Scorpio Tankers Inc (STNG) 2015 Q1 法說會逐字稿

Hello and welcome to the Scorpio Tankers Incorporated first-quarter 2015 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. Thank everyone for joining us today. On the call with me are Emanuele Lauro, Chief Executive Officer; Robert Bugbee, President; and Cameron Mackey, Chief Operating Officer. The information discussed in this call is based on information as of today, April 27, 2015 and may contain forward-looking statements that involve risk and uncertainty. 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 our earnings press release that we issued earlier today, as well as Scorpio Tankers' SEC filings, which are available at scorpiotankers.com. All 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. Now I would like to introduce Emanuele Lauro.

Thank you, Brian. Good morning to all and thank you for attending our call today. My opening remarks are going to be short. We originally built this fleet with the expectations of recovering the product tanker market. The number of fleet operating days quarter on quarter are increasing substantially at a time where we experienced the early stages of this recovery.

(inaudible) has the highest operating leverage to rate improvement in the product tanker market and this is combined with the best fleet and the lowest overall cash breakevens. We would just like to thank our shareholders for their support and patience and we are pleased to partially reflect our optimism with an increase in our quarterly dividend. With this, I would like to turn the call to Robert Bugbee. Thank you.

Thank you. Good morning, everybody. We've got to continue really what we have been doing in this first quarter and the year-to-date so far. We are going to focus on execution and we're going to focus on quality of earnings going forward, maintaining a strong balance sheet and the quality of the dividend. We will soon be reaching our let's say apex of net debt to equity and that will provide a platform with improving EBITDA to create some flexibility of the balance sheet.

The [bright] market continues to surprise us in its strength and diversity even though we have been pretty bullish in our actions last year and stock buybacks taking ships and on-time charter and buying assets would reflect that. We are really seeing the beginning early stages of playing out to the cyclical combined [with] a [secular] recovery in the markets, which we will talk about a little bit later. And we are still learning. We are still learning how best to fix our ships in this market. It is changing every day. Just in the last two or three weeks, we have done our first fixtures ever whereby we are taking gasoline into China and those ships are backloaded with diesel out and virtually every week, a new trade route opens up.

We think that we can still improve. We can still improve on our chartering. We are about 70% there in terms of learning what to do with these new eco-ships, but there is that room for improvement and we will continue to work on that. We also think there's room for improvement in our [borrowing] class as evidenced by our latest financings. We have managed to get finances here under 200 basis points and again, as the balance sheet develops and we get that EBITDA, hopefully over time we will achieve that.

I think you know it is pretty simple. The numbers speak for themselves on Q1 guidance for 2Q, so with that, we would just like to turn it over to questions, please.

(Operator Instructions). Jon Chappell, Evercore ISI.

Brian, I was hoping to go over the share count just for clarity. The net income came in much higher than expectations, but the EPS is essentially in line because of higher share count. I know you kind of fleshed out in front page, but I just want to be clear, you had 151 million basic shares, 186 million diluted. Now you're saying that your turn share count today is 163 million. Based on the fact of what you booked for the second quarter, it looks like it's going to be a very profitable quarter again. We'd have to think that these are not going to be anti-dilutive. Do we add the 31 million shares to the 163 million to assume it is going to be 194 million, whatever, 195 million, 196 million going forward and then take out $5.3 million of the interest expense and amortization, or is it going to be different -- the calculation this quarter?

The difference between the 151 million and the 163 million has to do with uninvested restricted shares and how they are treated for EPS purposes only. So that number, it grows every quarter as investing moves along, so that number will go from 151 million to, I don't know the number, but it probably goes up about a million shares. And I can go over the rest of it with you.

The other part of the calculation, yes -- (inaudible) once the dividend goes into play here, we will have additional shares because the conversion ratio changes the convert. But again it will go up by, I don't know, 31 million, 32 million shares into that number. So that will be -- and then plus some other adjustments. So you're probably looking at 188 million off the top of my head right now, 189 million as a fully diluted share count.

