Teekay Tankers Ltd (TNK) 2011 Q3 法說會逐字稿

Welcome to Teekay Tankers Ltd.'s third quarter 2011 earnings results conference call. During the call, all participants will be in a listen-only mode. Afterwards you'll be invited to participate in the question-and-answer session.

(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. Bruce Chan, Teekay Tankers Ltd.'s Chief Executive Officer. Please go ahead, sir.

Before Mr. Chan begins, I would like to direct all participants to our website at www.teekaytankers.com where you will find a copy of the third quarter of 2011 earnings presentation. Mr. Chan will review this presentation during today's conference call. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the third quarter of 2011 earnings release and earnings presentation available on our website. I will now turn the call over to Mr. Chan to begin.

Thank you, Kent. Hello everyone and thank you very much for joining us. With me here in Vancouver is Vince Lok, Teekay Tankers' Chief Financial Officer; [Brian Fortier], Corporate Controller of Teekay Corporation; and Peter Evensen, Teekay Corporation's CEO. I'd now like to discuss Teekay Tankers' results for the third quarter of 2011. The associated presentation can be found on our website. I will begin on slide 3 of the presentation by reviewing our recent highlights. Unlike many of our peers, Teekay Tankers has been able to maintain its full payout dividend policy for the benefit of our shareholders because we have differentiated ourself by focusing on fixed rate contracts. This tactical fleet management has helped us maintain our financial strength during the current weak spot tanker market. For the quarter, and excluding the impact of non-cash items, which have been summarized in Appendix A to the earnings release, we earned adjusted net income of $1.3 million or $0.02 per share. Teekay Tankers is one of the few companies in the tanker space to have maintained its dividend policy during the past few years despite the negative macro factors facing the industry. We continue to pay out essentially all of our cash flow in the form of dividends.

In the third quarter, we generated $9.1 million of cash available for distribution after reserves for debt payments and drydocking which translates into a third quarter dividend of $0.15 per share to be paid on November 28 to shareholders of record on November 21. As this dividend payment is based on actual cash generated and after debt payments it is a liquidity neutral event and is a testament to the merits of our preference for fixed rate coverage at this point in the tanker cycle. We believe our practice of tactically managing our fleet continues to benefit shareholders. For the third quarter, our fixed rate fleet earned an average of $23,170 per day compared to our spot rate fleet which earned significantly less at $9,484 per day. As I will detail on the following two slides, our fixed rate coverage for the next 12 months is estimated to be a healthy 55%. Our fixed coverage for the fourth quarter of 2011 is estimated to be 60%, an increase from 53% previously forecasted for this quarter.

Teekay Tankers remains financially strong. Our total liquidity of approximately $292 million, which is virtually unchanged since early 2011, provides us with financial flexibility that will enable us to take advantage of growth opportunities that may arise in the future. Despite being well-positioned to add new vessels to our fleet, we have seen vessel values continue to fall and spot tanker rates continue to weaken over the past several quarters, reaffirming our decision to defer any investment until market factors demonstrate better return on invested capital prospects for shareholders. During the quarter, we recorded a non-cash goodwill write-down relating to GAAP accounting requirements for assets acquired from Teekay Corporation. This write-down is an accounting adjustment only as the goodwill was never actually paid for by Teekay Tankers. And as such, it is a non-cash adjustment which does not impact our operations, cash flows, liquidity, loan covenants, or cash available for distribution.

Turning to slide 4 of the presentation, we have provided the details of our two new fixed rate Aframax charters. The 2005 built Helga Spirit has entered into a 36 month fixed-rate contract at a rate of approximately $18,000 per day, while the Kyeema Spirit has entered into a 24 month fixed-rate charter at a rate of approximately $17,000 per day. The ability to lock in these fixed-rate charters at rates significantly above current spot market rates highlights the value of Teekay Tankers' sponsorship relationship with Teekay Corporation. By leveraging Teekay Corporation's operational excellence and strong customer relationships, Teekay Tankers has increased its fixed-rate business during the quarter, bucking many of the industry trends negatively affecting the tanker sector, including poor cash flow generation due to weak spot tanker rates, inability to take on fixed cover due to scarcity of good charters, and a lack of access to capital due to depressed share prices and falling asset values.

