Cmb.Tech N.V. (CMBT) Q2 2018 Earnings Report, Transcript and Summary

Good day and welcome to the Euronav Q2 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Paddy Rodgers, Chief Executive of Euronav. Please go ahead.

Thank you. Good morning and afternoon to everyone and thanks for joining Euronav’s Q2 2018 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, Thursday, 9 August, 2018, 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 facts. 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 all are available free of charge on the SEC's Web site at www.sec.gov and on our own company's Web site at www.euronav.com. You should not place undue reliance on forward-looking statements. Each forward-looking statements speaks 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 those forward-looking statements. Please take a moment to read our Safe Harbor statement on Page 2 of the Slide Presentation. I will now pass you over to Euronav's CFO, Hugo De Stoop, to run through the first part of the presentation.

Thank you, Paddy. Good morning or afternoon to where ever you are today and thanks for joining our earnings call. As always, I would like to start with the agenda slide on Slide 3. I will run through the Q2 highlights shortly before a full financial review, then I will hand back to Paddy for a walk through the current themes facing Euronav and an outlook on the tanker market before we open up to Q&A. Moving on to Slide 4, the key highlight was a completion of the merger with Gener8 on June 12. All facets of the transaction were concluded by the end of Q2 including the associated sale of six VLCCs. During the quarter, we also sold an old Suezmax and acquired an ULCC, a sister of the one we already own. Seasonally, the second quarter and the third quarter tend to be challenging for tankers company given the availability of fewer cargos. In deed Q2 brings lower freight rates than Q1 which was already a challenging quarter. But, we exited the second quarter more encouraged with the freight market than we entered the quarter. Recycling of all the tonnage has again been a key feature with around 41 VLCC equivalence that is 33 VLCCs and 16 Suezmax being taken out of the market by the end of Q2, numbers not seen since the mid-80s. Q2 has seen a number of headwinds which hopefully are no turning to tailwinds. For instance, our supply rising in prediction and exports from OPEC, these things will be explored more by Paddy later on. Finally, so far in third quarter, the freight rates in both VLCCs and Suezmax are slightly better than those achieved during Q2, which was a rate below our P&L breakeven represent an improvement in the right direction. Let's take a look at our P&L account on Slide 5. Contribution from Gener8 in this quarter was only 18 days given the closure so close to the quarter end, but it includes a 36 million on bargain purchase as a result of the difference between the contribution paid and the value of the net asset acquired. Finally, the dividend of $0.06 per share in line with our minimum fixed dividend covers the first half of 2018 that will be payable to all shareholders in the large register of 220 million shares in October. Moving on to Slide 6, this is probably the most important slide of my section. The integration of the two companies balance sheet is complete and the data for the end of Q2 reflects the merger and associated transactions in full. Leverage remains amongst lowest in the sector out 44% on book values or 47.3% on the mark-to-market basis. You may have noticed a small working capital adjustment reflecting a technical issue inherited from Gener8 and which relates to the smallest of the two facilities that we took over and which had to be classified as short-term. This will be corrected before the end of the third quarter. Finally, we have retained a very large liquidity buffer of over 750 million, which is down slightly from Q1, given where the market is but also reflecting the full repayment at the time of the merger of an expensive note taken over from Gener8. That concludes my section on the presentation. And I will now pass back to our CEO Paddy Rodgers to conclude the prepared remarks. Paddy, it's over to you.

