DHT Maritime (DHT) Q1 2021 Earnings Call Transcript

DHT Maritime (DHT 1.77%)
Q1 2021 Earnings Call
May 05, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2021 DHT Holdings earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded today. [Operator instructions] With us today, we have co-CEOs, Svein Moxnes Harfjeld and Trygve Munthe; and CFO, Laila Halvorsen. I'd now like to hand the conference over to your first speaker today, Laila Halvorsen.

Please go ahead.

Laila Halvorsen -- Chief Financial Officer

Thank you. Good morning and good afternoon, everyone. Welcome and thank you for joining DHT Holdings first-quarter 2021 earnings call. I'm joined by DHT co-CEOs, Svein Moxnes Harfjeld and Trygve Munthe; and Wilhelm Flinder, head of investor relations.

As usual, we will go through financials and some highlights before we open up for your questions. The link to the slide deck can be found on our website, dhtankers.com. Before we get started with today's call, I would like to make the following remarks. A replay of this conference call will be available at our website, dhtankers.com, until May 12.

In addition, our earnings press release will be available on our website and on the SEC EDGAR system as an exhibit to our Form 6-K. As a reminder, on this conference call, we will discuss matters that are forward-looking in nature. These forward-looking statements are based on our current expectations about future events, including DHT's prospects, dividend, share repurchases, and debt repayment; the outlook for the tanker market in general; daily charter high rates and vessel utilization; forecasts of world economic activity; oil prices and oil trading patterns; anticipated level of newbuildings and scrapping; and projected drydock schedules. Actual results may differ materially from the expectations reflected in these forward-looking statements.

We urge you to read our periodic reports available on our website and on the SEC EDGAR system, including the risk factors in these reports for more information regarding risks that we face. Looking at the P&L highlights, DHT showed profitable results for the first quarter despite a very tough tanker market. EBITDA for the quarter came in at $46.7 million and a net income of $11.6 million or $0.07 per share. Adjusted for noncash gain in fair value related to interest rate derivatives of $3.4 million, net income would be $8.2 million or $0.05 per share for the quarter.

Opex for the quarter was $19.1 million and G&A for the quarter was $5.6 million. Moving over to the balance sheet, the quarter ended with $54 million of cash. We have built a very strong balance sheet and financial leverage. It's about 35% based on market values for the ships.

Net debt per vessel is $18 million at quarter end, which is below current scrap values. Looking at the cash bridge, the quarter started with $69 million of cash and we generated $47 million in EBITDA. Ordinary debt repayments and cash interest amounted to $6 million. $9 million was paid in dividends, $125 million was drawn on our RCF while $136 million was used for vessel acquisitions and $5 million was used for maintenance capex.

Changes in working capital amounted to $31 million and the quarter ended with $54 million of cash. And now over to capital allocation. For the first quarter of 2021, DHT will pay a dividend of $0.04 per share on May 26 to shareholders of record as of May 19. This will be the 45th consecutive quarterly dividend payment.

With that, I will turn the call over to Svein.

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

Thank you, Laila. We will now discuss our latest investments and divestments as well as our thoughts going forward. During the first quarter, we acquired two scrubber-fitted 2016-built VLCCs, both which now have delivered into the DHT fleets. We consider these to be attractive investments with robust required rates to generate good returns for our shareholders.

The DHT approach is among others to compare the required rate to generate an unlevered return of 10% and compare that with average historical VLCC earnings. The ships we bought require some $33,700 per day for the remaining economic lives to generate this return, comparing favorably to the historical average of some $42,500 per day. During this quarter, we entered into three individual agreements to sell our older ships, all built in 2004. The DHT Raven has been delivered to their new owners while the DHT Lake and DHT Condor are expected to deliver during the balance of this quarter.

The three ships were sold for an aggregate sum of $89 million. Net proceeds from the sales after repayment of mortgage debt is estimated to be about $78 million, and we expect to book a profit of about $15 million during the second quarter. The industry newspaper, TradeWinds, quoted an industry observer questioning why we did not sell these three ships a year ago. Little does this observer know about our business.

Back in the first quarter last year, we thought we would create more value for our shareholders by trading the ships for a while longer, taking advantage of the strong market and related time charter opportunities. The leading shipbroker, Clarksons, valued a 15-year-old tanker at $35 million end of the first quarter last year, suggesting that the 16-year-old sea ships were at the time with a bid in the low 30s. Now these three ships have, over the past five quarters generated a cumulative EBITDA of $57 million. The numbers speak for themselves.

