Scorpio Tankers Inc (STNG) 2015 Q4 法說會逐字稿

Hello and welcome to the Scorpio Tankers fourth-quarter and year-end 2015 conference call. Today's call is being recorded. I would now like to turn the call over to Brian Lee, Chief Financial Officer. Please go ahead, sir.

Thank you and thank everyone for joining us today. On the call with me are Emanuele Lauro, Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer. The information discussed in this call is based on information as of today, February 29, 2016, 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 risk and uncertainties you should review the forward-looking statement disclosure in the earnings press release that we issued earlier today, as well as on scorpiotankers.com, you will see all of our SEC filings.

Call participants are advised that the audio of this conference call is being broadcast live on the internet and is also being recorded for playback purposes. An archive of the webcast will be made available on the investor relation page of our website for approximately 14 days. Note on the call there will be a short slide presentation, those slides are available at the Investor Relations page as well.

Now I'd like to introduce Emanuele Lauro.

Thank you, Brian, and good morning and thanks for being with us today. The fourth-quarter numbers were solid, 2015 numbers were solid, year-over-year performance is improving, and we're pleased about how things are shaping up.

The vast majority of our fleet is now delivered and operating. This, combined with the current market conditions allow us to deliver consistent earnings, allows us to plan for a consistent dividend distribution in an environment where supply and demand fundamentals are looking consistently in our favor. Despite the macroeconomic uncertainty of the last few weeks, all the micro factors related specifically to product tankers are actually in good shape.

As we discussed multiple times in the past, trading patterns in the product tanker space have been changing quite substantially in the past five to seven years. My colleague James will walk you through a few slides in a minute, outlining and comparing the trade routes differences between MRs and LR2s. These trading patterns and the changes it has undertaken in the last years is what show us the solidity of the freight environment, that we can expect going forward.

The shipping markets are generally volatile and cyclical. Whilst we cannot plan for the unforeseen, we can certainly and we have certainly assessed, analyzed, and prepared for the product tanker trade evolution of the last years. We have done this in many ways. For example, choosing the assets, timing the order of these assets, and their specifications, and deciding where to deploy them, I mean in which geographical area, when these assets got delivered to us.

Whilst we would like to tell you that expansion, the expansion of the Company and its fleet was timed perfectly to the dot, we must admit that a degree of luck has helped us in building what is the biggest and most modern product tanker fleet in the world today. It's up to us now to make sure that we stay strong and focus on creating value and returning capital to our shareholders.

With this, I'd like to turn the call to James Doyle, which will go through a couple of slides as I have discussed.

Thank you, Emanuele. The Scorpio Tankers fourth-quarter 2015 earnings presentation can be accessed on the Scorpio Tankers website, through the webcast link under the Events section, as well as the Corporate Presentations tab. Information in these slides is based on Scorpio Tankers' actual fixtures in 2015.

On slide 2, we've highlighted a comparison of the major MR and LR2 trade routes we saw in 2015. As Emanuele said, these change -- these trade patterns have changed and are very diverse, specifically in regards to the MRs. The top MR trade route was US Gulf to Caribs and compiled 10% of our fixtures. The next was the Middle East to the Middle East and following, US Gulf to UKC. These cargoes predominantly were cargo -- were diesel and gas, oil and gasoline.

The US refineries operated at 96.1% utilization in August of this year, the highest level in a decade, which was a large reason for such increasing activity in the Gulf. Now, the LR2 major trade routes are composed primarily of Middle East to Far East at 17%. However, what we've seen more is a surprise is loading in the Far East, not only discharging but loading, specifically diesel/gas oil, kerosene, and jet. What we've seen is this Far East to Southeast Asia at 7%, Far East to West Africa at 7% and Far East to UKC at 6%. The biggest difference here is when the naphtha cargoes go from the Middle East to the Far East, these cargoes on the return are being carried farther and longer distances than they have in the past.

