Scorpio Tankers Inc (STNG) 2016 Q1 法說會逐字稿

Hello, and welcome to the Scorpio Tankers Inc. First Quarter 2016 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. I 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 on this call is based on information as of today, April 27, 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 release that we issued today, as well as the Scorpio Tankers' SEC filings, which are available at scorpiotankers.com.

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 Relations page of our website for approximately 14 days.

Now, I'd like to introduce Emanuele Lauro.

Thank you, Brian. And good morning and thank you for your time today.

We continue to run the business focusing on those topics, which are important to our Company. We are executing on our strategy, which we discussed with you from time-to-time. We continue to make the best of our operating and commercial structures and making sure that we are constantly out there, trying to capture the best of what the market has to offer, in terms of rates.

On the debt front, we continue to refinance existing debts on better terms, than what we have at the present. We've experienced and continue to experience a tightening of the lending market in the last few months. We keep on having though very encouraging conversations with our lenders, which keep on being supportive. To expand a little bit on this, we have focused on financing our 2017 new buildings, we have received non-binding offers from a number of our lenders, we're confident that we will be able to finance these ships in the not too distant future at what we considered appropriate terms.

We are encouraged generally about the supply and demand dynamics going forwards, and whilst the focus of the Company is certainly to reduce the financial leverage, we remain active and alert to capture those opportunities that the markets may present.

So in general terms I would say, the beginning of this year has been as expected and we've taken a number of actions, which have contributed to reduce the outstanding debt of the Company. And we're sort of cruising -- on cruise control as far as day-to-day activities and still very much alert making sure that we see everything that surrounds us and everything that changes.

The markets which we are experiencing -- the rate environment which we are experiencing now we've given guidance is probably below what we expected. And having said that, we -- I'm sure we will have the chance to discuss this in the Q&A section.

And with this, I'd like to pass the call to Robert.

Thanks, Emanuele. As Emanuele indicated, we're primarily focused in running the business. We've been making very good strides operationally, in terms of contracts of affreightment and actual -- the trading of vessels with customer partnerships et cetera, which will continue to over time, show up in the performance of the vessels, related to the sort of published spot market.

From the balance sheet perspective, where really the target is without talking about grades or percentages, but the target is very much that, we would want our June 30 net debt-to-equity to be lower than where it is on March 31. We are very confident of what we're seeing in the longer-term fundamentals with increasing demand, combined now with -- we've reached big part of the apex of new building deliveries. The order book itself is shrinking every day, the capital markets are putting a big constraint on competitors ordering vessels. We ourselves at this stage have no interest in ordering vessels, we are now interested in acquiring weaker balance sheet companies. We've got enough vessels across our full platform to really do the contracts we need, the chartering performance we need. And as Emanuele said, we still put ourselves in a position where, if opportunity -- opportunistically there is a crisis or value being shown, then we're now prepared to step-in and do that.

And with that, we'll turn it over to questions.

Thank you. (Operator Instructions) Doug Mavrinac, Jefferies.

Hi, good morning guys. Robert, whenever I see your press release, the thing that jumped out at me the most actually had to do with the MR rates that you guys have secured quarter-to-date for the second quarter of around $18,000 a day. And as we know, we're about to head into a seasonally stronger time of the year. So when you see that you've secured 39% of your days at $18,000 a day, what one or two or even three things that are on the near-term horizon gets you the most excited?

Well, nothing in the near-term gets us really-really excited. What gets us really exited is the lack of deliveries in 2017-2018 and the increased environmental regulations and the fact that, this balance sheet is maturing every single day as is the operation of the Company. But I'll put it in terms of, what can be exciting even today, that you are only -- you're in a pretty balanced market, despite the fact that we've had a very-very warm winter, there has been a lot of arbitrage, dislocation as you know, because of the moving oil price, which has sometimes made it difficult for traders, all these things contributing to (inaudible) what you call $18,000 a day week, but not a super strong environment.

As we go forward in the days or weeks behind, you have a balanced market. So any moment -- any input into the demand is going to rip that market straight up. With oil pricing, what we're reading -- I mean we read the same stuff as you do, the US gasoline consumption, Indian gasoline consumption, Chinese gasoline consumption, as we turn towards that gasoline season across the northern hemisphere, with continued increase in demand from the developing areas of South America, Australia, Africa sure that's exciting. I mean, it's always exciting when you -- with your making $18,000 plus on MRs and things are pretty dull and boring right now. That's sort of -- what's exciting is because boring is kind of really good.

