Ardmore Shipping Corp (ASC) CEO Anthony Gurnee on Q3 2018 Results - Earnings Call Transcript

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About: Ardmore Shipping Corp (ASC)
by: SA Transcripts

Ardmore Shipping Corp (NYSE:ASC) Q3 2018 Earnings Conference Call November 7, 2018 10:00 AM ET

Executives

Anthony Gurnee - CEO

Paul Tivnan - CFO

Analysts

Jon Chappell - Evercore ISI

Ben Nolan - Stifel Nicolaus

Randy Giveans - Jefferies

Fotis Giannakoulis - Morgan Stanley

Magnus Fyhr - Seaport Global

Operator

Good morning, ladies and gentlemen, and welcome to Ardmore Shipping's Third Quarter 2018 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 Web site, ardmoreshipping.com. Please note, for those on the webcast, due to a technical issue, you may need to refresh your browser in order to see all the presentations.

The presentation is also available as a download in the Materials tab of the Web site and on the Ardmore Web site. We will conduct the question-and-answer session and after the opening remarks instructions will follow at that time. A replay of the conference call will be accessible anytime during the next week by dialing (877) 344-7529 or area code (412) 317-0088 and entering passcode 10125856.

At this time, I will turn the call over to Mr. Anthony Gurnee, Chief Executive Officer of Ardmore Shipping. Mr. Gurnee, the floor is yours, sir.

Anthony Gurnee

Thank you, Mike. So, good morning everyone, and welcome to Ardmore Shipping's third quarter earnings call; first, let me ask our CFO, Paul Tivnan, to describe the format for the call and discuss forward-looking statements.

Paul Tivnan

Thanks, Tony, and welcome everyone. Before we begin our conference call, I would like to direct all participants to our Web site at ardmoreshipping.com, where you'll find a link to this morning's third quarter 2018 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 and 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 2018 Earnings Release, which is available on our Web site.

And now I will turn the call back over to Tony.

Anthony Gurnee

Thanks, Paul. On the call today, we'll follow our usual format. First, we'll discuss our performance and recent activity, followed by a market review with a focus on IMO 2020 after which Paul will provide a fleet update and review our financial results. And then we'll conclude the presentation and open up the call for questions.

So turning first to slide five, on our performance and recent activity, we're reporting EBITDA of $3.9 million and a net loss of $12.2 million or $0.37 a share for the third quarter, reflecting continued weakness in product tanker rates particularly early in the third quarter.

Our MR has earned $10,300 per day in the third quarter and have earned $11,450 year-to-date. During the third quarter, MR spot rates were adversely impacted by lower cargo volumes in the Atlantic Basin with one-off events occurring late in the second quarter and continuing into third quarter and some encroachment of larger tankers into MR trades which looks now to be easing with the improvement in crude tanker rates. MR rates have recovered from several of those and appear to be on an upward trajectory into the winter months.

Our fleet is performing well with operating expenses and overhead below budget year-to-date. Our cash at quarter end was $53 million on a pro forma basis reflecting the refinancing of four vessels on favorable terms in October. And looking ahead, supply demand fundamentals remain very positive while at the same time IMO 2020 is expected to create upside for the entire tanker market. and product tankers in particular from mid 2019.

Turning to slide six, we'll look at our fleet profile. This is unchanged since our last earnings call, but for those not familiar with Ardmore, this is a modern fuel efficient fleet all built in top tier yards in Korea and Japan and with significant earnings power in a rising market.

Now, we'll go to slide eight, on MR supply demand fundamentals. As is shown in the graph on the upper right, MR tonne-mile demand is continuing to grow at about 4% per annum. This is underpinned by strong oil consumption growth matched by refinery capacity additions in trading oriented locations. And it's also important to highlight that the crude and refined products de-stocking process that had persisted from 2016 to mid 2018 and weighed heavily on tanker rates is now a thing of the past.

