Octave Specialty Group Inc (OSG) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Overseas Shipholding Group first-quarter 2012 earnings conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions.

(Operator Instructions)

I would now like to turn the conference over to Jim Edelson, please go ahead.

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 and articulated tug barge markets, changing oil trading patterns, anticipated levels and timing of new building and scrapping, prospects for certain strategic alliances and investments, estimated TCE rates achieved for the second quarter of 2012, and estimated TCE rates for the third and fourth quarters of 2012, projected scheduled drydock and off-hire days for the second, third, and fourth quarters of 2012, projected locked-in charter revenue and locked-in time charter days for the remaining nine months of 2012 through 2016 and thereafter.

OSG's ability to progress and achieve its liquidity enhancing initiatives, estimated revenue and expense items, levels of equity income, and capital expenditures for 2012, the profitability in 2012 of certain business units and OSG's LNG and FSO joint ventures. OSG's ability to access capital markets, raise additional debt financing, sell assets, enter joint venture agreements, and monetize charter revenue. OSG's projected compliance with financial covenants in 2012 and 2013. OSG's ability to reduce charter rates on certain chartered-in vessels, to further reduce general administrative expenses and vessel expenses, to achieve fuel cost savings across OSG's fleet and to generate sufficient cash flow from operations to cover most or all of OSG's obligations in 2012. Prospects of OSG's strategy of being a market leader in the segments in which it competes, the projected growth of the Jones Act and world tanker fleets, and the forecast of world economic activity and world oil demand.

These statements are based on certain assumptions made by OSG's management based on its experience and perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate in the circumstances. Forward-looking statements are subject to a number of risks, uncertainties, and assumptions, many of which are beyond the control of OSG, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. 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 for 2011 and in other reports OSG files with the Securities and Exchange Commission.

For this conference call we have prepared and posted on OSG's website supporting slides that supplement our prepared remarks. We understand there may be some difficulty in accessing both audio and visual portion of that presentation, but we will proceed now and you can visualize -- [hook up on the internet] to see a slide presentation. This supporting presentation can be viewed and downloaded from the Investor Relations webcast and presentations section on osg.com. With that out of the way, I'd like to turn the call over to our Chief Executive Officer and President, Morten Arntzen. Morten?

Thank you, Jim. Good morning, everybody. Joining me here in New York are Myles Itkin, our CFO; Lois Zabrocky, Chief Commercial Officer for all the International flag businesses; Janice Smith, our Chief Risk Officer; Jim Edelson, General Counsel; Jerry Miller, our Controller; John Collins, Head of Investor Relations. And then joining us from Newcastle is Captain Ian Blackley, Head of our International Flag Shipping Operations; and from Tampa, Captain Bob -- Robert Johnston, who runs our US Flag businesses.

Please turn to Page 3 on the website. OSG generated a net loss of $37 million, excluding one-offs, in the first quarter of $1.22 per diluted share. Our earnings were negatively impacted by continued weak rates in our International Flag segments, but the levels achieved were greater than what we -- was earned during the last six months of 2011, which we think was the bottom of the current tanker cycle. Revenues from our International products segment rose 15% in the quarter to $52 million, but were disappointing, we believe, primarily because of the exceptionally warm weather we had in North America. Despite the near summer-like temperatures, at times, during the winter season, product rates continued to trend up.

It is worth noting that we took delivery of our last MR product tanker newbuilding, the Overseas Athens, in January, and we now control a fleet of 43 product tankers, including 37 MRs with an average age of 5.8 years and six LR1s with an average age of 3.4 years.

Our US Flag unit delivered another solid quarter of improvement with operating income in the first quarter of 2012 rising to $16.7 million from $6.5 million in the first quarter of 2011. This is the fifth consecutive quarterly improvement in our US Flag results. The greater stability of our US Flag business, which comes from a high degree of term contract cover, provides a good offset to our more volatile International Flag earnings.

As you can see in our forward rate chart in the earnings release, the second quarter is off to a better start than what has been forecast for us. International rates are trending up, albeit with a lot of volatility, as we might expect in the early stage of the recovery. Based on our performance so far in the quarter, we would expect our VLCC rates, for example, to average above $30,000 a day for the second quarter, well above market expectations.