Thank you, Hugo. I will now turn to Slide 7. The key event for Euronav during Q2 was completion of the merger with Gener8, which occurred in June. The combined entity provides a major powerhouse in large tanker market with 27 Suezmax and 43 VLCCs as part of a 76 vessel fleet. As chart 7 makes clear, Euronav post-merger is now the largest tanker company in the quoted space. But being the biggest isn't our aim as a company, scale is what our customers say is a key requirement as it enhances reliability of service whether for the Eastern receivers as key buyers or at the other end Middle East and producers as key sellers. The large tanker market is dynamic and this transaction also substantially reduces the average age of our VLCC fleet by 20% to just over five years of age and improves our Suezmax fleet too. Integration of the 23 vessels new to the group is largely complete with full earnings contribution expected for Q3. Turning now to our views and outlook on the tanker market. Slide 8. The key themes for Q2 has been the headwinds against the tanker market moving to tailwinds. Firstly, oil supply has clearly been artificially restricted due to OPEC production cuts being tightly enforced since the fourth quarter of 2016. The recent agreement in June to remove some of these restrictions has seen increase in cargos returning to the market. The obvious caveat being developments in Libya, sanctions imposed on Iran and the ongoing difficulties in Venezuela limiting the beneficial impact of both Saudi Arabia and Russia returning to more normalized levels of output. However, the turning on off the taps in Saudi and Russia has already started and we expect more which will ultimately require more demand to shipping. Picking up on another theme within this is the prospects of substitution of Iranian barrels Slide 9 highlights. The reinstruction of sanctions by the U.S. against Iran was not a surprise in Q2 but the determination from the U.S. for full compliance has been. When sanctions were in place previously Iran held 20 to 25 of its VLCCs as floating storage units, something we would expect to see again as soon as the sanctions abide. This is a positive for the sector and should it be repeated, even if the substitution of production comes from an adjacent nation such as Kuwait as the Iranian ships will not be involved in that carriage. Finally, looking at the trend of recycling, Slide 10, the trend that started in Q1 has accelerated in Q2 as the chart makes clear with the scorecard at the end of June being 41 VLCC equivalence in or on their way to the scrap yard, this compares to the record year for recycling which was 1985, when the full year number was 69 VLCC equivalence. This illustrates the scale of the rebalancing that we have seen so far but which we continue to need to see in order to get a market more in balance. The following slide is a regular feature of our quarterly results, the bathtub and encouragingly at the end of Q2, the picture was better than at the end of Q1 with negative fleet growth in VLCCs of 2018 moving from minus 8 to minus 18. Vast contracting has continued delivery dates are now into 2021 and shipyard new building quotes have moved into the low to the middle 90s compared to the high 70s of millions of dollars just a year ago. Slide 12, as usual we finish with our traffic lights. But we make two positive changes from Q1, firstly, supply of oil has become more green than amber reflecting increased potential for cargos as a result of the decision of Russia and Saudi Arabia. Secondly, vessel supply has become more balanced between red and amber as the affirmative action and rebalancing the fleet begins to impact. However, a further rebalancing is required before a more normalized freight rate market can emerge. Summing up, demand and ton mile expansion remains positive. U.S. crude exports hit 3 million barrels per day during Q2 for the first time. But there remains an oversupply of tonnage in a concentrated delivery schedule until 2019. If recycling prices remain elevated an older tonnage exits as it is pressurized by this oversupply, then the inflection point in the cycle will come sooner rather than later. That concludes the formal part of the presentation and I will pass back to the operator for questions and answers.

We will now begin the question and answer session. [Operator Instructions] First question today will come from Jon Chappell of Evercore. Please go ahead.

Thank you. Good afternoon guys. Hugo, first question for you. Out of the $750 million of liquidity, how much of that is required to be on your balance sheet? What I'm trying to figure out is, what's your firepower post integration of Gener8, if you were to go out and try to take advantage of other opportunities probably couldn't use the full $750 million. So what's kind of needs to be on the balance sheet for normal course of business or and/or covenants and what's kind of active firepower?

Thank you, Jon. About $100 million but in fact it's 5% of the outstanding debt. So of course the more you draw on the line the more cash we have to withdraw -- withhold on the balance sheet. At the moment the cash is a little bit higher than that because we are gradually moving the facilities of Gener8 to Euronav and once they are under the Gener3, then this still some retention accounts that needs to be held out there. But, I mean the clean picture is going to be at the end of Q3, when we would have done all the restructuring that we want to do on that side. So us from the end of September, there will be about $100 million to $110 million.

Okay. That's great. And then, for my follow-up Paddy along those same lines, you sound a bit more optimistic than you have in some time for all the reasons you explained and make a ton of sense. Two months into the integration of Gener8 right now, how do you kind of look at positioning Euronav for 2020? Your fleet today, your balance sheet today would you want to be a bit more aggressive -- a bit more levered going into an upturn or do you think it may be a little early still and you want to be a bit more defensive?

