Scorpio Tankers Inc. (STNG) CEO Emanuele Lauro on Q1 2020 Results - Earnings Call Transcript

Scorpio Tankers Inc. (NYSE:STNG) Q1 2020 Earnings Conference Call May 6, 2020 9:00 AM ET

Company Participants

Brian Lee - CFO

Emanuele Lauro - CEO

Robert Bugbee - President

Cameron Mackey - COO

Lars Dencker Nielsen - Commercial Director

James Doyle - Senior Financial Analyst

Conference Call Participants

John Chappell - Evercore

Amit Megrotra - Deutsche Bank

Greg Lewis - BTIG

Omar Nokta - Clarksons

Randy Giveans - Jefferies

Ken Hoexter - Bank of America

Ben Nolan - Stifel

Liam Burke - B. Riley FBR

Operator

Hello, and welcome to the Scorpio Tankers Inc. First Quarter 2020 Conference Call. I would now like to turn the call over to Brian Lee, Chief Financial Officer. Please go ahead, Sir.

Brian Lee

Thank you, operator, and thanks, everyone, for joining us today. Welcome to the Scorpio Tankers 2020 First Quarter Earnings Conference Call. On the call with me are Emanuele Lauro, our Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer, Lars Decker Nielsen; Commercial Director; David Morant, Managing Director; James Doyle, Senior Financial Analyst. Earlier today, we issued our 2020 first quarter earnings press release, which is available on our website.

The information discussed on this call is based on information as of today, May 6, 2020, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release that we issued today as well as Scorpio Tankers' SEC filings, which are [e-mail] and sec.gov. If you have any specific modeling questions, you can contact me later and discuss off-line. As a reminder, in the variance explanation section of the press release, we gave guidance on future depreciation, G&A and charter hire expense.

And now I'd like to turn the call over to Emmanuel Lauro.

Emanuele Lauro

Thank you, Brian. Good afternoon, and welcome to our first quarter earnings call. Thanks for your time today. Firstly, I would like to express our solidarity with all affected negatively by the COVID-19 and its impact worldwide.

The human toll in lives and on both physical and mental health is truly shocking. We stand with our employees, our customers, our shareholders and brother stakeholders in expressing our condolences, sympathies and support to first responders and health workers as well as anybody else who's been affected.

As far as the business is concerned, this quarter, we report our best quarter since 2015, with the fleet averaging nearly $23,000 per day. On top of this, we believe that the disclosed second quarter bookings to date will result in consensus moving meaningfully higher. We have recently welcomed many new investors to our register who see the opportunity in the company's ownership of the world's largest pit of modern product tankers.

Whilst the global economic backdrop is gloomy, our company is prepared operationally, financially as well as commercially. Our leadership in the LR segment is bearing fruit. We completed the acquisition of the modern Trafigura fleet as recently as September last year, further reinforcing this leadership. The present spot market on LR2S is now in excess of $100,000 per day.

Since August of last year, many LR2s decided to trade in crude oil. As we know, once these vessels dirty up, they cannot easily return to carry clean products. The shift of vessels has significantly tightened supply for modern LR2s. And our fleet is now earning a significant premium in respect to their counterparts in the crude trade.

Furthermore, amidst the current strong rate environment, we must remind you of the long-term trends that run in our favor, and if anything, have been further reinforced by recent events. Supply of new tonnage remains dynamic against the backdrop of a rapidly aging fleet. Simply put, we have never seen an order book so low with rates so high. Many new refineries, particularly in the Middle East, are yet to come online with the transformative positive impact on product tankers on miles.

The euphoria of January surrounding scrubber installation has been replaced with almost universal gloom. By Q4, we expect the middle ground to prevail. And have taken the opportunity to defer some of our installations, thereby freeing up around 500 revenue days between the second quarter and the fourth quarter this year. For the rest of 2020, we are comfortable that our tightened supply and increased floating storage provides solid market fundamentals, even while the underlying economic picture needs time to improve.

Every day, our cash accumulates. Furthermore, we are expecting our forward cover to increase as our customer require vessels for storage. In due course, we will provide an update on this cover as we capitalize on the current environment. My opening remarks are concluded, and I would like to turn the call to Robert Bugbee.

