improvements possible through scale. Turning to slide 11, we have a look at charter rates.
Product tanker charter rates experienced a sharp decline in the third quarter, with MR spot rates highlighted in green on the left-hand side, making just under $13,000 a day on average. It is important to point out that none of our MRs have scrubbers. Ignoring capital and operating costs associated with scrubbers, our estimate is that a scrubber-fitted MR should generate a premium to TCE of $620 a day for the third quarter and $1,400 a day for the nine months ending September, on the spread between HSFO and VLSFO for the period. Looking ahead to the fourth quarter, we have 40% of our days booked on the MRs at $10,500 per day, representing an all-time low and reflecting continued weakness in the charter market.
Meanwhile, the chemical tanker rates on the far right are performing much better on a relative basis. As with last quarter, we present charter rates on the chemical tankers on an actual and a capital adjusted basis. The purpose here is to present the rates for the various vessels on a comparable basis to an MR. The methodology is simple. We establish a bareboat equivalent rate for the ships each quarter based on the TCE performance. We then make an adjustment to the bareboat for the relative value ship to an MR, and this is then added or subtracted to the TCE rate. This is one of the methods we use internally to assess relative TCE performance, and it is very useful for contextualizing rates across different asset classes.
Using this methodology, the chemical tankers earned $11,050 per day for the quarter, or $11,900 per day on a capital adjusted basis. Looking ahead to the fourth quarter, the chemical tankers are outperforming the MRs, earning $11,650 per day, with 55% of the days booked. Moving to slide 12 for fleet and operations update. Ardmore's modern fleet is well positioned for the energy transition. Our fleet comprises eco-designed MRs and highly fuel-efficient Japanese-built vessels upgraded for further enhanced efficiency. We anticipate that all ships are already in compliance with the proposed EEXI targets, on average, 5% better. Our fleet carbon emissions levels are 10% better than the Poseidon Principles target for 2020, and we have an ongoing focus on improvements and technologies to stay ahead of the curve.
Operation of the fleet continues to run well, despite challenges associated with the pandemic. As part of our focus on performance improvement and efficiency, we are currently applying new technologies for controlled power limitation on main engine, engines, enhancements for capturing generated waste heat, and further technological advancements to existing propeller modifications. Also, we are currently taking advantage of a weaker charter market and vessel positioning to accelerate dry docking on six vessels in the fourth quarter. All six vessels are optimally positioned in China and Singapore, enabling more cost-effective dockings. Finally, taking account of the two ships which delivered in August and September, total revenue days are estimated to be 9,140 for the full year 2020. Turning to slide 13, we will go to the capital allocation policy and financial activity.
Ardmore has a strong financial position, with total liquidity of $60 million available in cash and undrawn lines as of the end of October, and this equates to cash of $2.3 million on a per ship basis, which is significantly higher than our peers. We are currently finalizing a $10 million loan for the Ardmore Seafarer with a Japanese bank on highly attractive terms. It is a 5-year loan, priced at LIBOR plus 2.25%, and we expect to draw down in the coming weeks. The attractive terms highlight Ardmore's strong financial profile and ability to access highly attractive financing in challenging market conditions. We are continuing to invest in the fleet with CapEx of $7.5 million for the year to date, and the capital allocation policy has strengthened the company's financial profile.
We are continuing to repay debt, scheduled debt repayments of $9 million per quarter, or $36 million annually, while maintaining the revolving credit facilities for financial flexibility. At the end of September, our total net debt was $344 million, with leverage of 49%, which is down year-on-year. However, as Tony pointed out, given the current equity market conditions, our priorities may shift. And with that, I would like to turn the call back over to Tony.
Anthony Gurnee (CEO)
Thanks, Paul. So to sum up then, the tanker market is currently at very low levels. We still expect a winter market lift in spot rates, but not to levels typically seen in prior years, given the missing underlying oil demand. Product tanker demand growth is expected to recover fully post-pandemic and then continue on a 2%-3% growth trajectory. In the meantime, we are maintaining a strong balance sheet and financial flexibility. Ardmore's capital allocation policy has proven successful in improving our financial strength, but now our priorities may shift, given our stock price. Notwithstanding, we still believe financial strength is very important given the difficult market conditions we're in, so this is a balancing act. Regarding the energy transition, while it poses challenges for the tanker sector overall, for companies such as Ardmore, it represents real opportunity.
