Teekay Tankers Ltd (TNK) 2013 Q2 法說會逐字稿

Welcome to Teekay Tankers Limited second-quarter 2013 earnings results conference call. During the call, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a 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 Limited'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 second-quarter 2013 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 the 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 second-quarter 2013 earnings release and earnings presentation available on our website.

I'll now turn the call over to Mr. Chan to begin.

Thank you, Ryan. Hello, everyone, and thank you very much for joining us.

With me here in Vancouver is Vince Lok, Teekay Tankers' Chief Financial Officer; Art Bensler, Teekay Tankers' Chairman and Director, and Brian Fortier, Corporate Controller of Teekay Corporation.

During today's call, I will be taking you through Teekay Tankers' second-quarter earnings results presentation, which can be found on our website.

Beginning with our recent highlights on slide 3 of the presentation, Teekay Tankers generated cash available for distribution of $0.07 per share in the second quarter, down slightly from the $0.10 per share generated in the first quarter, mainly due to the change in employment of certain vessels from fixed rates to lower spot rates on expiry of their time-charter out contracts.

For the second quarter, we reported an adjusted net loss of $0.08 per share compared to our adjusted net loss of $0.04 per share reported in the first quarter. The Company declared a dividend of $0.03 per share for the second quarter, Teekay Tankers' 23rd consecutive quarterly dividend, which was paid on July 31 to all shareholders of record on July 19.

Teekay Tankers' dividend is currently fixed at an annual level of $0.12 per share payable quarterly.

Our 50% owned VLCC new building, the Hong Kong Spirit, delivered in June 2013 and is now employed on a five-year fixed-rate time-charter contract with a major Chinese company at an attractive, above market rate of $37,500 per day, as well as an additional profit share if market rates are above $40,500 per day.

In addition to the three-year time-charter out contract that we entered into in April for the Everest Spirit, we recently extended a fixed time-charter contract on one of our Aframax tankers, the Kanata Spirit, for an additional year, securing more fixed-rate business at a rate that is above the current spot market average. These two time charters will enable Teekay Tankers to maintain a fixed cover of approximately 40% for the 12 months commencing July 1, 2013.

During this period of cyclical weakness in the tanker markets, we continue to be very focused on managing our fleet employment mix to ensure we preserve cover from fixed-rate charters to support and provide stability for our cash available for distribution and our cash dividend.

On slide 4, we have provided an updated overview of Teekay Tankers' fleet employment mix on fixed-rate coverage. Excluding our recent LR2 new building orders, Teekay Tankers' fleet currently consists of 28 owned vessels and one time chartered in Aframax. As of August 1, 2013, 13 of the vessels, including our 50% VLCC new building, are trading under fixed-rate time-charter out contracts, while the remaining 16 vessels are trading in the spot market within Teekay-managed commercial tonnage pools, except two of our MR product tankers, which recently commenced trading in an externally managed pool following the expiration of their recent time-charter contracts.

As I mentioned earlier, in the current weak spot tanker rate environment, opportunistically locking in fixed cover continues to be a major focus as we expect the current spot market weakness and volatility to continue for at least the near-term.

Turning to slide 5, I will cover some of the recent developments in the spot tanker market. As shown by the chart on the slide, spot tanker rates softened during the second quarter, due to a combination of structural and seasonal factors.

In the crude tanker market, a reduction in US crude oil imports, due to rising domestic production, put downward pressure on rates, particularly in the Suezmax segment. A weak VLCC market caused by a reduction in Middle East OPEC production also affected Suezmax rates during the quarter.

In addition to these structural factors, the conclusion of Spring refinery turnarounds and the onset of a heavy North Sea field maintenance season put further pressure on spot tanker rates.

Looking at the third quarter to date, Suezmax rates have undergone a recovery with spot earnings at the end of July reaching highs for the year. This strength is largely due to an increase in volumes out of west Africa and a rebound in US light crude imports on the back of a narrowing spread between the price of Brent crude and US domestic routes such as WTI and Bakken shale oil.

In the product tanker market, LR2 rates softened during the course of the second quarter, despite the continued strong inflow of NAFTA volumes from the West into Asia. The decision by some orders to switch vessels from the dirty trade to the clean trade led to an increase in available vessel supply, which outweighed the positive demand site developments and lead to lower rates, which have persisted into the third quarter.

Turning to slide 6, looking at the developments in crude tanker supply, the period of rapid crude tanker fleet growth is coming to an end. A lack of ordering in recent years has reduced the size of the tanker order book to just 51 million dead weight tons, of which approximately 28 million deadweight tons is crude tankers.