On slide 3, we do a breakdown of the load and discharge regions for MRs and LR2s. As you can see, loading in the MR is 26% loaded in the USG. Of these loads diesel and gas oil comprise 65% and gasoline 26%. The UKC, loading 12%, was 82% gasoline and the Far East 13% was composed of diesel/gas oil at 44% and kerosene and gasoline at 20% each. Discharging was predominantly in Caribs and ECMex at 16% and UKC at 12%.

For the LR2s, one of the biggest differences we also saw was loading in the UKC. In 2014 we did not have any gasoline cargoes loaded in UKC for LR2s. We saw 54% of the cargoes for the UKC as gasoline and 38% naphtha. These gasoline cargoes were primarily going to South East Asia, mainly Singapore.

The big change from 2014 has been the increase in loading activity in the Far East. These longer routes carrying diesel/gas oil and kerosene and jet as discussed from Far East to West Africa, Far East to Southeast Asia, consisting of diesel and gas oil as well as Far East to UKC, kerosene and jet, has shown an increase in the trading activity on the return trip from the Far East. What we also saw was -- for the first couple times was the UKC to Southeast Asia which consisted primarily of gasoline and naphtha.

On the next slide, we show a breakdown of the cargoes that were carried on each type of vessel. As you can see from the Scorpio MR cargo types, 40% were diesel and gas oil and 39% gasoline. In the LR2s, we saw an increase in diesel and gas oil, now that composed of 36% and naphtha at 34%. The big increase we saw was actually in kerosene and jet from the prior year. And this is a reflection of cargoes going to the UKC, mainly kerosene and jet fuel from the Far East.

In the next slide, slide 5, you can see the fleet activity from Clarksons for the MRs and the LR2s. As you can see, the MR activity is very diversified whereas the LR2 -- the smaller number of vessels, you can see the activity going to the UKC as well as in the Middle East and Far East. This is consistent with the data we have and does a good job of showing how these vessels trade, specifically the diversification of the MRs but also the increasing diversification of the LR2s.

I would now like to turn the call over to Brian Lee to discuss the remaining part of the presentation.

Thanks, James. I just want to point out in slide 6 where we have the schedule, the dividends to the adjusted EBITDA, there was a reconciliation in the appendix for that calculation. But you can see here we have a strong sustainable dividend, where the percentage in Q4 2014 was 35%, but it went down over time to Q3 where it was at 15%, so our dividend to our EBITDA at 15%. And finally, 22% for Q4, and in 2015, that total was 19% of EBITDA was -- a dividend that made up 19% of the EBITDA. So again, to emphasize a strong, stable, sustained -- and is sustainable over time.

Now I'd like to turn over to Robert Bugbee.

Hi. Good morning, everybody. I'd just like to reemphasize a couple of points that the Company, the Board, the management are focused on running the business and focused on consistency and sustainability. We're very excited about the prospects of the product market. And in all the matrices, whether it's supply or demand, it looks positive going forward.

We are, however, working in a general world environment, where the general capital markets are perceiving a number of financial risks, some of which are pretty hard for us to handicap, certainly hard for us to control. So, therefore, we will be very, very focused, remaining on this consistent, sustainable approach. That uncertainty in the capital markets, though, is helping us long term. We do not see a building of the supply side, new building orders are very constrained. And I think all this is helping the product market probably to be stronger for a longer period.

And with those as opening remarks from all of us, we'd just like to open it up for question time.

(Operator Instructions) Doug Mavrinac, Jefferies.

Thank you, operator. Good morning, guys. First off, very nice job Robert on the charter performance for your fleet for 4Q and then thus far Q1 quarter to date. I mean these rates are very impressive compared to industry averages. So just wanted to say that noticed that and it's a very, very nice job.

When you look at where we stand today in the first quarter, you guys have locked in some very good rates, thus far, but the current spot market has softened a bit from those levels. My question is, is that just pure seasonality or do you see something bigger at work that's causing these LR rates and MR rates to be in the mid to high teens right now?