Okay. And will we still take the $5.3 million? Is that going to be consistent in the calculation?

That's for the quarterly number. That's going to be a little bit higher too because of the accounting for the convert so you can say that goes up by a little bit too, but it's not going to be materially above that, maybe $5.6 million, something in that area.

All right. That's very helpful. Another question, I don't know if you want to answer this one or maybe Robert, just curious about the Nomura facility. It seems like everything was fully financed and $30 million isn't an awful lot, but it is more expensive than some of the other facilities you have received, so what was the thought process behind that one?

It just adds just the flexibility. We have been through a -- look, when the markets have been stable now for a few weeks, it kind of looks maybe pointless, but we've been through a period of tremendous volatility. It was only two or three months ago that we were able to buy stock at 780. So keeping some flexibility on that balance sheet we think is a good thing to do.

Okay. Last one and I will turn it over, Robert, you indicated you are reaching the apex of your debt to cap and we can see that in your CapEx schedule. After this quarter, it falls meaningfully. It is very difficult obviously to forecast the rate environment going forward, but once you are past the peak of the CapEx program, do you think the capital deployment schedule starts to reaccelerate a little bit and you will see more meaningful increases in the quarterly dividend? As the vessels hit, the cash flow accelerates?

The Board met this morning prior to the announcement of these earnings, as it would usually do on an earnings release. We are very focused on the quality of the dividend, the sustainability of the dividend and now not spending money before you have it. But in that light, the Board approved the increase in the dividend today because it is very apparent that we have got this very strong start to the second quarter. But most importantly to directly answer your question, the Board said that it would discuss dividend policy in its early summer Board meeting just after the AGM, which is around May 26, 27.

Okay, got it. Actually, one more quick one too that just popped in my head. The two LR1 options that were announced late last year, I think you have until the end of June if my memory serves me correct to exercise those. Any thought process on that?

No. An option is an option.

For clarity too, we are LR2s, not LR1s, but just for the record.

Yes, thank you. All right, thanks, guys.

Ben Nolan, Stifel.

Nice quarter. I have a few questions. I guess first on the charter-in strategy. It looks like you guys added a couple of MRs and an LR2. The MRs, as it relates to the MRs, it seems as though the time charter rate versus the spot rate that has been relatively well-sustained for a little while here has not closed like I might would have thought it would. Do you have any thinking behind why the average one-year MR rate has hovered around $16,000 a day while the spot rates have been north of $20,000 on average for a little while now? What is holding it back, I guess?

I think they are edging up all the time and that's the rate for a non-eco-ship and now those rates that we got are unrepeatable. There was a little bit of downdraft in the market at the point where we were fixing those ships and the market recovered strongly. So at that particular time, that's what those charters were reflecting. Right now, I don't even think now you could get into that market and repeat that because you are correct. Each day that you have this sort of $20,000 number, it is creating a drag upwards on those rates. But just the same as the values, sale and purchase values of product tankers, charter rights will gently lag the actual spot market itself as people get more and more comfortable with this position.

Normally -- it surprised everybody. This is surprising us. You've got a very counterseasonal bull market in the product market. These rates -- normally you would not even expect, even in a growth market, for them to be where they are. We've only got five or six weeks of this weak-ish period as we go through these turnarounds. Now even now while you are so cautious, you are sitting there thinking, well, there's still five, six weeks of potential softness here. But eventually they are catching up.

If you look at the LR2 market, the LR2 market, the rates are -- charter rates are definitely there and that is because it is extraordinary to have LR2 so strong at this point and as you get into looking forward into the third quarter where roundabout June, July you actually get into that market, strong period combined with refineries coming up, people are already anticipating that because when you are able to show the numbers we are showing right now in the off-season, that opens up very big numbers like $50,000, $40,000, $50,000 a day coming into this third and the fourth quarter as we have evidence. We have already, on occasion, fixed in the $40,000s.