We continue to do an excellent job of containing costs onshore and at sea. G&A expenses for the quarter came in at just $21.1 million versus $24.5 million in Q1 2011. This is in line with our 2012 G&A guidance of $80 million to $87 million. On our costs at sea, we've budgeted an average operating cost for International fleet this year of $8,100 per day, which is well below the levels we achieved in 2008, when the average operating cost of International fleet was close to $8,800 a day. We came in below $8,000 a day for the International fleet in the first quarter. And we have done this without compromising our strict safety, reliability, and service standards. At this point, with $24 million in newbuilding installments and $13 million in debt remaining over the balance of the year, we expect cash flow from operations to cover most or all of our cash requirements over the course of the year. Please go to the next page.

2012 is a turnaround year for OSG, and I'm pleased with the progress we are making on a number of fronts. I am spending a lot of my time, as is the entire Senior team, advancing a number of liquidity enhancing transactions and initiatives that we have underway. We remain confident that we will succeed with enough of these initiatives and thereby steer the Company through this prolonged slump in our International Flag markets that we are in, as well as provide additional liquidity for growth.

I will not go into any specific detail, as we are focused on getting optimal execution on the best alternatives for the Company, and that only happens when you have, as we do, multiple options to pursue. We have options available to us because most of our vessels are unencumbered, and we have multiple vessels with long-term contracts associated with them. We are not beholden to just one market to succeed, that is, we can choose the best options available to us.

Moving on, I have already mentioned the improved performance of our US Flag unit, the outlook for which remains positive. Tight control of spending has become second nature to our employees by now, and I have every confidence that this will continue. To achieve the kind of cost and expense control we have achieved over the last four years is only possible if you have the entire Company behind the effort.

A major focus of the Commercial teams this year, in addition to their number one goal of outperforming the overall market every quarter, has been on improving the economics of our charter-in portfolio. For example, we were able to negotiate reductions in the daily rate on three modern Suezmaxes, that we have on short-term charters, by close to $5,000 a day during the quarter, with a new rate on the first two already effective and the other one to commence at the end of this quarter. Three loss-making VLCC chartered-in ships were redelivered earlier this quarter. While we have a lot to get done and a lot of improvement initiatives underway, the Company remains focused on operating the safest, cleanest, and most reliable fleet in the industry. This remains the key to our long-term success.

Now, we don't control spot pricing International markets and thus have to cope through the shipping cycles. When spot rates are weak, as they have been for over three years now, we benefit from the steady contributions from our US Flag, LNG and FSO segments. Fortunately, it appears that the worst is now behind us. We believe that our International markets bottomed out in the second half of last year and expect improved performance, albeit still unexciting for the time being, for both our Crude and International Product tanker businesses this year, with the recovery in products being steeper and coming sooner. With our high operating leverage in both segments, we will benefit enormously from improving rates. Please turn to the next page.

The improvement in crude rates so far in 2012 should not have surprised anyone. We expected the inventory de-stocking that occurred last year to reverse itself and it has. In addition, we have also experienced inventory building before the Iran sanctions kick-in in July. Both of these have given a boost to long-haul movements. In addition, the Brent-Dubai spread, which widened dramatically last year on the back of the Libyan crude shut-in, has normalized, which has resulted in more crude being sourced in West Africa by Chinese and other Asian importers.

Looking further into 2012, we think the refinery expansions in China, India, and the US, coming online this year, will give a further boost to long-haul trades, which should support tanker rates. In addition, we expect that long-haul barrels from OPEC will have to meet most of the incremental demand growth in the world in the second half of this year. Yes, we still have a supply overhang, but orders are diminishing, slippage in the order book continues, and there has been a modest pickup in scrapping. The supply situation could improve if Iran is forced to move the rest of its fleet from trading into floating storage as sanctions bite. The negative wild cards we see and are most concerned with are pre-election draws on the OECD Strategic Petroleum Reserves and demand destruction because of high gasoline prices.

When you sum up the crude tanker environment, you see more factors out there that can support rates than potential wild cards that could reduce rates. Regardless, we will continue to see lots of volatility. Please turn to the next page.

As mentioned earlier in the call, the exceptionally mild winter in the USA negatively impacted our Products business in the first months of the year. Nevertheless, we think product fundamentals remain strong and that rates will continue to trend upward. The growth in US exports to Latin America and Europe is exploding. As we head into the driving season in the US, imports will have to replace both output from the shuttered refineries in the Northeast, as well as short-haul imports from the Hovensa and Aruba refineries that are now closed. We also foresee increased long-haul exports from India to the West. Please turn to the next page.

