Earnings Call Transcript - DHT Q1 2023

Operator, Operator

Good day and thank you for standing by. Welcome to the Q1 2023 DHT Holdings Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised today’s conference is being recorded. I would now like to hand the conference over to your first speaker today Laila Halvorsen, CFO. Please go ahead.

Laila Halvorsen, CFO

Thank you. Good morning, and good afternoon, everyone. Welcome and thank you for joining DHT Holdings' first quarter 2023 earnings call. I’m joined by DHT’s President and CEO, Svein Moxnes Harfjeld. As usual, we will go through financials and some highlights before we open up for your questions. So, the link to the slide deck can be found on our website dhtankers.com. Before we get started with today’s call, I would like to make the following remarks. A replay of this conference call will be available on our website dhtankers.com until May 11th. In addition, our earnings press release will be available on our website and on the SEC EDGAR system as an exhibit to our Form 6-K. As a reminder, on this conference call, we will discuss matters that are forward-looking in nature. These forward-looking statements are based on our current expectations about future events as detailed in our financial report. Actual results may differ materially from the expectations reflected in these forward-looking statements. We urge you to read our periodic reports available on our website and on the SEC EDGAR system, including the risk factors in these reports for more information regarding risks that we face. We have a solid balance sheet represented by low leverage and significant liquidity. Financial leverage is about 18% based on market values for the ships and net debt per vessel was $12 million. The quarter ended with total liquidity of $346 million, consisting of $117 million in cash and $229 million available under revolving credit facilities. You should also note that we have no newbuilding CapEx commitments. We achieved revenues on a TCE basis of $93.9 million during the quarter and EBITDA of $71.9 million. Net income was $38 million, equal to $0.23 per share. We continue our good cost control with OpEx for the quarter at $18.4 million and G&A at $4.6 million. The vessels in the spot market earned $54,600 per day and the vessels on time charters made $35,000 per day. The weighted average TCE achieved for the quarter was $49,100 per day. Earnings were impacted by 112 scheduled off-hire days in connection with the installation of exhaust gas cleaning systems and unscheduled off-hire mainly related to one of our vessels which encountered bad weather damage. IFRS adjustments for the quarter amounted to $5.4 million, equal to $3,900 per day. Hence, adjusted TCE for the vessels in the spot market was $58,500 per day. The IFRS 15 adjustment is simply due to the timing of when revenue is recognized and it’s impacted by low days. These earnings will be transferred into the second quarter. We started the quarter with $125.9 million in cash and we generated $71.9 million in EBITDA. Ordinary debt repayment and cash interest amounted to $5.4 million and $61.9 million was allocated to shareholders through the cash dividend pertaining to the fourth quarter of 2022. We invested $14.8 million in our fleet, with $2 million in maintenance CapEx and $12.8 million for the installation of exhaust gas cleaning systems. In January, we terminated seven interest rate swaps and received $3.3 million in connection with the termination. In addition, we refinanced one of our large credit facilities with a net zero effect, and the quarter ended with $117.5 million of cash. In January, we entered into a $405 million secured credit facility, including a $100 million accordion. This refinanced the outstanding amount on the ABN AMRO facility and is secured by 10 of the company’s vessels. That is payable in quarterly installments of $6.25 million, equal to $625,000 per vessel, with maturity in January 2029. The new loan bears interest at a rate equal to SOFR + 1.9%, which is equivalent to LIBOR + 1.64%. The mentioned refinancing aligns with DHT-style financing, which includes a 20-year repayment profile and a fixed year tenure. In connection with the refinancing, and as mentioned on the previous slide, we terminated seven interest rate swaps that would have matured in the second and third quarter of 2023. We received $3.3 million in cash in connection with the termination. Switching now to capital allocation, our dividend policy was updated last year. The key thought behind this was the combination of our strong balance sheet and no newbuilding CapEx amidst distributing 100% of net income of good business. According to the new dividend policy, we will pay $0.23 per share for the quarter, returning $37.5 million as a quarterly cash dividend. The dividend will be payable on May 25th to shareholders of record as of May 18th and this marks the 53rd consecutive quarterly cash dividend. The shares will trade ex-dividend from May 17th. In March, our Board of Directors approved a renewed share repurchase program of $200 million of the company’s securities. The repurchase program has a 12-month duration and replaces the prior $50 million program. We have no immediate plan to deploy this program, but would like to have our toolbox equipped should the capital market present the right opportunity. With that, I will turn the call over to Svein.