Well, first of all, I think the -- obviously we're really very pleased, the highlighting process we are very pleased, we eventually got the transaction behind us and it's done a lot in terms of repositioning us not only in terms of our ability to service the clients, but also in terms of the fact, I think we've managed to ensure that the average unit fuel usage of our ships has gone down for the transaction, which is one of the gains in addition of course to the pickup in value as a result of it being a share in that deal. I think looking at other transactions we're not closed for business, I think -- have been had a hold of that at some stage by September and we'll certainly be back with our pencil sharpened and looking around to see where there is value. I think that as that we've always tried not to be people who said we knew what was going to happen next in the market. We've watched carefully and we've tried to be opportunistic, but we've always want to make sure that whatever it is you combined together, whatever it is that you acquire, you acquire for value and you acquire it with enough liquidity and balance sheet strength to be a long-term player because the last thing you need is to be really playing the market directionally and then finding it doesn't deliver with the speed or on the timetable that you had hoped for. So I think you can -- I mean I hate to be so, neither one thing nor the other, but you know us where we are constantly looking and constantly questioning whether or not we think we're getting value and longevity.

Lots of transitionary period, so it's good to have that opportunity. Well, thanks for your thoughts Paddy. Thanks Hugo.

Thank you, Jon.

Our next question will come from Chris Wetherbee of Citigroup. Please go ahead.

Hey, thanks. Good afternoon. Wanted to sort of pick up on the fleet value you've combined for a couple of months and you sort of taking a look at what you have? Where does the current fleet stand in terms of what you want to keep there potential divestitures that maybe come before we get the sort of the growth and opportunistic aspect? So just kind of curious, if you're done with sort of the fleet review?

I don't think there's no -- this wasn't an issue of how we are going to buy this and then we're going to do that. I think that obviously we did in the process going through an acquisition of ships which we sold on. But, that was more about trying to ensure that everybody could see that we took an aggressive but prudent approach. And of course, post-merger having a strong balance sheet and in view of the fact that the markets are hearty rocketing is a good position to be in. Even though we feel more positive about the future it's always uncertain. So I think there's no huge disposals, of course, we trim the fleet around age and performance at the same time as acquiring, but I wouldn't really consider that big moves. I mean you could expect to see us buying ships from time to time and selling ships from time to time is a natural part of managing the asset the portfolio of assets. But, it doesn't hold us back in anyway from looking as Jonathan was asking for the next step.

In terms of that next step as a follow up, are there in the market today feels that seem compelling, so I'm just trying to get a sense that it's a target rich environment or is this one where we've seen some of these trends beginning to get a little bit more favorable or at least indicating that they will become more favorable and the future has that changed sellers attitude. Just trying to get a sense of sort of where that -- spread is right now?

Well, I think -- if we -- the transaction that we just affected was where we were able to balance seeing a target that was very interesting to us in terms of quality and size. At the same time its being unfortunately in a situation where they were significantly cash constrained and essentially we were able to provide balance sheet strength and liquidity into an existing base of public shareholders. So that combined the critical elements for concluding a deal. I think that the trouble as you know in shipping is that if you try to negotiate on a private basis, you're often looking at asset value versus asset value and it's difficult to see any real lift. And I think that once we start running hard as the market turns then we'll be in a position to have a look and see if there's anybody else who's been left behind or if it's the right time somewhere in between to find somebody who's a vulnerable and a willing seller. The hardest thing here is not really to find so much of the assets of somebody who is genuinely willing to face up the value in return for liquidity.

Okay. That's helpful. Thanks for the time this morning. I appreciate it.

The next question will comes from Mike Weber of Wells Fargo. Please go ahead.

Hi. Good morning guys. How are you?

Fine and you.

Good. Paddy wanted to start off with I guess the current deck then I wanted to jump back to the some stuff we talked about in June. But, it was a mistake, I believe its Slide 9, which is helpful when you kind of run through the NITC fleet and the fact that could return to storage. The chart kind of cuts off, but I'm just curious, it's still early, but you have a sense yet of how quickly that we could exit the market into storage. And then, there's the state of that fleet. I know that fleet was on the older side back in 2015, there is some efforts from the Iranians to renew that over the past year or two. But I'd imagine it's still pretty old, I'm just curious, one how does that how do you see that ramping back up and do you think there will be third party storage opportunities that result from the age of the fleet?

Certainly I think it's just a bit too early to tell. I think there's an opportunity still for people to get last deals done on trying to buy Iranian oil. But I think we're seeing it -- we're seeing it gradually being squeezed as the Americans are being much more aggressive with the support of the Saudis on what's going to happen. And I think they are putting a lot more pressure on the Far Eastern customers. But, it's unfortunately -- it's very, very difficult to assess at the moment just because the reality isn't quite there yet. And there is so much background noise in the rhetoric around -- international relations at the moment that it's difficult to see how it's going to play out. We have the Europeans saying that they are not going to pay much attention to the sanctions or that international didn't say shouldn't pay much attention to the sanctions, which is easy to say when you're a politician a little bit more difficult to say if you're in business. And we also have the tension that's been brought up recently between China and the USA. So it's difficult to see how it's quite going to play out. But I think that certainly in the next quarter we should start to see this trend or ships going in storage.