We are quite bullish on the long-term prospects for our US Flag business. Fleet growth will remain modest, and the fleet is today fully employed. Our Jones Act product tankers that are rolling off time charters are getting fixed at higher rates than that they finished on. Each of the new time charters we have done this year has been higher rate than the last. Our ATBs are experiencing less waiting time than in prior years and slightly firmer rates. The same refinery closures that will boost -- that will give a boost to International Flag tankers, should also result in more coastwise Jones Act product movements, which should benefit our market. In addition, we will be following refinery developments in the Delaware Bay closely.

Please turn to the next page. Summing up, Management's main focus right now is on our liquidity raising efforts which we have underway that we are progressing on multiple fronts. We are not counting on any single transaction to meet our incremental liquidity targets, but instead are pursuing multiple options. We expect to be successful with several of these and be able to turn to a more offensive posture as we head into the second half of 2012. We see rates trending up in our International markets, but with even more volatility than we have seen in the past. The key is to make smart trading decisions in this environment, and take advantage of the scale we have in the markets in which we compete. We expect our US Flag business to continue to deliver healthy results, and have efforts underway to improve returns from our LNG and FSO joint ventures.

We remain focused on controlling costs at OSG, and expect initiatives like the transfer of the responsibility for technical management of our crude tanker fleet from Newcastle to Athens, to drive further efficiency improvements at the Company. At the same time, our Commercial teams are looking under every rock to squeeze a few extra TCE dollars out of every voyage. These little bits can and do add up. Based on our current outlook, we expect most or all of our capital commitments in 2012 to be met from cash flow from operations. However, considering all the uncertainty in the world, we will manage the Company conservatively, as if the weak 2011 rate environment continues throughout this year. This will best position us for the forthcoming recovery in our International markets that is just getting started. I will now turn the microphone over to Myles Itkin, our CFO.

Thank you, Morten, and good morning. I would like to highlight several items on slides 10, 11, and 12, before beginning the Q&A session. Please turn to slide 10. Growth in the US Flag and International Product carrier segments resulted in a 4% quarter-over-quarter increase in TCE revenues. Increased revenue in these two segments was offset by declining revenue in the International crude tanker fleet. This decline resulted from the re-delivery of currently unprofitable chartered-in VLCCs and Aframaxes, along with a decline in the average daily TCE rates for smaller crude vessel classes.

The $7 million increase in TCE revenues reflects a $15 million increase in US Flag revenues, along with a $7 million increase in International Product carrier revenues, offset by a $13 million decrease in International Crude tanker revenues. The $1.7 million quarterly loss from vessel operations before G&A reflects a $16.7 million contribution from the US Flag sector, counterbalanced by operating losses generated by our International Crude and International Product sectors of $8.6 million and $9.3 million respectively.

The continued betterment in the US Flag performance reflects both the strengthening of the overall Jones Act market, as well as quarter-over-quarter fleet growth since March 2011. The US ATBs that are trading in the spot market were fully utilized and generated close to a $3,000-per-day quarter-over-quarter improvement in TCE rates. Time charters on our US Flag product carriers that expired since the first quarter of 2011 have been replaced with new time charters averaging above, and in a number of cases well above, the expiring fixed rates. Approximately 64% of the US Flag segment's business was under fixed-rate contracts during the quarter. Please also note that our joint venture investments continue their solid performance providing positive and consistent returns.

The $5.3 million quarter-over-quarter increase in interest expense is primarily due to a $198 million increase in the average amount of variable debt outstanding, coupled with a $2.7 million increase in commitment fees related to the forward start facility, as well as a $2.2 million decline in capitalized interest. Finally, our ongoing cost control program has resulted in containment of daily vessel operating expenses and further declines in G&A expenses. Our first quarter 2012 G&A totaled $21 million compared with $24 million for the first quarter of 2011.

Please turn to Slide 11. I'd like to draw your attention to the interplay between the cash and current portion of long-term debt as of March 31, 2012. The cash balance at quarter end reflects the February 12, $150 million draw-down we made on our unsecured revolver. Current portion of debt includes the excess of the amounts outstanding under the unsecured revolving credit agreement over the $900 million cap of the forward start facility. Cash would decrease by December 31, 2012, if the Company were to use any cash on hand to reduce the current portion of the unsecured revolving credit agreement outstanding at that date.

Just a few points about the Company's liquidity and cash flow obligations. We remain in compliance with the financial covenants contained in our debt agreements and expect to maintain compliance with all of our financial covenants during the next 12 months. As of March 31, 2012, our cash and short-term investments stood at $227 million and we have $344 million of availability under our credit facility maturing in February of '13. Non-operating cash outflows during the remaining nine months of 2012 are manageable, and more than 70% of our vessel net book value remains unsecured. Only 15 of our vessels are pledged as collateral.