New vessel ordering has been particularly low in the Suezmax and uncoated Aframax segments where the book stands at just 42 and 43 vessels, respectively. When expressed as a percentage of the fleet size, the Suezmax order book represents just 9% of the existing fleet versus 49% at the peak in 2010, while the uncoated Aframax order book represents just 5% of the fleet versus 31% at its peak.

As shown by the bars on the chart, the bulk of the remaining order book for midsized tankers is expected to be delivered by the first quarter of next year with nothing to indicate anything other than very low fleet growth through the remainder of 2014 and 2015.

In the Aframax sector, the fleet has actually shrunk since the start of the year as the scrapping of old vessels has outpaced new vessel deliveries.

Furthermore, a total of 110 Aframax are currently aged 15 years or older with a further 50 vessels expected to reach 15 years by the end of 2015. These vessels are coming under increasing pressure in the marketplace due to growing charter discrimination against ships greater than 15 years of age.

In addition, the relatively high cost of dry docking and maintaining older vessels compared to expected returns on the spot market may also encourage owners to scrap ships before the end of their useful life.

As a result, we expect that the removal of older vessels will continue to outpace new vessel deliveries through the remainder of 2013 and also in 2014, leading to a tighter supply/demand balance over the next 18 months.

Slide 7 looks at the short-term outlook for crude tanker demand during the second half of this year, as well as some positive and negative factors for 2014.

Crude tanker demand is expected to strengthen during the second half of the year, due to normal seasonal factors. As per estimates from the International Energy Agency, global oil demand is expected to average 1.5 million barrels per day higher during the second half of the year, reaching a peak of just under 92 million barrels per day in Q4.

In addition, we expect that the usual winter weather delays will begin to provide some upside to rates towards the end of the year, particularly towards the end of the fourth quarter when tanker rates typically spike in the Northern Hemisphere.

In addition to seasonally higher tanker demand, a narrowing of the spread between US crude oil prices and international prices, such as Brent, could lead to an increase in US crude oil imports in the coming months.

As I noted a moment ago, this has already had an impact on the Suezmax sector in the form of stronger US Atlantic Coast imports of West African crude in recent weeks. If this continues, we could see some additional strength in the crude tanker rates during the second half of the year.

Looking ahead to 2014, the current outlook for global oil demand is for growth of 1.2 million barrels per day. This is an improvement on the 0.9 million barrels per day of growth expected in 2013 and should translate into stronger tanker demand growth.

When combined with the lower expected fleet growth, we expect that crude tanker fleet utilization will improve in 2014, which should translate into a gradual improvement in rates. However, a number of potential headwinds also exists, which could threaten a tanker market recovery, chief of which is the continued increase in US crude oil production and possible corresponding decline in OPEC oil production that could weigh down on crude tanker demand. This, combined with the uncertainty over the health of the global economy, results in us remaining cautious on our outlook for the crude tanker market in 2014.

In the medium-term, we believe there will be an improvement in crude tanker rates. The lower number of new building scheduled to be delivered should lead to a better supply picture, possibly even a shrinking tanker fleet. Therefore, any upside in the demand outlook, such as the potential for US crude oil exports and/or increased Canadian seaborne exports, a healthier rebound in the US or world economy, or pricing developments that encourages more oil trading in and out of the US, all would spur a recovery in tanker rates.

Turning to slide 8, we look at developments in the product tanker market. Product tanker demand fundamentals remain positive, fueled by a significant increase in global refining capacity over the next five years.

As shown by the chart on the top half of the slide, global refining capacity is set to grow by over 9 million barrels per day by 2018, driven by additions in China, the Middle East and Asia. At the same time, refining capacity is being rationalized in Europe and in OECD Asia, as older, less complex refineries struggle to remain competitive.

Accordingly, we expect that with significant expected growth in the global refined products trade in the coming years, more product will be shipped longer haul on larger ships, which favors the LR2 fleet.

Looking at supply, there has been a significant increase in new product tanker orders during 2013 with 7.2 million dead weight tons of new vessels ordered since the start of the year. On an annualized basis, this is the highest level of new tanker orders since 2006 with most of the orders in the medium-range or MR and LR2 vessel classes.