Well, alright and that was kind of the point was that, $18,000 a day and a whole lot is happening right now, that any one of those things that you just mentioned seemingly would get the market really going and so just trying to figure out, which one of those, one or two things that you thought would be the most likely?

It is any of the above. That's why, it's like -- look, we're setting the stall out. We have a fleet that's on a spot basis, a balance sheet that's generating sufficient cash to delever, as Emanuele said very -- in a reasonably short time, we will have that financing done in for the new buildings. And we have a spot market at the moment where there have been a lot of headwinds, but it's still $18,000 a day.

Going forward, I just don't know which day this sort of increasing demand line against the supply line -- supply line is going to get fairly flat in the months to come, because we've gone through, we've absorbed in that first quarter tremendous amount of delayed deliveries from December 2015 and that's what's exciting. What's exciting is, you don't have the orders, demand is growing, regulation is increasing and the Company itself is already making good money and whatever it is paying an 8% dividend, that's what's exciting.

Yes, exactly. Well, let me ask you this. So, so far over the last handful of years, there's been a lot of focus on, how much refining capacity is being added and people are using that as a guide to figure out, how much could demand growth increase in the refined products tanker market. But my question is, recently there's been a lot of chatter about additional teapot refineries in China getting import licenses over the next couple of years, and we saw what happened last year when those import licenses occurred and you saw the throughput taking place. So my question for you is, over and above the refining capacity additions that we see, how could an increase and maybe teapot throughput of 1 million barrels a day impact the products market if you're seeing increased volumes coming out of the Asian markets?

Well, the whole of Asia is pretty exciting with the products, whether it's Australia importing refined products, but we look at China specifically. China hasn't just been -- isn't just in a position in terms of the refined products at the moment. It's helping out on vegetable oils. But China as it develops its refining capacity, whether it's the teapot refineries, whether it's the major refineries, against its underlying demand, is going to do what any big refinery area, whether it's Europe or the United States historically, it's going to create more and more arbitrage opportunities in addition to its actual demand and a great fun for the product market, as China just hasn't existed at all in the last few years. It's coming from such a base level, so -- whereas in the dry cargo market in the last 12 months, the fear or well the actual China slowdown was dreadful. Every single month China became more important to us in terms of product trading.

Right, got you, very helpful. And then final question before turning it over, you mentioned Robert at the top that the financing environment has gotten even more difficult than it already was. We see that there are hardly any ships on the order book. The order book is actually shrinking. My question is, we have obviously, I say obviously from my perspective, a very attractive supply-demand setup for the next year, two years et cetera, kind of for the foreseeable future, but yet if you look at the time charter market and the published rates are softening ever so slightly, and if you look at asset wise and they are softening ever so slightly. Is that just kind of an aberration in terms of, well we're coming out of a seasonally slower time of the year and as things firm up and you would expect those things to firm up as well or do you just see that is maybe a market dislocation right now? I mean, so what are your views on the current environment for time charter rates and asset values? Even though I know that you guys are in the period where you're delevering, just kind of a broader comment.

Okay, but there are pretty good reasonable expectations of that is because asset values are there, because credit is tighter and because companies like ourselves have better alternatives than buying assets.

Right.

Right. When you are trading below net asset value, your first point of call with free cash is not to go and buy assets. The same is across the space, your dry cargo market. There are many private owners in product, where the dry cargo market is being so distressed that they've had to maybe put their tankers on the market for sale. So here, it actually hasn't got much to do with peoples' views of long-term [mental], is the necessity.

When it comes to the time charter market, oil companies have been under pressure, major oil companies have been under pressure. So, they don't necessarily -- their first point of capital isn't necessarily to charter in tankers. It's like, we're happy to pay what the market has to pay, because we have other priorities, because we're under pressure in our core areas. And at the end of the day, shipping, whatever rate, is still a de minimis cost to oil production or refine margins that we kind of don't care, but that has helped us in another way. Yes, we are not seeing in the market such a bid on the time charters from the oil companies. But I think that is -- but their appetite to secure quality tonnage through a different way hasn't abated. So that's why for us that's great, because that's helping our ability to get contracts of affreightment.

Perfect, all very helpful. Thanks for the time Robert and great job on securing some of those rates for 2Q.

Amit Mehrotra, Deutsche Bank.