So that market is already moving fast in its time charter area. (multiple speakers) lagging and they will catch on. And what has been announced is reflective of the weakness of the market four or five weeks ago.

Right, I see. And I suppose to your LR2 commentary, that's the rationale behind chartering the one that you did, which is at a materially higher rate than it had previously chartered in and inherently there's a bit more risk to it, but it's a function of your outlook of the market. Would you consider taking any more of those on, by any chance?

Very, very -- at that rate, yes. I'm just not sure that rate can be repeated. In fact, I am pretty sure that rate is hard to repeat. That was a very, very fuel-efficient ship even if it was not as fuel-efficient as our new deliveries. That market is just moving very, very fast. It's moving not just because you have got this underlying strength of the new refineries; it is also moving because the Aframax market is very strong too, so there are other owners, and some of these are public companies, who have taken their older LR2s and shifted them and will continue to shift them into the crude side.

So -- and the people who -- the actual new capacity of LR2 tonnage coming on the water is held by very few hands. Literally over the next three, four months, something like over 50%, 60% of the new LR2 deliveries are held between two companies. That's ourselves and Navigate Products. And that market is getting itself pretty consolidated underneath with time charters and [pooling]. So that's -- that's got a very, very high beta, a very fast-growing demand line and a very concentrated supply line.

Yes, no question. And just out of curiosity, are you guys -- I assume you are operating all of your LR2s in particular in the clean trade. That is a fair assumption, right?

Yes.

So my last question has to do -- maybe your thinking with respect to the market in general. Obviously rates have been, as you said, seasonally stronger than you would probably -- most anybody would have expected and demand is strong and consumption is strong. But is there anything out there that does keep you up at night? Is it your rising inventories or -- I don't know -- what causes you to at least be a little conservative, if anything?

What keeps us up at night is what we've been focused on, which is the execution of delivery of this massive fleet. We are coming to the end of it. We've got a couple more months to go, but -- and frankly, touch wood, the technical and the operations people in the Company have just done an outstanding job. We were very concerned that we ourselves, even though we had contractual position, would have further slippage on those new buildings. Now there has been slippage and we will just be so happy to get those ships in the water because that is what also affecting the supply side is because you're just having -- sometimes people don't actually know when they are going to get their ships delivered because the yards are drifting ships backwards. So we've experienced delays at the front of the traffic jam. Others are going to experience big delays at the back. But the operational/technical part of having taken this huge fleet that has let's say kept us up at night.

In terms of the -- we can't worry about the unexpected macro thing that could come. If we look at what we see in the market, it is generally constructive. We have a lower oil price that has stimulated the demand. We have the refineries that we've all been waiting for finally and remorselessly coming up and on the margin, you are getting very good news. We've had another great announcement from Australia that they are going to increase their product imports. As I said earlier, we have had those first proper product trades into China. We continue to expand our shipments into South America, Africa and with where the shale oil is, with the shale oil production coming down, that can only be good news in terms of the inability for those US East Coast refineries to compete. So therefore, we will probably get larger than expected demand for products out of Europe.

So barring a macro event with strong general demand combined with a secular shift in refineries -- and that is without having talked about the improving vegetable oils and palm oil trade -- it is very hard not to be very excited related to the long-term demand side.

Okay, great. Well, that's helpful. And I will turn it over, but nice quarter.

Gregory Lewis, Credit Suisse.

Thank you and good morning. Robert, I think you addressed the LR2 trade of your vessels, but as we think about beyond Scorpio's fleet and the broader market, do you have any sense for how many, if any, product tankers are on a percentage basis maybe are actually trading crude just given the strength that we have seen in the Aframax market?

Well, you don't get an exact sense, and we won't get that until we look back historically. But as I alluded to earlier, certain companies are making choices and taking some of their LRs and putting them into crude. One would expect there is going to be a high temptation as you continue to increase the regulatory environment on products for some of the older MRs to do it as well. Right now, it is most visible on the bigger ships.