Robert Bugbee

I thank you, Emanuele. Good morning, everybody. Look, these are obviously the worst of times, but for us at the moment, they're the best of times as well. As Emmanuel said, we're accumulating cash. These are great rates that we're taking. We expect the actual present market rates are significantly higher than in all classes than the guidance we've given for the second quarter. That's a cause for great optimism.

We have starting at the end very end of the second quarter, really the third quarter. We've got a quite a substantial charter book already of forward cover that Emmanuel says will give won't give any details on today.

But in the short time, we will come out and give a separate disclosure and details on that. So the company is, for one, to a better phrase, I mean, it's enjoying it's at a position at the moment I mean, it's sequentially earning more money. It's very profitable. The cash is generating very fast. Today, we're going to stick on things that we really know are going on.

So I think we'd like to start with a with an update, bring you guys from wherever you are right into our trading floor at the moment. So you can get some idea. From our head Trader Lars Dencker Nielsen, what's actually happening right now today and why I can say with great confidence that our present markets are significantly higher than those averages that we've put in the book to date so far, which is really a trailing position.

So Lars, if you'd like to tell us what's going on right now, that would be great.

Lars Dencker Nielsen

Thanks, Robert, and good morning. Let me give everyone a quick sense of the market today.

We are enjoying historically strong market underpinned by very low-cost fuel prices for our vessels. Our large LR2 vessels are seeing daily benchmark earnings right now exits VLCCs. This morning, in fact, we concluded a typical LR2 spot voyage on a normal trade lane for almost 40 days at $178,000 per day. This isn't an outlier anymore.

We've been trading firm at similar levels. This is a tight market. The lack of vessels is enhanced by storage, but also congestion and operational constraints that are causing vessels to take longer routes home. For example, vessel sailing around the cape of good hope instead of transiting to Suez Canal. A significant increase to voyage distance and time limiting tonnage supply.

Storage is reinforcing this scarcity at the margin. Currently, over 250 product vessels are believed to be storing. 200 of these product carriers are identified to a contracted period of employment of more than 30 days, and all larger units tend to be minimum of four months and longer. But please keep in mind that product storage and the contango here is helpful and ties up tonnage, but is only a part of the picture.

Products in transit are refined products on the water, which include vessels and storage on longer lane passages, weighting due to tank tops and congestions in general, have increased according to market research of 75 million barrels since mid-March, and there's about 480 million barrels of products currently on the water. It is not only the LR2s that are facing very strong levels in the Arabian got the LR1 market is very tight, and we're looking at a market today trading around $80,000 to $90,000 per day. Indeed, we concluded a great void from the med to Japan at $100,000 per day for over 60 days last Friday.

Likewise, on the MRS, the Middle East market has been strong. In fact, we fixed three ships yesterday from the Middle East varying destination with each vessel making between 50 Thousand and $65,000 per day. Now as you would expect, there's a lot of rate volatility. two weeks ago, handy rates in Europe were not 200 points or from $25,000 to $72,000 per day, where we manage to fix when the market, true to form, dropped back to under points again this week. However, we still find good pockets of strength, and yesterday we concluded, a handy cargo from the Baltic to the Med at $35,000 and per day.

This development is not dissimilar to the breather taken last week in the MRs in the west. And as the market stabilized, we saw cargoes reentered and we managed to fix MRS. Rates in the high 20s. We're also now seeing other cargos get pulled into the market strength. For instance, we've concluded an MR yesterday in vegetable oils from Argentina to India at $35,000 per day.

For someone like myself, who has been in the product tanker industry for close to 30 years, these are professionally very exciting times, especially with the largest and most modern LR2 fleet in the world, where we are continuously driving performance but this should give you a good picture of the interesting developments live in the market right now, and I'll now hand back to Robert. So thanks all of you for your time. I'm going to leave and get back to trading the ships. Thank you. Bye-bye.

Robert Bugbee

Lars, thank you. Lars, unfortunately, won't be able to join us anymore for the rest of the call because he's pretty busy. I think it's safe to say that if everyone's honest on this call, they'd love to be doing exactly what Lars is doing now.

