Good morning, ladies and gentlemen, and welcome to Ardmore Shipping's Fourth 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 the question-and-answer session after the opening remarks. Instructions will follow at that time. A replay of the conference call will be accessible any time during the next two weeks by dialing 1-877-344-7529 or area code 1-412-317-0088 and entering passcode 10128501.

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

Good morning and welcome everyone to Ardmore Shipping's fourth quarter 2018 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'll find a link to this morning's fourth 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 results to differ materially from those in the forward-looking statements is contained in our fourth quarter and full year 2018 earnings release, which is available on our website.

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

Thanks, Paul. Let me first outline the format of today's call.

First, I'll discuss the fourth quarter and then key market developments, after which Paul will provide a summary of the fourth quarter and full-year 2018 performance and update on recent tanker market activity and fundamentals and a detailed financial update, and then, I'll conclude the presentation and open up the call for questions.

Turning first to slide four, on highlights for the quarter.

We’re reporting a net loss from continuing operations of $8.75 million or $0.26 per share for the fourth quarter as compared to a net loss of $12.2 million or $0.37 per share for the third quarter, reflecting improved but still weak charter market conditions overall, notwithstanding the strong finish to the year.

To that point, our MR performance rebounded strongly during the quarter, increasing from 11,000 per day in October, up to 17,500 per day by the end of December.

At present, we have 45% of our revenue days for the first quarter of 2019 booked $15,500 per day, reflecting much improved levels into the new year, albeit down slightly from their highs at year-end.

In spite of the weak charter market conditions for much of 2018, we've maintained a strong liquidity position and balance sheet with a year-end cash balance of $57 million and corporate leverage on a net debt basis of 52%.

Consistent with our modern fleet strategy, we've just recently sold the oldest two of our MR tankers, the Ardmore Seatrader and the Ardmore Seamaster, and intend to replace them with new or secondhand vessels at a future date.

Overall, we feel that the steps we took in 2018 to weather difficult market conditions have prepared us well for the opportunities ahead.

In addition to maintaining our financial strength and liquidity and focusing on ongoing operational performance improvement, we will continue to maximize our earnings power in a rising market, as well as engage in effective capital allocation including taking advantage of accretive growth opportunities as and when they arise.

Turning now to slide five on key market developments. The first point we want to make is that while the recent winter market upturn was a welcome change from an otherwise dismal 2018, it was not unexpected.

MR supply demand fundamentals have been gradually tightening over the past two years with underlying fundamental strength being masked by some of the short-term factors that we've highlighted in our previous earnings calls, such as one-time demand disruptions in the Atlantic basin, and the encroachment into MR trade with LRs and some crude tankers on maiden voyages.

TCE rates rose in the fourth quarter from what we believe was a relatively small seasonal demand increase compared with the drop in bunker prices and a reduction in larger tanker encroachment. Despite rate stabilizing and sliding a bit in recent weeks, market sentiment is bullish and is thus completely different from just four months ago.

Looking ahead, IMO 2020 will be a key driver in 2019. Preparations will commence in the first half of 2019 with more extended refinery turnarounds, scrubber installations and an inventory rundown of high-sulfur fuel oil, which on balance will initially tamper tanker demand.

Then, as we move into the second half of 2019, the prepositioning of component fuel and supply chain preparations should gradually increase product tanker tonne mile demand.

Once the switchover happens at the end of 2019, initially, the bunker market will be heavily reliant on gas oil, either as a fuel itself or a dominant blending component of the new compliant 0.5% fuel oils.

As a consequence, gas oil demand is expected to boost refinery throughput, resulting also in the surplus of gasoline and perhaps also naphtha, which will have to be distributed and stored, resulting in further incremental demand.

This is expected to boost MR tonne mile demand by 5% plus, which we believe is sufficient to commence strong charter market upfront. Beyond IMO 2020, we believe the fundamentals should support sustained upturn.

Underlying MR tonne mile demand growth of 4.5% is set to continue, driven by global oil consumption growth and export oriented refinery expansion. The low MR order book level coupled with shipyard capacity reductions and constraints should lead to meaningful supply constraints in the face of continued rising demand.

