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Dorian LPG LTD (NYSE:LPG)
Q4 2020 Earnings Call
May 27, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Dorian LPG Fourth Quarter 2020 Earnings Conference Call.

[Operator Instructions]

I would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young. Please go ahead.

Theodore B. Young -- Chief Financial Officer

Thank you, Christine. Good morning everyone and thank you all for joining us for our fourth quarter 2020 results conference call. With me today are John Hadjipateras, Chairman, President and CEO of during LPG Limited and John Lycouris, Chief Executive Officer of Dorian LPG USA. As a reminder, this conference call webcast and a replay of this call will be available through June 30, 2020. Many of our remarks today contain forward-looking statements based on current expectations. These statements may often be identified with words such as expect, anticipate, believe or similar indications of future expectations. Although we believe that such forward-looking statements are reasonable, we cannot assure you that any forward-looking statements will prove to be correct. These forward-looking statements are subject to known and unknown risks and uncertainties and other factors as well as general economic conditions. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove to be incorrect, actual results may vary materially from those we express today. Additionally, let me refer you to our unaudited results for the period ended March 31, 2020 that were filed this morning as part of our earnings release on Form 8-K. In addition, please refer to our previous filings on Form 10-K and Form 10-Q where you'll find risk factors that could cause actual results to differ materially from those forward-looking statements. With that, I'll turn over the call to John Hadjipateras.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Good morning from Stamford, Connecticut, and thank you for joining us. I will say a few words before Ted, who will review the financials with you and John will then talk about the fleet and the market. And today, we also have with us on the line from Copenhagen, Tim Hansen, our Chief Commercial Officer who will answer questions from you about the market, the current freight market. In my prepared remarks for our last call on February 4, I said, our outlook for the coming calendar year remains optimistic. The coronavirus is of course a potential headwind. That was 16 weeks ago. In the intervening period, my priority has been the safety of the 500 seafarers currently serving on board our ships as well as our shore based staff and stakeholders. And I can report that our fleet has continued to operate thanks to the dedication of our seafarers and colleagues onshore and that we are all safe though mindful of the new payroll [Phonetic] that surrounds us. The most talked about disruption for us has been the difficulty to make crew changes. For a while, we could hardly make any. This inconvenienced both those who we exceeded their contractual time on board and those ashore waiting to replace them, anxious to get back to work. We are starting to see opportunities to carry our crew changes now. What was a simple task in the past has become a logistical challenge. Transporting a covered free seafarer through airports and launches to the ship, trying to minimize exposure and striving to ensure that the ship remains disease free is no simple task as you can imagine. It is encouraging, though, the start to return to normality. One of our second engineers will shortly be going home to meet his new baby born at the end of April. I hope that you and all your families and friends are also safe and healthy. Our financial year 2020 concluded March 31 was our best since 2016. Continued growth of seaborne trade of LPG, a somewhat restrained order book and renewed exports from the USA to China resulted in freight levels I would call good. These developments were supported by continued expansion of US shale production and of PDH demand in China and South Korea as well as continued inroads of LPG for residential use in India and other Asian countries. The freight market was quite resilient and the TCs were also underpinned by a lower bunker cost. In the quarter ended March 31, we achieved total utilization of 91.7% and a daily TCE revenue over operating days as defined in our filings of $51,888 a day, yielding utilization adjusted TCE or TCE per available day of about $47,594 a day. April continued robust and we estimate that we have 75% cover of the current quarter at near $50,000 per day. However, the current market, as expressed by the published Baltic Index is now closer to $20,000 per day. We have read many forecasts ranging from a little to very pessimistic. They are predominantly based on assumptions about a decline in US shale production available for export. I did not pretend to know which forecast to believe much less to make them, will economic activity bounce or crawl back, will there be permanent demand disruption. What I do know is that the order book is at about 12%, propane as a fuel for several applications is among the most attractive options avoiding greenhouse gas emissions, it produces fewer than gasoline, diesel and heavy fuel oil and whereas natural gas methane producers fewer greenhouse gas per BTU that propane if it released in air directly or from methane slip it produces a global warming effect 25 times that of carbon dioxide.

LPG as has been shown in India, can improve the quality of life for a very large part of the world's population. Dorian has a young ECO fleet, Dorian has a strong balance sheet with low leverage and good liquidity and no significant capex commitments. As we previously reported, we completed two strategically significant transactions during April 2020, a Japanese sale leaseback, our seventh, and a refinancing of the commercial tranche of our main banking facility. These transactions increased our available liquidity, reduced our financing costs, extended the maturity of our debt and reduced our principal amortization. We are optimistic on the fundamentals of the LPG trade and confident that Dorian LPG is well positioned to continue to provide safe, reliable, clean and trouble-free, transportation for our customers and create value for our shareholders. Over to Ted to discuss our financial results.

Theodore B. Young -- Chief Financial Officer

Thanks. My comments today will focus on our recent financings in our unaudited fourth quarter results. For discussion of our fourth quarter results, you may also find it useful to refer to the investor highlights slide posted this morning on our website. John just touched on the two strategically significant financing transactions we completed during April 2020. On April 23, we completed the sale leaseback financing of the Cresque. After prepaying the debt on the ship, we netted $23.9 million in additional liquidity. With a floating rate of 250 basis points over LIBOR and an age-adjusted amortization profile of over 20 years, this financing represents attractive terms and met our goals of lowering our interest cost and extending the debt maturity in line with our strong balance sheet. On April 29, we completed the refinancing of the commercial tranche of our 2015 debt facility. This transaction addressed a number of objectives. First, we turned out the next major refinancing to March 2025. Secondly, we added a $25 million revolving credit facility, which gives us access to additional liquidity should we need it. Thirdly, we achieved an immediate reduction in interest margin on our commercial tranche from 275 basis points over LIBOR to 250 basis points. We can also reduce the margin by an additional 10 basis points if we reduce the loan to value ratio on the vessels in this facility below 40%.

Finally, we are extremely pleased to have added a sustainability feature by which we have the opportunity to reduce our interest margin further by achieving agreed levels of improvement in our average efficiency ratio, which is part of the Poseidon Principles promulgated by the leading shipping banks, measures annual carbon emissions per deadweight ton and targets consistent year-over-year decreases in this ratio in line with IMO guidelines. Finally, the new facility reduces the mandatory amortization on the commercial tranche from approximately $12.3 million per year to $600,000. With these two financings now completed, we have reduced the principal portion of our cash cost per day by approximately $1,330. Going forward, we will amortize about $9 million per quarter on the 2015 amended and restated facility and $4.3 million on all the Japanese financing arrangements. Thus, in total, we will pay down $13.3 million per quarter or $53.3 million per year, which is down from nearly $64 million a year. Again turning to our fourth quarter results, we had a total utilization of 91.7% for the quarter and TCE per operating day of $51,888 a day, yielding a utilization adjusted rate of $47,594. Our spot TCE, which reflects our portion of the net profits of the Helios Pool for the quarter was $50,311 per day.

Finally, to give you some additional insight into our overall spot chartering performance, the Helios Pool as a unit encompassing about 35 ships recorded a spot TCE, including contracts affreightment of approximately $51,500 per available day for the quarter. Daily opex for the quarter ended March 31, 2020 was $8,556 per day excluding amounts expensed for dry dockings. It was $9,407 including those costs. Opex per day, excluding the dry-docking related costs modestly increased compared to last quarter's $8,413 a day. Since the March quarter though, had fewer calendar days than December quarter, total opex was roughly flat on an aggregate basis, again reflecting our team's continued vigilance on operating costs.