Slide number 5 provides an updated snapshot of our fleet employment outlook with spot traded vessels at the top of the chart and our fixed-rate contracts towards the bottom. A few points to note on this slide. The Sanko Brave and Stavanger Bell, two vessels that were time chartered in as part of an in charter, out charter deal last quarter, will be redelivered to their owners later in the fourth quarter and early in the first quarter, respectively. This will reduce our spot traded fleet from eight to six vessels. The new charters for the Kyeema Spirit and Helga Spirit are highlighted by the red boxes. As you can see, these two charters significantly extend our fixed-rate coverage into future quarters. All told, our fixed coverage for the remainder of 2011 is approximately 60%, with the next 12 months estimated to be 55%.

The matrix on slide 6 provides our guidance on the Teekay Tankers' dividend payment for Q4 2011 based on our current fleet employment profile. For the fourth quarter to date, we have booked approximately 45% of our Aframax spot revenue days and 33% of our Suezmax spot revenue days at average rates of $5,000 and $12,000 per day respectively. With the recent rate volatility, combined with various one-off fleet repositioning days, we expect that the quarter will average a few thousand dollars per day higher for Aframaxes than what we have booked to date. In addition, with over 60% of our Q4 days fixed at attractive rates, Teekay Tankers is largely insulated from the current poor spot market conditions. Together, our fixed rate revenues, attractive low cost, low amortizing financing, and positive cash flow from operations enables us to keep our dividend policy intact, despite the challenging conditions in the spot tanker market.

Turning to slide number 7, we take a look at the current tanker spot rate environment. The third quarter of 2011 saw extremely low tanker spot rates due to a combination of weak tanker market fundamentals and various seasonal and one-off factors. Looking at the fundamentals, the market continues to be affected by an oversupply of vessels relative to demand. In 2011 to date, the tanker fleet has grown by 21 million deadweight tonnes or approximately 4.7%, while over the same period, tanker demand has grown by approximately 2%. Tanker demand growth has been impacted by a slowing global economy in recent months as well as a decline in average voyage distances as oil has been moving shorter haul. An example of this is China, where long haul movements from the Atlantic Basin have formed just 29% of total imports this year, versus 33% in 2010. Higher fleet growth compared to demand had led to a decline in tanker fleet utilization in 2011, which has resulted in lower spot tanker rates.

Rates were further impacted during the third quarter by a number of seasonal and one-off factors. The decision by the IEA to release 60 million barrels of emergency crude oil had a negative impact on tanker demand during the third quarter, as did a heavy refinery maintenance season in both the east and the west. In the Atlantic, the absence of Libyan crude oil exports as well as oil field maintenance and unplanned outages in the North Sea further weighed upon spot tanker rates. During the early part of the fourth quarter, tanker spot rates have remained generally weak. Though rates in the Black Sea and Mediterranean experienced a brief but sharp spike during October due to an increase in transit delays through the Turkish Straits. We expect that these short sharp rate spikes will occur throughout the winter months as a result of seasonal factors such as bad weather in the Turkish Straits and US Gulf, as well as the onset of ice conditions in the Baltic Sea. In addition, given that global oil stocks have declined by around 100 million barrels since the third quarter of 2010, and are now sitting below the five-year average, we believe that there is potential for some restocking of global inventories in the coming months.

Turning to slide 8, we can see the effect that a weak tanker spot market has had on asset prices during 2011. On average, crude tanker prices have declined by around 20% to 25% since the start of the year, particularly over the last three months, during which time we have seen a number of sales concluded at levels progressively lower than last done. Most of the transactions have been in the 10 to 15 year segment with very few sales completed for modern vessels five years or younger. In fact, of the 50 or so crude tankers which have been sold on the secondhand market during 2011, just 10 are modern vessels aged five years or younger. Looking ahead, we do not foresee a rebound in asset prices in the short term and see potential for further sales at distressed prices as we move into 2012. In this context, Teekay Tankers' decision to defer investment in new assets over the past year has proved correct and we believe that looking ahead we will see some attractive investment opportunities.

On slide 9, we take a look at trends in the tanker order book and why we believe the spot tanker market is on track for a recovery over the next 12 to 18 months. The pace of new tanker orders continues to be extremely low, with owners being deterred from ordering by the relatively high price of new buildings, compared to vessels in the secondhand market. As a result, secondhand prices have declined at a much quicker rate compared to new building prices, making ordering new ships a less attractive proposition compared to buying on-the-the water assets. In 2011, to date, only 4.5 million deadweight tonnes of conventional tanker orders have been placed which is the lowest level of ordering since 1985. As a result, the tanker order book has halved in size since the recent peak in the third quarter of 2008 and currently stands at around 95 million deadweight tonnes. Expressed another way, the tanker order book is now just 20% of the size of the existing tanker fleet, the lowest level since 2003, and down from 49% in the third quarter of 2008.

In addition to the shrinking order book, we are also starting to see an increase in the scrapping of first generation double hull vessels, particularly in the Aframax segment. In 2011 to date, a total of 17 double hull Aframaxes with an average age of 21 years have been sold for scrap compared to just two double hull Aframaxes scrapped in 2010. We believe that a weak spot tanker market together with relatively high scrap prices of over $500 per lightweight tonne, which equates to approximately $9 million for a standard size Aframax, will encourage more owners to scrap vessels over the coming months and will further improve the tanker supply situation. When taken together, the slowdown in deliveries and increase in scrapping should lead to a reduction in tanker fleet growth in the coming years, declining from around 6% in 2011, to around 5% in 2012, and around 3% to 4% in 2013.

Slide number 10 is an update of the slide we showed last quarter, which outlines our case for a tanker market recovery commencing towards the end of 2012. On the chart, the green bars represent tanker demand growth and the orange bars represents fleet growth, while the vertical lines for the years 2011 to 2013 show the range of values which could arise depending on various up and downside factors. In 2011, we project that the tanker fleet will grow by around 5.7%, while tanker demand will grow by around 3.5%, with some potential downside from the global economy during the fourth quarter. In combination, we calculate that tanker fleet utilization will drop by approximately 2% in 2011, which explains the decline in spot tanker rates over the course of the year.

Looking ahead to 2012, we see a much more balanced market with both tanker supply and demand growth of around 5%. At the moment, most of the major forecasting agencies are projecting oil demand growth of between 1.1 million and 1.4 million barrels per day next year with growth being driven by non-OECD countries led by China. In addition, we believe that with voyage distances having contracted in 2011, they will once again lengthen in 2012 due to the narrowing of the Brent-Dubai oil price spread, which should encourage the flow of long haul oil from the Atlantic to the Pacific. On the fleet supply side, we project that tanker deliveries will reduce in 2012 as the order book starts to run off, while tanker scrapping will remain at a similar level to what we have seen in 2011, leading to net fleet growth of 5%.

Although our base case calls for a more balanced market next year, there is a degree of uncertainty on the demand side, which could lead to lower tanker demand growth than we currently anticipate. The ongoing turmoil in the Eurozone and the impact this could have on the global economy and oil demand in 2012 is the wild card in this equation. Moving on to 2013, we believe that fleet growth will slow considerably to around 3.5%, which would represent the lowest level of tanker fleet growth since 2003. We anticipate that this lower level of fleet growth will help to kick start a recovery in tanker fleet utilization, which should lead to higher sustained spot rates. This assumes tanker demand continues to show steady growth of around 5% per annum, driven largely by growth in China.

Lastly, on slide number 11, I wanted to take a moment to review Teekay Tankers' strong financial position which we view as a competitive advantage. Due primarily to the contribution from our fixed-rate tanker fleet, our cash flow or dividend breakeven is currently below zero and we expect our breakeven will be maintained at this level throughout the rest of 2011. This means that even if our spot traded tankers earned $0 per day in revenue, we would still generate positive cash flow and be able to pay out a dividend. At the end of September, we had roughly $292 million of total liquidity and we have a conservative net debt to capitalization excluding the $115 million of first priority VLCC mortgage loans of approximately 31%, with minimal debt repayments through to 2015. We believe this financial strength is a differentiator for Teekay Tankers and will allow us to focus on seeking attractive asset acquisition opportunities at an optimal point in the cycle which will allow us to gain increased operating leverage to an eventual recovery in tanker rates. Operator, we are now available to take questions.

(Operator Instructions)

We will pause for a moment to assemble the queue. Your first question comes from John Chappell from Evercore Partners. Please go ahead.

Thank you. Good morning, guys.

Good morning.

Bruce, my first question has to do with the Gemini pool and I don't know if Peter or Vince would want to pipe in from the Teekay Corp. side of things but obviously you've had a couple of defections earlier this week so kind of two-fold question. First, what's the strategy of the Gemini pool going forward and do you have other potential participants that you can add? And second, when we think about the fleet age now of the Gemini pool, does the loss of that older tonnage actually help or hurt the potential rates and premiums that the pool could earn versus the market?