As a consequence, we believe the elements are in place through a classic, sustainable upturn that could last multiple years. And on that note, I'll hand the call back to Paul..

Thanks, Tony. Moving to slide seven for our quarterly and full-year performance. We’re reporting adjusted EBITDA of $7.8 million for the fourth quarter and $29.2 million for the full-year. Loss from continuing operations came in at $8.75 million or $0.26 per share for the fourth quarter, and $34 million or $1.04 per share for the full-year.

The net loss under GAAP came in at $16.9 million or $0.51 per share for the quarter and $42.9 million or $1.31 per share for the full-year. The GAAP numbers include $8.2 million loss on vessels held for sale and transaction fees written off from the refinancings during the year.

As Tony mentioned, spot rates improved towards the end of the year, and we averaged $12,475 per day on the MRs for the fourth quarter and $11,564 per day for the full-year. The majority of the rate rise in December would be realized in the first quarter of 2019.

Overall, our fleet performed well in 2018, with both operating expenses and overhead coming in below budget. And finally, during the fourth quarter, we refinanced seven vessels on favorable terms and our cash balance at the end of the year was $56.9 million. Turning to slide eight for an update on tanker market activity.

As you will see on the chart in the upper right, due to the timing of fixtures and voyages straddling the year-end, the majority of revenue from the rate rebound would be realized in the first quarter. Ardmore's fleet average TCE for the fourth quarter was $12,089, made up of $12,475 on the MRs and $10,779 on the chemicals.

The rate rebound on chemical vessels trailed the larger ships with rates improving well in January. Overall, the rates for the full year reflect a very-challenging charter market in ‘18, particularly in the summer months. So, we are very pleased to see rates rebound in December.

In terms of activity in the fourth quarter, global refinery throughput hit record levels at 84.2 million barrels a day in December, resulting in increased cargo volumes from the U.S. and Asia. In particular, refined product exports from U.S. Gulf were up 10% quarter-on-quarter with significant movements of diesel into Europe.

Looking ahead, despite charter rates stabilizing in recent weeks, the outlook remains positive. Global refinery throughput is expected to increase by 1.2 million barrels a day in the first quarter compared to the prior year.

However, we're expecting reduced throughput at point during the first half due to increased maintenance and refinery gear up of IMO 2020. We are expecting increased exports from Asia this year. China has recently announced the first round of refined product exports quotas for 2019, which have increased by 7.5% from the prior year.

In addition, as we went through in detail on our last call, we expect IMO 2020 to be a major boost for tankers from mid-2019. As illustrated on the chart on the lower right, the global market for bunker fuels will transition from HSFO to compliant fuels over the course of three years.

Demand for gas oil is expected to increase by 1.5 million barrels a day in 2020. And over time, the market will transition to VLSFO. The U.S., Middle East and Asia are expected to be big supporters of compliant fuels with new refinery projects skewed towards diesel production.

Looking specifically at the U.S., refinery runs are expected to increase by 4% to reach record levels in 2019 and 2020 with throughput of 17.9 million barrels a day and average utilization rates of 96%. And overall, we would expect this to result in significant boost for MR tonne mile demand starting in the second half of 2019.

On slide nine, we will take a look at the underlying supply demand fundamentals for MRs. Oil consumption continues to grow strongly, matched by refinery capacity additions in trading-oriented locations. The latest estimates from the IEA are for oil consumption growth of 1.4 million barrels a day in 2019 on top of 1.3 million barrels a day in 2018.

We are expecting additional refinery capacity of 2.6 million barrels a day this year, representing the largest annual increase since the 1970. This is made up of large expansions in China, the Middle East, a number of small expansion projects elsewhere in Asia, which will drive exports of refined products in 2019 and 2020.

Meanwhile, the chemical tanker market continues to grow. Increased petrochemical capacity is coming online in the U.S., Middle East and China in 2019 and 2020, driving growth in the seaborne volumes of methanol and petrochemicals. Overall, seaborne trading commodity chemicals is expected to increase by 5.4% per annum between 2018 and 2023.

In addition, improving product tracker market conditions will increase demand for chemical tankers in CPP trades. Looking at the supply side, MR fleet growth remains exceptionally low. The orderbook today stands at 125 ships or 5.9% of the fleet delivering over the next 2.5 years.

We're forecasting 70 MRs to deliver for the full year 2019, compared to recent average of 113 ships per year. We expect scrapping to be in the region 40 to 50 MRs per year, following scrapping of 46 units last year. And taking together, fleet growth net of scrapping is expected to be close of 1% in 2019.

Overall, we believe the strong fundamentals will provide a solid foundation for a sustained upturn in the charter market. And moving to slide 11, we will take a quick look at the fleet data. Revenue days are estimated to be 9,669 in 2019.

We had two drydock days in the fourth quarter and expect to have 75 drydock days in the first quarter in respect of five drydocks. Dockings in the first quarter are slightly higher than normal, but this reflects the docking cycle of the vessels.

And it’s also advantageous timing for us, given the expected increase in charter rates in the second half of 2019. Turning to slide 12, we take a look at our financials. On the second paragraph, you can see our overhead.

Total costs were lower than expected at $3.1 million for the quarter, comprising corporate expenses of $2.5 million and commercial and chartering expenses of $600,000. Total overhead for the full-year came in at $12.6 million for coppers and $3.2 million for commercial and chartering.

As mentioned before, in many companies, the commercial and chartering costs are incorporated into voyage expenses, which means that our corporate cost is the comparable overhead. Our full-year corporate costs were $12.6 million, which works out at $450,000 per ship annually.

For the first quarter of 2019, we expect total overhead incorporating -- corporate and commercial to be $4.4 million including cash and non-cash items. Depreciation and amortization was $9.8 million for the fourth quarter and $38.8 million for the full-year.

And we expect depreciation and amortization for the first quarter 2019 to come in at $9.8 million. Our interest and finance costs were $8.6 million for the fourth quarter, comprising cash interest of $6.1 million and deferred finance fees of $600,000.

And we wrote off $1.9 million in deferred finance fees related to the refinancings in the fourth quarter. Interest and finance costs for the full year before write offs were $24.5 million. And we expect interest and finance costs for the first quarter 2019 to be approximately $7.2 million, which includes amortized deferred finance fees of $500,000.

Moving to the bottom of the slide on the right, we will take a look at operating cost for the full year, which came in at $67 million. OpEx for the Eco-design MRs was $6,469 per day, the Eco-mod MRs came in at $6,519 million, and the chemical tankers came in at $6,352 per day.

Looking ahead, we expect operating expenses for the first quarter to be approximately $16.5 million. Turning to slide 13, we take a look at charter rates. The spot MRs reported TCE of $12,475 per day, basis discharge to discharge for the quarter, while the fleet average came in at $12,089 per day for the quarter.

Looking at the various ship types, we have 15 Eco-design MRs in operations earning an average of $12,894 per day for the quarter, while the 7 Eco-mod MR earned $11,471 per day. The six chemical tankers had average rate of $10,779 for the quarter.

Looking ahead to the first quarter with 45% of the days booked to-date, the MRs are earning $15,500 per day; on the chemical, they are earning $14,000 per day. On the right hand side of the chart, we have bars representing MR rates each quarter for 2018.

As you can see, the third quarter represented the trough of the market when rates hit an all-time low before rebounding at the end of the year, and we look forward to a sustained rebound in rates during 2019.

On slide 14, we have a summary balance sheet, which shows at the end of December our total debt and leases was $467 million and our leverage on a net debt basis was 52.4%. Turning to slide 15, we remain focused on maintaining strong liquidity position and are continuing to pay down debt.

We completed the sale and leaseback of seven vessels in the fourth quarter on favorable terms, releasing cash after prepayment of existing debt of $32.7 million. Our cash balance at the end of December was $56.9 million and with $18.4 million in net working capital.