The transactions represent a fleet renewal with an average age being reduced from 9.4 to 8.2 years. It will further improve the operational efficiency of our fleet, including metrics such as AER and EEOI. Moving on, we are interested in making additional acquisitions and have capacity to invest without relying on additional equity or stressing our healthy balance sheets. Our focus is still on modern secondhand ships of eco-design, i.e., built from 2015 and onwards.

However, values or at least sellers' asking prices have moved up a bit quicker than we had hoped, leading us in a wait-and-see mode for now. You should not expect us to contract newbuildings, and for three key reasons. One, there is great uncertainty related to what will be the fuel of the future for large tankers. We don't think there's any advantage in being an early mover.

Two, newbuilding prices are not compelling. Newbuilding prices for VLCC are up from roughly $83 million from six months ago to about $92 million today. They might well continue to increase from here and offer a feel-good factor in a year's time but cheap is for now behind us. At DHT, we do not invest in ships to try to make a buck by selling the asset in the short term but we invest with a view to make good returns by operating the ships.

In all simplicity, if you buy well, you never have to sell. Whereas, an expensive ship will always be an expensive ship. And the third reason, our sector does not need any more ships. Whilst the fleet demographics looks favorable for the next few years, adding to the order book could easily mute what otherwise looks to be a rewarding recovery.

Now on to fleet employments. We are still enjoying the decisions we made last year in securing some fixed income for our fleets. The second and third quarter has an even distribution between spot and fixed. Whereas, the fixed portion is reducing to a quarter-like capacity in the fourth quarter.

As such, the coverage ratio is gradually coming off as we moved closer to a recovery in freight rates. For the second quarter, we have booked 75% of our total capacity at $21,300 per day being well above our cash breakeven numbers, which Trygve will discuss in more detail later on. Like during the fourth quarter last year, we continue to take advantage of a lead freight market to advance drydocks. We had seven ships in drydock during the first quarter with a total of 232 days off-hire.

For the second quarter, we will have another three ships in drydock with between 1,910 days off-hire expected. Keep in mind that the COVID situation impacts these drydocks with quarantine issues causing delays and being included in these numbers. We plan to dry dock another three ships during the second half of the year. Then some comments on the COVID situation.

This situation has been and still is a major challenge for the industry with crew changes being the dominant problem. We have under the circumstances fared well, thanks to the fantastic support and understanding from our crews and hard work from all the support staff onshore. There has been a positive trend over the past few months, but this has now got a setback with the developments, in particular in India, causing renewed challenges. Seafarers are yet to be identified as essential workers by the authorities.

And with the lack of global and coordinated support from authorities and politicians, we sadly expect difficulties to remain. We will continue to act responsibly and do what we can to make do during these challenging times. And with that, over to Trygve.

Trygve Munthe -- Co-Chief Executive Officer

Thank you, Svein. Following the acquisition of the two 2016-built VLCCs, we have developed a new credit facility together with Nordea as agent and six other core DHT banks. The loan is built up by three blocks. Firstly, it is a $75 million new mortgage financing of our two recent acquisitions.

This will be DHT style with a 20-year repayment profile and $2.5 million in annual repayment per ship. Secondly, it is an extension of the $181 million loan that we currently refer to at the Nordea facility, from April 2023 to January 2027. And thirdly, it has a new undrawn revolving credit facility of $60 million. The total amount available to us is $316 million.

The loan will have a five and three-quarter year tenor and will come to final maturity in early 2027, and it will carry an interest rate of LIBOR plus 1.9%. This is a 50-basis point reduction from the current margin. The covenants will be unchanged from the current facility. Further, as previously reported, we have prepaid all of our regular installments for this year and next year under the existing Nordea facility.

And you should note that this will remain so also after the extension. And finally, the new facility includes an uncommitted accordion of $250 million. The main point here is to facilitate the smooth mortgage financing of any additional acquisitions that we may -- that may be made between now and the end of next year. On this slide, we will walk you through the main financial effects of the new financing and the ship sales that Svein discussed.

The new financing will boost liquidity by about $132 million. That is the new mortgage on the Osprey and Harrier, plus the new revolver minus front-end fee. Liquidity will be further boosted by the net proceeds from the ship sales of about $78 million. So as you can see, liquidity will grow from $99 million at quarter end to $309 million once the ships have been delivered and the new loan executed, all else being equal, of course.

Interest-bearing debt will be reduced by $9 million following the repayment of a loan on one of the ships sold. The other two ships were debt-free. And finally, book equity will increase by $15 million from the profit on the ship sales. So the main benefits of the sale and purchase and financing activities can be summarized as follows: one, we bought the two five-year-old eco ships and sold three 17-year-old ships.