Total G&A for the quarter was $5.7 million and cash G&A i.e., G&A excluding non-cash compensation expense was about $5.3 million. This level is generally consistent with our expectations for the first calendar quarter of the year. Our reported adjusted EBITDA for the quarter was $67.2 million, which was a significant increase from the $14.1 million excluding costs related to the unsolicited BW LPG Proposal recorded during the same quarter last fiscal year. The strong rate environment and lower G&A accounted for most of the improvement. Compared to the prior quarter, EBITDA increased $7.3 million in spite of modestly higher costs from dry docking. Turning to our financing costs. If we look at cash interest expense on our debt as the sum of the line items, interest expense, excluding deferred financing fees and other loan expenses and realized gain loss on interest rate swap derivatives. On that basis, total cash interest expense for the quarter was $7.1 million, which was down about $300,000 from the prior quarter, largely due to continued debt pay down in somewhat lower LIBOR rates. We continue to benefit from our hedging policy and the favorable pricing of our Japanese financings, leaving us with a current interest cost, fixed, hedged and a small floating piece of 4.15%. For the coming quarter, with our new financings in place, we anticipate cash interest expense in roughly the same magnitude, approximately $7 million as the lower LIBOR margin will be offset by slightly higher debt balances given our lower amortization. For the quarter, we had cash outlays for capital cost associated with dry dockings of roughly $9.6 million or $4,398 per fleet day. Fleet days again calendar days plus time charter-in days as those terms are used in our filings. Combined with the amounts expensed during the quarter, our total dry docking cash outlay was $11.3 million. We also managed to repurchase $32.2 million of stock since the last time we reported in February, and that represents about 3 million shares. In total, we have now repurchased $49.3 million worth of stock, comprising 4.4 million shares or roughly 8% of the shares outstanding prior to the announcement of the buyback in August. Turning briefly to our full-year results, we reported total adjusted EBITDA of $232.8 million, the highest in our history and adjusted net income of $130 million. To put those levels in the historical context, our TCE per available day for fiscal year 2020 was $40,824 and our daily TCE in 2016 here too [Phonetic] for our best year was $51,266. The increase in profits of a lower TCE reflects the improvements in our cost structure in the intervening years as well as an increase in available days. For fiscal year 2020, we generated free cash flow which we define as cash flow from operations less principal repayments before dry docking outlays of $110.3 million and $85.2 million after all dry docking outlays both expensed and capitalized. This equates to between $1.68 and $2.17 per share based on the shares currently outstanding. Our cash flow and liquidity remains strong. Since quarter-end through to May 26, 2020, our restricted and unrestricted cash and short-term marketable securities balance is up to over $148 million. In order to assist you in your modeling, please note that our quarter ending debt balance, excluding deferred financing fees of $646.1 million does not reflect the two transactions we completed in April. Those two transactions increased our total debt by $26.8 million although our net debt was unchanged because we retained the cash proceeds of the debt increase for general corporate purposes. We expect therefore our debt balance at June 30, 2020 to be approximately $660 million, again excluding deferred financing fees. Although, we currently hold the 76% plus economic interest in Helios, we do not consolidated its balance sheet accounts, which has the effect of understating our cash and working capital. As we believe, it is used to provide some additional insight in order to give a more complete picture. As of Tuesday, May 26, 2020, the Pool had roughly $13 million of cash on hand reflecting the fact that the Pool has just paid the distribution at the end of last week. We feel that our liquidity and capital structure position us well for whatever rate environment we face in the coming months and we believe that allows our company to make capital allocation decisions from a position of strength. We sold over $50 million remaining under our share buyback authorization and we also remain interested in accretive growth opportunities that meet our risk reward criteria. With that I'll pass it over to John Lycouris.