Well, things are moving very fast, so I think you'd have a natural, a very natural seasonal fate for two or three weeks like we're having in the moment on the LR2s before the LR2s really start entering their strongest season over the spring and the summer.

Right.

So the rates that we've seen during the winter are extraordinarily supportive, they're supportive in the MR2 to the extent that we really have had no winter in the northern hemisphere. And I think that's what's really exciting about the product market, especially as James went through.

Some of the cargoes that we're carrying is, that they -- although there's fear of a world industrial slowdown, China, et cetera, the product market is so diverse and is really tapping into what this world economy is doing with low oil price, low interest rates, is stimulating the consumer. So you're seeing the jet fuels and the gasolines.

Now, I would beg to differ related to the MRs. The MRs have done exactly what they should do. I mean, they are tracking strongly last year on a seasonal basis, you had a little dip up until about a week ago, and then last week they really started moving out very hard.

Right.

So as we look at MRs today, on this conference call after the end of last week, on a world-adjusted basis, and this obviously is for future earnings outside of what we've reported this morning for the first quarter, the overall rates are probably at the strongest where they've been for several months now. I mean, TC14 made a big move last week. The Asian markets started to make a move.

So again, we are feeling very good on the fundamentals of that market at the moment. And we are confident that the LR2s, obviously they've been a fantastic bonus for the last three, four months and give them two or three weeks as they turn towards their strongest season they'll come up, too.

So if anything as we speak right now, and I think this is the fascinating thing about the product market for us is because quarter over -- month over month, week over week, quarter over quarter, we have our ?- our actuals have come in much better than our estimated earnings for the market points.

There is no possible way that if you had told us that the northern hemisphere winter would not effectively exist for two and half months, would we have anticipated the earnings that we have delivered either at the end of the fourth quarter or this first 60% to 80% of the first quarter? That is really encouraging that it's beating our internals and that can only be as a result of the real industrial, every day demand as opposed to seasonal.

Right. Right. And that is what it appears like Robert, because like you said rates today are stronger than we were a year ago. Refinery capacity utilization levels are higher than we were a year ago. So sequentially this seemed like it was just seasonal, but I just wanted to make sure that you guys are [recovering] that.

I'd make a point, I mean I've read a couple of reports and things and people still seem focused on the fourth quarter to third quarter sequentiality about it, but look, it's seasonal.

Right.

And it's -- for us, we really, the better comparison for us is the fourth-quarter 2015 over the fourth-quarter 2014 is a huge difference. That is what really matters to us. And the other thing is, perhaps companies that have less consistent, less sustainable dividend policies than ours, it is reasonable that people should care about quarter over quarter, because that's what the dividend is paid on. But our dividend it does not move just because the fourth quarter seasonally is weaker than the third quarter.

Right, right, right. Yes. And so then taking some of those comments and then also some of the prepared comments about how the trade has evolved, over the last 12 months, 24 months, et cetera. China is adding a lot of refining capacity this year. And I know they're not a big historical exporter.

But my question for you guys is could you start seeing some of those products make their way to the product market either directly in the form of additional increases in their distillate exports? Or how do you see that affecting the regional pricing arbs that could then become the fuel for the fire?

I think that's one of the great ironies that the world in commodities is concerned about China. But China's development in refineries has actually added to product-tanker demand. I mean, China just did not exist for us in the product market up to a couple years ago except for vegetable oils, caustic sodas and things, and this is really exciting.

This is just pure incremental extra ton miles coming out of the East. And as we pointed out, we haven't really spoken about the LR2s before. But it's amazing that these sort of modern LR2s with the deep [well] pumps and the tank coatings, they're not triangulating quite yet as MRs are, but they are triangulating. And that's fun.

Right. Got you. Very helpful. And then final question before I turn it over. You guys have recently been taking advantage of the three-year time charter market. You announced some three-year time charters back in October. You also secured some additional ones in December.

So my question is, when you look at kind of your decisions behind securing those three-year rates, were the December ones similar to the October ones where there was a commercial aspect of it in terms of a customer coming to you? Or was just the rate so good that you're like, all right well locking this thing up at $18,000 a day for three years, that's a pretty good deal?

