Scorpio Tankers Inc (STNG) 2014 Q1 法說會逐字稿

Hello and welcome to the Scorpio Tankers Inc. first-quarter 2014 conference call. Today's conference is being recorded.

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

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

The information discussed on this call is based on information as of today, April 28, 2014, and may contain forward-looking statements that may 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 statements disclosures in the earnings release that we should today, as well as Scorpio Tankers Inc. SEC filings, which are available on scorpiotankers.com.

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

Before we begin, I would just like to clarify for the stock buyback program in the second quarter we purchased 1.2 million shares at an average price of $8.83 per share, so $8.83 per share. But from July 2010 until now, we have repurchased 2.4 million shares at an average price of $7.80 per share.

Now, I'd like to turn the call over to the Emanuele Lauro.

Thank you, Brian, and thanks, everybody, for joining us today. The format of the call is known to most of you. I will make a few comments together with Robert Bugbee, and then we will open the call for questions.

As far as my comments are concerned, I just wanted to highlight that since the middle of the first quarter of this year, we've experienced freight rates for product tankers which have been under some pressure. Actually, as we speak, the second quarter is even under more pressure compared to the first one, and basically what happened is reduced volatility and underlying commodity pricing, refinery turnarounds and drawdowns of excess winter inventories which have dampened some seasonal trades.

However, we still see robust demand from emerging markets, growing capacity for exports from both the US and the Arabian Gulf, and we expect gasoline volumes to increase substantially in the coming weeks and months. This year we have another 42 new vessels, which are going to deliver from shipyards in which we ordered them in South Korea. This will increase our cash flow and our profitability substantially.

Accordingly, our Board of Directors has authorized an increase in our quarterly dividend to $0.09 and as well put in place $100 million share repurchase program, which extends to the $20 million share repurchase program which Brian has just referred to.

So having said that, Robert, I don't know if you want to add anything or if we want to go to the Q&A directly.

No, I'd just like to echo your comments that we remain very confident in the long-term fundamentals here. We actually see during this period new buildings delivery percentage going down as deliveries exceed the new orders with a weakness referred to products in the capital markets. But we are seeing customers actually pay up higher for forward rates than they've done at this time last year. We see the weakness at the moment is not something that is fundamental long-term.

There are other factors involved. There's weak vegetable oil production in South America combined with a generally weak production in palm oils. So for us, I guess we have a little bit of a luxury in not having to worry too much about the first quarter or the second quarter at the moment. We made a substantial cash gain in the sale of the VLCC, and it's really what we're seeing going forward that matters as we have the large preponderance of our deliveries coming in this next few quarters.

We're very pleased in our position in that by this time next year we will have virtually completed our CapEx position. So for us, the message on this call is, yes, there's short-term weakness. We have the sort of weird thing -- and I'll just make a comment in general to analysts -- that it appears that those analysts that are most negative to Scorpio actually have the highest earnings going forward. So we would hope that they would address this and at least try and create a fair playing field to their views rather than keep EPS expectations high to the miss.

But most importantly, the Company is showing its confidence in not only its balance sheet, its confidence that we're really turning towards this harvesting phase.

Today another important milestone was taken. The Dorian, of which we have well over $1.00 share of investments in, has finally launched its IPO on the New York Stock Exchange. And we feel that we are just focusing now on execution, and with that, we'd really just like to turn it over to questions.

(Operator Instructions). Jon Chapell, Evercore Partners.

I wanted to ask a couple of strategy questions first. I noticed there is a lot of extensions on some of the charterings. We talked about the general market weakness, so probably difficult to make a lot of money in the near term on the charterings. But how do you kind of see the chartering strategy going forward, and how does that match up with your market expectations?

Well, I would think first the opportunities that we have exercised previously in the quarter are, first of all, ships that we have under charter that have proven to us that they're strong operation good quality ships. They are at rates that were at or below what the oil makers are willing to pay elsewhere.

But going forward, I think we are going to be consistent to what we said all along that fundamentally the time charters with there as a stepping stone, a bridge to the new deliveries, the new vessels we have delivering across the board whether they are LR2s, whether they are Handies, whether they are MRs, have such significantly lower cash breakeven points that we will maintain that strategy where we will start, and you will see in this second quarter that we will start to run down our forward book as we start to dovetail and take deliveries of this huge fleet.