Please turn to Slide 12. Our expectations for 2012 are tracking in-line with the guidance provided to you on our prior conference call. The only changes to P&L guidance are to vessel OpEx. Vessel expense guidance is being revised downward to a range between $295 million and $305 million. Our estimated 2012 charter hire expense remains consistent with the guidance provided on the February call of $350 million to $360 million. We've included some additional details with respect to the guidance. As we previously indicated, short-term charters, defined as charters less than one year in duration at inception, are not included in our fleet list, nor are the spot charters-in executed by our International Flag Lightering operation.

$40 million to $50 million of the annual guidance figure represents estimates for these short-term charters and spot charters-in. It should also be noted that the level of quarterly charter hire expense is expected to decrease sequentially during the remainder of 2012 from the $96 million of actual charter hire expense incurred in the first quarter. Forecasted charter hire expense by quarter for the vessels on our fleet list for the remainder of 2012 is as follows -- Q2 $79 million; Q3 $76 million; and Q4 $72 million. Short-term charters and spot charters-in make up the balance of the difference, representing $29 million to $40 million, which can be spread ratably over the three remaining quarters, $10 to $13 million per quarter.

Our guidance for drydock costs for the balance of the year is approximately $31 million. Drydocks will be performed on 23 vessels -- Q2 $20 million, Q3 $3 million, Q4 $8 million. Our guidance for capital expenditures for the balance of 2012 is approximately $30 million, which includes progress payments on newbuilds, vessel improvements, and capitalized interest -- Q2 $10 million, Q3 $17 million, and Q4 $3 million. We will now open the call up to questions. Operator?

Thank you. We will now begin the question and answer session.

(Operator Instructions)

Michael Webber with Wells Fargo.

I just wanted to start off with some balance sheet questions, actually. Morten, you mentioned in your commentary on debt that you are making progress towards some of your liquidity initiatives. Can you maybe talk a little bit about exactly what you are looking at right now? And I know on the Q4 call you mentioned asset sales, equity raises, and securing some additional debt. Can you talk a little bit about how those dynamics, and how you think about the dynamics, might have changed since the last time we talked, I guess is, on the Q4 call?

Yes, we continue to make progress on each of the fronts that we have discussed. As a result of having a substantial level of unencumbered assets, as a result of having assets that have long-term contractual flows attached to them, as a result of having rather strong relationships with our banks. We are making progress on all fronts.

Got you. That's helpful.

I want to zero in on -- I assume that the Jones Act ATB, Myles, I guess is 350 and 351. If memory serves, other capital construction fund assets -- and those are not, I guess, proper Jones Act assets -- can those trade point-to-point? And the reason that I am asking is that if you go in to secure additional debt, those that hold a fair amount of value in their ability to trade point-to-point or contiguously in the US, would certainly have a pretty big impact on that valuation. So can you maybe shed a little light or a little bit of color in terms of how those assets could trade if they do end up coming off those charters?

I think it would be premature to comment on that. You saw the announcement yesterday regarding Delta buying the Trainer refinery of Conoco. And then there is -- it was released earlier -- about Carlyle in discussions with Sunoco, potentially buying the Sunoco refinery in Philadelphia. We are engaged with the 350 and 351 in Lightering activity, and right now the expectation would be that they would continue to be in that Lightering activity, and these announcements, which are just announcements, which we need to fully understand -- we would expect that they will require long haul crude to be brought in by big ships, certainly in the immediate future, and that our ships would continue to be active in those trades.

We have alternative plans for those ships, but I prefer not to go into them. Right now they are fully engaged in the Lightering trade and based on what we -- the releases -- we would expected that, that would continue.

Okay. All right; that's helpful. Morten, I wanted to talk a little bit about cost, in both G&A and OpEx. And you have done a pretty good job of holding the line here, and it is pretty striking at a time when you've got some other owners that are taking cash out of the business, as you guys are certainly holding the line here. You've got lube prices though, moving considerably higher and your OpEx keeps coming down. Just curious as to where you are actually seeing those savings, and how you see that progressing throughout the year. I know you have relocated some staff. Can you maybe give a little bit more color in terms of how you are able to keep bringing costs down?

In terms of operating expenses, particularly on the larger crude vessels, our crude complement has become substantially Filipino. So the level of European masters has been reduced, as we predicted. Filipinos have been promoted appropriately with -- to those ranks. Other line items really go just across the board in terms of appropriate maintenance programs for the vessels, reduced transportation costs as it relates to spares. Minor alterations in other costs -- obviously, insurance costs have been well managed and have been reduced during the period. So we've hit across all aspects.

