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Euronav NV (NYSE:EURN)
Q4 2019 Earnings Call
Jan 30, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello and welcome to the Euronav Q4 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Head of Investor Relations, Brian Gallagher. Please go ahead.

Brian Gallagher -- Head of Investor Relations, Research & Communications

Thank you. Good morning and afternoon to everyone and thanks for joining Euronav's Q4 2019 Earnings Call.

Before I start, I would like to say a few words. The information discussed on this call is based on information as of today, Thursday, January 30, 2020, and may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements reflect current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events, performance, underlying assumptions, and other statements which are not statements of historical facts.

All forward-looking statements attributable to the company or to the persons acting on its behalf are expressly qualified in their entirety by reference to the risks, uncertainties, and other factors discussed in the company's filings with the SEC, which are available free of charge on the SEC's website at www.sec.gov and on our own company's website at www.euronav.com. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement and the company undertakes no obligation to publicly update or revise any forward-looking statements. Actual results may differ materially from these forward-looking statements.

Please take a moment to read our Safe Harbor statement on page 2 of the slide presentation.

With that, I will now pass on to Hugo De Stoop, our Chief Executive to start with the agenda slide on slide 3. Hugo over to you.

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Thank you very much, Brian. I'm very pleased to introduce our new CFO, Lieve Logghe, who is with us for the first time on this call and I'm equally pleased to have Rustin Edwards with us, who is our Head of Fuel Procurement.

I will run through the Q4 highlights before passing on to Lieve, who will provide a financial review of the income statement and balance sheet. We will then together look at the current themes in the tanker market and take your questions at the end of our prepared remarks.

Let's turn to slide 4. Q4 showed a strong freight markets we had been expecting through most of 2019. The underlying fundamentals have been the key driver behind the remarkable rate increases we saw in Q4. The demand coming from the refineries was strong as they returned from a prolonged period of maintenance and preparation for IMO 2020.

During the quarter, demand growth running at an annualized rate was more than 1.5 million barrels per day. Of course, a number of exceptional factors drove the spot market to very high rates during October. But on average, the rates for both VLCCs and Suezmax were the highest seen for a quarter since 2008. This elevated rate environment has continued into 2020, which is yet another sign that the fundamentals of our markets have improved as normally rates softened over the Christmas holiday period.

On another note, we're pleased to confirm that Euronav will adopt a new Belgian corporate code in 2020, allowing us to pay dividends on a quarterly basis. This would permit us to better align the cash flows from our business with our shareholders. In addition, today, we announced our proposal to pay $0.29 dividend per share covering the second half of 2019. This will bring the total dividend for the year at $0.35 per share. This is indeed 80% of our net income after adjusting for capital gains. In addition, to dividends in fact, Euronav bought back to equivalent of $13 million worth of shares. So in fact, just for the year 2019, we're returning to our shareholders $105 million or almost $0.50 per share.

The good news is that the first quarter of 2020 so far is even stronger than Q4 2019. We've booked around 60% of the quarter at close to $90,000 per day for VLCCs and $57,000 per day for our Suezmax. Recently, rates have softened but are still at decent levels around $45,000 per day for VLCCs. The sentiment has shifted for the moment much because of the outbreak of a respiratory virus, the coronavirus in China. The full macro-economic impact is still being assessed at the moment.

With that, I will pass on to Lieve, who will run through the financials.

Lieve Logghe -- Chief Financial Officer

Thank you, Hugo. I'm very excited to join Euronav and I look forward to meeting most of the people present in the call in the near future.

Let us have a look at the P&L. The operational leverage of our businesses clearly illustrated in slide 5. Euronav booked a spectacular profit in Q4 amounting to $160 million compared to break-even result in Q4 last year with a similar cost base. Moreover a capital gain was realized on the sale and leaseback of three of our older VLCCs just before year-end. We sold those ships at $23 million above their book values. In accordance with IFRS 16, a capital gain of $9.3 million will be booked as it represents the portion related to the rights retained in the underlying assets by the buyer at the end of the lease. The remainder of the $23 million will be recognized over the leasing periods.

The Euronav balance sheet remains strong and robust as shown in slide 6. Leverage on mark-to-book values remains in the mid-40% which leaves a lot of flexibility. Our cash position at year end was $297 million which is slightly more than prior years and it was augmented at year end, thanks to the sale and leaseback. Euronav has no outstanding capex when it comes to new buildings, while in 2020, we will take 60 ships through their regular survey in dry dock. Six of those ships will require installations of ballast water treatment systems.

I will now pass back to Rustin to run through current issues starting with the fuel spreads post-IMO 2020.

Rustin Edwards -- Head of Fuel Oil Procurement

Good afternoon. The development of the fuel markets leading into an after the IMO 2020 transition have been remarkable. High sulfur fuel oil was looking to follow the predictions of most analysts in November as high sulfur fuel oil practice steadily dropping. Collapsing flow minus $30 per barrel and the high sulfur fuel market structure moved to a $45 per net ton contango for calendar 2020. Very low sulfur fuel conversely increased in value on our wholesale base especially as shipping companies began to work to supply ships with compliant fuel in late November. December, however painted a much different picture than what people were expecting and that picture continues to develop today.

The FLF chart shows that in early December high sulfur fuel commenced to rally with the pump month crack moving from a minus $30 per barrel to minus $17 per barrel of a high from the last week. The market structure container the backwardation and it remains in backwardation. The upper right chart shows that very low sulfur fuel predictably started the rally in early December spiking in early January as shipper scrambled to get compliant fuel mucker supply to their ships. And it has started to reach a market equilibrium as in the initial panic buying has waned and now very little sulfur fuel supply demand has steadied out, why such an emerging story.

