Ardmore Shipping Corp (ASC) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Ardmore Shipping's fourth-quarter and full-year 2015 earnings conference call. Today's call is being recorded and an audio webcast and presentation are available in the investor relations section of the Company's website, ArdmoreShipping.com.

(Operator Instructions) A replay of the conference call will be accessible anytime during the next week by dialing 877-344-7529 or 412-317-0088 and entering passcode number 10080251.

At this time, I would like to turn the call over to Anthony Gurnee, Chief Executive Officer of Ardmore Shipping. Please go ahead.

Thank you, Chad. Good morning, everyone, and welcome to our fourth-quarter earnings call. First, I will ask Paul to describe the format and discuss forward-looking statements.

Thanks, Tony, and welcome, everyone. Before we begin our conference call, I would like to direct all participants to our website at ArdmoreShipping.com, where you will find a link to this morning's fourth-quarter and full-year 2015 earnings release and presentation. Tony and I will take about 15 minutes to go through the presentation and then open up the call to questions.

Turning to slide 2, please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from the results projected from those forward-looking statements. Additional information concerning factors that could cause the actual results to differ materially from those in the forward-looking statements is contained in the fourth-quarter 2015 earnings release, which is available on our website.

Now I will turn the call back over to Tony.

Thanks, Paul. On slide 3 you can see the agenda for today, which is our usual format. We'll talk about our recent performance and activity, update our views on the product and chemical tanker markets, provide an update on the fleet, financial results. I will then recap and open up the call for questions.

So if we can go to slide 5, just a review now of our fourth-quarter and full-year results as well as some other recent important activity. We are reporting EBITDA of $17.1 million and net income of $5.4 million, equating to $0.21 per share for the quarter. We delivered strong spot performance with our MRs, $18,500 a day for the fourth quarter and $21,500 for the full 12 months.

We generated record earnings of $1.23 per share for the year and that's on an average of 20 vessels in operation, which is attributable to our well-timed fleet growth, our efficient operating platform, and successful execution of our chartering strategy.

We took delivery of the remaining two vessels in our newbuilding program in the fourth quarter and that brings the total of 10 delivered over the last 12 months, bringing our fleet to a total of 24. We agreed to terms for the sale of the Ardmore Calypso and Ardmore Capella from. That's an en bloc sale at a price of $38.5 million, which will result in a small net gain on delivery in April of this year. So that will be a 2Q event.

We completed refinancing of $344 million of our debt, reducing our interest expense by around $2 million per year and improving our surplus cash flow in 2016 by $6 million. And today we are declaring a quarterly dividend, cash dividend of $0.13 a share, which brings the total dividend declared for 2015 to $0.64 a share.

And since we have changed the new policy with the third quarter, we are providing an annualized run rate under the new dividend policy of $0.88 a share. That compares to the old policy of $0.40.

So turning now to slide 6 for a quick look at our fleet. The main points here are that this is now a fully-delivered fleet generating cash flow. It's a high-quality modern fleet, including a series of sister ships all built in excellent Korean and Japanese yards.

And our focus remains on operational efficiency and fuel economy, because the price of oil may be cheap today, but even at these prices it still matters. And as crude oil pricing recovers, so, too, will the importance of fuel efficiency for reasons of economics and longer term as well for reasons of carbon emissions.

Going then on slide 8, the product tanker market. The rates eased in the fourth quarter, but they were still strong. As I mentioned, we did $18,500 a day. That's down, admittedly, from a very strong $23,900 in the third quarter.

The easing of the rates was really in the first half of the quarter and was driven by refinery maintenance in the US Gulf and reduction of Asian cargo volumes that resulted in a slow start for the fourth quarter. But the product tanker market continued to be supported in 2015 by very strong demand growth.

Seaborne product rate increased by 1.3 million barrels a day to 22 million barrels a day for 2015, which is about a 6% year-on-year increase. And tonne mile demand for the same period grew by about 7%, which would indicate that there is an average lengthening of voyages continuing.

The EIA data shows that PADD 3 exports of petroleum products averaged 2.3 million barrels a day through 2015 and that is a 7% increase. As you all know, that's an important market for MRs. It's also a relatively volatile market with US Gulf refinery utilization having a direct and immediate impact. For example, just recently US Gulf refineries, the utilization rate dropped down to a surprisingly low level of 83.5%.

That was due to scheduled maintenance, turnarounds, but more importantly, a power outage and shutdown at Exxon's Beaumont refinery on January 21. That is back online now and it's going to gradually build up over the next couple of weeks to full volumes and so will the refineries that are in turnaround. So we do expect that to rebound fairly quickly and that will bring up that Western -- or the Atlantic base in triangulation significantly.

So I think that the most important point to make today is that the order book for MRs now stands at around 9.5%, which is the lowest level it has been since 2001. To go over what has happened over the last year, in 2015 146 MRs delivered and 20 were scrapped, and that resulted in a very high net fleet growth of 6.5%. But that was, nevertheless, fully absorbed by strong demand growth.

We estimate that 99 MRs will deliver in 2016 and accounting for some scrapping, we think that will result in net fleet growth of around 4%. So when comparing that to the ongoing strong demand growth, we should experience a meaningful tightening of supply and demand throughout the year.