Meanwhile, looking to supply as you can see on the graph in the lower right, the MR order book remains at all-time lows at just 4.7% of the existing fleet. Only 50 MRs are expected to deliver this year matched by an almost equal number being scrapped resulting in roughly zero net fleet growth for 2018.

Looking ahead, we expect 1% or less net fleet growth in 2019. The strong supply demand fundamentals are expected to provide a solid foundation for the MR market as we go into a period of what we expect will be a very positive oil market dynamics creating incremental tracker demand.

Turning to slide nine for an update on the tanker market in terms of activity and trends, our MR fleet averaged 10,300 per day for the quarter, while the chemical tankers averaged 10,100 per day. This relatively strong performance versus the market was achieved with less than optimal fleet deployment, which was and is currently weighted toward the Atlantic Basin. This proved to be a headwind in the third quarter as the East was much stronger, but has now shifted in our favor as we will discuss further on.

In terms of recent market activity, you'll see in the graph to the upper-right that the Atlantic Basin hit record low rates in late-summer driven by unrelated one-time events in the key consumer regions of Mexico and Brazil. Globally in other words taking into account markets in the East not just the Atlantic MR rates dropped in September. Atlantic Basin trading activity has returned to more normal levels and winter market conditions are starting to emerge there. Meanwhile, as you can see to the lower-right, a very strong and continue to rebound in tanker and crude tanker rates is leading a general tanker market recovery, and it's also resulting in the easing of the encroachment of larger ships on product trades, with LR2s expected to migrate to dirty trading, which actually nine have done so far.

Looking ahead, we believe that the strong crude tanker rates are leading a general tanker market recovery. We also believe that there may be more momentum in MR rates than is generally recognized, given the very strong underlying supply demand fundamentals, and as we'll discuss next, the impact of IMO 2020 on oil market dynamics and thus on tanker demand is expected to be felt beginning in mid-2019.

On slide 10, we take a look at the changes that IMO 2020 is expected to bring. Let me take a moment to start at the start here to explain the fuel type terminology. High sulfur fuel oil or HSFO is the type currently used worldwide and contains 3.5% sulfur, marine gas oil or MGO is essentially the spec of diesel that ships use and contains 0.1% sulfur. Essentially it's diesel, sometimes more generally called Middle Distillate, and very low sulfur fuel oil or DLSFO is the new IMO compliant substitute for high sulfur fuel oil containing only 0.5% sulfur, both marine gas oil and very low sulfur fuel oil will be IMO 2020 compliant.

Implementation is not fixed for January 1, 2020, with the switch over resulting in a significant increase in demand for compliant fuels. As shown on the graph in the upper-right, the global market for high sulfur fuel oil is currently 3.5 million to 4 million barrels a day, and it's expected that about 2 million barrels a day will be replaced by either gas oil or yet to be created very low sulfur fuel oil blends of various types. This is a major change in preparations for compliance are well underway in both the oil and shipping industries. In particular, refineries will need to increase output and ship their products right away from fuel oil and toward middle distillate as well as find ways to make the new very low sulfur fuel oil blends.

Tanker providers will need to prepare their logistics chain, including storage and barging by cleaning tanks and managing down their inventory supply sulfur fuel and ship owners are either preparing to use compliant fuels or on a more limited basis installing scrubbers to enable continued burning of high sulfur fuel at least for a period of time. The transition is not going to happen with the flip of the switch. The anticipated limited initial availability of very low sulfur fuel oil combined of what we believe will be a slower than expected paying of scrubber installations will create a market cap that can only be filled by gas oil and create up to two years of market disruption before the equilibrium is reached.

Moving to slide 11, we take a look at the impact of IMO 2020 specifically on tanker demand. Transition to compliance fuels will have a significant impact leading to hire seaborne volumes of gas oil as demand is forecasted to increase by 1 million to 1.5 million barrels a day commencing January 1, 2020. Surplus high sulfur fuel will have to be redirected from current consuming regions for further processing or alternative uses thereby boosting demand for crude tankers.