I mean, it's a it really is a great fun for anybody trading product tankers. I think that I would like to echo one thing that Emmanuel said earlier in the opening part of the call, and that is that one of the great things here is the is that the long-term here, the long-term dynamics look fantastic. Our fleet is aging, there are many, many vessels turning 15 years old, which is the critical age in the product tanker market over the next two to three years.

The order book is extremely low. Yards are consolidating and financing is becoming extremely scarce. And that leads us to a position where when we actually get through to a full world recovery here, combined with the fact that there are more refineries coming up in the Arabian Gulf and longer haul routes. This could well set the time, and we would expect it would actually for most probably a new super cycle in the product tanker industry.

So I think on that note, we'll just open it up to our questions for this morning.

Question-and-Answer Session

Operator

[Operator Instruction]. And our first question comes from John Chappell from Evercore. Your line is now open.

John Chappell

Two questions. Warren, you had a time multi partners. So understanding you don't want to tell us about the charter or the cover book right now. But if we go back to the last time rates were even remotely close to this good and the predecessor company, you guys really timed well locking in term coverage, which I think could be especially important right now given your strategic focus of the capital structure. In deleveraging.

So let me ask it this way, what's the market liquidity for charters in the LR1, LR2 segment with any type of duration? And what's your appetite to, understanding you may give away a little bit of a juice as it stands today, but giving you that cash flow visibility that enables you to delever quicker?

Emanuele Lauro

I'll answer the second question in a different way. Well, the first thing is that the appetites across customers want to do different things. Customers, some customers want to do one year charters, some nine, some six, some three, some four and some just spot. And in our book, there's a case for every one of them. You want to have some security of charters.

But on the other hand, I think we have to look at things realistically, the vessel that the last two or 34 LR2S that we've been fixing, you could do the voyage and then lay the ship up for the balance of a year and still be profitable. So you're not in a situation where you want to your rushing to do even one year charters just for the sake of doing it. If you're putting an LR2 away at a $130,000 to $180,000 a day, that's a pretty significant cash straight up contribution.

So you're not doing everything you can to desperately get every single charter you can. But we, across the board, and that's all of the vessels, whether they are LR2S all the way through to Handy have fixed already a reasonably significant amount of vessels forward of which they will really start to the a lot many of them just get delivered later. So they get delivered from right at the end of the second quarter, early third quarter. And we think that the combination of it's all about the balance sheet. This is all about transferring the debt risk that the company has with its brand-new fleet.

To equity value because as we pay down net debt as a combination of accumulating the cash that we're getting front up by a fantastic spot market combined with securitizing cash flow above all in breakevens for later, we are ensuring the enterprise and really creating equity value. I'd like to leave it at that, if I may, John.

John Chappell

You may. That's completely clear. The second question is, being able to free up over 500 operating days in this type of market is tremendous. I mean, it's almost like a ships are free. So if we think about just how that transpired, what's your ability to well, first of all, is there any kind of penalties or fees to do that?

Second of all, if we get to 2021 when those delays, scrubber installations are supposed to take place now? And maybe the economics aren't as appealing, what's your ability to just move forward without an going forward with that process? And then third of all, maybe just an update on and premium you've been able to achieve with a compliant with scrubber-fitted ships? Or is that IMO 2020 premium completely back urged for that?

Robert Bugbee

Okay. I'll let Cameron obviously answer that question. The man before he does, I'd like to say that overall, we remain confident in the future of scrubbers, we would expect the spread to, as Emmanuel says, to start to regain itself from later in the year, even as early as the fourth quarter and going into the longer future, 2021, '22, we'd expect a significant spread to developers the way that oil and oil pricing could develop.

And again, before Cameron answers, I mean, I think it's fair to say that, yes, Lars in the trading department can get a lot of the claim right now. But the operations and technical department I mean we should really seeing their prices in this company to have dealt and keep the and keep the vessel so efficient, keep the downtime going, keep the ships running and being able to put us in this great position. So we should thank those as shareholders. And Cameron, if you'd like to answer the rest, that would be great.

