But there will be an impact to the MR fleet and the number of ships available will be less efficient than what we have today.
Frode Morkedal: Perfect. That’s great color.
Operator: Our next question comes from Liam Burke with B. Riley. Please go ahead.
Liam Burke: Yes. The EU is looking to enforce the Russian price cap. How do you expect that to affect your vessels?
Robert Bugbee: Sean, do you want to take that? Whatever…
Sean Hager: Sure, I can take it. Obviously, Liam, there has been some leakage in so far as sanctions have not been strictly enforced. So it’s not a bright line between, say, our market and the dark fleet. Anything that creates a stronger fence or moat between the 2, obviously, will tighten up our market because you’ll have less tonnage toggling back and forth. So we welcome strict reinforcement of sanctions and the price cap by the EU.
Liam Burke: Great. And there was — during the prepared comments and in the Q&A, you talked about time chartering on the small — on typically smaller vessels. Why would you think that there is more interest by the shippers to lock in smaller vessels on longer terms? Is that a scarcity problem? Or is it just something that the operators need to do based on the age of the fleet?
Robert Bugbee: Just… First of all, look optically it looks that way because there just many, many more smaller vessels than the larger LR2s. Many more. And secondly, the LR2 owners are — I’m not saying they’re stronger but they’re just playing they’re just playing harder — there’s no — they’re not feeling the requirement. They see a lot of potential upside here between what they can do in the product market and what they can do, trading in crude. So they’re probably more reluctant in the LR2 market to fix out to these levels. And they’re lesser than to buy. So in the product MRs, we’ve seen a lot of people buy modern ships and then turn around and fix this 2, 3 years for the cash flows that we purchased.
Operator: Our next question comes from Sam Bland with JPMorgan. Please go ahead.
Samuel Bland: I just have one, please. It’s on Slide 18, you’ve got this 9% of ships to be more than 20 years old by 2026. To what extent do those ships sort of fall out of the supply and demand balance as far as Scorpio is concerned, once they sort of get over that 20 years, limit. Is that the — is that almost equivalent to those ships having been scrapped or not as far as the rate is concerned?
James Doyle: I think that’s a good way to put it. We’ve done some work looking at older vessels. And what we’ve seen is that a lot of the older tonnage kind of 20 years and orders carrying crude oil or dirty products like fuel oil, where there’s not as strict requirements around coatings and things like that. And then there’s a fair bit of coastal trade. So Indonesia, India, where you’ve got kind of a 21-year-old product tanker that’s carrying diesel from one refinery to another in just diesel. But you’re right, in many ways, those vessels are not kind of competing with the Scorpio Tankers vessel or some of our peers kind of in these premium trades. So it’s going to be pretty significant because while we’re just focusing on that 20-year mark, it’s probably a little bit earlier, somewhere between 15 and 17 too, that these vessels start to move out.
So on an effective basis, even with the additional orders, the fleet is probably still going to shrink over the next few years.
Samuel Bland: And have you seen any willingness sorry…
James Doyle: Sorry, I was also going to add and Cameron, please elaborate a few wishes that there’s a lot of cost involved too going through maintenance, dry dockings more than it’s not a straight line. It gets much deeper once you cross 20 years old.
Cameron Mackey: Yes. Just to elaborate, the amount of steel that has to be replaced in a hole that gets passed third special survey starts to take your dry docking and maintenance costs, not linearly up but almost parabolically up.
Samuel Bland: Yes. And has there been — have you seen any willingness by charters to look at older ships as the rates have moved up sort of artificially increased supply…
Robert Bugbee: Happy to take a stab at that one. I mean you will see some charters take a look at those boats. I mean some of it depends on the rigors of their betting systems — at times it depends on their internal policies but they definitely become harder and harder to trade as you get to that point. So the trade efficiency of those boats goes down quite a bit.
Samuel Bland: Okay. Understood.
Operator: Our next question comes from Chris Robertson with Deutsche.
Robert Bugbee: Just one thing I’d like to add to this whole thing to go back to this the scrapping or the — just understand that the new buildings are really spread over a large amount of time. And the supply side is very, very compelling. If you just take your asset test, just assume something is very, very unlikely that there are no scrapping, 0 scrapping during that period and or there are no removals from the product trade during that period — and still, you’re going to get to a pretty good supply and demand [ph]? Sorry, next question please.
Operator: Our next question comes from Chris Robertson with Deutsche Bank. Please go ahead.
Christopher Robertson: Guys, I just wanted to go back to a follow-up on Omar’s question around the breakevens. If you could comment where the breakeven is maybe today or at least at the end of the quarter? And then just to confirm, that could come down by another 4,000 to 4,500 per day, should you be able to deleverage down to the targets that you talked about earlier —
Chris Abella: Robert, do you want to take that one?
Robert Bugbee: Yes, please Chris.
Chris Abella: Yes, Chris, the breakevens today probably in the ’17, a little bit higher range per day. We’re — as Robert has been saying, we’re still in the middle of this deleveraging cycle. And so we have a big amount of debt to be repaid between now and, say, the middle of the first quarter. And there’s still some expensive leases on our books that we can target to bring down that number further. So right now, it’s — I would call it a bit of a moving target and we’re working on it but incrementally.