You do want the full year to come in because there are, in any given quarter, there are some elements that are timing differences. But inherently, a substantial year-over-year reduction in operating expenses. As it relates to G&A, the vast majority of the decline that you saw in this period really relate to personnel and benefit expenses, as well as a modification in accrual for bonuses. So they are more reflective of that which were paid in 2011. Consolidation of offices should generate incremental savings for us, particularly the Athens and Newcastle consolidation, which will render us more efficient and centralize all of that technical operation activity in Athens.

Got it. That's very helpful.

Myles, I guess while I've got you -- the working capital still seems like it is pretty large with the $150 million, and has trended there for, I guess beyond our expectations for a while. Is there -- can you release any of that capital at all to help out with liquidity a bit? Or is that where we should expect it to run? Maybe a little bit of color there?

No, I mean I think there is always a possibility of being able to enhance liquidity, through a quicker collection of receivables or other treatment afforded receivables and payables, but I wouldn't count on that as being the primary source of incremental liquidity.

Sure. That makes sense.

One more and I will turn it over -- and Morten, it seems, the commentary -- I don't want to call it bullish, but it is pretty optimistic and it seems though -- like maybe you are getting a little bit more aggressive towards the back half of the year. And Myles, you are talking a little bit about some of the shorter-term charter-ins you have, anything below a year. And maybe this is a better question for Lois, but I'm just trying to think about how you view the back half of the year, and whether or not we should expect you to maybe charter-in a little bit more tonnage. I know you don't have a lot of room to play with, but given the commentary, it seems like you guys are getting a little bit more aggressive towards the back half of the year, so maybe just a little bit of color there?

I'm going to turn it over to Lois, but I just want to address one thing. I don't want to be accused of being optimistic. (laughter).

Never.

What we've said in the beginning of the year, in January, was that we expected 2012 to be better than 2011, and certainly an improvement over the last six months of last year, but still unexciting levels. The levels we are achieving right now are clearly unexciting.

Sure.

But they generate cash, and we believe the market is trending up. But we are still being very sober about the overhang of ships, particularly the crude and product side, but we think that, that worst is behind us. And, in fact, the order book now for tankers -- crude tankers -- I think is the lowest level it has been since the year 2000. So things are happening, but please don't accuse us of being optimistic. Realistic, careful, and trying to outperform.

Okay, I will use sober going forward. (laughter)

I guess, to answer that question, I would say that we are being very opportunistic between the sectors; where we see the volatility and the opportunity to take in vessels. On the Suezmax sector we have renewed four vessels on short-term -- up to three years -- charters. And those are at $5,000 to $6,000 per day below our previous in-chartered cost basis. And we are seeing very good ability to triangulate in that sector, especially as you see increased lift out of West Africa going East. So we've seen more opportunity there.

We have renewed a couple of vessels on the Aframax side at $5,000 per day less, but we have been a little bit more selective on taking in the Aframaxes; we just haven't seen them break out to upside and have the same type of early recovery signs that you see in the larger vessels. So we're looking constantly at what opportunities we can take advantage of, but we want to make sure that we have an advantage in each of those sectors before we move.

Got you. Thanks, Lois, that is helpful. I will turn it over. Thank you for the time.

Jon Chappell with Evercore partners.

Morten, I understand that you don't want to get in too many details on the liquidity initiatives, particularly which options you may choose and/or timing, but you did lay out a laundry list of potential alternatives in the fourth quarter conference call. Over the last two months, have any stood out? Or have any stood out to be pretty much non-starters and have been pulled off the table?

We've made progress in each of those fronts. Commenting on any specific transaction is less desirable today, but I can assure you that we've made progress on each of them.

All right. And Myles, what kind of magnitude would you be looking at, all-in? You mentioned in the presentation about $256 million of excess from the current facility, versus the forward start; clearly a lot of that is offset with your current cash balance, but how much runway do you want to give yourself just in case you're not as optimistic as Mike thinks you are?

Not to avoid answering your question, I think it in part depends on what's needed for liquidity purposes during the period and what we desire for subsequent growth. But any one of the series of actions that we can undertake certainly can meet the difference between current outstandings and the shortfall on the revolver.

Got it.

Another thing you laid out was LNG and the FSO businesses, and how you plan to increase earnings and distributions there. I guess that's a part of the business that falls under the radar frequently because of the contracts associated with those vessels. How do you plan on increasing the earnings from the distributions from those two parts of the business?