We completed the sale of the Ardmore Seatrader working trader in January and recently agreed terms for the sale of Ardmore Seamaster. And on a combined basis, the sales will result in a debt repayment of $12.7 million in the first quarter. Finally, we note that all of our debt including the capital leases is amortizing at $42 million per year.

With that I would like to turn the call back over to Tony..

Thank you, Paul. To sum up, then, MR charter rates rose toward the end of the year and into January to multi-year highs, driven by tightening supply demand fundamentals, a seasonal increase in demand, a drop in bunker prices, and this we believe presages even stronger market conditions ahead in 2019 and 2020.

MR demand growth is robust, underpinned by an estimated 1.4 million barrels a day oil consumption growth for 2019, paired with refinery capacity additions of 2.6 million barrels a day, the largest, in fact annual refinery capacity increase since 1970s.

A further boost to product tanker demand is expected starting in the second half of 2019, as both global oil and shipping industries prepare to implement IMO 2020; this additional layer of demand is expected to last up to two years until the market reaches equilibrium regarding the availability of more efficiently priced compliant fuels and completion of scheduled scrubber installations.

Meanwhile, we remain focused on our priorities for the year, most notably maintain financial strength and flexibility, continued operational performance improvements, maximizing our earnings power in the rising market and ongoing effective capital allocation.

With our modern fuel-efficient fleet of MR product and chemical tankers, our cost-efficient structure, and spot market exposure, we believe Ardmore is well-positioned to take advantage of the anticipated charter market recovery and to generate strong returns on investment for our shareholders.

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

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jon Chappell with Evercore. Please go ahead..

Thank you. Good afternoon, guys. Tony, well done not being dragged into the debate that seems to be overtaking the industry, so choose to use the S word in your answered this or not, up to you.

But operationally and technically, how are you positioning your fleet for IMO 2020? You plan on using low sulfur fuel oil as far as your own bunkering is concerned, are you repositioning ships for the second half of the year, when you think that this starts to take effect? Any discussions with oil traders as it relates to preparing to take advantage of arbitrage? Just how are you preparing Ardmore for 2020 with as soon as four months from now?.

There's a lot going on at an operational level to prepare for the fuel switch, cleaning the bunker tanks on-board and understanding the availability and the stack of compliant fuels. So, that's keeping our operations team quite busy.

From a commercial strategic standpoint, we are, probably along with most others, trying to figure out how to best position the fleet to take advantage of the incremental demand we see coming. And that's kind of the extent of it at the moment..

Okay. And 75 off hire days in the first quarter seems pretty large for a fleet of your size.

Have you accelerated kind of the annual drydocking into the first half of the year in a way to kind of have maximum utilization in the second half?.

This is Paul here, Jon. Yes, we would have had five scheduled drydocks in the first four months a year. So, some of those have been brought forward a little bit. It’s not in terms of days for drydocking, it's not out of the norm, but to have it all at one quarter seems quite high.

But, as we said on the call, it's timing, it's quite advantageous for us if we can get them done and be ready for hopefully an upturn market that’s perfect timing. So, it’s an accumulation in one quarter, but it's not out of the norm in terms of days for drydocking..

Okay.

Do you have any update on kind of the rest of the year, number of drydocks, number of days and also as you look at to 2022, trying to keep max utilization next year?.

Yes, we would over the course of the year, we have I think three more drydocks in terms of spreading, I think, we would have in the second half of the year. I’ll come back to you with specifics on that. And then, throughout 2020, we're getting into the drydock cycle for some of the newer ships.

So, you’re drydocking 2014 this year, 2015 is next year, will be upto their five-year cycle. So, that's -- we’re into kind of an ongoing maintenance schedule of say maybe 5 to 6 ships per year..

Final thing, Tony, you mentioned kind of the older ships proceeds and then deploying them into new vessels. As you think about your current liquidity position, available financing out there.

I mean, if we were looking at kind of five-year old ships, is it one or two or could you get a little bit more meaningful growth, if you were to lever up a little bit more?.