Svein Moxnes Harfjeld, CEO

Thanks, Laila. Our time charter book currently consists of seven contracts. Three of them are coming off during the third quarter and it is our intention and ambition to rebuild the time charter portfolio through the right opportunities with the right customers. We have recently secured a three-year time charter for the DHT Puma. The contract has a profit-sharing structure that includes fixed base rates of $33,500 per day. The profit-sharing structure is based on certain indexes with the ship’s actual economics. As such, including the benefits of being an eco-vessel fitted with a scrubber, the first year of earnings from the base rate to $40,000 per day will be allocated 100% to us. Earnings above this level will be equally shared between the customer and us. We have good experience with these structures from past time charters, and as an example, I reference that this time charter earned about $62,800 per day during March. We are here updating you on our bookings to date for the second quarter of 2023. We expect 620 days to be covered by our term contracts at an average rate of $34,800 per day. We further expect to have 1,390 spot days for the quarter, of which about 65% has been booked at an average rate of $70,300 per day. Combined, and as of today, this indicates bookings of 75% of the total days at weighted average earnings of $55,800 per day. In the last line, we are estimating the spot P&L breakeven rate of $24,900 per day for the second quarter, allowing you to model a net income contribution based on your own assumptions for the unfixed spot days. The bookings for the second quarter to date is a healthy start to the quarter with good prospects for the quarterly cash dividend. We have, however, seen a drop in freight rates since the beginning of the quarter. Current rates from eco scrubber-fitted vessels start with a low four-handle, though the current sentiments suggest a softening in rates. We discussed this on our prior call, and in order to avoid any misunderstanding, we take the liberty to show this slide again. The estimated P&L breakeven for the fleet as a whole is about $27,500 per day for the remaining three quarters of the year. When adjusted for the fixed income that we have, the P&L breakeven for the spot fleet is about $24,600 per day. For the remaining three quarters of the year, we estimate the cash breakeven for the fleet as a whole to be $18,500 per day, with the spot ships needing to make $12,800 per day for the company to be cash neutral. Keep in mind that our cash breakeven numbers include all true cash costs, OpEx, G&A, maintenance CapEx, cash interest, and debt amortization. This illustrates a headroom of about $9,000 per day between cash breakeven and net income breakeven for the fleet, with the potential annualized cash flow of some $70 million that will be allocated to general corporate purposes. This cash flow, combined with the capacity in our balance sheet, will enable us to invest when the time is right and the opportunities offer rewarding prospects. Here we provide you with an update on our project to retrofit the remainder of our fleet with exhaust gas cleaning systems. We have to date completed six of eight retrofits and thus have two remaining. We have not fixed the time for these two but intend to use air pockets in the freight market to execute them. The project execution thus far has been according to plan, both from a cost perspective and in terms of planned off-hire days for the ships. The fuel spreads have, alongside weakening refining margins, come off, but are still offering premium earnings for the ships with systems installed. We now have 21 of 23 ships operational with systems and plan to be 100% fitted within this year. As we have mentioned earlier, these ships are the focal point of clients wanting to pursue term charters. On this slide, we illustrate developments in seaborne crude transportation over the past three years or so and ton-mile development over the same time period. As you’re all aware, the conflict between Russia and Ukraine disrupted trade patterns, which drove premium earnings for our smaller siblings. With the slightly longer retrospect following the COVID setback, it has been a fairly steady and positive development. Importantly for DHT, in particular, the graph on the left shows VLCCs handling close to 50% of seaborne crude oil on a nominal basis, and surprisingly, and due to its size and competitive cost of transportation, it represents about 70% when measured on a ton-mile basis. The VLCC is a true workhorse of the crude oil transportation markets and one could reasonably expect this to continue going forward. These are extraordinary times from a geopolitical perspective, and our business is, as one would expect, impacted. We shall not offer you any geopolitical analysis or act as oil market experts; that would be beyond our capacity. However, lifting the beams a bit, the three basic pillars for our business are positive. We have a growing demand for oil due to increasing transportation distances and basically no new supply coming on. We think we are in the early innings of experiencing the benefits of these pillars and it should likely continue to be volatile and seasonal. OPEC+ surprised the market with its announcement a month ago. War, sticky inflation, and increased interest rates, along with falling refining margins, raise concerns about demand and certain financial turmoil, all tempering near-term expectations. Maybe OPEC+ was ahead of the curve, but trying to reduce the impact on oil prices now and targeting a higher price for the forecasted recovery later this year is only our $0.02. China is, however, opening up with increasing consumption, and we sense that non-OPEC supply will step up to compensate for at least part of these impacts, and that will mean longer transportation distances. The tanker market has historically been prone to disruptions. As we speak, there are tankers involved in seizures in the Middle East currently. A certain significant flag state is due to security alert to its members, and they understand that some owners failing under this flag have concerns about entering the area. If this plays out, it can abruptly decrease the supply of ships in this highly important loading area. This certainly has risk to the upside in the freight markets. Unrelated, there was recently an explosion followed by a significant fire and fatalities in an older tanker anchored in Southeast Asia. We are seeing incidents and now accidents related to ships in the shadow fleets. If this trend evolves, it could make users of these ships, authorities controlling territorial waters, and niche transit and terminals accepting these ships, think twice about accepting and using them. If this plays out, it could remove capacity, and again, it certainly has risk to the upside. There are some near-term headwinds in the market, but we believe one should not let this blur the long-term tailwinds supported by the key market pillars. Going forward, our plan is consistent and we will stick to our knitting. You should expect continued strong discipline in executing our business model and strategy. We have a great team of people in a no-nonsense company culture, all focused on delivering safe and reliable services to our customers and strong results for our shareholders. We are tuned to operate in the tanker market with quality vessels in the water able to generate premium revenues, a rock-solid balance sheet, and a low-cost structure with robust breakeven levels. We think returning 100% of net income to shareholders is fair and square. And with that, we open up for questions.