As a final point, Ardmore's focus on long-term shareholder value remains unchanged. We continue to look for compelling strategic opportunities and other means to build value. We continue to prioritize operating performance and financial strength, and we continue to preserve significant earnings upside in a recovering market. With that, we're happy to open up the call for questions.
Operator (participant)
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 the handset before pressing the keys. 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 John Chappell with Evercore. Please go ahead.
John Chappell (Senior Managing Director)
Thank you. Good afternoon, guys.
Anthony Gurnee (CEO)
Hey, John.
John Chappell (Senior Managing Director)
Paul, probably, probably for you, just a couple questions on the buyback, which I think probably is the biggest focus right now. So first of all, approved in September, were you able to get any off in the third quarter or early fourth quarter before a quiet period kicked in? And then also, when does the post-earnings quiet period end?
Paul Tivnan (CFO)
Great question, John. So, the press release announcing the share repurchase was issued on around September thirtieth, so we would have been in a quiet period at that point. So, nothing executed on the buyback from that point to now. And the open period would typically open two or three days after the earnings announcement, pending any other transaction-related items. But yeah, ordinarily, we'd expect it to open up in the next two days.
John Chappell (Senior Managing Director)
Okay. $60 million of liquidity, $36 million of annual debt amortization, $24 million. Just given the uncertainty in the market right now, the weak start to 4Q, cases reaccelerating, out of that $24 million, of what we should consider kind of excess liquidity right now versus your capital commitments, how much would you consider true liquidity to be active in buybacks versus keeping a buffer during an uncertain time?
Paul Tivnan (CFO)
Yep, that's a great question, John, and I guess I'll refer back to Tony's remarks to say this, this is a balancing act. I think, look, the equity market conditions have been depressed right across the tanker space, not just Ardmore. So almost all of the companies are trading at a substantial discount to NAV, DRV, pick your number. So from that standpoint, equity prices are very attractive, and as you quite rightly pointed out, the market is challenging and it's uncertain, so it is a balancing act. So in terms of kind of preserving financial strength and taking advantage of opportunities. So it depends.
You know, I think we—it's something we reflect on all the time as to what, what's the appropriate amount of excess liquidity that you need to keep, how long would this market's conditions may last, and what, what levers you might need to pull, and, and what level of share repurchases you should, you should take on. So I think, look, it's a conversation that comes up all the time. And, you know, I think it's— you just have to ultimately, I guess, I guess, wait and see as to, as to how we, how we execute on, on both.
John Chappell (Senior Managing Director)
Okay. And then final question. You know, I know you just purchased a ship, but as you said, things change, and the equity markets have changed. So what's your appetite to sell ships to actually fund the buyback, just given. Trust me, I know the whole group's trading at massive discounts, NAV, but in your situation, pretty extreme relative to your capital structure and your fleet. So, is there has there been any thought of trying to narrow that arb with maybe non-core vessel sales to help expedite that three-year program?
Paul Tivnan (CFO)
Yeah, I mean, that's another great question, John. I think, you're absolutely right, you know, straightforward, you sell ships and buy back your stock. But I suppose two points to make is, number one, we are a business, we're a growing concern, so the idea of selling a large number of ships to buy back your stock is not really an option. But definitely, you could trim certain ships on the fringes. I would say more broadly, and hopefully, we laid this out fairly coherently in the presentation, we do think getting beyond the pandemic, that there's potential real squeeze in the market here in terms of vessels, and marginalization of older ships.
You know, we're very fortunate that our fleet is very modern. The majority of them are eco-designed. We have four or five eco-mod vessels, which will actually meet the targets quite easily. So we do believe we have a fleet which is set up for the longer term, and we do think there's a lot of value there within the fleet, which might not necessarily be realized in the S&P market today. So it, it's, it's almost, you know, similar, similar point to the last, the response to the last question.
