Eneti Inc (NETI) 2018 Q1 法說會逐字稿

Hello, and welcome to the Scorpio Bulkers Inc. First Quarter 2018 Conference Call.

I would now like to turn the call over to Hugh Baker, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Thank you for joining us today. On the call with me are Emanuele Lauro, our Chairman and Chief Executive Officer; Robert Bugbee, our President; and Cameron MacKey, our Chief Operating Officer.

The information discussed on this call is based on information as of today, April 23, 2018, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements.

For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release that we issued today as well as Scorpio Bulkers' SEC filings, which are available at www.scorpiobulkers.com.

Call participants are advised that the audio of this conference call is being broadcast live on the Web, and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days.

Now I'd like to introduce Emanuele Lauro.

Thank you, Hugh, and good morning, everyone. Thanks for being with us today. I'll start with a few introductory comments, and then turn the call back to Hugh, who is going to go through more details.

First of all, the market has continued where 2017 left off with good strength shown in both our Ultramax and Kamsarmax segments. Our fleet remains predominantly on the spot market, and we are pleased with the positive market momentum going into the middle of the year. Our confidence is -- in ongoing revenue improvement is reflected in the further acceleration of revenue for voyages, which we fixed in the second quarter. We have announced that today in our release. You will notice this is particularly striking in the Ultramax segment, where our weighting has increased significantly from 28 to 37 vessels owned on average during this quarter compared to the same quarter last year.

Second, I'd like to mention the fact that despite the backdrop of a more inflationary environment globally, our OpEx have remained under control. As our fleet is now substantially delivered, we expect our costs to follow a downward trajectory. With an average age of only 2 years, Scorpio Bulkers' fleet is one of the most modern fleets on the water. And in addition, our vessels are fully fitted with ballast water treatment systems, eliminating the requirement for additional CapEx going forward.

Higher bunker fuel prices and the upcoming move to lower sulfur fuels under the IMO 2020 agreements should also provide our Eco ships with an increasing all-in cost advantage. Thus, we are pleased with our positioning to benefit from these ongoing trends within a steadily strengthening market.

Lastly, I would briefly mention that we do remain focused on capital management, and following the resumption of dividends at our Q3 results last year, this is the third consecutive quarter of dividend payments. Our balance sheet remains strong and this is recognized in the access to best-in-class financing. At a time when shipping globally is challenged by retrenchment of financial capacity, SALT continues to benefit from good financial terms. We recently announced the $19 million sale and leaseback accessing finance at levels effectively around the 175 basis points over LIBOR. The company is in a good position for the next phase of a strengthening cycle, in which we see the opportunity to create significant shareholder value.

With that, I will hand over to Hugh Baker, our CFO.

Thank you, Emanuele. As we have not taken delivery of any new vessels this quarter, there's been limited changes to our balance sheet and capital structure. During the quarter, we paid a $0.02 dividend, announced in the fourth quarter, and are pleased to announce a further $0.02 dividend for this quarter. In addition to paying $1.5 million in dividend, we purchased 1.2 million shares for $8.6 million. We also repaid $13.4 million in debt. These 3 actions totaled $23.5 million of value accruing to shareholders around $0.31. We have considerable liquidity available for future buybacks.

During the quarter, we completed the sale and leaseback in Japan. This raised around $10 million of additional liquidity, but is now -- but it is the low cost and diversification of funding sources that is most attractive to us. The floating rate equivalent cost to this financing is approximately LIBOR plus 1.73%, which we consider attractive. I'm able to advise you that we have recently agreed terms for a second similar transaction, which we hope to announce within this quarter. We have only one vessel to be delivered, and we recently financed it at competitive levels of L plus -- LIBOR plus 2.4%.

The terms were actually agreed last year, which is why the pricing is higher than we expect for future transactions. I can advise that we're not actively looking at refinancing our fleet, but we are, on occasion, selectively entertaining new financing transactions, and we expect to close one further 2-ship financing during this quarter at more competitive terms. We expect the 2 new financings that I've just discussed to raise an additional $14 million of liquidity.

With that, I'd like to open the call to questions.