This is fleet renewal and future efficiency improvements. Two, the reduced margin on the new loan equates to some $1.6 million in annual savings, assuming the loan is fully drawn. Three, we have pushed out the final maturity on one of our large credit facilities to 2027 with the effect that we have no refinancing requirements before 2024. And four, our financial position has improved.

Net debt per ship is reduced to $16.6 million per ship in total liquidity and that is cash and revolver availability is increased to $309 million. Let me then take you through where we currently are in terms of cash breakeven levels. On the left side of this slide, you see expected cash costs for the current quarter, broken down into opex, cash interest, debt repayments, cash G&A, and maintenance capex. In sum, about $38 million.

In order to generate the same amount in revenues, the ships need to earn an average of about $15,900 a day, as shown on the orange bar in the middle. This is in and of itself very competitive compared to peers. However, we do also have significant fixed income from our time charter book for the quarter, so the spot ships only need to earn some $6,700 per day in order for DHT to cover all its expected cash costs for the quarter. On the right side of the slide, you see a similar graph for the second half of the year.

Not a dramatically different picture but you will note that the somewhat lower time charter cover means that the spot ships need to earn roughly $10,200 per day in the second half of this year in order for DHT to be cash neutral for the period. So before we open up for your questions, let us provide you a brief summary of where we are. We are very pleased with our performance in the first quarter. All our colleagues onboard the ships as well as ashore have delivered good results in a difficult environment, both because of COVID and the historically low freight market.

Despite the challenging market, we have built NAV for our shareholders, both through earnings from operations and through gains on sale of older vessels. Although the latter will only be recorded in the second quarter. Our buying of modern eco ships and selling of older ships have not only reduced the average age of our fleet but will importantly also improve our efficiency ratios. Our new bank financing shows that we enjoy great support from the world's leading shipping banks and we're pleased to see that our past performance has enabled reduced financing costs, which in turn will lead to increased equity returns going forward, all else being equal.

Our financial position remains very healthy with low leverage and ample liquidity, and our spot cash breakeven remains very robust. And finally, we're bullish on the medium-term market outlook. According to Energy Aspects, global oil demand is estimated to increase by 10 million barrels from the second quarter last year to the second quarter this year. However, this growth has not yet been felt in the tanker market as a lot of supply has come from inventories.

At the peak, global oil inventories were some 800 million barrels above normal, but have since come down to 120 million or so and is still declining. We have now reached a point when OPEC+ will start releasing more supply into the market, but we do not expect that the first baby steps will send spot rates sky high right off the bat. We believe it will take a little more than the initial 700,000 barrels per day to make an impact. But we do believe the worst is behind us and that we are about to start on a gradual recovery that should lead us to a better tanker market in the not-too-distant future.

And with that, we would like to open up for your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] And your first question comes from the line of Jon Chappell, Evercore. Please ask a question.

Jon Chappell -- Evercore ISI -- Analyst

Thank you. Good morning. Good afternoon, everybody. If I can start with a quick housekeeping item, the second quarter-to-date number that you gave obviously includes time charters.

Can you give us the second quarter-to-date spot fixtures, both at a dollar per day and a percentage coverage basis, please?

Laila Halvorsen -- Chief Financial Officer

Yes. The spot bookings for Q2 is 51% at $10,600 per day.

Jon Chappell -- Evercore ISI -- Analyst

Perfect. Thank you. So I don't think that strategically, you laid out a bunch of things here. So the liquidity is obviously vastly important to your strategy going forward, and the fleet renewal makes all the sense in the world.

It seems that given the choppiness in the market today, maybe the move in asset values and some of the S&P activity that's happened in the market is maybe getting a little bit ahead of itself. So how do you kind of time the market bottom and the worst-it-can-get type of rate environment today with trying to align that with asset values that have moved up and being well timed in putting that liquidity to work versus maybe just sitting back a little bit, waiting for some of the optimism to come out of the market and be opportunistic at some point in the future?

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

We have already done something and -- but we will remain disciplined, as we always are, and also patient. And we're certainly keen to do something more, and if you sort of get a little correction in expectations of asset values, like you alluded to here, we are certainly ready to strike. So we are following a lot of things. And then if it's our sort of map ahead, I would like to add some and more ships to the fleet at this time.

But discipline and patience is key here.

Jon Chappell -- Evercore ISI -- Analyst

Yes. That makes sense. But just to your point about if we get a little correction. So it feels like in the tanker sector especially, there's maybe more optimism that's been at least proven in the market today.

