Scorpio Tankers Inc (STNG) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Scorpio Tankers Inc. fourth-quarter and year-end 2012 conference call. Today's conference is being recorded and at this time, I will turn the conference over to Mr. Brian Lee. Please go ahead, Mr. Lee.

Thank you, Kathy. Thank everybody for joining us today. This is Brian Lee, Chief Operating Officer of Scorpio Tankers. On the call with me today are Emanuele Lauro, Chairman and CEO; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer.

The information discussed in this call is based on information as of today, February 26, 2013 and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements.

In our discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings release that we issued on Monday, February 25, 2013, as well as Scorpio Tankers' SEC filings, which are available at ScorpioTankers.com. Call participants are advised that the audio of this conference is being broadcasted 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 Scorpio Tankers' website for approximately 14 days. Now I would like to introduce Emanuele Lauro.

Thank you, Brian. First of all, thank you very much to all of you for joining us today. For your guidance, a copy of the press release is available on the Investor Relations page of our website.

The way we would like to conduct the call is very similar to our previous earnings calls, so I will make a short statement and then we will allow you, the audience, to ask questions as we believe that the interaction between the Company and the audience is actually the best use of your time.

This is the fourth-quarter 2012 earnings call and the Company today is in a quite unusual situation. The reason being that, since December 31, 2012, the Company has undergone a significant transformation. So we are here talking about the past, but with an eye actually focusing on the future.

The transformation, which we have undergone, has been possible thanks to our capital providers and I am referring to not only the financial lenders, but the equity investors as well. We are thankful to our capital providers for the opportunity which has been given to us. We are committed to make it a success. We think that we are in a unique position to become the product tanker market leader in today's environment. And this is, as I said, thanks to the trust that has been put on management and on Scorpio as a whole from our equity investors, as well as our financial lenders.

I think we can -- I can actually give the floor to Robert Bugbee, our President, for a few additions before we open the floor for questions.

Okay, thanks. I would just like to say a couple things. We look, as I think it is much productive to focus on this call on what we are seeing in the first quarter of this year and going forward. And what we are seeing at the moment is a real confirmation of our thesis that the product market is gaining strength and recovering. We would say that we are in the second inning.

We have year-over-year much stronger markets this first quarter than the previous year. The demand side continues to expand strongly in not just volume, but in new trade routes and new types of cargoes that are transported by these product tankers. We have every faith in our newbuilding strategy itself with regard to these eco-design vessels.

We are actually seeing some underlying strength now in yard pricing. I think that most of the announcements that we have made recently don't truly reflect the strengthening in the yard pricing positions because these are real declarations of options that the pricing was done some time ago. And we think, as Emanuele said, that we have a pretty unique opportunity here with the capital that has been provided to us to take this leadership position, extend this leadership position and we think the -- I have in my career never seen at this stage of a market the ability to get such significant returns on capital for newbuildings. The newbuildings that are put in the water, we have seen various announcements of the earnings and in some cases, they are up to 25%, 30% returns on equity at this stage in a point where we believe that we are only beginning to see the early stages of recovery in the market.

So on that note, we would like to open it up to questions if we can.

(Operator Instructions). Jon Chappell, Evercore Partners.

Thank you. Good morning, guys. Robert and Emanuele, I wanted to ask you about the new credit facility you announced yesterday morning. How does that line up with the remaining capital commitments that you had from your firm order book? And then beyond your firm order book, with the '14 options and then other potential opportunities to grow, what type of liquidity do you see with the combination of that facility, your current facilities and the equity you have been able to raise as far as growth beyond the firm order book?

Hey, Jon, it's Brian. I will take about the payments and everything. So we disclosed our payments in the press release, $651 million, but that includes the $42 million payments we have made to date, so it leaves about $609 million.

From that, our next four newbuildings, which are scheduled for delivery in March 2013, April 2013 and two in January 2014, those four will be financed under the 2011 credit facility. So that gets us approximately $70 million plus for that and then we also have the new facility that we announced for $267 million. It leaves two newbuildings unfinanced, but we have had plenty of discussions with banks who are interested in doing that and we don't view that as being a problem going forward. And then you take into account our liquidity, our cash balance of $272 million approximately and then the availability under the 2010 facility of $67 million, it more than covers what is required here.