The refinery sector is very efficient setting up and executing the transition into IMO 2020. Refineries were able to find alternative crude space to dramatically reduce their high sulfur fuel oil yields. As an example, the US Gulf Coast refining system retooled in Q3 to bring in high sulfur fuel of full destruction, increasing coke utilization and moving out light sea crudes in the process. The Indian refining sector also played a part as well ramping up the refining of high sulfur fuel oil end of this quarter. So in the end, the Russian refining system which is long high sulfur fuel oil, found a home for the fuel that they produced and has been shipping large parcels into the US Gulf Coast and the Middle East refiners long high sulfur fuel have also a taker in the Indian refiners for the residual that was not going to be consumed by the scrubber fitted vessels. Very low sulfur fuel oil has been well supplied in most market regions resulting in a steady supply compliant fuel although with a variety of specifications depending on the blend.

Price wise the spread between the high sulfur fuel and very low sulfur fuel has been volatile as can be seen in the chart on the lower left. We had a spike in the end of December and in the beginning of January up to $320 per ton. And it's now coming off as the stronger than expected high sulfur fuel oil market has moved the spread into an average of $225 a ton in the crops. The calendar 2020 spread is now at $195 per ton, and the calendar 2021 is marked around $145 a ton.

The forward market is showing continued squeezing of the high sulfur fuel oil versus low sulfur fuel oil spread as higher demand for high sulfur fuel oil is substituting the current very low sulfur fuel demand and as can be seen in the bottom right chart. From a price perspective, Euronav has been insulated from these market moves from the stocks that we have in the Oceania, which were purchased at $47 of a high sulfur fuel oil in early 2019.

Some of the predictive quality issues from the transition have materialized in a very low sulfur fuel oil market. There has been quality issues as blenders were more focusing on needing a sulfur specification rather than the holistic fuel oil quality. As fallout in terms of majority of issues but also some performance specifications are becoming problematic. Blenders have been mixing large amounts of distillates into the very low sulfur fuel oil which results in a very low viscosity fuel oil which can be used for a short duration. But for most ships require special handling it's been used at load over a long voyage. This has prompted Platts to start enforcing a minimum viscosity requirements for the merchantability of very low sulfur fuel oil traded in the market on closed window process in Houston, Rotterdam, and Singapore.

Euronav again has been protected from this, as we have our known quality in hand that we have tested and we've been had a negligible impact for operations. We continue to be able to have our vessels form their charters to our customers safely and efficiently as we always have.

Brian Gallagher -- Head of Investor Relations, Research & Communications

Thank you. Rusty for that thorough run through and through the fuel spread issues and Euronav's positioning within it. This is Brian Gallagher, Head of Investor Relations at Euronav.

And I'd now like to move on to slide 8 in the presentation deck. On our website and in the press release today, we have highlighted that Euronav has today given an update on the IMO webinar from September. So investors can assess how our outlook has progressed compares to what we said on September 5 last year.

One feature we did highlight as a potential driver was the development of China looking to produce compliance, low-sulfur fuel oil. Earlier this month, China announced that it was taking away a levy and VAT duties on the domestic production of low-sulfur fuel oil. We believe this is a very important development. Over the next 12 months around 1 million barrels per day production of this new compliant fuel could come into play. This output is important, but it's also important to stress that it will not be available in the world's markets to buy, but only available to Chinese shippers. However, this potential increase in compliant fuel availability is material and something we highlighted five months ago. This is also given more detail on slide 8.

Moving on to slide 9, in the large tanker shipping vessel market supplies everything and is a key variable to focus upon. 2020 will again see sustained levels of disruption which we highlight in this slide. 42 vessels are due for delivery during this year which is a headwind but if the IA demand forecast is correct 1.2 million barrels per day, we estimate this will require 36 VLCCs itself to make this increased demand.

Beyond that, uranium vessels, IMO-related storage, long-term storage, the Costco VLCCs and VLCCs leaving the fleet for retrofits will on an annualized basis take out around about 120 VLCCs over the course of 2020 as you see on slide 9. In addition 28 VLCCs will reach their 20th anniversary during this year and will require a special survey, on which the only one will have to make significant potential capital investments in a vessel with a limited addressable market. It's very encouraging that three such VLCCs have already this calendar year gone to the scrap yard despite face of high freight rates. As the slide shows over 70 vessels in all including this 28, will be aged over 20 years during 2020. That is more than the current order book of 64 VLCCs according to classes.

Finally, there's a lot of speculation regarding the 26 Costco VLCCs which have been out of action since October. We would like to make two points here. These ships are all anchored in the Far East, and it will take time for them to return to the global fleet as and when sanctions are lifted. So this will not be an inserter. Secondly, it's highly likely that will return will coincide with Phase 1 of the US China trade deal announced recently, meaning that some of these vessels will be absorbed into this trade court.

Now moving onto slide 10 on the share liquidity and a big change for Euronav during Q4 2019. On slide 10, we focused on share liquidity, which is something that investors have currently focused upon for a long period of time. Euronav is now the most liquid share in the large tanker space with around about $50 million worth of value traded each day on average in our shares year-to-date. This is across to exchanges, with a market cap of over $2 billion and trading liquidity and meeting many of our investor thresholds, this will allow investors to participate in what Euronav will be in early inning of a sustained tanker cycle.

With those remarks, I will now pass back to our Chief Executive, Hugo De Stoop for an executive summary. Hugo, over to you.

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Thank you, Brian. We're now on slide 11. Euronav maintains a very constructive stance on the tanker cycle for the next years to come with all of our traffic lights showing green or green Amber. As mentioned, 2020 year starts strongly and while we can continue to expect volatility in freight rates throughout the period, we believe that rates will be strong on averages. While markets will however and as always be influenced by external geopolitical and macroeconomic factors, which are hard to predict. But we believe that the fundamental pillars present today should enable the industry to cope with those with much more flexibility than what we have had in the last decades. The order book for large tankers is a 25-year low, vessel ordering remains limited, and the age profile of the world fleet is very constructive. In addition, the recent Phase 1 of the US China trade agreement should support our markets as an important feature of the deal itself is about export of energy into China.

With that, I conclude our prepared remarks and I pass back to the operator. Thank you.

Questions and Answers:

Operator

Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Randy Giveans with Jefferies LLC.