But the really big question is whether or not we will see large-scale ordering again in the near term, because I think that really will determine whether or not we're going to have an excellent market in the next few years or whether it might peter out again. We don't think there's going to be a lot of ordering in the near term. There's very little capital available or willingness to commit capital by shipping companies.

Furthermore, the yards that traditionally build MRs are financially constrained and, in fact, controlled by the banks and new regulations are making construction more expensive. And, ironically, the new ship design is less fuel-efficient, making it, in fact, less attractive. So if these factors keep the brakes on ordering for 2016, we will be down to an order book at historical lows and this is perhaps, we think, the most exciting development for MRs in years.

Turning to slide 9, we have talked about the current market. Now let's discuss a little more the demand outlook for product tankers. First of all, let's look at the table on the upper left. This is a somewhat prosaic, but really excellent snapshot of the global product tanker market and it highlights some very important things.

First is that total trade is expected to rise to be around 22.5 million barrels a day in 2016, a continuation of strong demand growth underpinning an expected tonne mile demand growth rate of 5% or more. The second is that it highlights one of the most important traits of the product tanker market, the huge product slate and regional imbalances -- huge product slate imbalance and regional imbalances that drive two-way trade and, thus, the overall product tanker market.

The third point is the relative unimportance of China. Granted, they have become a fairly large exporter of diesel lately and that's a good thing for our business, but in the bigger scheme of things they are not a major player in the product tanker trade. At least not yet.

And then fourth is something that is actually not shown on the chart and that is intra-regional trade. For example, there is a huge amount of product that moves around within the Middle East region, or Europe for that matter. But overall we think this table of data gives a very good overall picture of the global product tanker business.

So looking at the lower left we summarized the amount of new refinery capacity coming onstream in the next few years. This is, of course, to be expected as global oil consumption is growing at about 1.2 million barrels a day and it has to be refined to be consumed.

What is really important is to divide that number, the 1.2 million barrels a day, by the amount of the existing product trade, which is 22 million barrels a day. And there you get the main driver of demand growth for product tankers. We estimate that about 75% of this growth will result in seaborne movements either as exports or cross-trading, and when taking into account expanded voyage lengths and trade complexity, we arrive at continued tonne mile demand growth in the 5% to 7% range over the next few years at least.

In summary, we have strong ongoing demand growth driven by secular trends, coupled with a rapidly dwindling order book presaging a potentially serious supply squeeze in the next 12 to 24 months.

Turning to slide 10, the chemical tanker market. Chemical tanker charter rates were strong in 2015 and that is evidenced most directly by our performance, which is up 18% year on year. The chemical tanker market we think is continuing to improve on the back of very strong veg oil and biodiesel volumes. And in spite of the slowdown in China, imports of chemicals into China remains strong, particularly those that are used in light industrial and textile manufacturing.

I think very notably there is a continued expansion of petrochemical plants in the US Gulf and the Middle East Gulf, leading to increased exports in commodity chemicals from both of about 6% per year.

Our simpler, coated chemical tankers are benefiting also from the strong product tanker market. We are continuing to engage in regional CPP on our ships to a greater degree than normal. If we look at our chemical tankers, they are spending about half their time in CPP, about 25% in veg oils, and 25% in commodity chemicals. But as the chemical market strengthens further we know that these ships can and will swing back into more chemical business.

And then looking at the supply side for the chemical tanker market, the order book is around 11% of the existing fleet. That results, we think, in around 5% net fleet growth in 2016 and then at the end of the year we should be left without additional ordering at around 5% of the fleet, which is extremely low. Basically a historical low as well.

On slide 12 our chartering profile. As you can see, we're continuing to run with about 70% stock and 30% one-year TC, which is where we want to be. We're placing a slightly greater emphasis on TC for chemical tankers as we feel this is good relative value, less so with MRs where the spread between spot and TC, while narrower than it was a year ago, is still fairly wide.

On slide 13, here you can see the 10 product and chemical tankers that we've taken delivery of in 2015. Also to point out that we have four scheduled dockings in 2016, one in the first quarter and then three later in the year. Timing to be decided based on their geographical positioning.

And as a final point, although the fleet is fully delivered, we do have continued year-on-year growth in revenue days. And so for 2016 the revenue days will increase by about 16% over 2015.

And with that I will hand the call back to Paul to discuss our financial performance.

Thanks, Tony. Starting with slide 15, we are pleased to report a very strong financial performance with a net profit of $5.4 million and $0.21 per share for the quarter and a net profit of $32 million, or $1.23 per share, for the full year. Our strong profit reflects our fleet expansion, operational efficiency, and continued strength in the charter market.

The Company reported EBITDA of $17.1 million, which represents an increase of $9.1 million from the fourth quarter of 2014. EBITDA for the full year came in at $17.6 million.

Revenue was $41.7 million for the quarter and $158 million for the full year, which is a substantial increase.

Our operating costs came in under budget for the full year at $6,333 per day across the fleet. OpEx for eco-design MRs was $6,128 per day, while eco-design product chemical tankers came in at $6,030. Our eco-mod vessels, which are a little older, came in at $6,616 per day for the full year. We expect total OpEx for the first quarter to come in at approximately $14.5 million.