And I get it, oil demand is coming back, OPEC's increasing production, the order book is low. It's understandable but what if there's a scenario where you finally start to see some more oil come to the market, the rates start to come up just a little bit, and then the asset values are off to the races? So basically, what I'm saying is, is now the sweet spot or do you have maybe some of your relationships a view that things have gotten a little overheated and there may be a temporary pullback and that's when you can be opportunistic?

Trygve Munthe -- Co-Chief Executive Officer

I think as Svein addressed in the prepared remarks is that we're getting to a point now, especially in the modern end of the curve to values where it, to us, becomes difficult to actually invest. As we have said, all along, we want to invest at levels where the required rate to generate 10% and lever is meaningfully below the historic numbers. And if you say a resale in the low 90s, it isn't meaningfully below historic averages. So we're not really there to fork out these kind of numbers, at least in the current environment.

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

This is -- and just as a little sort of small calculation. If you compare, say, a newbuilding now quoted at $92 million with the acquisition that we just made in the first quarter, the required rate differential is $5,000 per day. And the NPV that over the remaining life of the ship is a lot of money. So we want to be really careful with the capital that we've been entrusted so -- and stay disciplined.

Jon Chappell -- Evercore ISI -- Analyst

Yeah, that's completely what I was getting at. All right. Thank you, Trygve. Thank you, Svein.

Operator

And your next question comes from the line of Randy Giveans from Jefferies.

Randy Giveans -- Jefferies -- Analyst

Howdy, Svein, Trygve, and Laila. Good morning. How's it going?

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

We're doing well. Thanks.

Randy Giveans -- Jefferies -- Analyst

All right. We have -- first and foremost, obviously, good commentary there on the reasons against newbuildings. Makes sense, and good call on pulling forward the drydockings. But I guess with that, you sold the three vessels, $78 million in net proceeds.

I guess following up on an earlier question, what are your kind of plans for the proceeds of these vessels? Do you plan on just further repaying debt? Maybe prepaying your 2022, kind of -- more like you did '21 or just kind of keeping it on cash and looking for those accretive acquisitions here in the near term?

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

I think for now, this cash flow will be in our liquidity basket, so to say. And we are in no rush to make decisions on additional debt prepayments for the future. As you know, we've already made meaningful debt prepayments for this year and next year. And as we also discussed with Jon, we want to be ready if there are any other growth opportunities for us.

So sort of for now, the cash will be liquidity and give us ample flexibility to make that position later on.

Randy Giveans -- Jefferies -- Analyst

Got it. All right. And then when it comes to DHT, obviously, you have a very straightforward capital allocation policy, pretty simple fleet to follow here. So I guess a market question for you.

You say you mentioned -- you mentioned you're pretty bullish here on the kind of midterm, near-term market. Is that all driven by just OPEC increasing production? Is that looking at inventory levels? And then what kind of timing are you seeing for rates to really inflect, meaning getting back to $30,000, $40,000 a day?

Trygve Munthe -- Co-Chief Executive Officer

We think it starts with the inventory levels. So OPEC+ has expressed the desire to bring those back to normal or whatever they define that as. And as we mentioned in our prepared remarks, there's been made great headway on that over the past several months. So we're now getting to the point where they are going to start to drip-feed more cargoes into the market, so we think that will be the start of the recovery.

But as we also said, 700,000 barrels a day is not really going to move the needle in a big way, but we expect more to come. And we do see a quite impressive rebound in the global consumption figures. So it's really a jet that is still trailing the 2019 levels. But the COVID news, of course, with exceptions from India and so forth, it is relatively good news, and we see that the people are getting back to past consumption patterns.

So we think the fundamentals are good. But as we've said so many times, we've been in this business too long to give you an exact month or a week when we think that we're going to see $30,000 a day. But we see everything aligning or lining up to give us confidence that we do expect a healthy tanker market in the not-too-distant future, so call that next winter or so. But we stress that we see a healthy market.

And we're not thinking that we're seeing this fantastic tanker market like we saw in the fourth quarter '19, first quarter or first half of last year, but number the is well north of what we need to produce meaningful profits.

Randy Giveans -- Jefferies -- Analyst

OK. Yes, that's fair. Volatile summer with a kind of profitable back half, if not 4Q. Good day.

Thanks so much.

Trygve Munthe -- Co-Chief Executive Officer

[Inaudible] it's very volatile. I think it's going to be depressed for a little while longer, but we're starting slowly to regain some territory inch by inch and foot by foot.