Cameron Mackey

Sure. Thank you. John, we've managed to negotiate the deferral of our scrubber program as we announced it would be impossible for me to cover every what if scenario going forward. It was just in our mutual interest, ours and our suppliers. And the repair yards to postpone this CapEx and this work for the time being. There are no penalties involved.

We will come back later in the year, probably third, fourth quarter. And assess between the development of the spreads and, of course, the market itself, how, whether, when, in what sequence to reestablish that program. But for right now, it's basically a no penalty deferral. And I think Robert covered the other part of your question, just having to do with our view on the underlying price of bunkers, the spreads and the payback on the scrubber investment, obviously, that has changed significantly in the last two months, but we're still confident over the long-term that is the right decision for the vessels and for the shareholders.

John Chappell

Got it. All right. Thanks a lot, Cam. Thank you, Robert.

Operator

And our next question comes from Amit Megrotra from Deutsche Bank. Your line is now open.

Amit Megrotra

I want to understand a bit better the lag effect of the spot rates and the time charter equivalents. Obviously, given the length of the voyages, which I think they're getting longer and just how volatile the market is. The 40% to 50% of the days that aren't booked are not booked for the second quarter, maybe an obvious question, but do you expect those time part equivalent rates on that remaining unbooked base to be higher than what you booked so far?

And I guess the voyages that you're booking today are kind of bleeding into the third quarter as well. So first, if you can just talk about whether that's correct and maybe talk at a high level about what the trajectory of TCEs will be kind of going into the third quarter based on what you're seeing today?

Robert Bugbee

So I think we made the statement that right now, all of what you're booking at that 40% would be really almost reflective of what you're doing now, unless we were to add charters where the vessel would be delivered, let's say, in June. So part of it could be could be at a more of a charter rate. But if you're fixing a ship right now on today's rates, that would take up part of that 40% that is there. The as it relates to June, I mean, the third quarter, yes, very shortly.

I mean, they're fixing way out now on some of the LR2 fixtures, where you're almost starting now to fix third quarter dates. I will give a clue that some of our time charters are actually rolled spot voyages, where you have a spot voyage that then turns into a time charter, and that time charter would start in the third quarter. And then the lag effect is quite interesting in the sense that the lag effect of bookings. So at the beginning, when a market moves up, the indexes, obviously, are ahead of what the actual vessels are earning because the vessel will get fixed.

It won't load until a month forward. So always the actual reported numbers, like the company is reporting in estimates, etc, will lag an index. But you actually get the benefit later because you keep building. And later, if you were to put in a backwardated curve, then your reported numbers are likely to be higher than the backwardated curve because your reporting numbers would hold the trailing part. So that, I think, is an important question that, by definition, the way that the accounting is done, you're underestimating the future in a backwardated curve. You are overestimating the present in an accelerating curve?

Amit Megrotra

Great. And so just as a quick follow-up to that point, just given the scale of your fleet, is it right to assume that in any given day, you've got a couple of ships that are open to be fixed? Is that the right number? Is it greater than that? I'm just trying to understand because, obviously, it's depending on the voyage as, if you assume 60, 90-day voyage days, depending on the vessel class, it's kind of like...

Robert Bugbee

It's difficult. That's way too granular. I just think that the it's very you've got a very hard job as analysts right now to try and get these accurate predictions, etc,. So I wouldn't necessarily fixate about that. And I would just take the general position that the rates are high, they're throwing off terrific cash flow, they're deleveraging this company. And I would ask I would give the guidance that we gave at the end of the first quarter.

Which is the company is running its operations conservatively. We are doing all of our forecast conservatively. And we're, of course, hoping for the best, but we're running the company conservatively, and we're just trying to manage what we can manage. And at the end of the day, it might turn out all right, just like the first quarter turned out all right.

Amit Megrotra

Right. I wanted to ask my second question to Brian. And that's really understanding how the numbers that you're putting up, whether it's EPS or what Lars talked about, is that really translating into net debt reduction. And obviously, breakevens are imported in this regard. And so Brian, is the right way to just correct me if I'm wrong, but it's the right way to think about it is that any revenue, any TCE above $10,000 or so per day, which is, of course, your OpEx and your interest.