Yes. I think -- and it's a good question, Jon. And I guess, the first point to make is that we do -0- we are serious about financial strength and liquidity. So, that's our top priority. We also want to keep our exposure up vis-à-vis the market. So, we will be looking for replacement ships at the right time, and thinking through the right age profile..

Our next question comes of Ben Nolan with Stifel. Please go ahead. Mr. Nolan, your line is now live. Okay. It appears Mr. Nolan is no longer there. Our next question comes from Randy Gibbons with Jefferies. Please go ahead..

Hey. Good morning, gentlemen.

How are you all?.

Hey Randy.

How are you?.

Good, good. So, two quick questions. So, although MR spot rates have fallen about 25% or so since beginning of the year, the one and the three-year for MR time charter rates have remained pretty stable and now closely in line spot rate.

So, any plans to sign a few time charter contracts to lock in some revenue, are those rates still too low at this time?.

Good question, Randy. We tend not to want to talk about our commercial plans. But, I guess, our ambitions and aspirations for the spot market are well above current levels. So, I think we would probably be more tentative to say spot at the moment.

Having said that, the way we look at time charter businesses that one year gives you little bit cover and risk reduction, but not very much. So, it's really just a question of how we feel about the spot market over that period versus the rate available. And at the moment, we think there is a lot of that..

Yes, make sense via your previous comments there. So, yes, looking at your fleet, you sold your oldest two MRs, you mentioned you're going to replace those with younger vessels.

Does fleet kind of replacement I guess take priority over share repurchases at this point? And following up on that, what is your current share repurchase authorization?.

Yes. I think in terms of capital allocation, share repurchase is fairly low down the list of priorities at the moment, given where we are in the market. So, that would be fairly clear. I mean, obviously our stock is at an attractive price, but so are ships, and liquidity is supporting as well. Paul….

Yes. So, we have 25 million share repurchase plan in place, we have that in place for a while. We used up a small bit of it, but the bulk of that is still effective. So, that's all we have authorized to do..

Okay. And then one quick housekeeping question. You quote average MR earnings increased from 11,000 a day in October to 17,500 a day by the end of the year.

So, I guess, what source or broker are you kind of quoting their or those actual rates earned by your feet?.

Yes. Randy, that's actually our internal rates, sort of 75 is fixtures in the latter half of December. So, as pointed out, much of that stuff will be booked, it’s getting realized in the first quarter. So, the $11,000 a day at the start was what we guided at our last call.

And then, you had got progressively a little bit better in the second half, December was much stronger. So, there actually Ardmore an average, as I said, 12.5 a day on the MRs in the fourth quarter and guiding 15.5 for the first half effectively in the first quarter..

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

Just two questions. First as a follow-up on your asset divestitures. You mentioned the handysize IMO 2 vessels I guess coming up for their first drydocking next year.

What is your current thinking about divesting those going forward? I know, they're kind of non-core now?.

The question is about the six chemicals tankers we have. The short answer is that we really like the ships, they trade well, they’re very fuel efficient. We also feel that the chemical -- that our strategy -- focus is also on chemical tanker -- chemical cargos to the MR. So, the kind of the cross fertilization that takes place is quite valuable to us.

Having said that, they are close to core but really non-core. So, I think at the right price, we would probably be willing to sell them, but again, that's all speculative at the moment..

And just a question on the seasonality with the refinery turnarounds in the second quarter this year, and I guess the industry gearing up for the IMO 2020 in the second half, would you expect the second quarter to be the weakest quarter from a spot rate perspective?.

Yes. I think, we expect to have continued -- the sort of the turnover, time gets handed over to Europe at that point. And it could be at a point where there's relatively low seasonal demand as well. So, that could be -- we're not really calling levels out through the year, but you could make that case..

Our next question comes from Fotis Giannakoulis with Morgan Stanley. Please go ahead..

Tony, you mentioned about the impact of IMO 2020 on the trade and you said about more volume of gasoline and probably naphtha coming on line because of the need for production of higher amount of distillers.

