Capital Clean Energy Carriers Corp (CCEC) 2011 Q4 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Capital Product Partners fourth-quarter 2011 financial results conference call. We have with us Mr. Ioannis Lazaridis, Chief Executive Officer and Chief Financial Officer of Capital Product Partners, and Mr. Jerry Kalogiratos, Financial Director of Capital Maritime.

At this time all participants are in a listen only mode. There will be a presentation followed by a question-and-answer session at which time if you wish to ask a question (Operator Instructions).

I must advise you that this conference is being recorded today, Tuesday, January 31, 2012. The statements in today's conference call that are not historical facts, including expectations regarding developments in the markets, our expected charter coverage ratio for 2012, and expectations regarding our quarterly distribution may be forward-looking statements as such term is defined in Section 21-E of the Securities Exchange Act of 1934 as amended.

These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations to conform them to actual results or otherwise. We assume no responsibility for the accuracy and completeness of the forward-looking statements. We make no prediction or statement about the performance of our common units.

We now pass the floor to your speaker today, Mr. Lazaridis. Please go ahead, sir.

Thank you, and thank you all for joining us today. As a reminder we will be referring to the supporting slides available on our website as we go through today's presentations.

Starting with slide 1, I am going to make some comparisons on today's call between the fourth quarter of 2011 and the fourth quarter of 2010, as this is the most meaningful analogy in our business.

On January 23 our Board of Directors declared a cost distribution of $0.2325 per unit for the fourth quarter of 2011. The fourth-quarter cash distribution will be paid on February 15, 2012 to unitholders on record on February 7, 2012. The total distributions of $0.93 paid during 2011 qualify fully as a return of capital for our US-based unitholders, according to our advisors.

The Partnership's operating surplus and net income for the fourth quarter of 2011 were $15.8 million and $1 million, respectively. The Partnership's net income was reported at $2.4 million in the fourth quarter of 2010.

Earnings per limited partnership unit for the fourth quarter of 2011 were equal to $0.02, which is $0.04 lower than the $0.06 per unit in the fourth quarter of 2010.

The fourth-quarter 2011 earnings per unit were affected by certain non-cash items such as the amortization of the above market acquired charters, amortization of deferred revenue, the expense of the Omnibus Incentive Plan, and a gain on interest rate swaps. Excluding these non-cash items, earnings per limited partnership unit for the fourth quarter of 2011 were equal to $0.05.

The fourth-quarter 2011 results of the Partnership do not reflect the full impact of the long-period employment charters we have announced during the quarter for four out of the five Crude Carrier vessels. In the fourth quarter an average of 3.1 out of the crude oil -- or out of the five crude oil vessels that were previously owned by Crude Carriers were operating in weak crude oil tanker spot market.

I will mention over the course of the fourth quarter we have announced new longer-term time charter employment for two of our VLCCs and two of the Suezmaxes at attractive rates for a period of up to three years and with profit share elements, which allows us to benefit from a potential crude tanker market recovery.

In addition, we have recently announced the charter extension of two of our medium-range tankers to BP, thus further consolidating our relationship with the oil major, and also extended for another year the charter of our oldest Suezmax, Amore Mio II, to our sponsor Capital Maritime & Trading.

Finally, we have amended several terms of the charter for the motor vessel Cape Agamemnon to COSCO Bulk. Following this amendment the Partnership stands to gain an additional $1.8 million in charter revenue over the duration of the charter.

The average remaining charter duration of the Partnership stands at five years, with 77% of the 2012 total fleet days having secured charter coverage.

At this point I would like to take the opportunity to reiterate the Partnership's strong commitment to the annual distribution guidance of $0.93 per unit.

Turning to slide 2. Total revenues for the quarter were $44 million compared to $29 million in the fourth quarter of 2010. The Partnership's revenues reflect the increased fleet size following the acquisition of Crude Carriers.

Total expenses for the fourth quarter of 2011 were $35.3 million compared to $18.5 million in the fourth quarter of 2010, as a result of the increased voyage expenses, as a number of the crude vessels acquired as part of the acquisition of Crude Carriers were operating under voyage charters during the quarter, higher operating expenses as a result of the higher number of vessels in the fleet, and higher general and administrative expenses.

The operating expenses for the fourth quarter of 2011 included a $7.8 million charge by a subsidiary of our sponsor Capital Maritime & Trading Corp. for the commercial and technical management of our fleet under the terms of our management agreements.

The operating expenses for the fourth quarter of 2011 also consist of $12.3 million in depreciation and $2.4 million in general and administrative expenses, which include a $0.8 million non-cash charge related to the Partnership's Omnibus Incentive Compensation Plan, and the $0.1 million charge in connection with a merger with Crude Carriers, and the preparation of the proxy statement of Form F-4 filed with the Securities and Exchange Commission.

In reference to vessel operating expenses looking ahead, we expect that as the fixed-rate commercial and technical management agreement with our manager expires for each of our time charter vessels, we will enter into a new fee structure based on actual expenses, whereby the manager will be compensated for its actual expenses instead of a fixed fee. In 2012 we expect six of our vessels to transition to the actual expenses fee structure.

Total other nonoperating expense for the fourth quarter of 2011 amounted to $7.6 million compared to $8.1 million for the fourth quarter of 2010. Total other nonoperating expense for the quarter includes a $1 million gain on the Partnership's interest rate swap agreement as a result of the change in fair value of certain of our swap agreements.

Moving on to slide 3, you can see the details of our operating surplus calculations that determine the distributions to our unitholders compared to the previous quarter. Operating surplus is a non-GAAP financial measure which is defined fully in our press release.

Adding certain non-cash items back to net income we have generated approximately $15.8 million in cash from operations during the fourth quarter of 2011. Total unit coverage for the quarter stood at 1 times.

On slide 4 you can see the details of our balance sheet. As of December 31, 2011, the Partnership's total debt has increased by $159.6 million to $633.6 million compared to long-term debt of $474 million (technical difficulty) which was refinanced under the Partnership's $350 million revolving facility, which is non-amortizing until June 2013, and $25 million in indebtedness incurred in relation to the acquisition of the motor vessel Cape Agamemnon in June 2011.

The current portion of the Partnership's long-term debt stands at $18.3 million as our $370 million revolving facility becomes amortizing in September 2012. The Partnership has the option to extend the non-amortizing period of any outstanding debt under this facility and of any of its other two facilities by up to three years, subject to compliance with the facilities covenants and the consent of the banks.

Following the issuance of approximately 25 million units for the acquisition of Crude Carriers in a unit-for-share transaction, whereby Crude Carriers became a wholly-owned subsidiary of the Partnership, and the issuance of 7.1 million units to Capital Maritime in connection with the acquisition of the Cape Agamemnon in June 2011, the Partner's capital stood at $517.3 million as of December 31, 2011, which is $277.6 million higher than the Partner's capital as of December 31, 2010.

Turning to slide 5, you can see our fleet list. Following the merger with Crude Carriers, the Partnership's average fleet age stands at 4 years, which is among the youngest fleets of this size and type in the industry. The young age and high specification of our fleet, as well as the oil major qualifications for long-term employment of our manager, are distinct competitive advantages for the Partnership, especially in today's markets with the increased focus on safety, security and efficiency.

Turning to slide 6, as announced during the previous quarter and in line with our business model of providing full period coverage for our fleet, we have secured long-term fixed-rate employment with profit share for two of our VLCCs and two Suezmaxes, which we acquired from Crude Carriers and were previously trading in the spot market.

The two VLCCs, motor tanker Alexander The Great and motor tanker Achilleas, earned a gross daily charter of $28,000 per day, $20,650 net, plus 50/50 profit share on actual earnings settled every six months for the first 12 months of the time charter to CMTC.

Capital Maritime has the option to extend the time charter employment for a second year at $34,000 per day, and for a third year at $38,000 per day with the same profit share arrangements.

The motor tanker Aias and motor tanker Amoureux and the gross daily charter rate of $20,000 per day, $19,750 net, plus 50/50 profit share on actual earnings settled every six months for the first 12 months of the time charter to Capital Maritime.

Capital Maritime has the option to extend the time charter employment for its vessel for a second year at $24,000 per day and for a third year at $28,000 per day with the same profit share arrangements.

We believe that the period rates achieved for these vessels, as well as the profit share arrangements, which will allow us to capitalize on the potential crude market -- crude tanker market recovery, constitute an attractive deal to our unitholders.

Furthermore, we have extended the charter of the Amore Mio II to our sponsor by 11 to 14 months at a gross rate of $18,250 per day, $18,022 net, which compares favorably with the current one year market rates for similar vessels and continues to demonstrate our sponsor's commitment to the Partnership.

Finally, we have extended two of our time charters with BP for the Agamemnon II and Ayrton II, thus further consolidating our relationship with the oil major.

The Agamemnon II will earn $14,000 net per day plus profit share for breaching IWL for the first -- for the 12 months, while the Ayrton II was fixed for two years with a charter rate of $14,000 net per day for the first year, increasing to $15,000 per day net for the second year, plus profit share for breaching IWL for both years.

The Amore Mio II, Agamemnon II and Ayrton II charter extensions are in direct continuation of the previous employment, thus ensuring more idle time for these vessels.

On a side 7 you can see that our fleet continues to enjoy high charter coverage for the medium term. The Partnership's fleet charter coverage for 2012 is 77%, with a remaining average charter duration of five years. During 2012 we will have the opportunity to re-charter seven of our product tankers, a period in which we believe product tanker charter rates will firm, reflecting a more positive market environment and fundamentals.

The current prevailing market rates for one to three years for product tankers are at overall higher levels than the rates at which the vessels to be charted are fixed.

Turning to slide 8 the product tanker market demonstrated considerable strength towards the end of the fourth quarter due to increased demand for product tankers in the all-important Transatlantic route. This is a result of the overall increased fleet utilization for product tankers, which led to spot market spikes as incremental demand entered the market.

Incremental product tanker demand is a result of the favorable shifts in global refining capacity we have been observing over the last few years. In the second half of 2012 various refinery closures in the US and Europe were announced, including the announced closures of a number of refineries owned by Sunoco, Conoco and Petrobras, which is estimated that will remove 1.3 million barrels per day of refining capacity in the US East Coast and Europe.

This coincides with the ongoing refinery expansion of [silca] 12 million barrels per day in the Asia-Pacific region, the Middle East and Africa over the next two, three years.

These developments will have a positive effect on product tanker ton miles as the gasoline -- as the US gasoline deficit and the European middle distillate deficit are being partly addressed by increased exports from the Indian and Middle Eastern modern refineries over longer haul voyages.

In addition, the increased oil product demand from Brazil and West Africa further increases demand in the Atlantic Basin for product tankers, which should result in an improving product tanker environment.

The supply side of the product tanker fleet remains among the lowest in the industry, as the low nominal order book is further constrained by the high levels of slippage and cancellations, which stood at 56% for 2011.

Analysts currently expect a net product tanker fleet growth of 2.3% -- of 2% to 3% for 2012, which could potentially be easily absorbed by the increased demand for product tankers.

Given the better demand and supply fundamentals of the product tanker market, the period charter market remained robust with increased activity.

Period charter fixtures in 2011 for one year of longer employment for medium rate tankers and handy product tankers experienced an approximate 65% increase in fixtures and at generally higher rates compared to 2010.

Turning to the next slide. The crude tanker spot market for both VLCCs and Suezmaxes saw a seasonal improvement in the fourth quarter. Increased activity out of the Middle East and Gulf and West Africa to date, as well as the delays through the Bosphorus Straits supported a higher rate environment. However, crude spot charter rates remain close to historically low levels.

The long-term period market for crude vessel remained illiquid during the fourth quarter with very few fixtures taking place, as owners were unwilling to commit to lower rates for longer period and charters were reluctant to take more exposure to the historically weak spot market.

Despite a downward revision of the 2012 oil demand by the IEA due to slower than expected global economic growth, the outlook for 2012 remains positive with expected oil demand projected to 90.1 million barrels per day or a 1.2% growth compared to 2011.

The crude tankers spot market environment has improved so far in 2012 as increased Chinese demand and geopolitical uncertainties have resulted in increased demand for crude oil imports. The supply picture remains challenging due to the size of the order book. However, slippage for the crude tanker order book accelerated in the second half of 2011 and for the full year 2011 stood at 31%.

The current adverse spot market conditions, fall in asset prices and lack of available shipping finance are expected to result to an even greater crude oil newbuilding slippage and cancellations in 2012. Newbuilding crude tanker deliveries are likely to have peaked in 2011.

In addition, the fourth quarter 2011 saw the demolition of crude tankers of less than 20 years of age, as increasingly owners face the dilemma of operating their vessels in an environment of historically low rates, or scrapping all the double hull tonnage as a result of the low levels of utilization of these vessels, increased maintenance, and possibly costly special surveys.

These factors are expected to constrain the crude tanker net new growth going forward as crude oil demand from non-OECD countries remains robust.

Turning to slide 10. We would like to take this opportunity to reiterate our commitment to our annual distribution guidance of $0.93 per unit.

2011 was a transformative year for the Partnership. The completion of the merger with Crude Carriers on September 30, 2011, along with the acquisition of the Cape Agamemnon with an attractive long-term charter in June 2011, have strengthened the Partnership's balance sheet, thereby increasing our financial flexibility and laying a solid foundation for distribution growth going forward.

Moreover, in line with our stated commitment to employ our vessels in the period charter market that is offering cash flow visibility to our investors. We have successfully chartered for long-term period four of our crude tanker vessels operating in the spot market at the time of the completion of the merger, further improving the long-term charter coverage of our fleet.

We intend to fix the remaining one crude tanker vessel currently operating in the spot market in the coming months as opportunities arise in order to eliminate the Partnership's remaining crude tanker spot market exposure.

During the fourth quarter we enjoyed an improved environment for the product tanker market, and improved supply/demand balance due to the expected low number of newbuilding product tanker deliveries in 2012. As well as a healthy number of period fixtures observed in the product tanker market make us increasingly optimistic about the medium-term outlook of our cash flows.

In summary, the increased charter coverage which we have secured for our fleet for 2012, the full financial impact of the Crude Carrier vessel, longer-term employment from the first quarter 2012, the strong balance sheet with increased financial flexibility, and the solid product tanker market fundamentals provide us with increased cash flow visibility.

The potential recovery of the crude tanker market in the medium to long run could provide significant distribution growth potential. Given all of the above, we take this opportunity to reiterate our commitment to our annual distribution guidance of $0.93 per unit.

And with that I would like to pass to the operator for any questions you may have.

We will now begin the question-and-answer session. (Operator Instructions). Jon Chappell, Evercore Partners.

My first question has to do with the debt and the possible extension you had mentioned in the balance sheet slide that you had the ability to extend the amortization schedule on those facilities for up to three years, if you get agreement from the banks and you are in compliance with all the covenants.

I am just wondering if there is any plans to go forward with that extension, and if you are in compliance with all the covenants, which would enable you to do so?

It is a value covenant -- a debt to value covenant, which we are in compliance with. And we have already started talking to the banks, and when the time is right we will announce what we have done.

But as I said, it is certainly our intention, and we have so far been successful with all the requests that we had towards the banks. Our balance sheet is strong. And I think that our results and all our levels of compliance is well above what the banks require. So we are quite optimistic.

The second question has to do with just the operating surplus calculation in the last page of your press release. I notice there was no replacement CapEx this quarter. Was there a specific reason why there was none in 4Q? And then what is the maintenance CapEx run rate we should look at for 2012?

The two important things. The coverage ratio is 1 times. The replacement capital expenditures, the purpose of these is to provide for a reserve to invest rather than distribute the cash flow going ahead, so to grow the fleet and to replace the fleet as those vessels reach the end of their useful life.

If you look to what the broader look is for that levels of replacement capital expenditures in the past, the investment returns of those previous replacement capital expenditures, and they both determined that there was no need for additional replacement capital expenditures as we have over-provided in the past.

The maintenance capital expenditures, which are to maintain the operating and earnings capacity of our fleet, have always been part of our operating expenses. So as part of our operating expenses, either in the fixed or the actual cost agreement with our manager, we provide for regular drydockings as well as maintenance expenditures to keep the seaworthiness and regulatory compliance, as well as safety of our vessels to the highest possible level.

Our fleet has an average age of four years. It is amongst the youngest fleet in the shipping industry. So we believe by the decision of the Board to eliminate the replacement capital expenditures for the fourth quarter, we do not impair in any way or form the capacity of the partnership to maintain the fleet at a very high level. We will review those expenditures regularly and we will revisit those in the next Board meeting.

So you can't really say whether you expect them to return in the first quarter or not. It is something you're going to review every quarter.

Correct.

The ships that are coming off the management contracts, you said they're going onto current market rates for operating expenditures. Do you have an estimate of what the current OpEx levels are relative to what the fixed-rate contracts were previously?

As I mentioned to you before, and to other analysts, had we moved to another five-year fixed-rate agreement we will have had a much higher rate compared to the $5,500 that we have previously for our RM tankers. Simply because as the vessel get older we have to provide more for their maintenance and at the same time we have two dry dockings going ahead.

The vessels now like the Arionas and the Achilleas which are in the floating -- or the actual expenses, they're operating at around $6,200 to $6,500.

Then, finally, one last quick one. When we are looking at the MR rechartering potential for 2012 it seems like it is a much more liquid time charter market than crude. Given some of your recent exposure to Capital Maritime, the sponsor with the Crude Carriers, should we expect that you would be looking for third parties to be chartering the product tankers too?

We just announced with BP where we extended the Ayrton and the Agamemnon, so we have a very good reputation in the industry. Our financial position is strong, so many of the charters look at that as well nowadays.

And as I mentioned to you that the current rate, the prevailing rates in the market are at levels better compared to the levels that the vessels that come up for rechartering are today.

So we're quite optimistic and we're working with many different charters to fix these vessels. We have several vessels coming up, three in the first half and four in the second half. And as I mentioned to you, the demand/supply fundamentals at this point are quite positive.

Great, thanks so much for your help.

Darren Horowitz, Raymond James.

Two quick questions for me. First, revisiting the comments that you made regarding slide 8, can you just quantify what you think increased product tanker demand could mean regarding one-year time charter rates?

I'm just trying to get a sense of how much of an uplift you think relative to where they are we could see in the next 6 to 12 months.

If you look at slide 8, you will see that going back you have had the five-year average which includes three bad years of about $18,000. And we are currently just north of $14,000 -- or around $14,000.

I think that the important thing is to look where demand is today and how the different refineries schedules develop, i.e., with more openings in India and more closures in the East Coast of the US and Europe.

So I believe that the level of fixtures -- I mentioned that we are 65% up compared to a year ago. If you look at -- this is the most conservative estimates. There are other estimates that suggest that the fixtures are not only we are at better levels but also we are twice or three times more than last year.

So whereas it is difficult to give a rate, I think that we are quite optimistic of the improving fundamentals going ahead. The supply/demand balance, it is likely to see that the product tanker market in 2012 turns into a deficit. And we see already that the spot market has recovered at least towards the end of the fourth quarter -- has recovered to levels not seen for a number of years. So we're quite optimistic, but I don't want to give a specific number.

Last question for me, just from a big picture perspective. As you pointed out with 77% of the available days fixed for this year, and you being optimistic around the increased cash flow visibility that you have, how do you think about the timing and magnitude of a distribution increase?

Look, I don't think I am being optimistic. As I mentioned to you, the major fixtures that we have from here on are the seven amounts that I mentioned earlier, three in the first half, four in the second half. And I think that if you look where the rates at which these vessels were fixed compared to the rates today, you don't need much to have an improved cash flow.

At the same time, if you look at the level of at which our crude tankers will -- what our crude tankers will earn in the first quarter, our crude tankers in the first quarter will earn close to $10,000 more compared to the fourth quarter. And in the fourth quarter our capitalization was almost 1.

So I think that we are quite convinced and we are very committed to our $0.93, which is very much supported by the numbers we give you. Now in terms of the future improvement in the distribution, I think that depends greatly on the developments in the crude tanker market.

The crude tanker market on the one side had good demand fundamentals, with many fixtures, especially the VLCCs in 2011, but at the same time there is a lot of supply. I believe that the current finance environment will prevent many of these newbuildings to be delivered. But until we see that and we see the market in a better balance, I think it is difficult to make a forecast about the potential upside of the crude tankers.

But with the crude vessels today earning well below history, and in certain cases well below OpEx, I think that through our profit-sharing arrangement as this market recovers we can capture a great part of our upside. And then subsequently I think our distribution and our unitholders will benefit from that.

Thank you.

Michael Webber, Wells Fargo.

I wanted to first kind of zero in on the fourth quarter. And maybe if you could talk a little bit about your [TCE] performance during the quarter. You mentioned the strengthening market towards the backend, but it looked like revenue came in below -- pretty far below consensus.

But you have a lot of movement coming in and out of your fleet during the quarter. I am just curious if you can maybe give TCE numbers for both product tankers and the crude. And then maybe talk a little bit about how your vessels performed during the quarter and how that might be different in the first quarter as you guys get on a more normalized run rate with the crude vessels in there.

I mentioned in the call earlier there a certain non-cash items that affect the revenue, such as the amortization of certain charters that we have acquired, such as the charters of Assos and the charters of Cape Agamemnon.

We also have a deferral -- we amortize certain charters because they have a different, let's say, charter rate at the frontend and a different one in the backend. These together is about $2.5 million plus in the revenue.

If you look at the fourth-quarter crude vessels they earned approximately $14,000 and were on track, excluding the Ayrton II, to earn north of $22,000 in the first quarter, excluding the profit share. So I believe myself that if you adjust for these factors you will see that we made enough to pay our distributions.

And as we have the full impact of the vessels that we have charted for a long time in the crude side, as well as the product tankers that are coming off and they're likely to be fixed at a higher rate than at which they are now, as I mentioned, before the market is (inaudible), I am quite hopeful about distributions ahead. So I don't know if that answers your question, but I think it is --.

The additional color definitely helps. But that $2.5 million of amortization, I would assume that carries on for the life -- does it carry on for the life of the charter? Is that something we should be seeing in the first quarter or is it just purely one time in the fourth quarter?

No, no, that is going to carry on for quite a while.

Okay.

The deferral will carry less than the amortization, but --

Okay, great. I can follow up with you on that off-line. I wanted to jump back to one of John's questions on your debt and specifically the option to extend. You guys -- the 2007 credit facility starts amortizing in June and the $350 million in 2013, you can turn that out, would you look to extend, I guess, both facilities in parallel? Is that something you are having a conversation about right now?

And then under the assumption that you don't extend those can you remind us what the amortization schedule is like on that $370 million facility, the one that would start in June?

No, our firm intention and the firm understanding of the banks and us is that we want to extend the non-amortizing period. And as you suggested, we probably want to sort out both at the same time.

Got you. What is that amortization schedule like in June if you guys are not able to hammer out an agreement?

It is not in June, it is September, but it is about 9.25 -- so $9.1 million per quarter.

$9.1 million per quarter. Okay, got you.

(Operator Instructions). Michael Pak, Clarkson Capital Markets.

Just a couple of questions here. In the fourth quarter on your crude tankers you had fixed four of them on prime charter, as you mentioned before. About what point in the quarter did you fix those? Was it more on the latter part of the quarter would you say?

As I mentioned to you earlier, on average three out of the five vessels that we had during the quarter of the vessels of Crude Carriers were open. We fixed a couple in mid-November. We fixed one in December, and the fourth one was fixed in the beginning of January.

Great, great. No, I appreciate that. Then my other question, considering your outlook on the product tanker market and where values are today, how do you look at the opportunities in terms of the sponsor drop-down and possibly a newbuild program?

I think we just completed the acquisition of Crude Carriers, which was an important acquisition to us. We increased the balance sheet to $1.2 billion. And we're working on eliminating any remaining exposure to the spot market. So we first need to put that -- complete that.

And, of course, we are always looking for opportunities, but the priority now is to make sure that we generate more cash flows, we are building our coverage, and we improve the unit price before we do anything else.

Great, that is all I had. Thank you.

Justin Yagerman, Deutsche Bank.

It is Josh Katzeff for Justin. I just wanted to follow up on the debt roll one more time. Is there any sort of increase in margin or fees on the table with banks in order to get them to agree to the amortization delay?

The two are separate. In our first facility note our margin is fixed for the duration of the loan. In our second facility the margin is to be revisited later this year. So -- however this is irrespective of the rollover, and always there may be some fee associated, but we will have to wait and see.

The important thing is that, as I said, we comply fully with all the requirements to extend our non-amortizing period. And we're working with the banks to address that in due course.

Got it, got it. And then in Q4 we saw a bit of a step up in G&A. I guess, now that your -- Crude is fully integrated into the fleet, should we expect a similar run rate going forward?

Of the $2.4 million in G&A, $0.8 million were related to the non-cash effect of the Omnibus Incentive Plan. As we have brought in the Crude plan, the overall plan has increased. And, also, $0.1 million was some remaining charges for the merger.

So the cash side of this was approximately $1.5 million. As we have mentioned to you at the time of the merger, we expect the G&A expenses on a full year basis to be, give or take, $5 million -- on a full year basis.

Is that --.

On the cash part.

Is that $800,000, I guess, in compensation is that going to be continuing going forward or is that a one-time grant?

No, no, that was going on before and it is going to continue at least until mid-2013 when this plan vests. So is ongoing. It has been before and will continue. The level of it depends on the unit price relative to the award price.

Got it, got it. Then just one last question before I turn it over. For the one open Suezmax, I guess the entire crude fleet is on charter to Capital Maritime. I understand that you fix some other vessels out to third parties, but should we expect that Suezmax to go to Capital Maritime or is the reason for the delay because you're trying to get third-party employment?

We're working on certain projects and hopefully we will be able to announce something soon.

Got it, thank you. Thanks for the time.

Ken Hoexter, Merrill Lynch.

Can you talk about liquidity in the market that you're seeing for the crude tankers and product tankers? How is the charter activity increasing and what kind of demand you are seeing for longer-term charters?

This is Jerry. Over the course of 2011, and especially towards the backend, as well as the beginning of 2012, we will have seen a number of market players, especially operators, oil majors and traders coming back to the market trying to get long-term coverage.

This is -- we have seen a lot of fixtures taking place for one year deals, but increasingly so for 3 to 5 years as well. And what has been very encouraging over the last few months is that a number of ships are fixed forward, i.e., charters are trying to fix vessels forward in order to cover for what the we expect to be an improved rate environment over 2012 and 2013.

Thank you. And earlier you mentioned to one of the questions, you didn't think about expanding the fleet right now. What would it take for you to -- what would occur in the market that you would maybe backtrack and start thinking about expansion opportunities?

I think -- it is Ioannis here again -- I think certainly it is necessary to lift the unit price, and we have to be able to convince fully the market about our belief and strong commitment that the $0.93 distribution will be paid from here on every year. And I think that the market had some doubts following the merger with Crude regarding the spot exposure. We're addressing that, and I think most of that has been addressed with only one vessel remaining.

I think as we convince the market that there is more signs especially of the product market improving, then we will be looking for opportunities ourselves.

But I think the priority, as I mentioned to you, at this point is to make sure that we consolidate our cash flows. And I think that there is plenty of upside in the distribution from the current fleet, given where the rates are today and given the upside potential in both products and crude. And especially prove through our profit sharing agreements we can greatly benefit from a better market.

So we don't necessarily need to expand our fleet to expand our distribution, we only need to see a little bit more of a market recovery, and I think we are in a great position to achieve better distribution to our unitholders.

That is real helpful. Thanks. My last one, maybe back to Jerry then. The $7.8 million charge, I guess, can you maybe dig into that a little bit? Is that a new charge and what is that (multiple speakers). If you can give us some help with this.

Which charge?

The $7.8 million charge.

No, no, this is -- $7.8 million -- you mean the operating expenses? We haven't made any charges.

I am sorry. I thought there was a charge for management.

No, no. It is not a charge. As part -- no, no. $7.8 million is the amount of operating expenses that are under our fixed rate management agreement. We just report it separately compared to the actual management agreement. There is no charges.

Okay, thanks for clarifying.

That is part of our operating expenses, it happens every quarter.

Michael Webber, Wells Fargo.

I got cut off a little earlier. Most of my questions have been asked, but I do want to go back to a high-level question. Ioannis, your credit facilities both have market disruption clauses in them that the bank can unilaterally trigger if their funding costs go up. I'm just curious as to, A., how that process works. And B., what are you hearing from them right now in terms of -- and into their funding costs and whether or not they could start to bleed through to you guys a little bit more?

It doesn't seem like it has over the last six to nine months, but just curious as to what are your thoughts are there.

When it comes to us, we have tiny amounts of funding costs. All our banks have small amounts of funding costs that they pass to us. These in the fourth quarter were approximately $400,000 -- $450,000 as part of the operating -- as part of the interest expenses. And in the first quarter will be in the region of $250,000, to $300,000.

(multiple speakers) and a little bit, yes. Interesting. One last question. You have already gone into it before, but maybe this is coming at it in a different way. In terms of your exposure to your parent, right now by our math it is about 16% of your revenue and that is basically flat when you include the new MR charters.

I guess, where is the upper limit there where you guys are comfortable in terms of having revenue dependent on the parent? Do you have an internal target, and then where are you comfortable?

Capital Maritime is a financially strong company. It has very little debt, it has a lot of cash. And Capital Maritime has a very good reputation, especially among all the majors in both terms of how it operates the vessels and about commercial abilities.

So our parent so far has shown appetite for tonnage from us. We has traded that profitably. And we are very comfortable with the exposure to our parent, who at the same time is our biggest shareholder.

All right, that is fair enough. Thanks again for the time, guys.

(Operator Instructions). There are no further questions at this time, Mr. Lazaridis, please continue.

Thank you everybody, and thank you for finding the time to participate in this call. Bye-bye.

That does conclude our conference for today. Thank you for participating. You may all disconnect.

Thank you, bye.