Well, I can assure you that the rate of $18,000 a day for three years we don't think is so good. But I think part of the consistency, as Emanuele started off to earnings. And part of the way that you get good performance on your time charters and revenues in your pool is that we are targeting very specific customers that we believe that by enhancing relationships towards will enhance our spot trading.

Got you.

And it was very okay to give certain of those customers a rate -- a time charters to get closer to them, to enhance the overall position. And I think that the Company is -- and even now, it's opened things up. In a way what we've just done now is become ? we're financially deleveraged, but there are opportunities out there for us to take advantage of.

What is now opening up is a -- quite an arbitrage situation between what we think we can earn in the spot market and what we think someone else without the systems and without the huge platform we have in customer relationships we have can earn. So you could -- I would expect that our -- one of the things that you would see is you would see us start to take advantage of that aspect of it.

It seems like you guys already are starting to do a good job of that because, like I said, the industry averages for 4Q and thus far in Q1 were really good. So Robert that's all I had.

Yes. If you can create a situation where you can take other people [shift] where you've got the spread to the market that's a great position. Anyway, thank you.

Yes. Thanks, Robert. Great job.

Ben Nolan, Stifel.

Hi, yes. This is Stephen Tittsworth in for Ben Nolan, just had a couple questions. First one [center] around the operating expense. We noticed it was slightly higher than it had been in the previous quarters. Could you give a little color as to why that was?

Well, that is a timing difference. You should look at -- there was a lot of additional expenses in the quarter. So really, one quarter from another is, you can't always compare. So that was just a little bit higher during that period.

Okay. Moving forward, should we think of the fourth quarter as a good run rate?

I would say it's a little bit lower, so I would say for the LR2s you're probably looking maybe around 7,200 and then for the other two categories, the MRs and the Handies, around 6,500, 6,600.

Okay. Great. Thank you. Next one is, with kind of the arbitrage spreads we're kind of seeing develop, have you seen any increased demand for floating storage for product tankers?

No. I think that's another exciting aspect for the product tanker market is that it's pretty well going from hand to mouth. And none of our ships -- we have a pretty extensive position if you add the pool ships to the Scorpio Tankers' fleet and not one of our ships are on storage contracts. And that's nearly 10% of the total spot market in the world.

Okay. Perfect. Thank you. And my last question deals with your share repurchase plan. I see you've bought couple more shares last quarter, so, and you still have the converts out there, how are you thinking about that program moving forward in terms of both the equity and the converts?

I think it's something that we wouldn't discuss publicly.

Okay. Well, thank you for your time. I appreciate it.

Thank you.

Amit Mehrotra, Deutsche Bank.

Thank you. Good morning, afternoon, everybody. So Robert I just had a question on a recent comment you just made on the prior question, about Scorpio Tankers' performance, relative outperformance. If you look at the reported TCEs for the Company over the past couple years, and compare those to the average spot rates in each of the respective periods, the Company really outperformed the market for most of 2014.

But then that sort of outperformance has disappeared sort of in 2015 where the TCEs achieved were pretty much in line with the quoted rates and the average quoted rates and in some cases well below. I know there are a lot of variables that can go into this but wondering if your thoughts on this observation --. And as the fleet has basically gotten much bigger over the last year and a half, does the Company's sort of ability to outperform the market diminish somewhat, if you can just --?

I don't know what you're looking at. I mean, you can look at public comps, you can look at the fact that we've increased pool members into our pools, pool members that had choice. Pool members that were pooled with other companies, other competitors who moved over to Scorpio Tankers, of which the performance was what did it.

I think that in many ways, I have no idea, because, in some senses, obviously we've outperformed indexes related to LR2s for example. And we've outperformed peers in straight up MR2C positions. So from our side, we are very confident that in terms of the general market or the general earnings, whether they are in the LR2s or MR2s, we are certainly creating arbs against people with less size in terms of fleets and less scope and less sophisticated platforms.