As a result, product tanker fleet growth is set to accelerate in 2014 in contrast to the crude fleet, which is expected to show minimal growth. We remain optimistic that the product tanker fleet utilization will strengthen in the medium-term, due to the strong demand fundamentals and expected growth in tonne mile demand. However, the sector could become overbuilt should the current pace of ordering be maintained over the next 12 to 18 months, a situation that needs to be monitored, especially if some of the major new players continue to raise equity capital to expand their fleets or if we see private equity money entering the currently in vogue product tanker space.

Moving on to slide 9, I will take a moment to update you on our term loan investments, secured by two 2010 built VLCCs.

In July, our investment in the two three-year first-priority ship mortgages matured without repayments. Certain affiliates of the borrowers filed for Chapter 11 bankruptcy protection in June 2013, which does not include the special purpose entities that own the two VLCC tankers securing our loans. With the Borrowers' cooperation and consent, Teekay Tankers took over management of the vessels during the second quarter, and we are working with the Borrowers and the second mortgagees to realize the value of the loans.

Since the inception of these loans, TNK has earned $24.8 million of interest received in cash and, despite recording a loss provision on the loan of $4.5 million in the second quarter of 2013, TNK's loan investment principal receivable remains intact.

Moving to slide 10, now that we have assumed management of the vessels, we will be in a much better position to achieve our return objectives. For each vessel trading day, we are currently cash flow positive as TNK's cash breakeven for the VLCCs, including OpEx and interest expense, is approximately $10,000 per day compared to the current average VLCC spot rate of approximately $15,500 per day since May 2013 when TNK took over management of the vessels. All amounts are earned over our cash breakeven are for our account, bringing us closer to realizing the value of the loan.

Regarding the latest status of the vessels, one of the VLCC vessels is actively trading and generating positive cash flows. The second vessel is currently being detained in Egypt, following an incident which took place prior to TNK taking over management, in which the vessel was accused of damaging a subsea cable. The vessel is fully insured, and its P&I Club insurers are in active discussions with the Egyptian authorities to negotiate a settlement to release the vessel, after which it is expected the vessel will commence trading.

In summary, while we work through the process with the borrowers and the second mortgagees, our plan is to trade the ships and generate positive cash flow for our own account, bringing us closer to realizing the value of the loan, while providing us with time to evaluate options on how best to realize our investment in the loans.

Turning to slide 11, I will provide an update on the order we placed in early April with STX Offshore & Shipbuilding in Korea for four LR2 new buildings. In late May, STX commenced a voluntary financial restructuring program with its lenders. At that time, all reviews of refund guarantee applications were suspended, pending the outcome of the restructuring process.

Teekay Tankers' installment payments were contingent on receiving these refund guarantees from the yard, and so to date we have made no installment payments. STX completed their restructuring on July 31, and its lenders will be restarting the review process for refund guarantees by mid-August. The yard has been keeping us up-to-date and has provided assurances that they will be applying for refund guarantees for our order as soon as possible.

Our primary concern is that, due to recent orders at higher prices, the shipyard and/or their creditors might try to use this as an opportunity to renegotiate our order and related options. If we do not receive these refund guarantees, we will not proceed with the deal in its current form and can cancel the orders at any time prior to receiving the refund guarantees at our discretion. Should we not receive the refund guarantees, we will consider legal recourse against the yard for damages. For now, we wait and will update you as new material information becomes available.

Turning to slide 12, Teekay Tankers' total liquidity at June 30, 2013 was $256 million, which excludes any estimated value for amounts we expect to recover on our VLCC term loan investments. Any amounts recovered would be additive to Teekay Tankers' available liquidity.

In addition, our move to a fixed dividend policy in the first quarter will enable us to retain a greater portion of our cash from operations as the market recovers, which can be applied towards future growth opportunities.

In addition, our favorable debt amortization profile requires low principal repayments through to 2017, enabling us to retain a greater portion of our operating cash flow for future growth.

And, lastly, our covenant-light debt facilities means that we have no financial covenant concerns like many of our shipping peers, providing us with considerable financial flexibility.

Wrapping up on slide 13, I will provide an earnings update for the third quarter. Based on a weighted average of approximately 50% of spot revenue days booked for Suezmaxes and Aframaxes, our third-quarter spot rates have averaged approximately $10,000 -- $10,600 per day and $14,500 per day, respectively. But recent fixtures in the Suezmax market have been higher than our quarterly average to date.

For our spot traded product tanker fleet, based on approximately 65% of spot revenue days booked for LR2s, third-quarter spot rates have averaged approximately $10,900 per day.