Thanks a lot. Hey, just one quick question for Brian. On the gross debt declined on slide number 5, $87 million over the last couple months, but the new build payments also decreased by about $70 million, obviously most was explained by the proceeds from the asset sales, but just want to see if you can tell us, how much of that $70 million was paid for by debt and then how much of the $300 million plus of remaining new building payments will be financed with new debt? Thanks.

Amit, we're going to be -- our financing hasn't changed. We're looking that we're financing anything between 50% to 60% of the contract price, so that's the LR2s, which are coming this year or will be at 50%. As Emanuele said, we're looking at proposals for the newbuildings going forward. So those will be anywhere between 50% to 60% in that range.

Okay, great. And then let me just ask one more. This is probably going to be a little bit of a tough question, so I apologize in advance, but Robert and Emanuele, you guys have built this Company, Scorpio Tankers to be sort of very investable by institutional investors in terms of sort of pure play exposure and also market capitalization. And to the point now, where you are the largest product tanker company in the world, which is quite an accomplishment.

But I think there are also a lot of investors out there that actually want to own your stock, but they'd like to see some evolution on the incentive structure. And so what I want to ask you is, is this a focus for you guys as you maybe evolve from an asset acquisition company to maybe an operating company? And could we actually see any evolution towards a more sort of typical type investor -- incentive structure to get in those sort of people that are maybe on the fence about it from a share capital standpoint? Thanks.

Sure. Amit, I'll just start with a comment, and then Robert can continue. I think that in general terms, we built this Company as you say with the aim of becoming and being a very investable company, which I think we have accomplished. As far as structure, we have not really chosen the structure ourselves, but we have come out with what was the best structure in order to be successful in raising capital back in 2010 and list the Company. And we kept it very much in the same way that it was. From time to time we had these discussions, we certainly constantly look at, whether the current structure is the best going forward or not. Our shareholders to tell you the truth have not come out to us complaining about our structure. I'm not sure, if you have different feedback. Certainly offline we can discuss and you can enlighten us on, what the feedback is, because we haven't had been having these type of discussions from our shareholders. And we are quite open in considering change as well. We are not stuck in one structure and say no, this is the way things should run. We're quite open and happy to look at different structures if they ameliorate the investability of the Company or if this is what shareholders want.

We are quite relaxed about the way we look at this, that's what I'll comment on that.

Amit, I think it's pretty -- that we've been very consistent to the extent that the right thing to do at the right time, any structure, we'll do it. We're obviously cognizant that things change. There is an argument related to, there is a growing tendency for or growing focus on governance, clarity et cetera and we'll respond to that in the same way as we studied the idea, you know, a year-and-a-half ago, there was a big [climate] for Scorpio Tankers to do an MLP. Thank god, we didn't do an MLP.

But we studied it and we studied it properly and we are aware of what yourself has been saying, what other certain analysts have been saying, so far I support what Emanuele says, we've heard very little from shareholders, But nevertheless, in the same way as everything else, we would do that study and look. Insiders own a lot of stock too, so if we think that there is real value in integrating or terminating the relationship on the management side, then I'm sure the independent directors will consider that.

Okay, that's fine. Let me just ask one more with respect to just the cash priorities. You guys are obviously taking delivery of all these vessels as from the focus, but once that fully occurs I would assume that, you're going to sort of de-risk or deleverage the Company to the extent that, you think you have an optimal balance sheet. So say -- just say we get to the point where, we're at a reasonable leverage relative to the market value of the assets, could you just sort of enlighten us in terms of, how you view your cash deployment priorities beyond that point i.e., beyond the point of optimal deleveraging? Thanks.

So can I just get a clarification. So this is -- what are you talking about, not 2018 now, after the vessels have been delivered or price at that point?

Well, you take delivery of vessels. You have a fully delivered fleet, you're generating cash flow hopefully, and that cash flow accrues to the balance sheet, deleveraging the balance sheet to the extent that you're comfortable relative to market value of the asset and then you're still generating cash flow, what do you do with that cash flow?

Okay. So, between now and 2018, as you said you've got a -- or at the moment you have a balance sheet that is deleveraging. At the same time, we are increasingly optimistic of the substantial rate expansion and improving fundamentals as we approach 2018. So when you get to 2018, we have a fully delivered fleet and hopefully a balance sheet that's already delevered from here. Also as you said, we'll be fully financed, et cetera, et cetera. And then hopefully in this next couple of years, we have our cake and eat it, whereby we're able to use this period to maintain balance sheet surplus and then all of a sudden rates expand, you're already deleveraged, then you have a whole bunch of free cash to decide what to do.