It is a balancing act between kind of trimming your fleet, managing share repurchases and capturing equity, but also protecting upside earnings potential in what we believe is a recovering market, kind of through the pandemic as things ease and ultimately, you know, jet fuel and aviation and general economic activity gets back to more normal levels.
John Chappell (Senior Managing Director)
Okay.
Anthony Gurnee (CEO)
Sorry, John, just to add a couple more things.
John Chappell (Senior Managing Director)
Sure, yeah, go ahead.
Anthony Gurnee (CEO)
You know, our $60 billion cash number doesn't include the $10 million drawdown coming up from the financing of the new ship. So that'll boost our cash. And then it's also – look, it's widely known in the S&P market that we're marketing the Ardmore Seamariner for sale. That's our 2006, and in fact, the one we bought is a replacement for that, right? So that'll bring us down to 25 owned ships, and based on our expected sale price, we think that'll bring in another $5 million or so of cash after we pay the debt. So.
John Chappell (Senior Managing Director)
Great. All right. Thanks, Tony. Thanks, Paul.
Operator (participant)
The next question comes from Mike Webber with Webber Research. Please go ahead.
Mike Webber (Managing Partner)
Hey, good morning, guys. How are you?
Paul Tivnan (CFO)
Hey, Mike.
Mike Webber (Managing Partner)
Hey, couple questions, kind of higher level. Tony, you mentioned in your remarks, you know, plans to include shipping in the Emissions Trading System, or ETS, in Europe, by 2023. IMO's pushing back on it. But it is interesting, and I know it's positioned as kind of a regional system, but would certainly have a broad-based impact, as I see different merchant fleets kind of trading in and out of Europe, aside from just simply the container lines that are running in circles there. I'm just curious, you know, I know it's early, and we'd be pretty far down a hypothetical path here, but what impact do you think that ultimately has on the MR market? Does it further bifurcate the global fleet in terms of trading patterns?
You know, we are pretty far down that, the hypothetical path, but that kind of mechanism seems like it's inevitable at some point somewhere. So I'm just curious, if we were to see that happen, how do you think it actually plays out for your core fleet?
Anthony Gurnee (CEO)
Yeah. This is Greg, not Mike, I think is in.
Paul Tivnan (CFO)
Mike?
Anthony Gurnee (CEO)
Is it Mike?
Mike Webber (Managing Partner)
That's Mike.
Anthony Gurnee (CEO)
Yeah.
Mike Webber (Managing Partner)
Yep.
Anthony Gurnee (CEO)
Hey.
Mike Webber (Managing Partner)
Internet, internet phone now.
Anthony Gurnee (CEO)
Must have been a big night. Anyway,
Mike Webber (Managing Partner)
Long night.
Anthony Gurnee (CEO)
Yeah, look, it's you know, the, the what the European Union is talking about is... The, the way they're describing it is that it's going to apply, at least to, inter-European trade. So they're not ruling out applying it to, you know, vessels, or, you know, voyages originating or, terminating in Europe. So that's one point to make. They're doing it to put pressure on the IMO. They're very unhappy with the pace the IMO is working at. And it seems like other- we're hearing that other, other areas of the world are interested in something similar, so this might become a trend. And clearly, what it means effectively is that if you trade into Europe or if you're trading around Europe, which a lot of MRs and Handys do, it's effectively, an incremental voyage cost.
And so that would, you know, marginalize ships generally, and, and it would mean that the more fuel-efficient vessels would trade in those areas with some kind of ETS, so. Yeah. So I mean, it should, it should, you know, in a way, it's a little bit parallel, going way back to what happened, when Europe started banning single-hull tankers.
