Teekay Tankers Ltd (TNK) 2018 Q4 法說會逐字稿

Welcome to Teekay Tankers Ltd's. Fourth Quarter and Fiscal 2018 Earnings Results 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. Kevin Mackay, Teekay Tankers Ltd.'s Chief Executive Officer. Please go ahead, sir.

Before Kevin begins, I'd like to direct all participants to our website at www.teekaytankers.com, where you'll find a copy of the fourth quarter 2018 earnings presentation. Kevin 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 fourth quarter 2018 earnings release and earnings presentation available on our website.

I'll now turn the call over to Kevin to begin.

Thank you, Lee. Hello, everyone, and thank you very much for joining us today for Teekay Tankers Fourth Quarter 2018 Earnings Conference Call. With me here in Vancouver, I have Stewart Andrade, Teekay Tankers Chief Financial Officer; and Christian Waldegrave, Director of Research at Teekay Tankers.

Beginning with our recent highlights on Slide 3 of the presentation. Teekay Tankers generated total cash flow from vessel operations of $62 million during the fourth quarter compared to $28 million in the previous quarter. We reported adjusted net income of $14 million or $0.05 per share in the fourth quarter compared to an adjusted net loss of $18 million or $0.07 per share in the prior quarter.

Crude tanker spot rates improved significantly during the fourth quarter, spurred by both winter market seasonality and positive underlying supply and demand fundamentals. Although rates has since decline from the highs reached at the end of 2018, our crude spot tanker rates booked in the first quarter of 2019 to date are higher than the fourth quarter of 2018. I'll touch on the market in more detail later in the presentation.

While the tanker market has seen increased volatility and stronger rates, we continue to focus on strengthening our financial position. In the fourth quarter, we completed the previously announced sale leaseback transaction relating to 4 vessels and a loan to finance working capital in the company's RSA pool management operations. These financings are expected to provide approximately $40 million of additional liquidity. Having completed these initiatives, we drew on our working capital facility for the first time in February and our liquidity is now approximately $115 million.

In addition, we recently signed a term sheet for an additional sale leaseback transaction of 2 vessels, which upon expected completion in the first quarter of 2019, is expected to increase liquidity by approximately $25 million and extend our debt maturity profile. Lastly, we continue to position Teekay Tankers to best capture value and maximize cash flow from an improving spot tanker market. Recently, we have increased our in-charter exposure by 2.5 Aframax vessel equivalents for periods ranging from 1 to 2 years, with options to extend. At the same time, we secured short-term Suezmax fixed revenue cover for the first half of 2019 at a very attractive rate as we protect against some near-term weakness during this period, which I'll discuss over the next few slides.

Turning to Slide 4, we look at recent developments in the tanker spot market. Having been at cyclical lows for much of the year, tanker spot rates improved significantly during the fourth quarter of 2018 to reach the highest level seen in 3 years. This increase can partly be explained by the return of normal fourth quarter seasonality, though it's also a reflection of improved tanker market fundamentals, it starts to make an impact from the middle of 2018 onwards.

The fourth quarter saw OPEC crude oil production increased to 32 million barrels per day, while Russian oil production hit a record high 11.5 million barrels per day at the end of the year, which combined increased tanker demand significantly. An increase in U.S. crude oil exports was also positive with exports reaching 2.5 million barrels per day, adding tanker tonne-mile demand as well as Aframax lightering specific demand in the U.S. Gulf. These positive demand developments were set against the backdrop of very low fleet growth in 2018, with high scrapping activity keeping fleet growth to just 1% for the year. The combination of additional cargo supply at a time of low fleet growth was the catalyst for a strong recovery towards the end of 2018.

Looking at the charts on the slide, you can see that rates have come off in the fourth quarter highs at the start of 2019. However, rates are still higher year-on-year and are largely tracking the 5-year average. We're therefore entering 2019 on a much more positive note than we did last year.

Turning to Slide 5. We look at the impact of recent OPEC supply cuts, which will be a near-term headwind for tankers in the first half of 2019. As shown by the top chart on the slide, OPEC has moved aggressively to cut production in the early part of this year with 1.6 million barrels per day reduction in output since November 2018. In fact, OPEC production is now below the production target agreed at the Vienna meeting last December. This is due to steep cuts from Saudi Arabia, coupled with unplanned outages in Libya and production uncertainty in Venezuela and Iran.

