Octave Specialty Group Inc (OSG) 2005 Q2 法說會逐字稿

Good afternoon, and welcome to your Overseas Shipholding Group second-quarter 2005 earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions following the presentation.

It is now my pleasure to turn the floor over to your host, Mr. Jim Edelson. Sir, you may begin.

Thank you. Before we start, let me just say the following. This conference call may contain forward-looking statements regarding OSG's prospects, including the outlook for tanker markets, changing oil trading patterns, prospects for certain strategic alliances, the ability to retract -- to attract and retain customers, the integration of the former Stelmar operations, anticipated levels of new buildings and scrapping, and the forecast of world economic activity and world oil demand.

Factors, risks, and uncertainties that could cause the actual results to differ from the expectations reflected in these forward-looking statements are described in OSG's Annual Report on Form 10-K. With that out of the way, I'd like to turn the call over to our Chief Executive Officer and President, Morton Arntzen.

Good morning. Let me first introduce the people that are joining me on the call. Myles Itkin, our Chief Financial Officer; Bob Johnston, our Chief Commercial Officer; Peter Swift, the Head of Ship Operations; Jim Edelson, Senior Counsel for the firm; and Jennifer Schlueter, our new Head of Investor Relations and Corporate Communications.

Let me get started. At the beginning of this year, we told you that you could expect OSG to outperform the sector in 2005. We have delivered on that promise. Year to date, we have produced exceptional results, clear evidence that our expansion strategy is working and is delivering value to our shareholders.

Let's just go through just some of the highlights. Second-quarter time turn (ph) equivalent revenues were up 46% year-over-year to 229 million. Net income in the quarter was 114 million, up over 150% from the same quarter last year. For the first 6 months, net income was up 130% from 121.6 million to 279.1 million. Finally, EBITDA for the 6-month period was up 48% to 399.7 million. We are quite pleased with those numbers.

When we acquired Stelmar, we explained that one of the strategic reasons was to develop a more balanced portfolio to enhance the quality of our earnings, while enabling us to offset the inherent volatility in spot market crude rates with steady revenue from time charters in our expanded product tanker business, as well as our existing U.S. Flag segment.

I am pleased to report that 37% of the TCE revenues in this quarter came from time charters. That is compared to 20% in the same quarter in 2004. Equally as important, we have lessened our dependence on the crude market. Crude as a percent of total TCE revenues was 69% in the quarter versus 82% in the quarter the year before. Product tanker revenue in that same period rose from 4% of revenues to 19%.

The Stelmar integration continues to exceed expectations. Since we acquired the Company in January 21st, we have added 52.4 million to EBIT for OSG. That is in the period January 21 through June 30th. The technical management integration is complete. The product carriers are now operating entirely from Athens and the crude tankers entirely from New Castle. And we're moving forward on instituting and developing best practices across the fleet.

So far, we have realized 8 million in annualized savings. And we have a target of $20 million that we are shooting for over the next 3-year period. The incremental savings -- the initial savings came primarily out of insurance and financing. We expect to have incremental savings in insurance and purchasing and drydocking and crewing -- and are working very aggressively on all those fronts.

OSG's financial performance this quarter included the impact of a tax change, which was a result of the 2004 Jobs Creation Act. Now, I have spoken of this before. Effective January 1st, the legislation effectively eliminates tax on our foreign shipping income and allows us to compete on a level playing field with our public market competitors. Last year, our International Flag income was taxed at a 35% rate -- a significant burden on earnings. Now we are permanently differing tax on international fleet and not making any tax provisions for these earnings. All I can say is -- get used to.

Let's talk a little bit about the U.S. Flag. One of the more important strategic decisions we made last year was our recommitment to growth in the U.S. Flag market. In April, we announced a letter of intent with Kvaerner Philadelphia to build 10 Jones Act Product Tankers. In this case, OSG will bareboat charter these ships for terms of 5 to 7 years with extension options of an ownership entity that the Kvaerner Philadelphia Yard will establish.

This introduction was closed in June. It has been approved by our Board, by the Kvaerner Board, by the U.S. Coast Guard. And then last month, Aqua America Shipping, the company established by Kvaerner to own the ships raised 125 million in equity to finance this project. So this program will go forward.

Construction is now underway, and the first vessel we expect to deliver in November of 2006. And as underscore, this program involves no capital commitment for OSG for this program. The ships will be owned by Aqua America Shipping; we will bareboat them. And we remain very confident about our ability to profitably employ these vessels as they come into our fleet.