John Lycouris -- Chief Executive Officer

Thank you, Ted. Global LPG volumes during the first quarter of 2020 totaled 26.9 million metric tons, a 3.6% year-over-year increase while US seaborne export volumes for the first quarter reached a record high of 11 million metric tons, which is over 30% increase from the same period last year. VLGC lifting from the US reached over 50 both in March and April, and the Middle East Gulf lifting reached 70 in April. So that's the highest level since June 2019 for the Middle East. Even though May has not concluded yet, we expect about 66 VLGC lifting from the US, slightly higher than May last year, while the Middle East liftings were lower at 54, most likely on account of crude oil production cutbacks. Year-to-date seaborne exports of LPG from the US were 5.3% higher than last year, while the Middle East has seen a 16.3% reduction year-on-year. On the supply side, US NGL exports have continued strong in 2020 with capacity and infrastructure additions remaining on schedule during this year by all major export terminals. Several projects related to dock expansions, additional fractionation capacity, pipeline commitments are all expected to complete during 2020 and early 2021 perhaps at a slower pace. The COVID-19 lockdowns in the oil price collapsed over the last few months have led to poor market fundamentals in the US and of course the early production shut-ins, refinery cutbacks, deferred drilling and reduced processing volumes which supported Mt. Belvieu NGL pricing and also absorbed NGL inventory volumes with satisfied record export demand from two countries which were preparing for lockdowns and for their inventory builds. Although Chinese LPG inputs declined last quarter, mainly due to the COVID-19 lockdowns in that country, there were substantial demand growth from India, Japan, South Korea and Indonesia during the same period. India imports grew 7.2% to 3.9 million metric tons while Japanese imports grew 13.2% to 3.1 million metric tons and Korea imports grew 36% to 2.2 million metric tons. Northwest Europe and Mediterranean demand for US LPG is expected to recover now that the markets in Europe gradually return from lockdowns. And with crude oil prices recovering to above $30 levels, we find the propane to naphtha spread starting to turn in favor of LPG cracking economics. VLGC fleet order book stands at roughly 12% or about 35 vessels [Indecipherable] Only four ships have been ordered this year compared to seven at this time last year. The crude oil price collapsed, brought in lower bunker price to the shipping markets. The absolute bunker fuel price levels and spreads we saw earlier this year have shrunk, but in relative terms, they have remained the same. High sulfur marine fuel oil (HSFO) with 3.5% sulfur content still trades at about 25% to 30% discount to the new IMO 2000 0.5% sulfur compliant fuel also called VLSFO. All our scrubber equipped vessels will produce consistently higher TCEs as they continue to benefit from the relative price discount spread of heavy marine fuel oil to those burning compliant fuel oils. Dorian remains committed to improving the environment, and I would note that scrubbers not only reduce sulfur oxide for vessel emissions, but also they deliver significant reductions in black carbon and in particular matter emissions, particularly when compared with the emissions produced by very low-sulfur fuel oils, which are normally blended and unstable and are the compliant marine fuels of IMO 2020. We also continue to monitor closely and evaluate the potential for LPG as fuel. The current prices might marginally appear to make economics more attractive. However, it is difficult to make a long-term decision given the volatility in the underlying hydrocarbon prices and more significantly the capital investment required. Dorian LPG has currently in service nine scrubber fitted vessels, seven of which were fitted with hybrid scrubbers during the last eight months, also completing their first special survey and their dry dockings. Two of those vessels also installed new ballast water treatment systems. We have now commenced the retrofit work on our tenth hybrid scrubber vessel, which is scheduled to complete next month, including completion of the first special survey and dry docking. Subject to market conditions in the second half of 2020, we are considering a retrofitting scrubbers to those vessels which were originally committed when they are programmed to undergo their upcoming dry docking and special surveys. Thank you. And now I'll pass it over to John.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Thank you. We're ready to take questions from anybody who wishes to question us.

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session.

[Operator Instructions]

Our first question comes from the line of Omar Nokta with Clarksons Platou. Please proceed with your question.

Omar Nokta -- Clarksons Platou -- Analyst

Thank you. Hi, everyone. Obviously, I would say impressive performance on the spot market and very good results overall. Really despite a lot of disruptions, John, that you mentioned that we're seeing here, this past few months, I have a couple of market-related questions, but also just wanted to ask about the refinancing. Recently you guys have unlocked a good amount of cash with the sale leaseback and you deferred to maturities with the 2015 refi, Ted you mentioned the annual repayments are now $53 million. From the 2019 10-K, you had $64 million due in fiscal '21 and $203 million in fiscal '22. Are both years now basically the $53 million?

Theodore B. Young -- Chief Financial Officer

That's correct Omar, yes. The annual amort is now down to about $53.3 million from $63.964 million and then most importantly as part of the 2015 financing, we were able to extend out that maturity on the commercial tranche of our big facility to 2005. So, yes, you're absolutely right.

Omar Nokta -- Clarksons Platou -- Analyst

And that includes -- the $53 million, that includes the leaseback as well?

Theodore B. Young -- Chief Financial Officer

It does.

Omar Nokta -- Clarksons Platou -- Analyst

Okay, thank you. So also just wanted to ask about clearly the market backdrop that we're in, clearly, you guys had a very strong performance in the first quarter. And John, you mentioned, bookings 75% of 2Q, I believe, at $50,000 [Phonetic] as we kind of think about how things are improving, the markets dropped off into the low '20s per day, the OPEC plus cuts, we think about it in the crude market as, call it 10 million barrels a day out of the global trade of 40 million barrels of crude. Can you give us maybe an order of magnitude of how this is affecting the LPG trade? John I recall you mentioned that in your remarks about 42 liftings per month and 54. Could you mind just kind of going over that again and giving some perspective?

John Lycouris -- Chief Executive Officer

Can you just repeat the last bit of your question?

Omar Nokta -- Clarksons Platou -- Analyst

Yes, just basically trying to understand, when we think about the lost volumes that are coming as a result of, say, the OPEC cuts by themselves, what does do that in terms of trade?

John Lycouris -- Chief Executive Officer

Alright Omar, why don't we let Tim take that because he can give you a more current view of what's going on and how it affects -- more specifically how it's been affecting the market in the last few weeks. Tim?