(Operator Instructions) Our first question comes from the line of Amit Mehrotra of Deutsche Bank.

This is Chris Snyder on for Amit. So my first question is on the 16-vessel Star Bulk acquisition that was announced last week. It's a pretty substantial deal struck at NAV, and my question is, what is your guys' interest in a potential deal like this? And do you see similar deals available in the market right now?

There's not many -- I think that was a good deal for Star Bulk, in a sense that there's just not so many modern fleets lying around looking to transact. And the fleet that we have is a very solid fleet. So you don't go -- and SALT itself, from what we were indicating, we had a very balanced sort of return and value to shareholders in this last sort of quarter between a dividend and then paying off principal and buying stock. So for us, we're not sort of going looking. You'd obviously look at something should one of those rare fleets come along, and it's either at an NAV to NAV, or it's kind of accretive to the company. But you're not going looking. You've got to have something come to you at this stage.

And to echo what Robert is saying, this was the perfect fleet for Star Bulk. Arguably, it may not have been the perfect fleet for ourselves, right? With a diversified multi-segment presence with Eco, non-Eco from Capes to Kamsars. I mean, it was just -- the profile, I think, it was just, as Robert said, perfect for Star Bulk. So good deal for them, may probably not have been as good for us.

I think, I got to also remind everybody -- remind you, Chris as well, that I actually can't remember how many ships we bought in total in the fourth quarter, but we expanded the fleet. Recently, we bought 10 ships. Almost all of them for cash in the fourth quarter. So we've put on quite a lot of accretion in terms of operating leverage, and we're looking at that balance. So that's another reason. But you wouldn't rule out something if it made sense if somebody came and found us.

Okay. And then, my follow-up is just around your LTV. We see it to be right now in the low 50s, and then just kind of given where we are in the cycle and that rates are starting to hit the point where they're cash flow positive and asset values are still kind of at the low end of the historical cycle, like, what is your -- where do you see to be an optimal LTV today, given where we are?

Well, I think that we've been very careful. We spoke at the beginning of the last quarter about it being a transition period. So it was important to maintain the balance. I mean, we actually -- we've got a lot of room on our balance sheet that when we feel it right to -- and see the opportunities to step up returns to shareholders. We, ourselves, actually see our LTV as around 48% at the moment. So yes, we feel comfortable at this stage. We're still at the early stages of an asset recovery, so we could afford, if we wanted to, to increase the LTV from 48%. In either sense, I don't think you would -- at this stage, I think that you wouldn't really want to go much above 57%, 58% on our calculations of LTV. So you've got a long way there that you can move either way here, but the most important thing at the moment is to maintain balance.

Our next question comes from the line of Jon Chappell of Evercore.

Robert, you kind of insinuated in the answer to those previous questions, but it's pretty noteworthy that you've started the dividend again, started to be more aggressive on buybacks as you've become at least operating profitable and net income profitable hopefully within a quarter or 2. Is this kind of similar to how you were thinking in 2005, 2006 with your predecessor company? And should we assume that as the cash flow continues to increase, you've done most of the heavy lifting on the fleet side? And that the cash flow uses going forward will be skewed towards the shareholders rather than continuing to expand the fleet?

Well, I think there's no reason to chase the fleet. I'd argue it this way is that, arguably, Scorpio Bulkers is in a much better position than OMI was in 2004. OMI was still, in 2004, coming out of a situation where it still had ships at the shipyard. A number of ships were still in the shipyard for that company in 2004. I think that SALT is literally unique in my career. You're early in the recovery. You have a very modern fleet, extremely modern compared to the peer group. You have, as we've just discussed, leverage, after you've had everything delivered, under 50% at this stage in the cycle and your CapEx out compared to your peer group, whether it's a virtue of your fleet being newer or the fact that all of your ships, I think, we're the only public company where the entire fleet is already fitted for the rules related to water ballast treatments. So we have to see. Everything is dependent on the stock price. I mean, arguably, we understand the rules of the SEC. It's a shame a few days over the last weeks where we were actually unable due to being close to earnings and the deals we were doing on a finance to be shut out. But I think that we want to maintain that balance. I mean, everything is up to price and positions. I think as Emanuele eluded, I alluded, whether it comes to purchasing people, ships or fleets, the heavy work is being done for us. So for us, it's going to be related to opportunity. We actually see one of the highest risks as being -- risk and opportunities being the volatility there is at present in the stock market itself. Because there have been times when we've watched SALT trade totally kind of removed from the reality of what's going on in the company. And what's great is the company is strong enough to take advantage of that. And I think that it's under no pressure to act quickly at the moment, just let the goodies come. It's really unique in my career to have a company this strong, finished and upright at this early in the market recovery.