This is also expected to be a direct redirection of crude flows as refineries look to respond to the new market conditions with high complexity refineries sourcing heavy seller crudes and simple refinery searching provides weak crudes. More specifically demand for product tankers expect is expected to increase substantially, generally speaking global imbalances for whatever reason create oil price volatility, increased arbitrage opportunities and that's an oil trading activity.

And IMO 2020 looks like it's going to create some very serious and balances in the oil market. This should lead to significant ton demand this as an example in Europe which is roughly 30% of the global bunker market is anticipated to substitute at least 700,000 barrels a day of high sulfur fuel oil compared with compliant fuels initially mostly marine gas oil and thus create a very sizable to a trade of gas oil in and locally produced high sulfur fuel out.

The U.S. Gulf, Middle East and Asia regions are all expected to become significant exploiters of compliant fuels not only to Europe but the scores of other local bunker markets worldwide substantially increasing ton mile demand. It's also worth highlighting that the new VLSFO fuel blends will be made with a large percentage of gas oil to meet the sulfur cap, that's adding to the incremental demand for NGL. Overall IMO 2020 looks set to create a substantial amount of incremental demand for tankers in general and product tankers in particular with estimates ranging anywhere from 5% to 15%.

Even the lower end of this estimate will be enough we believe to significantly boost charter rates. And I will turn the call back to Paul to take us to fleet update in our financials.

Paul Tivnan

Thanks, Tony. Moving to slide 13, we will take a run through the fleet days. Revenue days this year would increase by 2% percent in 9,933 days we had 59 dry dock days in the third quarter for dry docks into an order of surveys and we expect to have 35 dry dock days in the fourth quarter.

Turning to slide 15, we will take a look at our financials as you will see on the second line we are reporting a net loss for the third quarter of $12.2 million or $0.37 per share. Total overhead cost were $4.4 million for the quarter comprising corporate expenses of $3.4 million and commercial and chartering expenses of $1 million. As I mentioned before and many companies the commercial and chartering cost are incorporated into void expenses which means that our corporate cost is the comparable overhead.

Full year corporate cash costs are expected to be $12.5 million which works out approximately $1250 per ship per day across the fees. For the fourth quarter we expect total overheads incorporating cash in commercial to be $4.3 million which includes both cash and non-cash items. Depreciation and amortization for the third quarter was $9.9 million. We expect depreciation and amortization for the full year to be $39 million which equates to $10 million for the fourth quarter.

Interest and finance costs were $6.2 million for the third quarter comprising cash interest of $5.6 million and amortized deferred finance fees of 600,000. We expect interest and finance costs for the full year to come in at $26.1 million and for the fourth quarter this equates to $7.9 million comprising cash interest of $6.2 million amortized deferred finance fees of 600,000 and deferred finance fees written off of $1.1 million related to the for refinancing of four vessels in October.

Moving to the bottom of the slide, operating costs for the quarter came in at $16.3 million or 6,176 per day across the fleets including technical management. OpEx for the design in MRs was 6,279 per day, the MRs came in at 5,903 per day. While the chemical tankers came in at 6,249 per day. Looking ahead, we expect total operating expenses for the full year to come in at $673.3 million or 6,620 per day and this equates to OpEx for the fourth quarter of approximately $17.6 million.

Turning to slide 16, we take a look at charter rates for the third quarter. In spite of soft charter market conditions to spot MRs and reported tcf 10,314 per day basis to charge just charge while the feed average came in 10,261. Looking at the various chip types we had 15 eco design MRs in operation which ended an average of 10,684 per day and the 70 come out MRs and 9,645 per day. Our six chemical tankers had average rates of 10,093 for the quarter, continuing their strong performance relative to the larger MRs. Looking ahead to the fourth quarter with 50% of the days booked today's the spot MRs have been approximately 11,000 per day, while the chemical tankers have also learned approximately 11,000. Overall, we remain focused on managing performance and voyage expectancy to maximize Tce.