Operator, Operator

Thank you. I will now take our first question. Please stand by. This is from the line of Chris Tsung from Webber Research. Please go ahead.

Chris Tsung, Analyst

Hey. Good afternoon. Good morning. Svein and Laila, how are you?

Svein Moxnes Harfjeld, CEO

Doing very well. Thank you, Chris.

Chris Tsung, Analyst

Good. On that time charter for the Puma, just to confirm, if it reached $50,000, DHT gets 40% plus another 50% and the upside over $40,000, is that right?

Svein Moxnes Harfjeld, CEO

Yes, Chris. So about $40,000 a day on the calculator is the 50-50 share of income.

Chris Tsung, Analyst

Okay. Thank you.

Svein Moxnes Harfjeld, CEO

But I think…

Chris Tsung, Analyst

And then…

Svein Moxnes Harfjeld, CEO

...the rest of it, I say, that there is a pre-agreed calculator using this ship’s specific economics. There is not a standard index shift. So the equal benefits of the ship and the scrubber benefit of the ship is in that calculation.

Chris Tsung, Analyst

I see. Will the increase apply to the base loan amount or to both the base and the profit share?

Svein Moxnes Harfjeld, CEO

The base and the threshold for the profit share will increase.

Chris Tsung, Analyst

All right. Great. That was one question. And just on the second one, on your cash flow statement, I noticed that investments in vessels are a little bit higher than expected. Is that just for one scrubber and how should I think about what future investments could look like?

Svein Moxnes Harfjeld, CEO

Laila, do you want to reply to that?

Laila Halvorsen, CFO

Yeah. That’s not just one scrubber now. So that relates to the scrubbers installed during the quarter. But it’s also worth mentioning that the cash flow effect is not timed exactly at the time of the installation. So I hope that clarifies.

Chris Tsung, Analyst

Okay. Great. Sure. And maybe just one final one before I pass it on. Just hearing about that vessel that was damaged by bad weather, how long will that vessel be out for?

Svein Moxnes Harfjeld, CEO

The vessel is back in service, but she was out of service for a while in the first quarter. So we had some rough weather damage and that’s been repaired and it took a little while. So, and the ship is back fully classified and servicing its customers.

Chris Tsung, Analyst

Perfect. Thank you guys for the color. I will turn it over.

Operator, Operator

Thank you. We will now take our next question. Please stand by. This is from Jonathan Chappell from Evercore. Please go ahead.