And then just in thinking about bringing that vessel back to do products, could you give us a sense on the turnaround time and the cost of converting or cleaning that up to get it back into the product trade?

It is highly dependent on a number of factors, what we would do in that type of a position and we have been there before and we are not unique is anticipate somewhere more than six months of trading at a very severe discount to the current market rate. So if you can get cargoes at all, because the risk really to the customer is that of contamination of their cargo. Nobody wants to take the risk on a ship that has recently traded in crude oil. So if one can obtain a first cargo, it doesn't necessarily follow that they can obtain a second or a third. So as a general matter, it would be something more than six months at a very, very low rate, if at all.

Okay, great. And then, Robert, in your prepared remarks I think it was you mentioned the strength in the product market and the diversity of that. Was that more from a buyer standpoint, or was that more on a cargo standpoint, or was it both?

That's just more on the cargo. This is another extraordinary thing how about this second quarter is shaping up because there is nowhere in the world where the market is weak. You've got Worldscale 140, 145 in the UK [cont] and that is probably going up. You've got over 100 in US Gulf and that is pretty firm with refineries coming back online. You've got Asia pretty steady and you've got Middle East pretty steady. That is amazing to have all of those markets in a steady sense.

And that is the same with the vegetable oils, the same with the palm oils. You are really -- it is broad. The MRs are doing fine. The LR2s are doing fine and that is where your growth becomes exciting because you are able to -- so far, you are not having to stretch yourself out too much on, oh my God, what percentage do we need in the East, what percentage do we need in the UK cont, what percentage to we need in the US Gulf. You are able, as I was trying to allude to earlier, to focus your trading desks on optimizing your rotation and cargo type. That's very unusual in a second quarter.

Spiro Dounis, UBS.

Robert, you had mentioned the refineries coming online Middle East, India and Asia. It looks like that sparked some elevated interest for Suezmax product tankers. I guess they are being called LR3s. I guess there's only a handful right now, but do you see these tankers as maybe the next logical step in vessel growth, at least crowding out other LRs or do they maybe benefit MRs pickups of the lightering due to port constraint?

I think for a reasonable while, they are just an interesting use piece and an oddity because you've got a lot of severe restrictions on product terminals once you get beyond the LR2 category.

Got you. Makes sense. And then just going back to the Dorian margin loan. It looks like there's no plans to sell down there just given the fact you took out that loan. If you wanted to though, could you sell down some shares without triggering a partial repayment? Just wondering if you can give us some color around selling restrictions or events that might trigger if you were to sell down some shares at some point?

Well, we could buy two. The Company is massively under NAV and the market is earning $84,000 a day. So we do expect the Company at some point to do something logical like either sell assets and put in a stock buyback or to pay a dividend and show the market its cash flow strength.

Fair enough. That's it for me. Thanks.

Omar Nokta, Clarkson Capital Markets.

I did want to just go back to the LR2 and maybe if you could give some color on the fixture that you disclosed last week on that latest newbuilding coming out. The rate of $41,000 was definitely a big stepup from the series of fixtures you had done before in that $30,000 to $33,000 range, especially one that had just been done a couple weeks before it, that $33,000. So just wanted to get a sense, what is it about that fixture, was there something special about that one? Was it timing? What was it that allowed you to get such a pretty solid rate? I know it's a short term; it's only 50 days, but in the grand scheme of things, it's not that big. Just in general just trying to get a sense of being able to -- (multiple speakers)?

Sure, we can't really go into any more detail than we can because of the actual trade itself. I think it's really important in the grand scheme of things, and with all due respect, I think the ability to hit an LR2 with a 4 number and inside those results, we've even hit an LR2 on the spot market that wasn't disclosed because it wasn't a newbuilding with a 5 number already this quarter. In the grand scheme of things, that tells you an awful lot.