So I would think that, in our view, 18 out of the 20 are definitely covered and the remaining two, we see no problems and are working on. As to the potential to expand from here, management believes that we would have the ability to order in the range of $300 million of the newbuildings, allowing for those to be financed too at 60%, which we also believe that we have strong encouragement. We should be able to get debt finance in line with that.

So in summary, we are 18 out of 20 firm. The two we think we will be able to get and you could expect that management believes that we have $300 million of total firepower left in newbuildings. And that is on fairly conservative -- well, very conservative, below present one-year charter rates of cash flow predictions going forward. That is not what we think will happen, but that is on a conservative basis.

Understood. Thanks for that color. Now, Robert, you just expanded into these Handymax 1A Ice Class, which is a little bit different from the rest of the order book spree. Are there other asset classes -- you have obviously taken in some LR2, LR1s on time charter in. Do you think you would expand into those different areas of the product tanker fleet with potential new orders?

I think that we have always maintained that we see that there will be a broad product tanker market rally, that they are different size ranges. The Handys are more regional, but this is a size range that has very, very tough vetting and requirements for environmental reasons going forward in operation.

At the moment, there is hardly any newbuildings in that size sector as the Handysize is something we have had great success in on our chartering book and previous positions. So we will look to expand that. We will also look to consolidate and continue to expand on the MRs. The MRs are increasingly surprising us to the upside in demand because there is just so much arbitrage going on. There are so many unusual voyages that are well beyond any economist model.

For example, just in the last couple of weeks, we have taken on MRs cargo from the Baltic all the way to the Dominican Republic. That is a pretty unusual voyage. We have taken naphtha into the United States and we have taken naphtha out of the United States. So the traders are just using these MRs and these new ones especially for any arbitrage opportunity.

We also believe that you really have got a secular change in the demand for products, that there is going to be longer haul, longer distances and with the refineries coming up in Saudi, the refineries coming up in East India that this team is going to continue and that with countries like Australia that may need as much as 500,000, 600,000 barrels of increased product imports in the coming years, that there has got to be an opportunity there for LR2s.

You have seen us sort of preview this. We have taken LR2s in on time charter. We own one. Again, there is a very, very small order book in LR2s. They are more expensive than MRs. We have always said that LR2s are the high beta. They are the VLCCs or the Capesize of the product market. But, as you can see by our charter-in strategy, we are getting more and more confident that the curve is improving enough that probably pretty shortly this is the time to start moving into that area.

Great. Understood. I will just ask one more and then I will turn it over. In your third-quarter press release, you had the table that caught a lot of people's attention with the fuel efficiencies of the Amber versus the Coral. Now that you have taken four more 2012 deliveries, plus your first 2013 delivery, could you just provide a little bit of update on the efficiencies of those ships? And then how you kind of see that transpiring as you take the delivery of the '14 vintage newbuilds?

Jon, Emanuele here. The reason why we haven't put another comparative table on this release is because we didn't feel it was necessary. In my quote on the press release, you will see that I said that we are realizing the fuel savings that were previously announced. So actually going forward, I would expect the new ships to slightly or marginally improve the performances rather than not. So we are still very confident and happy with the product we have bought and their performances are meeting our expectations.

To be really clear on this, I mean any form of new technology, there is a learning curve. So what we are saying is that as we -- there is a fine tuning. So as Emanuele said, we are very confident of those initial figures that we gave out. You could expect that the '13 deliveries are ultimately better than the '12 deliveries and you should definitely expect that the '14 deliveries are better than the '13 deliveries.

Understood. All right, thanks, Robert. Thanks, Emanuele and Brian.

Thank you.

Doug Mavrinac, Jefferies & Company.