Well, I'll take the first part of that and then Peter and Vince could add in if they wanted to. Teekay overall is still very committed to Gemini. Both Teekay, Teekay Tankers, and Tobias [Koenig] which is the third partner in the Gemini pool is committed to it and as you say, the loss of the Frontline and NAT fleets actually improves the fleet age of the Gemini pool. We are in discussions with another major owner of Suezmaxes, the fleet which is very modern and so we'll be hopefully announcing something in the coming weeks on that. And so overall, the loss of the NAT and the Frontline fleet was a group decision of all of the partners and yet Teekay still remains fully committed to Gemini going forward.

And I think I would add that what we have seen, if you look at our Aframax pools and our Taurus cell, our two pools, we have a lot of owners coming in and I think we've added about 16 ships on the Aframax side. So from our point of view, we think Gemini will emerge from this with a more modern fleet and that will only help us in terms of being able to fix the ships. And so going forward, that's just how we set up Gemini which is it has the ability for people to move in and move out.

Got it. Thanks, Peter. Bruce, another question, I don't want to ask about the timing of acquisitions because obviously it's still a big unknown. We don't know when asset prices are going to bottom but I just wanted to ask kind of your target age range for potential acquisitions, kind of debating between the deal that you may be able to get in older vessels right now, the ones that are actually on the market versus the efficiency or cost benefits of younger ships.

That's a good question. It's something we certainly look at and obviously watch the curve of the prices between newer, modern, less than five year tonnage and older tonnage. I would say our preference is for that five years and younger segment. You have a much longer opportunity to generate cash flow for shareholders as well as you alluded to, the better operating cost profile of those assets over the short to medium term. So that is our preference. Of course, if the curve or the prices of older, less modern tonnage becomes compelling, then that's something we would look at but all things else being equal we would prefer the more modern tonnage.

Okay. And then finally, kind of the old rule of thumb for Teekay several years ago was 50% of the Aframax fleet was operating in the Atlantic and then 50% in the Pacific. Given that chart you showed on page 7 with the Bosphorus or Turkish rate related spikes in rates up against kind of the -- sorry for the term -- but putrid rates that you posted so far in the Aframax fleet so far in the fourth quarter. Can you just kind of update us on the geographical mix of your Aframax and your Suezmax fleets?

On the Aframax fleets, for the first part of the year it was primarily in the Pacific. As the fleet has grown with new partners and also our own repositioning, we've had a little bit more exposure to the Atlantic, say about 20%, 25% of our fleet. And that's a constantly changing mix, as you know, and I think as we see the factors for the fourth quarter, or the winter, they tend to be more prominent in the Atlantic, where weather delays in the Bosphorus, as you said, and also what Peter said earlier, it just takes longer to cross the Atlantic in the winter than it does in the summer. Those are the types of factors. Libyan production coming back are all positive for -- we see for a better winter in the Atlantic. So that's the mix. Again, on any given quarter it's tough to switch between the various regions and we tend to benchmark our own performance over more than just any single quarter but at least over a couple quarters or over the last 12 months.

And when you say Atlantic, is that just [Caribbs] or is that a blend of Caribbs, North Sea, Mediterranean.

That's both. We consider just the Atlantic as a blend between the Mediterranean, the Caribbean and the North Sea.

Okay. Thanks a lot, Bruce. Very helpful.

Thank you.

Your next question comes from Michael Weber from Wells Fargo. Please go ahead.

Hello. Good morning, guys. How are you?

Very well, thank you.

Good. Bruce, I wanted to follow up on the question around acquisitions and deployment, the $290 million-odd of liquidity and Peter we heard on the Teekay call mentioning that Teekay would potentially be a seller at current levels if they could replace the cash flow with more fixed-rate charters. So again, kind of trying to avoid timing because it's very difficult in this environment but I guess Bruce, as you look at potential acquisitions and deploying that capital, in terms of what you're seeing and where your preference is, are we talking more kind of one-off acquisitions or one vessel here or there or are you thinking more kind of on-block deals? And do you think you see something in the range of four to five tankers in 2012?

Yes, I think, again, as you say the timing is tough and as well as the size of the deal. I think it depends on the circumstances. I think we will see more on block deals come into the market and that could provide attractive opportunities in and of itself because of sistership benefits or certain scale qualities. But as Peter said on his call, and not speaking for him, but Teekay Corporation ships have added benefit for Teekay Tankers as well because if they're selling them at market values, they may come with charters which just fits into the Teekay Tankers tactical fleet management profile. Whereas third party ships, especially distressed ones wouldn't. So it's kind of a trade-off between those two but I would see an environment where there will be opportunities to take in multiple ships.

Got you. That's helpful. And kind of along the same lines, considering some of the lending restrictions we're seeing out of Europe right now, have you guys been approached for more mortgage type deals like you've done in the past and I guess when you think about those versus potential on block transactions on the tanker side, how are you prioritizing those potential sources of growth right now.

It's a good question, and a good trade-off question. Yes, we are seeing that more being approached by people to provide those types of first priority mortgage loans, both ship owners and potentially shipyards. That is something that we have looked at as our current portfolio starts to run off. Do we want to renew that? It does add some nice fixed-rate cash flow versus the trade-off of it's still restricted liquidity essentially while you're loaning it, so versus the trade-off of getting invested into assets that have a longer run profile.

All right. Okay. That's helpful. And I guess just finally, you mentioned in the [deck] and in the release you guys signing two new charters at fixed rates. Just curious as to I guess the availability of profit sharing agreements right now. Obviously the ones you signed are completely fixed. What sort of costs are you looking at right now in terms of profit sharing agreements on similar type charters and I guess what would that have cost you and was that something you guys kind of looked at more seriously?

Well yes, we would have looked at profit sharing agreements if they were available. I would say these two charters that we got at those rates were the only two charters at those rates available in the last few months. So there was no alternative. People that are getting profit sharing we're seeing fixed firm periods for the one year at $11,000, $12,000, $13,000 per day. So if they got profit sharing above that they need it because the base rate is so low.

Right, so that's a pretty expensive option at that point.

That's a pretty expensive option at that point.

Right. Okay, great. That's all I've got. Thanks a lot for the time, guys.

Thank you.

Your next question comes from Ken Hoexter from Merrill Lynch. Please go ahead.

Hello. Good afternoon. It's Ken Hoexter here with Scott Weber as well. So can we just talk about the two that you leased in that you're returning fairly quickly. Is that an indication that you looked at the market, you couldn't get above those $14,000 charter-in rates or I'm just wondering why the move to return them at this stage? Just where rates are, just no way to recover those costs?

Well it's a combination of where rates are but also where the current in-charter rates are. The options now are [whale] of the money relative to where firm periods are now. I think we're looking at in the market you're seeing fixtures anywhere from $10,000 to $12,000 a day for short periods, or four to six months. And so it's better not to renew those options but just to try to go out into the market if you wanted to increase spot exposure and get much lower rates within a renewed set of options going down the road, so that is something that we will be looking at. And when you contrast that to our current out-charters at $17,000 or $18,000 per day, that's where the market is right now.

Wonderful. And can you just remind us at the parent are there still any suitable drop down vessels and what the split is between the type?

There are definitely suitable drop down vessels. Teekay Corporation owns 17 ships, a mix of primarily Aframax and Suezmaxes but also three MR size ships as well. And so some of them -- and they also have very nice fixed rate contracts as well on over 50% of that fleet. So there are definitely some -- and some of them also have the same financing structures that we had in place when we dropped down assets in the past. So there is definitely some potential drop down candidates there.

Bruce, when you think about the spike in rates that we're seeing now, what's your thoughts on this? A lot of people kind of arguing right now whether it's short-term, whether we're seeing something more than that. What's your thoughts when you look at this spike in rates?

Well, in some ways, it's encouraging to see rates could go from such low levels, like basically below operating cost of $50,000, $60,000 per day in a short time. It shows that there is still a finely balanced supply-demand when certain circumstances hit and it just bodes well for the future. That type of volatility we would never have seen in the '90s or the '80s. Back then rates would change by a few thousand dollars a day from peak to trough. And now we're seeing $60,000 a day ranges. But from a glass half empty perspective, those spikes aren't lasting very long. Sometimes they're very positional and you have to just be lucky, essentially, of having a ship in the right spot. If you tried to chase it and get ships there you would just miss it and rates as we're seeing now in the Caribbean and the Mediterranean for Aframaxes are back down to almost zero. So they're both great when they happen but they're just not happening for very long.

Understood. Appreciate the time. Thanks, Bruce.

Thank you.

Your next question comes from Justin Yagerman from Deutsche Bank. Please go ahead.

This is Josh Katzeff on for Justin. Just want to start off with some comments you just made on your chartered-in fleet. Just wanted to confirm. Are you guys possibly considering now replacing those two vessels with cheaper charter in tonnage or is this kind of a strategy you're maybe putting to the sidelines for now?

It's a strategy we're constantly are going to look at because if you can get, in our view, firm period rates for in-charters, for short periods, like three, four, or six months at low rates relative to where the market is, if you can take not a lot of risk on the firm period and gain options on the back end, then that we view as a way of adding potential exposure if the market were to improve. So it's something we look at. We don't want to take a lot of additional exposure. We would only be looking at it if we can take in ships at rates that where we feel that over the base committed period would be pretty neutral and really be trying to play on the option on the upside.

That's some interesting color. And maybe to switch topics a little bit, for the two VLCC mortgages can you maybe talk about what type of covenants you have against your borrower and just how your borrower is performing and I guess how you measure those credit metrics?

Well, when we put those loans in place, they were -- we only lent $57.5 million against the VLCCs, so in our view they were deep in the money. And we don't see values getting down anywhere to that point. But the important thing is that we have a strong enough borrower that has been making all the payments, even though we know that the ships haven't earned it. We track where the ships are going all the time so we're very well aware of that. But that's exactly what's happening in the VL market now, which is that the earnings of the VLCCs aren't cash flowing, as we like to say. So then you're looking at what the burn rate is. I think in the present market, private ship owners are in a better position to make those payments than public people who have a limited liability corporation. So that's why we've done the deal with a private ship owner who has the ability to reach into his pocket and make those payments.

Got it, so I was asking maybe more for your own type of distressed transaction. But I guess that's not the case?

We're not looking upon that as a distressed transaction. We saw that as a good use of our capital, within the marine environment. It's something we know very well. So it's for three years and the payments have been made so far. We made the loans last year and the payments have been made so far.

Great. That's all I had. Thank you for your time.

Thank you.

Your next question comes from Duncan Payne, a private investor. Please go ahead.

Thank you. My question has to do with the dividend matrix. I see that the number for $10,000 and $10,000 has gone down $0.03 over the last quarter and that went down over the prior quarter and my question is what accounts for that decline? Is it because, for example, you're turning in the charters or you have more off time or the fixed rate has gone down? What explains that decline?

Primarily, and almost exclusively, what determines that decline is as our fixed rate charter portfolio renews, it's renewing at lower rates. So at any given spot rate, your dividend matrix is declining.

Okay. And is this basically a straight line chart, so if the spot rates were to go down to zero you would still be paying a minimum dividend of somewhere, say, around $0.08 or something like that?

I'll have to see -- it's pretty linear because it's off of a base. And there's some profit share on the higher end, so the curve --

Yes.

But by and large it's pretty linear. We would pay a dividend even if spot rates went to zero.

Okay. And last question. Can you help me understand more why you're booking Aframax at $5,000 a day and the Suezmax at $11,800 when at the next page, the chart shows the spike. Is that spike an average of world rates or is it limited to some geographies, can you kind of help me understand that discrepancy?

Sure. It's all of the above a little bit. The rates are an average of various routes, number one. Number two, it's lagged a little bit from when we actually book ships right to when we show them. So like you book a ship and then a few weeks later the ship actually goes and performs the voyage. As well, sometimes it just depends as we mentioned earlier, these spikes are encouraging but you also have to be a little bit lucky on where your ships are. If your ship isn't actually in the area of the spike you may miss it or you'll get a bunch of them so over a period of time it averages out but on any given 30 or 40 day period it can fluctuate.

And I assume that there's also some difference between generally speaking the spot rates you can get out of the Gemini pool because of the characteristics of the ships in that pool, versus the characteristics of the ships that go into the calculation of these worldwide rates?

A little bit, although the Gemini pool is a very modern pool of similar type ships. So it's not necessarily a function of the ship type. It's more of a function of where the ships happen to be given where the rates are moving up and down.

As opposed to the age of the ships or anything else like that?

Age of the ship is definitely a factor although all of the ships are modern in all of our fleets and less than 15 years. So that is less of a factor for our fleets.

I understand.

But for other people it can be a factor if their fleets are getting into the mid to high teens in terms of age, they will see decreased earnings capacity.

Thank you very much. That's all I have.

Thank you.

(Operator Instructions)

There are no questions at this time. Please continue.

That's great, everyone. Thank you for your support and we look forward to speaking to you next year.

Ladies and gentlemen, this concludes your conference call for today. We thank you for your participation. You may now disconnect your line and have a great day.