Is that the right way to think about cash that's available for net debt reduction? And then the moving pieces, we have to think about that is obviously the $52 million going out the door for dry docking and scrubbers and the $6 million dividend. But are those all the major moving pieces? Or am I missing anything?

Brian Lee

No, Amit, that's right. One of the other ones, which I'm sure you're looking at to, is the repayment of the baby bond coming up here in a few days, May 15.

Amit Megrotra

Yes. But that's already included in the net debt calculation, right? So that would be included.

Brian Lee

You're right. Yes. Yes. And yes, go ahead. I was just going to say, we had our receivables increased $70 million between December and March while net income only increased $34 million. So the big driver of that were the increased rates at the end of March because, as you were pointing out before, we have voyages that were done in February that are rolling over into Q2. So and they will as Robert was saying, they're going to be replaced by higher rates now. So cash is coming out later. So it's 45 to 60 days on a voyage. To get that cash coming in, and that's after the voyage begins. So it's taken a while...

Amit Megrotra

That's a great point, but could you guys do us a favor by providing the up-to-date cash balance, right? So that may cash balance in the release reflects the unwind of the receivables, right? Okay. Excellent. Great job on grassing good quarter. Appreciate it.

Operator

Our next question comes from Greg Lewis from BTIG. Your line is now open.

Greg Lewis

Yes. Thank you, and good morning, good afternoon. I just had more of a general question. So we've been hearing a lot about the mirage and what that is how that is impacting the market. Just kind of curious if you guys could provide some color around the waiting times on vessels, and really what you're seeing in market? Any kind of color you could give around that would be super helpful.

Robert Bugbee

Yes. I mean, we're generally seeing, as Lars pointed out, a lot of this is congestion. And a lot of this was I think people have to understand that the product market is different from the crude in the sense that in the product market, we do a lot it's mainly distribution, especially for the smaller vessels. And it's not about contango, it's not about storage. And is one of the reason that, historically, when you've had these sort of situations like storage before, it's why product stores generally last longer and the product market generally remains tighter than the crude market.

And that's because even if you think even if MRs were, if an average voyage length for an MR is 24, 25 days, and you have as few as five days just waiting to go into port because you've got congestion or you've got short tanks in some of these places that we take products to, Brazil, Argentina, Africa, even Australia and New Zealand, places like this, Bermuda just don't have huge amounts of storage facilities. So the ship itself sits offshore waiting to go into port. So even if you had five days on average, you've now reduced the fleet by 20% just through congestion, nothing to do with the carry trade.

Greg Lewis

Okay. Perfect. That was super helpful. Thank you.

Operator

And our next question comes from Omar Nokta from Clarksons. Your line is now open.

Omar Nokta

You gave obviously guidance at least, plenty of upside. And given Lars' commentary and where spot rates are? And then also the term activity that you just I guess, will give us later and you may have just already answered this, Robert. But when you think of what's happening across the product space, especially given softer VL rates recently, are you surprised that just how firm the product market is and maybe could you give us a reason or perspective why it has been firm relative to crude?

Robert Bugbee

We're not surprised. I mean, we're it's a weird word surprise. Of course, we would not have started back we know it didn't have a crystal ball that said, "Wow, Lars is going to fix in the early may at 178,000 on R 2. Wow, we would have been really surprised if someone that told us that in January. But once the dynamic had been set up, then no, we're not surprised that the product market is strong. I mean, first of all, it's a in the big classes, the LR2s and LR1s, it's far more consolidated. It's more consolidated than any other major crude or product market itself. There are a few vessels with few players.

The second aspect is that it's getting driven by this increasing refinery capacity in the Middle East. So it has a good position there. The Middle Eastern countries have every reason to continue their product exports. It's better than selling crude at a discount. Your vessels do trade a lot to the east where those countries are, especially China has been opening up Australia as well, etc. So that's good.

And then we have this dynamic where the market is spread everywhere. So it's not so important for us that what the United States does. United States is not a we've never really taken much product to the United States. It is far more important for congestion, etc, that what it's like in terms of distributing products around the rest of the world. So yes, I mean, there's no other way of saying it.