That's helpful. And then, may be pivoting on follow-up. You guys gave, it's a really good presentation back in June around the impact of IMO you went through a lot of detail on scrubber economics and the market in general, but one of the key points in the beginning of the deck and in your message was that there were a lot of mixed messages still coming out when talking to different counterparty traders or majors or whatnot. And I'm just curious between today and back at Marine money in June. Do you think a more consistent narrative has emerged and related to that I know, when you were talking about doing the sea trials and had a bit of a pilot program going with one of the majors, I'm just curious how that's evolved I guess within the context, that's my first question?

Well, there's no question Mike. That if you wanted to -- if you wanted to characterize the mood of the last month and a half -- the month and a half on the subject of scrubbers, it's definitely been there's gold in them thar heels. I mean that's been the mood. I just think, our view is that we don't want to be the first guy down the mine with a pickaxe, maybe we'd rather be in the transportation business behind them or running the saloon. So I think they are just taking your time picking your way through it. I don't think there's going to be a shortage of scrubbers. I think that we've already seen a huge ballooning up in the number of engineering firms who are saying look this is very unsophisticated machinery we can make that. So I don't think there are going to be real pressure points until we're really ready to know how are you better going to address what we perceive to be the fuel oil spread that's coming with the advent of the 2020 legislation.

Okay. That's helpful. And it's an A plus American ascent by the way that's great. Thanks for the time guys.

Our next question will come from Magnus Fyhr of Seaport Global. Please go ahead. Magnus are you there? Your line is open.

Yes, sorry about that. Yes. Hi, guys. Just a follow-up question on the IMO, when you talk to your clients. Do you get the sense that industry is going to be ready by January 2020 or is it something going to be a bit more of a transition through 2021?

I'm afraid, Magnus, this is really a sort of millions -- the $64,000 questions they say because the trouble is that individual refiners will tell you we're ready and certainly a number of -- what we used to call the oil majors or certainly the independent oil companies said we're fully ready to 2020. We can make a compliant fuel. But it's not answering the base question that the IMO have asked which is they put us against the wall and said you're going to switch and what we need to know is, is there going to be a fully supplied market. And no single refiner can give that viewpoint and so we're all left scratching our heads and trying to add up the little bits and pieces we get from the different refiners to work out whether there is a global industry response. And there is no global oil industry body willing to step forward and say we have all been talking to each other and we'll supply X million barrels per day.

All right. Thank you. And just on the -- bookings for the third quarter, I mean are you surprised to see a little bit of a counter seasonal improvement here is that mostly related to the OPEC increases. I mean typically we see rates start to move a little bit later in the year?

No. It's very -- I mean you couldn't necessarily call it the seasonal move yet because whilst it's up it's not going to it's not going to make anybody's year, but it is a nice trend. It's better than the alternative.

Any -- I mean do you think there's just a lot of rhetoric now going on with Unipec potentially banning U.S. exports? I guess that's…

Nobody is very clear. I mean I think that this is diplomacy by tweeting and tariffs isn't really going to help anybody getting a clear picture of what's going on. And it seems, one moment Unipec were out saying they wouldn't be buying U.S. oil. Now the Chinese government seems to have said that there won't be tariffs on U.S. oil although there will be on other energy related products. And at the moment, we've got -- I think we just have to wait and see. I don't really think it's going to have as much difference. So I think this may be the key -- the critical point. I don't think they are going to have much difference in terms of what happens in the world shipping because if those barrels in the U.S. Gulf are abandoned by China and they don't buy them then they'll find their way to India or to Korea or Taiwan. And you can be sure that the Chinese will buy more than in West Africa and the Caribbean and Brazil. So it may not be -- this is more rhetoric and more noise than it will be real impact on trade lanes and ton miles.

All right, great. Thanks for taking my questions.

Our next question will come from Fotis Giannakoulis of Morgan Stanley. Please go ahead.

Yes. Hi, guys, and thank you. I would like to ask a follow-up on Jonathan's question about the liquidity and availability, you cover facility from Gener8 it's much use in 2019 which seems to be higher than the rest of your facility. How do you think about refinancing this facility and what are your capital requirements for the balance quarter and any other capital requirements that you have the next couple of years?