If you can remember back to the last cycle, what was so important was where you could fix ships in the off-season because if you could fix ships in the off-season in the $15,000s or the $20,000s, normally that would open up the ability to double that in the strong season. So it is really important to us in the weak season to have these outliers, and they are outliers, to a $29,000 average that are so far to the top because that means that if you have got a market that is tight enough to do that in the off-season, you can hold back even more and hope to drive things up even further in the strong season.

Yes, that's real helpful. I didn't mean to belittle the significance of it. I was just thinking obviously in the context of revenues.

No, no, I'm sorry, I don't mean it in that way. You are right in the context of the actual revenues. I'm talking about -- the importance for us is, look, the quarter is interesting. The first quarter is interesting. The guidance of the second quarter is interesting, but what matters most to us is where does this Company sit in terms of its revenue and its EBITDA ability, when we're in that third and fourth quarter when these refineries come up combined with the manual says the fleet being predominantly finally delivered. And what happens in 2016 as well going forward as you start to decline the order book growth. In other words, we have already moved beyond the second quarter even in our thinking.

Yes. Thanks, Robert. And also just wanted to check back, I remember last quarter on the call you had mentioned looking at the Atlantic basin triangle. That marker is being less and less relevant as a barometer for your MR fleet. Does that continue to be the case as what you've seen over the past couple of months? Are we still drifting away from that into something different like you had discussed with taking into account, what was it, Europe to the US --?

Yes, you are drifting into a more diverse market with different opportunities. That is the actual trade in [that] Atlantic is very susceptible to different [obs], etc. Maybe we'll get that triangulation back as we approach driving season because then you'd have that natural diesel from the US Gulf into Europe and gasoline back out of Europe. Let's not count on that. Let's just take it as a great cream on the cake if it happens. And as the Company itself expressed in that second quarter, we said we are much more than just an MR Atlantic play and you can start to see the playing out of these LR2s now.

Yes. Thanks, Robert. That's it for me.

Doug Mavrinac, Jefferies.

Good morning, guys and congratulations on a really great quarter. My first question for you, Robert, is that when we look at all of the sources of demand in the refined products tanker market right now, if you guys can just narrow in on what is happening in the Middle East. And when you look at the impact that it has had on the LR market, are you in a position to be able to gauge kind of where they are in terms of the ramping up of say Yanbu and the [Ruase] expansion because that would give us an idea as far as how much more runway we have out of that one particular region. So if you looked at the cargoes coming out right now, do you have any sort of sense as far as where we are in the progression of the ramping up of Yanbu and Ruase?

There's a couple of parts there. That's a very good point. We are seeing a steady rampup from a pretty low point. March was pretty de minimus. In February, like four cargoes; in March, we get into sort of the six, seven, so it is gently ramping up. And if we take the history and what they are saying, this should really start hitting its full stride around about July. And that's the part that we are seeing. We are also on tender hooks all the time.

We have been working as close as we can with [unit pay] because many people focus on the fact that it is a Middle Eastern refinery. I guess as importantly or more importantly is who can potential customers be. And you have the Chinese in there, financial and partners, and we think we saw the birth of a new market a few weeks ago. So it will be incredible once you get that first LR2 fixture going in there.

That is very helpful, thank you. And then in your last set of questions that you answered for Omar you talked about the last cycle and how things kind of played out. And when we look back at say 2003, 2004 -- or remember back to 2003, 2004 it seemingly took about a year before the increase in spot rates really resulted in a big move in time charter rates. But once that move happened, it happened violently to the upside.

And so with that in mind, and obviously you guys are completely plugged in with what is happening not just within your own business but your peers as well, competitors. Are you seeing any sort of anecdotal signs that charterers are getting more anxious to lock in tonnage here?

Are they approaching you or others with vessels soon to be delivered saying look, we know where the market is going, we want to lock in now. So are you getting the sense that charterers are getting a little bit nervous now that rates have been strong for so long?

I wouldn't say nervous because I think what is great with the product market, unlike a lot of other markets, is that the charterers themselves have got pretty long themselves in tonnage. Shell ordered a whole bunch of new ships along with us, (inaudible) did the same. And they have taken time charters.