Another thing we talked about last year was that we were committed -- we were going to more aggressively manage our fleet and our assets. We also said that we were aiming to have an all-double hull international fleet by the end of 2005. Again, we have lived up to our word. Last year, we began to actively manage our fleet and then disposed of some single hull crude tankers and arranged bareboat charters on some of our older product tankers.

I am proud to report today that OSG's wholly-owned international fleet is now 100% double hull. We have a 30% stake in 1 single hull VLCC, the Front Tobago, and she is currently available for sale.

During the quarter, you may have noticed, we reorganized the joint venture we had for our four V-Pluses. We have now taken 100% ownership of two of the ships, and our partner, Euronav, has taken 100% ownership of the other two ships. They continue to trade together, and they continue to trade in the TI pool.

Since March 31st, we have sold 6 vessels; 2 of which were chartered back for 50-month period -- and in total generating 145 million in proceeds. Now at the same time as we have disposed of our single hull fleet and our older ships, we have grown the fleet to 94 vessels, aggregating 12.3 million deadweight tons. In addition, we have 4 LNG carriers on order in Korea and 10 Jones Act Product Tankers coming on starting 2006. We are very happy with the composition of our fleet today and the arajated (ph) among the youngest in the industry.

Let me conclude my prepared remarks by talking about investments in our people and OSG's leadership team. I firmly believe that the winners in the shipping world in the next 10 years are those that are best able to recruit, retain, develop, challenge and reward their people. The investments we plan to make in our staff and leadership of OSG will be money well spent and will support our growth platforms. I also think that shipping companies that are ahead on the people curve should and will be in the future awarded premium for doing so.

Our business is becoming more demanding and challenging everyday. The ways of the '80s and '90s for the shipping industry are behind us. Now for this reason, I am very pleased that we were able to bring in two proven leaders to strengthen our management team -- Mats Berglund, the current President of Stelmar will be joining OSG to be responsible for our crude tanker business. And Bob Mozdean will be joining as Head of Global Human Resources for OSG, coming from Dannon.

I am going to turn the speaker over to Myles Itkin, our CFO, for some comments. But let me add one thing. We are going to be meeting more with investors going forward. And I look forward to seeing all or most of you as we travel across the country or as you come into our offices and meet with us. We intend to have a very open door policy to our owners. Myles?

Terrific. I just actually have a number of miscellaneous comments to really facilitate your modeling efforts. For the balance of this year, we had $130 million worth of fixed revenue -- during 2006, full year 166 million of full revenue. As you consider the tax provisions, most of the Company's debt is on the books of the U.S. company with the result that we are generating a tax loss on the year end -- the U.S. side, which will result in a credit -- a tax credit -- which on an annualized basis for 2005 is $8 million. And you should consider that a reasonable number to use in 2006 as well.

The Company's plan towards deleveraging is continuing full throttle. And by the end of this year, we should re-establish our pre-Stelmar acquisition leverage of adjusted debt to capital of below 40%. As Morton had previously mentioned, we had a low capital commitment to the U.S. Flag expansion program.

We also have a controlled capital commitment to the LNG expansion effort. We agreed to enter the LNG sector predicated upon long-term contracts. We have entered into 25-year contracts on 4 vessels, in which we have a joint venture with QGTC. We have completed the financing associated with that. The financing is non-recourse to OSG. And it is at 85% of the delivered cost of the vessels. We have swapped that debt into fixed at a rate of under 6%. So that transaction has concluded and is well on its way to generate substantial stable income going forward.

At this point, we would just like to open the floor to additional comments. Sandra, if you would be good enough to just take questions as they come forward.

(OPERATOR INSTRUCTIONS). Jonathan Chappell, J.P. Morgan.

Myles or maybe Morton, can you explain the economics of this U.S. Maritime Security Program? The 3-year-old Stelmar product tankers that you are moving into the U.S. Flag statement? Do we remove those from the model, the international product area, or are these time charter rates -- how the economics work?

Jonathan, this is Bob Johnston. Under the MSP program, what we are going to do is take three existing product carriers, and we are going to re-flag them with the U.S. Flag. We will be getting an operating subsidy. So for your purposes as modeling and everything, I would just leave them alone because they are going to be trading in the International Flag.

Now one additional aspect, which we are going to get, which we believe is going to enhance the TCEs on these is that we are going to be eligible for various government cargoes and cargoes from military sea-lift command. And that's one of the things that we're hoping to get going forward. But it will be -- they will be trading in a spot market. They are not going to be trading in a time charter market.