Depreciation and amortization for the fourth quarter was $7.4 million and we expect the first quarter to be approximately $7.8 million. Corporate overhead costs were $3.1 million for the fourth quarter, which on a fully-delivered basis works out at around $1,200 per ship per day. We expect our corporate overhead to be approximately $11.5 million for the full year 2016.

To point out, approximately $1.5 million of this relates to commercial costs, which in many situations with other companies are incorporated into net revenue. This leaves our comparable overhead at $10 million, which is among the lowest of our peers, at $420,000 per ship annually.

Our interest and finance costs were $4.3 million for the quarter, which is net of capitalized interest related to the newbuildings of $160,000. We expect interest and finance costs in the first quarter of 2016 to be approximately $4.8 million, which includes amortization of deferred finance fees of $800,000.

Turning to slide 16, we are again reporting strong charter rates for the year even if they ease slightly in the fourth quarter. We had 12 MRs operating in the spot market for the quarter, earning an average of $18,500 per day including voyages in progress, whereas our spot vessels earned $21,500 for the full year.

Looking out for the various ship types across time charter, pool, and spot, we had eight eco-design MRs in operation, which earned an average of $17,700 per day for the quarter, and as you will see on the prior chart, $19,100 for the full year. Our six eco-mod MRs earned $16,900 per day for the quarter and $20,200 for the full year.

Just to point out, the fact that the eco-mods outperformed the eco-design has nothing to do with earnings power. They just happened to be in better positions during the year.

As of today, our spot vessels are coming in just north of $18,000 per day for the voyages in progress, with approximately 40% of the days booked for the first quarter. Our eco-design product and chemical tankers earned an average of $17,800 per day in fourth quarter and $17,500 for the full year, while eco-mod product and chemical ships earned $13,200 per day in the quarter and $13,400 for the full year.

We are very pleased with our charter performance in 2015, achieving significant rate increases from the prior year. Again to point out, Ardmore has substantial upside potential and everyone $1,000 a day increase in rates across the fully-delivered fleet equates to $0.34 per share in EPS, which with our constant payout dividend policy equates to an extra $0.20 per share in the dividend.

On slide 17 we have our summary balance sheet, which shows at the end of December our total debt was $424 million compared to total capital of $780 million, leaving our leverage at 55%. Our cash on hand was $40 million, which leaves our net debt at $384 million which equates to leverage of 52%. In terms of net asset value, as vessel values improve, every $1 million creep in vessel values equates to $0.92 in additional NAV per share for our shareholders.

Now turning to slide 18, as you all know, we recently completed a refinancing of $344 million of debt, achieving an improved margin and a smoother repayment profile. We have also obtained $20 million in committed funding for acquisition of an additional vessel along with inbuilt accordion features in the loans for further expansion. As a result of the refinancing, our cash interest expense will reduce by approximately $2 million in 2016 and surplus cash flow will increase by $6 million.

We have also extended our debt maturities out to 2022. Importantly, all of our debt is amortizing with repayments of $38 million annually, so we continue to delever and strengthen the balance sheet in this strong charter market.

And with that, I would like to turn the call back to Tony.

Thanks, Paul. In summary then, we've reported strong financial results of net income of $5.4 million and EPS of $0.21. The near-term outlook is positive and we are anticipating a solid charter market in 2016, driven by what we discussed with the ongoing strong demand growth underpinned by continuation of new oil market dynamics, in other words volatility and congestion.

And this ongoing demand growth comes from export refinery expansion and complexity of trade driving tonne mile demand, and that is almost independent of underlying oil consumption growth. So I think an important number to consider is that over the last seven years product tanker tonne mile demand growth has been in the region of 6%, whereas oil consumption growth has been about 1.4%. So there's something much bigger going on than just underlying consumption.

The MR order book is now at its lowest point since 2001 and is set to decline to around 5% or even less by year-end without additional ordering. We are maintaining our flexible chartering strategy between spot and time charters in order to maximize earnings. We have significant upside potential with every $1,000 a day equating to $0.34 in EPS, and now with our new dividend policy, that is also $0.20 in incremental dividend.

And we're declaring a quarterly cash dividend today of $0.13, which brings the total to $0.64 for the year for 2015 and an annualized run rate of $0.88 a share since we changed our dividend policy. That is up from $0.40 under the old policy.

So with that, we're now pleased to open up the call for questions.

(Operator Instructions) Amit Mehrotra, Deutsche Bank.

Tony, maybe as a mini education lesson given the recent volatility in rates, can you just talk about or sort of renew your thoughts on the seasonality in the business through the course of the year? Whether it's weather driving season or refinery turnaround driven?

Also, if you could just provide some insight on --obviously the demand environment was really strong in 2015. If there's a way or provide some of your thoughts in terms of how you view that demand environment breaking down between the secular trends, which are quite significant, versus the low oil price environment and the demand-driven consumption growth.

Sure, Amit. It's interesting; normally we would've expected kind of the majority of all the turnarounds for US Gulf to happen sometime in the late summer very early on. But clearly some of it was deferred. They I guess carried it as far as they could and it has happened in the last couple of weeks.

But I think more importantly was that refinery outage with Exxon. I think that's what's driving TC14 at the moment.