Can you give us your view of how these commodities will flow, where are they going to come from, where are they going to go? What is going to be the impact on the tonne mile demand? And if you can put also some numbers on the volume that you expect there additional gasoline to be?.

Always good challenging questions, Fotis. So, let me take a stab at that.

The point is that we've been reading other industry analysts predicting that in addition to shifting the production ratios in the aggregate globally for refineries to produce more gas oil to meet the incremental demand, the global refinery throughput will have to increase by roughly 0.5 million barrels a day, 500,000 barrels a day.

And that should also result in we would imagine probably an equal amount -- well, probably a couple, few hundred thousand barrels a day of gasoline and naphtha excess production. And that's on a global aggregate basis. So, exactly, where that's going to be produced and how it's going to flow is a question.

However, it does appear that there is a significant flow of naphtha from the Atlantic into the Far East at the moment, and that could actually increase under those conditions..

Thank you, Tony.

And again, with the IMO 2020, what do you expect to be the pattern for refueling your vessels? Is there going to be any change? Are there any specific ports right now you are fueling and they might alter as gasoline is going to be produced at different locations where the fuel oil is available? Is it going to be positive or negative -- is it going to have a positive or a negative effect on tonne mile as well?.

So, as I understand, the question is, will the switchover to compliant fuels, change the nature and the pattern, locations of where we bunker our ships, is that right?.

Exactly, yes..

Yes. The answer is nobody knows at this point. That's the big question. The one thing we are fairly certain of is it is not going to business as usual.

So, the initial rollout of compliant fuel is going to be key where is it going to be available, what's going to be compatible with what, because even oil majors, their regional production is not necessarily compatible within their own system. And further complexity around where high sulfur fuel oil will really be made available.

And I think for the bigger ships that maybe is not as much of an issue, or opportunity if you will. But for smaller ships that have very random trading patterns, like MRs where the trades are somewhat unpredictable in terms of where you actually get sent with the cargo.

It could be a quite a challenge, but we think it's also going to create a significant amount of incremental tonne mile demand for ships of our size..

Our next question comes from the Amit Mehrotra with Deutsche Bank. Please go ahead..

Hi. This is Chris Snyder on for Amit. My first question is on the chemical tanker market. So, based on the Q4 bookings, rates for the segment seem to move lower in the back half of the quarter. I know, this market is a bit more opaque ,especially from our side, but generally, rate seem to historically kind of trend with the MR market.

So, if you could just provide some color on the divergence in the back half as the MR segment really go going?.

Yes. I think it's quite simple, Chris, which is that there is so much crossover at cargos between MRs and chemicals now that I think most people in the chemical sector, within that chemical -- they really can't enjoy strong market without a strong MR market. That also then implies that there is a lag.

So, I think just as we see with from the larger sizes to MRs happening early in the fourth quarter, there was a lag before MR rates really picked up. We'll also probably experience the same thing with chemicals. It also probably means that on the backend, there might be more sustainability in chemical tanker rates for little while longer.

I'll also point out that through the year, until the very end, the chemical tankers actually performed extremely well, and pretty much consistently through the year outperformed the MRs on a capital adjusted basis..

Then, second question is just kind of around global refining capacity. In the earnings release, you guys said that 2019 additions will come in at the highest level since the 1970s. I know, a pretty big chunk of this is coming from the Middle East, which is certainly positive for product tankers.

But, can you provide some color around the impact of the capacity additions we're seeing in Asia, where the impact on the product tanker market is just kind of a bit more uncertain?.

Yes, Chris. So that's -- you're right. This is the data -- it is quite large, 2.6 million barrels a day for 2019. Some of that will come on line towards the end of 2019 and much of it in terms of commercial -- actual output may end up in 2020. So, yes, approximately these are all export oriented refineries, particularly China.

The refineries vary, you'll see a lot more on cargo volume that's been reflected and one should expect in activity, but also in terms of their quotas and export quotas et cetera, are all coming up. And we're just seeing the first round of quotas or increased export volumes by 7.5% and see what happens over the course of the year.