On slide 17, we have our summary balance sheet which shows at the end of September our total days on leases were $442 million, leaving our corporate average at 54.9%.

Turning to slide 18, we remain focused on maintaining a strong liquidity position, pro-forma cash balance at the end of September was $53 million, including the refinancing of four vessels. As mentioned, we completed the sales and leaseback of four vessels in October, two 2015-built chemical tankers which we refinanced under 12-year capital lease with Ocean Yield, while two 2014 MRs were financed under seven-year capital leases with a top tier Asian financier. Both transactions closed and funded at the end of October, and the terms and pricing is in line with our existing debt and lease arrangement. And finally, we note that all of our debts, including capital leases, is amortizing at $44 million per year.

And with that, I would like to turn the call back over to Tony.

Anthony Gurnee

Thanks, Paul. So to sum up then, we're reporting a net loss of $12.2 million or $0.37 per share, reflecting product tanker market weakness during the third quarter. Meanwhile, MR rates have recovered from the summer months and are increasing into the winter months, with the strong rebound in crude tankers leading a general market recovery. MR tonne-mile demand growth is robust, underpinned by an estimated 1.4 million barrels a day of oil consumption growth for 2019, and matched by refinery capacity additions in trading-oriented locations. The MR order book remains at a record low of 4.7%; supply growth is expected to be close to zero in 2018, and around 1% in 2019. IMO 2020 is expected to be a game changer, with increase seaborne volumes of compliant fuels, increased arbitrage opportunities, and oil trading activity, all contributing to a significant boost in tonne-mile demand.

While we're very bullish on the market outlook, we are maintaining a strong liquidity position and financial flexibility, with quarter end cash at $53 million on a pro forma basis, and conservative leverage at 55%. All told, Ardmore is well positioned to benefit from the expected recovery in product tanker charter rates through significant earnings power with each $1,000 today increase in rates translating into $0.31 of EPS.

And with that, we're now pleased to open up the call for questions.

Question-and-Answer Session

Operator

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question we have will come from Jon Chappell of Evercore. Please go ahead, sir.

Jon Chappell

Thank you. Good afternoon, guys. One for each of you, Paul, if I can start with you, on the sale and leaseback transactions, first of all, can you just explain the thought process behind it? Obviously the markets kind of look better, you're very optimistic about '19. Was the situation where the terms were kind of too good to be true and you felt that you needed to act or did you feel that you needed to be more defensive at this time because we're yet to really kind of break out?

Paul Tivnan

It's a great question, Jon. Yes, I think the market obviously hit a trough in September, and in terms of financing we also try and continue to evaluate the financial profile of the company to match the needs of the business in terms of balance sheet, liquidity, and capital allocation strategy going forward. So I think on this occasion the terms presented were quite attractive, and also recognize the market outlook for the third quarter and early into the fourth quarter as well. I think rates are definitely improving now. But we, certainly where I sit, it's partly risk management and making sure that we have financial flexibility and adequate liquidity for market conditions and also if the opportunities arise that we can do something more.

Jon Chappell

Okay. And there's probably some commercial sensitivities, I mean, we can talk about it offline. But just to speak to those terms, can you give us a rough idea of what the actual sales proceeds were as we try to figure out asset value trends, and also the same thing on the terms of the spread over LIBOR?

Paul Tivnan

Yes, there is some commercial sensitivity around that, particularly for the other side as they negotiate other deals. Clearly, they don't want to disclose the specifics of our transaction. But the Asian financier was slightly higher advanced than a standard senior loan. And then the deal with Ocean Yield was typical kind of sale and leaseback financing with a much higher advance.

