Q: Can you discuss the decision to sell the two Chinese-built ships and the priority for the cash proceeds? A: Svein Moxnes Harfjeld, President and CEO, explained that the sale was part of fine-tuning the fleet profile based on customer discussions. The ships were a good investment, and the sale was an opportunity to take profit. The order of cash allocation (investments, share buybacks, debt prepayment) is not specific and depends on market opportunities. The priority is to invest in ships, but opportunities are scarce, and buybacks occur when there’s a meaningful market dislocation.
Q: Is the long-term contract for the DHT Appaloosa a one-off, or is there more appetite for such contracts? A: Svein Moxnes Harfjeld noted that the contract reflects customer alignment with DHT’s view on the VLCC fleet’s future scarcity. The contract’s structure, with a healthy base rate and profit-sharing, is due to the ship’s quality. While open to similar contracts, these are rare and require significant effort to establish.
Q: What impact do you expect from OPEC’s production increase on the VLCC market? A: Svein Moxnes Harfjeld stated it’s too early to tell the precise impact, but the initial increase was modest and spread across existing shipments. As production increases, more VLCCs will be needed, and the market should see more cargo from June onwards. The exact number of ships required will become clearer over time.
Q: How might changes in fuel spreads affect the tanker market? A: Svein Moxnes Harfjeld explained that fuel spreads between very low sulfur and heavier fuels have been narrower recently, influenced by refinery outputs and demand for different fuel types. The spread is thinner than during the peak of scrubber installations, and demand for diesel has been higher than expected.
Q: How could a shift to a Contango oil market affect VLCC demand? A: Svein Moxnes Harfjeld mentioned that a wider Contango could drive floating storage demand, but current spreads are too narrow for this. If the trend strengthens, it could lead to more storage activity, but it’s too early to predict specific impacts.
Q: Can OPEC’s increased volumes offset potential declines in the Atlantic basin during the summer? A: Svein Moxnes Harfjeld believes OPEC’s increased volumes could lead to a robust summer market, which is atypical. While US shale growth is slower, other non-OPEC sources like Brazil and Guyana are contributing. OPEC may see this as an opportunity to regain market share.
Q: How would the VLCC market react if US-Iran relations improve and Iranian oil returns to the market? A: Svein Moxnes Harfjeld stated that if sanctions are lifted, Iranian oil would likely move to the compliant fleet, benefiting the VLCC market. If no deal is reached, other Middle Eastern producers would likely fill the gap, also positively impacting VLCC demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
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