Thank you, operator. Good morning, guys. I just had a few follow-up questions for you. First, looking at the markets, as we kind of really get started in 2013, we have obviously seen an MR market, chartering activity continuing to strengthen. We have seen charter rates continue to firm. My first question is really two parts. First, is there any specific geographic region responsible for that continuously increasing (inaudible) activity level or is it relatively broad-based?

And then second, Robert, the charter activity that we have seen, the arb opportunities that you discussed, on the margin, are those generally longer haul voyages than you would ascribe to being kind of the average for the typical voyage length for the MR market right now?

Okay, so the first one we have seen -- normally as we alluded to in the press release, you have a normal seasonal slowdown in the East markets, yet these markets in the West have been really very strong. The vast majority of our vessels in the first quarter have been in the West, over 90% and the only ones that we really had in the East have been palm oil contracts with (inaudible), which have been pretty lucrative anyway.

The West is being driven very hard by this rapid expansion of US Gulf exports and those exports are going everywhere, South America, West Africa, Europe, across into -- to even to the East and we expect that to continue. If we listen to the refiners conference calls, there is no reason why that isn't going to continue to expand.

As we roll through this period, we have also been quite encouraged right now that normally these seasonal turnarounds in the East for the LR1 market, the LR2 market, the MRs in the East would probably not happen until the earliest the end of March, early April. But in the last seven, eight, nine days, you have had a more than 20%, 25% improvement in that market. And just in the last -- that was before this morning. This morning, it is rumored that that has sprinted up a further 10%.

So that eastern demand is very, very encouraging going forward. The first quarter has really so far all been about the Atlantic basin, the Med, the Baltic. But as we go through this year, where it starts to get exciting is when you start getting both markets functioning again, East and West and this is all before you get Montiva coming back online, before the Saudi refineries, before the East India refineries come back up. So that part is really encouraging too.

As it comes to the arbitrage, it is everything and everywhere. There is no -- we have taken voyages that are as short as between Canada and the US East Coast or arb opportunities between South America and the US, as well as very long -- long voyages as well. The shipping cost is so de minimis to the actual value of the cargo traded that literally any arb that is opened up is being taken advantage of.

And these new ships -- I mean we are trying to get a handle on them ourselves, but it is just completely -- we talk about fuel efficiencies, but they are completely different animals now in terms of trading. I mean we did one rotation where we loaded gas oil out of Norway, discharged in Philadelphia, reloaded at the same terminal, ULSD, for discharge in Venezuela of all places and then reloaded in Venezuela for discharge in Europe.

First of all, that voyage rotation was unheard of a year ago and second, I don't think you would have had ships in the water that were capable of doing those fast turnarounds of those different cargoes. So we, ourselves, are learning through this. What I would say that is also very encouraging is if we look at a scattergram of fixtures, those fixtures that are outside one or two standard deviations in terms of earnings are to the upside. So every now and again you are getting a voyage that is well outside two, three standard deviations as a result of being in the right place at the right time.

Okay, perfect, perfect. Thank you very much for that. My second question, and actually you alluded to part of it in the first answer, was diving a little bit deeper into the LR2 and LR1 markets because, as you alluded to, we have noticed the pickup in activity levels rates and as you mentioned, it happened sooner than you would expect. And even on a year-on-year basis, comparing this year relative to last, rates are stronger sooner than you would have expected.

My question is what should we be looking for as analysts, as investors, in terms of -- to see the strength continue in 2013? Is it increases in refining capacity and some of those exporting regions coming online? Is it end-user demand picking up, a combination? What should we look for to see that, okay, well now the LR2 and LR1 markets are starting to really take off?

Well, I think the causes are going to be the combination of demand, especially to the East and also bear in mind that, right now, even though LR2s have been weak in the East, they have been reasonably, on a seasonal basis, robust in the West, which is a good sign.

The other thing is that you just have to trust us on this. We have been out there looking to charter in vessels and you haven't seen us making many announcements recently on further LR2s and that is because that market is tightening up. People are not -- what the traders are in -- people aren't wanting to relet. They are doing things and the unfortunate thing in that is not -- you are just going to have to see it confirmed in the rate. So you just watch your -- see your daily broker reports and read them right now in the last week and you have seen a -- I would say a ripping up in the worldscale rates on eastern fixtures. For that market, it is just as simple as that.