Venezuela and crude oil production could decline further in the coming months due to the effects of U.S. sanctions. There is impact on tanker demand may be offset by longer voyage distances as Venezuela looks to sell these displaced barrels into other markets, such as Asia. This steep decline in OPEC production which comes at a time when refineries are heading into seasonal maintenance creates a headwind for tanker demand in the near term.

However, it is important to recognize the situation is very different to the beginning of 2017 when OPEC last cut supply. Prior to the 2017 cut, global oil inventories stood at more than 300 million barrels, above the 5-year average, and OPEC needs to implement a steep and sustain cut to bring surplus inventories down and give support to oil prices. Today, global oil inventories are much more balanced and are currently below 5-year average levels when measured in both total barrels and in days of forward cover.

Looking ahead, we expect that a pickup in oil demand coupled with an influx of new refining capacity coming online this year and the need to build fuel inventories ahead of IMO 2020 will require OPEC to reintroduce barrels into the market during the second half of the year, leading to a more positive outlook for tanker demand compared to the first half.

On Slide 6, we look at U.S. crude oil production and exports. U.S. crude oil production has undergone a radical transformation over the past decade due to development of shale oil, as production rising from a low of 5 million barrels per day in 2008 to a record high 11 million barrels per day last year, with the IEA forecasting production to reach 13.2 million barrels per day by 2020. Following the repeal of the U.S. crude oil export ban at the beginning of 2016, this excess production has driven export growth at a similar pace. By the end of last year, U.S. crude oil exports were averaging 2.5 million barrels per day. Approximately 50% of these exports currently head to Asia and 25% to Europe, which has been very beneficial for tanker demand and is one of the key reasons that spot tanker rates recovered in the second half of last year. While infrastructure constraints are currently limiting continued growth in exports, we estimate that by the end of this year, debottlenecking projects should allow a return to growth and the potential for exports to reach as high as 4 million barrels per day.

For Teekay Tankers, this will be a positive development on 2 fronts. First, the growth in exports to Europe will benefit the Aframax into a lesser extent Suezmax sectors. Secondly, the growth in exports to Asia on the VLCCs will benefit our U.S. Gulf Aframax lightering business.

Turning to Slide 7, we look at our tanker fleet utilization forecast out to 2020, based on our view of tanker supply and demand fundamentals. We expect the tanker fleet to grow by approximately 3.5% in 2019. This is an increase from the 1% fleet growth seen last year but is still below long-term average fleet growth levels of around 4% to 5%. Most of the fleet growth is concentrated in the first half of the year and is weighted towards the VLCC segment.

However, we expect this growth to be partially offset by increased off higher time as a number of vessels will go out of service for the installation of scrubbers during the course of the year. In 2020, we're confident fleet growth will fall below 2% again as the order book is somewhat set, the shipyard is largely full to the first half of 2021.

As mentioned earlier in the presentation, we anticipate some headwinds in the first half of this year from OPEC supply cuts, seasonal refinery maintenance, and continued newbuilding deliveries. However, we believe tanker demand should increase significantly starting midyear, driven by an increase in U.S. crude oil exports, the return of OPEC barrels to the market and increasing global refining capacity and the positive impacts of the IMO 2020 regulation.

Tanker fleet utilization is anticipated to rebound significantly from the low- to-mid 80-percentile range up to the upper 80s or 90-percentile level as we move through this year and into 2020, which should translate into increased volatility, which historically has driven tanker rates higher.

Turning to Slide 8. As mentioned in my opening remarks, although rates have declined from the highs reached at the end of 2018, our crude spot tanker rates in the first quarter of 2019 to date are higher than the fourth quarter of 2018. Based on approximately 70% and 68% spot revenue days booked, Teekay Tankers fourth quarter to date Suezmax and Aframax bookings have averaged approximately $26,000 and $28,500 per day, respectively.

For our LR2 segment, with approximately 51% of spot revenue days booked, first quarter to date bookings have averaged approximately $24,500 per day.

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

(Operator Instructions) We'll take our first question from Jon Chappell with Evercore.

Kevin, my first question is on the dividend. I think completely prudent to not pay a $0.01 or $0.02 this quarter just based off your formula and given the headwinds that you just described for the first half of the year. Obviously, with your 1Q date bookings significantly stronger, it could be more meaningful if you used the same formula for the first quarter. So do you view this as kind of a temporary one-off suspension? Or do you think that maybe dividends are put on hold until there's a more sustainable nonseasonal recovery maybe starting later this year?

I think it's important that our investors recognize the challenge that we went through over the last 18 months with freight rates being as low as they were. And as you've seen us do repeatedly throughout last year taking on more debt in the form of our sale leasebacks. I think it is prudent that we look at our balance sheet, not just quarter-by-quarter, but out further in the longer term. And it's important that we build balance sheet and financial capacity to give us different capital allocation opportunities and decisions that we can provide value to our shareholders. So obviously, it's a decision that gets looked at quarterly. But I think given our position and our balance sheet, even though we do think that 2019 will be a better year than 2018, there is some chop that we expect in the first half of the year. And I think it's important that we continue to be prudent in the way we allocate capital. And as you've seen in the fourth quarter, the board has taken reserves. I think it's highly likely that you'll probably see that continue until we're a lot more comfortable about our financial position and the flexibility that we want to build into the company.

John, maybe just adding one thing quickly to that as well. You look at our -- where our share price is trading right now and what's the best avenue for returning value to shareholders and I think that's paying down -- we think that paying down debt is likely to accrue more benefit to our shareholders over the next little while than paying a relatively small dividend. So we would hope that as we reduce debt in the company and the leverage levels come back that has a positive impact on the share price.

And to that point, the sale on leasebacks, obviously, coming out of position where you really wanted to create a buffer with liquidity. But do you feel like with these last 2 Suezmaxes that you just announced this morning brought across the finish line probably by the end of the quarter, are you done in that front given your somewhat optimistic view on starting the second half of this year and into '20? Or do you think there's still more liquidity raising avenues that you'd want to pursue?

Yes. I guess ultimately it's a question of risk and I think given our current liquidity position that Kevin mentioned in the prepared remarks of $115 million plus the additional approximately $25 million that we expect to come in from this latest announced sale leaseback. I think that overall, we feel good about our liquidity position. With the headwinds we're expecting to face through Q2, that's something that we'll continue to keep our eye on and make a call about whether any incremental deals would give us a little bit more buffer that we think to make us a little bit more comfortable and depending on how the market unfolds. But we do think our current levels are good. And so we haven't taken additional sale leasebacks off the table. But I wouldn't expect to see significantly more, certainly from this point.

Okay. Final one, just quickly. You mentioned a couple of times a nonrecurring in the G&A for the fourth quarter. Can you explain what that was and the magnitude of it? So we can determine just how nonrecurring it was and kind of the run rate going forward?

Yes. So I think looking forward into 2019, run rate G&A is likely to be in the low 10s. Typically, our Q1 G&A rate is a little bit higher as we have some additional equity comp that is expensed in Q1. So we might see a little bit higher in Q1, but our run rate probably in the low 10s going forward. So the magnitude of the onetime G&A or the nonrecurring G&A is in the $2 million range.

Okay. And what was the issue in the fourth quarter that brought up to $11 million?

Just some strategic initiatives that we were undergoing and taking a look at. But we don't expect those to continue. Those are behind us. We don't expect them to continue into 2019.

We'll take our next question from Noah Parquette with JPMorgan.

Just a follow up on John's question on the dividend and potential deleveraging. Are you guys -- when you look at that, are you, kind of, comfortable with just the regular amortization schedule that you have? Or if you would consider prepayments? I mean, is it safe to assume at this point the capital leases or sale leasebacks are more attractive of your -- within your capital structure versus the typical term loans? And then just finally, remind me, do the sale leasebacks have any restrictions on dividend payments?

So I'll take the last question first. The sale leasebacks don't have any restrictions on dividend payments. And if you look at Slide 10 in our deck, in the appendix, you'll see that we have the ability to generate a significant amount of cash flow as the market comes back. Our -- given our Q1 '19 to date bookings, we're talking about $0.80 per year in cash flow. That amount of cash flow will allow us to retire debt ahead of our scheduled repayment. So in terms of our focus being on debt repayment not just on making the scheduled repayments, but a concerted effort to bring down the -- our debt, as Kevin said, to put us in a position to have more financial flexibility for taking advantage of opportunities including the charters that you saw us take toward the end of last year and early this year that we think will add incremental value.

Okay. And then I wanted to ask about your LR2. If I remember correctly, a lot of them are trading dirty now is that still the case? And do you have any plans to change that strategy ahead of IMO 2020?

Yes, we have predominantly moved our LR2 fleet into crude trading, given the differentials in earnings. And I think you've seen our performance that has paid off weighting more of our fleet towards the Aframax segment than the clean segment. But it is -- as I've said on this call many times before, it's one of the benefits of the LR2 is that they are fungible. You can trade clean or dirty. And it's something that our commercial guys look at day-in and day-out in terms of our forward view of both markets. I think the IMO 2020 regulation implementation really brings a good opportunity for volatility to come back into both markets. So it's something that we're keeping an eye on very closely. And I would assume that given our view of distillate requirements that the world's going to need, the demand for the LR2s will pick up. So as we move through 2019, you might see us move some of the Aframax fleet across into the LR2 space.

Our next question comes from Michael Webber with Wells Fargo.

So I wanted to look back on a couple of John's questions. So on the dividend first. And you get to tackle that a couple of times now, but I just want to be clear on this. So when you actually suspended the policy of the 30% to 50% of adjusted net income at this point. Is that a formal suspension or is that's just something where you going to, I guess, play by -- the intent of the policy, I guess, is to provide a degree of predictability. So if it's just -- if it's not suspended, the predictability kind of goes away.

Right. So -- hi, Mike. So the policy has not been changed. So we still have the same policy. As you know, the policy is for 30% to 50% of adjusted net income, with reserves that the board may determine are prudent. Given the amount of initiatives that we completed over the last 18 months to increase liquidity in the incremental debt that we've taken on, we just don't think it's prudent at the moment to be doing sale leasebacks and increasing liquidity and taking on additional debt at the same time that we're double paying dividends. So given that increased debt load, we see it is prudent, currently, to focus on paying back some of those debt levels with increased cash flow from operations. And it's something that we'll continue to assess going forward to determine when that capital allocation should shift. We are definitely focused on returning value to shareholders. But as I mentioned earlier, we're of the view that paying down debt is probably more valuable in terms of returning value through an increased share price.

I understand that. But I'm just trying to understand. How would you articulate your current dividend policy then at this point? Is it...

I would articulate it as the same as we said that in early 2018, which is the 30% to 50% with reserves if we feel they are prudent. And we're giving the signal here that we think that dividend reserves are likely to be prudent over the next few quarters, certainly, as we look to reduce our debt levels from the extra debt we've taken on to raise liquidity. So I can expect to -- I would expect to see reserves continue.

Okay. I appreciate that. Was there any thought to messaging that after the quarter adjusted in the context of -- you mentioned how weak the market had been for several quarters. If you have investors that, kind of, stuck with you through that to get the surprise on the first quarter where they would expect positive earnings. Was there any thought to maybe delaying that and maybe articulating it or messaging that this quarter on a go-forward basis?

So I, just to be clear on your question are you asking if it would have made sense to pay Q4 dividend and then message this after Q1? Is that your question, I'm not clear enough actually.

Yes, was there any thought around that, around messaging to investors that way.

Well, I think that in terms of the messaging. So going back to our earnings call from last quarter, I -- when asked about our capital allocation focus, I think we tried to be clear that our capital allocation focus was going to be on paying down debt for 2019. And -- so we're trying to be consistent with that. Our first priority, of course, is getting the capital allocation policy correct in order to try and build the equity value and return value to shareholders, and then the messaging comes after that. And we've messaged it in line with the decisions that have been reached between management and the board.

Okay. And then still on the lines of the G&A bump. So I think the low-10s being the run rate on G&A, [is it at] -- or at 8.7% in Q3 of '18. So was there a sustained -- some modest of your sustained increase that, kind of, came out of Q4? So 13% to 15% or more of, kind of, a bump from the Q3 level?

Yes, I think the Q3 G&A, the 8.7% was a little bit lower than our typical run rate. There were some things in -- flow through G&A in Q3 that made it a little lower. Through -- most of 2018, our run rate G&A was in the 9s. And as I said, we're expecting it to be in the, for the most part, in the low-10s in 2019. Although, Q1 is typically a little bit higher. So there are -- there is a -- there is an increase in run rate between the majority of 2018 and 2019. That's just a result of our priorities moving into 2019 across both our tanker business and also our services businesses and what we think the G&A is going to need to be to support our business plans.

Okay. And then I guess within the bump for the quarter, I think John followed up on this. And maybe if you could get a bit more specific so $2 million on the quarter for -- I guess strategic initiatives. Just considering the fact that that's about half of what you guys would've paid out under a 30% payout of your adjusted net income, it's a material amount. Can you get more specific around what that was specifically?

Yes. So I mean the -- we're always looking at different options and different strategic initiatives, which is, obviously, won't come as a surprise to anyone. This is a -- something we were evaluating during Q4 and unfortunately not something that we can disclose publicly, exactly what that was. But as I said, it is behind us. And we don't expect to see that -- to see those amounts flowing through going forward. But unfortunately, the details of that are not something that I can speak to.

So the new dividend policy is 30% to 50%, maybe, and there is a $2 million bump -- onetime bump in G&A that you can't disclose what it was, but it's not just going to happen again?

That's correct.

We'll take our next question from Randy Giveans with Jefferies.

A quick few quick follow-up questions. I think first to know is -- so you're saying your -- the majority of your LR2s are trading dirty. What is the time and the cost to switching the LR2s from crude back to trading clean?

A lot depends on the position of the vessel, what cargo you pick on your first run, where that cargo positions you. So there isn't a hard and fast number or formula you can follow. It can take anywhere from 8 weeks to 4 months, it depends on how you triangulate your voyages and how you do your cleaning. I think in terms of cost, it can vary again because of that whether you use additives or facilitators within your cargo mix to clean your tanks or whether you just use the cargo of nature -- or the nature of the cargo itself to help do your cleaning. So that cost can range up to $350,000 on any given changeover. So it really -- it's dependent on a lot of different factors.

Good. Okay. Perfect. And then, you mentioned that the share price and how kind of debt repayment to likely support the share price. And that's kind of how you did that as opposed to maybe a dividend. What about share repurchases, is that a possibility in the near term?

I think it's -- as I mentioned in answer to John's question, I think what management is trying to get to is a position where we have financial flexibility. We do have a desire to return value to shareholders. And that comes in the form of a variety of levers that we like to pull. Appreciation of share price, dividends, share buybacks, they're all components of our capital allocation that we discuss with the board and that we are trying to manage. But we want to build a balance sheet that gives us that flexibility that we can look at different options. And having gone through 18 months of a severe downturn in rates, we've done sale leasebacks that helped improve our liquidity runway, but it has added to our debt levels. And I think it's prudent for us to repair the balance sheet or to fortify the balance sheet to give us that financial flexibility. If you look at things like share buybacks and dividends, things like that.

Okay. And there -- are there any benchmarks on that? And net debt to cap ratio, leverage ratio, cash balance that you would satisfy as balance sheet stability or strength?

I would say in terms of our net debt to cap, I think we would feel comfortable, ultimately, in the 30% to 35% range. Now of course, we have a forward view on the market and we have a forward view on cash generation and what our runway looks like. So it doesn't mean that you need to be at 30% to 35% before you pay dividend. But it means that you need to have a view on where you're going in terms of leverage and your outlook to make sure that you -- to get the balance sheet into the place that it -- ultimately, into the place that it needs to be. And that's part of our scenario planning around capital allocation. So ultimately, where we would like to be, 30% to 35%, and that gets factored in terms of all -- in terms of targets and our decisions on buybacks or dividends going forward.

Our next question comes from Ari Rosa with Bank of America Merrill Lynch.

So first of all, I wanted to touch a little bit on the macro environment. I hear you setting, a pretty optimistic tone it sounds like for second half '19. One of the themes that we've heard a lot from some of the company's that our coverage has been some economic uncertainty, a little bit of softness in playing out in China and in parts of Europe. I'm wondering if you see that impacting that outlook at all. Or if you see -- if you're seeing that having any impact, particularly as we've seen this pretty sharp downturn in the rates through the start of 2019? Just your thoughts on that would be appreciated.

Okay. I think, speaking to the -- to your last point. I think the downturn in rates that we've seen over the last couple of weeks is really, to my mind, both seasonal as well as the impact of OPEC sort of specifically the Saudis cutting quite dramatically in December and January. Having said that, although, there is softness across the market and some areas of the world are obviously weaker than others we're sitting here in the middle of February, which is typically our -- probably our worst month of the year. And Aframax in the U.S. Gulf are earning $30,000 a day. And in the Baltic, they're earning $28,000. So there is pockets of strength across the market. And I think we're seeing an unseasonal bounce in the VLCCs. So I think the spot market environment is separate from the larger macro picture in this instance. And to me, it speaks to some of the underlying fundamentals that are tightening the supply-demand balance in the sectors. In terms of the macro picture, yes, obviously the news out of China is -- it seems to be slowing. But if you look at their month-on-month and year-on-year crude oil imports, they continue to grow. There is 2 large refineries coming online in China, both over 400,000 barrels a day, that should drive continued growth in imports into China. So I think our overall view is that yes, there might be pockets of weakness or areas where things come off a little bit but generally, the forecast that we look at, the IEA projections are still looking at oil demand growth of about 1.4 million barrels a day, which is still relatively robust.

Okay. Great. Appreciate that detailed answer. And then second, I wanted to touch on your thinking in terms of locking in long-term contracts, and maybe your ability to do that. Obviously, there was some strength in the fourth quarter in terms of where the rates were relative to what we've seen over the last couple of years. Maybe you could address to what extent you had conversations with customers about locking in long-term rates was there an appetite from that? Was there an appetite for that from either party from you guys or from some of your customers and is that something that you'd be looking to do going forward if we saw a strengthening in rates?

Yes. I think obviously, as the market picked up in the fourth quarter, customers realized that the fundamentals of the market had shifted. And 2019 and 2020 were certainly in their minds as well, and not going to look anything like 2017 or 2018. So we did see an increase in inquiry from customers to lock away ships on a range of periods from 1 year out to 3 years. But in our view, it was -- or is a little bit early to start locking in based on 1 quarter increase in rates. Our forward view of the market is much better than what we experienced in the fourth quarter. And I think it -- from a hedging strategy, I don't think we are there to put away a large portion of our fleet on time charter at this point. I think the spot market has a lot of runway ahead of it. Having said that, we did put away a Suezmax for half of 2019, the first half, where we do see a little bit of choppiness as I mentioned in my prepared remarks. And we thought it was prudent to lock in sort of a fourth quarter number for the first 6 months of 2019 and put that money in the bank. So we took the opportunity to put it away. But to book out ships longer than that, to do a 3-year time charter. At this point in time, we don't think it is prudent. Quite to the contrary, we were actually -- as you seen us do on the Aframax LR2 side, we're actually looking at opportunistic deals to try and increase our in-charter program where we think we can bring in ships at relatively lower levels than where we think the market is going to take us over the next 18 months.

Okay, great. That's terrific. And then just last question for me. In terms of the impact of IMO 2020, maybe could get your thoughts on when you expect to see that really flowing in because it seems like right now, it doesn't seem to be top of mind at least as reflected in the spot market. I understand some of that probably reflects seasonality, but I know -- at one point people are thinking that it would already be reflected in higher rates at this point. So maybe I can get your thoughts on just, kind of, when you expect to see that reflected in the market or maybe you're already seeing it as part of customer discussions and how big of an uplift that could eventually have?

Yes, I think, I'll probably answer that in 2 segments really. I think, first of all, in terms of the timing of when the impacts really going to start to kick in. I think you've got to work back from when the regulation is actually comes into full implementation on January 1, 2020. Obviously, you can't on a ship switch bunkers overnight. So owners are going to have to start buying low-sulfur fuels and MGO, 3 to 4 months prior to that January deadline. You can't change bunkers overnight. And so I think you -- depending on the size of the ship and the length of your voyages, you're going to have to start seeing owners pick up some of these new bunkers starting in the back end of Q3. Which then, if you look down the logistics chain, the refiners have to start preparing the tankage, the pipelines, the bunker barges, all of that to meet that new market demand. That's going to have to start happening sort of Q2, Q3. In advance of that, refineries are going to have start looking at what kind of crude oil types they bring in to be able to produce the run rates they want to maximize their distillate or their low-sulfur fuel production. So it's a knock-on effect. And our view is, we'll probably start seeing that towards the start of the second half. So from June, July onwards, that incremental oil demand, because of IMO 2020, will start to filter into the system around then. Having seen what -- the second part of that, the answer is really around what we're seeing from customers, and really that started at the back end of last year. When more and more customers were starting to ask us about crude oil movements from load ports to discharge ports and trade routes that we'd never actually seen before. So looking at different crude types moving into different refining regions. And I think that was a function of refiners starting to look at the economics and the trade dynamics around changing their blends in preparation for the IMO preparations. But that has been sporadic. And it's not really been a driver in the market as of yet, but the inquiry has started.

And it appears there are no further questions at this time. I'd like to turn the conference back to Kevin Mackay for any additional or closing remarks.

Thank you, for joining us today. And we look forward to speaking to you next quarter.

And that does concludes today's conference. We thank you for your participation. You may now disconnect.