Randy Giveans -- Jefferies -- Analyst

OK. That makes sense. Thanks again.

Operator

And your next question comes from the line of Chris Tsung from Webber Research. Please ask a question.

Chris Tsung -- Webber Research -- Analyst

Hi. Good morning. Good afternoon. How are you guys.

Trygve Munthe -- Co-Chief Executive Officer

Doing well. Thank you.

Chris Tsung -- Webber Research -- Analyst

Great. Thanks. I wanted to just kind of touch on your fleet renewal. So purchased 2 new VLCCs or two second build -- 2015-built VLCCs, sold thee and took the average age to back in eight and a quarter years old.

You guys currently still have about seven vessels that are roughly 14 years old. I know for on time charter, but I guess taking the math that you guys were just explaining in your prepared remarks with why didn't you guys sell these vessels a year ago and they were able to then generate positive cash flow and just general worth $56 million in just this past year. Given the current market operating costs and spot rates are where they are, if they are actually -- if they are negative, if you will, right, doing the math and getting like the net pricing value breakeven, you kind of would be incentivized to kind of sell now. And so I guess the question is, are you guys thinking about possibly pursuing this and selling those older vessels at this time to shore up additional cash and liquidity for when the markets are a little bit more in favor of the timing is right to kind of purchase more secondhand build ships?

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

So we have ample liquidity now with this action that is done. And this industry overshoots in both directions, right? So of course, now it's a dreadful market. But the optionality of these vintages that you now refer to is significant. They are all good quality ships, well vetted.

They got the scrubbers on board. So they also certainly have the opportunity to dance in another sort of recovery and generate earnings for our shareholders as we proved in the past. So we have no intention to sell such additional ships this side of the recovery.

Chris Tsung -- Webber Research -- Analyst

OK. All right. That's fair. And I guess maybe just on Slide 14 with the cash breakeven levels.

I just want to just confirm, is this before or after the refinancing the credit facility?

Laila Halvorsen -- Chief Financial Officer

This is before the refinancing.

Chris Tsung -- Webber Research -- Analyst

Before. So it's kind of come down -- the breakeven levels come down slightly because of this -- I think the interest rate is like 50 basis points lower.

Laila Halvorsen -- Chief Financial Officer

That's correct.

Chris Tsung -- Webber Research -- Analyst

OK. Thank you. That's all for me. Have a good one.

Operator

And your next question comes from the line of Omar Nokta from Clarksons Platou Securities. Please ask a question.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Hi there. Thank you. Maybe just following up on the previous discussion points. You guys have been pretty clear about newbuildings and prices in the secondhand market.

And I understand the need to pause the acquisition to just sort of reassess and get a sense for how things are, but we have seen steel prices move quite a bit higher, and that's clearly boosting newbuilding costs. And there's this also -- just at least some relationships with steel and secondhand value. And so I guess my question is, what happens if values just don't come down, but they just continue on the upward trajectory? And even though we're not seeing rates justifying it today, you just have this inflationary pressure on the asset values. Is that a concern that you might miss the boat here or have you -- is it maybe for you to unpause? Is it as simple as just waiting for rates to move up? Any sort of -- any concern there that you might then be missing if value just keep pushing higher?

Trygve Munthe -- Co-Chief Executive Officer

I think to the first part of your question there, Omar, that if steel prices continue to rise forever, well, then clearly, we should have a lot more ships at this point in time. But we think that the steel market is in this cyclical as everything else that we do in shipping. So we're not convinced that it is off to a one-way trajectory upwards. But again, if it -- if that was the case, then we should have done more.

But I think that those were the kind of arguments that drove this market off its hinges some 10, 15 years ago when the people were contracting new ships for $150 million for VLCC, because they thought it was different this time. And they regretted that for years afterwards. And so we would like to err on the conservative or safe side or whatever you want to call it. And I just want to also stress that if we do not acquire additional ships at this trough, well, that's not a disaster.

We've got these 26 great ships that are ready to earn a lot of money in the next upcycle. Ideally, we would like to add a few more units, but it is also not really entire bad news if we fail to find good investment opportunities between now and the real upcycle.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Yes, that's fair, definitely 26 ships. You've got significant critical mass. Maybe just on that point, because you don't want to sell vessels in this side of the cycle, Svein, as you just mentioned that a few minutes ago. What do you think about the approach of seeking to expand the fleet via chartering? And I know you haven't done that in years, but maybe there is an opportunity here given the low rate structure currently.