I think that we are in such a volatile oil market, and probably for refiners as well, I think the more normal patterns might be a little bit scrambled at the moment and so I guess that's all there really is to say. I think it's a good question; how much of the demand growth has been the new oil market and how much is those underlying secular drivers.

I happen to think that most of it is the underlying secular drivers. If you look at that simple equation of 1 million to 1.5 million barrels a day increase per year on a base of 20 million to 22 million barrels a day seaborne trade, that gives you a very, very clear picture of where the real demand growth is coming from. And that will continue regardless of the oil market or even the global economy, so I think that's, by far, the most important factor.

The reality is that the boost in -- it's very hard to measure exactly the tonne mile demand being created by all the volatility and port congestion. What we can say is that it is continuing; it is important.

Interestingly, one of our ships now has actually been asked to slow down significantly on its way to a port. We've been asked to kind of go slow before, but not deliberately slowing down in the middle of the passage simply because the tanks are full at the receiving end. Usually they get there and wait, so we might even be getting to a new phase in terms of supply chain congestion.

So we don't think that's going to go away anytime soon. Volatility is as prevalent on the upside as it is on the downside, so as we do see oil pricing begin to recover, the pricing recovery is going to be volatile as well. And that should continue to drive extra demand growth.

We see that continuing at least through 2016. When it eventually ends, I think our view is that if you have that underlying secular demand growth of at least 5%, combined with a very, very low order book and we think that the delivery pace of ships is going to really drop off in the second half of this year, we think that those are the factors that will take over driving the market.

Got it, thanks for that comprehensive answer. Let me just ask one quick one for Paul and then I will hop off.

Paul, I saw that obviously the debt amortization of about $38 million per year. I don't think that bar chart includes the debt paydown that the Company is going to make for the Calypso and Capella sales. Can you just sort of provide some color in terms of how much you think the gross proceeds of those sales will actually go towards debt paydown? That would be helpful, thanks.

Perfect. Thanks, Amit. The en bloc sales price for those ships is $38.5 million and the total amount on the capital lease is about $26.5 million, $27 million, so net cash to the Company will be about $11 million when those ships deliver in around April or kind of early 2Q.

Great. I have more questions, but I will hop off. Thanks, guys. Appreciate it.

Doug Mavrinac, Jefferies.

I just had a handful of questions as well. First, when you look at kind of how you guys are positioned for 2016 -- spot market volatility aside -- time charter rates are firm, asset values are firm, and the outlook is as you guys described.

So from a fleet standpoint, you guys reached a milestone in the fourth quarter taking final delivery of all of your newbuilds and even got rid of a couple of smaller ships. So are you about content with where you are for 2016, or do you think there's some additional tweaks that you can make, maybe selling another older ship or maybe expanding here or there? How do you guys see your positioning for 2016 from a fleet standpoint?

I think overall we are really happy with where we are, with the fully delivered fleet. They're excellent ships generating a lot of cash flow, so that's all good. The question is really where do we go from here.

I don't think we feel any great need to sell the older ships. They are generating a huge amount of cash right now. In fact, some of our best performers are the older ships and so, as investments, they are terrific. Why just pass it on to somebody else?

We also would be in a position to buy some more ships. So I think it's more a matter of deciding what's the best way to accrete value to the shareholders. As soon as we've decided and have done it, we will tell you.

All right, got you. Perfect. Well, thank you, that is kind of what I was expecting.

Tony, whenever you look at the other aspect of your positioning and your spot versus time charters, you mentioned you kind of were where you wanted to be there as well with more spot on the CPP side and more time charters on the chemical side.

But when you look at when some of those chemical time charters are expiring -- some have recently expired, some are about to expire -- do you foresee keeping that preference of those guys in the time charter market as well? Or do you maybe say, all right, well, in the near term the spot market may make some sense? So what are your thoughts there in terms of those soon-to-be-expiring contracts on the chemical side?

With the chemical ships we've got roughly half on TC and half trading spot through a very good pool. We can always -- when ships run off the TC, we could move them into the pool or we could put more on TC.

It's very tactical. It's really what we feel is the best way to maximize value over the next 12 months. We don't think it's a really significant risk mitigator; it's more just value maximization.

So in that situation we do -- we feel that it might be the ships that we own now, because the chemical tankers we have they are somewhat rare given the size and type and the fuel efficiency, so I think they are particularly attractive compared to older versions of them. And we're getting well paid for that because they are very productive ships.

Long story short, I think we do see a greater disparity between spot and TC on the MR side and that's where we think the upside excitement is sooner than chemicals. But we do think the chemical tankers are going to have a very big day in the sun at some point.

Got you, got you. Just out of curiosity, how deep is that market right now in terms of the time charter demand on the chemical side? Is it fairly easy to secure time charters or is it more of a relationship type of a thing?

You know, smaller market. It's a little more heterogeneous than MRs and I think, given that they are chemical tankers, you really have to have the operating capability to perform. So it's very operational and relationship driven. These are relationships we've been working on for quite a while, so it's quite niche in what we do.

Got you, got you. Thank you. Then just one final question and this is more of an industry background type of a question.