And the cost of converting them to U.S. Flag, you said it would be subsidized? There's no capital commitments there?

That's correct.

Myles, you talked about the deleveraging full throttle. The interest expense went up sequentially -- relatively significantly, almost $3 million. Can you give us some guidance in second half of the year -- what type of quarterly interest expense we should be looking at?

If you take a look at annualized interest at about 82 million, that should be close to correct.

It declined in the second half. And then finally and I will turn it over -- can you just speak about the Panamax market? The rates there were much better than I expected. Then, Carsons (ph) would dictate much better than the first quarter of the year, which is a seasonally stronger period. What you saw there in the second quarter? Was that your own chartering? Was it just industry in general and what you see for the second half?

No, Jonathan, as far as the Panamaxes go -- again, it is Bob Johnston again -- I think that what we are finding is the general market being able to trade in our Stelcape pool with a joint venture partner -- will be very effective in being able to keep the loaded percentage very high. And that is what is generating the superior returns on the time charter equivalents on the Panamaxes. It's been a very successful -- and we are very pleased with the pool.

I think the only other thing you should keep in mind, which I think a lot of the analysts are starting to focus on -- our Panamaxes, our pools all double hull. Our Panamax fleet is entirely double hull. And the discrimination between single hull and double hull fleets is continuing, and it is not going away. And that is to our benefit.

Bob, have you seen any seasonality as you look in the third quarter so far on the Panamax side or--?

Third-quarter rates on the Panamaxes have been superior.

Magnus Fyhr, Jefferies & Company.

Congratulations to a great quarter. I think we just have to raise the bar for you guys. A couple questions -- on the rates for the second quarter, the ones that you reported in the release, were net of FFAs. Would you be able to share the clean numbers for both VLCCs and Aframaxes?

The FFA gain was not substantial. As a matter-of-fact, it was de minimus. You probably don't even need to consider it.

And do you have a similar FFAs working in the third quarter in the fourth quarter?

Yes.

And were you be able to share with us what you have seen so far? We know in July, especially in August, that rates have -- going to be very volatile. Any -- where have you seen the fixings for your fleet during the month of July for both Aframaxes and VLCCs?

The July rates right now are starting to rebound, but the VL -- but recently have come off the manguses (ph). But I can give you a better feel if I can go by the third quarter, as opposed to just the month of July. When you start looking at the various pools that we have, we are looking at -- on the VLCCs, we've probably got about 64, 65% fixed already and probably rates in the mid-30s.

On the Aframaxes, we have got about 55% of those days covered already -- a little over 30,000 a day. And you are looking at the Panamaxes, we've probably got about 45% fixed at about 30, 32,000 a day. So the third quarter is shaping up for us.

Magnus, let me just mention something. Those relate to spot fixtures within pools. The pools, however, have a component of time charters in them. And we have a number of vessels outside of the pools on a time charter basis. So the numbers are really spot numbers that Bob has given you.

That's correct.

And just maybe as a follow-up question -- do you see anything different this summer than -- because I mean last -- the 2004 summer was probably an anomaly. But how do you see the market shaping up here over the next few months?

I think there is a change in the market, which you didn't see last year. Last year, you had the entire fleet; this time about 100% utilized. But the differentiation -- you really have to start looking at the single hull fleet and the double hull fleet. And as we look at the market now and we count ships across the globes, we are counting both the VLCC total fleet as well as the double hull fleet.

And right now, the way we count it and based on we expect to see cargoes coming forward next 3 or 4 months, the double hull fleet looks about to be in balance. Obviously, there is a surplus of single hulls. So as we go into the end of this quarter and the fourth quarter, we like the demand outlook for our double hull fleet, particularly the big ships.

Jim Chun, Maxim Group.

Fantastic quarter. Going forward, I would presume you guys still consider the best use of cash as your acquisition, considering you have not engaged any buyback authorization despite the low stock price. And in addition is -- is your ability to address the U.S. Flag/Flag Jones Act segment part of the reason for this?

Yes, I think we first talked about the Jones Act program, which was a departure from the whole industry because the industry had been disinvesting in this segment for a while. And somebody said -- why you're doing it? And I think our response is -- we would be crazy not to be doing it, considering the outlook, the economics and the transparency of the segment.