The rates are what they are. I mean, the market what may be surprising, of course, is the rate of the forward rates to remain in backwardization now for 9, 10 weeks. But the product market is still just continued moving from strength to strength. I mean, it may have periods of weakness. It has done in before, but it's very hard to see that all this goes away just in a moment.

Rates may go lower at certain times, but they're still going to be, on a historical basis, very high. And even if we look at the most pessimistic view of forward curves in any reports or any analysis for the third quarter, that's a seasonally superb. I mean, absolutely superb. I mean, the I think the error that people could be if they're surprised is when they look at the curve itself and they focus on the fact that, oh, it's a drop, steep drop in rates, and they don't have a reference point because they're inexperienced or new to the space of where they're dropping too, you're far better off looking at the average of the earnings that those debt curve will throw off to a ship owner rather than saying,

"Oh, my God, the rates are 100, they're going to fall to 40" because the average of 100 straight-line into 40 is a huge positive cash flow. So what I would suggest people could do is, for fun, just take the curve, say, "Fine, yes, the curve is right". You'll find that the company earns a lot of money just off that basis.

Omar Nokta

Yes. That's a good point, Robert. And when we think...

Robert Bugbee

And when it comes to the word "surprise", I mean, we've all been humbled in a good way or a bad way by what's happened in the last two months. So we shouldn't be surprised of anything right now.

Omar Nokta

Right. Yes. And just on the term the term market, you mentioned the dynamic of the spot charter that rolls into AC it seems like maybe two or three weeks ago, the entire tanker market was just in a frenzy or the charges we're going to scramble to look for any ships it seems to have abated a bit optically outside looking in, at least when it comes to the crude tanker space. On the product, are you is it still fairly active? Charter is coming to you with inquiry for TCS? As before?

Robert Bugbee

Well, as I said, without looking at it in detail, I mean, the market has all sorts in it. So for the spot market to be where Lars is saying he's fixing ships, these aren't fantasies. This isn't, as is referred on one conference call yesterday, ferries. This is reality fixtures. That would indicate that there are also people there who are willing to take a discount to the spot rate by doing term charters, too. That's what happens in the strong market.

The crude oil is much more volatile to actually crude oil pricing, for all we know, in two weeks time the Saudis and the Russians might say, well, the Americans looks like we're looking like Pat sees to the Americans. The Americans aren't cutting back on what they said they were cut back and the shale people are producing more, and Texas didn't end up agreeing to doing cuts. So maybe we'll just increase exports by two million or three million barrels. And Wham! Back comes the crude oil play again. The product market is just slightly different to that market.

Omar Nokta

Yes. Robert, maybe just one more. You mentioned this in your opening remarks, or I think as it was Emanuele, but there's a lot of pressure on Scorpio, going back 6, eight months ago on converting or pushing your LR2S into the dirty crude trade. Obviously, it's a smart decision, hanging back, sticking with product and when you think about it now, there has been some talk, I'm not sure how prevalent it is, but some of those 30 LR2s would come back to clean. Are you seeing that is that happening? And is that something to be concerned about here in the near-term of those having a supply effect on the market?

Robert Bugbee

It's not easy to bring back from dirty to clean. I mean and I think that some of those articles were misprints that are still being corrected, and they were actually referring to the other way. The vessels going from clean to dirty.

They've got the words wrong from an Asian publication. So that really isn't there can always be one or two somewhere a residual anticipating, and so they would have started six months ago. And maybe one or two have done it, but it's really not easy to do that at this particular point. But yes, I think that the people that I think our charting department made a very strong bolden, obviously a decision that paid off on the spread.

Operator

Our next question comes from Randy Giveans from Jefferies. Your line is now open.

Randy Giveans

So obviously, solid quarter, setting up to be a record quarter in 2Q. So you'll have pretty ample free class here in the next few months and quarters. And obviously, you remain focused on those debt repayments. So with that, what are your kind of target leverage ratios for strengthening the balance sheet? Or maybe specifically looking at the $3.2 billion in debt, do you have a year-end goal for this?