Jonathan Chappell, Analyst

Thank you and good afternoon. Svein, going back to the Puma contract, that’s the terms that we haven’t seen really in some time across the industry, maybe from the last boom cycle pre-global financial crisis. Are those the types of contracts now that are becoming more prevalent given some of the volatility in the market and some of the long-term tailwinds that you mentioned in the presentation?

Svein Moxnes Harfjeld, CEO

I’d say no. This is a customer and some people we know well. And it’s not sort of a typical structure that is on offer, I think, in any way, but that has been developed between both the customer and ourselves, and it sort of worked well for both parties. I’d say liquidity in sort of the term business is thinner now than it was, say, in the fall and that in the winter, but very few things got executed and the bid-ask spread was quite significant during the first quarter hence basically nothing got out. So, but we try to have close discussions with all our customers, and we do have a sense that there is a genuine concern about supply of ships over the longer term, as the order book is a good example of. And also because the significant portion of the fleet has migrated into sort of the shadow trade. The compliance fleet has shrunk quite meaningfully. So it also means that there are fewer operators or close service providers that they would like to engage in term business with. So we expect there to be more opportunities to develop good cash flows with longer terms. And we’ve had some brief discussions on both three-year, four-year, and five-year opportunities, one even longer. But it takes a bit of time to develop and there’s always a little bit of spread in what the two parties want. But we have a sort of clear focus on and ambition on developing this. So I think over the next two, say, call it, six months to 12 months, you should expect DHT to present more opportunities in different sets and forms, but to get better visibility on earnings and becoming, hopefully, in the long run, a more investable business, not just the trading business.

Jonathan Chappell, Analyst

Okay. That’s really helpful. Thank you. My second question, you mentioned the China demand reopening, hopefully, tail. I was hoping maybe you can explain a little bit on how you’ve seen that transpire so far. As you noted, the market has weakened of late, OPEC cuts really haven’t kicked in yet. I mean we’re just in the early part of it, maybe a couple of weeks of V bookings. So as Vs being a good proxy for kind of long-haul Chinese demand, and maybe some other industries raising some yellow flags about the China reopening. Has it been what you expected it to be and what gives you the confidence that the country will still go back strong on its crude imports?

Svein Moxnes Harfjeld, CEO

As mentioned in the press release, we need to carefully analyze how these costs will develop. There is considerable sentiment in the market. We're seeing that the Asian markets, particularly from the Middle East to the Far East, have traded at a premium compared to the Atlantic market, but that dynamic seems to have leveled off. This reflects the sentiment around expected oil supply from the Middle East. China is certainly reopening, as indicated by recent data showing that refinery operations are up compared to previous months and quarters. However, we believe these increases are mainly directed towards boosting domestic consumption. During the Golden Week, we've observed a significant rise in mobility in China, including increased flights and driving. While we aren't claiming this trend fully represents future outcomes, it does indicate a return to a more normal state of society. Golden Week occurs annually and functions similarly to Thanksgiving in other countries, and this trending is occurring. It’s still early to determine all the impacts. We are unsure whether all the production cuts will be fully implemented, but we anticipate some level of influence. However, oil prices haven't stabilized yet. We need tangible developments for the oil prices to react accordingly. Let's wait and see how this situation unfolds, as it may provide insights into future developments.

Jonathan Chappell, Analyst

Great. Thank you for the color, Svein.

Operator, Operator

Thank you. We’ll now take our next question. Please stand by. This is from Omar Nokta from Jefferies. Please go ahead.

Omar Nokta, Analyst

Thank you. Good afternoon, everyone. Svein, you provided some valuable insights in your opening comments and in your discussion with Jon about the current market situation. I’d like to ask about the recent OPEC cuts that have just taken effect and their impact on VLCC rates, along with the near-term challenges we’re facing because of that. Looking ahead over the next three to six months, how do you see the potential for replacing those barrels? Do you believe there could be opportunities for cargoes from the Atlantic Basin to make up for what we're missing from OPEC?