So to the answer being balanced and maybe cash return to shareholders and market leverage not being mutually exclusive...

It means so many different things. Say what the stock price is, right? It's an easy calculation if you're under NAV. It's a little bit hard -- if you're 20% below NAV, it's pretty easy or (inaudible) pretty easy to determine where you're going to return value to the shareholders. If you trade at parity or bulk NAV, you would find a different way to return to the shareholders. But overall, it doesn't matter, you're accruing value to the shareholder. What we did in the first quarter was accruing 30-odd cents of value to the shareholder, at this stage of the cycle is great.

I agree. I was just going to ask, you've been a bit more aggressive on time charterings at Scorpio Tankers and kind of slowed that down here with just one vessel at Scorpio Bulkers. Would that be another maybe less capital-intensive way to add more leverage?

It might be. But again, people with modern tonnage in the face of an improving market and the fact that the modern vessel, with all of its benefits of fuel efficiency, et cetera, faced with steepening fuel prices just because of oil price recovery, and then very shortly probably faced with steepening prices relating to the changes related to the regulations and the increase in pricing of burning low sulfur, (inaudible) not many people throwing bargains away on very modern dry cargo tonnage right now.

Okay. Last one really quick for Hugh. Obviously, the G&A stepped up pretty large in the first quarter, just trying to think about run rate. Was there a year-end bonus accrual or something in the first quarter? Should we use that run rate? Something in between fourth quarter and the first quarter? Or how should we think about that?

I think you should look at slightly lower OpEx and G&A in the second quarter as a lot of nonrecurring items are not going to repeated. So I'd look at slightly -- I'd guide you towards lower, both lower G&A and OpEx in Q2.

Okay. But if it was up, say, $2.3 million sequentially, are you talking about like $0.5 million? Or maybe cutting it down in the middle $1 million lower on the G&A front?

Probably the latter.

Our next question comes from the line of Magnus Fyhr of Seaport Global.

Just one question. On the average rates for the quarter, it looked like the Ultramaxes were down a little bit. Was there anything, in particular, there? I know they've been coming back here, it looked very strong in the second quarter. But anything unusual there for the Ultramaxes during the first quarter?

I think it was unusual for us in the sense that I think that this is showing the improvement -- or part of the improvement in the second, going forward, in the fourth is that although all those ships that we acquired in that fourth quarter, we're delivering into positions in Asia, which weren't beneficial. So those vessels themselves, because the delivery related to the acquisition would have dragged down the average on the Ultramaxes quite a lot. So out of the existing fleet of 30, 35, you're having 10 on top of the old fleet of 25 being delivered in not so good places. And at the same time, the first quarter is generally -- there's some seasonal weakness coming out of the fourth quarter. But I think in terms of the market itself -- so one thing is positioning is related specifically to our acquisitions, which we believe, going forward, we're going to improve our chartering results against competition as a result of having got through that period, one; and the fuel efficiency and specifications of our vessels, two; and then, the other part is the markets where you could look at it a different way. And that is that the Ultramax market had a very short dip, very, very short dip for a few weeks in that beginning of that first quarter with a very strong rebound out. And it did that rebound out -- something else that's extraordinarily significant here is it did it all by itself against a headline of the Capesize market going down during that period. So what we are seeing right now is the Ultramax held its position. Now the Capesize is reacting as a lift. And in the last few days, the Ultramax rates out of the Atlantic have continued to strengthen. So what could at first be perceived as a little bit weak in that first quarter, I think, for us, overall, is really encouraging going forward.

All right. And how do you view the market going forward? When does it start getting interesting to lock in higher rates? I mean, the 1-year time charter rates are not that much above spot, but what kind of increases do you still need to see from that market?

It's certainly not interesting now. I mean, it's a -- we only begun to think of that one. The whole idea is a greater situation where the company can keep its fleet on the spot market. I mean, every now and again, we'll fix for 3, 4, 5 months, but that's more tactical than a market call. And we've been very focused on, yes, keeping a measured balance sheet, keeping as much of this fleet open in the spot market. And I think that there could be some really significant moves here in these industrial type markets like dry bulk-like products. As we start approaching this -- these 2020 regulations to (inaudible) to the upside. So I don't -- we definitely don't want to fix a way -- we don't want to fix and take ourselves away from that return.

Our next question comes from the line of Randy Giveans of Jefferies.

Few quick questions for me. For the reason for the delay in the delivery of the links; and then, what should we model? A July delivery? A September delivery? I know it went from 2Q to 3Q?

Randy, it's Hugh. I'll answer the second question, which is model the ship delivering in later in July. And I can't...

And for the first part of the question, it's just modifications. As you know, this was a resale, which we have purchased in Q4 last year. And then as we go to the yard, since the ship was in the process of being built, we just decided to, let's say, make -- build the vessel as homogeneous to the existing fleet as possible. Sometimes when the ship is still being built at the yard, you can make modifications, which are not necessarily costly, but just more homogeneous with the existing fleet. So we've opted for that choice rather than getting the ship delivered as quickly as possible/in a rush for no particular reason. So that's the answer.

Okay, that's fair. And then, for a market question. Any expectations for U.S.-China trade war impacts on the dry bulk shipping market? And have you seen any of these kind of market changes yet?

That's a great question.

Go on, Emanuele.

No, I was just saying that the short answer is -- on the latter part of your question is, no, we have not seen direct impact or experience direct impact as yet on the market. However, I doubt we would be able to depict whether the market dropping by 10 points or 5 points could be, going forward, could be really motivated by tariffs or geopolitical decisions or interventions. So I think that what plays a very big -- the biggest role here is perception and the psychological effect of the U.S. and China deciding what to do with their strategies. So this is more of a Wall Street or could be more of a Wall Street impact on the stock, depending on what is said and which positions are taken, rather than an immediate impact on the freight or the specific markets. That's at least my point of view. We have not experienced or perceived.

And I would agree with Emanuele. The conclusion from that then, as a company, is to go back to that. One of the biggest, if not the biggest, risk we are seeing is this sort of U.S. market environment, and for want of a better phrase, where we're not really sure what we are going to wake up the next day to in terms of the perception of Wall Street to whatever is enacted. And I think that's another reason why we want to keep a balanced position so that we can take advantage of fear that's out there and positions. But what we're seeing on the physical market, regardless of the day-to-day gyrations of Wall Street and Washington, is a very robust world economy. Fantastically, there's strong underlying movement to the commodities we ship. And remember, the commodities we ship are very diverse in dry cargo between the soft and the hard commodities to many areas of the world, Europe, South America. It's not just the China trade. And that's of context of where this is all working in. And I don't think that we can get ourselves all twisted and crazed over individual announcements from one side of the world or another at the moment. I think we just have to put ourselves in a position where we can take advantage of what's going on the best we can.

Okay, I concur. Lastly, for Robert. So you gave a $0.60 NAV range for your other company a few months ago. Do you have a similar range for this company?

We do, but we're not going to give it. And that was a [map] that was like I think like a 27-year exception in dealing with public companies and a 44-year career exception.

Okay, all right. I was seeing if it would be a trend going forward.

I'm not very trendy. Just look at the way I'm dressed.

Our next question comes from the line of [Max Yaris] of Morgan Stanley.

If we could stick to geopolitics. I know it might not be the favorite subject, but kind of what do you see from [result] sanctions and the implications on your fleet maybe? And how do you weigh that against increasing iron ore loads from Brazil?