So I would say more excited than anxious because they like the strong market at this point as it changes. I do think that they are showing more interest. I mean there is no question that we are getting inbound phone calls and, yes, there is no problem in product tanker owners fixing ships out.

And I think you will see from some of our competitors as they start to report that that anxiousness is -- well not all excitement or whatever you want to call it, is also there because people that were wanting to fix on time charter as owners, as their balance sheets get stronger are starting themselves wanting to ship more to the spot market as well.

Got you, got you. Thank you.

And I think that something we haven't discussed is the whole theme of consolidation. I think it is fantastic there is a capital market that is showing discipline in not sponsoring new building programs. I am pretty sure behind the scenes that you are going to get some consolidation between some of the private sponsored companies that are not listed then you are going to get increases and consolidations on the commercial side through more pooling, etc.

Got you, got you. Good, thank you. And then my final question, actually some of your commentary and the answers to the preceding question are segue to that. But when you talk about the Shell's having placed orders and the smart money having placed orders a couple of years ago, over the last five quarters we haven't seen a lot on the new building side. And no one's really kind of touched on the fact that if you look at the order book it is really showing fleet growth decelerating.

So my question is, when you look back over the last year or so, kind of what has been behind, from your view, the decline in orders? And then also, now that the market is firming up and we kind of see demand growth accelerating, supply growth decelerating, what is the soonest anyone can do to add new capacity at this point?

The last question is easiest, it's sort of into 2017. But there is no anxiousness. A company like ours, there is really not much point in us ordering new ships. That would be a dilutive event to the cash position. And Wall Street itself I don't think is there to fund speculative new building ventures now that they have got companies in the works to do it. And a lot of the competitors are still trying to work themselves out from the previous cycle or restructure or go forward. I think that is all good so far.

Yeah, so it's just a matter of enjoying the ride for the guys that were the first movers.

Hopefully, yes.

Perfect. That is all I had, Robert. And once again, congrats on a great quarter.

Thank you.

Fotis Giannakoulis, Morgan Stanley.

Good quarter. Robert, I want to ask you how the second quarter has developed so far. Obviously you must have chartered most of this quarter's days. Can you give us a guidance of how many days you have already chartered from the second quarter and at what rates?

I can. We have -- for Handymaxes we have fixed at $20,000 a day for approximately 37%. For MRs we have fixed at $23,000 a day for approximately 35%. For LR1s we fixed at $24,000 a day for 48%. And for LR2s we fixed at $29,000 per day for 48%.

Okay, that is really helpful. These are great numbers. I want to ask you about the current order book. There about 240 MR vessels on order right now. Obviously you are quite optimistic about this year and the market, it looks very strong. Where will this demand is going to come from?

And if you can break it down in regions, how much do you expect US Gulf exports are going to grow? And what other trades do you think are going to come from the refineries as they are coming online in Asia and Middle East? What is the volume that is going to move from these refineries and to where?

First up, you'd have to include the Handys to get to 240, because there are less than 170 MRs now on order. I think we just look back at what happened in this last year. This last year we have been delivering at a pretty strong clip, yet the market rates are substantially higher than last year. So therefore we know made the demand is growing at least and greater than the supply side that we have had in this last year period.

So in some areas we are getting very high numbers of demand growth because they are starting from low levels, in the 20% level and certainly in the 10%s. We don't have a conference call long enough to go exactly through each of the regions, but if we look at it, obviously US Gulf exports are increasing and South American demand and West African demand is there.

Obviously Arabian Gulf exports are increasing and we have got Asian demand as a result of price. Just generally in the world the economy is supportive, there are more cars and people like Tesla are under pressure so consumption is good. And we have countries like Australia that are hell-bent on reducing their crude oil imports and substituting with product imports. All this is creating a tremendously expansive demand line coupled with the expansion of the vegetable oils and the palm oils.