Svein Moxnes Harfjeld, CEO

I think Brazil has increased their consumption steadily over quite a while now, and they’re up to 3.1 million, 3.2 million barrels a day. So they are supplying the Far East market in particular. And we still have one ship on a term contract to the biggest producer in Brazil. We do a lot of spot business, and there’s still a lot of inquiries on that. So that’s sort of, I think, the most obvious area. West Africa, in general, is still lagging a little bit behind, and they haven’t been able to step up production-wise for a variety of reasons. But they have the opportunity to sort of step aside for these voluntary cuts, right, because they have other operational issues. To what extent the U.S. will be able to continue to grow, we might sit closer to the action than what we are, but the latest sort of forecast we saw that people expect to increase production by maybe 0.5 million barrels a day this year. And Europe has been an important market for U.S. barrels, and we’ve done a number of shipments on VLCCs to Europe, which is a bit of a new business. But there are still steady exports going to China in particular from the U.S. So there might be some there. The North Sea is now basically all Europe. So we don’t really expect that to go to the Far East to the extent it used to do unless you get a willingness to pay for it, i.e., the higher freight cost in particular, right? So it’s predominantly Brazil, and secondary, maybe the U.S. has something to deliver.

Omar Nokta, Analyst

Thank you for the clarification. There has been considerable talk recently about how refining margins have not decreased from the high levels observed earlier this year. How do you think this will affect the market? Are we noticing any impact from the lower crack spreads on vessel demand? Looking ahead, if crack spreads remain at current levels, will that influence VLCC trade, or is it largely unaffected by this?

Svein Moxnes Harfjeld, CEO

I think it’s worth noting that the refining spreads are still positive. So the refineries are making money. As long as they’re profitable, they tend to keep the runs going, right? So it’s more in the event that they turn sort of neutral or even if it’s tariffs go negative, then, of course, then runs will pay back and that will impact crude headstock immediately. So I think for now, it’s still okay. But of course, this is an indication of maybe supply for refined products being too tight at some point lifting this margin and maybe now it’s sort of getting into a more balanced market. But, whether it’s sort of pull back in demand or whether it was just lack of supply that created those other spreads, I’m not an expert on that. But of course, it’s something we have to follow, because if they get too close to zero, that will impact the transportation of feedstock.

Omar Nokta, Analyst

Thank you for that information. I have one final question as a follow-up to your response to Jon regarding the time charters. You mentioned that we should expect DHT to undertake a few initiatives later this year in terms of customers. Are these initiatives solely related to time charters, or is there an opportunity to navigate this potential soft patch and acquire assets?

Svein Moxnes Harfjeld, CEO

So far, there’s no signal of at least estimated asset values softening. If they do in our book for us to make these sorts of attractive opportunities, there has to be quite a meaningful correction in values. But there are different ways for us to invest. And as Laila commented on, we have an extended share buyback program, but not only extended it, but also increased it in size. A reflection of the reason for this is that, number one, of course, the equity value the company has increased as we have delevered. So we wanted to have more muscle. But also, this is a period that if for some other reason, not just specifically in the tanker market, but if for capital market or economic reasons, things reprice negatively, buying our own ships through buying back stock is maybe the most interesting investment as opposed to buying hard assets. So we wanted to have our toolbox ready, and if these opportunities come along, not that we necessarily wish for it to happen, but if it happens, we want to be ready.

Omar Nokta, Analyst

Great. Very good. Thanks for the time.

Svein Moxnes Harfjeld, CEO

And just as an example, right? So between the summer of 2021 and summer of 2022, we bought back approximately 6% of the company at that time, very attractive share prices, but from an investor perspective. So we have been able to do this in the past, and it could well happen in the future as well.

Operator, Operator

Thank you. We’ll now take our next question. Please stand by. This is from Frode Morkedal from Clarksons Securities. Please go ahead.

Frode Morkedal, Analyst

Hi, Svein.

Svein Moxnes Harfjeld, CEO

Hi, Frode.

Frode Morkedal, Analyst

I have a question on the VLCC order book, which is now approaching record lows. And as you have seen, I guess, there have been some new orders for LR2 product tankers recently. So first, could you just talk about what you think is holding back new orders for the VLCCs, and secondly, what needs to change for people to start ordering vessels again?