You know, I think the LNG carriers is really, our technical operations is -- are doing a superb job of running those ships. And as a result, we expect to be able to increase the margins that we have in those contracts. And my hat's off. We are doing a good job, and more importantly, our customers are happy.

On the FSOs, we have one ship on a longer-term contract and one on a medium term contract, and we hope to be able to improve that. We've also been able to drive the operating performances that well, as well as expenses down. So these are very attractive assets, and we're doing a good job running them, and we have ambitious goals for improving what they -- the returns. And I think we will succeed with them at the [most].

Okay, but does that -- probably longer-term, since the guidance range for that part of the business is -- was maintained from the fourth quarter?

I think we are very careful on the specifics that we release on rates and such. As we succeed with initiatives, we will release those, but we prefer that, that is kept close to the vest.

Okay. Two more quick number follow-ups. First -- this is the first time that you laid out that $40 million to $50 million of charter-in cost from short term charters, not associated with your fleet list. Clearly, you're modeling revenue, it dictates what the fleet list shows. So, what percentage of that $29 million to $40 million that's remaining of the charter-in and that is not on the fleet list, would you consider breakeven, or moneymaking, or loss-making, as to try to forecast revenue associated with those cost?

You know, Jon, if you would reach out to me, we will go through -- endeavor to go through a more detailed breakdown. A substantial portion of that is in the International flag lightering business. And it has, for forecasting purposes, if you wanted to be conservative, you would deal with neutrality on that.

Got it. And then, finally, just the 2013 CapEx and debt repayments. You had a slide on that in the fourth-quarter presentation, and no update here. Should we just assume that, that's status quo?

Yes, that's correct.

Okay. Thanks, Myles. Thanks Morten.

Doug Mavrinac with Jefferies and Company.

Great, thank you, operator. Good morning, guys.

I just had a few follow-up questions, with the first one more market related, since obviously that's a big bottom-line driver for your business. First, as it relates to the uptick in chartering activity that we saw in mid-March, specifically in the AG or out of the AG. Is there any way to break down what percent of that -- of the increase of what we have been seeing in previous months -- what percent of that increase was East bound versus West bound? Do you have a feel for that? Because I know you track every single VLCC on the planet. Do you have a good feel for what is East versus West of the increase?

Well, I would say -- this is Lois -- the AG US Gulf movement, or the westward movement went up by about 150,000 barrels per day. When -- off the Venezuela East, went up by around 200,000 barrels per day. So, West Africa-China went up by about 150,000 barrels per day. Now in particular, anecdotally and specifically, if you look at Saudi Arabia and Vela, they made a number of moves as Motiva was -- needed the feedstock to start to come online, and they made, maybe incrementally, an additional eight to ten VLCC moves, but that refinery won't be fully up, we understand, until the third quarter, so it is a process.

Right (inaudible). That's very hopeful, Lois. The number that you have as far as the Vela charters headed this way is about ten-ish?

Well, That was the amount they had taken, in March -- early.

Right. And from our records that seems like it was the biggest, one time, kind of swoop-in, that we've seen since Thanksgiving of '07. Is that about right?

Yes.

Okay.

We are also seeing a big difference in the NITC vessels that are sitting versus a month ago. A month ago, it looked like about five of the Vs were storing, where now we have 18 out of their 28. And on the Suezmaxes, we have seven of their nine storing in the AG, so you're starting to see the NITC fleet getting taken out.

I got you, perfect. That's very, very helpful.

My second question is a follow-up to one of the earlier questions, and Morten, it was whenever you were talking about the recent developments within the refining complex in the Northeast, and it relates to the fact that we saw the Trainer facility, I guess, sold yesterday. And from our sources, we are hearing that most of that incremental crude is going to be sourced by BP with longer-haul vessels transporting that crude and sourcing that crude to the Trainer facility once it gets back up and running.

My question is, should that play out and should we see more longer-haul crude barrels headed that way? Is that a needle-mover for your lightering business in the Delaware Bay and that entire region?

Obviously BP is very important client of ours, and this announcement is new, and I don't think they have figured out entirely where they are going to source the crude. Our expectation is that it will be long haul, and it can only be positive for our Lightering business as it evolves. That's why I am being a little hesitant to comment at this stage, because it is early in the game, but one or both of those refineries staying open in the Delaware Bay is very good for our Lightering business; there is no question about that.

I figured as much. I just wanted to kind of address in this forum.