Perfect, right. Okay, alright. Well, that's all I'm going to get. I think, I get it.

You're right. But what you're not going to get is, you'll continue to get the same dividend policy of let's say conventional or normal dividend price position. You're not going to have us suddenly turn to a, doesn't matter how much cash we're making, we will not turn to a full dividend payout policy. We will continue to have a set policy as it were.

Right. Okay, that's very clear. Thanks everybody. I appreciate it.

Jon Chappell, Evercore.

Thanks. Good morning, guys. Looking a little shorter-term than 2018 and revisiting one of the transactions that you announced intra-quarter, so if we look at the proceeds from the sale of the five MR product tankers, what you paid down in secured debt associated with those ships and what you expect to repay? In the second quarter, it looks like there is total net proceeds, still about $75 million. So it's noticeable that both Emanuele and Robert mentioned, deleveraging the balance sheet, June 30 versus March 31 [Robert] it is also notable that there continues to be a disconnect in the share price relative to the results you've been able to put out. So just want an update on $160 million remaining on the authorization of the buyback program, you've been very clear, you won't add new leverage to do that, but you do have a little bit of a windfall here about $75 million, so how do you kind of think about that over the next two to three months buyback versus deleveraging?

Well, we could have other -- we've made it pretty clear that, we intend to have June 30, net debt-to-equity lower than March 31. Okay, so that's a straight forward boundary. We -- yes, we're obviously still generating a strong cash flow even on these rates and cash flow beyond dividend payment and yes, the balance sheet will get -- there is another way that the balance sheet is likely to get stronger because, I think we'll be rewarded by, let's say the growing up of the Company, whereby I think over time we will probably have less requirement for the liquidity covenants maybe taken down too. But I don't think it's right to say anything other than what you saw in the first quarter, where we managed to do all of the things that we've just said in terms of the headline and we managed to opportunistically buy stock at $5.80 and bonds at [$82]. So, your first priority is to ensure that your net debt-to-equity is lower at June 30 than it is now. And it is clear that you have the ability to take opportunity. We don't know what opportunity the market will give.

Understood. Two more quick ones, we've talked about 2Q to date rates, as well as laid out very nicely with the 1Q rate. It seems like the historical relationship with Handys relative to the MRs has widened a little bit, partially in 1Q, but especially in 2Q, is there something specific to that segment of the market that is causing the underperformance of the Handys relative to the MRs to widen or is it just a (multiple speakers) phenomenon?

I think we expect it to be temporary, but you've got -- you had in the first quarter, in the last four or five months, changes in, how Russia has dealt with the lower oil price. And if there is a class of vessel, that would be most affected by the warm temperatures in the northern hemisphere for the last four, five months, it would be a ice class Handy sized vessel.

Alright, but last year the seasonality when you had kind of late 2Q, into 3Q, it also appears that, that kind of narrowed so, the ice class premium would conceivably go away during that period and therefore you would expect the 2Q to date type of discount to narrow as well as we get into the late 2Q, early 3Q?

Yes, but you've got such a lot of -- I sort of want to re-stress this, you've got tremendous -- and you have a market that was broadly balanced. That doesn't matter where the rates are, it is broadly balanced whether it is MRs, Handys, LR2s. And you have substantial day-to-day volatility around the pricing of the base products.

And this year, I think it'll be this year. This year is going to be pretty volatile around that position, but the more important thing is that, as each month goes by the longer-term fundamentals improve and you just don't know when that inflection point is going to come.

Right, I agree. One last quick one for Brian, it seems like the add-back on the convert, when we do the diluted share count 5.5 million this quarter, up a little bit from the last couple of quarters. Is this 5.5 million a good run rate to use going forward or will that continue to march up, I guess, when you closed the conversion, potential conversion day?

It will -- continues to go up. And part of it is, when the dividend is issued, there is a change in the conversion ratio.

Okay, so about 100,000 a quarter is that?

That seems about right.

Okay. Great. Thanks Brian. Thanks Robert.

Gregory Lewis, Credit Suisse.

Yes, thank you and good morning, gentlemen. I guess Brian, Jonathan just referenced the proceeds from those 3 vessels in April and then later this quarter. Is that number -- what is that number going to be at $33.3 million that is -- what is -- should I assume it's a $100 million?

So there is debt associated with each vessel between $18 million to $20 million a piece.