Svein Moxnes Harfjeld, CEO

I guess some of the interest in LR2s is maybe a reflection of the phenomenal performance that asset prices have over the last year or so, right? So they really delivered tremendous earnings. And of course, that might suggest to some people that this time is different, but things are changing. I can't say whether they are not. But I would suspect that, that is a sort of good reason why people feel confident about that class. We are not studying that in detail. So I think all the people are probably in a better place to comment on that. There’s also been contracts with some Suezmaxes. I think there are some simple reasons for this, is that prices now nominally are of such significant value that it involves a lot of money to forecast, right? Recently, Suezmaxes have been in the 70s. There’s some down in the low 80s from maybe some of the real shipyards, compared to asking prices in Korea between $125 million and $140 million for sort of a VLCC. So just the ticket itself is significant. And so, I guess, the barrier is more edible to people at a smaller ship class. You could probably do things in China on the VLCC at a lower price. But I think another key consideration for many people with also this amount of money involved in such investment is that the ships will only deliver in the second half of 2026. You're looking at having debt capital for three and a half years before you’re going to earn any money. And these four deliveries are not offering any opportunities to, for instance, secure fixed cash flow reflecting on the value of the investment. Whereas you have another market, LNG, which is also a significant order book, but a lot of it is being built against long-term contracts. And other things that maybe some private owners who have typically been engaged in tankers find the LNG sector very attractive. One LNG carrier costs about twice as much as a VLCC, and you get delivery forward, okay? But you also get a long-term contract in five years, seven years, 10 years, 15 years. So it’s a sort of different business proposition that’s attracting capital away from large tankers for a while, and we think that just bodes well for our space. So we welcome it. But I think those are sort of reasonable and rational reasons why you haven’t seen ordering in large tankers for a good time to come.

Frode Morkedal, Analyst

So in order for this to change, I guess, what needs to change? Investing values should rise above newbuild prices on some of that?

Svein Moxnes Harfjeld, CEO

I believe if that occurs, it would be due to significant immediate cash flow justifying those investments. If delivery times shorten considerably, which were previously 18 to 24 months, that might shift the landscape somewhat, especially if there are fewer alternative investments or if they aren't as appealing. I anticipate it will take some time for this to unfold. If we proceed, prices might adjust, but we have seen inflation affecting equipment and labor costs. This doesn't imply that newbuilding prices will revert to where they stood two or three years ago. Therefore, I don't expect to see a substantial amount of ordering for VLCCs in the near future. We will certainly monitor this situation.

Frode Morkedal, Analyst

Perfect. That’s encouraging. My second question is very simple. You mentioned DHT style financing. Could you elaborate on what that means? Thank you.

Svein Moxnes Harfjeld, CEO

As Laila noted, there are two main elements to consider. First, while the market typically offers loans with a five-year tenure, we prefer a six-year tenure. This approach allows us to refinance before the loan term becomes too short. To effectively refinance a fiber loan, it must be done by the end of the fourth year, which results in a shorter project duration compared to the upfront fees we incur. We successfully negotiated this longer period with the banks, allowing us to consider refinancing at the end of the fifth year, which aligns better with our strategy. Secondly, the loan's amortization is structured based on a 20-year economic lifespan for a new ship. If we are dealing with a 10-year-old ship, it assumes a remaining life of 10 years. In contrast, most loans in the commodity shipping sector, particularly tankers, have repayment periods of 15 to 18 years, leading to higher annual amortization. We prefer the 20-year structure as it has supported our cash breakeven levels. Although we may pay a slightly higher margin to secure these terms, we believe it’s a worthwhile exchange for managing our company effectively. Additionally, there are other features in this agreement that we haven’t disclosed in detail, but they help us manage our balance sheet and debt efficiently. This is not a fixed arrangement; rather, it reflects our practice of maintaining consistent financing terms incorporating these features.

Frode Morkedal, Analyst

Perfect. That’s very clear. Thank you.

Operator, Operator

Thank you.

Svein Moxnes Harfjeld, CEO

Thanks.

Operator, Operator

We’ll now take our next question. Please stand by. This is from Robert Silvera from R.E. Silvera and Associates. Please go ahead.

Robert Silvera, Analyst

Hi, Svein. Thank you very much for taking my questions. One of the things I wanted to compliment you on is a few years ago, two years to three years ago, we were at $900 million plus in debt and now you’re down significantly to $369 million. And in that interim period of time for whatever reasons, I think, one of the greatest ones is the tremendous reduction in debt the way you ran the company and the price of the shares has more than doubled in that interim period of time. So it reflects good management. And I think, significantly, the reduction of debt. Now one of the things you’ve talked about as far as the new order book, could you mention what you see as having happened in the scrap rate? Do you see the scrap rates staying steady, increasing because of time on ships, etc.? Could you give us a picture of that?