Randy Giveans -- Jefferies -- Analyst

Hey gentlemen, how are you doing?

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

How are you, Randy?

Randy Giveans -- Jefferies -- Analyst

Great. And yes congrats on the new role, Lieve last CFO left you with a pretty low bar. So I'm sure you'll do better than him. So...

Lieve Logghe -- Chief Financial Officer

We will try our best, thank you.

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

We will definitely do somewhat much better than the previous CFO, I can tell you that.

Randy Giveans -- Jefferies -- Analyst

For sure. So all right, so quick question on the LSFO that you've bought forward, how much of an impact has that kind of pre-purchase fuel had on your time charter equivalent in the fourth quarter and especially in the first quarter to-date? And then what's the plan kind of going forward with that LSFO that you still have? Is it solely going to be used on Euronav vessels or you get to kind of take advantage of the high prices and sell it to third-parties now?

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Well, Randy, that's a very good question. But it's a very difficult question, certainly the first part, which is impossible to answer. And the reason why it's impossible to answer is because as I mean in the presentation and you've heard, Rusty, there's been quite a lot of volatility in the price of LSFO, in the price of HSFO. And obviously these are the two products that we compare ourselves because when we purchase this fuel sort of early and middle of last year, it was at a price, it seems, at that time very attractive and which seems has been even more attractive.

But in order to quantify exactly the advantage, you would need to look at the market, almost on a daily basis, and you're not fixing ships on the daily basis. So you can only compare to averages. And as I said, the average so far is probably too early to tell because we had started the quarter on relatively high spreads and the spread was made of a relatively high LSFO price. So, you know the price at which we have acquired all LSFO we have repeatedly said on many occasions that was 448. So at times during the quarter so far, so during the month of January, it was up 250 -- up $250 lower than the pieces we have seen but then who has both that material at the fleet. That's a little bit of question. And the same goes if you want to compare us to the guys equipped with the scrubber why it depends when they bought their own shoe and our prices it was at that time.

So I think we will have to wait until the end of the quarter to see the real difference than we have with our peers. And as you know our peers have mix feet, feet with scrubbers, feet without scrubbers and I think at that time, we'll be able to say OK, our advantage was so much on average for the quarter compared to non-scrubber sheets and are these advantage because should for sure there will be some disadvantage in pricing wouldn't be so much. And then we'll be able to see going forward whether the strategy continues to make sense, if we need to buy more because there is continuously arbitrage in the market depending on where you buy the LSFO or whether we need to look more seriously at a scrubber strategy, which we have said for a long time now that we continue to assess the benefits of and we will decide when we see some sort of stability in the market. To answer the second part of your question very quickly. Yes, that feud is only for us. Sorry guys, we're very selfish.

Randy Giveans -- Jefferies -- Analyst

Noted, all right. And then I guess just following up on kind of the new dividend policy, obviously, the 80% of net income going forward, how do share repurchases kind of factor into that like you mentioned you purchased a bunch in 2019, share prices obviously pulled back here in the last month. So how did your share repurchases in accordance with the 80% dividend payout policy?

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Yes. So two things to mention there, thank you for asking the question that gives us the opportunity to clarify. 80% is the total return to shoulders and we consider a share repurchase as part of a return to shareholders. So we have seen that in sorry, 2019, we far exceeded our policy because we are returning 80% of our P&L. Any addition, we have done $30 million worth of share repurchase. It doesn't mean that we will always do that.

We have indicated a target and the target, the word target was precisely chosen because that's what we are aiming at. But obviously, if we can do more, we will do more. I think the big change in 2020 is the fact that we can distribute dividends on a quarter-to-quarter basis which quite frankly is an advantage for the investors because as opposed to what we have done in the past, we're looking one quarter at a time.

In the past, we're more looking at the year and so the -- some of the profits we're compensating, some of the losses. Going forward, that's not going to be the case you look at the quarter, you distribute the target of 80% for the quarter, you distribute it and in the next quarter, you do loss, then you only have the fixed dividends, but you don't get back what you've already distributed. So I think that's a significant advantage in a volatile market and it gets our result closer to the shareholders.

Then of course on share repurchase, I think the philosophy of this company has always been the same, which is we don't rush to buy back our shares. So if there is a weakness in the share price, I think we want to see a little bit where it's a temporary weakness or whether it's more permanent and if it's more permanent then obviously we're thinking very seriously about it. We can come back on that. But at the moment, the weakness in share price is pretty recent. We were actually quite upbeat about the share price performance in the latter part of last year and certainly in the first 10 days, two weeks in January, where we're finally getting share price was above our NAV, which is always our objective.

So with this point about what's going on at the moment, but we also understand that they are exceptional circumstances around here. And that's true for everyone. So before deploying some capital on share repurchase, I think that we see -- we need to see how long and how deep it will go because if you buy today, maybe tomorrow it will be weaker or maybe tomorrow it's going to be stronger. But if it's stronger tomorrow then it was just a temporary weakness. If it's weaker tomorrow, then you better wait before deploying your capital.

Randy Giveans -- Jefferies -- Analyst

That makes sense. Hey thanks for the great color and congrats again on the stellar quarter.

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Thank you so much.

Operator

Thank you. And the next question comes from Michael Webber with Webber Research Advisory.

Michael Webber -- Webber Research Advisory -- Analyst

Hugo, one of the touch base first on the impact of initial versus subsequent loadings of different blended fuels it's a little bit early to see an impact yet, but I'm just curious, now we're hearing some rumblings of that it's causing an issue and it's going to be a bit unpredictable. But I'm curious as you look at Q2 and maybe Q3, do you think those issues could create a measurable impact in terms of available tonnage and how do you think the sector ends up responding to that?

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

I think it's a bit early to tell. I mean it's true that what we are seeing the material that we're seeing in the market is a mix of straight trends that have been accumulated over the NIT that was certainly the case for us. But as you know, there were a number of ships out there with LSFO material waiting to be consumed up after the deadline of 31st of December.