Robert Bugbee

No. I think that we think that, as I pointed out earlier that we're trying to shift the value creation and shifting the debt and paying down debt and deleveraging. and I think it's not worthwhile in having a goal right now or indicating even if we had that goal indicating what it is, I think we'll all know when we get there, what that what it should will all know at the point where we're not having such a steep discount to the NAV because of perhaps the fear that there is in the balance sheet. We'll know from our shareholders, and we'll know from the market more or less where that appropriate leverage should be. David, if you're still on, I'd love you to add to this, if you can?

David Morant

Yes, very happy to, Robert. I mean I think, Randy, to answer your question, it's very clear that as we pay down debt, it's accretive to our equity. But I think implicitly, as we increase the equity mix and our capital structure, we believe our cost of capital will trend lower. So in many ways, we feel that is our best use of the cash that we expect to generate over the coming quarters. And certainly, as Robert said, I think we'll know where we are in terms of our optimal capital structure, we'll see that come through in the rating of the stock. I'll hand it back to you, Robert.

Randy Giveans

All right. And then, Robert, as you mentioned, we have a pretty hard job or estimating rates. So just to kind of cross check payment rates we're seeing with current rates being booked? What are some of those levels? I know you mentioned in one kind of, one-off, LR2 at $170,000, whatever. Can you give maybe an average for the last couple of days for LR two, LR1, MR?

Robert Bugbee

I haven't really don't need averages for the last couple of days. I mean, obviously, the average is for the last two weeks are significantly higher than what they were the two weeks before and the two weeks before were significantly higher that way. I mean it's been an upward curve on the bookings. And if you would have put in the fixtures I've seen for the last two, three days on MRs range from $33,000 to $75,000 a day, that's for this week. And the LR1s are ranging from $63,000 to $102,000, somewhere around there, and the LRs are almost I mean, it's huge. It is huge.

Randy Giveans

Okay. All right. Well, those are pretty large ranges, so I won't comment at the answer.

Robert Bugbee

That's what it is.

Randy Giveans

Understandable. Well, I'll just ask another question that I'm sure you can answer. How of kind of net asset values or just asset values in general, kind of been impacted by the current market strength. 20 seconds ago, as you mentioned, a steep discount to NAV. So just trying to get a better sense for kind of updated net investments.

Robert Bugbee

No idea. We haven't done a calculation, a proper calculation ourselves. I mean it's that's changing every day with the actual cash generation. So the cash generation is positive. I can't imagine that any product tanker that's less than five years is not at least maintaining, if not going up in value in this rate environment. Especially against the forward book that's virtually nonexistent.

I can obviously, it's a once you get vessel product tankers over 10 years old, yes, then because they've only got like three or four more years of useful life in products. And it could materially hurt their values if the market is weak for one year or two, then, yes, maybe their values are a little bit softer or whatever, but we don't have any of those, so we don't really focus much on that. And we don't know what they are exactly. This is we're not out there looking to buy more ships, and we're obviously not there to sell any.

Randy Giveans

Got it. It.

Robert Bugbee

To give you some idea, I mean, that think how much that LR is earning and that short period. I mean, there is no way that the value of that ship is declining right now.

Randy Giveans

Sure. I would take the same for the MRS.. Well, that's it for me.

Operator

Thank you and our next question comes from Ken Hoexter from Bank of America. Your line is now open.

Ken Hoexter

So Robert, the cost per day was up 1.8% year-over-year, but down sequentially. Can you maybe just talk about the moves you're making on the cost side because that look to actually improve as well. I know the rates are the big focus, but I just wanted to ask on the cost side real quick. Cameron, Brian?

Robert Bugbee

Ken, well, there's a few things going on. Obviously, the biggest part of that is the deferral of the CapEx for the scrubber now bear in mind, there is already a regulatory dry docking schedule that we cannot avoid. But all that marginal or, say, optional CapEx on top of that, we've now pushed back at least until 2021, maybe further. Now when it comes to normal operating expense, in this environment, obviously, the logistics around supporting vessels and the personnel on those vessels becomes much more complicated.