Svein Moxnes Harfjeld, CEO

That’s a good question. Currently, we're not seeing any scrapping of our large tankers. Brokers indicate that you can expect about $520 per light ship ton for the tanker or VLCC, which typically weighs between 42,000 tons and 48,000 tons depending on their design and size. However, there is no activity in this area. The main reason is that operators in the shadow market or sanction trades have shown a willingness and ability to pay a significant premium for all tankers, far above the theoretical scrap price. This means there are alternative uses for these ships, which, while less productive than the compliant fleet, are still needed. They may eventually leave the market as many are aging. In the short term, sellers are reluctant to scrap because the price is too low, and those looking to purchase for either further trade or scrapping are unable to match the higher offers from the competition. This has led to a wide gap between buyer and seller expectations, effectively halting that market.

Robert Silvera, Analyst

So you’d say, net-net, the fleet is staying pretty much the same size then?

Svein Moxnes Harfjeld, CEO

Yeah. And for the foreseeable future, I would think so. And maybe next year, maybe two. But then some of these ships are getting very long in the tooth, and many of them will have to go to dry dock and spend money. Some of them will have to install maybe ballast water systems to be able to trade, depending on the trade they do. So there’s going to be CapEx for some of these ships. And then the remaining life is so short that maybe some of them will just say, by the bullet and say, okay, let’s get rid of this lady now and we’ll move on. But I think also this is the reason why the operators in that trade have bought older ships because they know that, that market hasn’t got long legs. It’s a period for one year, two years, three years, they can play around with this and then it’s a risk of that market disappearing if you understand what I’m saying.

Robert Silvera, Analyst

Yeah. Thank you. Very good. Anyhow, you talk about share buybacks. As a shareholder of thousands of shares, I’d like to put my input in from the standpoint of we would like to see you not do share buybacks at all, but rather accelerate further debt reduction, say, take the over $100 million of cash and apply $25 million to debt, and that brings me to the idea of what would be your breakeven if you got down to, in a theoretical way, if you got down to zero debt, where would our breakevens go to from where they are today?

Svein Moxnes Harfjeld, CEO

We are committed to maintaining our cash dividend, which is based on 100% of net income. Any consideration of buybacks in the current environment would not come at the cost of cash dividends but would be in addition if we chose to pursue them. Historically, we have approached buybacks opportunistically, targeting times when share prices have significantly diverged from market prospects, akin to buying a ship at a large discount. This strategy helps enhance earnings growth by reducing the number of outstanding shares. Our main priorities continue to be cash dividends, deleveraging, and then buybacks. With the cash flow we are generating, even while striving for net income, we are in a position where we could balance both buybacks and debt reduction, with a primary focus on deleveraging.

Robert Silvera, Analyst

Well, we, as shareholders in our group, particularly favor the reduction of leverage. One of my last questions would be this. Over this past year, the number of shares increased by over 333,000. We do expect that this year that we’re in now, we can expect the same kind of increase again?

Svein Moxnes Harfjeld, CEO

So the company has a long-term incentive program in place for Board and management that involves stocks. It’s predominantly rest or it is restricted stock units. They have some vesting criteria. There are different structures and tranches. So it depends on whether only some or all of them will vest or not. So when we present our annual 20-F, then you will see what that has been done in the prior year, right? So, but we are not printing shares to raise money on selling stock in the market. It’s only related to the long-term incentive program for Board and management.

Robert Silvera, Analyst

Okay. That’s pretty much it for me. I just want to compliment you guys. I think you’ve done a tremendous job over the last few years, doing debt reduction and just running the company in a difficult situation. So thank you very much, and we look forward to being in on the next call.

Svein Moxnes Harfjeld, CEO

Thank you, sir. I appreciate it.

Operator, Operator

Thank you. There are no further questions at this time. So I hand the conference back to the speakers.

Svein Moxnes Harfjeld, CEO

Well, thank you very much to all for listening in on DHT and following our company. It’s most appreciated, and we’re wishing you all a continued good day. Bye-bye.

Operator, Operator

Thank you. This does conclude the conference for today. Thank you for participating and you may now disconnect. Speakers, please standby.