Mike Webber (Managing Partner)
Gotcha. Yeah. No, it's an interesting premise, and we're kind of trying to wrap our heads around here. Maybe even more broadly, you know, I know there's always a push to try to monetize a discount to NAV. But if you kind of think about thematically where we are now relative to maybe where we were a couple of years ago, we've gone through IMO 2020, and the peak of that is kind of been obfuscated by the pandemic. But it certainly looks like we're on the precipice, especially in Europe, of the build-out of a continental hydrogen economy.
I'm just curious, if you think about the way Ardmore is positioned here, and thematically, what opportunity is there, and I'm thinking specifically on the chemical tanker side, to participate in the build-out of methanol or ammonia to kind of solve for hydrogen's midstream trade, which is still certainly very early innings for developing. But I'm just wondering whether you've seen any pickup in conversations around plans for, say, refinery conversions or, you know, greenfield methanol export projects where people might be kicking the tires on looking for term coverage on the chemical tanker side.
Anthony Gurnee (CEO)
There's a lot of discussion along these lines. We're hearing from, for example, Japanese trading houses are thinking ahead to new building demand for more chemical tankers because a lot of the future fuels are gonna be perhaps chemical spec and need to move on chemical tankers. And you know, including potentially methanol, et cetera. So and you know, different types of biofuels. To be honest, there's no discussion yet of people needing to lock in that kind of tonnage on a term basis. But generally speaking, we think that the demand outlook and the growth prospects for you know, things that generally get categorized as chemicals is quite significant. And we're very you know, and we're following it closely, right? So you know, it's early days. The transition is really getting underway now, and we're we're looking for ways that we can participate and profit by it.
Mike Webber (Managing Partner)
Gotcha. All right, great. I'll turn it over. Thanks, guys.
Anthony Gurnee (CEO)
Thanks.
Operator (participant)
The next question comes from Randy Giveans with Jefferies. Please go ahead.
Randy Giveans (SVP of Equity Research)
Howdy, gentlemen. How's it going?
Paul Tivnan (CFO)
Hey, Randy.
Randy Giveans (SVP of Equity Research)
Hey, yeah. You know, obviously, appreciate the quarter-to-date rate guidance, certainly outperforming any of the benchmark indices we've been looking at. So in the prepared remarks, Tony, you know, you stated that rates reflect a market trough before likely improving in December. So I guess two questions on that: What kind of MR rates are you currently fixing this week? And when do you expect rates to kind of get back to the maybe mid-teen levels for your MRs?
Anthony Gurnee (CEO)
What's interesting right now is that the rates we're fixing are really all over the place. Some of them are very, very low, and others are really up in the mid-teens, even sometimes high teens. So it's very lumpy at the moment, and we don't know whether that's just volatility or potentially green shoots. You know, it's still early November, right? So I don't know where you are, but here, it's not—there's not a lot of winter weather yet. But we do acknowledge that there's a big chunk of demand missing from the market, offset by, you know, the refinery situation, et cetera. So it's really there's a lot of crosscurrents on demand and activity, and it's hard to know what's really happening at the moment. It does feel like things are trending up a little bit, so we'll see what happens.
Randy Giveans (SVP of Equity Research)
Okay. Yeah, I'm here in Houston, so there's never really any winter weather here. And then, like, turning to the time charter market, you know, how liquid is that 1-year time charter market? What's the current 1-year time charter rate? And then with that, any appetite for additional time charter ends at these levels, if you are pretty bullish on kind of rates in the next 6-12 months?
Anthony Gurnee (CEO)
Yeah, you know, we did the one ship at $13.4, and we're still happy with that. Obviously, it's not quite in the money yet. It's had its first profitable voyage just recently, though. You know, we're interested in growing a portfolio of TC if we can pick off the right ships at the right time. You know, that's on our agenda. It's also a very efficient way to get exposure to the market, you know, instead of buying ships. So it's something that we look at all the time. But I will make the point that the ship that we did buy, that's gotten more attention than quite frankly, we thought it would.
You know, actually, because of the price and because of the condition when we bought it, and the fact that it was, you know, ex dry dock with ballast water installed, breaks even at $11,700 per day for the next three years. So, you know, we're happy with that. We're also happy with the TCE rate, and, you know, we've up until, you know, we have chartered ships in the distant past, but we're probably moving to more of a mixed model of a ton of sourcing for the business.