We continued to have opportunities really in all the segments. In some cases, it is going to be the bareboat arrangements. And in some cases, it's going to be time charter and arrangements. But there are still a number of opportunities that we are looking at -- whether it is an LNG, product tankers or U.S. Flag -- where we can earn in excess -- well in excess of our cost of capital. And as long as we have those kinds of opportunities, we will employ the cash that way. If it changes, then we will reconsider things like the dividend or stock buybacks. Hopefully, that's not been the case.

Obviously, we can't help but noticing that Teekay has been very prolific in their LNG contact announcements. I was wondering if you guys -- is it a function of a different financial of discipline on your part -- the fact that you're waiting to secure the financing in your original deal? Can we expect -- I want you to be more prolific on the LNG side going forward over the other sectors?

I think there is really no change. Our LNG strategy has no change. We were going to compete, and we have been for contracts. We are going to bid at levels. When we are comfortable, we will earn in excess of our cost of capital. We will take some risk in how we finance that and we use our balance sheet to warehouse perhaps the project for a period of time.

But we are bidding for other projects. There are a number out there. And if they meet our financial criteria, we will go after them.

Maybe one last question. You have been stressing the importance of the people at OSG. From my understanding, the hiring of Mr. Berglund has been -- sounds like a coup. Is this because he's bringing the specific skills to the table for OSG? Could you give us further color on his value?

I think what we're trying to do really across the fleet is find the best athletes, whether they are in Sweden, Singapore, Hong Kong, Chile, Venezuela, wherever. Mats has a law -- has 20 years in the industry. As you know, he was the Managing Director of StenTex, the joint venture between Texaco and Stena, which has sort of a model for the cooperation between a shipping company and an oil major. He was instrumental in putting together Arlington tankers. He has been at the forefront of some of the niche business that Stena has developed in the tankers side.

So he brings a lot of skills, both commercial savvy, financial savvy, to the business. And clearly, the oil world continues to consolidate. And if we are going to service them, we are going to have to adopt new approaches in bringing people with Mats' kind of background. He is a real strong addition to the team.

Jim, as you know, we have structured ourselves into four discrete business units -- crude, product, LNG, U.S. Flag. Mats will be heading up the crude sector. We have over $2 billion worth of assets committed to that sector. It is a substantial investment for the firm. We see opportunities for future growth, and we see opportunities for substantial revenue enhancement. So he is a good person to lead that effort.

Once again, congratulations.

Justine Fisher, Goldman Sachs.

The first question that I have is related to the ULCCs. Could you explain the rationale behind the -- maybe it wasn't anything significant -- but why you guys changed the structure with Euronav?

It was done for tax reasons.

Now the other question is about the rates that the ULCCs earned. I think when you guys first purchased the ULCCs with Euronav and people were asking you how to model in the rates, you said that they would probably earn rates that were a little bit higher than VLCCs I guess because of the size. But the rates that they errand during the second quarter, or at least the ones in the press release, were a little bit lower. Was there a reason for that? And should we expect them to be higher or lower in (multiple speakers)?

I think you should use 1.3 multiple for them. I think in the release, it is just 1 month of number in there, not 3 months. But they have been trading at roughly 1.3 times what the VLCCs have been earning, that is a good number for your modeling purposes. We are very pleased with those ships.

And then the other question that I have was -- in one of the footnotes to the income statement in other income, there were gains on securities transactions?

Yes.

What were those from?

Those were mainly residue limited partnership interest.

I just wanted to check because Teekay is buying back bonds. But anyway, the other question that I had was regarding I guess the new hires in related to what Jim was just asking about. Given that you have now hired the person, who did the Arlington tankers transaction and there are 2 billion of assets in the crude segment, would OSG consider doing something like that?

Our policy is on financing -- and I will actually turn it over to Myles. We think that we should be looking at all the alternatives available to OSG for financing ships, for owning ships. We'll time charter ships; we will bareboat ships. If you look at the Kvaerner Philadelphia, they were bareboating 10 ships. We may end up controlling those ships for their useful lives. In fact, I think that is likely.

So we are going to look at what is available in the market. If you look at the LNG carriers -- for example, when they hit the water, would we consider alternatives like an MLP or something like that? We will look at those opportunities at the time. And if they make sense for us, we will go after them.

One of the reasons we seek to maintain such a strong financial profile is so we can be sure that we can do those things that are available to us.

I just have a couple questions at the end to double check some things. First of all, is the breakout of the spot and time charter rates for the Panamaxes and the product carriers -- there's some rates in the text part of the press release that say what the International Flag Panamaxes earned. Was that the spot rate? And then you would just sort of back out the time charter rates based on the TCE that is in the press release?