Tim Hansen -- Chief Commercial Officer/Director

Yeah, I’d say, of course, we are seeing these cuts also eating into the LPG volumes that is expected out of US. And as John mentioned earlier, it is a little bit early to say exactly how much because LPG, those origin from the crudes drilling and the LNG drilling and also the and NGLs at the moment looks to be more profitable. So we are trying to figure out if that is directly related to reductions that we will see out of US to the reduction in balance of oil drilled. But definitely we see some changes and we are already seeing that even though we have not seen cancellations yet. As I said, the NGLs actually seems to be of high-value comparatively to the oil. But as you can see, that there’s probably almost figures from oil that there will be a shortage in the LPG markets due to higher demand. So we expect that the, you can say the reduction of the production will be somewhat offset also by at the moment we have high inventories that would be even through the year until the production starts recovering. But exactly how much, I mean you mentioned 10 million barrels of crude per day exactly, what that is based on fuel price or oil prices and so on is quite uncertain projections, now, at the moment I would say.

Omar Nokta -- Clarksons Platou -- Analyst

That makes sense. I guess maybe -- just maybe thinking about, the May listings, I believe, John Lycouris had mentioned 52 or 54 listings for May. How does that compare to, say, the prior May? John, if you don't mind, just to give a perspective.

John Lycouris -- Chief Executive Officer

It was 52, it was 52 liftings the prior May. Sorry, I have a chart somewhere, I will get it to you during the -- but it was a little bit lower. We thought it was on the back of production cuts and perhaps towards as we get into June, we will see whether this reduction in liftings will continue in the Middle East. We are just talking here -- Tim talked about US Gulf, and I think you are talking about the Middle East and true enough, Middle East has seen lower liftings this May, but I'll give you the number for last year this may, if you carry on. I will come back.

Tim Hansen -- Chief Commercial Officer/Director

I think you can say, the US -- oil drills from the US gives more LPG than when you have production cuts in the Middle East. So the ratio of LPG per barrels drilled is different from US and the Middle East.

Omar Nokta -- Clarksons Platou -- Analyst

Got it. Okay, thank you. And then, maybe one more. Just on this because there is a lot of moving parts and a lot of -- you mentioned there aren't really cargo cancelations but obviously a limited arbs and things happening very quickly and very fluidly, we've seen in the, say the product tanker space, in the MRs and in Handies, a lot of logistical issues with access to Mirage and waiting time. Is this something that's happening in the VLGC trade as well?

Tim Hansen -- Chief Commercial Officer/Director

We saw a little bit on India when they closed down that they bought more cargoes which had been because they expected the demand to be high when people was at home. So they bought extra cargoes which resulted in more waiting time in India and then eventually they deferred some of the cargoes back east where there is more storage and where we haven't seen those kinds of delays but yes, you can see some shortages for certain destinations where there would be a block-off due to both lower offtake, especially like India where it's taken off on trucks and going through bottle plants and whatever that is all not working efficiently in these times. So you could see congestions there and we are already seeing that.

Omar Nokta -- Clarksons Platou -- Analyst

Got it. Okay, really appreciate the color, guys. Thank you very much.

John Lycouris -- Chief Executive Officer

Omar, the liftings for 2019 May were 60, for the Middle East. And this year looks like they are 54.

Omar Nokta -- Clarksons Platou -- Analyst

Okay, thanks guys.

Operator

Our next question comes from the line of Sean Morgan with Evercore. Please proceed with your question.

Sean Morgan -- Evercore -- Analyst

Hey, guys. So I just wanted to touch back, I think Ted mentioned that the interest rate on some of the new loans that were refinanced -- there is a component of it that's tied to an environmental Poseidon Principle type element, and I just wanted to figure out how material that is. And I think in the past, you talked about there is VLGCs that you could potentially retrofit for LPG propulsion and I know some of your competitors are kind of implementing that and pushing ahead with it. So just wondering if there is any kind of incremental savings that might be material enough to push you towards LPG or whether you think you get enough benefit to realize those savings from scrubber retrofits alone or does this is kind of change the strategy at all in terms of how you approach the environment and just propulsion of the vessels.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Ted, will give you a little bit specific on what the incentive is in kind of percentage terms, but we of course are looking at the one competitor who is moving to retrofit ships and others of course who are building ships that are LPG fueled and it's not something which we have excluded from a possibilities for ourselves. We were always interested in that LPG as an alternative fuel for the ships and we continue to be -- until now we've chosen to have the advantage of a second mover but we are very much aware of what's going on in touch with the manufacturers, the shipyards and we'll see. I don't know whether the banking is enough to incentivize but Ted will tell you what comes out of it.

