Scorpio Tankers Inc (STNG) 2013 Q2 法說會逐字稿

Hello and welcome to the Scorpio Tankers Inc. second-quarter 2013 conference call. As a reminder, today's call is being recorded. I would now like to turn the conference over to Mr. Brian Lee, Chief Financial Officer. Please go ahead, sir.

Thank you, Melissa, and thank everyone for joining us today. On the call with me Emanuele Lauro, Chairman and Chief Executive Officer; Robert Bugbee, President; and Cameron Mackey, Chief Operating Officer.

The information discussed on this call is based on the information as of today, July 29, 2013, and may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in today's earnings press release as well as Scorpio Tankers' SEC filings, which are available at ScorpioTankers.com.

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

And now I'd like to introduce Emanuele Lauro.

Thanks, Brian. Thanks, everybody, for joining us today. Most of you are familiar with the format of these calls. I am going to say a few statements. I am going to then pass the word to Robert Bugbee, our President, which is going to say a few things as well. And then we are going to open it up to questions and answers.

So we keep on being fundamentally happy with the product in the VLGC market developments. We see the two markets actually improving and give us the comfort and confidence that we were expecting so far. We see this on the growth of earnings and EBITDA, which is largely consistent with the deliveries of the newbuilding fleet which we are receiving.

We are pleased to report that our newbuilding programs is going according to schedule. We are happy with the quality of the vessels that we are receiving, and also the fact that the same vessels are delivered to us in a timely manner, of course, hence the Company keeping on track with its plans.

We have raised our dividend from $0.025 to $0.035, which is a significant raise. And this again is a decision that states the comfort with the market and the business we are running.

I am going to give the word to Robert Bugbee now. Robert?

Thanks. Thanks, everybody. I just want to address a couple of things on this quarter. Obviously, our story really is unfolding, not even so much as the third and fourth quarter over the next couple of years. In the third quarter, we did -- our G&A was a little bit higher than a lot of you expected.

And this is really fundamentally two reasons. One, because of the inclusion of the equities incentive plan. And as importantly, we did a lot of work in that second quarter. For example, there were as many as 10 Board meetings. And when you are that active, it's pretty difficult to get into it. So far this quarter, for example, we have only had one, and that was the sign off this morning on earnings, etc.

Now, what I think is very important on that second quarter is that we had a very good handle on our operating costs. We continue to perform very well with these newbuilding eco-designed vessels. And they now really showing that it's not just the top line but also the operating cost line that they are doing well on.

The other thing is the markets. We cost ourselves earnings in the second quarter. We intentionally rotated our MR fleet in the middle of May, our whole fleet -- which previously part of that fleet had been trading out of the Atlantic -- and put the whole fleet in the Atlantic well before the beginning of Q3. And I think that was, in hindsight, was even luckier than we thought it was going to be. So we have the benefit of having, straight from the start of Q3, all of our vessels in that pretty relatively high-paying market in the Atlantic.

Going forward, it's incredible how fast this industry is working. I just want to take you all back into the STNG boardroom 5, 6 weeks ago. 5, 6 weeks ago when we made the decision to enter the VLGC market, we were looking at our own expectations for the third quarter. And here we expected things to happen pretty much as we'd laid it out to shareholders and people on our previous call's announcement that the third as a seasonal weakness would be shorter duration and would be higher than last year.

But to be honest, we expected that to be something around $13,000, $13,250 for MRs for the third quarter. That would have been a significant improvement. As you can see from our announcement, every single date that that third quarter has started, our MRs have been earning about $20,000 a day.

The market this week -- it keeps -- we had a fantastic thing last week with the market bouncing up, and we will come to that later. But that's too sort of show you that we were bullish. We were bullish on US production. We were bullish on the market. And we have almost understated this market in that particular area by almost 100%. That is sort of the violence that is happening from the demand side at the moment.

The second aspect comes to the VLGCs is that since that announcement that we made, we have had fantastic potential customer feedback. We've had tremendous positives from the MLP companies and the logistic companies that are expanding the US's ability to export LPG over the coming years.

So as to that as an introduction, I would like to open it up to calls. I would appreciate for the sake of everybody -- there are many people on this call. I know there are a lot of people wanting to ask questions. I would appreciate that we take any modeling questions off-line. After all, you've already had 8 hours to go over those with Brian. So just keep basic modeling questions for later.