We don't know what the sanctions -- I mean, we're not really sort of involved in that. And it's not that much of the trade itself. I mean, the actual stats of the iron ore position and the steel thing, China to the United States, on steel is not really that significant to the overall trade.

Right, okay. I guess that's fair. On interest rate risk, are you guys hedging against rising interest rates? Or how do you view that?

Yes, we have a couple of fixed interest leases, which I think we've discussed. And in addition to that, the company bought some caps in November last year. And I can tell you that they're 3.5% LIBOR caps until December 31, 2020. So we have about $300 million of our debt capped until 2020 at 3.5%, which is, again, makes us sleep well at night. It's obviously -- it's not the same as swapping, but it certainly gives us the comfort that we need and indeed those caps are actually relatively healthfully in the money at the moment.

Our next question comes from the line of Herman Hildan of Clarksons.

My question, I was a bit curious about the comment you made, Robert, on kind of your view that the optimal leverage is somewhere 57%, 58% versus...

I didn't mean -- yes, I didn't say the optimal leverage was 57% or 58%, that's not what I said. Because I don't think we will be taking, if we look at the overall environment in the short term at the moment and the volatility that is out there, and the -- and by definition, we have said, the volatility -- we're not afraid of volatility. Volatility provides opportunity for us. And you don't have to max your positions out on a technical basis. You don't have to sit there, just the same as if you were trading a portfolio at the moment. The volatility is so high that there's a value of being able to take advantage of volatility. So in order to do that, you have to leave yourself room. You can't sit there and say, "Oh we're at the early stages of a dry cargo recovery, so we can -- and we feel really bold, and we've got great ships, and so we're going to take the leverage to 70%." Which probably mathematically you could take. You've got to say, okay, where is the point your maximum you can take, which still gives you a high degree of your flexibility and is still safe, given the opportunities. And that's around 57%, 58%.

I think that kind of the point is -- or the question is about the significant flexibility you have in your capital structure today to continue to buy back shares...

And I think that's an amazing observation, and I think that the other thing that's incredible is that there's an [arc] in finance debt at the moment. In that it's very, very clear that you're having very good quality Asian and European lease finance, that is willing to step up in partnership long-term structures to companies that they trust that have very modern fleet versus an almost across-the-board, with few exceptions, there are a few banks in Sweden and Holland, but fundamentally, the lending banks to shipping are even sort of tightening their positions related to -- they're just tightening their positions across the market. So the funding available to older fleets are -- I mean, the spread is getting wider almost every day. And so yes, I mean, it's a great observation. We just haven't even begun to explore the real tuning or the real opportunity there is on SALT's balance sheet. And if you remember 2 years ago, we were still effectively saving, recapitalizing the company. And we put ourselves in 2 short years being able to give value in return to the shareholder in 3 ways last quarter. Well, now we're starting, if you're starting to do the work on how to look at that balance sheet, how to tune it, and how to optimize it. And that's what we talked about last quarter where we're going into a transition period. And that's hopefully what the rest of this year will be about studying, how to release that, the values there, et cetera.

You kind of did answer one of my question earlier on in terms of obviously the actions that you take depends on how the [work] looks higher priced and what's happening and so forth. But obviously, I mean, you have [about] 31 ships that were built in 2015 and '16, so doing what you just did with one ship, where you released $10.3 million, is a clear path for a meaningful liquidity, quality improving?

Yes, Hugh has indicated that there are another 2 vessels in the pipeline similar basis as that one.

Exactly. So kind of when taking the already conservative leveraged balance sheet and obviously it was very different than just a few years ago, but given prices are on the rise, if you lift your guidance for the second quarter, it's in the operating cash flow less that repayment, less the current dividend level, gives a hint that you're starting to come in the territory of raising dividends. And kind of, has there been any discussion about that on the board meeting, whether it's time to slowly up the dividend?

No, I think it would be very wrong to discuss the board meeting sessions to this. I mean, we indicated we're going -- last year, we're going through a transition. I think you worked out that if you've now got rising rates, which were -- and stable costs, we would expect to be generating probably more cash flow going forward. That's what the math would tell you. And then if Hugh is doing some tuning on the balance sheet, then you -- yes, you are creating a lot more cash and liquidity, which allows you to do a number of things. I think it's fair that we say we're going through a transition period that we expect and hope that the future is different to the present. And I think we want to leave it at that at the moment.