Okay, great. So when we think about the proceeds versus what's required to pay down the debt, right. So Robert when you talk about debt coming down, by nature of those asset sales, that's going to come down anyway. So I get the sense you're addressing this. So beyond the debt that is required to pay down with the asset sales, you're going to use -- it sounds like you're going to use the rest of debt to pay down additional debt, is that a fair statement?

Yeah, I mean that's what we've been doing in the first quarter. I think that, now Brian put a number in there, what we are doing in the first quarter and now I would also say that the debt, which is bank debt there is baby bonds and there is converts, which also we consider as a form of debt. So the key line here is the debt -- net debt to equity line that we're focusing on.

Okay, great. And then -- yes I understand. I was a little bit confused by some of the statements.

I mean look very simply, if we can use this period to -- we don't know the broad market risks of what's going to happen over the summer with the currencies, negative interest rates, the stock exchanges, the fact that bank debt is there. So the most value, we think we can create long-term here is to really stabilize that balance sheet, shows a tremendous operating leverage to the future, to the steadily improving longer-term fundamentals to keep the leverage in check. So as we've explained to Amit, so that when that rates really break out, everything then is becoming surplus to requirements. And that requires a little bit of delayed gratification. We're not doing anything to juice the stock in the short-term or anything, but the permanent value of a balance sheet that is not too levered combined with a brand new fleet is huge.

Okay, great. And then just shifting gears a little bit, it seemed like a lot of new build product tankers that are being getting delivered, let's say over the last 12 months to 18 months have been then getting put on sort of -- as a brand new vessel doing on like a [veg] oil trade. How do you think the market develops as these vessels -- as the new build orders stop flowing in? Where is the draw for those vessels, for that trade to continue? You kind of understand what I'm talking about here?

What do you mean?

So, okay, so we've all these new builds, they initially do -- we've seen new builds get delivered, they go into Asia, they do a veg oil trade away, right. And then they continue on. As the new build deliveries slow, how is that trade going to develop?

Greg, it's Cam. Obviously, the trade doesn't go away. What -- the new builds are a small percentage of the overall trade requirement, palm oil coming east to west. So it's a great cargo for an existing ship. We do those cargoes from time-to-time, and it's a great trade to reposition your ship across regions. So it enhances the triangulated earnings of our fleet. But your underlying comment is, does it tighten the market once those new buildings attenuate, absolutely it does.

Okay, great. All right guys, thanks for the time.

Ken Hoexter, Bank of America Merrill Lynch.

Great. Good morning. Robert you noted that given the assets trading below NAV and you've been active now in the time charter market, we're adding three ice class vessels. How is that market currently? Would you look to do more and can you talk about how you look at that balancing returns long-term versus owning the assets?

I think the -- as I said, our position right now is -- look you could -- we're preferring to deleverage financially, so as to maintain operational leverage. So we have a -- we've been running down the charter book too. So look, if the market throw -- if the market gives up value here and that you get charter rates low, yes, we will cherry pick and maybe add 2 or 3 charters to that position. As we said before buying an asset right now is pretty low on the agenda.

So are you seeing -- again, you were pretty active in the first quarter, do you see more opportunities to charter-in or is that not a focus in terms of (multiple speakers)?

As I said chartering in is about opportunity, okay. The rates really, they're kind of okay, but the market itself, the individuals that have quality ships really do believe in the fundamental strength here. What you'd ideally like to do is obviously pick somebody else that is under financial constraints. So that's why I'm saying it's opportunistic. We don't have to stretch ourselves here. We don't have to go out and charter in ships just for the sake of it. We want to charter in ships where the owner is forced, for example to give us time or option flexibility or a discounted rate for some reason.

Okay.

But the balance sheet allows us to do that.

Right. On the order booking, you noticed it was more balanced right now, in terms of what you're seeing on supply/demand. Given the spike that we've seen on the larger VLCC ordering, is any of that interest creeping down to the product size, now that you're seeing kind of the supply/demand balance and are you seeing the interest in trying to enter the market with new orders start to pick up or perk up at all?

No, fortunately a lot of the players that were -- a lot of our competitors for example -- there isn't that speculative money. I mean, private equity and some of our competitor companies are -- they were looking for liquidity. They're certainly not looking to add dollars to the market at the moment. I don't think that we've got a public equity market that is willing to fund speculative orders. And so far so good, the product market hasn't really attracted that new building ordering attention at the moment.

Okay. And then lastly for me, just on the Gulf Coast as we see a pickup in I guess, chemical plants and export capabilities. How is that impacting the product market or is that removing any additional vessels into different lines or do you -- how do you think it panes out as we move deeper into 2016 to 2017?

Any development on the chemical position is -- demand is fundamentally positive.

Has any of that started to enter the market or is that still too early?

That's a bit early.

Okay. Alright, thanks for the time. I appreciate it.

Noah Parquette J.P. Morgan.

Thanks, good morning. I just want to talk a little bit. As you guys mentioned the MR order book, if I think order book is at a pretty good place right now. But that's very different on the crude side, I mean, there is a lot of the supply this year and next. In the past, it's not always true, but there's some correlation between the two. I mean, can you talk a little bit about, why you have comfort in the fact that the product tanker market can stay strong for the next couple of years, even if we see a weaker crude tanker market?

Well I think, want to be clear, we would expect in a year or so, in two years' time, in three years time for the product market to -- right now it's not strong, but we would expect it to be definitely stronger in those forward years with the lack of [visibility]. So you yourself has pointed out, the first ingredient to it, is that the product tanker order book is probably the lowest order book measured against existing fleet, that there is in [hollow] shipping, that's a first good thing.

The second thing is that, you will face regulations coming forward that are tightening, relating to Ballast Water treatment. The third is that the market itself, the fleet profile itself, well finally is returning to 17 years start to age, that's going to age two ways. Those vessels getting to 20 years, that could be scrapped and those vessels that get to 15 years that no longer can trade in the premium trades. So the supply side is very encouraging for products.

The second thing on the demand side is the opening of new refineries, the Saudi Arabia for example, is investing tremendous amount of capital in partnership even with Unipec, China's largest importer on one of the refineries, to increase export capacity, plus all the vegetable oils.

So here the product market not only has a, it had two demand drivers; cyclical and the secular. And that in combination with the supply side means that, we're very favorable for its position. And it's not just because we have products, I mean we thought this for a while now. If you remember we actually bought a bunch of the VLCCs, roundabout high $80 million and we immediately flipped them out and sold them at a $105 million. We had the choice of playing in the crude market, but we decided the longer-term fundamentals related to products was just better.

Okay, I agree. I guess another variable on supply side that we're thinking about is our LR2s and are they still trading roughly 50% crude right now, has there been any change there? And you see any shift at all in the next couple of years and how those ships trade?

Yes, a lot of statistics there, they are a bit weird because, I don't think you see a collapse in the crude oil market and also you -- a lot of older LR2s are trading in crude. Now that means that, even if you take a brand new LR2 that's trading in crude, you've got to clean the thing up and you've got to do a whole bunch of stuff to get it trading back products and older LR2 trading in crude just may not be at a comeback at all. So the statistics are a little bit -- you have to go into the details of them a little bit more than just a percentage of the total.

Okay. And my next question, my last question, just a little out of filed, so I apologize. But there is some talks not really ship owners but use of LNG is a bunkering of fuel. I mean, farther down the line, I mean, I know it's not for a while, but is it anything that you've given some thought to and what are the implications, are there, economic implications of that and just would love your thoughts on that?

It's a longer discussion, Noah, it's can't -- that maybe we could take it offline. I think the summary view is, LNG is already a relevant fuel for certain types of assets, mostly liners that are on dedicated trades because the constraint is not the gas, it's not the ship being able to consume the gas, it's actually the supply, and terminals, and bunkering infrastructure for gas, and where you're seeing that arise is, where you have dedicated vessels on dedicated trades. For someone like us, that's a global player and a spot player, it's not relevant yet, but we're watching it closely and the day will come and we're doing a fair bit of work preparing for that day. But like I said, we can talk more about it offline if you like.

Okay. Alright, thanks guys.

Spiro Dounis, UBS Securities.

Hey, good morning gentlemen. Thanks for taking the question. Two, hopefully quick ones. First, just wanted to touch on chartering out activity. I guess late last year you did see kind of flurry of activity that you guys have part taken in, some with strategic partners and I guess it's been a little bit more quiet lately on that front. Just wondering, if that's you being less interested in the [period] market or is that more on the charter side of things, less likely to come in right now?

Well, I think it's a double-fold as you pointed out. I mean first of all, we were very -- we chartered out on a very precision basis to create strategic alliances. Second, we just got a more developed program right now, so we've been concentrating on contracts of affreightment. And as I said earlier, some of the oil companies, they put their focus on other areas when their earnings are weak. But it's good for us, because they still want access to great quality tonnage, which helps us on the contracts of affreightment.

Got it. Okay, makes sense. And then just -- we talked about placing orders or I guess speculating on later deliveries in 2018 or 2019. I guess at some point -- you're not interested in doing any of that now, obviously at some point that does turn, and I guess it turns into a business dilemma where, you want to be out there placing your order and staking your position. And I guess, I'm just wondering, outside of balance sheet and getting leverage to where you want to be, what are the conditions that start to make that market look a little more attractive?

But we don't necessarily have to do that. I mean, that's a presumptive position. I mean, we are by ourselves a pretty big player and then you extend the pulls off it, so there is no -- you've got a brand new fleet. We have no replacement requirement, and not necessarily. I mean, it's -- there isn't the -- there's just not the pressure. I mean, many people ask us the other thing which is, well, which of your competitors would you buy? Again that's like -- there's not much point in doing that either. We've really, really got enough capacity to do what we want on an operating position and that's a good thing.

Got it. And then last one, I'm pretty sure the answer is no. But on the four additional Handymax charter-ins that you've got, the options there, did you provide or can you provide when those expire?

We're not going to disclose that right now.

No worries. I figured that was the case. Thanks for the color.

Ben Nolan, Stifel.

So I wanted to ask a little bit more about the delevering, maybe if I could. And that, obviously you guys in the quarter brought some more of the converts back and in my opinion that's an excellent use of capital because it's not only accretive to NAV but you're delevering. And it would seem like that would be the natural path to go down, but I was curious, if your discussions with your banks have any implications on what debt is repaid, other than obviously where assets are sold? I mean, are you as conservative with respect to delevering on the unsecured debt as you might be buying back shares or is it on a equal weighting maybe as pre-paying some of the bank debt?

It's based on -- that's kind of based on the opportunity, right. It's a -- as you point out, it's still -- debt is debt. Yes, the converts have the virtue of being accretive on the equity side, but it starts off as being debt or starts off as being leverage. The great thing with the bank debt is, you can pay down credit lines or you can pay down ships and you can do it every day. There isn't necessarily every day a willing seller on converts, at the better price that will create value. There also isn't every day of the week that we are actually allowed to go into the convert market, because even though it's treated as -- it's a public security, so we have to honor the various blackout periods.

Okay, but I suppose it's fair to say that, that is still sort of is highly circled in terms of a target or where you might (multiple speakers)?

Yes, sure. But every single convert holder or every single equity holder or every single analyst who is along the company, would love us to say, yes, yes, we're going to spend a $150 million in the next three months buying back converts.

So that I hear it correctly, you're going to spend $150 million?

We have -- see exactly, see how excited that gets you. But that's a not a smart way of creating longer-term value. We can be patient, it's fine.

Yeah, I agree. Although if your premise is correct that the market is going to be increasingly tighter, then the values more apparent in the near-term.

Sure, but you're not going to get that value, if you announce you're going to buy back $150 million of converts.

Right, no I agree, I mean.

So I think we did pretty good last quarter, we delevered the Company, we bought back stock and we bought back converts and we paid a dividend. That was okay. If you repeat that -- I know it's boring, but if you repeat that kind of little -- sort of, little but a lot in a measured way as well as deleveraging, you're going to get to a good place. It just might take a little bit of delayed gratification to do that.

Right. And then, as sort of connected to that, I'm curious some talking point as of late and the industry has been the real contraction of bank finance. And I am curious as to, what your position is on that? I mean, is that something that, you are hearing some tightness from your own banks or?

Alright. So I think, that's completely clear. I don't think it is -- it's going to affect STNG because it's, relative to the industry it's a higher cap company, it's a brand new fleet, it's got a very good record and we're not looking to borrow from a distressed position and we have a very diversified capital structure. But there is no question that, in shipping [full stop], there is less available bank debt. And look, the lenders are having to deal with three markets that are in an absolute nightmare right now; dry bulk, containers and anything to do with offshore. Plus, the Europeans are having to deal with the new Basel Regulations, right. Not fun. So that's what's exciting about STNG for us at the moment. Because it's like, we're just a little bit patient, we act in a sensible way and into the improving fundamentals, that's good, because your competitors every day are not really able to move very much.

Yeah, now I agree. And then lastly for me, something that has -- just sort of gleaning through the supply side numbers, something that is curious at least is that, in the last year or so, we've not seen any -- at least Suezmax or the VLCC scraped, but we have kind of -- it hasn't been a lot but there certainly has been a sort of consistent flow of product tankers that have been scrapped. Is there a legitimate difference in terms of what -- how charters view these assets on with respect to age? I mean, is an old product tanker substantially less marketable than an old crude tanker? Is that just kind of the way the numbers have shaken out?

Sure, but there is a substantial difference due to the cargos they carry. Crude oil can -- lesser the required specifications, tank coatings or pumping or piping to carry crude oil than there is in any of the products.

Yes. So in a market where -- I suspect in a good market neither are scrapped heavily, but there is a bit more of a structural barrier on products than crude, is that a fair --

In the greatest of markets, you're still going to have aging of products that bridge through the cargo carrying regulations and the condition of the ship.

Right. Got you, okay. Very helpful.

Just as we started off, yes we've seen some scrapping in products and that will accelerate as the ice profile accelerates in the 2017-2018.

Right. Alright. Okay, sounds good. Thanks a lot.

Fotis Giannakoulis, Morgan Stanley.

Yes. Hi Robert. I wanted to ask you, how do you think about the recent decline in the refinery margins, has the impact at the product tanker market? We have seen the [sinking] margins turning negative, but the cracking margins are still quite positive. Have you seen any change in the flows, especially long haul volume from Asia towards the Europe?

As I said before, we're just seeing a lot of volatility, Fotis, as a result of this kind of stuff. So one day [arb] are open, next day [arb] are closed and that is the only way we can really describe it. You'd add more to that Emanuele or Cam?

So is there any notable difference in the number of vessels that they go from Asia towards Europe or we haven't seen it yet? I'm trying to understand, what is the refinery runs in Europe and how this demand is going be met?

Sure, but we haven't got the data yet. I mean, we've just seen -- you are just seeing volumes, one week it is -- you just look at US Gulf, one week you have 35, 40 [strip] fixtures and next week you have 20. Asia is, east of Suez has been exactly the same. One day you have a lot, one day you don't have either and they react instantaneously to whatever [arb] or spreads are around.

Okay, thank you. And you mentioned that you are not planning to buy any more vessels or at least that was my feeling from what you discussed. Are there any thoughts of additional asset sales? Last quarter, in your previous earnings call you announced this sales of the five vessels.

I think that you have noted at that point the fact that your stock was trading below NAV. Are there any thoughts of potentially disposing more asset?

I think a lot of that comes down to price and volume. I mean the starting point of the sale of these five assets was not so much, let's sell five assets, but who it was that we were transacting with and how we wanted to have a positive relationship with them in the future. So I don't think that -- that's sort of where we started from.

So the answer to that is, I don't know, there is no necessity to sell assets. I mean, I think that what you've seen and what other analysts have pointed out on the call is that, we have a high degree now of financial flexibility as a result of the earnings in Q1 and what we booked in Q2, and the sale of the previous assets to deal with what we need to on the balance sheet. And, -- but we will react to any form of opportunities and just weigh them at the time, especially in relation to wherever the converts are trading or the stock is trading et cetera. So I don't want to be pushed into a corner on that one as a yes or no.

Of course. And my last question about the higher oil prices compared to the previous quarter. Has the higher oil price environment changed at all your outlook in one way or another? And I want you to explain to us if possible, how the prices of oil affect both products and crude tankers? And what is your outlook for both products and crude tankers over the next 12 months?

Well, we're not going to go into outlook for the next 12 months, but we, other than we consider that to be probably a high degree of volatility as the oil price bounces around et cetera. The oil price, yes it's gained a little bit, but it's still constructive in terms of consumer demand, as we've seen that in various statistics. So that remains positive. I think this has set a -- I don't really know what to say much beyond that Fotis.

And my last question. Do you have any view on the relative performance going forward of MRs versus LRs? Is there any of these two vessels that you might think have a preferred asset class within you freight?

No, we like them both. I mean, as you have seen, over the last four months or five months, LR2s have really outperformed the MRs. But, that's not to say that, over the next six months, they might be exactly the same or the MRs might be better. I mean that is a -- overall though, we think over the next two years, three years, four years, or five years both classes will perform very well.

They are different vessels. The MR is the trading horse of the market and the LR2 is the is the big work horse, the real economies of scale and volume. And I could say to you that, the increase of refinery capacity in the Middle East and it's going to be helpful the LR2s, but I can also tell you that the increase in demand associated with vegetable oils, other products and the diversity of trade and increasing growth from South America and West Africa becomes very helpful to the MRs. They just, both have very good demand volume.

Thank you Robert. Thanks Emanuele.

And thank you. That does conclude today's presentation. Thank you for your participation. You may now disconnect.