Do you see the potential? Or are you interested in going out and leasing in vessels over this medium-term period where you're not committing yourself for the life of the vessel, but here -- you're at least getting some extra capacity in considering that your asset values have been a bit higher than you'd like?

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

You may call us boring but we -- it's going to be the same answer as before. We don't see a need to add tremendous operational leverage to it in the form of chartering in ships. So no, we're not planning to do that and you shouldn't expect it.

Omar Nokta -- Clarksons Platou Securities -- Analyst

That's pretty clear. Thanks. And then just final question, just on credit facility. Could you maybe just explain how that $250 million uncommitted accordion feature works in that facility?

Trygve Munthe -- Co-Chief Executive Officer

Sure. That's -- if we were to find, say, a repeat of the deal we did, and we come with two five-year-olds and we'd like to have DHT-style mortgages on those ships, then we would go to the banks in the syndicate, the seven of them, and they would say aye or nay. And if enough people said yes, then all the documentation is done, and it will just become a new tranche within the current loan agreement and the facility.

Omar Nokta -- Clarksons Platou Securities -- Analyst

OK. And so that would be, for that DHT-style financing, that's basically seeking an LTV of around 50%, something like that? Is that the figure?

Trygve Munthe -- Co-Chief Executive Officer

It is $2.5 million times the remaining economic life or years of economic life. So for a 5-year-old, it's 15 times $2.5 million, $37.5 million. That's what we call DHT style. We're not bound to be at that.

So if we, for some reason, wanted to borrow a little more or a little less, that can certainly be done but it would be -- the point is that you would just create a new tranche within the same legal framework that we have already established for.

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

And, Omar, also the benefit of this being an accordion in a way is that if we had sort of hunting lines, we would -- we'll have to pay commitment fee, right? So we're not really keen to have such expenses running. And as we feel that we have significant support from our banking universe, and that they will also be there for additional investments should we identify them soon.

Trygve Munthe -- Co-Chief Executive Officer

In that context, you should also note that the $316 million here was significantly oversubscribed.

Omar Nokta -- Clarksons Platou Securities -- Analyst

OK. That's great. All right. Well, thanks, guys.

I'll leave it at that.Trygve MuntheThank you.

Operator

Your next question comes from the line of Magnus Fyhr from H.C. Wainwright. Please ask a question.

Magnus Fyhr -- H.C. Wainwright -- Analyst

Yes. Good afternoon, guys. Just a couple of questions here. You guys have done a great job in staying profitable through this challenging market.

And it looks like 2Q, the bar for staying cash flow breakeven is relatively low at just $6,700. You also said that you think the worst is behind. What -- do you think that the first half of 2Q was the low or is it -- do you think that second half of 2Q will be the low for the spot rates? I mean this market is really choppy here, so I would appreciate some color.

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

That will be a very precise assessment. So we are already in a very low market in the first half of this year. So if we're looking at the history, it's the worst that this business has seen for more than 30 years. So exactly whether the first two weeks of the second half of May or June is going to be there at the bottom, it's really hard to say.

But there are some talks about a bit more oil coming to the market, maybe rates or earnings move up a couple of thousand or $5,000, but then it's sort of already in this very low environment. So we're not that precise on exactly when things will then start to improve.

Trygve Munthe -- Co-Chief Executive Officer

And you should also remember the time lag here that what you read in the fixture reports is really cargoes are going to be loaded a couple of weeks from now. So yes, we're now seeing spot rates come up a little bit. And here most of those cargoes are going to be showing up toward the end of the quarter and into the next, really.

Magnus Fyhr -- H.C. Wainwright -- Analyst

Right. So I mean, with opex start increasing second half, do you think at least 2Q will be the low for the market?

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

I think that's just a fair guess. But keyword, I guess.

Magnus Fyhr -- H.C. Wainwright -- Analyst

Yes. All right. On a different note, looking at the energy transition here and looking at what the oil companies are doing here, have you seen the attitude change at all in talking with the major oil company as far as chartering ships that will be more fuel-efficient ships? I mean you guys are well positioned to benefit from that. And I'm just curious if you've seen any changes there in this planning for the future.

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

I think in the current rate environment, pretty much all charters are focusing on eco ships with scrubbers, and that's the equipment that they want. But that's also a reflection of the fact that in this market, they have this choice. So don't forget that. So in a sort of a strong market, then of course, charters tend to be a bit more flexible as to what they think.