Right, right. Have you guys even contemplated what this market could be like if the US and the EU ever saw oil demand begin to recover?

Well, we already -- if we are talking about LR2s, we already saw fixtures, single fixtures last year in the plus $25,000, $30,000 a day range. You also have to remember that way back as the early start to 2003, 2004, even then you saw our fixtures up in the $50,000s. So the LR2 really is a beast. I mean it is feast or famine. Those things are under operating costs in weak markets and they don't have much limit to the upside in strong markets.

In the MRs, I think it is pretty -- it is pretty clear that you have fixtures that are solidly in the $20,000s right now in this first quarter. So again, once you put that triangulation in the pool either side, they are just not limited because it just doesn't matter to the customer. I mean if you take the rates up $20,000 a day, just take them arbitrarily up $20,000 a day tomorrow, on a 20-day gasoline voyage, well that is barely $1.05 a barrel. It is nothing.

Yes, no, that's exactly right. All right, and then final question before turning it over, obviously, Robert, we all (multiple speakers).

What I would like to say is that -- it is just when. We have taken charter coverage because we have been wrong in the last four months. We didn't expect that the rates would be -- we didn't expect that you would get fixtures over first quarter as high as it is right now. We were trying to take in ships at 13, 14 like crazy with expectations that normal MRs would be trading at around about 16.5 this quarter. They are trading higher and eco MRs are trading obviously significantly higher than that.

So for us, the risk now becomes on the upside. Whenever -- it is when the combination arrives that you are talking about. If you actually have the world economy functioning, it can get very (inaudible).

Yes, yes, no, I agree 100%. Final question for you. Robert, you have been through these cycles before. We have seen your past track record at places like OMI, etc. My question for you is when you look at the opportunities here and where we are, what is different this time around, if anything?

Well, that's an interesting question.

I've lost hair.

Lost a lot of hair. I think we have a few of us in management, a couple of us on our Board that have direct relative experience to 2002, 2003. I guess the biggest difference now is differentiation. In 2003, basically there were a bunch of companies you could get hold of capital. There was -- ships weren't going through this fundamental design change like they are now and OMI itself had a lot of competition. It was just one of. There was no way you could even think that OMI could become the market leader in crude oil or products at that time because you had much bigger brethren around it.

OMI's balance sheet was way more leveraged and constricted in 2002, 2003. Its newbuilding order list was less. I mean Scorpio is, I don't know, two, three years ahead of where OMI was. I mean you have got no legacy issues, you have got a much stronger balance sheet. You have got stronger shareholder lift already and you have a fleet that you are buying today that other people will have to buy tomorrow. And you have got operating margins that are clearly better than anybody else there is in the sector that matters at all. So your competitive position is truly unique; whereas OMI was just one of at that time. That is how I would describe that part.

And then the actual market itself is so differentiated. I mean there are people still in tremendous problem. It was only seven or eight weeks ago that whatever OSG were filing and so, right now, you have got this huge differentiation between the haves and the have-nots and you have got a -- the actual fleet itself is differentiating very fast.

And also Scorpio, in a way, is a blend of all of the lessons. The Scorpio management is a little bit more experienced. The people who are from OMI are a little bit more experienced. OMI was a company that had a huge, very strong relationships with oil majors that had on time charters, etc. that way. The Scorpio group had and has tremendous relationships with the traders. And it is at this point in the market that you really want to have those relationships with the traders so that you get the first cargoes that you can understand the market better. So every generation, I guess, should be better than the next one and I am really sure that this generation is much better than the last one.

That is perfect. Great. Thank you so much for the time, Robert.

Fotis Giannakoulis, Morgan Stanley.