But in your slide deck you guys mentioned how little China exports right now, yet when you look at 2016 they are one of the biggest sources of refining capacity growth that is taking place. So even though you are starting at a very small base, could you see China become a more important driver of CPP demand, given that their distillate exports were up over 60% last year and they are adding almost 0.5 million barrels a day of refining capacity this year? Could you see those guys developing into a bigger source of demand for the market overall?

To be honest, Doug, I think they are roughly in balance in terms of demand versus -- they've got about 15 million barrels a day of oil consumption. That's about the size of their refinery base. They are just keeping pace with domestic demand. I think it would be wonderful if they were -- if there were a really big imbalance. Maybe that will happen.

I think you could see a situation where they are -- they are basically short gasoline and long diesel. If there's unexpected growth in China and the refining capacity hasn't kept up, probably the diesel exports would decline but you'd see much bigger product imports.

So, overall, we think it's an interesting thing to watch longer term, but the capacity they are building in is really for domestic use. If they continue to grow slow, you will see incremental diesel exports coming out of that as well.

Got you. That's all I had. Thanks for the time, Tony.

Jon Chappell, Evercore ISI.

Thanks. Good afternoon, guys. Tony, just thinking about how you balance the entire fleet employment with the positive commentary you gave around the industry, obviously on the demand side. And then the supply side really stands out; lowest MR order book in 15 years.

But also now, as you are a dividend-paying company and there's been -- it seems to be a little bit more liquidity on time charters at rates that have probably performed better over, I would say, the last six months than the spot market, which has been incredibly volatile, how do you balance locking in some cash flow in this improving market despite the favorable outlook you have to kind of give more transparency and comfort with the sustainability of the dividend?

Again, I think when we're thinking about one-year time charters, we don't really feel it gives a huge amount of visibility long term, but maybe it would quarter to quarter. I am not sure how much that would, in the end, really be worth in terms of perceived value.

But I think our objective would be to find -- to really not go into time charter business in a big way until we felt that there was at least a fairly close correlation or close matching of TC -- one-year TC and spot. And that's just still not the case.

We would, of course, go longer if we felt that, as we expect at some point, there's going to be a shift in our market psychology where there will be a real scramble for ships on longer-term basis. And if we feel that some of our good customers that are creditworthy and serious want to go longer than a year, we would love to do that at the right time. But it's got to support not only good dividend, but a good earnings base and at today's levels that wouldn't be the case.

Understood. Then the $11 million in cash proceeds from the sale of the two smaller chemical tankers, plus the $20 million freedom from your new refinancing, how would you lever that $30 million in your mind as far as potentially adding one or two more ships? I would imagine from the secondhand market. What type of leverage would you be comfortable with there, seeing as you are up 52% right now?

I think we would probably -- the thing is we're stepping out of capital leases on the vessels so that the release of cash equity isn't as much as you think. But I think, as Paul maybe can --. Our view is that roughly 50/50 leverage is about where we want to be in this market. And so we do have the capacity for picking up a couple ships and that's certainly something that we are looking at.

Is there a target --?

(multiple speakers) I was just going to say, in terms of individual ship acquisitions, you can probably lever it up 55% to 60% on a vessel, probably veering towards the former. But when you buy a ship, obviously, the sticker price is one and then the working capital that goes into it. So I think you will end up -- if we were to buy a ship, you will end up with net leverage around 55%, 50% to 55% direction if that answers your question.

Yes. And then what I was going to ask is is that the target leverage for the entire organization? 60% payout ratio is robust, but there's also 40% free cash flow you are generating. Is there a target net debt to cap ratio maybe closer to 40%, or do you view any excess cash above and beyond what you're paying out as kind of growth capital?

You know, again there's a few things we can do with the cash, with the 40% remaining and one is we can expand the fleet. We can buy back shares. We can reduce debt. We can just keep it; keep the cash on the balance sheet for opportunistic reasons.

We're interested in all of that and, again, we are just trying to figure out what's the best path to -- what is the way to maximize accretion. It may very well be additional ships, so we just have to pick our timing on that.

Just add to that one as well, under the new debt we are paying down close to $40 million a year so your leverage is coming down quite significantly year on year. So you will be well below 50% closing in on the, as you said, the magic 40% number towards the end of the year.

I think that's -- we're in a strong market now and it makes sense to delever and strengthen your balance sheet, whether that's giving you the firepower for additional acquisitions. But I don't think there's any magic number in terms of leverage, but I think getting below 50% and closer to 40% gives the Company significant strength to continue to move forward from here.

Okay. Thanks, Paul. Thanks, Tony.

Noah Parquette, JPMorgan.

Thanks, guys, for taking my question. Most of my questions have been answered, but I just wanted to get your opinion, Tony, on have you seen any changes in trade routes in your vessels since the crude export ban was repealed? I know it's early, but anything you are seeing.

Sorry, can you repeat --? The impact on our business of the crude export ban?

Yes. Have you seen any changes in trades, in trade routes in your business?

No. We are only engaged in products. I think the way it would potentially impact us would be if it had an effect on pricing of feedstock for US Gulf refineries to the extent that they started curtailing production. We just don't see that happening.

Valero seems to be doing exceptionally well. Other -- the more integrated companies are. So as long as they continue to run flat out, or as much as they can, we are in really good shape.