That allows us as we get to this distribution or harvesting phase of the Company a much better platform overall in terms of being able to gauge our arbitrage between dividends, stock buybacks, etc. Because we're doing it all the time from the lowest-cost producer.

So if the market is really strong, we do great. And if the market is medium for any reason, we are still making significant cash, cash flow positives. So but at the moment this next year, you're going to see it in a measured way.

We will still take those ships that have proven to us to be outperformers because we have to do it in a balanced way, and we are confident that once we start approaching this third, fourth quarter and the risk is massively to the upside here in the first quarter when those regulations kick in. And hopefully we don't have 150-year cold winter again, and we get the vegetable oils and palm oils up to more normal flow.

Yes, I wanted to ask about the veg oils and the palm oils as well. You obviously had a lot of new builds rolling out of the yard under pretty lucrative contracts. Are those still available, or are those completely dried up now given some of the issues you mentioned with those cargoes?

Well, I think we have to be a little bit careful in answering that question, and we are unable due to contractual terms to either say the rate nor say who the party is. But I think it will be fair to say that the predominant amount of our deliveries are contracted to take palm oils from their first voyage as they've been done and let contractors be in existence for some period. Is that a reasonable way of answering that, John? Can you read between the lines or not?

I could read between the lines, I understand.

I also want to talk about the charter out strategy. I noticed that Texas City was on a two-year contract. I believe that was a Valero. It's probably not the time to be locking in, but when you think about kind of the development of your fleet and maybe some diversification, as you take delivery of more new builds and if the market does improve, especially that kind of time horizon, you're talking about in the first quarter of 2015 and match that up with kind of the buyback program. And when we think about your previous company, would it be fair to expect some maybe increases in charter outs going forward?

First of all, the management doesn't really view charter outs as a market core. In the case of the Texas City, that deal was actually struck back in November when we actually took delivery of those ships themselves. It was part of the actual sale agreement because Valero very much wanted to keep spot exposure. It was a fairly done rate. It was a good rate with a 50% upside to us.

Secondly, we remain really confident in the long-term. So we're not really a -- as we go back to the conversation before, we're not really a seller of freight; we are more a buyer of freight. So the tendency is going to be keeping it on the spot market.

Now, there are a couple of caveats to that. We have an awful lot of vessels, and we have a lot of valuable customers that are feeling the pressure related to these regulations. And it's quite clear to us that charters are just -- I'm sure there's an exception, but in the main they are extremely reluctant to take non-eco-vessels beyond the year and beyond that period where next year you're going to start having these new regulations.

Now we may come across customers that it may be tactically correct for us to fix one of those ships to them for a year or so, which is not a market call. There will almost certainly be some, let's say, extra goodies behind in terms of relationship with them, etc.

And then you always have that situation where maybe you get a first-class great credit and someone just wants to take you out in five years, that could be viewed as again not a market call, but a way in which we could create more balanced leverage the way we could even put a different leverage position on that Company or create the packaging to create a more visibility towards yield.

Yes, completely understand.

But in no account, will they be market pools of defense or concerned about the market.

Right. Understood. One last quick one and I'll turn it over. For pre-2012 built-owned vessels still in the fleet, any reason to believe that you would look to monetize those as you have some of the older ones earlier this year?

No, they are going. We've been fairly clear that we would like to enter 2015 with only eco-vessels. And our ships we consider as, they are not immune. We have to spend a bunch of money to upgrade them if we kept them. They would still be at the lower tier in the list of customer compliance, and they would still be returning the worst EBITDA at any point in the market.

So, yes, we will transition out to them in a continued, orderly manner.

Great. Thanks a lot, Robert.

Thanks.

Herman Hildan, RS Platou Markets.

12 to 14 months from now, you'll have all of your vessels delivered. Is it possible to give some color on what kind of strategy you expect to have from there in terms of dividends, share buybacks? Is there intention to use all the cash proceeds to repurchase shares and ramp up dividends?

I think we've set out our stool in this earnings release, and it's very much up to the market itself now. We have basically said, if everybody's going to be good boys and girls, we're going to continue to move up the dividend as cash flow becomes available. Because everybody's not going to be good guys and try to gain this position, and we're not going to be afraid of buying back stock.

So to tell you -- and that basically is creating a hammer and an anvil. It's not -- I don't mean to be -- think that management is against the shareholder base. It's quite the opposite. Management is there to create what it sees as the best value and the best return to shareholders.

So it is -- we are agnostic as to which way to do this. I mean it can be fantastic to be allowed to just keep buying back stock. I mean, on a personal basis, please keep the stock trading weekly and let us just take the Company because that's the easiest way I can imagine to create long-term value from a management perspective.

But if the shareholders are willing to recognize the strength in the position going forward or buyers, then fine, we are not there to buy stock back at any price. So it's literally the hammer and the anvil. If the stock responds to dividend, fine. If the stock doesn't, then you're going to get the buyback part.

And the second question when you entered into the partnership with Dorian, you said that you would take the Company through the IPO process. Dorian, I guess this is in the process of going public at the moment. Can you shed some color on what you think about your investment in Dorian going forward?

Well, the only color I can provide at the moment is, obviously, we are happy with the investment in the VLGC sector. I mean it's shifting whatever it is 10-year highs, 12-year highs. Values are going up. We would expect in that space, all assets, all stocks to benefit from this market. And I think we're doing what we're doing, which is taking it through the IPO process. Once that IPO process has happened, we would expect to be an investor like anybody else at that point.

Will there be any kind of lockups on the shares, which will not make it able to dividend parts of your ownership to the Scorpio holders?

I think that we -- well, I don't have to think. There is a clear lockup of 80% of the stock is locked up for 180 days, and 20% is locked up for 120 days. So we have an early release on lockup for 20%, and you have normal standards and provisions that you can ask for an underwriter's release or whatever. These are all disclosed.

But I think that going back to your question, we have more than sufficient liquidity right now to take advantage of our stock buyback program with or without having any liquidity from Dorian at all for the next four or five or six months.

Yes, and just a final question. I mean (inaudible) has been quite vocal in (inaudible). But I think it makes a lot of sense to merge with Dorian. What is your -- is a big I guess major shareholder what your thoughts on Dorian and the launch guest?

We don't have to worry about what our thoughts are at the moment because events have just been all talk and no travel so far.

Okay. (laughter)

There's nothing to discuss until they actually move from talking and making pretty speeches to actually putting something on the table.

Sure. I think that's pretty clear. Thank you very much.

Nicolay Dyvik, DNB Markets.

Just I will ask my question in terms of now that your dividend strategies are most likely becoming a threefold with also then potential Dorian shares and dividends.

Just a follow-up on the last one. Of course, I know that you will be a long-term shareholder of Dorian, but would it be fair to assume also that bit by bit dividend strategy or distribution of Dorian shares, like in periods -- I'll call it weaker corporate and weaker cash flow to maintain your yield high and then also premium valuation, or is that not a fair assumption?

Well, I see them as independent because, as I said earlier, if you took Dorian off the balance sheet entirely, we've got an amazing balance sheet even without it. So you've got the luxury of not having to worry too much about Dorian to execute this next part of our strategy.

Then what do you do? The indication that we become like any other investor is you are going to act in what is your best interest at the time, and that's it. That would depend on how we see the VLGC curve developing. That will depend on a whole host of factors.

Yes. If you were to the full attack to (inaudible) costs disappointed somewhat at least our expectations. And if you were to mention like three short bullets to why and when it should recover near-term, what would you then expect open like for your chartering portfolio?

Well, I think that we've explained why we think it is short term. I think long-term --

Yes but when -- what would be the capital that's driving the market up as call it the (inaudible) period?

Who knows? Next week you could suddenly just get a much stronger output in the US Gulf, and the market suddenly starts to move up, and then the risks, you get traders back engaged, etc., etc. So you have a fairly balanced market. So there are a number of catalysts that could happen.

You have, if you look at good things right now, the actual Asian markets are trading firmer than they've done before. So it's really the West that is weaker. So anything, if you push the West upwards, it won't take very long for that rate structure to keep moving out up because the East is fundamentally okay.

You can't get what that defining catalyst is. We would just simply expect that with a -- the fundamentals related to refinery closures or demand that -- and regulation, at some point, we're just going to wake up and the market is going to be fine again.

And not even our customers are getting this. We are in pretty close contact with some of those guys that are asking for one- and two-year charters, and they themselves just believe demand is relatively strong.

Okay. Thank you.