I think going forward, you will continue to see a number of refineries producing straight trends out from LSFO that shouldn't be a problem, then you're going to have probably more material hitting the market that are the result of a blend. And indeed, our experience in the past has showed us that you need to be extremely prudent with those blends.

If the seller and you want to get as close as possible to the people who are mixing it basically or blending it. But if the seller has demonstrated to you that this product has been blended in very similar way that in the past it has been sold and marketed with no issue, then you can be confident that the chances are there will be no issue but I agree with you that Q2 and Q3 may see a little bit more untested material. And we can only advise people starting with ourselves to be prudent what they buy. Obviously, everything that we have on the Oceania has been thoroughly tested with many, many times. And we get to go for at least Q1, Q2 probably a little bit more than that. Any color do you want to add Rustin?

Rustin Edwards -- Head of Fuel Oil Procurement

Well, just on the quality issues that are existing in the market today, I mean there are a lot of issues around stability that have popped up. It's been reported in a lot of the different industry publications as well as from the different testing societies such as BTS and Lloyds, and that seems to be the predominant of the biggest problems we are seeing where people are just blending for result, not blending for quality. Hopefully as time goes on, people will get better at what they're doing and the stability issues should go away. But as cost is always a big driver to the blenders P&L maybe not.

Michael Webber -- Webber Research Advisory -- Analyst

Okay, now that's helpful, I appreciate that, this is not an easy question to tackle. Just as a follow-up, Hugo, just with respect to the fuel hedge, what we're looking at right now in terms of a bit of an exogenous demand shock in terms of coronavirus virus kind of layered on the Chinese New Year. Is there a scenario where we see prices collapse to the point where you would consider reupping that fuel hedge and extending it for how realistic do you think that is?

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

I mean, you know us, I think we can call ourselves very opportunistic. We have a team that is fully dedicated to shoot at the moment and Rustin is heading the team. And we are in the markets not only from screeners, we're talking to people this time. As I mentioned earlier on first question, we see quite a lot of arbitrage from time-to-time, certainly the markets are behaving very differently between the Far East Singapore and the Atlantic specifically in Rotterdam.

So yes, why not, I think that we might do it in a slightly different way because the first time when we did last year, our objective was to fill up the ship, here it's going to be more opportunities to stick around one cargo at a time and make sure that when we buy that cargo, we're as close as possible of consuming that cargo. So we're not taking sort of time risk that are unnecessary.

Michael Webber -- Webber Research Advisory -- Analyst

Right. And would it be fair to assume you need to be near your original cost basis. It's a question that wasn't really pertinent and earlier in January, just given the severe discount we've seen since it's going to come back on the radar?

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

We're still very far from the 448 that we are reporting, don't forget that the 448 we reported is including a lot of extra cost to deliver the material to set up I mean to clean it the ship in order to make sure it wasn't contaminated. So the real cost of the fuel itself is probably lower than that. So we're very far from hitting those territories for sure. But rest assured, I mean we are being at it.

Operator

Thank you. And the next question comes from John Chappell with Evercore.

Sean Morgan -- Evercore -- Analyst

Hi guys, this is Sean Morgan on for John today. So we know it's obviously pretty early and difficult to gauge the impact of coronavirus but as part of TI, your major VLCC operator, do you think there's any impact in your business so far? Have you seen any impact on chartering or any disruptions to the port in terms of loading or unloading?

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

The short answer is no. But why don't I take this opportunity little bit share our view on the coronavirus. I mean first of all, it's bad news. Let's not pretend that it's anything else than bad news. And it's especially a disaster for those who are affected. So let's think about them for a minute.

The impact is definitely uncertain. In the short-term, it's negative, certainly not positive. But that's in the short-term. In the long-term; I guess that everybody's convinced that it will be contained. So to certain extent, you want those measures to be as strong as possible, so that the virus is contained as quickly as possible and I mean believe us, it may take time, it may take a little bit of time, but it will be contained.

The third point that is very important to mention that Euronav business model is to be able to weather all stores because we know that there is always something that can affect us or that can affect our margins. That is completely unpredictable. I think that the model has demonstrated its strength in the past and will continue in the future. So that's probably the only assessment what we can do at the moment, but there's always the sort of long-term positive sides to it.

First of all, if you think about what happened in just the first initial days of the year, it was a pretty big heat-up on the values of vessels. I mean, VLCCs have been exchanged at $107 million. And you compare that to $90 million that you can get at the shipyard, 14 months down the road, that's $40,000 per day of profit, $40,000 per day above your opex, so $70,000 TCV that you need to print on average for 14 months to justify that price. I think those price are probably -- were probably exacerbated by the excitement around the race. But quite frankly, we don't believe that they were just final.

The second potential positive news is that as Brian said, there are 28 ships turning 20 years, 20 years old in 2020. I think that we're making the decision to recycle them a little bit easier if the market goes through a more difficult time for a few months because at least it will demonstrate that the market is still volatile and if you want to invest a lot of money to pass that survey, you better make sure that you are going to have a return for your buck.

Two weeks ago, or even last week, there was a couple of reports pretending that 46 Costco ships were going to return to the market. Well, I mean first of all, it's 26. That's the only number of ships that have been idle. Believe me with the virus, they're unlikely to come back very soon.

The next one is -- the next point is probably that if we look at other terrible viruses that are spread out in the past, what we know for sure is that once it's contained and things go back to normal, they don't go back to normal. There's a huge stimulus usually made by China but also by other economies to try to catch back a little bit what has been lost during that period. And so if you predict that it may take a few weeks or a few months.

What you have today is a fantastic Q1. I mean no matter what's the rest of the quarter will be it will be a great Q1. Then you will have the server which is never the period for which we count to make the year and then chances are we're back in winter with a super strong market. So depending on how things turn out it should be a great year.

And as far as capital markets are concerned, this is the purpose of the call. This is a fantastic entry points in tanker shipping companies. And with Euronav, of course you have a guarantee to be paid because we just announced we're going to pay dividend. We have announced that we will pay quarterly dividend, so you're going to be paid for 2019. You're going to be paid for 2020.

