Anthony Gurnee - President, Chief Executive Officer Paul Tivnan - Senior Vice President, Chief Financial Officer.

Michael Webber - Wells Fargo Ben Nolan - Stifel Magnus Fyhr - Seaport Global Noah Parquette - JPMorgan Chris Snyder - Deutsche Bank Randy Giveans - Jefferies.

Good morning, ladies and gentlemen and welcome to Ardmore Shipping's first 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 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 anytime during the next one week by dialing 1-877-344-7529 or 1-412-317-0088 and entering passcode 10119955. At this time, I will turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore Shipping..

Good morning and welcome to Ardmore Shipping's first quarter earnings call. First, let me ask our CFO, Paul Tivnan, to describe the format for the call and discuss forward-looking statements..

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 will find a link to this morning's first 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 first quarter 2018 earnings release, which is available on our website.

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

Thanks Paul. So on the call today, we will follow our usual format. First, we will discuss our performance and recent activity, followed by an update on the product and chemical tanker markets, after which Paul will provide a fleet update and review our financial results and then I will conclude the presentation and open up the call for questions.

Turning first to slide five on our performance and recent activity. We are reporting EBITDA of $9.9 million and a loss of $5.2 million or $0.16 per share for the first quarter, reflecting earnings lower than we had hoped as a result of our market exposure in the Atlantic basin as well as timing of expenses, both of which are short-term factors.

The MR spot market remained challenged through the quarter. Strength early on was followed by reduced refinery throughput in February and March putting downward pressure on rates, particularly in the Atlantic basin.

Overall though, we delivered satisfactory chartering performance, with our MRs earning $12,700 per day representing a meaningful increase on the fourth quarter of 2017 which was $12,130 per day and with our chemical tankers performing well on a relative basis at $13,500 per day During the first quarter, we took delivery of the Ardmore Sealancer, a highly efficient, 2008-built Japanese MR with attractive financing under a JOLCO structure.

We have agreed to terms for refinancing two of our 2013-built MRs under a sale and leaseback arrangement with a top-tier Asian financier on attractive pricing and terms which Paul will discuss later. And in spite of the currently weak charter market conditions, the market outlook is positive.

We don't say this lightly but we believe that we will reach an inflection point in the MR market later this summer, given that refinery throughput is set to increase significantly over the next four months to the highest level on record, oil demand growth is very strong and product inventories well below their five-year average.

Looking ahead, 2020 sulphur cap is now coming into focus. We believe this will have a positive ton-mile demand impact for MRs and will also benefit more fuel efficient Eco vessels such as those in our fleet. Turning to slide six for a quick look at our fleet profile.

As you will see, the only change to the fleet during the quarter was the addition of the Ardmore Sealancer, built at Onomichi, Japan and an identical sister to the Sealeader and Sealifter. This brings our total fleet to 28 MR product and chemical tankers. Turning now to slide eight on the product tanker market fundamentals.

We believe the outlook for the MR sector is increasingly positive. Refinery throughput is set to wrap up significantly, with the $3.2 million per day increase from April to August to a level of 83.3 million barrels per day, the highest level on record and obviously supportive of product tanker demand.

Global oil demand growth is strong at 1.5 million barrels a day and is being matched with a similar level of refinery capacity expansion in export-oriented locations. And refined product inventory turned out well below their five-year averages which should stimulate incremental trading activity. Meanwhile, MR supply growth is now close to zero.

We are forecasting 37 MRs to deliver over the remainder of 2018. Meanwhile, the scrapping run rate has increased to approximately 40 MRs per year and as a consequence, the MR fleet growth net of scrapping is expected to be well below 1% this year and trending even lower into 2019.

Other factors to be taken into consideration include an increasing focus on the 2020 sulfur cap. This may begin to be felt in mid-2019 as refineries and downstream supply chain start to move over to MGO in order to meet the December 31 deadline.

We believe this has the potential to be highly disruptive to distribution and storage and should provide a meaningful boost to MR ton mile demand. The MR sector has experienced downward pressure rate pressure from LRs and crude tankers over the past six months.