Just more broadly, though, it looks like I think four ships have loaded so far. I think one or two have been LR1s or Panamax and a couple Aframaxes, so I think it's certainly good for the tanker business overall. In particular for Aframaxes where the tonne mile demand picture hasn't been brilliant over the last 10 years because the average voyage length has really shrunk a lot. But those voyages are actually very long, out to Europe.

So it could have a meaningful tonne mile impact on Aframaxes, which could then have an indirect positive impact on LR2s and then the product market overall. So we think it's positive; we don't see any negatives in it.

So I wanted to follow-up on that Aframax. That's the primary way that crude and product tankers are linked, right?

What do you estimate the LR2 fleet is trading crude right now? Is it still about 50%? Do you see that changing at all over the next 12 to 18 months given your view?

What we do know is that I think in the first half of last year about 20 LR2s went from clean to dirty, but we also remember a couple years ago when you had a couple of guys trying to clean up. And it's very expensive. It can be $1 million or more to get from a dirty trading LR2 condition to the last three clean. So it's not something anybody is going to do lightly.

We think it's a much easier decision to go dirty; very hard to go back. So we think that it helps -- the flow kind of helps a lot more than it hurts potentially and it's not a very significant linkage. There are something like 150 LR2s trading clean right now. That compares to 2,000 MRs in the world fleet, so it's not a huge sector.

Then last week there's the news that a couple newbuild tankers took clean products from Asia I guess to Europe. What do you take away from that? Is that just kind of one-off thing? Does that tell you anything about diesel in the Asia region?

Just trying to get a sense if Chinese diesel exports are going to be neutral or negative in tonne miles or potentially accretive if it goes farther?

Everything else being equal, more cargo means more demand. I think those kind of trades have been going on for a long time, we just haven't heard about them. But I think for at least a year some of the oil traders have been taking Suezmaxes right out of the yard and loading them up with product to go somewhere.

We also heard a while ago that there were, I think, four old OBO type vessels that were taken on for jet fuel storage. So there are vessels slowing down, so I think there's a lot going on that is creating demand that is related to the whole congestion problem. We don't see it going away and we think it could get even more interesting.

Okay, that's all I had. Thanks.

Mike Webber, Wells Fargo.

This is Donald stepping in for Mike. Thanks for taking my questions. I will open I just wanted to follow-up on your last point.

We keep hearing rumors of floating distillate storage in the market. Is this still primarily short-term storage based on discharge the latest due to bloated on-shore inventories, or do you see longer-term contango-based storage developing like you had mentioned with those OBOs? Is that becoming a wider trend? Are you hearing more inquiry for that from charterers relative to, say, three months ago?

Well, there's certainly more inquiry. Don't really have a lot of data on how much is actually happening now, but it seems to be -- literally today is the first time we've ever been asked to slow down dramatically at sea by reason of a port just not being able to take the ship for a long time. So it is a developing situation.

I think it's much less likely to be pure contango cover-trade driven with products than it is with crude, but it has happened in the past and we might see that really develop in the near term. But that would be more on the bigger ships.

Just following up on that, when you say slow down dramatically, what speed would you be slowing down to, say, relative to the 14 knot steaming speed?

Well, that ship was probably doing 12.5 knots to begin with, so I haven't a chance yet to call the office and find out what we are actually able to do. When you can run -- it's kind of complicated, but when you get below a certain speed the turbo charger needs to be backed up. It needs to be reinforced with blowers and that calls for a second generator, so there's some calculations you have to do.

It's also not something you can do for a very long period, unless you've reconfigured the engine. So don't have the details, but it is an interesting development.

Got it. Thanks for the color and that's it for me, guys.

Ben Nolan, Stifel.

Thanks. I have a few questions, and maybe just to follow off the one that Don was asking there about storage and your vessel that's going slower. Obviously, as the global inventory of the refined products build and the need for storage build and fills, it would seem as though crack spreads might come under a little bit of pressure, and if they do, then you might get a reduction in refinery runs.

Is that something that could be a risk to the volume side of it? And if so, is it something that is short-lived typically, in your experience?

Yes, that's a good question. I think in that kind of situation the impact is usually very short term. We've been through this in the last 12-month periods where you hear a certain region all of a sudden they're just not taking in ships.

Very often it's actually associated with taking in an excess amount in anticipation of refinery turnarounds, so like with the West Coast to South America. We haven't really seen that happen the way you've described it, but what we have seen happen is an awful lot of scrambling of what would be normally fairly routine supply arrangements. Port delays resulting in ships missing their next voyage, etc.

So I think -- we think countervails that or counterbalances it even more is the volatility and the trading opportunities that are created. Because ultimately these cargoes, they've got to move. So at some point, even if the --.

I would say if the refineries, they start cutting back into production because there's just too much congestion, well, it means that there's an awful lot of product tankers sitting waiting to discharge. And maybe that more than offsets it.

Got you, that's a good point. And then my next question relates to something that you guys alluded to or talked directly to with respect to the order book for the MRs. And as you said, below 10% has been a long time since we've been at that level. But the LR2 and the LR1 markets, the ratio is a bit higher.

In your experience, is it possible for there to be a legitimate decoupling of one particular asset class, like the MRs, if maybe it takes a little bit longer for the demand side to catch up to the LR2s as a function of the new vessels coming into the market?

Look, there's definitely a small degree of overlap between LR1s and MRs, but as we talked about many times, the value of an MR is principally its flexibility and that's what traders need. So unless they know where the cargo is going specifically, they are not really able to take advantage of the bigger stem. That means that there's a fairly limited amount that LR1s, for example, could push in.

LR2s, very often you hear people doubling up stems and moving it on an LR2 instead of an MR. But again, once you do that you pretty much have to lock in where the cargo is going. And so the amount of opportunity for that is actually kind of surprisingly limited.

Now in the last five years, we have been through periods where not just LR1s but even LR2s have been trading at or below what MRs are earning. I'm not saying it wouldn't drag us down a little bit, but there is a sufficient decoupling where you've got ships that have 35% to 70% more capital invested with higher OpEx earning less money.

And the other problem with the bigger ships very often is MRs are doing increasingly complex trades, so they will do multiport loads, multiport discharges, onboard blending, etc., and you just can't do that economically with LRs.

Okay, that's helpful.

I can tell you that an oversupply with LR1s and LR2s is going to be -- have no impact and it's not potentially negative. But it's not like the container business, for example.

With cascading, right. And my last question relates to one of the other topics that's just come up a little bit in terms of buying maybe one or two assets.

In this market, I don't think that there's any way that you can cut that your shares are trading at a pretty steep discount to NAV. I'm just wondering how much sense does it really make to be out there buying assets when you can buy the shares at a pretty substantial discount to where you could buy the assets?

Well, if you may have detected a slight lack of lift in our step this morning, it's because of the stock price reaction, so, yes, we will be rethinking share repurchase if we are at these kind of levels. Look, we're just -- every day and every step of the way we're just trying to figure out what's going to accrete the most value. If we can buy back our shares and have that impute to buying a ship at 10% to 20% below market values, then, yes, we would certainly consider that.

Good, good answer. Thanks a lot, guys.

Fotis Giannakoulis, Morgan Stanley.

Thank you. My questions have been answered already. Thank you very much.

Oh, Fotis, come on.

Okay, let me ask about asset values. I want to know where asset values stand right now and what happens with shipyards. This is the only question left to ask. How do you view the cash flow yields on MR vessels going forward?

Fotis, that's unfair. We're not going to answer that question. No, okay, so asset values and shipyards.

Look, values are holding up reasonably well, certainly better than share prices. The markets really is making money right now, so why sell? I think some of the pressure to sell comes from the fact that these ships may be owned by people that are in other shipping sectors, but overall operationally it's a very healthy market right now.

Shipyards, it's really interesting because they are really caught between a rock and a hard place. They really are not going to be allowed to dip below their variable -- their cost of production. Yes, they are a little more hungry and maybe they are prepared to do a little lower price, but guess what? The cost of construction has gone up with the new regulations, so those probably more or less balance each other out at the moment.

They literally are -- most of the yards that build MRs are actually controlled by the banks now. And that's very different from a few years ago when you had management teams that had kind of been hanging on. They managed those yards through the good times and were kind of hanging on and their whole framework was market share and order book.

They made some catastrophic mistakes, paid for with their jobs, and with the solvency of their companies. So now they are bankrupt, the banks have them. STP, where we built most of our ships, was just sold. But they used to have three operating yards, now they are down to one.

So there's been tremendous shrinkage in capacity and we don't think there's really the willingness or the ability to go below their cost. They are not going to get refund guarantees below that level. That's our view on it, so we will see how it plays out.

But the other side is that you got to have somebody willing to buy and prepared to commit significant enough of capital. And where is that going to come from?

Can you remind us where the price of a newbuilding today is and where it was a year ago? And what kind of payment terms you can have? How much money do you have to pay upon signing of a contract? Is this something that might be interesting for you or for others?

What I'm trying to understand is this low order book that we have, what is the risk of people putting $3 million, $4 million down payment to order a bunch of newbuildings?

So we have gone from I have no questions to (multiple speakers). That's fine, that's fine.

I think the slight increase in hunger of the yards to build MRs has been offset by the increase in costs, and so I think we're roughly at the same levels that we were a year ago. Maybe $36 million, $36.5 million for a well-stacked MR, which by the way, by the time it delivers with additional stuff and supervision cost and capitalized interest and fitting out, that's $37.5 million delivered. So we don't think that has really changed very much.

Thank you very much, Tony.

And in terms of who's going to put $3 million down for 10% to order ships today, I think there are dramatically fewer people prepared to do that today than three years ago.

Thank you very much. I appreciate it.

Vishal Khapane, T. Rowe Capital Management.

I wanted to know the products being generally oversupplied, both gasoline and diesel, do you expect that to put pressure on the product tanker market because refineries are going to be -- might be taking additional runs? We had BTS come out yesterday and said they are taking additional runs or downtime, are going into maintenance early. So do you expect significant pressure on product tanker rates, at least in the very near term?

Look, there is, if you look at the pass-through utilization rate, it is way down. I think a good chunk of that is the Beaumont refinery, but refineries have gone into turnaround and they will come back.

I just -- there is a dwindling, but admittedly a continued oversupply of oil and it gets refined and then it gets shipped. But the global stockpiles of refined products are higher than normal, but nothing like crude. So clearly the stuff is being refined; the margins are good enough and it's moving. So we don't think it's a major factor.

Just to add to that, you have refinery margins at all-time highs, particularly for gasoline, and that's encouraging refiners to keep running. You now have very low utilization in PADD 3 in US Gulf and as a consequence of that you now have crude buildups at [Cushing]. So I really don't think it's possible for refineries to kind of scale back significantly. They might do a little bit on the margins, but I think it's -- you have continued demand for gasoline.

Diesel is kind of, for the most part, a byproduct so I think refineries will keep running while margins are strong. They are making a lot of money now. They may scale back a little bit, but I don't think they will do so significantly.

And I think while cargo is coming out and while you have continuing refinery expansions, that business will become more competitive but I think it gives rise to a lot of arbitrage and a lot of product load. So I think you may have some on the margins but I don't think we would expect to see a significant impact on the tanker market.

Okay. Thank you, guys.

[George Berman], IFS.

Thanks for taking my call. Can you give us a couple of examples of a triangulation route? Would be the first question. Second, is your fleet primarily in the Atlantic area or are you also doing the Far East?

Examples of translation routes would TC2, TC14, which is gasoline northern Europe to New York, then ballast down to Houston, and then TC14 back to Europe usually with distillates. So that is the, quote-unquote, Atlantic triangulation. The Pacific triangulation is Singapore up to Japan and then Korea down and back to Singapore. That is TC11 and TC4.

So those are the key triangulation routes, but there are others that aren't as readily quoted that kind of provide the ability to boost utilization up well above 50%.

Then the second question was --. Sorry, could you repeat your second question?

Where your fleet mostly operates in the Atlantic Basin or Pacific?

We -- it's not necessarily by design, but by some intent it's roughly balanced. But look, if you see a great cargo that's moving from one region to the other, you will do it and then you will say, gee, if I can find something else out on another ship I will do that too. So we're happy to be roughly balanced between the two.

Okay. A lot was talked about additional waiting times. When you do a cargo and you experience, say, a week delay in discharging are you still being paid your day rates or do they drop substantially?

You get paid something called demurrage, which is basically the day rate, plus some additional costs for fuel consumed with the generator and some additional costs. Typically the demurrage rate is a little bit higher than the TCE, or the time charter equivalent, you calculated for the voyage.

Okay. Maybe reiterating today's stock price, I don't know if you guys expected this. Apparently the expected earnings were a little bit higher than you reported. How would you weigh buying back your own shares and indirectly buying ships versus picking up some ships in the secondary market?

Well, anyway with regard to the stock price reaction and our earnings, with our main analysts we were very much in line and I think no surprises there. We have some outliers that don't really follow us very closely, but they still factored into the consensus number.

But, look, as I said earlier, share repurchase is one of the alternatives we have for use of cash and when the stock price goes down it's that much more attractive.

It's actually quite surprising on a day that you put out record earnings of $1.23 for the year and your stock price goes down. It is interesting. We gave a lot of color when we gave guidance to couple of weeks back, but unfortunately there were still some outlying analysts. But I'd say, yes, the stock price today has certainly been a surprise to us.

Okay, appreciate it. Thanks.

Adam France, 1492 Capital.

Couple quick ones, guys. Thanks for squeezing me in. I don't know if you could offer percentages along these lines, Tony, but how many ports out there are them MR accessible versus LR and LR2 accessible?

Let me think. My guess is that -- I think it's a very small percentage. I think maybe a way to rephrase the question is how much of the MR trading could be done by LR1s or LR2s if traders knew where the cargo was going? And it could be a quarter of it.

But the point is the traders don't know where they are going and they don't -- they are not going to commit to that, because the flexibility and the optionality has tremendous value to them. And very often these cargoes trade hands several times on the water, so it's really the flexibility and the standard lot size that is key.

Got you. Tony, this is a difficult question to ask. Today is obviously an overreaction, but you guys have done a first-class job running your company and you believe it makes sense that you're NAV is somewhere 13 and 14. How do you know that being a publicly-traded shipping company is worthwhile?

Well, as I think you can say in every walk of life, some days are better than others.

Sure, and I don't want to overreact, but (multiple speakers).

No, we are committed to being public. We think that the tanker business is an important industry. It requires a lot of capital.

Our objective as a management team is to create value for shareholders. We don't do that by following the stock price every day. We do it by trying to develop a strategy which maximizes value, puts us in strong competitive positions, and where we get the timing right.

We feel we got the timing right with our IPO, with the orders, the timing of the deliveries, and the market is great. If there is a real disconnect, that's -- there are many things we can control, the stock price isn't one of them. But we also have the ability to buy shares back.

The problem with that is that if the capital market saw that signaling, it sends a signal that maybe we want to decapitalize or reduce our market cap, and that's not actually the case. We would like to grow, but we want to grow accretively and we want to grow for the right reasons. And so we are not about to take the Company private, let's put it that way.

Got you, very good. Thank you for squeezing me in, guys.

Ladies and gentlemen, this concludes today's question-and-answer session and, thus, concludes today's call. We thank you very much for attending today's presentation. You may now disconnect. Take care.