Yes. Hi, Fotis. So, the facility that you're talking about is the one called the refi, which was financing the older part of the fleet of Gener8, it's priced at 375 basis points. And we are in the process of completing the refinancing of that facility. So I expect that to be done before the end of the quarter at a much lower rate similar to what we've done in the past. So between 200 and 225 basis points. As far as the CapEx is concerned, and Paddy correct me if I'm wrong, but the first vessels that where we will put ballast water tanking system on board will be done within 18 months and that will be the first one. As you know you have to do that when the vessel goes to its first drydock after September 19. So the CapEx per vessel is about 1.5 million and we will publish relatively soon on our Web site the vessels that are equipped already. You may be aware that when we look at the Gener8 fleet, all the VLCCs were equipped and as far as our fleets are concerned and four of the Gener8 fleet was joined to ours, I think we had -- I think we had eight vessels equipped with ballast water tanks.

All right. Thank you. One follow-up, I want to ask about your acquisition of the ULCC and how should we think about the earnings of these two units? Is there range and the earning capacity among the vessels of your fleet [indiscernible] versus older and Chinese versus Korean vessels?

Well, Fotis, I don't think there's no earning capacity by nationality. And what you're really talking about in terms of the variance between the ships, I suppose is what would you say with the variance between what modern post 2013 ships with long stroke engines compared to the ones prior to that. And I think it's about 10 to 15 tons a day in terms of the different earning capacities. Although, of course, there was quite big ranges within our older fleet anyway in terms of the ones that were naturally more fuel efficient rather than others. I think as far as the ULCCs are concerned, we've had very good earnings from them for a number of years whilst there was a logistical requirement for storage and our view is that there's no question, whatever else is going to happen as a result of 2020, there is not going to be a significant increase in storage capacity or the proportionate increase in storage capacity that will be required or that is implied by the need to segregate as a result of all the different fuel specs that will come out. So, we believe there is a real future for storage and that storage on big ships like this can be extremely rewarding.

Thank you very much Paddy.

Our next question will come from Noah Parquette of JPMorgan Securities. Please go ahead.

Great. Thank you. I just want to follow up on the storage point. There's a lot of older ships being sent to the scrap yard. When you look at kind of potential for storage ahead of 2020, do you think some of those ships could be retained to be used for storage, is there any specific strategy that you guys want to approach or is there just sort of see what happens?

I think we would take the last approach to seeing what happens with the exception of course that our view on the ULCC is quite specific. We see them as a unique opportunity and ultimately potentially a diamond in the rough if we get an opportunity to work in the offshore with them. So that's a very different story. I think as far as storage is concerned, it's always been tricky. And the reason I say it's always been tricky is on the face of it, it would be very sensible to use an old tanker because consumptions hardly matter for storage and you're not really asking a lot of the ship. But, on the other hand a lot of the storage is done by traders very opportunistic and what they're wanting to do at the end of their storage period is to sell the oil into any port they want in the world, and they don't really want to have the cost of all the trouble of additional transhipment. So it may well be that you just don't get preferred even though you're perfectly good for the service, you don't get preferred for the service because it will end with the voyage and that would be a ship that's capable of going to any point in the world where the harbor is opened up for the sale of the oil.

Okay, thanks. And I just had one minor question, at last earnings, I think you guys said that you had 42% of your day [indiscernible] 13,200 on the VLCCs. Obviously, did a lot better than that. Can you talk about what happened the back half of the quarter that allowed you to get such an improved rate?

I think we've seen generally speaking although the market is hardly doing -- it's hardly going gangbusters, it's significantly improved. And as you know, the economies in shipping are quite traumatic for small movements simply because the vast bulk of your freight that is the fuel bill.

There was a blip, the last two weeks of the quarter there was blip and when we were at Marine Money in New York everybody was talking about it and everybody was very encouraging. Unfortunately it didn't last that long, but it certainly helped to improve the TC of this quarter.

Okay. Got it. Thank you.

Our next question will come from Cédric Duinslaeger of KBC Securities. Please go ahead. Cédric Duinslaeger: Hi. Good afternoon, gentlemen. Actually had a question on the ULCC, if you had any specific plans for it, but that has been answered. Maybe just to get a better view both Euronav and International Seaways have their VLCCs in the international pool. There is I think about $2000, $3000 day rate difference between the two in Q2. What's the main reason there, is this purely for the age of vessels or is this something else that explains this difference? Thank you.