Do you have an estimate or a ballpark number of how many barrels (inaudible)?

We do, but we really don't want to share it. I mean we don't need to make an easy route for everybody. We understand that it is very hard to model and that is part of our privilege of having so much of a percentage of the total fleet.

Okay, thank you. I definitely have to respect that. And can you tell us, we have seen the (inaudible) market being even stronger, the numbers that can be earned through an Atlantic triangulation are much higher than the average numbers across the world. Can you tell us how many of the vessels you have in the first quarter where you managed to achieve this triangulation? Or if you can give us (multiple speakers).

There wasn't much triangulation. As we had said previously in the first quarter. In the first quarter there was not the environment really for triangulation. It was -- the US thought cargo was going east to West Africa, South America and UK (inaudible) cargo was predominantly just going into the USAC or Mid-Cont.

And what we said previously on the call is perhaps now you set the seeds again for some triangulation, there being more US Gulf (inaudible) cargoes as we prepare for summer. But the first quarter was not a market that triangulation meant anything.

Have you (inaudible) [anything] in the second quarter?

It could change, it could start to change, but, as I said before, let's not count on that, let's just take it as cream on the cake if it happens.

Okay, that is great. And I want to ask you about the asset values. We have seen that despite the much stronger chartering market, the asset values, they have stayed, they're relatively stable. I don't know if this is attributed to the weakness of other sectors, not related to the product tankers.

And if there is any pressure from the shipyard because of excess capacity to lower their prices do you view it as an opportunity to acquire more vessels right now? And how do you explain the fact that asset prices have not followed the charter rates?

Well, I think it is quite normal that asset prices lag. That happened in the previous cycle, so I'm fairly confident they will catch up in months to come. But frankly you have had weak sellers. You've had people who haven't fully financed their positions and you simply had weak sellers determining prices recently.

Does this mean there is any opportunity for you to expand given this weakness?

Well, I think that we have got to be very conscious of where we are as a company. So I don't think that we want to be -- I will tell you what would be exciting. What would be exciting would be ships that are right at the front of the curve, delivering really, really quickly. What is not exciting is taking someone's resales that are delivering in 9, 12, 15 month's time.

What we did -- we did a deal like that earlier in the year, but those were really discount prices -- $50 million for an LR2. Well, that is kind of worth the wait because it is so discounted to the market. But generally buying ships for us the back of the curve would be overall dilutive.

And one last question, I think you have answered it before, but it may be good if you can repeat your view. Are there any thoughts about a potential transaction similar to the conversion of dry bulk orders over (multiple speakers)?

There is no chance really. That was an opportunity that the dry cargo market presented for a very short window. And we would not see any -- we don't expect to see any more conversions across the market from dry into products.

Okay, thank you so much.

Thank you.

Shawn Collins, Bank of America.

Great, thank you. Good morning, guys. I just wanted to ask what you are seeing in your trading activity in Latin America and Brazil specifically. Brazil has experienced a bit of a slowing economy and some controversy around Petrobras. I just wanted to get some color on any change in activity you might be seeing there, whether it might be positive or negative?

We are seeing accelerated activity because obviously as their well reported issues play itself out, the thought of them actually building and increasing their own refiner and capacity to serve their economy is getting further away and less certain.

And that is beneficial to the product tanker market itself because you can have a flat economy, you can even have declining GDP, but you can still have very quickly accelerating product tanker imports as a result of other dynamics which is what we are having.

Okay, great. That is insightful. Thank you. And then just -- the product market is obviously strong. Switching and thinking about the chemical market, can you comment on what you are observing there and experiencing there and if you can somewhat compare and contrast?

We are so focused on our own execution that we simply -- that any comments we would make would now be based on any real empirical data. So I'd like to pass on that question.

Okay, understand. Thanks for the time. That is all for me. I appreciate it.

Thank you.

Eirik Haavaldsen, Pareto Securities.