We believe this should begin to ease in the second half of 2018 with even a slight improvement in these markets. Oil trader sentiment is turning more bullish on tightening oil market fundamentals. Increasing geopolitical risk is further contributing to oil price volatility in trading.

And as noted by PIRA in their recent report, there is makings of a potential scramble for crude supply this summer as refineries ramp up, which could aid tankers more broadly. Overall, we believe that the market is poised to reach an inflection point in rates later this summer.

The demand forces as described above are significant and MR tanker supply growth is now close to zero. Turning to slide nine on the chemical tanker market. Our chemical tankers averaged $13,500 in the first quarter, up from $13,370 in the fourth quarter of 2017.

During the quarter, we withdrew our ships from an external pool and all are now traded in-house and performing very well. Looking to recent chemical tanker market activity, increased Indian palm oil import duties have displaced short-haul Southeast Asian imports into India with long-haul edible oil volumes sourced from the Atlantic basin.

UAN volumes for the United States have been ramping up on the back of 2.7 million tons of capacity additions over the last two years. Overall however, the broader chemical tanker market remains active but continues to be affected by weakness in the product tanker market.

We expect solid demand growth for commodity chemicals coupled with continued production expansions in the U.S. Gulf and Middle East Gulf to boost export volumes and expand lengthen voyages. The chemical tanker demand is highly correlated to the global economy.

Accordingly, with global GDP forecast to grow at 3.9% in 2018, chemical tanker demand growth is expected to strengthen along with it. Meanwhile, the chemical tanker orderbook continues to decline. It now stands at 7% of the existing fleet.

Within that number, stainless steel tankers account for 60% of the overall orderbook and they comprise 10% of the existing stainless steel tanker fleet. On the other hand, coated IMO2 tankers like ours, currently account for 40% of the orderbook and account for only 5% of the existing coated IMO2 fleet.

Overall, we expect net fleet tanker growth in 2018 of 3.5%, which should be well below demand growth. And as a final point, our chemical tankers are continuing to perform very well. We anticipate that they will achieve around $14,250 per day for the second quarter of this year.

When you adjust for the lower capital invested as comparing to MRs, the MR equivalent rate would be approximately $15,000 a day which is a very respectable level. And with that I will hand the call back to Paul to provide an update on our fleet and our financial performance..

Thanks Tony. Moving to slide 11, we run through the fleet update. As Tony mentioned, we took delivery of the Ardmore Sealancer at the end of January and as you will see from the chart on the right, our revenue days increases by 3% for the full year 2018 to 9,986 days.

We had 20 drydock days in the first quarter and expect 35 drydock days in the second quarter of 2018. Turning to slide 13, we will take a look at our financials. As you will see on the second line, we are reporting a net loss for the first quarter of $5.2 million or $0.16 per share.

Total overhead costs were $3.75 million for the first quarter comprising corporate expenses of $2.9 million and commercial and chartering expenses of $800,000. As mentioned before, in many companies, the commercial and chartering costs are incorporated in to avoid expenses which means that our corporate cost is a comparable overhead.

Our full year corporate costs are expected to be $12.5 million which works at a $1,250 per day per ship across the fleet. For the second quarter, we expect corporate and commercial cash overhead to be $3.5 million and non-cash overhead to be $750,000.

Depreciation and amortization for the first quarter was $9.5 million and we expect depreciation and amortization in the second first quarter to be $9.65 million. Our interest and finance cost were $5.7 million for the first quarter comprising cash interest of $5.1 million and amortized deferred financings of $600,000.

We expect interest and finance costs in the second quarter to be approximately $6.3 million including amortized deferred finance fees of $600,000 reflecting the additional lease debts associated with the Sealancer acquisition in January. Moving to the bottom of the slide.

Our operating cost for the quarter came in at $17.3 million or 6,786 per day across the fleet including technical management. OpEx at Eco-design MRs was $6,915 per day for the quarter. Our Eco-Mod MRs came in at $6,632 per day, while Eco-design chemical tankers came in at $6,635 for the quarter.