And then finally, as it relates to, I guess, with some of the previous questions that we are asking in terms of your liquidity-raising initiatives -- I'm not going to try to ask you specifically which ones you are working on, but my question is -- how has the uptick in charter rates increased your flexibility and perhaps timing as it relates to pursuing some of those initiatives? Because the cash flow coming in now is real; and it can only, I would think, help your positioning.

Has it changed your timing as it relates to pursuing some of those initiatives? Or are you still going in with, we need to get some of this stuff done sooner rather than later?

I think better markets always facilitate your ability to complete transactions. As it relates to timing, our preference is to get things done timely as opposed to really be dependent on significant improvement in markets.

Got you. Myles, I'd imagine also, probably strengthens your hand a little bit, whenever you're dealing more from a position of strength rather than needing to get cash. Is that accurate?

It is nice to have. Yes.

Got you. Perfect. That's all I had. Thank you for the time.

Justin Yagerman with Deutsche Bank.

Good morning, this is Josh Katzeff on for Justin. Lois, I'd like to start with you. You mentioned some of the chartering opportunities you had on the crude side, specifically, but what are you seeing on the product tanker side? Are you able to charter-in tonnage at attractive rates?

On the product carrier side, specifically on the MRs, we have a good deal of strength there already. We have a well-developed platform and we have a lot of vessels on in-charter. The rates on the product carriers have been fairly consistent, and they have ranged for longer-term deals, maybe down to 14.5 and up to 16, so you are relatively steady on that sector. And we are not as aggressive on adding in there. We have a lot of open days and we have a very strong position in that market.

What about maybe some of the larger product tankers like LR1s or LR2s? I guess there is market talk that rates have been picking up in the Pacific. Is that a sector that you have a presence in? Or that you'd be looking to get into?

Yes. We have LR1s. We have six LR1s. But what's been interesting is, that when they talk about those markets picking up, you are talking about from low single digits, and just barely cracked-up above $10,000 per day now. We are starting to see some of the petrochemical plants come back in the East, so you are seeing more naphtha movement, but those markets have been weak. We've had the majority of our LR1s in our Panamax International pool, and they have been earning tidily. We've only got, at present, two LR1s trading clean.

Got it. And maybe just switching topics, over to the Jones Act fleet. There's definitely been a lot of market interest in the Jones Act fleet over the past couple months. Can maybe you talk about some of the seasonality in the business, and what you expect, just historic seasonality, in the summer and fall months?

Bob, you want to tackle that one?

Sure, I'd be happy to, Morten. Yes, Josh. Normally in the summertime, the market, as you know, traditionally trends downward, but we what we are seeing this summer though is, it is actually steadying or increasing right now. That summer volatility, that summer variation we've seen -- we're not seeing it right now. And with all the vessels that are -- there's nothing in lay-up right now, so the market is very tight.

Josh, the other thing is, over 64% of our fleet for the quarter was fixed. So the portion of our fleet that is in the spot market is really the ATBs. All of the ATBs are operating. There is limited waiting time for employment. The AR rates have increased; so while there is strength in the market, the ARs derive -- rather, the ATBs derived the benefit of that improved performance.

Got it. Yes.

The key on that Josh, is not just the rates, but as Myles correctly pointed out, is the waiting time. We're going from voyage to voyage to voyage on the ATBs with zero waiting time.

Are those longer-haul movements? Maybe from the Gulf to the East Coast, or are those just more local movements?

Primarily cross-Gulf. We have had one or two go up North of Hatteras, but it is primarily cross-Gulf.

Got it. And maybe just switching topics a little bit.

I guess, earlier in the call you mentioned MR restructurings. Those were just the ones that were previously announced, right? There were no more charter restructurings?

On our MR fleet, we actually have a couple of rate deferrals, where we have lowered the rate -- that were announced earlier.

Nothing new since that.

Okay. Got it. Thank you for your time, guys.

Urs Dur with Clarkson Capital Markets.

Good morning, everybody. Just one item of minutia here -- the unencumbered fleet was what? 72% of net book value in fourth quarter, and you mentioned 15 vessels now. Is it still around the same?

Yes.

Percentage? Excellent. And then I guess, Lois -- everything else has really been well covered, but we talked about the shorter-term pickup in product tanker rates, which is nice, but as you just pointed out, from very low levels. But still the thesis out there -- and you have an excellent positioning for this thesis -- is that the order book is moderate and ton-mile demand is expanding. Are you seeing any longer-term developments that show us some light at the end of the tunnel for the broader MR and LR spaces as we go forward towards the end of the year, and sort of outlook for 2013? Any catalyst we should take a look at, focusing on the product tanker exposure?