Jon Chappell

Okay. Tony, just one for you, I appreciate putting some meat on the bone of the IMO 2020 and hopefully that really does start to impact the market soon. You probably deal a lot with a lot of the oil traders who move a lot of product and therefore your customers. But also I would imagine or looking their jobs at the opportunities of this arbitrage which will probably happen. So to that extent, have they reached out to you at all looking for any time of term contracts associated with preparing their fleets and their cargo movements for this new regulation?

Anthony Gurnee

Honestly, the answer is not yet, but that's probably coming when we get into 2019. Because typically the charters are one year and if they can do it they do an option one year. So it's probably not in the fixing window yet for that.

Jon Chappell

Okay. Thanks, Tony. Thanks, Paul.

Anthony Gurnee

Thanks, Jon.

Operator

Next, we have Ben Nolan of Stifel.

Ben Nolan

Yes, thanks. Hey, Tony, I had a question. I know that - of if I recall correctly, last time you spent some time talking about the impact that Brazilian truck driver strike had had on the MR market. Was curious if you have any update there or - I believe that the government is providing subsidies for the refineries. How does that change the Atlantic market going forward, if at all, if you could talk to that a little?

Anthony Gurnee

Yes, sure. The volumes into Brazil have actually recovered substantially. This is in part a result of a reimbursement program that the Brazilian government put into place, not just for Petrobras, but for others as well to compensate them for the subsidized price they have to sell diesel out in Brazil. So that's actually resulted in a fairly substantial recovery. It's not quite where it was, but it's reasonably healthy at the moment. And we think that'll continue to improve at the government policy incrementally shifts back toward more market driven solutions.

Ben Nolan

Okay, that's helpful. And then switching gears a little bit but kind of staying more on a macro level. How are you viewing the chemical side of your business or the use of chem side of it? And then maybe more specifically, do you think that there are any potential impacts from IMO 2020 on that side of the business in addition or rather than just sort of focusing on the product side?

Anthony Gurnee

Well, you'll notice that we didn't put a slide in the deck this side on the chemical sector because nobody ever asks questions about it. The reality is that the actual chemical - the volume of chemical cargos that we move is only about 10% of our overall revenue, so it is relatively small. It's important to remember that our ship, the chemical tankers do roughly a third to half of their businesses is for refined products. So they've actually been trading quite well. What we do is we do a kind of a very simple capital adjustment in our mind to MRs of - if you look at all six of them, of around $700 a day, and on that basis they've been actually trading very well for the last few quarters relative to MRs.

We think that the big driver for the chemical sector, and especially our end of it, which is the simpler coated end, over the next period is going to be the MR market because there's so much cross trading and overlap between them in terms of cargo. So, yes, we think that to the extent that the MR market benefits from IMO 2020, we think that'll filter down to chemicals as well.

Ben Nolan

Okay. I appreciate it. Thanks, guys.

Operator

The next question we have will come from Randy Giveans of Jefferies.

Randy Giveans

Hey, thanks, operator. Good morning, guys.

Anthony Gurnee

Randy, how are you?

Randy Giveans

Hey. So you were mentioning that nine LR2s have already switched kind of from products to crude. I guess, one, do you see that kind of trickling down to maybe LR1s and possibly even MRs? And two, for those first cargos, for a new build VLCC Suez Max coming out of shipyards, are they still taking products or they going straight to crude with the rates being so high?

Anthony Gurnee

We would expect to continue to flow. If there's this much of a differential as there is right now we would expect the continued flow of LR2s from clean back into dirty. It's not going to be the newest ships or the ones that are part of core clean product trading fleets, but there's a lot of LR2s that are trading clean that are in the hands of mixed fleets or others, or maybe older where it would make sense to switch over. And it's very tempting because the rates on the Aframax routes have been much stronger. And so we think that will continue. And for every one LR2 that moves over that's effectively taking two MRs supply our of the market, out of our business. We don't really see a lot of activity on the LR1 side in the same way. They tend not to switch back and forth quite as often, but we can check into that and then there was a last part of the question that just escaped me.