Randy Giveans (SVP of Equity Research)
Sure. And in terms of current one-year time charter rate, what number are you kind of seeing out there?
Anthony Gurnee (CEO)
Yeah. There probably depends on the ship type and, you know, location, et cetera. But for, you know, for the type of ship that we did charter in, it's probably off a little bit, maybe $200 a day, so low 13,000s and maybe $750-$2,000 higher for an eco-design. But having said that, that's quite theoretical. There's virtually nothing happening right now. There's a real standoff in the market.
Randy Giveans (SVP of Equity Research)
Got it. Okay, I'd be, I'd be remiss to ask any comments on a Biden versus Trump win on the product tanker market?
Anthony Gurnee (CEO)
No comment.
Randy Giveans (SVP of Equity Research)
I know you're a political man, so you've got something to say.
Anthony Gurnee (CEO)
But I'm not a publicly political man, so we'll leave it at that.
Randy Giveans (SVP of Equity Research)
Noted. All right, well, thanks.
Anthony Gurnee (CEO)
Thanks, Randy.
Operator (participant)
The next question comes from Ben Nolan with Stifel. Please go ahead.
Ben Nolan (Managing Director)
Very good, afternoon, guys. Eventful day on this side of the pond. But, I wanted to dive in a little bit more on what, on some of John's questions. And one of the big caveats that you guys had always included when talking about buybacks was that having done them in the past, your ability to actually, actually execute on much volume was challenged. So, capital availability aside, and I think, Paul, you did a good job of answering that, but how do you think about what, what's realistic when... And I assume that you've looked at, you know, how much you can do, but at this share price, assuming that you are interested in buying, what's a realistic number of what you think is possible?
Anthony Gurnee (CEO)
Well, you know, I'm sure you know the practical limitations in a share repurchase program. You know, as set by the SEC. And then you just look at the volumes, and you can figure out what's, you know, theoretically possible on a max basis. But I will also mention that, you know, there is the possibility to do a tender offer.
Ben Nolan (Managing Director)
Okay, that's interesting, and I assume if you're bringing it up, it's something may be considered. But all right. Well, I don't like to ask macro questions, but as I was staring at your presentation, something occurred to me that I think Tony, you think about these kind of things. Obviously, big new refineries coming online in China and the Middle East. As everybody has talked about, one of the things that I haven't really heard anybody talk about is this massive new Dangote refinery being built in Nigeria, and I would just optically think that it's probably not good news if you're in the LR2 market, where a lot of LR2 business goes.
But I haven't really thought through if there are any implications as it relates to Handy or MRs or some of the areas that you guys transit. Have you read or thought through what more African refinery capacity might do? I mean, we're right around the corner from that coming online, so any thoughts about that?
Anthony Gurnee (CEO)
Yeah, just brief thoughts. It's a good point. It's a big refinery. It definitely would have an impact on trade flows. It would eliminate some product import, but it also would create some cross-trading in West Africa. Net, it's probably negative, but not huge on a global scale. We're not sure about the timing of that refinery coming online. So we're not really in a position to comment, you know, definitively on it, but I think it's something worth looking into. It's been on the books for a long time.
Ben Nolan (Managing Director)
Right. I think I read sometime shortly after the first of the year, but I didn't know if, like you said-
Anthony Gurnee (CEO)
That was the case, that was the case two years ago as well.
Ben Nolan (Managing Director)
I didn't know if there was maybe, like, a hidden, like a silver lining for the MR market, obviously, that, you know, if you could suddenly be, you know, using that as a hub to spoke out to the rest of West Africa, and maybe that's an MR trade rather than an LR trade. But,Anyway, that's all I have, so, good talking to you guys.
Anthony Gurnee (CEO)
Okay, thanks.
Paul Tivnan (CFO)
Thanks, Ben.
Operator (participant)
Again, if you have a question, please press star then one. The next question comes from Omar Nokta, Clarksons Platou Securities. Please go ahead.