So you're going to be paid for to wait until there is the upside. And if that upside is not as quickly coming as I just expressed, you're in a company with a super strong balance sheet that can weather any storm. So yes it is a terrible news. Yes, it is completely unexpected. But quite frankly, if I was an investor and I was attracted by the sector, I know where I would put my money.

Sean Morgan -- Evercore -- Analyst

Okay, great. So sounds like pretty comprehensive answer but no disruption so far. So I guess we'll continue to monitor that. You did mention in your response the Costco ship. So I guess that kind of is a good lead into my second question. Supply is obviously an important driver to the cycle, of those 120 vessels from slide 9 or page 9 that are out of trading, what is the base case return number you guys are thinking in terms of those 120 vessels that will return sometimes this year like what's your base case?

Brian Gallagher -- Head of Investor Relations, Research & Communications

Well, Sean its Brian Gallagher here. And I'm -- I think what we want to try and get across with the slide here is to say that this disruption is, as it says on the slides going to be constrained and probably sustain. The 26 shifts as Hugo said in his remarks as well, we would expect to see some flow back of those, there potentially will also be some flow back from ships which have been driven by and motivated by IMO motivated storage.

But apart from that, it's very difficult to see the other categories of those ships coming back. The VLCC retrofits is an annualized number based on consensus figures of like 96 days to ago, and be retrofitted over this year. So I think the only real element we would see about 120 is those Costco ships. And of course that is wound up with the US-China Phase 1 deal and the fact that they're positioned in the Far East and as you guys said as well several times in this call already we don't expect those ships to return back to the market very quickly as and when they are given permission to do so. So that would be the only real moving part we would say out of the 120.

Sean Morgan -- Evercore -- Analyst

Okay, great. So about 75% of those will remain out for the year. All right, thanks. That's all I have.

Brian Gallagher -- Head of Investor Relations, Research & Communications

Thank you.

Operator

Thank you. And the next question comes from Chris Wetherbee with Citi.

James Monigan -- Citigroup -- Analyst

Hi, guys, James on for Chris. I wanted to touch on the scrubber installations in your walk. I think you called out 16, want to get a sense of when those 16 vessels might be returning to the market? And if there might be another wave of scrubber installations on the back of that as well?

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Well, that's a very similar question to the one we just answered but the 16 is the annualized number. So in fact, it's close to 100 ships that have order scrubbers and that needs to be scrubber fitted, so they will go in the yard. They will return from the yard after the retrofit which on average we understand is 35 to 40 days. That's the figure that we get from the market, obviously not from our own experience. And then who knows? I mean it depends where the spread is going. I mean, there's I suppose a lot of people like us who are waiting to see where the spread stabilize in order to take their decisions, but we are part is busier than they were last year, so things should get better and better. And then the total number of retrofit will depend on where the spread stems out.

James Monigan -- Citigroup -- Analyst

Got it. And then in terms of dry docking, I think you called out 16 vessels that will be dry docked in 2020, what type of off-hire should we expect for that and then what would that be relative to what you experience in 2019?

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

In 2019, it was a very light year, we only had one and well almost two dry dock, one was over the year-end, so nothing to compare one year with the other. In 2020, 16 ships, on average this day VLCCs is 21 days, Suezmax is little bit quicker 18, 19 days. But six of those 16 ships will require ballast water treatment system to be installed. And so we are likely to take four or five additional days compared to a normal dry dock to do that.

James Monigan -- Citigroup -- Analyst

Got it. Thank you.

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Welcome.

Operator

Thank you. And the next question comes from Ben Nolan with Stifel.

Benjamin Nolan -- Stifel Nicolaus -- Analyst

Hi, good morning, or afternoon guys. So I had a -- first of all, just sort of given the outlook that Brian laid out with a green light and Amber and so forth. I'm curious how you think about asset values here, I mean obviously you're optimistic with respect to the current market and the outlook and everything else. Do you feel that's appropriately reflected in asset values? Or would you potentially be buyers of assets in this market?

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Well, we partially answered the question earlier with when I mentioned that 107. When you compare that to a brand new ship that you can order in current shipyard that is $90 million, it's very difficult to justify, that's a little bit the nature of the market at the moment.

If you look at the TCE and if you look at the historical asset value performance versus the spot market, then we should probably be a little bit higher than what we are today. But that's not really how it's going to play out this time because the yards are I wouldn't say pretty empty but the order book is pretty low as you know, and as we mentioned in the presentation which means that we're unlikely to see any inflation in the prices of new buildings. So that will probably anchor down the potential increasing values of the second hand touch. So you will always have a premium to pay when the market is good because well the asset is on the water and ready to earn immediately, but nevertheless is going to be trapped by the fact that the first bird available for new buildings are 14 or 15 months down the road and so you just made the calculation that I just did for you.

Other than that, I think we have already seen a pretty high uptick compared to the bottom of the market. So we don't expect to see much more and quite frankly for the prom super modern, sort of resale and new deliveries is likely to go down. Are we bias? I think that we are opportunistic and so it depends. And some of those ships are called ships for shares and so it depends where your share price is trading, I mean obviously we're not happy at all with those share price at the moment. But if we were to create at NAV or above NAV, would we exchange it for a ship at NAV, why not? Our purpose is to consolidate, when it comes to cash payments that we need to be more conservative than the numbers we've seen so far this year.

Benjamin Nolan -- Stifel Nicolaus -- Analyst

Okay, that's very good. I appreciate that, Hugo. And then just as my follow-up in the past, particularly in the Suezmax, I think you guys have taken time charter coverage, market is pretty good. Have you been at all active in that or any thoughts on potentially doing so?

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

The volume of time charter contracts that are available in the market is very thin, so that you don't have so many opportunities. And in fact, you probably have less opportunities in the last three months or four months simply because the market has been extremely volatile, extremely fortified on the way up. I was quickly going to $100,000 a day, very little distraction over the Christmas holiday, and then suddenly a massive drop.