Randy Giveans

Yes, no problem. Just those first cargos when vessel gets delivered between yes, go ahead.

Anthony Gurnee

We don't have any information but again you have to imagine that if I have a max rate it' with the strong, probably not going into initial gas oil trades, but again that's something that this is all relatively fresh in terms of market development and that's something we'll look into.

Randy Giveans

Right. And then, again one more question. Can you provide more color on your plans to comply with final 2020, nose cover orders? Maybe, why have you not covered there is a fuel availability, is it lack really fuel burn on your smaller MRs. You've had some competitors put the covers on MRs. Obviously, you are not doing that. Can you discuss that a little bit?

Anthony Gurnee

Yes, happy to. So I think it's important to highlight the fact that every company has its own set of particular circumstances and framing and decision-making process. And so it doesn't mean that one answer is right and the other one is wrong. We've chosen for the time being not to go down the scrubber route. Our own view is that the return on investment and the risks around it for an MR are not particularly compelling the way we see it. You know, we were doing install scrubbers across our fleet, it would be 60 million or 70 million. Quite frankly, we would be buying ships rather than installing scrubbers, if we had that kind of capital ready to invest.

Randy Giveans

Excellent, very political answer at the beginning there and team with the elections. Great, thank you again.

Anthony Gurnee

It also happens to be true.

Randy Giveans

No, that's fair. Okay. Thanks again.

Operator

The next question we have will come from Fotis Giannakoulis with Morgan Stanley. Please go ahead.

Fotis Giannakoulis

Yes, hi Tony. I want to follow-up on this question and may give us a little bit more detail about how do you view the returns of installing scrubbers. And if you can tell us how many days that your vessel spending at sea sailing a steaming fuel and also at which routes do you think that there's going to be availability of the existing 3.5% high sulfur fuel and at which routes you think that there might be a risk of not being able to find the current fuel.

Anthony Gurnee

Well, just rather than answer that, you can just buy my book just kidding. That's a very detailed involved set of questions there. I'll do my best to answer it a little bit succinctly but also happy to talk about it offline.

So in terms of the economics, it's very much a function of your view of the spread between gas oil and 3.5% or 3.5% fuel. So I think that's not worth dwelling on right now. But that's the main driver when it comes to MRs. It's important to remember that we really very often have no idea where the ship is actually going when it's committed to a charter because we give the oil trader such a broad range of discharge options and therefore the availability of 3.5% sulfur is if you have a scrubber on MRs is really kind of the key concern because we tend to trade to what you would call outputs rather than the inputs.

So it's fairly clear that 3.5% sulfur will be fuel will be, fuel will be certainly made available and all the main bunkering hubs in the world and very low sulfur fuel oil as well. But what will be available out ports is really the question. And the other point, I'll make is that at least the way we train our MRs is very often the cargo intake is constrained by drought. And so you typically optimize the bunker intake to get the most out of the cargo intake to maximize your TCE and if you are going to a location where you are not sure about the availability with the scrubber quit ship with 3.5% fuel you might end up loading more high sulfur fuel oil in the lower port and then shutting out cargo which would have a typically an outsized impact on your TCE. So there's a whole bunch of issues around this. It's not that it's not a good investment or something that we think is good move by some companies but we don't think it's the way we trade our ships and the way we think about capital allocation it's interesting but not compelling for an MR.

Fotis Giannakoulis

Thank you, Tony. You mentioned that the instead of installing scrubbers, you find the more value in acquiring shapes. Can you be a little bit more specific, we've seen a big discrepancy in the movement of asset prices between younger and older vessels. Is there a more value right now on older vessels or with the new IMO regulations, you would think in a relatively modern opponent?