There's been a couple of other projects with two majors that have secured some VLCCs for long-term charters with the LNG or dual fuel. But now so far, that's the only two projects. And in our view, it's because it's not so easy to predict really what will be the fuel for the future for large tankers. If you are a refinery owner, say in Korea, and you buy 75% of your crude and LNG, maybe you would like to have an LNG ship shuttling back and forth but you probably need to then take some of the capex risk yourself.

So far, these charters who have been done are five to seven years and the ship owners end up with a meaningful residual value on this equipment. So I don't really think there's that many owners actually keen to do them, and we don't see a big inflow of end users wanting to do mining. I think most of these guys are also in a similar camp with us. As such, for us, there's still a lot of uncertainty out there, and it's hard to sort of decide what to do.

Magnus Fyhr -- H.C. Wainwright -- Analyst

Right. So I mean your time charters are just coming up all to 2021. So based on your comments, you kind of want that 10% unlevered return here and that's not there right now. So should we expect very little time of the charter fixture activity at these levels? I mean we need to get into a higher rate environment, correct?

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

We don't fix time charters just looking at what the required rate to earn 10% unlevered. We look at the time charter rates, what are sort of meaningful numbers and where we are in the cycle. And so obviously, last year, when we put a bunch of ships out at the fantastic rates, it was sort of an easier decision because these nominal numbers in itself was so strong. So that was easy decision.

In this market, we're not so keen to fix our ships longer. So we've done some short-term charters, six months, nine months, up to 12 months as the premiums we've been able to achieve any -- of those are above the spot markets. But that's more sort of a short-term decision-making rather than just saying we're going to make a specific return on investment.

Magnus Fyhr -- H.C. Wainwright -- Analyst

All right. Very good. Thanks. That's all I had.

Operator

And your next question comes from the line of Robert Silvera from Marine Surveyors. Please go ahead. Your line is open.

Robert Silvera -- Marine Surveyors -- Analyst

Thank you, Svein and Trygve. I appreciate very much how you guys have given us a picture of the future. But one thing you have not spoken about is that what do you see with the low rate environment now for these scrapping rates and your reduction of overall fleet?

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

The scrapping prices have certainly moved up, but the key reason for that is the correlation to steel prices. So today, it's in the very high 400s, maybe even above $500 for somewhat smaller tankers. So that's a really healthy numbers indeed. But a lot of the old fleet is today engaged in trades that are sort of sensitive nature, right, with the embargoed oil, et cetera.

And they're getting paid quite handsomely to freight that oil as the oil is discounted, so sort of the economics work for both the seller and the buyer of the oil. We think that if there's -- that some of these sanctions are lifted, you would very likely then get a more normalized pricing dynamic on the oil side, and that means they cannot afford to pay these fantastic freights that the sold ships need. As such, so you will certainly lead these old ships without employment to a large degree, and then the option would be to start to scrap. So it's a little bit hinged on whether these sanctions are being lifted or not that we think at least is in the short term.

So --

Robert Silvera -- Marine Surveyors -- Analyst

OK. Now I'm looking at the reconciliation of adjusted net income chart, where you present shipping revenues and voyage expenses, and there's no direct correlation apparently between the shipping revenues and voyage expenses. For instance, quarter 4 2020, shipping revenues were about $91 million, but the voyage expenses are now down at $13 million. Then in quarter 1, we went down to about $87 million on shipping revenues, but we went up over $2 million on voyage expenses.

So, can you give me some color on why that kind of relationship flips during these last two quarters?

Laila Halvorsen -- Chief Financial Officer

Are you referring to the table that is on slide -- on Page 5?

Robert Silvera -- Marine Surveyors -- Analyst

I don't know what the pages on there. And I'm looking at from the statement that you made, the press release and all the charts and things that are like that, Laila. It's the -- you go all the way to 2019, 2020 and then you break it down quarter-by-quarter in 2020, so you get to be the last one, which is quarter 1 in 2021. And sometimes, when sales go down, obviously, voyage expenses have gone down too, and shipping revenues have gone down.

But then another time, shipping revenues have gone up -- or down rather and expenses went up, which is then kind of contrary from quarter to quarter. And I'm just wondering why that kind of relationship doesn't just easily stay consistent, shipping revenues relation are they to the voyage expenses?

Laila Halvorsen -- Chief Financial Officer

It depends on how many vessels we have on time charter versus the spot market. And when it comes to these voyage expenses, shipping revenues is, of course, impacted by the market. But the table is really a reconciliation of the non-GAAP numbers and also a reconciliation of our adjusted spot time charter equivalent.