And we voted, as Brian said, we bought back what we could in the last -- in this part of the first quarter, and that was with all the restrictions. I mean it's not easy doing buybacks these days. Anybody -- for us to do a buyback really effectively, we need some help. So anybody who has block orders in weak markets should give us notification of that early in the day before we actually start buying in the market. And shorts if they are shy about things can always contact the Company, and we can create a private deal around that.

Doug Mavrinac, Jefferies.

I just wanted to follow up on the previous question because I happen to think that if MR rates are much stronger, this would be a completely different call with different questions and whatnot. So, therefore, I think it's the most important thing to kind of zero in on that and try to discuss.

So, Robert, my first couple of questions really pertain to the spot market because it is telling us something different than the period market. And so the first one is when you take look at the MR market, in the previous question you can discuss how in the West that's where you're seeing some weakness.

So if we could zero in maybe a little bit more of where you're seeing that weakness, maybe potentially identify the primary source of the current weakness in the spot market, is it more exports coming out of Europe? Is it exports coming out of the Gulf Coast of the US?

Okay. I've got it. So you have fundamentally a couple of things happening. As you have had a delayed turnaround of actual fundamental exports moving out, okay, combined with no after at the moment where we can ship ships West to East. So you're not getting those cargoes moving yet West to East at this point. So that means that vessels are being delivering into the West after carrying palm oils like new buildings, that market is trapped.

The other part is you don't get that movement at the moment in big volume from Argentina or Brazil out to China and India in base oils because of their crop position. So it is a combination of all of these factors that are getting to it at the moment, none of which we expect to repeat itself either in the first or the second quarter next year.

You can Google palm oil production, it's not great year on year.

Right.

Google South American vegetable oil positions and the floods. It's the same as you had a delay in dry cargo movements out of South America, partly because of the flooding too.

Right, right. And see, that's kind of what I was thinking, and just as kind of a segue into my second question is, is it accurate from a big picture standpoint to say, look, US exports are rising, but you have all of these seasonal factors that are kind of offsetting some of --

You know, big picture, just think of what our big picture is. In big picture -- this is going to sound weird -- but this is the best thing that's ever happened to Sting. Because if we had had this fantastic winter in products and I don't know how much more equity would have come into this market and what the newbuilding order book would look like.

You've got this fantastic situation where because people are short-term focused, you are starving the market of equities. Certain public equity deals are failed or being delayed, and newbuilding order book is ironically coming downwards because ships are delivering at a faster rate than new orders. And this is setting itself up for a very good long-term position as you have to continue training the refinery closures in places like Australia and Europe, opening refineries in Arabia, etc. and this remorseless grind of US exports. And then you're going to have the rule change hammer in January.

Now for us, we don't care about our monthly marks or our quarterly marks. We've had the luxury of great cash flow in total when we talk about the sales of the VLCCs. And we consider what is happening in the spot market as an anomaly to factors that we can pinpoint and expect that they will not be repeated.

Right.

And that is basically where we are at the moment.

Got you. Very helpful. And actually that's a segue to my third and final question is that I kind of mentioned that the first two were more spot market-focused questions. Whereas my third one was going to be more kind of longer-term time charter focused.

When you look at one year MR rates at $15,000 a day and the fact that MR asset values are remaining quite firm, do you view that as much more accurate as far as what's going on in the market and maybe reflect on the fact that we are seeing 1.2 million barrels a day of export refining capacity coming online in the Middle East? I mean is that a more accurate depiction in your view as far as kind of the state of the market as opposed to (multiple speakers) --

Again, just taken as it is, but it's another fact that's important is the Korean Won has strengthened like crazy in the last month. Okay? So you are forward newbuilding pricing is remaining very solid, too. But in terms of what do we look at, we do think that it is far more relevant that our customers are putting the length on at higher rates than they were willing to last year.

Think what our customer is expecting. BP/Tesoro paid $15,500 for one of Diamond S' ships. Well, think what this means that taking a ship at $15,500 that's out of the money, they're going to lose on that first voyage, if they pick that ship.

Right.

So by definition, that person, which I believe has greater knowledge than we do, is saying we think the balance of that year's charter must be significantly higher.

Exactly.

They are not saying, okay, the market is going to go up in May or it's definitely going to go up in June, but they are saying that we are prepared to take a hit on our first voyage that we definitely know will be a hit. We might have to take a hit on our second voyage, but we expect the balance of the year to be higher than the charter rate at $15,500 plus the built-in loss.

Yes, perfect. That's all I had. Thank you for the time, Robert.

And we're just going with that side of the trade rather than the worries related to the short-term at the moment.

Totally hear you, totally hear you. Thank you.

Ben Nolan, Stifel.

A couple of quick questions. First of all, I guess is it fair to assume that at this point, I know late last year you said that you would look at near-term deliveries and maybe trade stock for ships. But given the share price and the share repurchase program that at least for the moment is sort of -- that strategy is on hold and you are more focused on acquiring the equity of the company other than outside acquisitions?

I think that if we look at this properly, we are saying that the best acquisition we can possibly make is our own fleet. That's what you are doing. When you buy back stock, you are buying your own fleet. Right?

Right. And today that is a better price than you can buy vessel on the market I guess is the application, correct?

Sure. Because we get the highest quality fleet that's out there. We know what the fleet is, what condition that ship is. It's amazingly efficient. There are no friction costs related to the purchase. There's no extra financing costs required because the fleet is fully financed, and you never are going to issue equity at the relationship to NAV that we are at the moment.

Right. Right. That's what I thought. I just wanted to verify.

And then the second question, Robert, you mentioned it in relation I think to Jon's question a few times about the regulations and actually the low sulfur emissions regulations that are coming online at the beginning of next year. Could you maybe just walk through how you think that might ultimately impact the market and how maybe put an order of magnitude somehow or another on whether the ultimate implications of that could be as it relates to your fleet and just shipping in general?

Okay. We're not going to put any order of magnitude on it, but it is pretty clear that those regulations have two jaws to them. One is related to emissions, which is a little bit more subjective in the sense that you have to take it by ship by ship and date by date basis. But the net result of that is it's cost to older ships plus at the worst case, even if the whole fleet decided for some unbelievable reason to do modifications, it results in a taking out of supply.

The next aspect is much clearer, which is the requirement to use ultralow sulfur fuel in the ECA, which at the moment is somewhere between $300 and $350 per ton difference to marine fuel, which clearly means that this is advantageous to eco-ships that actually burn less fuel anyway.

It is secondly advantageous because those eco-ships, not just ours but other people have eco-ships, they were designed with these regulations in mind with their bunker tanks, their systems, etc. that way. Whereas a conventional vessel may not be so efficient, not just in price terms but actual ship operations terms in the atmosphere.

Okay. Well, that's helpful, and I can appreciate you not wanting to put numbers on what the implication could be. Frankly --

We're kind of happy with the slow burn position at the moment. It's really nice to have a situation where newbuildings are stopped, where there's a little bit of fire taking out of the market. Because we're not interested -- quite the opposite, we are not interested in where the stock is going to be at June 30.

Right, right. Thinking more longer-term, I'd (multiple speakers) sure. All right. Well --

That's why you're not seeing the slides or the presentations. We're openly telling you that the market is not great right now.

Right, right. And then my last question, to get back to the capital side of it and you increase the dividend again which is nice, is there a level at which you would think -- you will reach given your existing fleet or the fleet that will be delivered over the next call it year that you'd say this is sort of a target dividend level ultimately as a percentage maybe of your cash flow or something else? How close to that I guess is the question? How close are we to --?

I don't know. It's a great question. It's much too early to say because we don't know where things will be in relation to the stock, etc. We clearly have enormous dividend paying power if you take into account the deliveries of the vessels and even moderately normalized product and what we have free and clear in Dorian, for example.

But we haven't made any judgment or have those discussions that you are asking about because it does depend on the stock and where that is. And at the moment, what we're interested in is simply just moving the dividend up steadily and remarkably. And we'll get to that question later.

Okay. Perfect. That's very helpful. Thanks for taking the questions.

Joshua Kaufthal, UBS.

Just wanted to quickly start off on the buyback and dividend program. You mentioned you are fairly ambivalent towards buybacks or dividends, but can you maybe talk about broadly, I know you can't give exact levels of where you think that kind of breaking point is between a buyback and a dividend? Is it at NAV? Is it around NAV? And how do you think about that?

We think about it all the time. We have a number in our head all the time everyday at what we would buy back stock, and we're not going to discuss it with anybody.

That's fair enough.

Our job is to buy stock back at the cheapest price we can. So we have some handicaps in what we can and can't do in the stock buyback, but the great thing in the stock buyback is that we normally can be there in times, especially when there's big red days.

Got it. And when I think about some of your competitors, you mentioned this briefly, there have been some several failed IPOs in the broader shipping sector. Have you seen this bring any opportunities to you guys? Has anyone kind of now approached you, or do you expect to see any increased opportunities from your competitors because of the maybe ice closure of the capital markets for some people?

No, of course, we have had people come to us and say whatever, but it's just outside of our strategy that there is not a will here to put growth as the first priority. We have the biggest eco-product tanker fleet there is in existence. The emphasis is on execution, the deliverability of that product, that fleet combined with maximizing shareholder value. And, so far we obviously haven't seen anything that's even begun to tickle our fancy that's better than our own fleet at the prices that were presented.

Okay and just one last industry question. Don't mean to beat a dead horse, but one of the things we have been most focused on -- and you briefly mentioned this earlier -- is just some weaker diesel stocks in the US and maybe a little bit more modest demand for distillate in Europe.

I know this is short term, but I guess do you or your customers have any sense for how long this kind of imbalance will play out? Is this a two-month trend, or is this going to go through the summer?

Again, you're getting into both of those to me are very short term periods whether it's two months or the summer. Okay? But the key to it again is your customer is -- your customer is signaling that the market will recover earlier just by the customers' actions of going in and paying what they are paying for ships at the moment.

For us, as I stated earlier, the exact point or the exact reason, the exact catalyst for why market changes from negative to positive, you just can't get.

Got it. Well, I appreciate your time this morning, thanks.

So just quickly, we run our models expecting the market to -- we run our financial models expecting the market to remain weaker than a time period longer than you've indicated, which is the summer.

Got it.

I mean we think that will be the case. That's the safety element we put in our model.

Omar Nokta, Global Hunter Securities.

We spent a lot of time on the call talking a lot about strategy, which has been very helpful. I just wanted to get a sense on being more tactical. Regarding the dirty trades, last quarter you talked about moving the LR1s and the Handies into that market, which has so far proved very well-timed based on those results today and obviously how the markets are bid so far. Just wanted to get a sense from you how is that playing out currently? Can we expect a similar type of dynamic in Q2?

And then from a bigger picture perspective, as the Handies deliver the new buildings this year, how should we think about their deployment in the clean versus dirty?

Robert, do you want me to take this?

Yes, sure.

I think, Omar, you have a situation where starting from the last point, starting from the Handies, you will have probably 50-50 employment of the fleet between clean and dirty petroleum products. You see the regional markets for the Handies being Europe in the med, mainly with, of course, a presence also across the Atlantic and the US Gulf. But I would say apart from the repositioning voyages, which are going to be clean, it's going to be largely 50-50 or 60-40 in favor of clean.

As regarding to instead the move that we've done in Q1 to dirty up a few of the ships because of what was happening in the DPP markets as opposed to the CPP, it was the right thing to do.

Today, if you look at the rates, they are actually very comparable. So probably still DPP is paying a tad more, but it's not going to be significantly impacting our earnings in Q2, I believe. So it's a washout basically.

Okay. Yes, that's pretty helpful, Emanuele. That was all I had. Thank you.

Thank you.

Fotis Giannakoulis, Morgan Stanley.

I want to ask about your guidance, about your expenses during the rest of the year. I see that the last couple of quarters your earnings breakeven has been around $15,500 per day. How do you view this number changing during the rest of 2014?

Fotis, it's Cameron. I can start on this, and then maybe Brian can follow up with you if I'm not sufficiently detailed. But there's a couple of things that will almost certainly take our breakeven down as we move through the remainder of the year.

The first being, as Robert mentioned before, on balance the exchange of a larger time charter in fleet with on the margin and owned fleet. So, obviously the breakevens go down as the ships deliver, and we start to redeliver those ships that we have in on time charter. That is factor number one.

Factor number two is, when it comes to operating expense, I think we've tried to make it clear that the preparation for this wrath of deliveries has required some upfront expense. You know that OpEx is largely comprised of crewing expense in order to get sufficiently qualified seafarers trained, screened, hired, familiarized. It has requires some additional investment on our part that shows up in OpEx. Now as those seafarers have been allocated among a larger owned fleet, you would see OpEx start to fall through the remainder of the year.

On the margin, there are some other things, for example enhanced purchasing power on supplies and this sort of thing, but those are really the two big factors.

Is there a range, a guidance range that we can use for our models?

I would hesitate to give you formal guidance, but I would say just as an informal comment you'd probably see the OpEx go back down to where it was prior to the previous two quarters. And I think for the earnings breakeven, i.e. the other expenses, there's probably enough information disclosed on the financing that we have in place for the ships.

Thank you very much, Cameron. Thank you for your answer.

Nicolay Dyvik, DNB Markets.

How should we see the increased number of market moves in the press and the American petroleum incident that both elaborate or doing lobbying for US crude exports. How should we think about the increased likelihood of US crude imports exports relative to the product export out of the US which has been all the main stories?

I think we've been fairly consistent as we don't really see crude oil exports whether they absolutely decide to export crude or not as having that much relevance to us.

So US crude exports will not impact the tanker market you say and why not?

Because we don't see those exports to be in such a huge volume, and we don't think that those exports will be done at a sacrifice to general products. You can have it as incremental to products.

But the large call at WTI-Brent spreads on the back of no exports is, of course, giving refineries higher margins, and would that close some and lower turnaround if you open up the crude exports?

Of course, I guess what we're saying to translate Robert's remarks is we don't see a wholesale end to the ban on crude oil exports. What you could see are waivers on, say, a more tactical or case-by-case basis. But we simply don't see that as a large political or high probability political case.

Yes, thank you.

Gregory Lewis, Credit Suisse.

Clearly, all the questions on Sting have been answered. I guess I have a different question more on the overall industry. And clearly when I think about Scorpio's position in the financing that you've gotten place and your cash position, clearly you guys are not -- are fine and better than fine in taking delivery of your new builds that are scheduled to be delivered.

But, as we think about the overall shipping industry over the next two years, it looks like there's -- and this includes product tankers and beyond. But as we think about the product tanker market specifically, I guess there's about $13 billion of overall new builds scheduled to hit the water.

How should we think about the capital needs being met so that owners can take delivery of all of those vessels? And where Scorpios sits, is that a potential opportunity for you not in the next 6 to 12 months but maybe in the next 2 to 3 years?

There's so many factors to work that out. Our actual view of the market would dictate that there's -- you are going to get a raised capital to that, to take those deliveries that are in place between now and the end of 2016.

Because we obviously think the market is going to improve, and that will mean that those companies that have maybe only raised a portion of their equity for the new buildings will still be able to get a print. They might get a print down from what they've expected because they'll be forced to issue equity in the meantime.

They may be able to have to pay an extra couple of points for the banks to get that equity, but in an environment that we are foreseeing a rate environment, those ships get delivered.

Okay. Thank you, guys, for the time.

Sarah Hunt, Alpine Funds.

Alpine. Quick question on the vegetable oil and the palm oil trade. Is that something that could be better by the second half of this year, or is that cycle really a first half of the year cycle?

Typically, Sarah, it's a seasonal trade that strengthens into the fourth quarter.

Okay. So we are waiting for a catchup next year than for production because the flooding and the issues this year aren't going to -- I just don't know enough about the growing cycle or the crushing cycle or whatever you call it for those. So we would be waiting then for that for next year?

Correct.

And you answered a lot of the questions about forward pricing. Is there anything that concerns you? I know that the market could turn because right now it's balanced sort of on a dime. But is there anything that worries you that things could get worse, or are we out of the cold trade that sort of stopped a lot of exports out of the US now that it's finally starting to warm up? Was that sort of the biggest issues in terms of balancing it on the less demand side of the equation?

Yes, but you could also if you're going to create the what are we worried about position, a), if you had escalating positions in geopolitical events and worry on uncertainties that took trading VAR or risk away from the big traders, then that wouldn't do much for demand either.

Okay.

So here you always worry about that that can create an environment where financial markets are in a mess for some reason or another that takes away a lot of business that is down to arbitrage.

Okay. That makes sense. Thank you.

No problem. I think -- thank you very much everybody. I think we're finished.

Thank you . (Multiple speakers).

And that concludes today's conference. We thank you for your participation.