Yes. Maybe we could take it off-line because maybe I'm looking at it incorrectly but it just seems that if you take --

I think you're totally looking at it incorrectly.

Okay. All right. Well then we'll definitely take it off-line.

But it's a matter of record what the other companies are comparing, but I don't really want to -- this is not about slamming other companies. This is about we are very comfortable in our own space and we are very comfortable within our platform which has taken a while to evolve, will help us create that consistent sustainable outperformance.

Okay. All right. Let me just switch --.

(Multiple speakers) week over week, or quarter over quarter, but over time.

Okay. All right. Let me just ask one more if I could. And just a question on the order book and the market. I mean, it's definitely true that the rates really across the product tanker segment are very healthy, albeit sort of still off the highs of mid-late last year, but still very healthy.

And with respect to the order book, the MR order book looks really good as we sort of look out over the next 12 to 18 months. But the LR order book is still quite significant. And I just wanted to get your thoughts on that in terms of what kind of impact that could have on the marketing. Could you have a market were LRs and MRs sort of bifurcate?

Unlikely because, as you've seen, you can't really have in the product market very long, one market -- one of major markets doing super well and the other one doing badly, because they will either double up cargoes or they will split cargoes. And I think that this is something we're trying to point out in this presentation is that the LR2 market is not the LR2 market of old, which was really just [agee] to Japan with naphtha. So they are pretty well interrelated.

I think, however, that we're seeing, whether it's the refineries coming up in the Middle East and et cetera, like that, or the way the market is doing, is that the demand side for the LR2s in general has been growing faster. And I think that we are comfortable when we look at the -- we don't total up -- we don't separately look at Handies, MRs and LR2s. We look at the combined position in the market.

Where you could see an exception is perhaps in the ice-class Handies, where with Russia doing what they can to maintain their exports, the ice-class Handies look pretty interesting as a separate category. Because clearly you have to have ice-class donation to trade in those areas at times and that order book is almost zero. So we're quite keen on relative, but otherwise LR1s, MRs, LR2s, it's kind of whatever.

And then, Ardmore said on their conference call that they actually had been asked to slow down one of their ships significantly on its way to the ports because essentially the tanks were full. Is that at all anecdotally what you're seeing in terms of --?

No. I think that you can always have a ship in a volatile market. I can remember the time of Ardmore's conference call and today oil only goes up or down $1 a day, back then it was super volatile at $3, $4 a day swings. And I think that would have been more related to a trader trying to hold in the best place to deliver the positions.

Yes. Last question for me and then I'll hop off is the sale of the MRs last week, can you just talk about what drove that? I mean, I think I know but it would be just helpful if you could provide some color on that. And then on top of that is there any potential -- I know you're probably going to say you're not going to rule out anything, but is there anything sort of, are you done with that in terms of your portfolio trimming or can we expect something more from asset sales?

Well, I think everybody is looking for this sort of perfectly static model that exists forever through time. We will be very consistent with regard to maintaining the strength of the balance sheet. We think this was an appropriate move for many reasons, there are so many.

I mean, whether it's the stock and the securities trading, either below par or below NAV, whether it was for other commercial reasons, whether it's just simply that in a time like this that it's not so bad when your capital markets are stressing out and are concerned about, across multiple sectors not just STNG or the product market. But across almost every asset-backed sector with leverage. The capital markets are concerned, so I think that it seems very appropriate to maintain that strength and consistency and sustainability and optionality that a strong balance sheet that's fully financed gives you in these uncertain times.

Yes. Okay. Thanks, guys. Appreciate it. Good quarter.

Noah Parquette, JPMorgan.

I just had a couple market questions to follow up on the comments about China and product exports. Where are you seeing those exports going primarily? Are they still staying within kind of the regional area like in the Asian region or have you seen longer trade routes? I mean, could we see a situation where that goes as far as Europe?