So, I think, all of those additional kind of new refinery projects are all export-oriented. You can kind of pinpoint where the Middle East ones will go and the Chinese ones, but ultimately remain more cargo volume and more exports, both regionally and longer haul into Europe, given IMO 2020 et cetera..

Okay. Sounds pretty positive. And there is last real quick. It’s noted that the Eco-mod vessels outperformed the Eco-design for the full year 2018, which is a pretty decent sample size.

Does this speak to just maybe a non-material difference between the asset types or is there something specific going on there?.

No, not really, Chris. I think what you saw at the start of the year -- setting back I guess the Eco-design vessels are more fuel efficient than Eco-mod by small margin. I think within that, then you can -- vessels individual performance is largely dependent on positioning et cetera.

So, what you saw in the first half of the year is that the Eco-mod just happened to be in a better position at the point of fixing and captured better points in the market.

So, I think overall, you’d expect the Eco-design vessel to outperform by a couple of hundred dollars a day and depending on bunker costs, et cetera, it might as high as $1,500 a day but within that then depending on positioning and then timing, et cetera. One ship can hit the high notes when the other might not, depending on its voyage et cetera.

So, hopefully, that answers the question..

Yes. Fair enough. And then, just following up on that real quick. Clearly, you guys positioned yourself to buy a few vessels this year.

How do you kind of weigh the Eco-mod versus Eco-design buying, maybe less than five-year old assets or buying assets in that 5 to 10-year range? Where do you see the sweet spot right now?.

I think, in the past we've been perhaps more clear than we should have been about the fact that we do like that kind of 5 to 6 to kind of 9-year old age range. That's probably still the case, if you look at the values on depreciative replacement basis, they’re still quite attractive. But there is an offset.

I mean, the newer ships generate more cash flow, but they're proportionally substantially more expensive. So, on balance, it’s probably a toss-up, really depends on a specific ship..

Our next question comes from Mr. Espen Landmark, Fearnley. Please go ahead..

Hey. Good afternoon. Kind of short term, I guess this has become a consensus view that refiners will undergo a larger than usual maintenance season this spring. But looking at some of these agency numbers, they’re not predicting a pullback, I guess higher than what we’ve seen in the last couple of years.

So, I mean are you expecting a larger pullback in the refinery runs in the spring than kind of normal?.

What we believe is happening is that the pullback or the amount offline for turnaround is not necessarily larger than prior years, but the periods are more extended..

All right.

And kind of on the flip side of that, I mean how much quick the turnaround be in the autumn, and how much could the runs increase?.

That's probably a better question for a refinery company. But, we're only assuming that -- and it is some companies have been openly stating the case that they view the first half as an opportunity to reconfigure and upgrade in various ways their refinery capacity to take advantage of what they see coming.

And they seem to be frontloading that in the first half..

All right. And finally, I guess, we've seen Platts, IS and others launch in these new benchmark indices for also for fuel now. And they are priced significantly lower than the spreads to -- I think they're as low as $30 to $50 above the HFOs.

I mean, one, do you think those numbers are asset sensitive for the pricing of kind of these projects will be 2020? And I guess, as a follow-up with more shipowners up for 0.5 compliant fuel than 0.1 NGL and at those price differentials?.

The trade that we actually were made aware of was in Singapore and it was presented as the first actual trade for December 2019, which was 3.5 versus 3.5 and the strike was $175 a tonne, which is surprisingly narrow. And so, if you consider the scrubber economics on that basis, it perhaps needs a different light.

So, we're not -- people very often speak about the wisdom of markets, and the market telling different story than perhaps funded. And I think that might be -- this might be an example of that.

So, in terms of whether people would be -- people trying to burn 0.5% very low sulfur fuel oil versus 0.1% gas oil, obviously if the 0.5% is available and you're comfortable with the stack in the quality, that's what you’re going to go with. But, we believe that in the beginning, the switchover is going to be sufficiently disruptive.

And the availability of compliant fuels, especially in outports away from the main bunkering hubs, could be quite limited in the beginning..