We have a follow-up question from Amit Mehrotra of Deutsche Bank.

I was a little bit late to hop on so I appreciate it. So from my perspective, just following on my question, I could argue that maybe given the risk profile of the company that has evolved over the last 5 years, I would say, you could argue that a pendulum has swung to the very conservative side because it's not necessarily just a capital structure sitting at 48% LTV, it's also a capital structure that's on a fleet profile that is, in fact, less volatile. And so I guess when you think about all that capital deployment actions, I mean, you're buying back stock on the margin, probably a dividend rate doesn't increase, doesn't make sense because you were more focused on sustainability of that dividend as opposed to just raising it. So when you think about sort of the evolution of your risk profile and the market may be getting a little bit better and exiting this transitioning period, could you actually move incrementally towards the more volatile asset classes of the market? Or are you kind of stick into this like niche-like midsized segment, which is less volatile historically?

I don't see that we -- Emanuele, why don't you take this question?

Sure. I don't think, Amit, that we would actually look at entering segments, which are more volatile like the Capes at a time where the sustainability of the market would show improvement, et cetera. I am more prone to think that we would be looking at opportunities. As we discussed in the past, we've exited the Capesize market because we needed to sell vessels 2.5 years ago and the bids came on the bigger ships. And it's not that we dislike the market per se or had anything against it, we were conscious of what we were doing and decided that it would have been the right thing at the time. We haven't seen the opportunity last year when we were looking at expanding, and we purchased 10 vessels, 9 on the water and 1 in resale, we haven't seen opportunities which were attractive or as attractive as the one we've executed on the bigger ships. So I wouldn't rule out looking at our segments, but as Robert has said earlier on the call, I don't remember answering whose question, but we are not actually out there actively looking at expanding. We are more on the look if the opportunity comes to us, great. Otherwise, we are happy with what we have. So we're not linking a market improvement to a segment differentiation, if that answers your question.

Yes. No, that's fair. And then maybe, Robert, I haven't asked you this discussion before, but the sulfur cap regulation -- I'm not really asking about scrubbers or anything at like, but more focused, if you think about sulfur cap regulation and what that does to the global fleet from a speed standpoint, I mean, by our estimate, it would lead to basically a pretty significant, I guess, synthetic reduction in capacity because the global fleet, whether you're a tank or a dry bulk or whatever, I mean, you're going to have to run slower I would imagine. Can you -- have you guys thought about that? And we're not that far away, in terms of any help that you can provide us in terms of what you think the impact is from the speed dynamic standpoint, from the dry bulk fleet or just the global fleet in general because it seems like it could be just a transformational positive thing for the shipping industry?

So Amit, remember the -- if we go back to 2011 and '12, the Scorpio group was the first -- amongst the first people ordering Eco-type ships and everybody was saying these engines are longer stroke engines, et cetera, I'm not going to be able to do the speed. And you're going to have serious trouble in maintaining the speed that the charters are going to require. Whether we're talking tankers or bulkers or any other actually asset class. So now it's easy to say that we have planned it all along, we knew the time of 2020 was coming. And whether we have the concerns of speed, now we have addressed it for them, right? Even though it was a nonissue at that time but, whatever. Go ahead, Robert, it's fine.

No, I was just going to say, look, I think it's transformational in many ways, what's happening, as I said before. And I think in terms of the work and where we are focusing it through, I mean, Cameron, do you want to take this question?

Sure. Amit, there's no question to the customer if they're facing a rather hefty tax. You have to look at it as a tax on commerce and in the scenario or in the environment we're in, where in dry cargo, the value of the freight is very high compared to the value of the underlying commodity, I tend to agree with you, as the response we would likely see is a reduction in charter party speeds in order to save on the marginal expense due to fuel, also given the fact that very few of the ships on the water will have time or capital or the risk appetite to install scrubbers in advance of 2020. So yes, we agree that likely -- the likely scenario is reduction in speeds, and therefore a synthetic tightening of market conditions. And by the way, having a modern, very fuel-efficient fleet is, as I think Emanuele was saying, puts us, whether it was intended historically or not, puts us in a great position to face those rising fuel costs.