Actually, Justine, why don't you give me a call, if you would. We will go through the detail on that with you.

And then just the last question again, Myles, did you state that it was a goal to get debt back to the pre-Stelmar level, which I think was about $950 million by the end of this year?

Well, it's really adjusted that to capital of about 40%.

Philippe Lanier, Banc of America Securities.

Just a couple questions here. First of all on the U.S. fleet and the reflagging of those vessels -- just one question -- is it possible that other people might be reflagging vessels into the U.S. market as well to take advantage of the healthy product trade there?

They can certainly reflag them in, but what they will -- don't forget these vessels when you reflag them can only trade in the international marketplace. They cannot trade in the Jones Act trade. So what would happen is they would be at a serious cost disadvantage to any other vessel. Because they would have to have American crews and American expenses on -- operating the ship.

So as far as the Jones Act is concerned, the only way that we can really expand that fleet is by building new ones like you and your partners are doing.

That's correct. The Jones Act is limited to vessels that are built in the United States. Reflagging does not qualify for the Jones Act.

And then a question on some of your asset sales. I noticed that a couple of the vessels you had sold -- and correct me if I'm wrong -- some of them were actually double hull but they are older assets, the Bravery and a couple of the others. Is there a -- what is the logic behind that strategy? And should we expect anymore fleet changes along those lines?

I would not expect anymore fleet changes along those lines. I think that as we were looking at our fleet, as we were calling the fleet, those are three assets that we decided it would be time to get rid of.

If you look at the Bravery, it was not a ship that we built for example. And the other one I just mentioned, the Front Tobago, the one remaining single hull investment we have on the books -- if you want a particular partnership to buy her, she's available.

I considered that.

The Eclipse was the sole Suezmax that we had. But we do periodically adjust -- the Eclipse also was single hull -- we do periodically adjust our fleet mix and our mix between owned and chartered in tonnage.

On the same lines looking out into 2006, those other elements that you have of the U.S. fleet -- what is the future for them -- the Washingtons, the New York, and some of the product tankers? Are they still going to--?

Well, the crude carriers will be all out of service within the first quarter of 2006. The other vessels will continue to operate.

The product lines you are talking about?

Yes.

And those can operate until when? Are those until 2010?

I mean they go once.

11 and 12.

11 and 12.

And then on the product fleet that you guys employ, could you give any further guidance on the breakdown that you have between spot and fixed on the international side?

On the international side for the third quarter? Is that what you're looking for?

Third-quarter going outward?

If we take a look on the product fleet, Q3 -- this is fixed, is a percentage of total -- across the board, all vessels, that's about 86% that is fixed. Q4 about 68% is fixed.

For the product side?

For the product side.

One of the things you understand. The ship that we took on bareboat charter, the older ships, we have been very purposely out in the market to fix those for longer periods of time. And we have a number actually fixed out all the way to the end of the bareboat period. But they are for multi-year time charters. That was a deliberate strategy we wanted to do, and we have been pretty successful at it. I think we have one ship to go.

So there have been some new fixed ships in the second quarter is what you're saying?

Correct.

Let me see if I just have any final questions here. You guys have been busy; it looks like it is paying off. You had mentioned in the press release on the VLCC market that -- in the second quarter, there seems to be a temporary reduction in some of the long haul shipments west, which reflects some of the stuff that we've seen as well. Is there anymore that you'd like to highlight as to how that's trading right now? Obviously, you pick up when those cargoes going west?

I think it's really -- repeating what I said before -- we have been counting -- we have expectations of what we expect to see in the remainder of this quarter and the fourth quarter. And some of it has picked up directly from the big shippers. And we would expect -- the numbers you have seen have -- have seen from MyEA (ph) for example on what the demand will be in the fourth quarter -- we are still coming; that is going to be the case. And we will be getting a normal, if not better than normal, movement in cargo again, which we think will be good for rates.

Thank you very much. Congratulations on the quarter.

Justin Yagerman, Bear Stearns.

I just wanted to -- most of my questions have been asked -- but I wanted to get a sense -- do you have any near-term plans for drydockings? And if so, which vessels, how many days, how much is that going to cost?

Feel free to call once we got into specifics. But in Q3, we have two crude vessels in aggregate 22 days; 2 U.S. Flag vessels in aggregate 54 days. In Q4, 1 crude vessel, 5 days; 2 products, 38 days -- and that's all we have. It's kind of a pretty standard drydock schedule.