[Operator Instructions] Our next question comes from Ben Nolan with Stifel. Please go ahead..

Hey, guys.

Can you hear me this time?.

We can..

Good. Sorry. I was having technical difficulties or user errors, or something. So, I apologize if you maybe addressed this already, I missed it little bit.

But, could you maybe talk to how possibly all of the disruptions that are going on in Venezuela might impact the product tanker market? Obviously, it's primarily crude area, but I know that they do imports of naphtha for blending and that kind of thing.

Is that having any impact yet or do you think that it might?.

We're aware that MRs is still being fixed to trade into Venezuela on a spot basis. And sort the trade is still there. It's probably a little diminished from what it was. So, it's not a major component of the of the U.S. Gulf trade. So, we don't see us having a major impact.

But, probably, if their diminish slows at the moment, there might be a rebound once the troubles dissipate there a little bit..

Okay But, it's not -- it’s effectively a non-factor for you?.

It's not a major factor. Yes..

Okay, good. And then, again, you might have addressed this. But, when thinking through obviously the decision to sell the two older vessels, and I appreciate that they are older and there's just a modernization aspect of what you're trying to do with your fleet.

But, kind of given your outlook for -- especially in light of IMO coming up and that might translate into with respect to demand for product tankers or MRs.

Why not wait for six months and just see if the market catches a bit, or do you think that the assets are relatively fairly priced?.

Part of it has to do with drydock timing and ballast water treatment installation. And so, the buyers of these type of ships are not necessarily going to have to comply with ballast water regulations on the same timeframe as we do. And so, there's in a way a kind of value differential of the ships in our fleet versus in more regional fleets in Asia.

So, that's one point to make. We also think that there are opportunities to reinvest in equally attractive tonnage, but on a more modern basis. And it comes down to tradability and just having to get on with the program of the eventually disposing of those ships and replacing them..

Our next question comes from Mike Webber with Wells Fargo. Please go ahead..

This is Greg on for Mike. So, I'm just curious about the process for cleaning your fuel tanks.

Technically, what does that process look like, what kind of off-hire is involved in that? And do you anticipate any sort of like a mad dash at the end of the year for everybody rushing and clean the tanks? Do you see a big traffic jam building up at all?.

No, there's no off-hire. It can really be done in the normal course of business for the ships. And there are different methods available for cleaning. I can't disclose what we've chosen as our alternative, but the different ways to do it and some of them more expensive than others..

And that goes for all asset sizes, different classes as well?.

Yes, I don't think it's really specific to any particular type or sizes ship..

And then, I think in past calls, you've given some color on market conversion from clean to dirty? Could you give an update on that? What you're seeing in the industry as far as conversions? Do you see them continuing or do you think the sort of allure of IMO 2020 is going to give reasons for owners to maybe hold off on conversions and stay clean?.

Yes. You're talking about switching from clean to dirty. It is striking that probably 15 to 18 LR2s did make transition from clean to dirty in the last couple of months. And those have been just that are going to find it very difficult to get back in the clean trades.

So, we think that is long -- it's really -- the key is the relative strength of Aframax sector versus LR2s. And at the moment, Aframax is doing quite well, so LR2s and LR1s. And that obviously makes us happy, because it means we'll be less likely to look for -- look down to smaller stems and combinations into our world.

So, we think that's a risk that’s always there if the crude tanker and the LR2 rates got low enough but at the moment things look reasonably healthy..

Very good. Thanks for your time, guys..

Our next question comes from Bruce Baughman with Franklin. Please go ahead..

Hi. Good morning. Thanks for taking the question.

Could you tell us what debt amortization was by quarter in 2018?.

Yes. No, we paid about $11 million per quarter in 2018 on a schedule basis. And then, within that you had some debt prepayments and debt prepayments associated with the refinancing et cetera. But the scheduled amortization is $44 million and the scheduled amortization in the new -- in 2019 as a result of refinancing is about 42..

This concludes our question-and-answer session as well as today's conference. Thank you for attending today's presentation. You may now disconnect..