Trygve Munthe -- Co-Chief Executive Officer

But the key point here is that when you put the ship out on time charter, we don't have any voyage-related expenses. And the charterer pays for the port fees and bunkers and so forth. But when you are in the spot market, we foot those bills ourselves. So that's the main driver for the sort of lack of harmony in our development of the -- that those numbers that you referred to.

Robert Silvera -- Marine Surveyors -- Analyst

OK. So it's reflecting really how much you have in the spot market versus the charter market. OK. That makes it understandable for me.

And that's the variations. You mentioned before that you were now amortizing these new ships over 20 years, even though that they are already five years old. Are you amortizing them on a rate to go to zero or to an estimated scrap value at the end?

Laila Halvorsen -- Chief Financial Officer

We're amortizing them until our scrap value, but we're amortizing the vessels. As you mentioned, if we buy a five-year-old vessel, it's 15 years remaining life. So in total its estimated life of 20 years, and then we can amortize throughout the remaining life.

Robert Silvera -- Marine Surveyors -- Analyst

Down to a zero value or down to an estimated scrap value?

Laila Halvorsen -- Chief Financial Officer

Down to estimated scrap value.

Robert Silvera -- Marine Surveyors -- Analyst

OK. Good. Well, thank you. That's all I have, and I compliment you guys for your incredibly disciplined approach.

I think that you have proven over the years that you know what you're doing and you know how to read these cycles very well. And I'm a very contented that our company is very contented shareholders over the last six years. Thank you.

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

Thank you very much.

Operator

[Operator instructions] And your next question comes from the line of George Burmann from CL Securities. Please ask a question.

George Burmann -- Cabot Lodge Securities, LLC -- Analyst

Good morning, gentlemen, and good afternoon. Thanks very much for taking my call.

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

Good morning and good afternoon.

George Burmann -- Cabot Lodge Securities, LLC -- Analyst

Congratulations. As all the other callers said, I think it's a very good quarter. I think you're one of the few companies that when you sell ships, you actually book a profit. I think that has to do with the amortization of 20 years versus, I think, the industry idea which is about 25 years.

So that looks very good. You had mentioned in your initial wording that you felt weights or prices for used or existing ships were a little high, newbuilding out of these questions because of the higher steel prices. I'm wondering with your very strong liquidity position, if one way to, I guess, indirectly acquire ships is if you were to go in and buy a slug of your stock back. It seems to me that you still haven't gotten any accolades in the stock market and valuation for your shares.

We issued additional shares last year through the conversion of the convertible preferred shares or convertible debentures. And if you're looking -- if you're faced with the question of, am I going to pay too much for -- or the new shipyard versus essentially indirectly buying my own ships or buying my own stock at these very low levels, does that make sense? Have you now thought about that in this context?

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

It's a good question. So we have that sort of tool in the toolbox, if you like. We've done this in the past. But the key to us in this is that there has to be a meaningful dislocation between our pricing in the stock market versus just these underlying values and where we are in the cycle.

So last time we did this, there was a meaningful dislocation. So the stock market was trading horribly bad. And then we also have -- and were sort of at the just beginning and we saw a trajectory of a market improvement that we're sort of closer in time, more certainty about it, and we have decided then to deploy some capital to buy back some stock. So we've done it in the past.

So it's -- again, it's this one tool in the toolbox, but it's not something we typically say that is an alternative to necessarily buy ships, although logic, as you say, have this sort of the same thing.

George Burmann -- Cabot Lodge Securities, LLC -- Analyst

Yes. OK. Well, I hope that we're going to see your rates increase a little bit further here. We do feel that the oil market has been in balancing quite well and the demand at least for the regular gasoline demand is now higher and hopefully, and the airlines will follow.

And we also look forward to a more profitable future for all of us going forward. Thank you.

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

Thank you.

Operator

There are no further questions at this time. Please continue.

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

So we just want to say thank you to everyone for listening in and showing your interest in DHT. Thanks, and have a good day, everyone.

Duration: 55 minutes

Call participants:

Laila Halvorsen -- Chief Financial Officer

Svein Moxnes Harfjeld -- Co-Chief Executive Officer

Trygve Munthe -- Co-Chief Executive Officer

Jon Chappell -- Evercore ISI -- Analyst

Randy Giveans -- Jefferies -- Analyst

Chris Tsung -- Webber Research -- Analyst

Omar Nokta -- Clarksons Platou Securities -- Analyst

Magnus Fyhr -- H.C. Wainwright -- Analyst

Robert Silvera -- Marine Surveyors -- Analyst

George Burmann -- Cabot Lodge Securities, LLC -- Analyst

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