Omar Nokta (Managing Director)
Hey, guys. Thank you. Just a quick couple of questions, and maybe just continuing on from John and Ben's discussion on, you know, the balancing act that you've been referring to, you know, between the share buyback, preserving liquidity. You know, selling ships is an option, as you referenced, though critical mass comes into play. So what about what are your thoughts then on further sale leasebacks? Are those a possibility?
Paul Tivnan (CFO)
Hey, Omar. Yeah, no, they are for sure. That's, you know, freeing up, either using our excess liquidity or refinancing, selling ships and, you know, deconstructing ships so that you've got the use of it and the earnings potential of it, but you're also monetizing the residual. That's always an option. I suppose what I can say, Omar, is that everything is on the table. Let's be clear here, you know, there's no one more so than the people in this room here are motivated to build value and to get the share price up. But it is a balancing act.
And, you know, we have seen, everybody on this call will have witnessed lots of share repurchase activity in all sorts of sectors which have not worked out. So there are ways of capturing and building value. You know, you buy a ship, you make a long-term investment, and you get cash flow off it. So it's an income-generating asset. You retire your shares, you retire them permanently. So it is a balancing act, for sure. Financial strength is a key priority, preserving equity and capturing value on the shares. So there's a good few levers and things at play here. You're absolutely right.
Selling ships, freeing up liquidity and buying back stock is absolutely one of them. The market on a number of fronts is not as liquid as it has been for practical reasons related to COVID. But I suppose ultimately everything is on the table, Omar, in terms of building value and capturing it and making sure that we, you know, build long-term returns for shareholders.
Omar Nokta (Managing Director)
Thanks, Paul. And just to be clear, when you mention there's not as much liquidity given COVID, are you referring to sales outright, or were you talking also about the sale-leaseback?
Paul Tivnan (CFO)
Yeah, I mean, in everything, everything. I think S&P activity is lower. Financing activity is definitely lower, in terms of the, you know, we're very fortunate, as we've just demonstrated with the refinancing of the recent acquisition with that loan that's underway. But there's no doubt about it, in terms of financing activity overall, from the leasing houses and many others, has really tightened up. We're fortunate, you know, strong financial profile, public company, and a good track record of execution, that we continue to have good access and premium access, I would say, to financing. But I think broadly in the markets, liquidity on S&P and financing is not where it was two years ago. Let's put it that way.
Omar Nokta (Managing Director)
Yeah, that makes sense. And maybe just one final one just on that. That $10 million loan on the MR that you purchased a couple months ago, you know, that looks like that's about 60% of the purchase price, which I'd say is somewhat attractive, given it's older, it's 10 years old. Do you view this type of, you know, 60% LTV, is this a one-off, where it's a Japanese-built ship with a Japanese bank providing the loan? Or is 60% for the secondhand tonnage now potentially more widely available than perceived?
Paul Tivnan (CFO)
Yeah, I would say 60% financing is not widely available. I think you hit the nail on the head. I think it's a bank that we've been talking to for many years. We've been financing ships in Japan now for a number of years, and this bank has, you know, we've been cultivating a relationship over time. I think the fact that it is a high-quality Japanese ship has certainly helped. It certainly proved attractive to the bank. They know the yard, they know the ship, they know the prior owner. It is a very interesting ship, and Tony can probably comment on that more in terms of its fuel efficiency features. It was way ahead of its time.
So no, for a whole variety of reasons, you know, 60% financing felt like the right level for this ship, but that definitely wouldn't be the norm. I think that's very attractive. Particularly, 60% financing at that level, in terms of pricing, is highly attractive and I'd say hard to replicate, if I'm honest.
Omar Nokta (Managing Director)
Yep, seems so. Well, thanks, Paul. Appreciate it. I'll leave it there.
Paul Tivnan (CFO)
Thanks, Omar.
Operator (participant)
This concludes our question and answer session, and it concludes the conference as well. Thank you for attending today's presentation. You may now disconnect.