Operating expenses came in higher than expected on the Eco-designs primarily due to timing of crew costs, vessel stores and upgrading expense in the first quarter of the year.

Looking ahead, we expect total operating expenses for the second quarter to be approximately $16.4 million, a reduction from the quarter and a more zed run rate for the rest of the year. Turning to slide 14, we will take a look at charter rates for the quarter.

Overall, in spite of a softer charter market condition, we delivered a satisfactory chartering performance during the first quarter with pool and sport MRs earning $12,721 per day while the fleet average came in at $12,897 per day.

Looking at the various ships types, we had 15 Eco-design MRs in operation, which earned an average of $13,146 per day for the quarter and the seven Eco-Mod MRs earned $11,806 per day. Although the TCEs for the Eco-Mods are lower, these vessels have much lower invested capital and overall the returns on Eco-designs and Eco-Mods are about the same.

The six Eco-design chemical tankers performed very well in the first quarter with average rates of $13,504 per day.

Looking ahead to the second quarter, as of today, the MRs are earning approximately $13,000 per day for voyages in progress with 45% of the days booked, while our chemical tankers are currently earning $14,250 per day which we expect will continue for the full quarter.

Overall, we are satisfied with our chartering performance and in particular, the chemical ships are performing really well commercially with their in-house team. Moving to slide 15, we have our summary balance sheet which shows at the end of March, our total debt and leases were $451 million.

Our leverage is 54% which includes a lease debt associated with the Sealancer acquisition which was drawn in January. Our cash in hand at the end of the quarter was $35.3 million with $29.6 million in net working capital. Turning to slide 16, we remain focused on maintaining a strongly liquidity position and we are continuing to pay down debt.

As mentioned, our cash balance at the end of March was $35.3 million with $4.5 million undrawn from the revolving credit facility. We recently agreed terms for the refinancing of two 2013 built Eco-design MRs under a sale and leaseback arrangement on very attractive terms for a high advance with a top-tier Asian financier.

The transaction is subject to documentation which we expect to complete at the end of May and we will provide more details on the terms at that point. This financing is expected to release cash, net of repayment of existing debt, of between $8.5 million and $9 million. All of our debt, including capital leases, is amortizing at $44.5 million per year.

So we are continuing to de-lever and strengthen the balance sheet. And with that, I would like to turn the call back over to Tony..

Thanks Paul. So to sum up, the MR market remained challenge for the vessels earning $12,700 per day in the quarter. The chemical tankers performed very well earning $13,500 and thus lifting overall performance. But notwithstanding, we believe the market outlook is increasingly attractive on account of the following key points.

Refinery throughput is set to increase sharply this summer by 3.2 million barrels a day which is significantly higher than the five-year average summer ramp up, in fact by 1.3 million barrels a day. Oil demand growth overall was very strong at 1.5 million barrels a day.

Refined product inventories are now well below their five-year averages, which should help stimulate incremental oil trading activity. MR supply growth is close to zero, given the lower pace of deliveries and elevated scrapping over the past six months.

And we believe the downward pressure on MR rates from LR and crude tanker ships start to ease in the second half of this year, even with just a slight improvement in those markets.

Meanwhile, we continue to focus on balance sheet strength and liquidity as well as incremental earnings power through operating improvements and effective capital allocation such as the recent MR acquisition and associate lease financing. To conclude, the MR market over the past two years has turned out to be something of an endurance test.

The fundamentals have been positive for some time and we have been waiting for an improvement in rates. But we have been held back by specific oil market dynamics and downward rate pressure from larger tankers. Given the factors described above, they are now lining up in our favor. We feel that the wait may soon be over.

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

[Operator Instructions]. The first question will come from Michael Webber with Wells Fargo. Please go ahead..

Hi. Good morning guys.

How are you?.

Hi Mike..

Hi Mike..

Tony, a couple of question on IMO and then Paul, a liquidity question for you.

But just maybe kind of high level, just considering the ramp in activity and chatter we are seeing kind of heading into 2020, can you talk a bit about when you start to think about strategically positioning your fleet to kind of meet any ships in ton-mile demand that might arise from that gradual transition towards the end of next year? And maybe how you would think about doing that in terms of geographical concentrations? Yes.