Anthony Gurnee

Well, we've made no secret of the fact that if we were allocating capital to acquisitions at the moment, it would probably be in the seven to 10-year age bracket. And we think that those are those are compelling investments right now. So -

Fotis Giannakoulis

Thank you very much Tony.

Anthony Gurnee

Yes.

Operator

[Operator Instructions] The next question we have will come from Magnus Fyhr of Seaport Global.

Magnus Fyhr

Hi guys. Most of my questions have been answered but just if you could as a follow-up on the last question. You've seen the shipyards getting more aggressive on their new build slots or is pricing relatively firm?

Anthony Gurnee

The pricing seems relatively firm and the yards that are still in business. I think we are really just operating on a drip feed basis where they are taking in the minimum number of orders that they have to keep things ticking over. And interestingly the more kind of top tier yards are holding up for some pretty high prices, so it's not it's not cheap at the moment.

Magnus Fyhr

And your thoughts, ordering new build versus secondhand acquisitions, if you had the cash.

Anthony Gurnee

Secondhand.

Magnus Fyhr

All right. Good. Thank you.

Anthony Gurnee

Yes, Thanks, Magnus.

Operator

Next, we have Michael Webber of Wells Fargo.

Unidentified Analyst

Hi, guys. It's Greg on for Mike. How are you?

Anthony Gurnee

Hi, Greg.

Unidentified Analyst

So just starting with the vessel positioning, did you guys see a migration of ships from west to east in the past quarter and did Ardmore participate in that migration or do you expect that to continue, if you haven't seen it yet. Any color there?

Anthony Gurnee

We did when there was a big differential in rates. We did see a migration of ships from the west to the east. That was also augmented by some not the trades which took some MRs but also a lot of LR fuels from west to east. We didn't participate in that. And at the moment we're roughly 60%, 65% percent Atlantic and kind of 35%, 40% Pacific at the moment. So we're pretty happy with that.

Unidentified Analyst

Okay. And then, just hopping over to IMO 20-20, so does the adoption rate of the VLSFO have any effect on product tankers, demand or tonne-mile. You know if we think about it for consumption of MGO versus VLSFO especially at the beginning does that matter if VLSFO has more of an uptake or if it's more MGO or is it going to be the same trade lanes, the same demand same ton miles, whichever way it falls out.

Anthony Gurnee

Well, I think everything else being equal more MGO, unless very low sulfur fuel. That would be better for the product tanker market. But we think it'll be overall strong enough that that's not going to have a major impact. But that that's a big question how much less that those going to be made available on day one. And where will it be. And what's the spec compatibility but also interestingly as I mentioned in the presentation, we've read estimates of around 30% VLSFO is actually gas oil or going to be gas oil, right. So there clearly what they are doing is they're trying to find extremely low sulfur fuels that they can then blend to bring the sulfur content down to 25% and at least some of the ones that we've looked at are 30% gas oil. So that clearly will have an impact.

The other thing it's not really been discussed but you have to wonder about there has been some limited discussion about taking intermediate product out of refineries like vacuum gas oil, there could be feedstock for the new fuels, and how will that be shipped, will that go on crude tankers, or do they have to be cleaned up or go on CPT, trading product tankers because of the risk of sulfur contamination. So, it's all interesting and largely unknown, and that's the part of it which is particularly intriguing.

Unidentified Analyst

Got it. Okay, and just a quick one for Paul, apologies if you out this out earlier, but do you have anything on dry dock days in 2019, or you expect, just remodeling?

Paul Tivnan

We haven't put anything out on that yet. I would estimate about 150 days, but I will confirm in a month about that one.

Unidentified Analyst

Okay, sounds good. Thanks, guys. That's it from me.

Anthony Gurnee

Okay.

Operator

Well, showing no further questions at this time, we will conclude today's question-and-answer session and the conference call. I would like to thank the management team for their time today, and all of you for joining today's conference call. At this time, you may disconnect your lines. Thank you. Take care. Have a great day everyone.