Noah. We're seeing from the Far East, we're seeing Far East to Southeast Asia which is a little bit closer at 7%, but we're also seeing Far East to West Africa at 7%, and Far East to UKC at 6%, so they are going longer voyages. The UKC is primarily diesel/gas oil and kerosene and jet fuel, and going to West Africa is also diesel and gas oil. And what we're also actually seeing is then UKC back to Southeast Asia being primarily gasoline.

Okay. That's interesting. All right. Thanks. And can you talk a little bit about how much the LR2 fleet you think is trading dirty right now and has there been a significant shift over the last couple quarters in that?

No. It's been pretty stable. I mean, the last sort of four, five months or so, both markets have been doing great. I mean, there's no recall for us to shift our vessels into dirty and it's very questionable as to actually what can be shifted back into clean when the time comes. I mean, the owner is going to have to feel there's a pretty sustainable spread over time. And some of those vessels would find it very hard to come from crude to clean after trade, being older and trading in crude for some while.

Okay. And then, I just had a question talking about, you were mentioning the optionality benefits of having a strong balance sheet. Obviously, you have the share repurchase program. You talked about the shipyards constantly. I mean, how are the Korean shipyards right now in terms of their ability to lower prices? I mean, there hasn't been any orders really for the past couple months. Is that something that you're looking at? Is that on the table?

Cameron?

Well, it's really the big question because I think unlike the last several years, you have much more engagement between the sovereigns and the commercial, the local commercial lenders with the yards on their pricing decisions and also, obviously, their G&A and cost structure.

So, frankly, it's been a game of chicken and nobody knows who is going to blink. What is encouraging for us, of course, is, as you say, there hasn't been a lot of ordering and furthermore, we're pretty confident that there's some significant or at least material discussions about consolidation in the Korean market going on which would rationalize supply, of course.

For us specifically --.

Nothing moves quickly but it's going.

For us specifically, if you remember, we, for the first series of options we had to declare, we declined back in December. And we don't really want to have a discussion in public, but I think it's reasonable for most people with a calculator to work out that almost any alternative in terms of allocation of capital would be better for the Company right now than engaging in a series of new buildings.

Okay. That's what I wanted to hear. Thanks.

Gregory Lewis, Credit Suisse.

Yes. Thank you, and good morning. Just as we look at supply, when we look at the fleet where it is today, I guess one of your competitors this morning was talking about the discrimination of vessels once they reach an age of 15 to 20 years. Just curious, if you are seeing that similar development. Obviously you don't have vessels that old, but is that something that's going on in the industry where we're actually seeing that type of discrimination for vessels? And so is the fleet potentially --?

You won't really see that, we did a presentation I think a quarter ago or two quarters ago. And you won't really see that discrimination take any real effect in the product market until next year.

Okay, thanks, perfect.

When the actual fleet age profile itself starts to have a significant number of ships turning 15 years old.

Okay. Great. And then, with the five MR product anchor sale, clearly you had a host of reasons for doing it. Is there opportunities for Scorpio Tankers to potentially sell additional assets as sort of 2016 plays out?

Look, I think there are always opportunities to sell good quality assets that are creating great cash flows. I mean, notwithstanding where public securities in the product market is, I mean, the relationship of each individual vessel's EBITDA to their price is pretty good at the moment. So the answer would be, yes, we could sell other vessels. However, we've been seeing that without going into details in relation to let's say when we've chartered out where we're having to see something, an additional benefit to just doing a straight commercial transaction.

Perfect. Thank you for the time.

Thank you.

Shawn Collins, Bank of America.

Great. Thanks. Hi Robert and team. Good morning.

Good morning.

I wanted to ask kind of a big picture question. So the sanctions against Iran were lifted in January and Iran has reentered the oil market. I know it's early, very early, but have you seen any impact or any development from that so far?

In the products market, on the margin some ships that have started to fix in there. But I think the bigger part of it will come as we keep rolling through these months, as you get, let's say, some more help into just the Aframaxs and just the general crude oil side.