I'm going to let Lois tackle it, but I'll just make one point, which I think, has not really been covered. You have seen private equity come in the shipping space. In particular into the MR area.

Sure.

On newbuilding and second hand, and if you look at the levels that are now being achieved, what I would say, is that I think it has put a floor under the values on product tankers, and I think that's a positive thing from where we sit, and I think that's reflective of what is a more positive longer-term outlook. Let me have Lois tackle the rest of it.

I guess what I would first do is separate MRs from LR1s and LR2s, because you're talking very fundamentally different markets. And right where we have 40 vessels is on the MR side. We are heavily trading in the Atlantic and have actually performed much better than the larger sectors. Having said that, on the LR1 and LR2 side, we do anticipate India coming online with 300,000 barrels this year, which largely should be focused on export, and you also have some Arabian Gulf refineries that will finally come online in '13 and '14. The fundamentals for the medium-sized product carriers -- the bigger ones; I shouldn't say mediums size, that is medium range -- but the long range, LR1, LR2, should improve in '13 and '14.

All right. Well, very good. I'm just looking for a few extra catalysts, because I like the exposure, and we just love to see the rates pick up further. Excellent, thank you for the time. Everything else has really been covered.

Robert MacKenzie, FBR Capital Markets.

Thank you. Morten, I guess the question is for you.

Very much more a strategic, longer-term thinking question -- but I think important to how you run your business here. And that is, with US oil production on land up, with deepwater Gulf rig count recovering, and that production likely to follow, how do you think about ton-mile demand over -- call it the next three- to five-year time frame? Even two- to five-year time frame? With US oil production going up, losing more and more of that long ton-mile, and how do you position your Company in that environment?

You know, this is not one that I can take in a short answer. Certainly, overall demand in the world has continued to grow. The long-haul trades to Asia, China, India, out of places like Venezuela, Brazil, West Africa, have been increasing. We have in our models the US as at best flat import market. The Motiva refinery expansion is a little bit different, because that's owned 50% by Saudi Aramco, so they are going to provide, I think, at least 50% of the crude for that.

Our MR business will benefit from increased exports from the US Gulf out, and that's probably right now the fastest-growing market we have, so I think we're well-positioned for that. Our Jones Act fleet would benefit from incremental movements along the coast from those refineries, particularly Motiva. We did make the move into the FSO space with our big ships, and I think we will endeavor to look at the further opportunities there. But I think we are pretty well-positioned for the overall trades where we are. Long run -- do I think the US will produce more oil and export more products? And the answer is yes.

Does that mean that you are interested, or planning, or thinking of transitioning to become more of a product tanker company as opposed to just a crude tanker company?

Well, I think we've now gone to 43 product tankers, and six, seven years ago we were four product tankers. So, I think we've made that commitment. I think, clearly, we've made huge investments in that area. I'd say I was hoping for lots of snow and cold weather this winter and lots of skiing opportunities, and I didn't get those.

But we still think long-run, that investment is going to pay off, so we in fact, have invested more in the product tanker and US Flag the last five years than in the crude side. I think we're more balanced, and considering all the volatility and uncertainty in the world, I'm happy about that. Like Urs I'd like to see better rates sooner on the product tanker space, but I think that, that may happen.

Okay. In your model, you mentioned in your slide deck and your presentation that you are planning on managing as if 2011 is the market to stay. Is that what your model indicates? Due to the growth in supply and reduction of some of these long-term [average] like the US? Or is your model more bullish than that?

What we said at the beginning of the year was that we expected 2012 be better than 2011. I've also said that what we achieved in the first quarter was unexciting, but it was more in line with what our own internal budgets were. But when you consider the election risks, the Iran risks, the European debt risk, you've got to run your business such that you could get another shock. Though we don't expect it, but that's the way we are going to manage it.

So we are not going to take risk positions or capital commitments based on a more rosy outlook. We are going to base it on a tougher outlook, and it happens to be, most of the banks that operate in this space, are still running numbers using last year's numbers. And fundamentally -- so we're going to be careful that way. I think our -- not optimistic, but realistic -- outlook, is a little bit stronger than what it was in 2011.

Okay. Great. Thank you very much.

I'm showing no further questions. I'd like to hand over to Management for any closing remarks.

Thank you, everybody for joining the call. We had good attendance. Thank you for very good questions, and we look forward to reporting on more progress on both the operations and other fronts in the course of the next quarter or two. Thank you very much.

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation, and you may now disconnect.