So I think that everybody is looking at each other in the eyes and thinking on one side, this is too high and on the other side this is too low. And that's what we call the bid of a spread. And we need to see a little bit more stability. And I know it's asking a lot for our markets because most of the time we don't see that but they need some visibility and I think that some of the events affecting the market at the moment, we spoke a lot about the virus, it's just too unpredictable for people to start signing long-term contracts.

Benjamin Nolan -- Stifel Nicolaus -- Analyst

Sure. Okay. I appreciate. Thank you, Hugo.

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

You're welcome.

Operator

Thank you. And the next question comes from Greg Lewis of BTIG.

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Hi, Greg.

Operator

Mr. Lewis, your line is open. We're moving on. The next question comes from Amit Mehrotra with Deutsche Bank.

Amit Mehrotra -- Deutsche Bank -- Analyst

Thanks, operator. Hi, Hugo, so I guess there were some trade reports 10 days ago or so that Euronav was carrying out inquiries with scrubber suppliers. I just wanted to know if you can expand on that either confirm or deny that. And then I understand the spread has come in, I think that's obviously clear. But maybe one of the issues can be because the price of crude oil is down over 15% since January. So I want to understand your thinking around scrubbers, you kind of alluded to it a little bit earlier, but I would like you to expand on it because the premium that's currently being achieved, there is a sizable premium on at least on a TCE basis for scrubber fitted vessels. And the fact of the matter is the spread could just be a reflection of some transitory reduction in input costs, it can kind of widen that back out. So it would be great to just get your perspective on that?

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Yeah, absolutely. So the first part of questions, we don't know we are going to install scrubbers and the answer is the same as we have mentioned since September last year. We're not against scrubber, we're not post-scrubber. But we certainly against speculative investment because we're speculative enough in our traditional business, I would say.

So we're looking at the market. We look at the price of HSFO. We look at the forward curve of LSFO and then we look at the time that it would take to install the scrubber, we want to minimize the time as much as possible. The only way to minimize the time is to be prepared. How do you prepare yourself while you make the planning for the ship, certainly the ships are going to dry dock because obviously you don't want to take ship out of the trading fleet, when the market is good. And in order to do that, you need to go and contact dry docks, shipyards, you need to go and contact the scrubber manufacturers. And you probably need to go and contact some consultants who're specialized and were gaining the experience so that if you decide to do it, it's going to be done in a very smooth way.

So it's totally normal that the market is talking about Euronav engaging with scrubber especially and I'm sure and I would be pleased to hear that that you continue to hear that because that's absolutely true, we're taking the matter very seriously just to minimize the time that would take us to install in case we see an economic benefit, and also in case we can to the extent possible lock in that economic benefit and de-speculate the investment.

As far as the second part of your question, maybe I should give the word to Rustin, but I will maybe introduce the spread has nothing to do with the oil price and movement of each individual pricing of each individual products sorry has to do with the oil price. But the spread has nothing to do with the oil price. And why?

Rustin Edwards -- Head of Fuel Oil Procurement

In relation to the value of high sulfur fuel oil, it has appreciated greatly in value versus crude and that was happening even before the sell-off in WTI and crude over the last two weeks. And again, if you look at the back of the high sulfur fuel crack and the prompt in December it was minus 30 at the end of the December minus 20, last week or even yesterday it was pricing around minus $17.25. So in that case it is developed by the high sulfur has appreciated in value. And it's not, it has very little to do with the actual flat price movement on crude, it has more to do with the actual spot...

Amit Mehrotra -- Deutsche Bank -- Analyst

Do you have a fundamental view that the price of high sulfur fuel oil is going up, when half of demand for high sulfur fuel oil is going away?

Rustin Edwards -- Head of Fuel Oil Procurement

Yes.

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

So the answer is yes. And everybody around the table is saying yes but maybe we should tell you a little bit more because in your question, you imply that half of the demand is going away and that's maybe where we differ because in opinions of course.

Rustin Edwards -- Head of Fuel Oil Procurement

You can see -- you've had a fair amount of high sulfur fuel has been destroyed through refineries switching to crude place. You also have a fair amount of demand that's increased from the high sulfur feedstock side from refineries especially the US Gulf Coast and India, where the refineries are fully utilizing and cokers to destroy high sulfur fuel mix distillates. Part of the reason why the distillate crack has been weak, has weakened to the fact that the cokers are being fully used to storing high sulfur fuel and producing distillate which is feeding into the point five in the low sulfur markets.

On the third set on a forward view, you have a fair amount of residual destruction capacity coming online in Asia with all the new RDS program that's going to be coming online from the PRC Refiners along with South Korea and they're going to need feedstock as well, their feedstock is going to be again high sulfur fuel. So when you start having that extra demand pool coming to the market, you could see a more appreciation, high sulfur cracks especially in Q3 and Q4 of this year.

Amit Mehrotra -- Deutsche Bank -- Analyst

Okay. All right, I'll move on. I mean, I'll take it offline. Maybe I had to get smarter on it. But if you just take a line chart of crude oil prices against a line chart of the spread average in 2020, it's like a 90% correlation since July of last year's, like the two lines are basically on top of each other. But anyways, maybe I have to get smarter on them; I'm clearly not an energy analyst. Hugo, the other question I had is just maybe more philosophical it's interesting because like you and maybe like one other company in the space actually have these capital structures that are sustainable, low break-evens. It gives you a lot of options where you can pay down debt and kind of get to a net debt neutral position, you can issue dividends in the hope that you get credit for that in the equity markets and your currency appreciates.

So, I want to check your temperature on kind of your philosophy on capital because you're generating a lot of cash flow, but you're deciding to focus on dividends instead of basically getting to a net debt neutral position, which would obviously further lower your break-evens and possibly even help your currency relative to NAV. So if you can just expand on that and what is Euronav capital structure look like 12, 18 months from now, is it basically at the current LTV levels? Or just help us think about your philosophy there?