Theodore B. Young -- Chief Financial Officer

I think like any, the short answer to your question, Sean is it's a 10 basis point reduction in the commercial tranche of our facility, which represents about a third of the entire facility. So it's more of a way that the banks are putting their money where their mouth is and so we certainly support that. I think like any business decision that we make here, it's the economics that drive it and if the economics of the investment are supported by the future fuel savings, then as John suggested and we get -- we're comfortable with the technical aspects of it, then it's something we'll obviously look at, but the financing differential alone wouldn't drive the decision.

Sean Morgan -- Evercore -- Analyst

Okay. And did the banks give you an indication of what they view as most green friendly or is it not that specific yet?

Theodore B. Young -- Chief Financial Officer

No, we just have to -- at this point, it's I think generally within the sustainability world, LPG seems to be viewed as a bridge fuel. So better than the existing alternatives, not as green as wind or solar, hydrogen or something, but those aren't really on the table at this point. And so the metric is really a calculation that measures our year-over-year average efficiency ratio across the fleet and it's a data we capture anyway and the IMO has promulgated an improvement curve and that's the basis on which this potential interest margin saving is calculated. So if we can hit the levels that are already out there, then we will enjoy further interest savings.

Sean Morgan -- Evercore -- Analyst

Okay, thanks.

Theodore B. Young -- Chief Financial Officer

I should be clear, it's up to 5 basis points year-one, 5 basis points year two, so it's not 10 basis points all at one go. Although we might try for that if we do a really good job on our emissions reductions.

Sean Morgan -- Evercore -- Analyst

Okay. And then it looks like you kind of, in terms of the total year, you accelerated buybacks into your fiscal year 4Q. So 1Q [Indecipherable]. But if I look at the average price, I kind of assume that some of it was done in January, February, and some were done more recently. So are you guys in light of potentially weaker VLGC rates and lower LPG exports, are you getting a little bit more cautious in terms of using that $50 million of buyback authorization you saw outstanding or do you think you'll try and be aggressive in light of the lower share price?

John Hadjipateras -- Chairman, Chief Executive Officer and President

We've always been cautious and we look at it in terms of value and opportunity. So I think we will continue in the same way.

Sean Morgan -- Evercore -- Analyst

All right, that's all I have, thanks guys.

John Lycouris -- Chief Executive Officer

Thanks, John.

Operator

Our next question comes from the line of Randy Giveans with Jefferies. Please proceed with your question.

Randy Giveans -- Jefferies -- Analyst

Howdy gentlemen, how's it going?

John Hadjipateras -- Chairman, Chief Executive Officer and President

Hey Randy.

Randy Giveans -- Jefferies -- Analyst

Just following up on the question about kind of scrubbers and LPG dual fuel, what is the kind of cost differential for adding those incremental scrubbers and I think you still have two planned for later this year versus possibly going on the dual fuel LPG side.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Randy, it's significant enough to say that it's on the high-single digits in millions of dollars, the differential. So it's over, probably $6 million to $10 million maybe. We believe that from what BW reported the other day, yesterday, they have, it looks like it's over $9 million per ship and from what they reported. But we believe it's a little bit more than that perhaps even over $10 million, but this is where we think it is. But our interest remains, we will see how cost and pricing of the fuel develops. And in the meantime, the scrubber provides intermediate solution for us, which is very satisfactory compared to compliant fuels.

Randy Giveans -- Jefferies -- Analyst

Got it, OK. Okay. And just one more kind of general market question on possible expansion on just a completion I guess of the Mariner East 2 [Indecipherable] on the West Coast of Canada. Have you heard any updates about either of those for this year?

John Hadjipateras -- Chairman, Chief Executive Officer and President

Let Tim take that.

Tim Hansen -- Chief Commercial Officer/Director

So as far as we hear, Mariner 2 is still moving ahead and should come on later this year, which is also I think we haven't heard of more delays, but of course there has been a lot of last minute problems there. But so far, it seems to be on time. And on Canada, we have no news on the Canada project. Of course, we have seen kind of the price changes and the shut-ins of turning and so on that could of course impact, but I have no particular figures on that.