As a reminder, TNK currently has four conventional tankers that are scheduled to drydock during the third quarter of 2013, resulting in approximately 104 lost revenue days during the quarter. The timing of our heavy drydock schedule during the third quarter is timed to coincide with the seasonally weaker summer market, which ensures that our fleet will be fully operational and optimally exposed to a potential winter market rally.

With that, operator, we are now available to take questions.

(Operator Instructions). Michael Weber, Wells Fargo.

Good afternoon. How are you doing? I wanted to kind of zero in on the STX orders, and they have been widely debated in the market.

Just from your old vantage point, I know you have pretty much said all that you can, but maybe from a macro perspective, has the delivery window moved back for you guys to the point where if you were to walk away from these orders and look for growth elsewhere, is that likely coming in a later window? And then maybe if you could walk us through a timeframe for how you think STX and this refund guarantee issue plays out?

Yes, Mike, in terms of the delivery window, when we placed the order, I think we had set that -- we had put it out quite far because we always thought the recovery would be gradual, and that as the recovery took place, we would be exposed to it.

And so I think we do have some cushion in there in terms of the delivery schedule. They weren't scheduled until late 2015 and 2016, and so that is still where new buildings that are ordered today would be delivered.

Is the -- the 2015 delivery is what I was basically getting at. Do you think there is -- (multiple speakers)?

They were late. I think we said they were late 2015, and so in terms of slippage, that's not something that we are really that focused on.

Got you. And in terms of a timeframe around this, how are you guys thinking about it?

Yes, I mean, as we said in the prepared remarks, the yard's latest correspondence with us is that they are going to be reapplying for them once this process has been finalized. But, as we all know in these processes, it is so uncertain. So we are really on their schedule more than anything that we can dictate.

Got you. Now, you talk in your prepared remarks -- you gave a bit of a review in the sector with product and crude and the risks the product side gets a bit overbuilt over the next 2 to 3 years, and it seems like you are a bit more positive on the crude supply side. Would there be a thought that potentially kind of diversifying a future order, kind of maybe placing more growth towards the crude segment, given that you've got a bit more of a capacity risk growing in the product space right now?

Yes, I mean, we still like the LR2 factor because of the optionality of being able to go back and forth between crude and products. But, certainly, we are looking at the product supply side. It is more finely balanced than the crude and, while we still think the balance is still okay, we certainly will be watching, like everyone, whether people continue to expand in that segment. Because that is -- obviously, a supply over ordering in that segment would be concerning.

Got you. Okay. That makes sense. One more from me, and I will turn it over and let somebody touch on the Vs. But, from a growth perspective, the new build orders -- they are still relatively fresh. I mean, those were replaced only a few months ago. If you kind of think about other avenues, your equity is grading well above NAV. You've got a strong brand in management, and there are a bunch of distressed tank runners out there that probably wouldn't mind having TNK and then possibly TNK-backed paper. Is M&A a realistic opportunity for you guys here?

I think we continue to look at different ways of growing, but with our current fleet, excluding the new building order, we still feel that we have a lot of good exposure to a rebound in rates. And, as I said in my remarks and you mentioned, we think there is potential for some upside surprises in the medium-term, and we think we are fully exposed to that.

Got you. All right.

John Chapell, Evercore Partners.

Thank you. Good morning, guys. Bruce, I just wanted to follow-up on STX as well. Maybe ask it a different way. Clearly, we have seen from some orders placed since you placed the original order in April or talked about the original order -- I guess it was never really placed without a refund guarantee -- but asset prices have definitely gone up. So how sensitive are you to STX potentially trying to mark the orders to what I guess would be market right now, and then how do you compare that with, kind of on that last question you just had, your growth ambitions? Because if the market is starting to recover, now still may be an opportune time vis-a-vis where rates or asset prices might be in a year or two.

Yes, that's a good question. In terms of STX and then looking at other orders at higher prices, that is certainly a concern of ours. It is certainly not unheard of for people to try to renegotiate contracts like that.

I think what is different this time is, most times when shipyards default on contracts, it's because they are failing or have failed. But if STX survives, it's because they have support. And so there is a more solid shipyard to stand behind the contract upon which we would enforce all of our legal remedies there.

So that is our primary focus is to still follow through with that order. But, as you say, if that order has to be replaced at higher current values, then we would have to see how that evolves. It has certainly been a lot of orders that have driven up the prices recently, and whether that is sustainable is another question. And so we will have the benefit of some time here to see how that market develops and make the appropriate decision.

Have you been in conversation with any other yards for similar assets, just so you have that to compare what potentially could be a new price range from STX?

We certainly have the data because, within the TK group and, as you heard Peter say on his earlier call, there is a plot of a lot of other activity going on with the yards from our other parts of the business. And so we constantly have a good pulse on what replacement orders would look like. But we are still primarily focused on resolving our current binding contract with STX.

Okay. And then, regarding the VLCCs, this Egyptian arrest is somewhat new, I guess, or at least surprising. And I am just trying to figure out what that means, financially, for you as the manager of that vessel now. Is there any liability for TNK, even though this incident happened before you took management of it? And then, also, if it is $10,000 a day kind of breakeven for the ships, I assume you are not getting any revenue off this vessel, are you still paying -- on hook for the operating costs for that vessel while it is arrested?

I mean, the biggest downside, as you just touched on, is that every day it sits there, it is certainly not earning revenue. But, in terms of the liability, the P&I insurers are actively engaged in this, and our other one is actually negotiating the release. And so we are confident that that liability is insured and will be taken care of.

So it's really just a matter of expediting that process as much as you can in Egypt so that that ship can start trading. Fortunately, for the first ship, Elephant A, which has been trading, we are doing -- we've done pretty well on the timing of some of the contracts for that ship. And so on average, we are still pretty close, if not at a cash breakeven, for the two ships combined.

Okay. So is there any -- If forgot my thoughts. Maybe I'll come back to that in one second. My last question was just on the OpEx front. It is quite high. Big potential sequential step-up in the second quarter. There was really no significant drydockings to kind of explain that. Was there any timing issues in the second quarter, and should we expect that to be the run rate going forward, or might it be something kind of in between first- and second-quarter run rate?

Hi, John. Yes, the OpEx was a little bit higher than we had expected in Q2. I can't pinpoint any one particular reason. It was a number of small items. And some of it is related to the heavy drydock schedule. Although we did not have a lot of drydocks in Q2, specifically, there are four drydockings happening in the third quarter. And typically, you do make more purchases in preparation for those drydocks.

So we expect the run rate in Q3 to be somewhat similar to Q2, but we should see it maybe come back to more normal levels in Q4.

Thanks, Vince. And since I have you, I did remember my follow-up before. That provision that you took for the VLCC, does that include the anticipated off hire time of the second vessel while is under arrest, or is that strictly from the payments that you are basically writing off now from TMT on those ships?

Yes, the loss provision takes into account our expected future cash flows from operating the ships. So we have taken into account the fact that we can't trade that second vessel for the very near term, so that is already taken into consideration.

Okay. Great. Thanks, Vince. Thanks, Bruce.

Justin Yagerman, Deutsche Bank.

It's actually Josh Katzeff on for Justin. I just wanted to switch maybe into just the product crude markets and just taking a look at your Suezmax rates in Q3 as a date, you mentioned that rates out of West Africa have improved. But I guess they have remained a bit weaker in the Mediterranean and Black Sea and the AG as well. Is that the reason for the weaker Suezmax rates so far?

That's partly the reason and then also just time lag between that and then the reported picture. So I think you -- I mean, based on where the market is today, that rate is certainly trending higher. Whether that holds for the rest of the quarter is up for debate, but it is certainly trending higher right now.

Okay. And then with regard to fleet employment, you mentioned maybe fixing up some warships. How should we think about fleet employment going forward? Should we expect you to actually take ships out of the polls and into fixed rate contracts, or is this more just a renewal of expiring contracts?

It has been a renewal so far of expiring contracts. But, really, as our track record shows, it's really opportunistic fixing of these ships when the fixed-rate time charters present themselves. And so that just happens when customers have the new requirements, and so we have been -- we will pursue those when those become available. They are not readily available all the time or consistently through the year. And so we have, I think, demonstrated that, as those opportunities come up, we pursue them, and that enables us to earn those higher fixed revenues over and above what the spot market would have provided.

And I guess switching back over to the VLCCs, you mentioned potentially disposing of the asset. Can you just maybe give us a little bit of insight into who is running that process and whose determination that would be and maybe the role of the second lien lender in this whole process as well?

Yes, I mean, we are right now still working through, as John mentioned earlier, the Egypt crisis, and then -- I'm sorry, the Egypt arrest. And then once that ship is released, then we will be trading the ships and looking for opportunistic ways of selling it.

But, I mean, as Vince mentioned, the impairment may move up or down depending on the cash flows. And with the low breakeven, we have taken a view of what we can earn, but that may surprise us on the upside and in which case the corresponding sale value would be higher or, conversely, it may be the other way. So that process is something that is really just evolving and will depend on the outlook of the VLCCs in the coming months.

And then I guess maybe to follow up with that, is there any concern that maybe these subsidiaries would be filed into the bank bankruptcy proceedings and what effects could that have?

With any proceeding like this, it is uncertain. But these entities are separate from the other business that is going on with the Borrower. And so the fact that we have been able to take over commercial and technical management is showing the ongoing cooperation, and we are hoping that this will continue to be amicably resolved.

Okay. Just one more before I turn it over. Just for an accounting basis for these loans, the VLCCs earnings will be counted as -- will that be treated as revenue and OpEx as expense?

No. I think that requires a little bit of clarification. We haven't taken ownership of the vessels. So, therefore, the actual vessels are not on our balance sheet, and we are not recording any revenues or OpEx. So we are essentially technical and commercial managers.

So the operating cash flows are essentially going towards to pay our accrued interest and to recover what's on our book value of the loans.

So from an accounting perspective, what we would expect is that we would just stop accruing the interest income in the third quarter, and then the balance that is sitting on our balance sheet, about $123 million, that is dependent on what the cash flows we can get from the VLCCs.

Okay. So any sort of operating income or losses will be -- flow through some sort of your loss provision calculation?

Yes. So if the cash flows come in higher than what we projected, then the loss provision part of that could be reversed.

Well, I appreciate the time. Thank you.

[Mathias Dechen], Morgan Stanley.

Good afternoon, gentlemen. So most of my questions were already answered, but there was just one follow-up question I wanted to have for the VLCCs. You said you were looking to sell them. Is there any -- do you maybe see the possibility of taking them over onto your balance sheet as well, or are you definitely looking to sell the vessels?

Well, they are on our balance sheet as investment and loans right now. The cash breakeven is attractive at $10,000 a day, and that provides us the optionality of seeing how the market evolves. We are certainly not going to be distressed sellers, and we will want to time the sale in an orderly fashion. But if the market improves, it has an opportunity to generate some cash and provide a recovery on that loan.

So, again, it's hard to precisely forecast how that is going to play out, but we are trying to leave all of our options open right now.

Okay. Great. And then just -- you mentioned the change in trading patterns due to the WTI-Brent spread coming close together. I was wondering if you could maybe give us a bit more color on that, just how you think Suezmax rates are going to develop, and how long you think it's going to carry ongoing, and what sort of changes in trade patterns you've seen there?

Yes. It certainly has been a higher volume of fixtures for Suezmaxes, particularly in July, one of the highest months -- I think the highest month -- number of fixtures in a month for the year and amongst the highest going back for a few years. And August is shaping up to be okay.

But I think there is probably some downside risk in that as well. If VLCC rates are weak, you will see some of those cargoes maybe starting to go back on VLCCs East.

So, again, in the short-term, it's nice to have this volatility and certainly no complaints on the higher fixtures that we are seeing currently in the market. But, again, in the near term here, we do see some volatility over the sustainability of that trading pattern.

Very good. That was very helpful. Thank you very much.

Chris Combe, JPMorgan.

Good afternoon, guys. This is actually Nish Mani on for Chris. Just wanted to ask a quick question about the drydocks. Could you give us a quick rundown, if possible, of which vessels are being held for repairs in the third quarter?

Yes, for the third quarter, we have four vessels that are drydocking. Two of them are in the spot-traded fleet and then two of them in the fixed-rate fleet. And the spot ships are the Kaveri Spirit and the Narmada Spirit, and the fixed rate tankers are the Pinnacle Spirit and the Summit Spirit.

Great. Thank you so much. And then, just want to get a sense -- I saw a notice that you had some voyage revenue and voyage expense that will pick up in the quarter, which is opportunistic from vessels in the spot and full trading kind of doing small voyages, or was it something else?

Yes, we do have some ships that trade outside of the pool, and so that is where you would see some voyage expenses as opposed to net pool revenues. But I think what I guess is most important is really just the total net revenues, which is revenues less voyage expenses.

Right. And then picking up in the quarter as a result of increased voyage activity?

Yes. So the increase in the voyage expenses or I guess they are fairly comparable actually quarter on quarter. Just we had some ships that were trading outside of the pool, so that is why you see some voyage expenses directly.

Okay. Got it. That's actually it for me. Thank you so much.

(Operator Instructions). There are no further questions at this time. Please continue.

All right. Thanks, everyone, for joining us, and we look forward to speaking to you next quarter.

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