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Yeah, thank you. Well, I'm a little bit surprised by the question, because I hope that our capital structure, certainly the leverage when it's smart to book in mark-to-market that's very dangerous, of course, and capital allocation has been clearly communicated to the market. So we want to be between 40% and 50%.

Amit Mehrotra -- Deutsche Bank -- Analyst

Well, it's clear but, you said, you can do between dividends and share buybacks. I'm just trying to understand like, what does that mean to the end so to speak?

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

I think that well, when we speak to shareholders and then obviously we take the seat back home, we clearly see that people want us to return capital especially for this kind of business where the cash generation is just huge, when the market is high. So you take that home and then you decide what percentage you want to return to the market.

That's the first decision that we needed to take. Why do we take 80%? Well, relatively similar to the last time we did 80%, we told that with the depreciation policy that we have and the 20% that we reserved, we have enough to not only renew the fleet, but also to add more on an organic way. So that's the philosophy between behind the 80%. And we can be more generous when the market permits and we've demonstrated that in 2019.

As far as the choice between dividends and share buyback, I think it is pretty clear. You need to pay dividends. I mean there's a lot of people who are asking for the dividends. And then so let's say that this is 50% of the 80%, not 40%, but a real 50% of net profit that will probably always be returned as dividends. And then with the remaining 30%, we can probably play between share buybacks and dividends.

And as I just mentioned on an earlier question, I think when it comes to share buyback, you should not rush into a decision. I mean, you should not every time the share is we then you intervene. And the reason why you shouldn't do that is maybe something we didn't explain, simply because a lot of times you cannot do that. I mean, the full month of January we're in closed period.

So there's nothing we can do there. And so if the market anticipates you to overreact every time there is a weakness in share price, then when you don't do it, they're going to start wondering why you're not doing it immediately especially because in Belgium, we need to declare that within seven days.

So we are I think a very stable company. We're a group of people with a lot of experience out here. We've demonstrated when we do share buybacks, it's a real opportunity, it's really creating value for the shareholders. And we will continue to have that philosophy. So now we've been -- we've seen share price weakness for the last maybe 10 days or 10 sessions not even as matter of fact.

Let's see where the market takes us. Let's see how capital markets react to this virus and the continuous flow of news that we're going to receive and let's see what happens to the tanker market into the tanker values to really see where we are compared to the NAV. So it's all the kind of analogies that we are doing and in the meantime, people know that we're dedicated to return a certain amount of capital and a big portion of that capital will be dividends.

Amit Mehrotra -- Deutsche Bank -- Analyst

And Brian just to -- no I get it. And Brian, just to confirm the dividend that you're going to pay in May is going to reflect the first quarter plus what you just declared this morning for 2019, so you get like a double benefit in the month of May. Is that right?

Brian Gallagher -- Head of Investor Relations, Research & Communications

Correct.

Amit Mehrotra -- Deutsche Bank -- Analyst

Okay. Thanks, guys for answering my questions. I appreciate it.

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Thank you.

Operator

Thank you. And the next question comes from Omar Nokta with Clarksons.

Omar Nokta -- Clarksons -- Analyst

Hey, guys, thank you. You covered obviously a lot of ground. But I just wanted to follow-up, maybe just a couple of things. The JV to buy those two Suezmaxes at the end of last year was seemingly timed quite well and use the word opportunistic earlier in your comments as you think about Euronav in general, but when you think of the company going forward, do you see yourself doing these types of investments a bit more. And when it comes to say acquiring older tonnage, do you prefer to do that in say a JV format, and then maybe keeping the overall Euronav platform available for more modern or a high-end inspections?

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

No, clearly that's not the case. I mean it was opportunistic because someone had an option and required the capital to exercise that option. It's as simple as that. We had the capital, we like the partner, we knew them for a long time, we've been working with them albeit on different business but certainly through the pool. So we had no problem entering into a joint venture with those guys, a bit after we reach very, by the way. And the opportunity was clearly in their hands not in ours. When they were looking for a partner that could execute the deal very quickly because I think that when they approached us there was less than six weeks before the expiry of the option. They clearly found a partner that protect prompting that's why we call it opportunistic.

Would we have done that on our own or our own balance sheet despite the age of the assets? Yes, of course, we need to be opportunistic, especially at a time when we have at least two Suezmax which are slightly older reaching 15 years of age that is where we want to dispose them because of their age profile at a time when we're very confident that the market is going to be rewarding. Then it makes a lot of sense to replace one old ship with another one that is slightly less old, in this case is two years younger, just to be able to benefit from those two years. So that's maybe the philosophy but it's not -- it's certainly not a policy I would say, when it's too old we will park them in joint venture.

And when it's young enough, we will put them in our platform. Because the reality is that it is the platform who will support those ships together with a partner. In other words, if the platform was commercially managing those ships, we provided the capital, we provide this, we provide that. So no, it's opportunistic and we're happy about it.

Omar Nokta -- Clarksons -- Analyst

Okay, thanks for that. And maybe this is maybe a bit more open-ended question. But as you mentioned, the leverage is on the low end. And your VLCC fleet is fairly modern. And as you say that the Suezmaxes or handful Suezmaxes on the older side, you talked about selling an older vessel and then acquiring one that's a couple years younger, that seems a bit more tactical and near-term in nature. How do you think a bit more broadly about say that the fleet renewal within the Suezmax segments especially with the backdrop of uncertainty with propulsion systems going forward? Any color on that would be helpful.

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

It's the good news and the bad news and to certain extent because the reality is that Euronav is no different than the other players in the market. We don't know what the next technology is going to be. We don't know who's going to win this battle of around different propulsion systems. And so when it comes to renewing the fleet, yes, we can buy second hand.

And to a certain extent, we would be better off by buying second hand because that means it would be a couple of years older than if we buy a new building in the sense that then they will arrive to the 20-year anniversary quicker and if we buy new building. But the reality is that we don't know what technology is going to win. And I think that despite the fact that our Suezmax fleet is a little bit older and is getting a bit older than what we would like to see. We're going to be very disciplined about it, which is good for the overall market because the rest of the market is like us.