Randy Giveans -- Jefferies -- Analyst

All right, well, hey, thanks for the color.0

Operator

[Operator Instructions]

Our next question comes from the line of Eirik Haavaldsen with Pareto Securities. Please proceed with your question.

Eirik Haavaldsen -- Pareto Securities -- Analyst

Just one question on the time charter strategy. I mean you had another one now. Can you first give an indication on the rate on that second one? And secondly, what is the strategy here? Is it always going to be to balance your charter out coverage with new ships or the other way around, or because this is obviously adding a layer of risk to the set up in a way?

John Hadjipateras -- Chairman, Chief Executive Officer and President

I think Tim is perfectly able to give you what goes into our thinking with respect to charter-in and charter-out.

Tim Hansen -- Chief Commercial Officer/Director

I think these ships that has been added this year has been done a while ago. One was a new building, so contracted and turned up a few years ago and the last one yeah leased six to eight months ago, I think we conclude the contract. So I can see that the time charter has been more opportunistic. But we have seen why we thought the market would go and was confident to increase exposure of it and then we have chartered out also you can see to balance this a little bit and lock in a margin or [Indecipherable] changes in the markets to drag out. And also you can say the periods are different. So the time charter out that is done through the pool is very short-term, so six to 18 months and the time charter-out that we have done at Dorian is small, you can see three or plus years where it's more like a financial decision to lock in something.

John Lycouris -- Chief Executive Officer

And I just want to add there is also a strategic element to chartering out. If a good customer requires long-term charter, there is that aspect to it as well.

Eirik Haavaldsen -- Pareto Securities -- Analyst

Understood. But sort of I mean where is the three-year time charter today and where was it back in February so to say?

John Hadjipateras -- Chairman, Chief Executive Officer and President

Where is it -- how do you mean where is it? Is it above or below the current market?

Eirik Haavaldsen -- Pareto Securities -- Analyst

I would obviously assume it's above the current markets, but where if you can be a little bit more specific.

John Hadjipateras -- Chairman, Chief Executive Officer and President

I don't know that we can be more specific, because we have confidentiality clauses and it has been considerably below the market and now it may be if the market is in the 20, it probably is below, above the market but not by very much. The thing is that we have this question often and this is one of the disadvantages of -- or a disadvantage of reporting on a quarterly basis because deals like this basically can only be reconciled at the end of the day, you can have including charter out or charter in. Last year we had ships chartered out and end of the calendar year, they were very deeply out of the money because the market had gone up to the $60,000, $70,000 levels and we were fixed in the 20s. And in the meantime, however, those ships in the early part of that period were providing a very good cash flow buffer for us. So it's very difficult to look at these on a kind of flash basis, you have to look at it in a consistent -- all the time on a rolling basis.

Eirik Haavaldsen -- Pareto Securities -- Analyst

No, I agree on that. But just if we can may be understand a little bit more the strategy because is this an intention to kind of continue to build on this -- expand the fleet via time charter-in agreements because obviously now with rates being a little bit lower and you can say there should be ample opportunity to charter in ships at rates that at least three months ago seemed attractive. I don't know, I'm just trying to kind of understand.

John Lycouris -- Chief Executive Officer

Ted is pointing out to me that we can't disclose the numbers.

Theodore B. Young -- Chief Financial Officer

You can calculate it Eirik from the numbers that we disclosed. So it's fair to say that 24 to 26 a day -- I'll call it 25 and change or so 25-ish a day. You're going to extrapolate that from the numbers we've disclosed.

John Lycouris -- Chief Executive Officer

On your next question. Our chartering window is open and Tim can tell you whether you could tell your chartering people to give us a call or not.

Tim Hansen -- Chief Commercial Officer/Director

Yes, I think as a strategy also, we took a longer term time charter from a new building is that to have a mixed portfolio of owned and TC tonnage. So yes, if there are opportunities we can look at it if it makes -- if it really makes sense. And as you say, rates are probably lower than that was a couple of months ago.

Eirik Haavaldsen -- Pareto Securities -- Analyst

Okay, thank you.

Operator

Our next question comes from the line of Chris Tsung with Webber Research. Please proceed with your question.

Chris Tsung -- Webber Research -- Analyst

Hey guys, how are you today?

John Lycouris -- Chief Executive Officer

Good.