And just a rough ballpark cost for the second half of the drydocks?

I don't have those in front of me. But when you call me, I will have those available.

And just lastly, when you look across -- I guess someone touched on it earlier -- the areas now that you have clearly defined them of your business plan, where do you see the major wholes that you still want to fill? Do you want to get at the Suezmax class in your crude tankers? Are there a certain size of product tankers that you would like to get at more or less?

And then in terms of the U.S. Flag or the LNG, where do you look at in terms of priorities? Or is it just strictly on a returns basis?

Well, I think we have stressed -- we always look at returns first. But we have stressed that we want to have balanced growth in the portfolio. I think if you look back 2 or 3 years, we were too exposed to the spot crude market. I think we have addressed that. But we have also said that all the sectors in which we operate would benefit from consolidation. And that we certainly intend to be a consolidator within that segment. And we will look at opportunities in this.

If there was one area that I'd like to see growing fast than the others, perhaps it would be the product tankers. And that has more to do with how we think we should be trading them. But it will be balanced growth, and we're open to investments and expansion in crude, in products, in U.S. Flag and in LNG.

(OPERATOR INSTRUCTIONS). Andrew Gundlach, Artemis.

Congratulations on an outstanding quarter. I guess this is a similar question in the past. Now that Stelmar -- we have seen a full 3 months of Stelmar -- what is the Company's EPS sensitivity to rates? In other words, you gave the spot rates earlier, but every $1,000 of VLCC rates equals what plus or minus on EPS? And the same question for Aframaxes.

I think we could probably kind of best help you by giving you the number of days per vessel sector. And then you can do the calculation yourself and give you the ability to vary on a percentage as well as absolute dollars. But total days for VLCC, Q3 and Q4, each about 1,750.

This is spot renow (ph), right?

This is total. Aframaxes -- 1,500 in each quarter; Panamaxes about 1,100 in each quarter; and product carriers about 2,400 in each quarter. And if you were looking at -- that should give you the best approach towards analyzing the effect on EPS.

And the other question I can do with Jennifer off line. My other question is -- the impressive cash flow -- if I back from the first-half cash flow statement, the first-quarter cash flow statement -- so I just get a pure second quarter, you had something like 300 million in cash flow. And you used most of it to pay down debt and capital leases; although, that did not show up on the balance sheet. You know what I mean? What am I missing?

We had some taxes we had to pay for 2004, and I think that number is about -- Myles -- 95 million. That will not be recurring obviously. You're paying your 2004 bill. I think that is probably your hole.

You're right.

Jonathan Chappell, J.P. Morgan.

Sorry for the follow-up. I just want to be clear on the strategy with the Stelmar fleet. In the past, Morton talked about kind of switching the time charter versus spot focus to about 50/50 versus Stelmar's old kind of 70/30 mix. But the numbers that Myles gave to answer Philippe's question of 86 fixed for the third quarter, 68% for the fourth quarter -- are you just talking about Handies there? When Morton is talking about 50/50, is that a Panamax, Handymax combination, so we can assume that more Panamax is on the spot market right now?

We have seven ships that are coming off charter -- off time charter this year. And what we have done is -- on the older ships, I was very deliberate -- we wanted to get those fixed longer for obvious reasons. So we really haven't deviated that much, but we made a very conscious decision. The bareboat vessels, we wanted to take long.

And as we have a number coming off -- and I guess that number also includes the two Panamaxes, which are in longer term charters.

And Jonathan, the other thing of course, when we acquired Stelmar, over 70% of their fleet was fixed. So it takes a while for it to roll off. The strategy remains the same, which is really to employ about half of it in the spot market under appropriate terms and conditions -- in order to have sufficient mass that we can realize some of those revenue efficiencies that come through combination voyages -- but also mainly to have the double hull vessels within the spot market as opposed to the single hull. So the timing of coming off is really driving the level of fixed-rate business today.

There appears to be no further questions. I would like to turn the floor back over to Morton Arntzen for any further closing remarks.

I want to just thank everybody for joining the call. And emphasize we are open; we will be seeking to meet with our owners. We welcome visits. We welcome calls. And we intend to be making the rounds around the country. We think we have a pretty good story to tell. We hope it is pretty clear and straightforward. And we will continue to work on executing it and look forward to meeting with all or some of you in the future.

And one last word -- if you haven't already done so, we launched our new website last month, www.OSG.com. We think it is pretty neat. There's a lot of good information on there. So please, if you have time, take a look at it. Thank you very much.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.