I mean we cannot just go to the shipyards and order existing technology because that one we know it's probably not going to thrive. And we cannot buy LNG just yet because the premium that is being asked, and that's true for Suezmax and VLCC, it's just too big for us to absorb on a speculative basis. So very happy to do that, together with an all major who believes in the technology and who benefits from selling more LNG for instance, but on our own like all the other owners, we believe that the premiums to be.

Omar Nokta -- Clarksons -- Analyst

Okay. Thank you, Hugo for that. Thank you.

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Thanks.

Operator

Thank you. And the next question comes from Espen Landmark with Fearnley.

Espen Landmark -- Fearnley Securities -- Analyst

Hey, good afternoon. A question on refining margins I mean maybe it's a bit off topic but they're quite weak at the moment for several reasons but it's -- maybe it's a bit worrying given it tends to be a decent indicator for productivity and freight, I mean the floating volumes out of Singapore will be unwind at some point is that something moving to the needle positively for margins?

Rustin Edwards -- Head of Fuel Oil Procurement

So, in the first part of your question there on the floating storage in Singapore, a lot of that has actually been worked off into the market. And the floating stocks have been reduced greatly, mainly on demand pull into secondary markets outside of Singapore itself that we're looking for 0.5 fuel in December and January. So the latest estimate, I think I read from Clarksons was that there was about a million tons left in floating outside of the large overhang that was developed in Q3 -- in Q2 of 2019.

On the four refining margins yeah, they've been under pressure, here is off-late. It's no question that part of that impact is due to the issues going on with China and the Coronavirus outbreak. But we're also going into the time of year where we're going to start seeing refinery start going through their Q1, Q2 turnaround period. So there will be a slap off in demand for crude.

Espen Landmark -- Fearnley Securities -- Analyst

That's helpful. And maybe on that last point, I mean any views on whether we're going to see another extended kind of maintenance season this Spring or is it to be a more normalized one seeing refiners are better prepared now?

Rustin Edwards -- Head of Fuel Oil Procurement

From what I've seen on the data, the turnaround period this year in Q2 is not going to be as robust as it was last year. I don't have a number off the top my head, so I do apologize, but it is not as big as it was last year.

Espen Landmark -- Fearnley Securities -- Analyst

Yeah. That's helpful. Thank you.

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Yeah, which is no one, because the refineries have switched to LSFO no longer need to prepare, which was cleaning up the tank, steel piping, etc., to avoid contamination. And there's still a number of refineries, well for the first time produces is important. So for those guys, the outage may be a little bit longer, but obviously the vast majority of the market is prepared for IMO 2020 ahead of 2020. So you're only looking at a few exceptions here.

Espen Landmark -- Fearnley Securities -- Analyst

Makes sense. Thank you, Hugo.

Operator

Thank you. [Operator Instructions] And the next question comes from Manny Garcia with Anchorage Capital.

Manuel Garcia -- Anchorage Capital -- Analyst

Hi, guys. Two questions, can you give some color on order and activity for VLCCs and Suezmaxes during the fourth quarter and first quarter this year? And then also, I think last year, there's a lot of speculation and issues with scrubber installations during the dry docks any kind of updates or stories about that more recently? Thanks.

Brian Gallagher -- Head of Investor Relations, Research & Communications

Yeah, this is Brian Gallagher here, two things. Yeah, on my latest presentations, which are not on the website for normal presentations, we will focus on the fact that the run rate is at 12-month lows in terms of VLCC orderings over the last 12 months, we've added 24 days have been ordered, which is a very, very low number in the context of the demand background. So we continue to see a big reluctance in ordering as Hugo talked about a bit earlier because of the uncertainty with regard to meeting emission standards and few propulsion systems to meet that.

And in terms of disruption from scrubbers, obviously, we wouldn't maybe be the most obvious company to talk about on that. But that does seem to be evidence from some of our peers that the disruption is reducing modestly and I think the numbers we're hearing is somewhere between 35 and 40 days as an off-hire in terms of getting the scrubber fitted, which is coming in from sort of number which is mid to high 40s in the middle part of last year. But obviously somewhat that's been driven by less congestion and obviously less people looking to retrofit those scrubbers.

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

I'd just would like to add one, one little note, which is side note, obviously. Most of the shipyards are ever executed, the retrofit of scrubbers are located in China. And so at the moment, they continue to be closed down. So that could create a delay for the ship that we're looking into entering those yards at the moment or even the ships that are currently in the yard. So that can create a delay which is not due to the complexity of the installation or the problems that people have encountered last year, but much more to the fact that at the moment is a lot of travel restrictions. There's a lot of workers that went back home to celebrate the New Year and are returning to the shipyards or to the factories. So that can create further delays indeed.

Manuel Garcia -- Anchorage Capital -- Analyst

Great. Thank you.

Operator

Thank you. And this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing comments.

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Well, nothing -- nothing to add. I think we have covered a lot of the ground, anyway if you have additional questions you know where to find us. Thank you very much. Bye-bye.

Operator

[Operator Closing Remarks]

Duration: 67 minutes

Call participants:

Brian Gallagher -- Head of Investor Relations, Research & Communications

Hugo De Stoop -- Chief Executive Officer and Interim Chief Financial Officer

Lieve Logghe -- Chief Financial Officer

Rustin Edwards -- Head of Fuel Oil Procurement

Randy Giveans -- Jefferies -- Analyst

Michael Webber -- Webber Research Advisory -- Analyst

Sean Morgan -- Evercore -- Analyst

James Monigan -- Citigroup -- Analyst

Benjamin Nolan -- Stifel Nicolaus -- Analyst

Amit Mehrotra -- Deutsche Bank -- Analyst

Omar Nokta -- Clarksons -- Analyst

Espen Landmark -- Fearnley Securities -- Analyst

Manuel Garcia -- Anchorage Capital -- Analyst

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