Chris Tsung -- Webber Research -- Analyst

So I just kind of want to get a couple of questions on the scrubber program going in. I know there is the fine to retrofit 12. We've done 10. There is about two left for the rest of the year. I mean given the spread on bunker prices and the benefits you get from lower emissions and the black smoke and everything, are there plans to one suspend it because spreads aren't there or maybe perhaps expanded to kind of meet my next question, which is the sustainability metric that you guys are trying to hit on that refinancing.

John Lycouris -- Chief Executive Officer

We are doing one ship now. So we have further two scrubbers to fit and several ships due for dry docking this year. So in time, when the ships go to dry-dock, we will decide whether to fit them or not to fit them. We may fit them this year or we may defer and do it at a later time on ships that do dry docking next year going forward, but we have it under review. As you said, the spread is closed-in a lot. So we are happy to have the scrubbers that we have on board because we still have the saving that they produce and as the market is $20,000 or close to $20,000 $3,000, $4,000 a day makes a lot more difference than it does between 50 and 55.

Theodore B. Young -- Chief Financial Officer

And you had another question Chris, about the financing?

Chris Tsung -- Webber Research -- Analyst

Yes. Just one more on the scrubber. I know last quarter that they were being done like around 33 days to 35 days and I know the shipyards were having trouble due to corona. Has there been any sort of delays, the one that's in dry dock now at constitution, is it -- are we still aiming for like the 33 days, 35 days?

Theodore B. Young -- Chief Financial Officer

Seems aimed to be at 40 days. That's the plan. We are hoping to do it sooner, Chris.

Chris Tsung -- Webber Research -- Analyst

Okay makes sense. Thanks. And yes, for the financing, I guess I was wondering if you can go into a little bit more detail. I think John covered this earlier, but for the average efficiency ratio, I mean is it based off of certain benchmark or is it in absolute unit? You've specific unit gram of CO2 per ton mile that you guys are trying to achieve as you want to get a sense of like what are the goals here that either you set or the bank has set that you guys trying…

Theodore B. Young -- Chief Financial Officer

It's really IMO guidance, it's not the guidance the bank set. It's about a 2.7% reduction per year and it's based on the deadweight of the ship. There is a metric that the IMO puts together and for a ship of this much deadweight this is the kind of emissions that you ought to be targeting. When we file the 10-K in a couple of weeks, the loan agreement will be appended as an exhibit and there is a couple of pages that outline the terms there and I think it's probably best that we not get into the details until we disclose it, not because there’s anything so exciting or incendiary but I don't need to file an 8-K in advance of filing my 10-K. So I think there is plenty of meat in there. I guess I'd be -- I guess to give all credit where it's due, ours look similar to what International Seaways did, it seems to be a market -- that seems to be kind of a market standard.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Chris, it's just based on the energy efficiency operational indicator or in short called EEOI. Most of the people use that, and it has to do with the CO2 emission per unit of transport work done if you want to know. But you will see more details, I'm sure in the press and in our filings.

Chris Tsung -- Webber Research -- Analyst

Great. I know you guys and I've seen that we put out like a sustainability report [Indecipherable] I'm digging into right now. So I was excited about this -- excited for more color than actually necessary. And I guess just for like a last question that I have is the 40% LTV for margin reduction, is that sort of tethered to the NAV at the date that it's done, or is it like more less floating where it's about 41% or 40%, it goes up 10 basis points, is below then it drops down and it changes quarter-over-quarter?

John Lycouris -- Chief Executive Officer

Not quite. It's tethered to the actual LTV at every quarter based on the vessels in the security package in that amount of debt. There is a -- refer to no harm no foul range, which is between 40% and 60% or 59.999%. If there -- 250 basis points. If it goes above 60% or below 40%, that's when the benefits kick in. So there is sort of a wide range of LTV before there is a change in the -- before there is a change in the margin.

Chris Tsung -- Webber Research -- Analyst

I see 20% band. Got it. Great thanks everyone.

Operator

We have no further questions at this time, I would now like to turn the floor back over to management for closing comments.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Thank you all very much and have a good -- stay safe, have a good summer and talk to you soon. Bye-bye.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Theodore B. Young -- Chief Financial Officer

John Hadjipateras -- Chairman, Chief Executive Officer and President

John Lycouris -- Chief Executive Officer

Tim Hansen -- Chief Commercial Officer/Director

Omar Nokta -- Clarksons Platou -- Analyst

Sean Morgan -- Evercore -- Analyst

Randy Giveans -- Jefferies -- Analyst

Eirik Haavaldsen -- Pareto Securities -- Analyst

Chris Tsung -- Webber Research -- Analyst

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