Okay. Got you. Understand. A second question, and understanding that you have covered a lot of ground thus far this morning, can you give us an update on recent trends in the vegetable oil and the palm oil markets? And how they played out in the fourth quarter and how they look so far in the first quarter thus far?

I would just say that from the big picture point of view, there are tremendous sort of economic and dietary -- and as a result dietary changes in countries like India and China that are extremely favorable to the transportation and demand for vegetable oils.

There are cultural, whether it's people wanting to have palm oil as a substitute for milk in Starbucks or wanting to make sure their children have their hair washed once a month in palm oils or even cooking for the low-cholesterol aspect of palm oils in the West. There are things that are driving overall palm-oil demand.

So both of those areas are extremely favorable and they are particularly favorable to vessels that are sort of seven, five years or younger as those are the vessels that really carry the product for human consumption.

Okay. Got you. Understand and that is helpful. Just my last question, just wondering if you have found any regions of the world where you've seen more than the usual congestion? I know last call I think --.

No. Again, these things are like kind of blah. There really is no contango storage trade in terms of product. There is no, oh my God a whole bunch -- the supply of the ships are completely choked up because they can't discharge, et cetera, et cetera. From time to time the product market is so dispersed. And if you see that map that James put up, you can have areas that simply because of bad weather, you can have four, five days of delay.

You can have the Panama Canal choked down with delays that would create delays. You could have the Mediterranean the same. So you can pretty well guarantee in the product market that on any given day, there is one area of the world that is loading and discharging beautifully without delays and another area of the world that's in a mess.

Got you. Understand. That's helpful. Well, thank you for the time and insight.

Thank you.

Spiro Dounis, UBS.

Hey, good morning again. And thanks for taking the time. Just wanted to follow up real quick on the decision to sell vessels and more so around capital allocation going forward. So you've obviously been buying back shares, in the past you've also bought back some debt. You're obviously paying a dividend, and it maybe sounds like placing newbuild orders is not off the table but certainly not in the forefront of your mind at this point. So just wondering with the cash flow that comes in, maybe how we should expect that to be allocated?

I think you should expect that within the constraints that we intend to play, or not play but we intend for other reasons mentioned to ensure that we have a consistently strong balance sheet that can provide sustainable dividend policy, sustainable earnings, et cetera, et cetera. And can continue to benefit from refinancing as book at lower positions. You can -- that is about it. And we really don't -- there is no value creating position at all for the Company to discuss that in public at all.

That's fair. I understand that. So maybe more broadly, then, just around the dividend. Certainly right now not a lot of companies are receiving credit for it, but you guys are pretty diligent in terms of doing buybacks instead, just wondering maybe what sort of conditions you would need to see broadly to maybe say, okay, maybe it's time for another dividend increase.

Well, I think that first of all we have to look at -- let's look through all the things that we've done. So only couple of years ago, it was fashionable for people to suggest that STNG does an MLP. Well, that, thank God, we didn't go to.

Then it's the full-payout dividends or the semi-payout dividends. I mean, call us old-fashioned, but we just think that the only special dividend is the dividend that someone can rely on every quarter. I think that it's quite clear that the Company has surplus capital to the dividend it's paying right now. But at the same time, the dividend that we are paying right now at 8%, 9% it's huge in terms of a traditional dividend. Bearing in mind, the EBITDA coverage you have on that, the leverage of the Company, and the fact that the Company is only -- has got a fleet age of sort of one-year-old.

Yes. That makes sense. Good for me.

All things come over time. So --.

Robert Weaver, Citi.

Hi, you've spoken a number of times on your balance sheet and the decisions on capital. But I was wondering, if you're thinking about your secure debt versus your unsecured debt, would you at all entertain the idea of doing more unsecured debt to maybe pay down some of the [secure] --?

That again is a very polite and nice way of getting to allocation of capital.

Fair enough. All right. Then I'll end my question here.

Thank you.

Okay. I'd like to thank everyone for joining us today and we look forward to speaking with everyone soon. Thank you very much. Have a good day.

That concludes today's conference. We appreciate your participation.