When you charter in (inaudible) at 17,000, at what level will it become interesting for you to charter out (inaudible) 17,000? That is actually a quite decent equity return for you guys as well.

It is, but we are not going to comment on that. We are never going to negotiate in public, right?

I understand that. And secondly, you always said that on the tanker side 20, 15 and 16 would be about playing golf. How has that view changed for you with the way the market (inaudible) surprised on the upside? So anything to -- you have several competitors out there trading at discounts and maybe -- and I know you will disagree with me, but I think your valuation is still at the premiums and (inaudible) you could use that. But how has your long-term view changed over the past six to eight months?

Our long-term view has got better. And we have already booked the Scorpio golf outing and you don't (inaudible) company to be invited. So we are looking forward to life.

But I mean one of your competitors (inaudible) just as we speak (inaudible) they've ordered two LR1s for 2017 delivery. I mean with the current state of the yards being relatively weak do you think there is any -- I mean that is going to be the next negative (multiple speakers)?

We expect a year or two years trying to find the next negative signal. And all you have been doing is upping your earnings estimates and upping your price targets and following it up. So I am sure there are lots of things, there are always going to be potential negative signals. But we are not negative, we're positive and we have been right. Thank you. Next question.

Magnus Fyhr, GMP Securities.

Just one question here and it seems like there's a lot of focus on execution. Can you give us an update now with another quarter under the belt on how these eco ships are operating and how you see the cost savings?

Magnus, this is Cam. Our answer hasn't changed in more than two years, it is exactly as we described at the beginning, not better, not worse but the same. The larger the ship you get a double benefit. One is you get greater efficiency in these improvements and the ship spends more of its time underway.

But like I said, at the time that we were being challenged quite extensively on this topic our answer hasn't changed. And I think the industry also has come around, that this is just a fact of life going forward. So we are very pleased but no update for you, it is the same.

Fair enough. Just one follow-up question, it seems like you guys are moving into the harvest mode here with mentioned (inaudible) opportunities in the new building market. I mean are you happy with the size? You almost have 90 ships including the chartered in fleet. What is your thinking there as far as taking the fleet to another level?

Okay, for one reason or another it would be a tall order for us to go and buy somebody's fleet. We are not going to go and buy people with eco fleets. But we have the boat running and it is running strong. And you don't say never, but there is no point in just buying somebody just for the fun of it, the size. I mean we've all [weighted wrong].

Every single decision is going to be return oriented. It is the same type of thing, you are not going to buy -- order new buildings or take people's far away new buildings in line because that is dilutive. If you go and buy companies, even if it is accretive on paper it can be very, very time consuming and stalling. We have been much better sellers of companies as a management than a buyer of companies as management.

Okay, very good.

(Multiple speakers) management, but I don't think this management has ever bought a company.

All right, so with all that in mind, would you say that focus on quality dividend is on the high-end (multiple speakers)?

Yes, quality balance sheet, quality sustainability and quality of dividends.

Very good. Thank you.

Thank you.

Ben Nolan, Stifel.

Actually that sort of addressed it. I was curious really though just as a follow-up. Robert, you had mentioned that you would be surprised if there weren't some consolidations maybe of some of the private equity backed fleets. And I was just curious how you thought you might or Scorpio might fit into that mold, but it doesn't sound like that is a game that you are (multiple speakers)?

I think the way that we logically fit into this mode with the -- I think what we can do and we would be very open to is where we would offer companies -- with strong operations, etc., to pull in our pools. We don't have any problem in continuing consolidation on the commercial side. And that would be very logical for these companies.

Many of these companies will be (inaudible) at our assets. And if we can show them value in overall returns by putting their ships into our pools we will get the benefit of consolidation without the disruption of acquiring the actual assets or companies themselves.

Makes sense. That was it. Just wanted to follow up on that one thing.

We have no further questions at this time. I will turn the call back over to Robert Bugbee for any additional or closing remarks.

We thank everybody for joining us today, we will talk to you soon. Thank you.

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation.