Teekay Corp Ltd (TK) 2008 Q4 法說會逐字稿

Welcome to the Teekay Corporation's fourth-quarter and fiscal year 2008 earnings release conference call. (Operator Instructions). As a reminder, this call is being recorded. Now for opening remarks and introductions, I would like to turn the call over to Mr. Bjorn Moller, Teekay's President and Chief Executive Officer.

Before Mr. Moller begins I would like to direct all participants to our website at www.teekay.com, where you will find a copy of the fourth-quarter and fiscal 2008 earnings presentation.

Mr. Moller and Mr. Lok will review this presentation during today's conference call. Please allow me to remind you that our presentation and comments today contain forward-looking statements. Actual results may differ materially from the results projected by those forward-looking statements.

Additional information containing factors that could cause actual results to materially differ from those projected in the forward-looking statements is contained in the fourth-quarter and fiscal 2008 earnings release and earnings presentations available on our website. I will now turn the call over to Mr. Moller to begin.

Thank you, Art. Good morning everyone. Thank you very much for joining us on our earnings call today. I am pleased to finally be able to report on Teekay Corporation's fourth-quarter and annual 2008 results, which were delayed due to the now completed accounting restatement process. Our team continues to work diligently to catch up to our normal reporting schedule, and we anticipate being back on track by the time we report our second-quarter 2009 earnings in August.

I'm joined today by our CFO, Vince Lok, and our Chief Strategy Officer, Peter Evensen. For the Q&A session we also have our Corporate Controller, [Brian Forte], available.

Turning to slide 3 of the presentation, which is posted on our website, Teekay earned adjusted net income of $53.2 million or $0.73 per share for the fourth quarter of 2008, more than doubling our adjusted net income from the fourth quarter of 2000 of $0.31 per share. The Company generated cash flow from vessel operations, or CFVO, of $199 million in the quarter, 71% of which came from our fixed-rate segments.

Looking at 2008 overall, it turned out to be an exceptional year for tanker rates, providing strong operating earnings for Teekay. Our adjusted net income for 2008 was $285 million or $3.95 per share and CFVO was $888 million.

On an unadjusted basis we recorded a large net loss due mainly to a goodwill impairment charge and an interest rate swap mark to market loss, both non-cash in nature.

Turning to slide 4, and looking at the highlights in the fourth quarter and into 2009, we have been taking steps to both strengthen our financial position and reduce the risk profile of the Company. Steps we have taken to improve our financial profile include a number of profitable sales of spot assets. We moved quickly to take advantage of windows of opportunity in an otherwise quiet sale and purchase market to divest spot assets at relatively high prices. From the beginning of October 2008 through today asset sales have generated $107 million in gains and over $380 million in proceeds, which have been used to pay down debt.

In the first quarter of 2009 we took advantage of the reopening of equity markets to complete a $70 million follow-on equity offering at one of our daughter companies, Teekay LNG Partners. And we have been actively negotiating new debt facilities and extending the maturities on some of our existing debt facilities to further increase our financial flexibility. And these efforts are ongoing.

We have reduced the spot exposure of our conventional fleet over the last nine months. In addition to the vessel sales I just mentioned, we out-chartered an additional 10 vessels from our spot segment on average duration of just over two years. Eight of these charters involve Aframax tankers at an average rate of over $27,000 per day, a rate level that looks very attractive in today's market.

We stopped in-chartering vessels and are allowing our existing in-charters to roll off at the end of their contracts. As a result, during the second half of 2009 there will be a sharp reduction in our spot traded Aframax tonnage.

We have also acted decisively to shift Teekay's focus toward making our current businesses more profitable and away from growth, which has been our bias for the last few years. This begins with managing costs. We have made significant progress on a variety of Companywide cost reduction initiatives, which have so far resulted in a 20% decrease in our runrate overhead expenses, beginning in the fourth quarter of 2008.

I am pleased that the Teekay Board this week declared the regular quarterly cash dividend of $0.31625 per share for the second quarter of 2009, one month ahead of schedule. Our dividend is underpinned by our strong financial position and business model with its substantial fixed-rate cash flows. As usual, the second quarter dividend will be payable near the end of July.

Turning now to slide 5, we are seeing positive developments in a number of our businesses, despite the direction of the global economy. We have highlighted four areas on this flight. Firstly, we have been successful in renewing expiring charters at improved rates. For example, on our recent contract expansion with Talisman Energy for Varg FPSO.

Commencing July 1, 2000, the Varg FPSO will operate under a renewed contract for four years, with options for up to an additional nine years, generating significantly higher cash flow, and with the prospect of further increases in operating cash flow if, as we expect, nearby fields are tied back to the FPSO in the future.

Also in recent shuttle tanker contract renewals we have achieved rate increases of some 10% to 15% above expiring rate levels. This illustrates the attractive market fundamentals in our shuttle tanker niche.

Secondly, we have also secured a number of profitable new contracts for our existing fleet. We are now finalizing a new fixed-rate contract to convert a 23-year-old shuttle tanker into a floating storage and uptake, or FSO vessel, to be employed for a period of eight years. The incremental investment will be approximately $25 million. And the charter is expected to generate approximately $7 million to $8 million per year in CFVO for the next eight years.

This is a good example of value creation, as this vessel was approaching the end of it useful life as a shuttle tanker, but will now be earning significant cash flow until one -- well beyond the age of 30.

Also, the previously mentioned out-charter of 10 of our spot traded conventional tankers at attractive rates locks in over $210 million of future revenues.

The further area to highlight is that we are delivering on previously secured projects on budget, thanks in large part to the dedication and professionalism of our busy project execution teams.

In the first half of 2009 construction was completed on two LNG carriers, which have commenced twenty-year fixed-rate time charters carrying gas from the Tangguh project in Indonesia.

In April the first of our five LPG carrier newbuildings commenced its 15 year fixed-rate out-charter to Skaugen. In January we took delivery of two Suezmax newbuildings for our spot fleet. And just last week we took delivery of two further Suezmax newbuildings. And one of these ships has been out-chartered on a 12 year fixed-rate contract in the low $30,000s per day. That vessel will be joined by a sister newbuilding due to deliver in late June, which has a similar fixed-rate charter.

Our market footprint has grown substantially since the start of 2009 with the expansion of the Gemini Suezmax pool. The addition of frontline Suezmaxes, as well as a number of other vessels, has increased the pool fleet from 19 to 45 vessels. Over the next 12 months we expect the pool partners to add another seven Suezmaxes, as more newbuildings deliver. All pool participants are benefiting from enhanced chartering opportunities and greater economies of scale.

Finally, our daughter company structure continues to function well and provide value. Year to date we have raised $70 million in equity capital in Teekay LNG Partners, or TGP, which has been used to reduce debt from vessels acquired earlier by TGP from Teekay. All our daughter companies continue to pay their expected cash distributions to their shareholders, including Teekay.

TGP and Teekay Offshore Partners are paying stable quarterly distributions, while the full dividend payout model of Teekay Tankers on the back of a strong tanker market paid out a dividend of $3.39 per share for 2008. Teekay's large percentage ownership in its daughters continues to generate significant cash flows to the parent company.

Turning to slide 6, we have highlighted the key fundamentals we see impacting the tanker market in 2009 and 2010. Through the first half of 2009 we have seen a substantial decline in spot tanker rates, and the outlook for the rest of the year is challenging. The economic downturn has led to shrinking global oil demand, and consequently to OPEC cutbacks of over 3 million barrels a day, which has translated into reduced tanker demand. We expect tanker demand to remain subdued for the rest of 2009 as historically OPEC has held back production whenever global oil inventories have got out of line, as is the case today.

In the short term the play on the oil price contango has led to a reported 100 million barrels of oil currently being stored on vessels, adding temporary tanker demand on the margin. On the supply side, the tanker fleet has been growing with new deliveries exceeding a low level of scrapping year-to-date. Should today's low spot rate continue for a few more quarters, we would expect scrapping to rise substantially.

And delays, and in some cases cancellations, of new building deliveries from greenfield yards should moderate near-term fleet growth, particularly Suezmaxes, where 35% of the order book is for new shipyards. But as I said, overall 2009 looks to be a difficult year for spot tankers.

Looking into 2010 though a number of elements could set the stage for an emerging tanker market recovery. The impact of global economic stimulus packages in major economies, coupled with energy prices that are well below the levels that led to demand destruction should lead to a rebound in all demand growth next year.

Just as there has been a large negative tonne mile affect from OPEC cuts over the past year, any reinstatement of tonne mile incentive OPEC output to meet returning oil demand would result in significant growth in tanker demand.

In 2010 tanker supply growth should be restrained by the IMO targeted single hull tanker phaseout and by more newbuilding cancellations. A large number of orders for 2010 delivery were placed at peak prices and are now out of the money. These ships will face difficulties in obtaining acceptable debt financing.

In recent weeks we have seen some encouraging signs in the market environment, including greater than expected inventory draw downs in the US, higher oil prices and increases in crude imports to China. Though it is too early to call the turning point in the market, we see reason for optimism that the tanker market should improve next year.

With a near-term weak tanker market outlook in mind, turning to slide 7, I wanted to provide more color on our efforts to reduce spot market exposure in 2009. At the start of this call, I mentioned that approximately 71% of Teekay's Q4 cash flows were from our defined fixed-rate segments, including our liquefied gas, offshore and long-term fixed-rate conventional tanker businesses. What we refer to as our spot segment has thus already been reduced over time to less than one-third of our total cash flows, even in the high spot market in Q4.

In 2009 Teekay's true spot exposure is set to come down even further. Consider that within our spot segment we include not only vessels trading in the single voyage spot market, but also any vessels trading on out-charters with original periods of less than three years. In Q4 about $7 million of CFVO from our so-called spot segment actually came from vessels earning fixed-rates under out-charters for periods around one year. With the additional 10 vessels we have recently out-charted since Q4, over 20% of our spot segment days are in fact locked in for 2009.

Furthermore, as you can see from the graph on the left of the slide, the size of our in-chartered Aframax Fleet trading spot, which is shown in blue, is expected to fall by nearly 50% during the second half of this year. As shown in the small table below the graph, as our in-charters runoff we expect to see a reduction in our average in-charter rates, and thus a reduction in our cash flow breakeven rate.

Looking at our spot segment Suezmax fleet on the right-hand side, which is still quite a bit smaller than our Aframax fleet, we have very few in-charters. With our strategic focus on our spot segment tanker fleet having been mainly on Suezmax, our own Suezmax fleet will continue to expand through 2009 with a delivery of four Suezmax newbuildings.

In the blue shaded table on this slide, we have provided TCE guidance for Q1 and Q2 of 2009. During Q1 our spot traded Suezmaxes earned approximately $40,000 a day, and our Aframaxes approximately $25,000 a day. Q2 to date, we have booked roughly 70% of our spot operating days at an average rate of $25,000 and $15,000 per day, respectively, for Suezmaxes and Aframaxes.

Current spot charter rates are below these levels, in particular for Aframax -- Aframaxes trading in the Indo-Pacific, which has seen weaker rate so far in 2009. In contrast, the average rate earned in Q2 to date by our Suezmax and Aframax vessels trading under fixed-rate our-charters inside our spot segment are over $33,000 and $30,000 a day, respectively.

Summing up, we believe our active management of Teekay's spot market exposure so far during this downturn has proven to be highly successful. I will now hand you over to Vince to discuss our financial results.

Good morning everyone. As Bjorn mentioned, Teekay's adjusted net income for the fourth quarter was $53.2 million. However, on a GAAP basis we reported a net loss for the quarter of $661 million. The difference between the GAAP net loss and the adjusted net income was mainly as a result of two large non-cash items that occurred during the fourth quarter, a goodwill impairment charge and an unrealized mark to market loss relating to or interest rate swaps on which we currently do not apply hedge accounting treatment. I will speak to both of these items later in the presentation.

In the fourth quarter we generated strong cash flow from operations with higher CFVO in all of our segments compared to the same quarter last year.

Turning to slide 8, to compare our operating results on an apples-to-apples basis we have shown an adjusted Q4 income statement against an adjusted Q3 income statement, both of which exclude the items listed in Appendix A of our earnings releases.

Net voyage revenues declined by $52 million in the fourth quarter, mainly due to lower spot TCE rates earned in our spot segment. Vessel operating expenses were comparable to the previous quarter. Time charter hire expense increased by $9 million over the third quarter, mainly due to new in-charters that commenced part way through Q3, partially offset by the sale of the Swiss tanker pool during the fourth quarter.

We expect time charter hire expense to decline commencing in the first quarter of 2009, as our spot in-charter contracts begin to roll off.

Depreciation and amortization decreased by about $2 million, mainly as a result of revisions to book values of our FPSO units, upon finalization of the purchase price allocation for the remaining shares of Teekay Petrojarl.

G&A expenses declined by $13 million from the prior quarter as a result of our cost reduction initiatives, which I will speak to in a few minutes. In addition, the fourth-quarter figure also includes a $7 million reduction relating to the true-up of year-end accruals for performance-based bonuses.

Interest expense increased over the prior quarter by over $6 million, mainly as a result of carrying a higher than normal level of cash balances instead of paying down our revolvers. We had been gradually reducing our cash balances by paying down our revolvers during the second quarter of 2009.

Equity income for the fourth quarter mainly reflects the equity pickup from our 40% interest in the four RasGas3 LNG carriers. Minority interest expense declined by $7 million from the Q3 period, primarily reflecting lower net income in Teekay Tankers and Teekay Offshore in Q4. Income tax recovery decreased from the prior quarter by $3 million, mainly as a result of increased tax accruals in Norway and Spain.

Overall, adjusted net income per share was $0.73 for the fourth quarter, compared to $1.29 in the third quarter, but more than double compared to the $0.31 in the fourth quarter of 2007.

Now turning to slide 9, as with many other companies that have made acquisitions in recent years, the significant decline in the stock market and an increase in market discount rates resulted in Teekay recording a goodwill impairment charge of $330 million relating to Teekay Petrojarl. We also recorded a vessel impairment charge of $50 million relating to the carrying value of some of our older vessels. However, this was more than offset by $61 million in gains from vessel sales in the fourth quarter.

It is important to note that these are non-cash charges for accounting purposes. They have no impact on our operations, current or future cash flows, liquidity or covenants on any of our loan facilities. This also does not change our expected future upside from contract renewals on our existing FPSOs, as demonstrated by the recent contract renewal on the Varg FPSO on improved terms.

Although we are not required to take this impairment charge -- although we are required to take this impairment charge for accounting purposes, we continue to have a positive outlook on the long-term fundamentals of our FPSO business.

Turning to slide 10, I would like to spend a moment discussing the substantial non-cash mark to market loss on interest rate swaps, which had a big impact on our income statement in the fourth quarter. Since we are not currently applying hedge accounting to our interest rate swaps, the mark to market changes in their fair value are shown as unrealized gains or losses on our income statements each quarter.

During the fourth quarter of 2008 we saw an usually large drop in swap rates. For example, the US ten-year swap rate fell over 190 basis points between September 30 and December 31. This large decline in swap rates resulted in an exceptionally high mark to market loss recorded on our income statement for the quarter.

Over time we expect to see these losses reverse as swap rates increase. Already in 2009 to date the US ten-year swap rate has gained over 130 basis points. We continue to use interest rate swaps to economically hedge or fix our interest costs, particularly to match our long-term fixed-rate revenues.

If we hold our interest rate swaps from inception to maturity, as we intend to do, all of the cumulative mark to market gains and losses will eventually net to zero at maturity. The change in fair value would only be realized if we were to unwind our interest rate swaps before maturity. Because these gains and losses are non-cash, they have no impact on our actual cash interest costs or any of our loan covenants. In addition, there are no margin or cash collateral requirements relating to our swaps.