Yes, good morning, guys and thank you and congratulations for this amazing couple of months. You are now the largest tanker company and I have a couple of questions regarding your size. You have grown significantly since early December and there are more vessels to be delivered, especially chartering vessels. How do you view your risk, vis-a-vis, this charter-in tonnage and especially this question is mainly for Brian probably? How does he see his off-balance-sheet potential risk and how much capital do you think that you need to have in order to expand further with charter-in tonnage?

So let's just take it straight from the top. So what are we doing with time charter-in tonnage as most of the deals that we have got start off as one year with options, etc.? So you are not really having a long-term risk in this. You could -- if the world goes bad, you can declare your option to redeliver early. So you can have a very, very easy read into a VAR.

How we calculate the VAR is that we simply say for example that we never earn less than $12,000 a day on a particular ship even in the worst type of the market, if we charter that at 14 for one year, then we say that is $2000 risk times 365 days till the determination of the market and that is your risk. And then you allow for that in your balance sheet. You assume that you are going to lose that money.

So if you've chartered in 20 ships and they are going to -- they have an average time duration of nine months left, then you are probably going to get to $16 million, $17 million of VAR on day one and you just, in your mind, take that off your balance sheet and if you can afford it, you do it; if you can't, you don't. It is as simple as that.

And then your reward is dramatically skewed because once you have accepted that you have limited your downside and done your analysis in worst-ever markets, your upside is skewed tremendously because, in shipping, people don't really do a Black-Scholes model for the optionality. When an owner is giving you an option, it is sometimes because their lenders are forcing them to do the one-year charter and it is what they need to do to get that one-year option done.

So your upside, while you are taking ships in at 10%, 20% above the three, four year lows is a multiple of your potential downside. But at the end of the day, chartering in, you do it now while the risk and reward is that way. You don't start chartering -- you don't chase the market up. I mean when the market gets to $25,000, $30,000, you are not going to be taking ships in. You are not going to reup your charters at $20,000, $22,000. You are going to be running your charter book down as your newbuildings are coming in and creating the EBITDA.

And based on what you have just told us, Robert, I see that your current chartering vessels have chartered up very close to your minimum earnings, historical earnings there, if I am not mistaken, around less than $13,500. Where do you see that the current market is for -- the current period market is? At what rates are you able, at this point, that the market has moved up to charter in new (inaudible) and given this rate, are you willing to expand and up to what extent?

Well, we are constantly looking for vessels to charter in. We managed to do a couple recently. We will be doing it step-by-step and looking for weakness. The market has moved up not just in rate, but now the chances of getting optionality out of people are less, so that is how that market is firming. So for example, LR2s, you -- we are now being quoted numbers in the $16,000s without any options. Your MRs for good quality specifications are moving up into the $14,000s and again, you may be able to get an option, you may not be able to. But there is a scarcity of it.

So for us, at the moment, it is about just keep going and it is very ship-specific and deal-specific. We don't feel any urge just to take in charters just to take them in. We have a lot of operating leverage over this next 24 months anyway. But we will where we can find deals take ships in. I think we would be comfortable doing that even if rates were up to 10% higher from these points. And then you have got to start thinking because your newbuildings are just so much more efficient than whatever you are chartering in.

But, Robert, you started about three years ago with three ships. These three ships, they are still in your fleet list. Are there any thoughts given the fact that you are expending so dramatically with newbuilding tonnage, are there any thoughts of disposing of these vessels and replacing them with fuel-efficient newbuilds?

And the second question related to that, you are going to be operating approximately 40 ships when everything is going to be delivered. What is the capacity to operate so many vessels? Is there any cap to your ability to expand even further in that?

I will let Cameron answer that second question in detail, but if you remember from OMI, OMI had a very similar rapid expansion and was able to cope with that fine. I think that the first question with regard to our older design vessels, right now, all of those vessels are cash flow positive. We expect them to be P&L positive. We are not getting a lot of these newbuildings until really next year. So right now, there is really no rationale as to why we would sell them unless we were given great pricing position. But, yes, you are always going to -- ultimately we are going to be a full eco company, but you are going to do that slowly on the numbers. And as to the second part?

Fotis, it's Cameron. I think you have to look at it two different sets of capabilities. One is a commercial capability and the second is a technical capability. Now, commercially, as you know, our ships are in pools where actually we want to -- or there is ample room to grow to capture benefits of scale and service our customers more effectively. So provided you have the right systems, which we believe we do and provided you have some skilled traders, which we believe we do, there is ample room to place more ships into their hands to capture additional value from the market.

Now technically it is a bit of a different story where you have to be very cognizant of the availability of skilled crew engineers, other professional personnel to look after the ships. Here, again, we are somewhat fortunate because, as you can understand with the conditions in the marketplace, there are a lot of skilled people who are looking to say leave one home to come into a growing company with a bright future. So we are mapping it out very carefully, but we are cautiously optimistic. We never want to get arrogant or ahead of ourselves, but we are very confident we can manage the growth effectively.

And I think, as Cameron said, through growth. I mean I wouldn't take our present fleet list as the one we are going to end up with here. I mean we have already indicated that we think there is further capacity for growth of the balance sheet at present and with our belief that yard pricing is firming in the market going forward is strengthening, you would expect us to add more assets.

I guess in New York, there aren't many companies left, so in relation to that, are there any thoughts over potentially acquiring any vessels or fleets from any of the troubled companies that they recently filed for Chapter 11?

No.

I think that, Fotis, that it is in contrast with what Robert was saying. He said that, at the end of the day, we are going to be a pure eco-fleet owner. So we wouldn't be interested today in picking up existing secondhand tonnage available on the water. It is too much in contrast with our strategy.

And I think it is probably a bit early for John Fredriksen to sell Frontline '12 to us.

I just fall off the chair. Emanuele, one more last question, since you are not buying Frontline 2012 and your fleet is rapidly expanding, we have seen, in the past, other companies, publicly listed companies developing their own pools or acquiring affiliated pools. Are there any thoughts of potentially integrating your pool operation with Scorpio Tankers?

Look, I think that the best use of capital for Scorpio Tankers is actually in acquiring assets at this point in the cycle. So this is where we are focusing on. We are not thinking, at this point, about buying or investing in any commercial manager structure. So the simple question is no. The simple answer is no, sorry.

Thank you for that. Would that include a future market that might not be as rosy as what it looks right now?

Sorry, that is way, way too hypothetical.

Okay, thank you very much. Worth a try.

Are you thinking we follow the [NATS] policy where you wait for everything to go down? I think we will wait on that. It is just way too hypothetical.

Thank you very much, Robert. Thank you, everybody.

Thank you, Fotis.

Herman Hildan, RS Platou Markets.

Good morning or afternoon, guys. Just a quick question on the Pacific market. You had mentioned it has been surprisingly strong. In some circles, in the chartering market, you have seen some brokers talking about, in the past, that crude deliveries have taken, call it, cargoes from the product tanker market and in a way created an artificial supply side and with crude deliveries coming down, is that maybe some of the explanation for why you have seen the strengthening of the Pacific market or is it more on the demand side, do you think?

No, I think it's -- what I am referring to is the point where very simply earlier that we wouldn't have been expecting the end of February you would start seeing the upticks and the bids under the pricing and the demand to the East because normally that comes later, slightly later in the year. And that is really demand-led and nothing to do with the actual -- nothing really to do with the ship deliveries. If anything, that is even more positive because the crude oil market is in such a mess, many of the vessels would have been delayed for delivery if they could. If they were coming in December, they would have been delayed into January.

So right now, the tick on crude deliveries is slightly higher in the last two months, so this is a true demand-led position. But I would accept the fact that it is to the benefit of the LR2 market that, as we go forward, there are less deliveries of Aframaxes and Suezmaxes.

Thank you for pointing that out. Also, on the (inaudible) side, I mean you have been building a fairly large MR product tanker fleet and now you started buying some eco-design SR tankers as well and you talked a bit about the LR market today and kind of just to get more understanding about whether you would prefer LR1s or LR2s. If you order a vessel today, you are probably going to get delivery say '15, at which point the Panama Canal is widening. And I guess, I mean is that something that you think the LR2 market is structurally more interesting long term with also, call it, oil companies going long storage and short refining capacity or (multiple speakers) of the company?

Well, I think that it is -- I think that it is better for us and our shareholders that we keep a closed hand until we have something firm to announce on the exact details on why between the LR1s and LR2s and the same as regard to deliveries. But as soon as we have made a decision, we will go into the detail. I think that (technical difficulty). At this stage, we don't even want to say (technical difficulty) we believe in a broad-based recovery in the product tanker market and the exact specifications we will come to later. You shouldn't have to wait too long.

That is good. Also, last question, I mean obviously you secured bank financing as of yesterday and we have seen that, call it, for (inaudible) getting new financing has been more unfavorable terms in the range of like say 400 or 500 basis points and maybe 50% leverage with -- or even 48% leverage and call it, 10-year amortization profile. What kind of -- I mean what kind of assumptions should we make should you have to get a lot favorable terms for the eco-design financing? Obviously, we know about the leverage, but what about the amortization profile?

Herman, it's Brian. As we have said, it's almost the same terms as our previous facilities, which was a 15-year profile.

You are still getting a 15-year profile?

Yes.

But I would be very clear in this, our previous facilities were basically hunting licenses across the broad product market and that included secondhand vessels, as well as newbuildings. The lenders are making these loans based on the fact they are eco-design newbuildings.

Yes, okay. Well, thank you very much. That is all.

Nicolay Dyvik, DnB Markets.

Good morning. Could you elaborate on what speed you run your MRs and if you expect the speed to increase with the improved markets? (inaudible) would make (inaudible) positive with regards to the product market is that there is very little (inaudible) compared to containers travel crude tankers, which means that there is a lot more upside to the products regards to (inaudible) that there is little shadow capacity to be released when the market improves with higher speed and more supply into the market. I don't know your thoughts on this.

Sure, great question. Thanks. It's Cameron here. Generally, what we are seeing now is charter party speeds of 13 or 13.5 knots, which, as you rightly point out, is quite close to the historic charter party speeds during say the years of 2004 to 2008 of 14 or 14.5 knots. Rarely did you get charter party speeds of 15 knots. So as you point out, there is very little upside and similarly, particularly on the MRs and the Handys, there is so much backhaul activity and articulation of trade that the balance legs are typically either full speed or 13, 13.5 knots again.

So you are correct. We would expect, when you get to a certain point of say confirmed strengthening in the market, that charter party speeds would tick up, but they don't have far to go. There isn't a lot of room there.

Okay, thank you.

But, again, you are correct. It is a cap on effective supply in the market.

Yes.

Urs Dur, Clarkson Capital Markets.

Good morning -- actually good afternoon -- it's almost afternoon. Thanks for the presentation. I guess the question for you, the eco ships, you have the new facility. Is there technology on the horizon that are not currently in your designs, but conceivably could be going forward? What is the next design advancement that we should be looking for maybe from you or from others out there who might be ordering? And you mentioned that you have a fleet now or will have a fleet now that everyone else will have to order, but designs have changed swiftly. So what is the next thing we should look for?

Teleporting.

Teleportation, huh?

Urs, one thing that has been on a lot of people's mind lately is the potential role of LNG as a fuel for shipping and where you see this most thoroughly examined and first movers start to experiment with it is in containerships simply because those are liner trades. You have a certain amount of certainty with regards to the rotation of the ship and even then you see a lot of obstacles. I mean it is very, very analogous to what you see in auto transportation in the country, which is you need that network of gas stations in order to justify the investment in building the car and then you need the capability of construction of the car for people to go and buy them. So this sort of chicken and egg or network problem is being grappled with on the liner side, most notably by AP Moeller and a few others.

Now our expectation is a couple of things. One is it will be years and years before this becomes readily available to tramp trades like drybulk and tankers because we don't share that certainty over where our ships are going. And so the network problem is going to take a lot longer and a lot more other capital and interest to build out. So this is potentially decades away.

The other thing, which is quite exciting, is even when it does become available, there has been a lot of work by engine manufacturers to make modern engines retrofittable, if that is such a word, so that ships on the water, modern ships on the water could avail themselves of that fuel. But there is a long, long way to go. But it is something interesting, particularly in the containership market.

So you don't see anything in the interim between what your design is and LNG? You don't see any major design that is being discussed that hasn't yet been implemented that we should look for?

No, as Rob was saying, you will get very minor incremental improvements, but, in our mind, the step function happened. The step function happened right at that low point in the market where yards needed additional business and they started to compete on design for the first time in 20, 25 years and that created this big step function in design. And now that it has happened, the incremental improvement from here will be sort of in the region of basis points as opposed to 5% or 10% of efficiency.

Very clear. Thank you guys for your time. Everything else has really been asked for me.

Chris Snyder, Sidoti & Company.

Hey, good morning, guys. My question was on the -- sorry -- did you guys provide any sort of drydock schedule or anything that we could look to going into 2013?

Hey, Chris. It's Brian. I would budget for or project out maybe two drydocking vessels, both LR1s. So about 22 days for each vessel.

Okay, all right, thank you. And my next question was about the increased arbitrage that is going on in the market. Is that just the result of the eco vessels providing cheaper transportation, which allows traders to take more of an advantage of these opportunities or is it kind of on the demand side where you're seeing more areas of both production and consumption, which is kind of creating more arbitrage opportunities?

Chris, it's Cam. It is definitely the latter. What we like to see -- not that we can control it, but what we like to see is such things as volatility in pricing of the underlying commodity across markets. We like to see forward curves in contango, which drives floating storage. We like to see regulations sort of vulcanized across regions, so traders can capture different chemical composition cargoes, but they can change en route. So these are the types of things that drive a tremendous amount of sub demand as guys want to close arb trades.

Okay, thank you.

I would just say there is a total misunderstanding out there if anybody thinks that just because we get fuel savings that we discount the rates. You don't do that. It is an open outcry. It is just the same as you get into your taxi, if you don't ask the taxi driver what his operating costs are, you just pay them the same as what you pay the next taxi you take.

Yes. Obviously, the LR2 --.

That's a definite yes.

The LR2s -- the TCE for the quarter was obviously low. Is that just the result of you only operating one of them and it was undergoing (multiple speakers)?

Nope, that is a result of previously saying that the vessel had some -- had to do a drydocking and then it had to do some repairs. So it just didn't do very well in that quarter. But there will be a very, very big stepchange to this quarter.

Okay, thank you. That's it for me. I appreciate you taking the questions.

Fotis Giannakoulis.

Yes, hi. One more follow-up question. We read today an article on Bloomberg about many companies that they are building up many refineries in order to be able to qualify crude, US crude as a refined product for export. How do you think that this might impact the trade both for crude and product tankers?

It's Cam. I will take a shot at that. We have already seen very unusual moves, particularly out of the US Gulf, both on our vessels and those of competitors in fuel, condensates, different types of crudes. For instance, we have one Canadian end user who is taking crude basically out of the area north of North Dakota, has to send it down to Corpus Christi to send it by sea back to Quebec. Now this really, as we've said on previous calls, we are seeing moves that don't make a lot of sense, but show how people are using workarounds or other infrastructure in place, limited infrastructure to avail themselves of value of all this crude in the middle of the country, all the shale oil.

So we do carry condensates. We do carry fuels. We are seeing increased volumes. How this actually plays out in practice, we just have to watch and see over the next few months. But there is no question that the amount -- that the exports out of the US Gulf are growing at a tremendous rate. In our view, mostly in refined products, but you would expect to see other products as well and gas when it can come.

Okay, thank you very much.

We have no further questions at this time. I will turn the conference back to Mr. Lee for closing or additional remarks.

We have no additional remarks. We would just like to thank the audience for having been with us today on our fourth-quarter 2012 earnings call and look forward to speak to everybody soon. Thank you very much.

Thank you. And again, ladies and gentlemen, that does conclude our conference for today. We thank you all for your participation.