That's the two point differential. So it's the difference in the quality and performances of the ships and probably it's primarily around fuel consumption. Cédric Duinslaeger: Okay. So that's just purely -- it's okay. And then, second question or follow up was on the ULCC but you answered it. This is for storage opportunities, with IMO 2020, you see ULCC growing?

Yes. Yes. That's correct. Cédric Duinslaeger: All right. Okay. And thank you very much.

Thank you.

[Operator Instructions] Our next question will come from Quirijn Mulder of ING. Please go ahead.

Yes. Good afternoon guys. This is [indiscernible] ING. I have one question. On the current structure of the oil market, we've seen a lot of liquidations in the last year, but you also mentioned that just helping to supply of VLCCs to the markets. So what's the current status given the fact that the liquidation is somewhat over, thing of returning to the market. So, do you think the market is going to absorb storage for few of these, except let me say for the discretion about the IMO 2020.

Well, I think it's always a possibility and we used to be very focused on it. I think 18 months ago we were giving almost quarterly updates on the number of dollars, months that were acquired in order to establish sufficient Contango to make the carry worthwhile. And look, I mean I think we're moving back to the territory we saw in 2017. At least we have done briefly. But it's all over the place at the moment quite frankly and there's so much noise around the oil that the short-term pricing and these generally have been short-term moves on Contango. And thinking further out most -- I mean -- the consensus further out is generally going to be that there's been so much cutting on investments and there is so much natural wear down on reserves that it should result in the oil price staying steady or going up. And as a result of that we could expect to see a return to Contango sufficient to induce storage. I think that's part of our lives from time to time. But I do think the disruption of 2020 will make storage a very significant story.

Okay. Thank you.

Our my next question will come from Herman Hildans of Clarksons. Please go ahead.

Good afternoon guys.

Yes. Hi, Herman.

Can you hear me. Yes, hi. My first question -- yes, everything is good. My first question is on the liquidity you mentioned on your slide you showed zero liquidity from the FSO and obviously, their contracts through 2022. And there's no debt on them. So I guess the first natural question is, what's your thoughts around the FSO obviously there are just 3 throwing of cash now? But have you made any other alternatives or thought anything around what you're going to do with that, let's call it capital?

No, I think that first of all, Hugo, do you want to run through on the financing of the FSOs?

Yes. Well. I mean, the FSOs that we put 220 million on them they're going to be amortized, re-amortized over the duration of the contract. And the way we have structured is a little bit similar to what we structured the other piece of that in the company which is in the form of a revolver. So we have taken the money on that front because which is in the joint venture, we have repaid a revolver that is available to Euronav, which is quite neutral. It's a little bit cheaper because obviously the FSO having a contract, the margin was a little bit cheaper than on some of the revolver that we have in the company. But we tend to look at those from a corporate perspective and we looked at the overall leverage of the company. So it's not really specific to those FSO.

Okay. So they are kind of a collateral in the form of thing arrangement.

And helping to reduce mostly the -- overall margin that we pay on our debt.

Okay. And the final question I had though was, I mean it's a question I ask you from time to time, obviously you have a strong balance sheet, you have the number one position on the fleet size, kind of the best I guess acquisition you can do today is obviously your own stock is trading below and maybe I'm just curious to ask the question again. What's your thinking about how the market is pricing or position that you kind of strength now with the Gener8 transaction?

I might just be a little bit on the wrong foot here because I'm just thinking that there were a number of elements there but I don't see that with the current market outlook where we're waiting for the sort of the real turnaround, follow through and start delivering results and strong cash flows. I think we're not looking to buy stock back in anticipation of that. I think that we've already added a lot of value about 15% growth on a number of fleet days per share as a result of this transaction, added to which we've added a better performing unit cost of fuel consumption. So we've done quite a lot this year in terms of enhancing shareholder value. I think that one of the things that we had done very consciously obviously was to have the sub-sales INS WLS ships in order to make sure that our shareholders could sleep with both eyes and ears closed knowing that there wasn't going to be a need for any short-term cash liquidity requirements. So unless our stock was tanking to the point where we thought it was supremely opportunistic to a good value. I don't think we'd be looking firmly at buyback today. But of course, we have the capacity to do that and of course we have the authority to do it. So if we have sole discrepancy in value, we'd be after it, I assure you. But no, I don't think that will directionally play the market against the share using cash liquidities at the moment.

Okay. That's a fair answer. Thank you very much. That's all from me.