And now we'd like to open it up to questions, please.

Thank you, ladies and gentlemen. (Operator Instructions). Ben Nolan, Stifel Nicolaus.

I have two questions, and I will be quick. I know there's a lot of people. The first one is, on the VLGC side, obviously you guys made the order. You have the options. Curious what the long-term plan is for those. I mean, is it to continue to develop sort of a two-tiered business within Scorpio? Is it to maybe at some point down the line separate those assets and to sell an entity? Just curious what you are thinking there.

And then the second question, if I could, and then I will let someone else on. It relates to supply. Obviously, there has still been some ordering. But it seems like most everything is mid-2015 or later. Has there been any interest in some of the other yards, other than sort of the top 3 or so on the MR side? Or I guess a few more if you include LR2s. Have you seen some of the Japanese or some of the Chinese trying to break into the market a little bit and capture some of the share that seems to be there for the product tanker space?

Okay, great. That's a great question. I'm going to let Cameron answer the second question first, if that's okay.

Yes, sure. Hi, Ben. I think the events unfolding around the STX group and STX yard have had a certain flight to quality aspect around them, where your speculative interest in marginal yards and marginal capacity for tankers has abated somewhat. And we see this as temporary, but we see it as sort of a repricing of risk moment in the market.

The second tier or third tier Korean yards; the second or third tier Chinese yards; and the Japanese yards, frankly, just have not had a lot of interest in building tankers and not been competitive for some time. We see them as, say, far away from really being a significant source of new capacity unless or until the pricing of newbuildings went significantly higher from where they are now. There is just not enough efficiency and not enough production capability to really have a significant source of supply. Marginal supply right now.

Okay. And the second question relative to VLGCs, let's just first look at the VLGC market. The VLGC market shares some tremendous broad things that the product market shares. First of all, it's part of the shale oil revolution. It's going to tremendously benefit from the export growth of the United States and their pricing differences to Asia.

Now, the other thing with the VLGC market is that it's counter seasonal to LR2s in the product market, meaning that what they normally -- the strong periods of the VLGC market are the 2 weakest quarters, the second and third; as opposed to the products, that have their 2 strong quarters in the fourth and first.

Now, when it comes to what are we going to do in terms of strategic position, we are very -- well, we are totally agnostic to this. We can right now see a roadmap that says that you want to keep those vessels in Scorpio Tankers. With that off sync you can smooth earnings in a volatile situation.

But at the same time, we are getting a lot of interest in long-term forward. You have a lot of degrees of freedom and structure. Maybe you spin it off into its own separate entity, depending on whether or not you securitize revenue. Maybe we partner with an existing player that has got to eco a newbuilding, and we spin that off too. We have a number of degrees of freedom.

The decision for us is simply going to be, what is the greatest value? Is the greatest value keeping them in-house to Scorpio? Or is the greatest value where we could put a position where one plus one equals more than two, if we were to split it off? Right now, we are totally focusing on the actual opportunity, understanding the real game that is playing there.

We have had great upkeep -- uptake from customers. In this, the most important thing is right now we retain the ability to literally go to the industry leader as far as the -- with our firm vessels and our optional vessels, we retain the option to go to the number one industry provider of these modern eco VLGCs. Okay?

Okay, perfect. And I would take more, but I won't. I will let somebody else on.

John Chappell, Evercore Partners.

Robert, just want an update on the financing for the newbuilds. When you talked about the almost doubling of the last credit facility, it sounded like you were pretty close on finalizing pretty much the final facility for the rest of the MR newbuilds. And then also, as kind of an add-on to that, when you are having these conversations now, whether it was with banks or export credit agencies, are you already factoring in the 5 VLGCs in the amount of financing that may be required for those?

Thanks, John. I'm going to let Hugh Baker take that one. He has been front and center with Brian with the Korean export people.

John, we have been discussing the financing of some of our newbuilds with the Korean export credit agencies for a number of months now, and I think we are in quite good shape there. And we are very confident and highly confident that we will achieve fully financed the entire product tanker fleet within the third and fourth quarters of this year.

And how do the VLGCs fit into that?

The VLGCs -- they are currently unfinanced, but we are looking for something to do in 2014.

Okay. So that would be in a separate facility from what you are working on right now with a slightly different time horizon?

It will certainly have a different time horizon and probably be in a separate facility. I think that, alluding to what Robert said earlier, we are maintaining all of our options in terms of keeping the gas ships separate in case other opportunities develop with them. But certainly, it is a sequential activity. We are going to finance the product tankers, and then we are going to move on to financing the gas carriers.

I would also add there is a clear appetite in the commercial lending for the VLGCs. And clear -- I know from day one of the announcement.

And then just as a second one, and then I will turn it over as well. You talk a little bit about why you're getting into the gas market and some of the scenarios that you could pursue as you think about that. But are your ambitions for the gas market to kind of replicate what you've done with Scorpio on the product side? Are you aiming to move quickly to kind of rope off shipyard capacity for your benefit, move quickly on the financing side? How do we think about what that may do two, number one, the Scorpio balance sheet; and then number two, the return of cash to Scorpio shareholders if you do go down the growth route with the LPG?

Sure. I mean, fundamentally we will always -- you know, if we take return of cash part, we have said very clearly in terms of products that we think we should be stopping buying or ordering products after June 30, 2015. That is arbitrary, but that is sort of where we think it is.

We think the LPG market's real sweet spot is going to be that 2015, 2016 position, as first of all the export facilities come up in combination with the expansion of the Panama Canal. Again, some of those combinations -- different positions and how you are returning capital to shareholders. We have also said quite clearly from the onset of ordering the VLGCs that to the extent that we were going to take down (technical difficulty) there would be a component of equity to do that. And that's where it is.

Now, what we want to do strategically is -- the simple thing is look for markets. What have we done in Scorpio Tankers? We have found markets where we can be a leader in that field.

And we have executed as fast as we can, because the pressures on the shipping market are pretty high in an upward-moving, recovering -- you know, you've not just got a cyclical recovery in products and LPG. You've got a secular change, too. Those two combinations, combined with all the positions, has meant we had to work very fast. And that's where it is at the moment. I don't really want to go into too much detail. We don't really want to flag competitors on anything at the moment.

Understood. Thanks for the color, Robert. Thanks, Hugh.

Gregory Lewis, Credit Suisse.

Robert, could you talk a little bit about the market in terms of the bifurcation between LR1s -- I mean, clearly the LR1 market has been a little bit weaker when compared to the MR market -- and what you are looking in the market to see; maybe LR1 rates may be pick up? And if you think maybe as we move in towards the back half of the year we could see some seasonal uplift in sort of the larger product tanker vessels?

Sure. I think that we've seen a pretty supportive position that the -- for us, really, it's the -- we have a couple of LR1s, but the real investment and chartering power is in the LR2s, as you know. And they are following a normal pattern. It is very normal for that second quarter to be weaker as a tails off and really start hitting bottoms in June and early July.

But what we have seen is what is consistent with last year, consistent with the normal, seasonal recovery, as you are starting to see the naphtha spreads widen into Europe to Asia. You are starting to see volume gently increase. And I think it's just a question of which week will the LR2 market really start moving again like it did last year in early August, and of August timeframe? So it's just following a normal pattern, except the market is a little bit tighter than where it's been before.

It's also supporting -- I mean, this thing, when it moves -- this time, when this LR2 market moves, it could move frighteningly fast, simply because there's nothing in terms of [basti] that can really come in. You know, nearly all the vessels that could possibly claim to go into the LR2 market from the Aframax market have done it. And the Aframax market itself is performing better. So we are very excited about the prospects of these vessels, and we just don't know when the fire is lit. Sometime between mid-August and early October.

Okay, great. And then just as my follow-up question, going back to the VLGC sea fleet options, I guess you have 5 options for these vessels. You mentioned that you are already having customer -- you are having conversations with customers, potentially, about charting some of these vessels. Obviously, it seems like financing seems readily available.

In terms of -- is there sort of a window for how we should think about whether or not we're going to see these options be exercised? And is it a situation where the sooner you exercise these options, the better, in terms of taking delivery of potentially those 5 options?

I think I would describe -- you know, you are just never going to draw us on exact timing related to options. But I think that you are right. A option, if you could reverse the conversation to sitting across the shipyard, if you put somebody in a certain position when they have issued an option to you, they are likely to give you more goodies than while you were hanging out, giving them -- still being an option.

And you would generally want to -- you know, what we have done in the past in building the product side -- is there is no time like the present when you are taking that move with the yards in a constrained capacity. I know that's being unclear, but that's the way it is. I would also --. (Multiple Speakers). Sorry.

No, I was going to say, is there a time when the options actually expire?

Absolutely, and that is the last thing we would tell anybody.

Okay. Fair enough.

But you know, it is a -- yes. They normally don't give you a week or two on fresh orders. You normally get a little bit longer period. But we are not going to answer that exactly.

What I would go back to on the rate structure is it's unbelievable. I mean, I cannot stress strong these rates are in the Atlantic compared to where they are or historical points. These are summer rates that are -- the last seen was the summers of 2006 and 2007, and the speed that this market ripped out was strong, too. So I think that we've got to look ourselves in the mirror, and we were wrong.

We did not -- we were bullish. Really bullish. Took ships and on charter, took delivery of ships, ordered a bunch of ships, said all along we expected that US exports would be ahead of what most people thought. And we just got smacked in the face in the last 5 weeks. The ability for US to export has really come up much earlier than we expected, and the market reaction to this, bearing in mind it's the summer; it's the weak period for vegetable oils. It's the weak period for palm oils. And we have a market that is coming out of a 4 or 5 year decline.

For this market to rip up into these levels right now -- and right now the triangulated earnings in the Atlantic are more like the mid-20s as opposed to the low 20s. And this is telling you that this market is balanced, and we may just find in 2 or 3 months that we have -- this was an inflection point in these last 3, 4 weeks, and none of us really took it that way.

So what I would say -- this is such an important, fundamental confirmation that the US can and is exporting, that for me, Scorpio on a risk/reward basis is such a better buy right now in still the very early innings today than it was 4 weeks ago, even at a lower price.

Okay, perfect.

Doug Mavrinac, Jefferies.

Robert, I have wanted to touch on that very last point that you made. Because, to me, out of everything in your earnings release, the thing that I was most astounded by was how strong the MR market was during a seasonally weak Q2. And kind of taking it for how strong it was versus how strong we know it is today, how impactful do you think it will be to US exports as we see more and more of these pipelines bringing more crude down to the US Gulf Coast refining complex? Permian Express is open; Longhorn is opening up in late September. Is that going to be a meaningfully incremental thing from here? How do you gauge that?

Well, if anything, fundamentally, there is a great ability for those US Gulf refiners to be competitive, get crude oil, get crude oil cheaply to refine and export is good. But there are just so many things we have to handicap now. Bear in mind, this has happened -- I can't stress it enough. It's happened in the weak season, before the Saudis start to really pump on their new refineries, the export products, and before the next Indian project comes up in the autumn.

Right, right. (Multiple Speakers).

Sorry.

No, I was going to say, that was going to be the exact point I was trying to make, is you've got the US story. You've got the Jubail refinery starting in the second half. And then you had a longer than normal seasonal turnaround season with the Asian refineries, so you are going to have a steeper than normal recovery. So that seems like it's going to be a big deal.

It is. It's a big, big deal. But you have to -- you know, we were very honest with you guys in the earlier example. It was only 5 weeks ago that we ourselves, being the bulls, were sitting in boards for capital requests on big numbers, saying, hey, we are optimistic, but this is how we expect things to unfold. And 5 weeks later, we were wrong.

Normally, people are on conference calls saying, well, you know, the market isn't a strong because of these, these, these factors. It is really strong right now in the Atlantic Basin, and you have -- discounting a lot of the things that you have been mentioning, plus the return of the vegetable oils and palm oil trades, which are not insignificant today.

Got you. Great. Thank you. And then as it relates to asset values reflecting the increasing earnings power of these assets, it looks like the brokers are finally playing a little bit of catch-up here. But in your view, using $36 million as a resale value for a newbuild, are those guys still behind the ball a little bit? Are they playing catch-up? Or has the market continued to move higher, and they are still a little bit late? How have asset values been playing out here?

(Multiple Speakers). My Chairman may kill me, but the only answer that I can give you is we have offered $36.5 million cash for a relatively prompt eco-vessel newbuilding delivery, charter-free. And we (technical difficulty) declined. (technical difficulty) Not bought, declined.

Right. So $36 million is still too light. It's not reflective of the market, per se.

Not of a spot position. Think what those vessels are learning. As Emanuele said at the beginning, you don't need -- we don't need great rates to get great EBITDA and increase in earnings. We just need the vessels in the water.

So a MR at $36 million, $36.5 million has a P&L breakeven of not much more than $13 million or so.

Right.

So we had 6 months -- excluding the first 6 months were in the 20s, excluding what's happening now. So that's why that front part of the curve is pretty steep. It's obviously now supported because of what Cameron was saying earlier, that -- the lack of newbuilding position.

It is very, very difficult in a market -- it's the opposite, okay? Now, 2 or 3 years ago, basically all of the brokers were giving you too high valuations, because there was no buyer at $10 million. There were plenty of sellers at $15 million, so they gave you the middle ground of $12.5 million. Now you have the opposite. There are no sellers at $36.5 million.

Right. Right, right. That's very, very telling about where we are and where we are going.

We are not going to comment ever to NAVs in detail, and I haven't really had the time today to go through any of your reports. But I was reading -- or I was hearing a few things last week related to how we were trading above NAV by a considerable portion. And I can promise you that the consensus NAVs that you were all working with last week are too low. That's as far in detail we will go.

Got you. Got you, got you. Great. Thank you for that.

And then final question. Everyone's been asking about the LPG entry, and that's going to be one of my questions as well, but a little bit different in that is the LPG market -- I mean, we see that as a direct derivative play on you guys remaining a derivative play on US energy production rising, not just crude oil, but also natural gas and then also shipping out LPGs. Do you anticipate -- like on the refined side, how you guys started with MRs and then kind of diversified into other asset classes within refined product shipping -- on the LPG side, do you guys ever see yourselves maybe diversifying into other asset classes there? You're starting with the biggest, but to the Handies or other asset classes, do you think of those as being complementary to your VLGCs? Or is the VLGC something you're going to stick with?

Well, you're never going to say never on anything, but the VLGC is the -- what has attracted us to the VLGC is you've already got a market that is spot market that isn't coming down, that is driving itself up presently today at 50-odd thousand a day, and year to date about 30, one of your charters up above 30. So it shares that beautiful same dynamic as the MRs, where you really don't need any market improvement of your entry price now to make a lot of money.

But also, it's kind of simple stupid. We know the US is going to have the exports. We know that Asia and Northwest Europe is going to have the demand. Those are long-haul routes, and not every one of those -- you know -- and if you've got the charts to go in and be an industry leader in the size range that cost the highest capital when other competitors are not yet ready to move, that is the one you want to always concentrate in.

Got you. Great.

If I could buy an Armani clothes store, I do that before I'd buy a (inaudible) clothes store.

(laughter) That's very helpful, Robert. Thank you for the time.

Herman Hildan, RS Platou Markets.

-- are you planning on operating them in the spot market or charging them up? That's the first question. And the second question on your dividend policy. You had EPS of about $0.11 in the first half. You paid out -- or you are going to pay out $0.06. How should we think about it going forward? Will it be, like, lumpy on a quarterly basis? Or are you going to ramp it up as you accumulate dividends?

Sorry, what was the -- I think we must have missed the first question. What was the first question, exactly?

Will you operate them in the spot market or charge them out, create kind of a similar structure to what you had at OMI?

Herman, what is them? Are you referring to the products or the VLGCs?

The VLGCs. Yes, VLGCs.

Okay. Well, that one, as we said, we are -- it's the same. We are agnostic, okay? If you are under one situation, if you are getting good returns on charter rates, securitization, you are going to do that, then you still hold the degree of freedom to spin that out into, for example, a MLP or keep it on your own balance sheet, smoothing earnings.

So you also have the option to partner with other players and do the spot market. I think if you play with the balance sheet to strength, like we have done with STNG so far in the products, you retain those options. The moment you sit down with a customer and say, we need your charter to fund our acquisition, you are deafening yourself to low returns. So we are going to keep that flexible, and we are going to keep what we do to ourselves other than tell you we are totally agnostic to type or structure. (multiple speakers) Sorry?

Thank you for that. And on your dividend policy, how do you think about it?

Well, dividends, first of all, have to be paid after real earnings, which is where we -- I think you pointed out correctly that from our positions and what we have seen recently, and the confirmations we've seen, and internally the change of expected cash flows, we were happy to move the dividend from $0.025 straight to $0.035. And I think the policy is there, that you have to pay dividends out of real earnings, and if you -- and that's about it. I think it's res ipsa loquitur -- the facts speak for themselves on a dividend policy.

Okay, thank you very much.

Nicolay Dyvik, DNB Markets.

How should we read the LR2 replacement in early July? Has a got anything to do with the relatively weaker spot market for the larger segments compared to the MRs? Or can you give us some more flavor?

It had nothing to do with the relatively weak spot market on LR2, because we don't consider them relatively weak. We consider them relatively strong.

Now, that may sound bizarre to you, but we were really happy in the way the LR2 market has been developing on a structural basis in the second quarter. We have already explained that we expected the LR2s to be weak during May in earnings forms in terms of April, May, and June. We expected that. It has zero to do with that. It has much more to do with the upward pressure in the key yards -- the major shipyards in the world capable of building quality ships, such as Samsung, Daewoo, and Hyundai Heavy, meaning we would never --. (multiple speakers)

We would just not -- for many of our orders that we have been able to execute, we simply would not be able to replicate those orders. As I was saying before, the yards -- the major shipyards of the world that have been trying to navigate through their own cyclical trough are running out of patience or capability of new orders that are priced below their marginal cost. So you simply cannot replicate the fleet and the cost basis that we have booked. And we ran into that limit with those last 4 orders that we were just, by the skin of our teeth, unable to capture.

So those were not finally signed orders, then? Is that how we should read it?

Correct. Clearly they were not.

The latter is like -- I think if you read between the lines properly what Cameron is telling you, you go back to one of the previous questions on the fact that we are highly confident that you all NAVs are pretty well as a consensus too low, that is internally our proof. It's across the board. Not just MRs; it is LR2s. They -- whatever. Anyway.

You addressed something about the LR2 rates. But can you give some flavor on how they have performed relatively to the second quarter?

No. We are not giving any guidance on the LR2s other than what we -- well, I guess we could -- we'll give you a market rate as opposed to ours. I wouldn't think that a reasonably well fixed LR2 should have earned any less so far in the third quarter than they earned in the second quarter. Now, but the key thing is not so much what they've earned so far; the key thing on LR2s is when they kick in and start to recover.

Fotis Giannakoulis, Morgan Stanley.

Robert, I want to ask you again about the LPG market. And you mentioned the growth that is expected to come in 2015 or 2016 from US exports. How can we quantify this demand growth in terms of shapes from the US exports and also from the Middle Eastern exports? And the reason why I'm asking is I'm trying to understand -- we have a VLGC fleet of 151 ships; there are about 25 ships on order. How many ships do we need, do you expect that we need in order to meet this expected demand growth?

We're not going to tell you. We are no longer going to start giving -- you know, as you've seen in our slide presentation, we want to do as little as we can this time around to encourage competitors or for us to give our data. I think the easiest way to say this is we expect the same thing to happen in VLGCs as in products, is that the demand side will be underestimated, that the United States -- I was warned. We were warned all the time by the US refineries that the ability to export products will come much quicker than we expected, because they said, as soon as you put American ingenuity together with dollars, things can happen fast. And I think you are already seeing the evidence in certain VLGC projects -- the title projects, for example, already in the last week -- that their ability to export is coming earlier, and their future exportation of total exports is growing. And I think I would leave it like that.

And Fotis, congratulations on your marriage. I hope you are having a good honeymoon.

Thank you. I did have it, and I am back to action again. Thank you, Robert.

Okay, good.

My second question has to do with the MR market. The first is the Handymax market. Help us to see how to price the rate between these two markets. And the reason I am asking is that in the previous quarter, we saw a discount of around $2,000 between these two segments. In this quarter we saw a discount of $4000. What was the reason why in the second quarter, Handymax has earned $4,000 less?

First of all, the MRs have a significantly more weighted eco-vessels -- new vessels. But secondly, a lot of the Handy market is due to the winter and the ice trading itself. So it's fundamentally offset that way.

And that's pretty much the differences. And the actual Handies are in our pools, so fundamentally the older ones, have been direct trading more on the dirty product area as opposed to the clean. We don't have that much exposure, really, to it in Scorpio Tankers going forward. What we are ordering are the clean, Ice Class, top of the range vessels. But so here it's a combination between the particular market and the fact that in those pool earnings there are almost no eco ships. There are none in there.

Just to understand that, again, what you are saying is that you have more eco-ships in the second quarter compared to the first quarter?

Correct. So it's a -- yes. It's a clue to the expanding top-line benefit to the eco ships. (multiple speakers)

And then because you didn't present in detail the charter rates for the MRs between (multiple speakers) --.

Correct. And we will no longer continue to do that, and we were -- for us, the eco story, the debate is over. And we will just continue to show in the results the spreads, the risks by operating costs, or as you so cleverly picked up now, between two different types.

Does this mean that the previous guidance of $3,800 to $4,000 remains intact?

It means -- I will state it this way. We are happy with the guidance that we gave.

Okay. Thank you very much.

Chris Snyder, Sidoti and Company.

I've got two little questions. The first is -- it's been a pretty nice decline in the vessel OpEx per day. Is that just a result of the newbuilds? Or is there something else going on there as well?

No. That's the -- look. I think there are two things going on, actually. Predominantly it's the newbuilds, and again, the efficiency that we haven't spoken much about to me, the actual operating costs line of our eco ships as they deliver; and also, you are getting a few benefits now on the economies of scale of a larger fleet, of a fleet that is being worked well on the margins, and a fleet where you've got a management and a staff who are focusing on the -- let's say the sustained efficiency of that fleet. Because of course we are taking delivery of a lot of ships. Of course we are doing it, but the actual fleet inside isn't, let's say, jumping around so much. So you're starting to have a benefit here of the systems that are all starting to be put in in dealing with this cost.

Okay, yes. That makes sense. The second question is I know you guys said your kind of waiting for the LR2 market to kind of kick in. I know there's the refining projects coming on in Saudi Arabia. Is there any sort of other catalyst that you look for to kind of get that market going?

Yes. I Think you just want to look at your Bloomberg screens and start looking at spreads and trading. And as one of the earlier analysts said, when Asia sort of comes back up, it's sort of summer recess. Right now what we are watching for is the weekly volumes. It's a very simple thing. Where weekly volume fixtures on a 30-day trailing, 20-days trailing, 10-days trailing, 5-days trailing. Exactly the same -- and price. The same thing as you would look in a stock.

Eirik Haavaldsen, Pareto Securities.

I think all my questions have been asked, but just one more if I may. In the original statement -- it's about the cost for the VLGCs, because in the original statement, it said $74 million. And today you write $75 million. Just to be careful on that; I assume it's $75 million, right?

That's correct.

And that is sort of the pure yard cost? That's not including any spares or anything, right?

No, no. $75 million is the all-inclusive. But the difference, just to go into a little detail -- the difference between the initial announcement and this one is, say, the subject of final negotiations for extra costs and other detailed, technical features or capabilities of the ship. So $75 million is the all-in final number for these vessels.

All right. Just one more, then. The options, just to be clear on that, as well -- you had two options with Daewoo and three (inaudible)?

No comment.

That does conclude our question-and-answer session today. I will turn it back over to our presenters for any additional or closing remarks.

Okay. Thank you very much. I will repeat Emanuele's comments at the beginning, that we think that the product market continues to firm, and the outlook is positive. And the growth of EBITDA is largely contingent on vessels being delivered on time, which they have been and continue to do so, rather than any assumptions of increasing day rates.

The dividend raise just shows our comfort with the market and the business. And we are very positive on the VLGC market, given the fundamentals and the feedback we have had on the US and Middle East export from customers and potential producers. Thanks ever so much, ladies and gentlemen. Thank you.

That does conclude our conference for today. Thank you for your participation. You may now disconnect.