Q & A Highlights

Q: Jacob, you spent a lot of time talking about the justification for the newbuildings. Looking at it from the other side, it looks like roughly 30% of the fleet almost is 15 years or older. You have these incredible prices for secondhand vessels, including older tonnage at present. Have you considered an acceleration of maybe some divestitures to lock in some of these elevated prices on the resale side? A: Jacob Meldgaard, CEO: We have considered that. What we have found so far is that when we take the NPV of a potential sale of any of our assets versus a conservative estimate of what we will be earning until our usual life, that calculation will detail whether we do this or not. I'm not seeing any signs that we should accelerate based on that calculation.

Q: The MRs had a nice little spike when the conflict broke out in the Middle East, but they've since normalized back to long-term averages. Is there any other difference? Is it just a trade flow amount of products leading the Middle East? And is there a catch-up trade to the MRs that you foresee once there is some return on normalization in global trade flows? A: Jacob Meldgaard, CEO: Every day, we are depleting inventory globally. The crude oil and product being moved is obviously lower volumes than before the effective closure of the Strait of Hormuz. Crude is definitely moving to a higher degree and arriving at the refinery side. But the spillover trades for the MRs to pick up are simply not occurring as often in an environment where there aren't enough cargoes. As long as we're in this environment where there isn't enough crude to meet daily consumption, the spillover trades from the refinery side will be less. You need to see more volumes of crude that meet or exceed daily consumption before refineries and arbitrage phases really start to reopen so that the MRs can come in.

Q: How important are the trading inefficiencies behind the recent rebound in LR2 rates versus cargo flows? A: Jacob Meldgaard, CEO: There are two things on the supply side. We saw 70 fewer LR2s today, proving that the order book story was not the total story. Volumes have kept coming down because of disruptions, especially in the Middle East, with long-haul LR2 cargoes like diesel from Middle East to Europe not moving. Effective supply of clean trading LR2s has been coming down, keeping the market at bay. Now, with the inefficiencies, you only need a little more volume, like ship-to-ship transfers, to create a stronger dent. Middle Eastern states are contemplating expanding this "oil bridge" as a strategic response to the closure, which would be beneficial for LR2s.

Q: You're seeing the Chinese ramping up refining runs. So hopefully, that will add some volumes going into the fall. How comfortable are you and how bullish are you on the next few months of products? A: Jacob Meldgaard, CEO: We are constructive around it. Historically, we've probably never seen more choke points. Our thinking is that most of these choke points will either remain as they are or be positive for product tankers. Regarding the Strait of Hormuz, I don't think the current status quo is how it will stay. Either we will find a solution, or you will see this oil bridge expanded. Both those scenarios are positive in our opinion for product tankers.

Q: You're sort of doubling down on the MRs here. Can you talk a bit through your reasoning on doing MR newbuilds as opposed to LR2s? A: Jacob Meldgaard, CEO: We are not in love with any particular segment. The way we come to investment decisions is by looking at the cost of an asset and our expected cash flow from that investment. In the second and into the third quarter, it has been the better choice to place our money on the MR based on prices, delivery, and specification. That doesn't mean we could not do LR1s or LR2s at any time, but currently, MRs have been the best choice for our shareholders.

Q: You haven't disclosed any prices on the new fixed plus 2 vessels. But can you talk a bit about what we should expect in terms of financial leverage as a percentage? A: Kim Balle, CFO: Pretty standard on that currently. We would normally finance our business at 50% leverage. That's a nice sweet spot. The situation we are in gives us ample flexibility with very low margins and fairly long funding structures. We think this is a very good place to be.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .