Cmb.Tech N.V. (CMBT) Q3 2017 Earnings Report, Transcript and Summary

Hello. Welcome to the Euronav Q3 2017 Earnings Conference Call. All participants will be in listen-only mode [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator instructions] Please note this event is being recorded. I would now like to turn the conference over to Paddy Rodgers. Please go ahead.

Thank you. Good morning and afternoon to everyone and thanks for joining Euronav’s Q3 2017 earnings call. Before I start, I would like to say a few words. The information discussed on this call is based on information as of today, Tuesday, October 31, 2017, and may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements reflect current views with respect to future events and financial performance, and may include statements concerning plans, objectives, goals, strategies, future events, performance, underlying assumptions and other statements, which are not statements of historical fact. All forward-looking statements attributable to the Company or to persons acting on its behalf, are expressly qualified in their entirety by reference to the risks, uncertainties and other factors discussed in the Company’s filings with the SEC, which are available free of charge on the SEC’s website at www.sec.gov and on our own company’s website at www.euronav.com. You should not place undue reliance on forward-looking statements. These forward-looking statements speak only as of the date of the particular statement, and the Company undertakes no obligation to publicly update or revise any forward-looking statements. Actual results may differ materially from these forward-looking statements. Please take a moment to read our Safe Harbor statement on Page 2 of the Slide Presentation. I will now pass over to Euronav’s CFO, Hugo De Stoop, to run through the first part of the presentation. Hugo?

Thank you, Paddy. And good morning or afternoon wherever you are, and thanks for joining our third quarter 2017 earnings call. Turning to the Agenda slide, I would like to take you through the highlights of our third quarter, followed by a full review of our key financial figures before handing over to Paddy who will take you through the latest market themes as we see they materialize. We will then turn over to the operator for a short Q&A session. Kicking off with Slide 4, Q3 was a challenging quarter as we discussed at our results in August, the most difficult since Q3 2013 indeed. Freight rates were effectively capped by sustained delivery of newbuildings. 13 VLCCs and 15 Suezmax joined the quarter combined with a fragile owner sentiments. So far in Q4 rates have improved with seasonal strength but the environment remains very difficult. We've booked 45% of our VLCC days at around $26,000 per day and 56% of our Suezmax rediscovered at around $16,000 per day. I would now like to move on to the income statement on Slide 5. It's fair to say that Q3 was an uneventful quarter as far as the financial side was concerned. Such a low-key quarter comes after a lot of affirmative action taken over the previous 18 months in securing new source of finance and building our liquidity buffer. This is precisely to be prepared should the challenging freight rate market seen in the third quarter continue into the following quarters. One highlight not directly related to Q3 was a payment of $0.06 per share dividend during September for the first half of this year. This was the first dividend payment made under our new policy of a $0.12 minimum annual fixed dividend independently of the results made by our company. Turning now to the balance sheet on Slide 6. Euronav moved on to the new five-year contract of the FSO during Q3 and as part of this process we paid down about $60 million half of it being your share of outstanding debt meaning the FSO joint ventures are now debt free. This repayments along with $12.5 million worth of installment payments for the four Suezmax currently in the constriction with Hyundai in South Korea represent the main out of the ordinary changes to our cash position. Remember these new vessels, which will be delivered approximately one per quarter during 2018 are each accompanied by seven-year time charters. Our leverage increased modestly, but remains below its bracket of the tank sector and stands around 44% to the market value of our fleet and 36% will mark to the book values. The available liquidity at the quarter end was around $735 million with the breakdown shown on Slide 6. I will now hand over to our CEO Paddy Rodgers to give you an update on current tanker market themes and the outlook. Paddy, over to you.

Thank you, Hugo. Slide 7, demand for crude oil has continued to see sustained upgrades. The chart on Slide 7 shows the progression in recent years from start of the year to end by the IAA forecasts. Demand is robust and just as important diversified. China continues to be strongly driven by a number of sources, replacing lost domestic production, underlying economic growth and supportive refinery expansion. However, it is important to recognize that the simulative lower oil price has caused OECD demand to grow consistently since the end of 2014, reversing the trend since before that which dated back to 2005 of reducing oil demand from OECD nations. Reported demand growth has been running at over 400,000 barrels per day from the OECD since 2014. So, the demand part of our equation remains encouraging. What about supply of ships? Slide 8, Slide 8 shows a very simple way we look at overall vessel supply like above tub. The tax have been on for a while with around 100 VLCCs net added since the first quarter of 2015 to the world fleet. The recent increase in removals from the fleet is at very encouraging development but requires some caution. 10 VLCCs and six Suezmax disappearing down the plug hole have to be taken in the context of 13 VLCCs coming down the taps over the same period. The table on Slide 8 shows the outlook for future vessel supply, which the current strong demand can do a lot to absorb, but as Hugo pointed out earlier, the concentrated nature of this new supply requires more action at the other end of the bath tub. Now we finished our workshop, let's move on to Slide 9. Our traffic lights continue to remain mixed with demand or supply financing in ton miles largely constructive, but vessel supply remaining amber/red. One feature shipping demand that is encouraging is the further expansion of U.S. crude export market. This is something we have heavily focused on in recent earnings calls and presentations and it is pleasing to see this piece is gaining traction with their number of recent reports, estimating current U.S. crude export capacity between 2 million and 3.2 million barrels per day. The recent spread between WTI and Brent has clearly encouraged more exporting, but as we have stressed previously, Euronav's sees this as a structural change evolving and reflects a robust and diversified crude demand structure. To conclude then, we repeat a little from our last earnings call, if the illness is low freight rate then the cure is more and further lower freight rates. Above tub needs to get a better balance before an inflection point in rates can be reached and sustained and until then Euronav retains a substantial balance sheet capacity and fixed income visibility to navigate a period of lower rates, but retaining flexibility to take advantage of opportunities. That concludes the formal part of the presentation. Thank you for listening. I will now pass you back to the operator.

Yes. Thank you. We'll now begin the question-and-answer session. [Operator instructions] Thank you.

…you need to be in the near-term to use that liquidity that you've build to get in before the prices run away from here?

Yeah hi Jon. Well, it's one of those things. I suppose there is never ever going to be a very easy answer to that. It's a question of getting the Slide roll out and for checking all the different elements. I think at the moment, we do believe that we're seeing some stability on secondhand prices and I think that there have been some -- there has been some evidence that there is some rationalization in the thinking of if not the shipyards then at least their bankers around issuing refund guarantees And so that really feels like we're seeing some support for secondhand and indeed newbuilding pricing. And of course, we're going to go through a critical phase in Q4 now because we're entering what would normally be the time when shipyards begin to look at their budgets for 2018 and to see what they really need to put in the books So, we'll see where the newbuilding order book really goes in the next two or three months, but whilst every newbuilding order is disappointing at least here in the couple of refund guarantees haven’t been issued must be positive news. I think the slight recovery in rates again is because it's based off strong demand from the Far East and the way that ton miles has worked really absorbing capacity looks very positive, but it's a little bit fragile and we're not sure how much [debt] is to it. In terms of opportunities, of course we're as I've said you many times, we're always looking and I think that we'll be looking at how we would fund or acquire, so that's part of the matrix putting those things together and last by no means least of course, we're just seeing the oil price ticking up and it's going to be very interesting to see if that sustained. We're obviously from our point of view hoping that we'll just see that get capped out with additional shale and U.S. exports, which should be good for ton miles as well. So, all the usual things. Sorry I can't really give you a specific update. I promise you, you'll be the first person to know if we do something.

Oh, I doubt that. Thanks, but my follow-ups Hugo then $735 million of liquidity is obviously a huge number. It's about 55% of your market cap actually and if we take out the committee CapEx for the Suezmax, it's still over $500 million. How -- if there were opportunities were to present themselves, part A, how much leverage would you be comfortable taking at this point in the cycle and then part B, given where your stock trades right now right around NAV, maybe premium, maybe discount depending where asset use, what's you willingness to use shares for ships as opposed to traditional method of bank financing and cash?

Yeah, Thank you, Jon. I think that we've said during the many presentation that we've had with investors over the last two years that at this point of the cycle, as long as we were below 55% we would be happy. Our leverage is concerned and I think that continues to be the case. If the leverage was much higher than that it would be because we're using some of the freight lines or revolver lines as we have not so much to acquire assets, but to defend the company in the low freight markets and so at the moment, that's not what we're doing obviously and we hope that that's not going to be the case in the future. As far as the share price is concerned, I think that we agree with you that where we are seems to be much better than where we were a few months ago and so we would certainly be tempted to use the equity, but as always on a mark-to-market basis, i.e. the vessels that we buy have a certain price and then with that price, we put that in our model and we see if the NAV that comes out is in line with that taking into account that we always have some frictional costs and fees to pay. So, we're very careful thus making sure that we do create value for our shareholders, but indeed we're a lot happier with where the share price is than we were a few months back.

Okay. That's great. Thanks Hugo. Thanks Paddy.

Thank you. And the next question comes from Gregory Lewis with Credit Suisse.

Yes. Thank you and good afternoon, Paddy, Hugo, Brian, Paddy, could you talk a little bit more about the improvements that we're seeing in the freight market? Clearly you mentioned in the prepared remarks that the Q3 was the worst quarter since 2013. I guess not a surprise, but if you could just talk a little bit about what's happening in the market right now that's given the market a little bit of an uplift here?

Yeah, I think that we think what we've seen is a significant increase in buying from the Chinese refineries and particularly they've taken the opportunity in this third quarter to cherry pick modern tonnage and that's just pushed back some of the older tonnage and we're hoping that that will slightly bifurcate the market. So, the ships over 15 years will begin to get slightly worse economics and hopefully negative cash flows and encourage them to scraping. I think this kind of shift where I don't know whether it's a step change or whether it's opportunistic, but anyway we've certainly seen a number of Chinese ports closing their doors to older ships and if that has a longer-term and sustained impact through the winter then for us you could see the best of both worlds, which is that we don't have to endure worsened cash flows ourselves, but we do get to see people with old tonnage being squeezed. So that happens, that will be good. I think that alongside that of course is an ongoing big development, which is very interesting on the Chinese buying of U.S. oil where we're talking about quite big quantities. It will be interesting to see what happens with the higher oil price that we're seeing in the last week or so because that should bring on more shale and as it brings on more shale, we believe there will be more infrastructure commitment. We've recently seen the corpus got budget approval for dredging. So, they could we'll take in fully laden Suezmaxes relatively quickly. We know that there is a pipeline reversal at loop which might whilst it may not be huge volumes. Nevertheless, it's a step in the right direction and that should be coming on sometime in the first half of 2018. And the great thing about this is that we're just seeing discounted oil in the U.S. being brought to the Gulf coast and exported in a way that is extremely, extremely accretive to the value of big tankers. So, this is going to be on an ongoing story we believe and of course as far as Chinese U.S. relations go, that must improve the balance of payments and be positive, which is always good. And secondly, I think we can possibly see the oil price supported by the though is on a longer-term basis, but really more to support their IPO of Aramco than necessarily because they need the cash. The problem for them of course is that they're shutting themselves out. So, they're million barrels a day of income from the oil that they don't sell. But I think long term we're going to see the oil price moderate from where it is, but nevertheless they're high enough to interest the shale producers and yet also not high enough to be demand destructive. So, I think the place we've been set up on the demand side has already impacted in Q3. I think it could go on quite positively in Q4, but older ships and going to come under a lot of pressure.

Okay. Great. Thank you for that and then just one quick follow-up for me and it ties into actually it sound like what you're seeing in China with the bifurcation in the market. As you look at reports or estimates of implied rates out there, it looks like in the VLCC market there's a spread between I guess eco and non-eco-vessels of anywhere between $4,000 to $6,000. As you guys manage the TI poll and see that, is that something -- how real is that or is that just -- how does that -- how is that process working where it's really that much of a bifurcation where an order vessel really just has to come in that much lower solely on positioning or fuel-burning or if you could just talk a little bit about that?

One moment please.

There is certain interruption from the operator. So, I wasn't sure whether we lost you.

You may now re-ask your question.

No, no, that's fine. All I need is just to speak or to breathe more heavily so that I knew you're still there. We've dropped one of our lines there. The only reason why it's a slightly complicate question is of course if you burn less fuel, your net back to a higher TCA but I think the critical phase as you've seen in our results whether it's on VLCCs or on our Suezmaxes where our fleet profiles are a little bit different, we've been able to perform well in Q3. But I do think that first and foremost is the access to information and the ability to ensure that your distribution system and your organization is because a lot of the gains that you can pick up from any co-ship are improved significantly if you can run and schedule your voyages probably. So, I think the big part of a bigger machine enables you to make better returns and I think that's the lesson that coming to the market and I think that a lot of the small operators will find that they're squeezed out of the most lucrative voyages in the coming markets. So, I think that it's not only about performance of the individual ship. I think a good ship in the wrong hands is going to unless than a good ship in the right hands and therefore I think you need expertise in size to really make an impact and that's what we're seeing.

Okay. Perfect. Thank you for the time.

Thank you. And the next question comes from Chris Wetherbee with Citi.

Hey. Thanks for taking the question. I want to come to your oil demand slide and think about where we are heading into 2018. So, we have coordinated global growth however at a pace we haven't seen in a few years, when you look at 2018, what's the risk that you see the upside moving back towards a number like 2015. So why wouldn't we see maybe significantly better demand growth than what we've seen this last year or two?

So, well, so if I understand you, is there a risk that you actually get considerably better than currently projecting growth and I think that the answer is that we pretty much depend for our views on growth on the various market commentators. But as I know your bank is often questioned look how many times this gets revised during a year, how serious is for instance the IAA if they have to revise their figure up with six…

Are you guys still there?

Yes, this is Hugo. I am still there, but I think that both of their lines are gone Chris, but I think what Paddy was going to answer is that it's moving part, it's being changed every year on the upside from the IAA perspective certainly and then when you look at the analysts, all the investment bank it's true that everybody has a different view and so it's very difficult to predict if the market becomes considerably better that will absorb the new tonnage a little bit faster. But we continue to insist on saying that the old ladies can go and then if we're surprised by the markets so be it and the market will be even better, but I think that what we're also see in the market as Paddy highlighted in the previous question that the Chinese which is obviously one of the biggest customer today is being more and more reluctant to take oil ships and oil ships that are maybe performing a little bit less appropriately than modern ships.

Okay. Okay. That's helpful. I appreciate it. Just our sense that we're seeing coordinated global growth in a robust way for the first time in a few years at least and so it would seem like there's upside potential. Just to try to measure some of that to the extent that you see demand like you had in 2015, the 40 VLCCs that they seem much more digestible, what would be the environment that you would expect in that scenario.

Sorry, I dropped there, but look if you look back from the end of 2013, we've had seven million barrels of demand growth over five years and I think that that's an extremely good trajectory and it's obviously been very varied. If you were to get that repeated trajectory through the next couple of years, I don't think the order books are that much of a problem. The simple fact is that today we're probably 30 to 40 ships too long for VLCCs and probably 20 to 30 ships too long for Suezmaxes. That's not a huge amount. That's less than 5%. If the ones that are reaching 20 years of age shuffle off to the scrap yard, this structurally sets up for a fairly positive recovery and one to be sustained.

Okay. No, that's sort of looks like to me, so I just wanted to get your thoughts. Thanks for the time this morning guys. Appreciate it.

Thank you. And the next question comes from Ben Nolan from Stifel.

Yes, thanks. I was actually going to follow-up on Paddy, something that you mentioned in Greg's answer about the advantage that you have in the scale of your operations and clearly that came through in the quarter. I think you put up rates that were better than both what it looks like everybody else had. That lend itself to at least some degree of cause for consolidation of the bigger players, especially in a weak market are able to outperform in a relatively meaningful way than the bigger players should get bigger in my mind. Is that -- do you think the same way? Is there some rationale to that or is it the same old?

I am very reluctant to utter these words just because I've heard them so often in shipping behalf and they never come true, but my idea that the ship is more valuable in the hands of Euronav than is in the hands of a small owner would necessarily mean that that's going to be consolidation. Simply the value that you can extract from the same deployment of capital is different and that should be rewarded and recognized in the stock market. So, I hope that on this quarter's release we'll see a strong -- a strong reaction that people will look past the sector at the moment and just see the company and say that's in our performance and that's what's backing. Now I said I was nervous about saying it just because I know there have been many full storms and we don't really wanted to be part of a long list of people that have made promises and never live it on, but what I would say is that it's slightly different this time and the reason I say that is that I honestly believe that in the market you talk to people what they’ll tell you is that this really is the rise of the national oil companies. The drive here is from the southeast where the huge amount of oil sells. The Americans looking more is oil sellers more than anything else and the Chinese as buyers and then looking for logistical solutions rather than getting the lowest possible right. Now I am not saying that's giving money away, but on the other hand there are different set of drivers and I think that's very interesting and if it's sustained then I think there will be good course for consolidation and justifiable returns for bigger fleets.

That would definitely be a shift change in the tanker market, but let's see, who may be right. And then just on a follow-up unrelated Hugo, obviously you guys pay down decent amount of debt this quarter and you use cash to do it. Just curious how you think through in your mind especially in a weak market the advantages of reducing debt and/or conversely carrying larger cash balances?

I think it's using and quite frankly here now we don't manage our cash position in much different will it be in the lower market and the high market. We're not cash manager or asset manager to the extent that I am doing cash management of course. And so, what we have as a structure in our term loans is that there's always a revolving element and so repaying that revolver means that you pay less interest. I think you only have to pay a commitment fee and so we try to hold our cash position at $100 million. Of course, we always check the covenants and we make sure that whatever we repay is truly available for whenever we want to use or we need to use it and that's how we manage the cash. So, between $100 million and $150 million is the cash that we want to hold at all time and all the rest is being used to repay the revolvers and where we need the cash, we draw on it.

Okay. Very helpful. Thanks for that.

Thank you. And the next question comes from Amit Mehrotra of Deutsche Bank

Hey, thanks operator. Hi everyone. Paddy I just had a follow-up on the demand line of questioning, one of the biggest drivers of demand at least in 2015 was the fact that the rig counts in the U.S. had basically doubled from where they were the prior year and double from actually where they are even today. So that took the oil price down and redirected West African cargos to China creating some ton mile effect. So, I think the demand side this year at least at least in the first half has been helped by rig counts having doubled in the first half of the year off of obviously a very low base, but they've actually started to decrease if you look at the more recent data. So, I'm just wondering everyone is talking about demand improving potentially, but actually if you look at what's happening in U.S. production, there's actually a risk that it could decline. So, I was just wondering how closely you're watching this in terms of the risk that demand turned more negative and also has there been any positive ton mile effect this year based on the higher U.S. production kind of what you had back in 2014 thanks?

I think we actually saw close or at two million barrels a day being exported not so long ago and I think that we can only say that our experience is that the story -- if the surprising story in 2010 to 2013 was the development of U.S. shale adding five million barrels of additional productive capacity, the big story of this year has been the export story. And from a standing start of mills there nearly two million barrels, I think you can look at the 70 TI Brent spread and see that it almost guaranteed that make sense that the freight cost of going extra distances is absorbed in the discounts. So, I think that they're very strong signals that not only are we going to see a continuation of this, but very specifically, the Saudi cuts have been in the grades of oil, which would also have the largest discount, which was heavy crudes and what they call heavy crudes anyway, they are not that heavy. And those went to the West to the U.S. and the U.S. is not going Saudi crudes today. There was some Saudi import into the U.S., which is largely for their own refineries the ships that need to go to the U.S. Gulf so low oil from the U.S. and go to China with it, while going on a round trip basis. That means that they're doing enormous voyages and that is hugely absorbing of supply and that's been one of the features that we've seen in the last three, four months.

Okay. That's helpful. Thanks. And then one for my follow-up is really on the sale and purchase market and I just wonder if you could provide some color on if there is a significant I guess bid announce spread between buyers and sellers, which would make secondhand purchases more difficult, and I guess I ask this question on the context of the fact that asset values are not declining as Johnson pointed out earlier. And also, owners I guess do have a decent buffer from the booming market in 2015. So is it correct to think the deals like what you did in 2014 and then again sorry in 2013 and again in 2014, are much harder to come by all else equal today? And so, when we think about prospective growth for Euronav, I guess maybe it's more appropriate to think that growth will be much more organic rather than you guys be more aggressive like you were three or four years ago at the low point in the cycle because it just -- it's less opportunities in that regard after the market we've had in 2015 thanks?

Yes, so I think that we can all run calculations and models on when we think is the right time to invest and we can all do our own research on with our relationship bankers, with our -- look at our asset values on our shares and see what the bond market is doing in terms of how we can finance transactions. But I am afraid there still would be traders inevitable problem that you need a willing buyer himself and I think that it's all about when they come to market, but I think you identify that by saying that a lot of people are reasonably catch rich in the space. Dry cargo has stopped bleeding as much as it did maybe this time as it's more willing to hang on, but I think it's just a case by case basis. I think that we're tending to see that two or three buyers potentially for every ship that comes to market, there has been a certain age line. So, I think that it's fair to say that probably the player at the moment is five to seven-year-old ships and they seem to get inspection. So, it looks like there is some buying and selling interest. The question is they're on one ship deal and they're on what age of ship and then it's there for a five-ship deal, a 10-ship deal and 15-ship deal. I think all the way you just have to wait and see, watch them and make the mind up. So, there isn't I am afraid much going the same to give you, but it is all about winning by, winning some.

Okay. That's clear. All right. Thank you very much for answering my questions. Have a good day.

Thank you. And the next question comes from Spiro Dounis with UBS Securities.

Hey gentlemen. Thanks for taking the question. Just wanted to follow-up on some prior questions. Two things stood out for me in the release and both relate to freight rates here. So first you see the topline expectation on results and economic guidance, looks like they're ahead by a few thousand than we would expect and more than the average spa market would indicate and as Ben noted, maybe some of that is due to the size of your fleet. And obviously the TI pool but it's looking for additional color on how you see the expectations on both those accounts? Are you taking different routes or is there something different that's happening that we could pinpoint here?

Well, I think we can tell that this is the expertise of the operational magnificence of our systems and look I am joking a little bit, but we worked a lot of accounts, we're always looking to say how we manage the proper distribution of the capacity that we have and I think that this is a quarter where we've shown that even with quite a wide range of ships we can do very well and so it's bits and pieces here and there, decision-making and choices that we take. So, it's been a good quarter at least for us. I am afraid that's about all guidance we can give you.

No, no. I fully understand that. Just wanted to make sure there wasn’t anything systematic that was changing around there that allows you to do this, but sounds like you're just firing on all cylinders. Second one is just on fleet composure on two fronts, obviously I think we've established that you guys will be buyers of vessels given the right opportunity maybe layer next year or from a vessel sales standpoint, you obviously don't need a liquidity right now, but just from a maybe a portfolio mix for the fleet or just selling into the strength that we mentioned, is that still something that's on the table from your perspective.

Yes, all the time and I think that's just as you know -- and it's something that we often explain to the investors, but we're not really people who trade in ships, but clearly there are people who are very careful about our expenditure is around deployment of capital into assets and equally if we can cleverly extract capital from deployed assets then we're actually driving very strongly the returns of our investment. And so, on that basis, the ones we just talked about the excellence of the capacity management within the commercial systems but the critical part of it is buying cheaply and possible when you want to sell for whatever reasons but you sell expensively. So of course, both purchases are ongoing at all times.

Appreciate the color. Thanks guys.

Thank you. And the next question comes from Fotis Giannakoulis with Morgan Stanley.

Yes. Hi guys. And thank you for taking my question. Paddy, I want to ask you about what is the sentiment among your fellow shipowners. We say 13 newbuilding VLCC in the third quarter more than 40 during the year. How is new building orders perhaps changed your outlook for potential recovery around 2019 or 2020?

I think the, I think there were couple of things Fotis, the first of all of course we are still convinced that the oil price is going to stay range bound in what they call the shale band somewhere between 40 and 60. So I think that if that's the case, then we believe the demand structure should remain good and we think that the IAA and other agency is probably under predicted demand. So, on that side and of course maybe all this is really weighted towards shipping and in particular big ships long distances. So, I think that that's the starting point of how we manage the order book. And the second one then of course is traffic, but it brings us into an issue that is becoming let's say less important than it was in a sense that I believe the scrapping will pick up and it's very natural that it picks up. We've been in scraping for four or five years certainly because we did a huge amount of scrapping single whole vessel a decade ago. So that means that the VLCC and Suezmax are relatively still quite young, but now we've moved into ships that will be 20 years old at the end of launch phase and the late 90s and then significant numbers of ships will become 20 years of age and as I said earlier on, we're seeing customers strong preference about that. So, I believe that if we step back into that regular scrapping of 4% or 5% of the world fleet, this can be a very positive, this could be a very positive influence, but it does require demand today good and the incremental growth, but I think that all in all we can manage the order book, but if you know anybody who is thinking order and ship some of it.

Thank you, Paddy one follow-up for me you mentioned earlier about the U.S. exports, I'm trying to understand how important U.S. exports are for the supply-demand peaks steel volumes relatively to the Middle Eastern volumes are minuscule but we saw in the recent weeks this urge in VLCC rates in the Middle East, part of it is attributed to the size of fleet between East and West. Can you give us a little more color, how does this work, the fact that right now you have with one additional market that did not exist before and the rule of thumb that we had for about 30 to 35 VLCCs for it's million barrel of sebum supply, how has this changed because of the U.S. exports?

Yes, certainly and I think that the search in the last four to six weeks has partly been age of ships as well and I think there you'll probably see that a look of people with 20-year old ships are looking at the rates that's quoted and that's great. But I don't get fixed and I think that it's peaking up waiting days for the ships the 204 the current market that will be a feature that I hope we'll see push through the winter so that they don't enjoy pick up in rates and they're encouraged to go to the scrap yard. I think as far as the world fleets that goes, it's just if you go out to the Atlantic, you're probably not going laden. So, you're probably going to have to that the risk on a long balance to potentially good freight, but nevertheless if you can't, if you don't have commercial network in order to know when to pick a cargo, where to pick a cargo, then you could find yourself getting your voyage eventually, but having to wait and you wait a week, do you wait 10 days and it begins to affect your voyage economics. But much more important graphs is any deal goes out there and does that also takes capacity out to the market longer on a voyage which is already potentially a quarter of the year. So that's where the impact comes and I think that as we've shown in some of the presentation that we do, which you've seen Fotis, the differential would be if the equivalent absorption rates that you mentioned all the ships being equal to two million barrels going to the U.S. Gulf and going FC from China that would be in the 50 ships required around the 30s and that's the kind of impact ton mile difference to make.

Thank you very much Paddy. That's very helpful.

Thank you. And the next question comes from Noah Parquette with JPMorgan Securities.

Thanks for taking my question. Just wanted to follow-up on the U.S. exports, it's really interesting to hear the parking lot, it's new trade, I was wondering if you could give more color on how do your ships now trade around that in terms of how they position themselves into the region and what cargos do they take after they discharge in China?

Increasingly we're inclined to get straight to the counting but it's not to the Atlantic, but I think it's really on a case by case basis, if the market comes back a little bit more strongly and we see the West market improving, then of course we would be happy to carry cargo.

Okay. So, it's just dependent on -- I was just as curious if you're doing in triangulation at all because you mentioned at one point that it's a brown ship voyage from China and I don't know if that changes depending on different things or if you are just trading round-trip?

Well I think the we can do both and we have to typically but I think the big thing now is just that if you're getting into the Atlantic maybe you can pick up cargos on to low cost Europe and may go to Atlantic to the U.S. Gulf. You can go to the Red Sea and then maybe go to the U.S. Gulf, but ultimately going into the U.S. Gulf with a cargo from South is going to the U.S. is becoming problematic because they're not selling much.

Okay. As a whole would you consider that more efficient in terms of your laden percentage versus some of your more…

It's a riddle, It's a complete riddle of this market. The fact that a logistical efficiency will not trump market shortage. So, if you end up with ships training inefficiently, the result can be a very strong freight market and a very strong freight market will net back to a higher TCA than not having a strong freight market and having logistical efficiency within a low freight market.

Yeah, I was just curious because I was wondering if that has nothing to do with -- your rate this quarter was fantastic right so. Okay. And then just another quick follow-up, how inefficient is the loading in the U.S. Gulf? The coal loading with other oil in the region, as the infrastructure develops how much of an improvement do you think that will be in time?

Well, the big improvement is not really on our time, it's not an inefficient process, obviously reversing takes a little bit longer, but the important thing is the cost. So, what attracts us is not having a more efficient loading. What attracts us is that if were to draw chips to the $2, all of a sudden, you're making American glades that bit more competitive and in a margin driven huddle, that could bring on even more. So, let's not forget that the U.S. still has plenty of oil which is effectively land locked and bottlenecked and isn't reaching the cost for export and the critical thing for us is that all that gets freed up with some of the pipeline reversals that you will no doubt follow through the quarterly releases of Valero and others. They you could see a lot more oil coming to the coast and if the infrastructure is there for not to have a significant cost go on board that ship then of course it's going to be in the East very competitively priced against other grades and that's what excited us about it, not so much our lost time import.

Okay. Got it. That's all I have. Thank you.

Thank you. And the next question comes from Magnus Fyhr with Seaport Global.

Yes hi. Just a follow-up questions on the U.S. exports, how much do you think with U.S. exports at 1.6 million barrels up from Harvey, how much do you think is seasonal and how much is you think is related to Hurricane Harvey?

I don't think it's related to hurricane Harvey. I think that this isn't -- I am just -- I don't think it's because the U.S. refiners aren’t taking up the oil and I've seen most of the refineries where that's up in shape pretty quickly, although I know some of the power supply won't. But I don't think it's really related to Harvey. I think it's much more related to the fact that the Chinese are buying America oil in volume.

All right. Thank you. And just as a follow-up Suezmax rates have lagged a little bit here, but frowned in the last few weeks, your book to 26,000 a day on the Vs and a bit lower on the Suezmaxes, what do you think the risk is here in the fourth quarter as far as bookings for Suezmaxes versus VLCCs to those that you already booked?

That's the extremely speculative of future earnings and honestly couldn’t accurately predict that. There will be no sensible measure.

All right. I would figure out trying. Thank you.

Thank you. And the next question comes from Mike Webber with Wells Fargo.

Hey. Good morning, guys. How are you?

Good and you?

Good. Paddy most of the tanker stuff has been partially over more than once at this point. I just wanted to ask you a question on the FSO JV at this point a new five-year deal. I think you got 10 plus years on the back of that deal in terms of economic revival, economic life filling off a healthy amount of cash and its debt free. So I guess my question is two-fold, one if you ever independent of the market I guess, have you ever wanted to sell that asset? It seems like this will be a pretty good time. So, I am curious what kind of inbound interest you end up having on that just given the dynamics in play there and the life and the contract that we're now? And then two, if and when you wanted to lever that out, how would that process actually work with the ISW can you just lever up your portion, does that take longer than a tradition asset or stuff, little bit color there would be helpful.

I think that the short answer is that plenty of people have asked if they can intermediate a transaction and for instance so far is we like the balances of having debt free access and good cash flow supporting a very volatile business. And of course, there is a price for everything. We're not voting to any of our assets. So, I am sure you wouldn't want to go in this forum, but if you have any -- if you have some brilliant offer then please don't shy. I am sure you wouldn't be. So that base record. I think as far as how it work with IAA SW and it's a structuring issue isn't it. If will you were going to sell the asset also you do it jointly and if you're going to lever it up, you could do that jointly. We've done it in the past. We've had their tonnage jointly before and joint exceeded and so I think it's one of those things. It's definitely an unencumbered asset whose cash flow is we thoroughly enjoy. We're not specific in seeking a finance on it at present or looking to sell it. But certainly, we're not weighted to any asset and we'll always be willing to consider what's central.

Yeah. No for me it looks like it's just better FSO business than the typical business in most of the companies that focus on FSO and it's probably be a nice asset or nice feather in somebody's cap in which it's a fits fair way. Anyway, for that I appreciate it. I'll stop by. I'll turn it over, thanks guys.

Cheers.

Thank you. And as there are no more questions at the present time I would like to return the call to the speakers for any closing comments.

No in which case, I'd just like to thank everybody for attending today and thank you very much for hosting the call. So, have a very good day, the rest of you. Good bye.