So Tony, maybe how and when you think about repositioning of your fleet or tweaking your fleet to take advantage of that?.

Yes. Mike, that's a good question. Honestly, it's too early to think about it. I think we need to identify where we feel that the flows will be coming from and that could actually create some imbalances between the two hemispheres as well. But clearly a point that we will have to focus on as we get closer to it..

But too early to say there is a growing emphasis on maintaining a healthy presence in the Atlantic basin, more so than you already have? It's too early?.

Yes. At the moment, we are about two-thirds in the Atlantic Basin, one-third in the East and that didn't work out too well for us in the first quarter. But actually at this point, the markets have rebalanced. So they are roughly at same levels, East versus West. It will be interesting to figure out what the broad direction of flow is going to be.

A big MGO required for bunker fuel and then to figure out how to position against that..

Again, just on a higher level, just thinking about the industry in general and maybe kind of just getting your take on the product tanker space and then maybe shipping.

In terms of scrubber penetration, anything about where we are now versus where we ought to get to by 2020? Is that number in 2020 sub-10%? And is it at sub-5% in terms of where you think will actually shakeout that ultimately drives the mix you guys ultimately will be carrying?.

Yes. That's again a good question. We are looking at this pretty carefully. On the other hand, we are not looking at it with a view towards participating. It seems like scrubbers work much better on the bigger ships. In theory, you want to put the scrubber on the biggest smokestack you can.

Ideally, that would be a shore but we have to do something on ships. But that's clearly big containerships, VLCCs, Capes, et cetera. The other thing is that you need to be in a position, you need to be trading at a pattern where you can be confident regarding your access to 3.5% high-sulfur fuel oil.

So that makes it a much bigger challenge for smaller ships like ours, both in terms of the economics and the availability of the fuel, because we trade very randomly around the world. So my understanding is that, but that's -- well, it's clear that the best time to install scrubbers is during a drydocking and it requires some advance planning.

So I would say that I am not sure there is really much time left for companies to plan ahead or to decide now. So I think whatever is in the works is probably the number. Like I said, it will be probably quite a bit larger, I am only aware of four MRs that are being fitted with scrubbers. They are newbuildings.

So I think it's going to be potentially a real windfall for the ships that do ship them in the bigger sectors, but then the question is how long will that last in terms of the emerging, both the 0.5% fuel oil and the differential to 3.5%..

Yes. That payback period certainly in question. I appreciate that. That's helpful. And then Paul, just one more for you just to make sure I am eyeballing this correctly.

When I look at your liquidity profile, when you get to this on slide 16, when you think about $44.5 million a year of amortization you are sitting on in Q1, but you are sitting at $35 million in cash and also $4.5 million of undrawn revolving capacity.

How should we think about your ability to mute that amort profile, if we do sit at this kind of a rate complex for the better part of the year?.

I think we have $35 million as of the end of March plus when we complete these leasebacks, we would be up to mid-40s or $45 million. As these rates and I know it's certainly trending upwards in the second quarter and hopefully a bit better, but maybe even at these rates, you are burning somewhere around $3 million mark per quarter.

So I think we are just in a really strong position from a defensive standpoint but obviously if we were to do something more, we wouldn't have surplus cash to do big acquisitions. But I would say in terms of our ability to, I don't think we make any changes to the amortization profile.

I think if these continued, we might do another refinancing of some of your ship. But I think we are in a really good position. We have leverage-wise and liquidity-wise, I think we are strong and certainly able to hopefully best of these markets with the balance sheet we have..

Got you. All right. I can dig in on that later. Thank you. Appreciate the time, guys..

And our next question comes from Ben Nolan with Stifel. Please go ahead..

Thanks. Hi Paul and Tony. So I guess my first question relates to the market dynamics.

In talking to handful of MR operators in particular in the last few weeks, it sounds like at least some people are experiencing a lot lower waiting periods for cargos or effectively they are beginning to see already right now the effective utilization of the fleet tightening, although apparently that hasn't translated into pricing yet.

But I was curious if you are seeing the same thing? And if that is what is beginning to give you confidence that we are close to an inflection point?.

Yes. Hi Ben. It's Tony. The tonnage list for both U.S. Gulf and for Europe have been shortening. They are not at bullish levels yet, but they are trending in the right direction and much improved compared to a month or six weeks ago. So that is something we are seeing as well. The U.S.

Gulf market has improved significantly in the last few weeks and so things seem to be much more reasonable in the Atlantic basin. At the same time, unfortunately rates have trended down in Southeast Asia and in the Far East generally, so that now rates in both hemispheres are roughly at the same level.

But there is a tightness in terms of waiting lists and it does feel better..

Okay. And I don't know if this was just sort of my perception or not, but it seemed like in your prepared remarks there, Tony, you have talked a bit more about the chemical tanker market than maybe you had in prior quarters. That might not be right, but it seemed that way, at least to me.

Is that an area where you are beginning to be a little bit more constructive and maybe obviously it's a small portion of your fleet now, but as we go forward looking out longer term strategically, is that something that you would envision growing?.

I think we are happy. I think we like the exposure we have there because it does add something to the MR trading activity as well in terms of what we do and there is a very heavy overlap between MRs and the type of chemical tankers we have regarding very cargos and customers. So it there is that benefit.

I wouldn't imagine us doubling down or increasing our exposure to chemicals just at this moment. We think that there is better opportunity in the MR space.

But we did want to talk a bit more about chemicals in this call, because we are doing well and I think it speaks as much to the sector as it does to our ability to operate them and the quality of the ships that we have built. These are very fuel efficient ships and they are nice size.

They fit a good niche and that particular niche has a very low orderbook at the moment..

Okay. That's helpful. And then lastly for me and I will turn it over. You are now, it sounds like you are out of the pool business.

I was just curious what the thinking is there? Ultimately do you expect to be able to lower your costs? Or what's the advantage of doing things in-house as opposed to even partially being in the pool?.

We always felt that we were quite agnostic when it came to participating in pools. We are simply looking for the best modum of employment and returns and we have just got to a point where we felt that we have developed our own platform and we could manage operationally better and produce better results.

The other thing that's important to highlight, typically people don't talk about overhead very much in shipping, but the reality is that our ability cost wise to operate ships in terms of spot trading is at about two-thirds or less the costs that it would be if we were paying pool fess. So there is cost savings.

We think that they are performing quite well. It gives us better control over the operations and of course more scale as well which helps the other ships..

Okay. Great. All right. Good here. I appreciate the color there, Tony. Thanks..

Thanks Ben..

And the next question comes from Magnus Fyhr with Seaport Global. Please go ahead..

Yes. Hi guys. Just a couple of follow-up questions. The first on the chemical market. I thought you said you know the average rate booked for 2Q $14,200 and you expected that to continue for the remainder of the quarter.

Can you just refresh our memories about the seasonality in this market? I mean is Q3 typically a weaker market? Or how do you see that this year?.

With the type of ships we have, there is such a heavy overlap with CPP that they pretty much follow the same seasonality. And it's just interesting to note that going back a couple of years ago when the CPP market was strong, our ships were trading 50% or more in refined products.

And now that that market is weak, they are doing roughly a quarter to two-thirds in products, right. So I think there is a very, very significant overlap and that means they more or less move together. We are benefiting at the moment from strength in the vegoil trades in particular and we think that will continue for a while longer..

All right. Good. And there hasn't been much newbuilding in the MR space.

I have seen a few orders, but what do you hear from the yards there? Are they getting more aggressive? Or they are focusing on the larger ships?.

The yards that build MRs are, what I would like to describe, in a drip feed mode. They are just taking orders as they need to keep everything ticking over. And in reality, there is only yard at the moment that people are ordering at and that's Sungdong. STX is talking, but otherwise there is really nobody very active at the moment.

Maybe a little bit in China and a tiny bit in Japan..

What would you say the price tag is for a new MR? $35 million? $36 million? Or are you seeing lower pricing?.

No. it's probably around that, maybe $35 million, $35.5 million for a Tier 3 type vessel. But just to remind the audience, anybody that's listening that that's the contract price. When you add on some extras, et cetera, you are very quickly up another $0.5 million and then you have got capitalized interest and supervision cost.

So that $35 million, $35.5 million contract price will deliver at $36.5 million or $37 million..

Okay. Great. And just one last question for Paul in talking about the liquidity. What's the minimum liquidity covenant now? I know you have a pretty good cash position but just refresh my memory on that one..

Yes. The liquidity, it's 5% of debt and it's just a pretty simple calculation. It's around the $21 million mark currently. So we have got lots of headroom on us. And as we pay down debt, obviously that number comes down as well. So we are in pretty good shape..

All right. Great. Well, thank you guys..

And our next question comes from Noah Parquette with JPMorgan. Please go ahead..

Hi. Great. Thanks. I just wanted to follow-up on the OpEx. You mentioned that some of it was due to timing this quarter.

Are we going to see all of those benefits or the reversal of that timing in Q2? Or will it be spread out over the course of the year?.

Hi Noah. Yes. I suspect, for the most part, you will see it spread over the course of the remaining three quarters. It just happen, you had a few things come all at once in the first quarter. We had some code changes, which was front loaded and also some stores and then some upgrading selective stuff that we did plus the Sealancer delivery as well.

So it's just a combination of small things in the first quarter, which should certainly you will feel the benefits of it for the remaining. I wouldn't say, it will all come in the second quarter and say, it will come over the remaining three quarters.

So tracking for the full year, for the remaining quarter, about $16.4 million per quarter and average for the full year should be about $6,500 and $6,550 per ship per day. So you will start to see that come back in the second, third and fourth quarter..

Okay. Great. And then just a follow up.

I think Tony, you mentioned that four MRs are going to have scrubbers installed during construction? Do you see that number increasing materially from here? Or you expect almost no newbuilds to have scrubbers?.

Yes. I think, first of all, some of them are being fitted to be scrubber ready and very few are actually delivering with scrubbers installed. We are not actually actively tracking it but I am just commenting on what I have heard and so far, I am only aware of four ships that are coming out of the yard with scrubbers fitted.

And I haven't heard anybody that's retrofitting..

Okay. That's helpful. And then just lastly, I think you mentioned you are two-thirds exposed the Atlantic.

Do you see yourself having like organizational flexibility to change that? Or does that require more moving around people or investment?.

It's simpler thank you think which is that it's very easy to deliberately move ships out from one hemisphere to the other. The trade will take you there or it won't. And sometimes you could force the trade, if you feel very strongly.

But it seems very often, if you do that, you are going to be punished as often as you are going to be rewarded because it takes a long time to get there and then things change. Bottomline is that the ability to deliberately swing significantly from one hemisphere to the other is quite difficult..

Okay. That's great. That's all I have. Thank you..

Thanks Noah..

And our next question is from Amit Mehrotra with Deutsche Bank. Please go ahead..

Hi. This is a Chris Snyder, on for Amit..

Hi Chris..

Hi Chris..

My first question is around IMO 2020 regulations. There seems to be multiple potential demand tailwinds for the product tanker sector, come 2020, whether it's just better refinery margins, the shift of bunker transportation to product tankers or then just the need for refineries to import low sulfur blending components.

So when you kind of think about the demand impact of the regulation, what part gets you the most excited?.

There are really few pieces to it. One is the disruption and the lead up to the transition and then the impact thereafter. So if you know, I am looking at the PIRA report from April and one of their sub-headlines is that IMO 2020 will be one of the most disruptive events ever seen for refining.

So it's going to be a big, big event for the refining industry. That's inevitably going to result in a lot of cargos or lot of different grades moving in directions and that of course will help us.

Another interesting thing that we have no evidence ever or have no other discussion of, but we think it's a possibility is that while the short storage and the bunker parts, et cetera are going through this transition of cleaning up from heavy fuel oil to gas oil, they may need extra storage and perhaps that will be floating storage.

So I think that's another consideration.

So I think it's the disruption, possible storage activity in the final months leading up to December 31, 2019 and then the ongoing movements after that to basically get the MGO for where it's produced to where it's going to be needed, which is probably a much greater volume and much different pattern of distribution that exist today..

Yes. And it seems like the disruption could come before 2020.

Is that kind of how you are seeing it? Like that when do you think we can start feeling this, just from a product tanker standpoint?.

I think the earliest would be mid-2019. But once we get past that, the reality is that from January 1, you have to be burning MGO or have a scrubber fitted or using LNG or something. And then the other factor is that you are allowed to have high-sulfur fuel oil on the ship, but only until the end of March.

So you have three months to get rid of any surplus or any extra onboard. Everybody will be trying to burn that down because after that it's going to be shutting out cargo.

So I think it's unlikely that very many ships are going to have heavy fuel oil onboard unless they are fitted with scrubbers after the turn of the year which means that that whole process of changing over is going have to happen quite a bit earlier..

Okay. Makes sense. And then just next question is on around liquidity. Your LTV metrics suggest that you guys have incremental capacity here but at the same time liquidity is at pretty low levels.

Do you think the low liquidity will have any impact on you guys ability to explore potential acquisitions or purchases over the next year or so?.

In short, no. I think it will be business as usual in terms of how we approach opportunities. Our principals are to remain financially conservative and to just look at opportunities that are accretive. We are not able to take advantage of every opportunity that goes before us and that's fine as well..

Okay. That does it for me. Thanks for the time, guys..

Sure..

Thanks Chris..

[Operator Instructions]. And our next question is from Randy Giveans with Jefferies. Please go ahead..

Hi. Thanks operator. So I know there has been some concerns about cash burn but it looks had about $5 million or so in positive operating cash flow in the first quarter.

So what are the cash breakeven rates for your MRs and chemical tankers?.

Hi Randy. So the cash breakeven, net income breakeven is about $14,500 and it's the same for cash breakeven before drydocks. So on a normal operating basis here, you are running at $14,500. So a little bit below that right now. And then CapEx this year will be about $4 million to $5 million in terms of drydockings, et cetera.

So hopefully that answers your question. And the chems and the MRs are around the same..

Sure. And then you announced half the quarter at $13,000 a day on the MRs and about $14,250 for the chemical tankers. So two questions on that. Why the outperformance by the chemical tankers? I think Tony was saying, there was some benefit from the strength in the vegoil trades.

So taking to that, outperformance? And then second, do you expect the rates for the rest of 2Q to be higher or lower than the first six or seven weeks?.

Well, the outperformance, like we said, they have typically, if you look over time, if you view adjusted rate for the invested capital and for the 25, for example, it's 15% or 16% below and for the 37, it's about 5% below an MR of equivalent age, et cetera.

So when you make those adjustments, they typically at around the same levels, which is no great surprise. At the moment, we have been benefiting, as I mentioned, from some very good vegoil trades. In reality, the rate that they have earned quarter-to-date is huge. It's much higher than $14,250.

But we think the follow-on voyages partly will be backhaul type voyages and will be lower and we think we are finish up the quarter at around $14,250..

Okay.

And the MRs?.

The MRs, we think that the $13,000 a day that we mentioned is a solid number..

All right. I guess had one more question on the modeling. So drydocking, 35 days for 2Q.

I am assuming that's for two vessels? And then how many vessels do you expect the rest of the year? 3Q? 4Q?.

So you have got -- it's two dockings but there are also some in-water surveys. So it's not like each docking is going to be 17 days. You can probably take probably 14 days after the actual dockings and then a couple of few days each for the in-water surveys..

Okay.

And then for the rest of the year?.

For the rest of the year, then you will have, in the third quarter you will have two more dockings and then in the fourth quarter you will two more dockings as well. So you have got two more special surveys the third and two more special surveys the fourth quarter. And then as Tony said, you got some in-water survey..

Okay. We have this. All right. Thanks so much. Congrats on a good quarter..

Thanks Randy..

Thanks Randy..

And this concludes our question-and-answer session as well as today's conference. We thank you for attending the presentation and you may disconnect your lines at this time..