In future quarters you can routinely expect to see mark to market gains and losses recorded on our income statement. Provided rates remain less volatile, we should not expect to see the exceptionally large figure we saw in the fourth quarter. As they are unrealized and non-cash, they will continue to be excluded from our adjusted non-GAAP net earnings and EPS figures as detailed in Appendix A to our earnings report.

Turning to slide 11, we had taken significant steps to reduce our G&A expenses. Since reaching a peak in the second quarter of 2008 we have reduced our G&A runrate by approximately 20%, or over $10 million per quarter. Most of this has come from reductions in headcount, rationalization of some of our offices, and other corporatewide cost savings initiatives.

We had to take some difficult decisions, but the outcome is a more nimble and efficient organization, with a greater focus on cost containment, while retaining the ability to undertake new projects.

We continue to look at ways to trim costs to maintain and even enhance our margins. Over the next few quarters we expect our quarterly G&A runrate to be in the range of $55 million to $57 million. As I mentioned earlier, the fourth-quarter G&A figure is lower than the new runrate, because it includes the true-up of performance-based bonus accruals at year-end, which reduced the fourth-quarter amount by about $7 million.

Turning to slide 12, I would like to conclude with a brief overview of Teekay's financial position. As of December 31, 2008, we had approximately $1.9 billion in liquidity in the form of cash and undrawn revolver lines. This amount is slightly higher today.

So far in 2009 our liquidity has been enhanced through $200 million in vessel sales and a $70 million follow-on equity offering at Teekay LNG Partners, the proceeds of which have been used to pay down our loans and revolvers.

In addition to our current liquidity, our policy of arranging debt financing at the time of ordering a newbuilding means that we have additional credit facilities in place for another $1.1 billion or approximately 96% of our future CapEx commitment. As we discussed on our November 25 presentation, we have a covenant light debt portfolio with very few hull value covenants. And we continue to have no concerns about the covenants on our existing facilities.

We have no significant balloon debt repayments until 2011. And we have been active, even in the current difficult bank market, negotiating maturity extensions on a few of our facilities. As an example of our progress in this area, just last week we were able to extend the final balloon payment on a $400 million by two years, pushing it out from 2011 through to 2013. We are currently working on extending more of the remaining 2011 balloon repayments.

Overall, Teekay remains well-positioned financially; however, we plan to take steps to further improve our financial strength and flexibility going forward.

I will now turn the call back to Bjorn to conclude.

On today's call we have described a number of steps we have taken to optimize existing businesses and to reduce risk. We have recapped the major steps on slide 13.

At a time when tanker rates are hovering near the lows for the year, Teekay's business model is making it possible for us to renew fixed-rate contracts at higher rates, land new long-term fixed-rate business, and reduce our spot market exposure. At the same time we are aggressively cutting G&A costs, improving our credit profiles through both debt reduction and extension of debt maturities, and focusing on increasing our already substantial liquidity position.

The foundations of our flexible business model were laid several years ago when we decided to build out our fixed-rate project management business that today delivers strong, stable operating cash flows and positions Teekay to withstand and ultimately prosper from cyclical downturns.

Turning finally to slide 14, I will close by extending an invitation to investors and analysts to join us in just over two weeks on June 23, 2009, when we will be hosting our 2009 investor meeting in New York. At that time we plan to go through a more detailed presentation on the Teekay group of companies, covering the financial position and market outlook for each of our businesses. The event will be webcast live for all interested current or prospective investors.

Thank you very much, and I would like to open up to questions.

(Operator Instructions). Jon Chappell, J.P. Morgan.

Can you provide a little bit more detail on the six spot asset sales in year-to-date 2009, specifically what type of asset class, the age profile of the ships? And then without giving us a specific number that you achieved per sale, just roughly an estimate of what those asset sales were vis-a-vis last published asset prices of last summer, early fall.

The transactions, I think, took place late last year and extending up to as recently as May. We sold one Suezmax for just under $100 million -- that was a fairly new vessel -- right around mid-December, I think. We sold a couple of LR2 product tankers, which were -- averaged three years old, sold for like $58 million apiece. And those ships are, in fact, returning to commercial management with Teekay, so we will continue to have the benefit of those vessels.

We sold an older Aframax at a very good number in the mid-$30 million for a '94 built vessel, which involves a four year charter back. So essentially it has been a bit of a cross-section, but I would say it has been opportunistic, and ideally tried to stay away from the crown jewels, but we have sold some very nice vessels. But we also, I think, go some excellent value for them. At some point in the future I think those will be able to be replaced by Teekay in some sort of form at a lower price.

As you look at the outlook that you gave for the tanker market '09 versus 2010, and then the way that your fleet is developing with the charter-ins rolling off in the second half of this year, what is your strategy for the next 9 to 12 months as far as potentially either chartering in more vessels as we enter what you expect to be a better 2010, versus maybe using the liquidity on your balance sheet to actually add to your ownership?

I think we will take a very conservative approach. We will maintain our options. I guess one of the beauty of our model, where we have the pools, we can be relevant in the market even without owning a large spot fleet. But we also have a reputation as an active time charterer of vessels. We, at times, have been one of the most active participants. So we certainly have name recognition. If we enter the market, I think we will be able to attract tonnage.

But that isn't our plan. In the near term I think we would like to see the market turn. If we don't catch the asset bottom, we are okay with that. We would rather be conservative and focus on improving our credit profile.

Then finally, with the Varg signed to its extension, and it looks like it is most likely to go to TOL at some point later this year, what is the timing of the contract renewals and/or extensions for the other FPSOs in the Petrojarl fleet?

We are under current discussion on a couple of units. We have a few -- a couple of units that are expected to finish at the end of 2010 or early 2011. There is already significant interest being shown in those units by prospective customers. And we are also looking at improving the profitability on a couple of -- on the contracts that have longer duration, but where we may have opportunities to enhance the margins with cooperative discussions with customers.

So I think we are positive that on the fact that there will be some positive news to come out in the foreseeable time.

Greg Lewis, Credit Suisse.

Could I just follow up on Jon's previous question regarding the FPSOs? Clearly, you stated in your presentation that you remain pretty positive on this sector. Going forward have you seen the opportunities to bid on new projects or at this point we are focused on operating the existing FPSO fleet?

The primary focus is on maximizing what we have, first of all. We have bid on projects in the last 12 or 18 months, but we have been disciplined in the sense that while we clearly made the cut in terms of the customer's requirements technically, we were not willing to compete at the levels the contracts were being awarded.

As you have seen, a number of other players in the industry have come out and announced significant cost overruns. I think there was a bit of a euphoria for a while that they had to grow at all costs.

We have stayed away from that, because we had the upside potential from our existing contracts maturing and having a renewal opportunity. Instead of competing in a head-to-head kind of commoditized tender for $1 billion FPSO, we have some niche vessels. We are the harsh weather leader. Our ships are operating in zones where the proven operation is really recognized by the customers and we get preferential treatment within reason.

So we expect that the rate of returns -- rates of return in the FPSO business are going to gradually improve, and we are prepared to wait for that. So we have lots to do to execute on the franchise we have, but we are well-positioned whenever we decide that the value is there.

And I think we expect a lot of FPSO business coming. There is a forecast for quite a few units on an annual basis going forward, especially now that oil prices look to have a bit of a firmer ground.

But given the long lead times, as those projects develop, we shouldn't expect anything in say the next two years?

I wouldn't be strong on that. I mean, there are other opportunities if you have a strong operating reputation and customer connections. There is potential smaller operators that may have less flexibility that could get squeezed. We may be able to provide -- play a role in some of those restructuring opportunities. So I would say -- I don't want to be conclusive on that, but we are not -- we haven't announced any new projects, and we are mainly focused at this time on redeploying our existing assets. That is the best guidance I can give you.

Great. Just shifting gears a little bit to the chartered-in fleet, clearly it sounds like you're going to have multiple vessels rolling off chartered and contracts through this year. When we look at the existing chartered-in fleet, based on the press release from today, how much of that -- of the existing chartered-in fleet should we expect to be rolled off by the end of this year?

I think you can take it -- it is pretty likely that the decline will -- the contracts -- what we have shown on the slide is essentially what is rolling off. So I guess if your question is, are we going to renew some of the vessels rolling off, it would depend on what happens to the time charter rates. If good vessels we are operating, are willing to get -- to consider staying with Teekay at a very different rate level, we would not rule that out. But I think our base assumption is that we are going to turn a lot of these ships back, and just be opportunistic and wait on the sidelines. We have sufficient tonnage to meet our fleet program without having to extend or in-charter new vessels. So it would be purely opportunistic, but with a bent to be conservative.

Then just my last question. On the balance sheet you have remaining about around $200 million of goodwill. What is that [top] related to? And is it possible we are going to see further write-downs in Q1?

This is Vince. About $130 million of the $200 million relates to our shuttle tanker business. The remaining part relates a little bit to the OMI acquisition, as well as to our LNG business, about $35 million each of that.

We have conducted thorough impairment tests of all of our goodwill as of December 31. I can't say conclusively, but I don't expect any impairment charges on goodwill in the Q1 period.

Daniel Burke, Clarkson, Johnson Rice.

I appreciate the detail on the spot Aframax and spot Suezmax fleets. I had a question on your large product tanker segment. It looked like in Q4 the vessel count there was 15 or 16. It looked like on today's fleet list that vessel count is down to about 11. You mentioned you sold a couple of product carriers. Can you catch us up with the evolution of your fleet there, maybe how you're thinking about exposure to the product carrier segment on a go forward basis? And maybe more specifically, address what level of spot exposure you carry there.

I am not sure where you're getting the 15, 16 number from. I think -- maybe with the classification of the MRs and the -- and the MRs which are 45,000 [tonners] and the LR2s which are 100,000 a week, we kind of bundle those together as large product tankers.

I guess the market reality is that the MRs are very distinct from the LR2. The LR2 fleet, including vessels we are managing commercially, is around 10 vessels. Two vessels we are managing commercially were previously owned by us, but sold in April and delivered in May. So I would say we are looking at the opportunity to build our footprint in the large product tanker market through commercial management and potentially creating a pool.

The MR, that is an area we have deemphasized. We acquired eight medium-sized product tankers in the OMI deal, where we really primarily were after their Suezmax tankers. But we agreed to take on eight product tankers from OMI.

We very quickly turned around and sold the four Handymaxes at a very big number. We sold one MR at a very big number. We chartered two MRs out to ConocoPhillips for five years at good rates. And we have one vessel running on time charter for one year. So that is a segment we are essentially exiting and have done so in a very timely fashion.

The LR2 is a segment that I think we are in to stay, and we are building our footprint.

Thank you. I had a follow-up question pretty specific to slide 7. I appreciate the disclosure on the in-charter fleet. Just as a clarifying question, it looks like your listing here your in-chartered vessels trading spot. I presume you've also got some in-chartered vessels that would be also doubly counted in the out-chartered vessel category.

Leaving that aside, I guess the clarifying point I wanted to make is your average in-charter rate that you disclosed on the slide, it would apply to all Aframaxes and all Suezmaxes in those portfolios?

Yes, I think you can assume that.

Great. Thanks for your help.

(Operator Instructions). Urs Dur, Lazard Capital Markets.

Thank you very much. Actually, my questions have been asked. Very informative. Thank you.

(Operator Instructions). Currently, sir, we have no other questions registered.

Okay. Well, thank you very much for your patience in waiting for these results so long. We look forward to catching up on our earnings announcements and talk to you hopefully either in New York in two weeks' time or if not, then next quarter. Have a great day.

Thank you. Ladies and gentlemen, this does conclude your conference call for today. Once again thank you for participating. And at this time we do ask that you please disconnect your lines. Have yourself a great day.