Right, and Cameron, just on that point -- and this will be my last question, but if you look at your -- the company's capital structure, their financial wherewithal, the quality of the assets, why doesn't it make sense to invest in scrubber technology, and then shift the way you charter your vessels in 2020 towards more voyage charters, where you can actually capture the arbitrage between the middle distillates and the low sulfur fuel and the high sulfur fuel? I mean, why isn't that, like, an exponential return? And why wouldn't you think about doing that?

Well, we haven't disclosed what we think about, so you can rest assured that we think about a lot of things that don't show up in press release or conference calls. I think one of the questions that vexes a lot of companies, a lot of shipowners, is what -- the difference between what the forward curve tells you today and the scenario we could actually be facing in 2021 or '22. If you look at the experience of the shipowner over the last 10 years with regards to ballast water treatment, for example, well, that convention was actually adopted by the IMO in 2006. And here we are in 2019 (sic) [2018] only now starting to actually face the ratification and implementation of that standard. So it's quite reasonable for shipowners like ourselves to be a bit jaded and cynical when it comes to these new conventions and they're supposed drop dead dates. There's still room for regulatory or pen stroke risk. There's still a lot of change coming with regards to the technology and the solutions around scrubbers. They're still evolving quite a bit. And most importantly, the response of the refiners and what that forward curve looks like when we get out another 12, 24, 36 months, can change drastically. So while we are taking this quite seriously and looking very, very -- very closely at installing scrubbers, it is not a black-and-white project.

Yes, that's fair. I mean, is there any debate that the IMO 2020 regulations -- I mean, if I am understanding the ballast water convention, I mean, it took a long time to get ratified because it was a tax on the industry borne by the shipowner. But I mean the IMO regulation is a tax, like you said, to your customers or (inaudible) consumers and potentially leading to a global slow steaming of the fleet, which is actually very beneficial for the owner if you're not seeing as much backlash and so the likelihood of it going through in 2020 is actually quite high. Is that a fair assessment or no, do you think?

I think it is fair. At the same time, I might qualify that and say, look, there are other concerns which might drastically change the cost to shipowners. For instance, if the IMO now turns its attention to the effluent -- scrubber effluent that gets pumped into the sea and starts to care about where all these emissions, the pollutants and the sulfurs are actually going, yes, an addendum to mandate closed-loop scrubbers could actually have, as much, if not more of an impact on owner-operators simply because of the cost of retaining that water and the infrastructure regarding sending it ashore would bring to the industry. So I agree with you, but of course, there are other nuances which we're all sort of girding for and not quite sure where the future is going to take this regulation. Distillate -- a refinery or a desulfurization plant doesn't naturally belong on a ship. So just to conclude, there's -- there are a lot of ancillary benefits to go into distillate, both operationally, logistically. And if you have fuel-efficient assets, it really is a pretty nice position to be in facing different -- these different uncertainties in the next couple of years.

Amit, I would add, I'm sure there are a few PE firms along the way who were dragged into some speculative order of new ships just based on them having scrubbers, though, so (inaudible) position.

Right. When do you guys think you'll have a decision on it, finally, in terms of where you're -- I'm sure you're deliberating it now, but any expectation from our side in terms of when you'll have more clarity in terms of what your strategy is going forward?

Well, let me put it to you this way, Amit. There is an argument that if you're using a sort of real option framework to value what investment or CapEx decision you should make in this regard, the optimal time to make that is actually 2021 or '22, and not 2019. I think what you would see from us is not any sort of blanket statement of go, no go, but more nuanced as time goes by, as opportunities present itself, we may look at installing scrubbers, but it really is, let's say, to borrow terms from someone else, data dependent.

At this time, I'd like to turn the call back over to Mr. Baker for any closing remarks. Sir?

We have no closing remarks. Thank you very much, operator. Thank you very much, everyone, for calling in. Goodbye.

Thank you, sir. Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.