Thankfully, it hasn't been a terribly costly exercise, but you can imagine the job of getting people to and from vessels, getting spare parts, virtuals, other essential services surveys to those vessels becomes challenging and sometimes the cost will creep up. But we think that's a short term phenomenon, particularly as Asia starts to reopen or loosen some of the more stringent restrictions they've had in place. So the effect on OpEx hasn't been very material. As far as the other costs, maybe I'll hand it over to Brian, so if he has anything else to add.

Operator

And our next question comes from Ben Nolan from Stifel. Your line is now open.

Ben Nolan

I do have a few questions. The first is as it relates to NK maybe answer this for you, as it relates to those 19 scrubbers that are delayed, you kind of talked through earlier that ultimately, it's a decision that you might make to not have them installed at all depending on the market dynamics. It's great that you can delay them without any fee, but would there be any fee if you were to choose to cancel those outright?

Robert Bugbee

Thanks, Ben. I'm just going to take a pass on that because we have an ongoing dialogue with our supplier. Who's been very understanding. There are a lot of levers in place. There's a small amount of advanced payments that have been made for the manufacture and delivery of some parts, not a huge portion of the overall spend. So it's just not a question I'm able or in a position to answer right now.

Ben Nolan

Okay, perfect. Completely understand. And then just, let's say, sort of modeling, but not really, there's a handful of, I think, three Handys. That are chartered in, that were coming off contract, looks like there was a short-term extension of those. Should we expect that beyond May, those are likely to remain in the fleet? Or probably not, anything on the topic.

Robert Bugbee

We will deliver those ships by the end of June latest. So those three vessels you're referring to are going to exit the fleet.

Ben Nolan

Okay. Perfect. And then lastly, just sort of a capital allocation question. Obviously, you clearly are using all of the extra cash flow that you're generating to strengthen the balance sheet. Hoping that you might be able to dive down a little bit more deeply into exactly how you envision that happening in this kind of a market, are you obviously, you're making your required debt repayments. As everything else do you think anticipated just sitting in cash? Or are you thinking about maybe prepaying some of the secured debt or maybe buying back some of the convert, which is trading below par here. Any thinking about sort of how you're staging that liquidity with respect to sort of capital allocation?

Robert Bugbee

No. Right now, you're just focusing on booking it. And as Brian says, there's a lag before we get the cash. So we'll get the cash and then look at the set of opportunities at that point.

Ben Nolan

Okay. All right. Well, that does for me.

Operator

And our next question comes from Liam Burke from B. Riley FBR. Your line is now open.

Liam Burke

Brian, you discussed earlier in the call about the receivable spiking based on the higher rates, etc. With demerage, are you seeing any extension of terms with your customers? Or are you being paid on time? Or would you anticipate any extended terms on the receivables?

Brian Lee

We're going to get paid down time to the pools and pools are collecting on time as well. So there will be some delays with ports and maybe Cam or Emanuele could say a little bit more what's going on with that, but we're getting paid on time.

Emanuele Lauro

Yes. Just to reiterate what Brian is saying, freight the payment of freight hasn't changed, the payment of demerge hasn't changed, the MS have gone up. So our counterparties and their creditworthiness has not where their performance has not been a question. Demerge, that portion for those that don't know is reflects extra waiting time. I mean as a separately negotiated rate, that waiting time, but the price we charge for that waiting time has gone up. But the payment of demerge hasn't changed or we haven't seen it change since the start of the first quarter.

Liam Burke

And just a follow-on. Is there are there any rumblings on changing those terms of demerge?

Emanuele Lauro

There have not been. Maybe you could refer back to what Robert and Lars said, which is not changing the terms for voyage that's already been contracted but for new voyages, many customers are pricing in storage options on the back of a completed voyage, which is one way to say that some customers are widening up to the expense they're incurring from all this to merge and negotiating a storage contract upfront. And we've seen a fair bit of that.

Operator

Thank you. And that concludes our question-and-answer session for today. I'd like to turn the conference back over to Brian Lee for closing remarks.

Brian Lee

I'd like to thank everyone for joining us today, and we will speak to you soon. Thank you. Bye.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect.