International Seaways, Inc. (INSW) Q4 2018 Earnings Report, Transcript and Summary

Good morning and welcome to the International Seaways' Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would like to now turn the conference over to James Small, General Counsel. Please go ahead.

Thank you. Good morning everyone and welcome to International Seaways' earnings call for fourth quarter and full year 2018. Before we begin, I would like to start off by advising everyone on the call today of the following. During this call management may make forward-looking statements regarding the company or the industry in which it operates which could include without limitation statements about the outlooks for the crude and product tanker markets; changing oil trading patterns; forecast of world and regional economic activity; forecast of demand for and production of oil and petroleum products; the company's strategy; purchases and sales of vessels; anticipated financing transactions; expectations regarding revenues and expenses including both operational and G&A expenses; estimated bookings and TCE rates for the first quarter of 2019 and other periods; regulatory developments and the company's responses to those developments; estimated dry-dock and capital expenditures for 2019 and other periods; projected scheduled dry-dock and off-hire days; the company's ability to achieve its financing and other objectives and its consideration of strategic alternatives; and economic political and other developments around the world. Any such forward-looking statements take into account various assumptions made by management based on a variety of factors including management's experience and perceptions of historical trends, current market conditions, expected and future developments, and other factors that management believes are appropriate to consider in the circumstances. Forward-looking statements are subject to risks, uncertainties, and assumptions many of which are beyond the company's control. These may cause actual results to differ materially from those implied or expressed by the forward-looking statements. Factors, risks, and uncertainties that could cause actual results to differ from expectations include those described in the company's annual report on Form 10-K for 2018 and in other filings that we have made or in the future we may make with the U.S. Securities and Exchange Commission. In addition, please note that this morning's presentation will refer to certain non-GAAP financial measures. Please refer to the appendix to our earnings presentation for a reconciliation of these non-GAAP measures to comparable GAAP financial measures. Now, I would like to turn the call over to the company's President and Chief Executive Officer, Ms. Lois Zabrocky. Lois?

Thank you very much, James. Good morning, everyone, and thank you all very much for joining International Seaways' earnings call to discuss our fourth quarter and full year 2018 results. Please turn to slide 4 and we will review fourth quarter 2018 highlights and recent accomplishments. In the last 18 months, we have taken important steps to execute on our disciplined capital allocation strategy and our position at International Seaways with increased earnings power to fully capitalize on the market recovery. Looking at the first bullet, we're pleased to have taken advantage of an improved market in the fourth quarter to return to profitability. This underscores our significant operating leverage in a market recovery as our cash flow and earnings immediately reflected the stronger rate environment. For the quarter, net income was $7 million or $0.24 per share which reflects the impact of a $2.5 million loss related to vessels sold in the fourth quarter. Excluding this item, net income was $9.4 million or $0.32 per share. For the quarter, TCE revenues increased to $93 million and adjusted EBITDA increased to $46.2 million. We were encouraged by the strength of the tanker market in the fourth quarter and how the market is developing thus far in 2019. While the exact timing for a sustained rate recovery is not yet clear, the market has continued to strengthen in Q1 and we see optimistic signs supporting a balanced tanker market in the near-term. This is led by increasing exports out of the U.S. Gulf, sustained growth in global oil demand, and the expected positive effects of IMO 2020 on tanker demand which I will discuss in more detail later on the call. To-date, our Q1 bookings are higher than Q4. And based on our spot market upside and significant operating leverage, we expect to have another solid quarter. Later on the call, Jeff will provide a more detailed Q1 earnings update. Moving to the second bullet, we highlight the positive impact of our fleet renewal program on the fourth quarter results. Based on our success modernizing our fleet during the downturn, we were well-positioned for the strengthening market that developed in the fourth quarter. Drawing on the enhanced earnings power of the fleet, fleet-wide TCE increased 85% to $20,800 per day for the quarter compared to $11,200 per day in the third quarter of 2018. In addition, we increased earnings per share to $0.24 per share in the fourth quarter versus a loss of $1.64 in the third quarter. And importantly, we increased EBITDA sevenfold to $46.2 million from $6.3 million in the third quarter. Moving to the third bullet. We continued to maintain our strong balance sheet and our liquidity position during the time when we acquired six VLCCs in 2018 and despite operating to a low point in the tanker cycle for the first three quarters of the year. At year-end 2018, our cash position increased $47.4 million from December 31, 2017, giving us $118 million in cash and a total liquidity of $168 million as of December 31, 2018. This includes a $50 million undrawn revolver. We continue to maintain one of the lowest net loan-to-value profiles in the sector with net loan-to-value below 50%. In addition, the earliest maturity on our debt is 2022. Before moving onto the next slide, I would like to provide a brief update on our scrubber initiative. During the fourth quarter, we executed options on the three additional scrubbers for a total of 10 to be installed on our modern VLCC. The decision to install scrubbers on our largest ship represents our balanced approach as our VLCCs are the highest consumers of bunkers and account for close to 40% of our annual bunker costs. Consistent with our emphasis on financial discipline, we expect to fund the installation cost primarily with existing liquidity. Next on slide five. We highlight the development of our tanker fleet since inception. As can be seen from the call-out box to the left, as of December 2016, we had 5.6 million in deadweight with an average fleet age of 11.5 years, and average remaining life of 8.5 years and a total of 48 million ton years, which takes into consideration the deadweight of the feet and its average life. Following the addition of nine modern vessels and opportunistic sales of older ship, detailed in the call-out box to the right and the bullet points at the bottom of the slide, we significantly improved the age and the size profile of the fleet, reducing the average age of the fleet by nearly three years, increasing the fleet deadweight by over 11% and increasing our fleet's capacity over its lifetime by 45%. In addition to improving the age profile and capacity of the fleet, we're pleased to have completed the acquisition of nine modern ships at highly attractive valuations without issuing any equity. Please turn to slide 6. Here we detail our success, investing the $600 million at the bottom of the cycle, consistent with our disciplined approach to capital allocation. Highlighting this point and it can be seen in the chart, the nine ships including the six VLCCs inquired in the second quarter of 2018 and the two Suezmax vessels and one V acquired in 2017 have materially appreciated in value since their acquisition on an age-adjusted basis. Turning to slide 7. We provide an update on tanker demand, which continues to be strong. As can be seen in the top-right chart, the IEA estimates oil demand reached over 100 million barrels per day in the fourth quarter of 2018. In terms of future demand, the IEA expects a further demand growth of 1.4 million barrels a day in 2019, which bodes well for tankers as approximately 60% of all oil demand is supplied on tankers, supporting the strong demand picture, our recent lower crude prices, which relieved pressure on GDP growth and oil demand growth. China continues to be the main demand driver. As illustrated in the bottom right chart, Chinese imports were up over 10% in 2018 from the prior year, setting the new record in November of 2018 with 10.4 million barrels per day and following in December of 2018 with 10.3 million barrels per day. Turning to slide 8. I will review a number of key tanker demand trends. Oil production continues to increase and it's worth noting that in spite of OPEC and Russia's production cuts, global production has increased five million barrels per day since 2017 when the original OPEC cuts began. Secondly, U.S. exports continue to grow and are the main driver of increased production, primarily replacing production from OPEC and Russia. U.S. export growth is even more impressive when considering that just three years ago there were virtually zero crude exports out of the U.S. Gulf, and currently the U.S. Gulf is exporting over three million barrels per day. This represents more than a one million barrel per day increase year-over-year on average and is very positive for the VLCC market as every one million barrels per day in U.S. exports to the far east requires approximately 60 Vs. Notably this is equivalent to the entire 2019 order book. And as can be seen in the top-right chart, it's expected that over 60 U.S. Gulf VLCC loadings will occur in the first quarter. Another demand trend is refinery maintenance schedules being moved forward in preparation for IMO 2020 in anticipation of future demand. While this may create short-term headwinds, we expect, it will be positive beginning in the second half of the year. In addition, supply disruptions continue in Venezuela, where production was down to 675,000 barrels per day in February from 1.5 million barrels per day prior to sanctions. Moving on to slide 9. I'll provide an update on tanker supply. In terms of an order book update, following the second half of 2018, which saw just one total VLCC ordered, there have been 10 new VLCC orders in the first quarter of 2019. Including this order, the total VLCC order book currently stands at 13.5%. However, as highlighted in the top-right chart, we expected to be tampered by further scrapping, as well as offhire for scrubber installation and bunker tank cleaning prior to 2020. Overall, we believe the order book is manageable and we continue to expect the upcoming IMO 2020 regulations will boost demand for both crude and product tankers, as refinery utilization increases and they both – and they produce more low sulphur fuels and middle distillates increasing overall crude volumes and likely the seaborne transportation of petroleum products. Now turning to scrapping. There were 34 VLCCs sold for scrap in 2018 along with 20 Suezmaxes and 46 Aframaxes. Given that the VLCC fleet is aging, evidenced by the bottom-right chart, which shows nearly 30% of the existing defleet will reach 15 years old by 2020. These vessels become expensive to operate at age 15 and every two and half years thereafter. These VLCCs requires significant investment to continue to trade. I'll now turn the call over to Jeff to provide additional details on our fourth quarter results.

Thank you, Lois and good morning everyone. Let's move directly to reviewing the fourth quarter results in more detail. Before getting to slide 11, let me just give a quick summary of our consolidated results. Net income for the fourth quarter was $7 million or $0.24 per diluted share compared with a net loss of $90.7 million or $3.12 per diluted share in the fourth quarter of 2017. The 2018 results reflect the impact of loss on vessel sales including impairment charges of $2.5 million. If we exclude these items, net income was $9.4 million or $0.32 per share. Our strong results in the fourth quarter were driven by International Seaways significant operating leverage and its success in growing and modernizing its feet. Reflected in the net income were an increase in TCE revenues of $27.9 million, a decrease in vessel impairment charge of $79.0 million compared to the fourth quarter of 2017 and a decrease in vessel expenses. These factors were partially offset by increases in charter hire expenses, principally attributed to the company's lightering business and a decrease in equity and income of affiliated companies as well as a slight increase in interest expense. Now, if you would please turn to slide 11. I'll first discuss the results of our business segments beginning with the Crude Tankers segment. TCEs for the Crude Tankers segment were $71.6 million for the quarter compared to $42.1 million in the fourth quarter of last year. This increase reflects our success in improving the age profile and the capacity of the fleet, and primarily resulted from the impact of higher average blended rates in all of the VLCC, Suezmax and Aframax sectors with spot rates climbing to approximately $31,700, $30,600 and $19,000 per day respectively. The increase was also attributable to increased revenue days into VLCC sector and higher activity in the company's lightering business in the 2018 quarter compared with the fourth quarter of 2017. Turning to the product tankers segment. TCE revenues were $21.5 million for the quarter compared to $23.0 million in the fourth quarter of last year. While this is a decrease, this is primarily resulting from the impact of a decline in revenue days in the MR sector and this decrease was mostly offset by the impact of higher average daily blended rates earned by the LR1 and MR fleets, with spot rates of approximately $22,200 and $12,900 per day respectively. Overall as reflected on – in the chart on the top left, consolidated TCE revenues for the fourth quarter of 2018 were $93 million compared to $65.1 million in the fourth quarter of 2017. This increase was principally driven by higher average daily rates earned across the crude and product carrier fleets in this quarter compared to last year. Looking at the chart on the top right of the page, adjusted EBITDA was $46.2 million for the quarter compared to $23.1 million in the same period 2017. Again, this increase was principally driven by higher daily rates. On the bottom half of the page, we look at results sequentially where consolidated TCE revenues and adjusted EBITDA for the fourth quarter were up substantially from the third quarter, increasing $41.8 million and $39.9 million respectively. Now, if we turn to slide 12, we provide a Q4 review and Q1 earnings update. As we did last quarter, we broken out spot rates for the VLCCs over 15 years old in addition to breaking out spot rates for the modern VLCCs in our fleet. As I reiterated on the previous call regarding spot rates for VLCCs at low points in the tanker cycle modern Vs are on higher rates. As the market recovers, this gap narrows significantly. We saw some evidence of this in the fourth quarter. I will now discuss our bookings for Q1 thus far, which are higher than Q4, reflecting the continued strong crude tanker rate environment and product. And product bookings are also higher due to strong Latin American demand. So far, we booked 88% of available Q1 spot days for modern VLCCs at an average of approximately $36,400 a day, 75% of available VLCCs -- available VLCC days for those vessels over 15 years old at an average of approximately $30,300 a day, 85% of available Suezmax spot days at an average of approximately $31,700 per day, 87% of available Aframax and LR2 spot days at an average of approximately $22,100 per day and 75% of available Panamax/LR1 spot days at an average of approximately $28,100 per day. On the MR side, we booked 74% of our first quarter spot days at an average of approximately $15,600 per day. Now please turn to slide 13 where we discuss breakevens. The cash cost TCE breakevens for the six months ended December 31, 2018 were $23,000 per day for VLCCs, $22,900 per day for Suezmax, $17,100 for Aframax, $13,500 for Panamaxes and $14,500 for MRs. International Seaways overall breakeven rate was $21,100 per day for the six months ended December 31. These rates are all-in daily rates our owned vessels must earn to cover operating costs, dry-docking, cash G&A and all debt service cost schedules, which means scheduled principal amortization as well as interest expense. Of note, taking into account, distributions from our JVs the overall breakeven rate for the company drops to $18,700 a day which obviously helps in challenging markets such as we experienced in Q2 and Q3 of last year. At this time, I also like to provide cost guidance for 2019 consistent with what we did for 2018. For 2019, we expect regular daily OpEx which includes all running costs, insurance, management fees and other similar and related expenses for our various classes to be as follows for VLCCs $8,300 per day; Suezmax $7,900 per day; Aframax $8,400 per day; Panamax $8,100; and MR $7,800 per day. For 2019, we expect dry-dock and CapEx expenses to be $23.6 million and $44.2 million respectively. The $44.2 million principally represents payment for ballast water treatment systems and installments for scrubber systems on our 10 modern VLCCs. To go with these expenses, we would give you the guidance and we expect the following out of service days in 2019 for modern VLCCs 259 days; for older VLCCs 127 days; zero days for Suezmax; for Aframax and LR2, 75 days; for the Panamax/LR1 fleet 120 days; and for our MRs 55 days. Continuing with cost guidance for your modeling, we expect 2019 interest expense of $70.2 million, which importantly is $63 million cash interest expense and the balance of $7.2 million is amortization of unamortized discounts and deferred fees. Additionally, our debt cost for $51.6 million in principal repayments it's scheduled in 2019. For G&A, we expect 2019 to be in the region of $25.5 million all in which of course includes non-cash charges in that amount of about $3.4 million. Finally, in terms of guidance for 2019 we expect about $34.4 million in equity income and also about -- for depreciation and amortization, we'll give you the first quarter $18.5 million based on the current configuration of the fleet, which you can look at from quarter-to-quarter, but $18.5 million for Q1 of 2019. Now if you go back to the deck we go to slide 14, which is our cash bridge moving from left to right. We began the fourth quarter with a total of $124 million. During the quarter, we generated $46 million of EBITDA. This includes $7 million in equity income from the JVs, which is a non-cash item. So it's therefore deducted in order to reach a cash figure. Then we add the cash distributions from the JVs, which were $9 million in the quarter. In addition, we spent $15 million on dry-docking and maintenance CapEx, sale of four older vessels contributed $36 million and we spent $21 million representing the final payments for the six VLCC purchased and closed in Q2. Cash interest paid on our debt at principles installments was $38 million, which is an amount slightly higher than normal as two schedule debt payments fell on the weekend that was the end of Q3. So the cash charge was in Q4. Finally, changes in working capital and other non-cash items had a negative $16 million impact which is in part -- in large part due to the rising rate environment which gives rise to a build in receivables. The net result was that we ended the quarter with approximately $118 million in cash and a $50 million undrawn revolver yielding total liquidity of $168 million. Now if you could turn to slide 15 just go over the balance sheet for a minute. At December 31, we had close to $1.4 billion of conventional tanker assets compared to $810 million of long-term debt. In addition, we have a $50 million undrawn revolving credit facility as I said undrawn as of December 31 and as of today. As you can see on the right-hand column of the slide, our total debt to capital stood under 45%, while net loan to collateral value is at 50%. Overall, we believe our strong balance sheet with moderate leverage protects us in a challenging environment like last year where our spot vessels provide significant upside as the market turns. On the right-hand side of the slide, we've noted book values for our two joint ventures, which we believe are representative of their fair values. At the end of the fourth quarter the FSO and LNG, JVs had net book values of $137 million and $112 million respectively, representing combined $8.50 a share. At the bottom of the slide we outlined our debt facilities all of which importantly matured in 2022 or later. Now if we can turn to slide 16. On the far left, we show 2018 spot rates earned by INSW vessels, which we view as a trough for the tanker market. In order to demonstrate the impact of a rising rate environment relative to the 2018 lows, we presented three specific scenarios to the right: the first is mid-cycle by which we mean the 12-year average rate; the second is the recent peak represented by 2015 average rates and last are the historical peak rates in 2018. You can see that based on mid-cycle rates, we generated annualized adjusted EBITDA of $223 million or $2.51 per share. If rates return to 2015 levels that would represent $443 million of adjusted EBITDA or over $10 per share. And of course should we ever experience a super cycle levels again, we would generate nearly $700 million of adjusted EBITDA. Looked at another way in terms of return based on the budget rates we're seeing in the Q4 and Q1 to-date that we're experiencing approximately 15% unlevered returns on the six VLCCs we acquired last year. As well as regardless of how the rate environment develops, our success in implementing our fleet growth and modernization strategy has significantly enhanced our upside potential for capitalizing on the market recovery in both the crude and product sectors. As a reminder every $1,000 in the spot rates increase would be an increase of $15.1 million in cash flow, which also corresponds to $0.52 per share per annum. That concludes my comments, so I'd now like to turn the call back over to Lois.

Thank you very much, Jeff. If you please turn to page 18, we'll do the summary page. 2018 was a very important year for International Seaways. We executed on our disciplined capital allocation strategy. We invested $600 million in modern vessels at the bottom of the tanker cycle without issuing any equity. We reduced our fleet age by nearly three years. We grew our deadweight capacity by over 11% and we increased the fleet capacity over its lifetime by 45%. In accomplishing this critical objective, we strengthened our earnings power and maintained our financial strength. We ended the year with liquidity of $168 million, representing an increase in total liquidity of $77 million since December 31, 2017. Highlighting our strong balance sheet, we have also maintained a low loan to value which stands at 50%. And our earliest debt maturity is not until 2022. Since inception International Seaways has differentiated the company in a number of important areas. In addition to our proven track record of being a disciplined allocator of capital, we have a strong reputation for providing safe reliable service to energy customers across multiple sectors including crude products, gas and lightering. We have also demonstrated a commitment to transparency and ESG principal and are proud to be the number one rated tanker company for corporate governance. As we progress through 2019, we're confident that the capital allocation decisions we have made over the past two years position us to fully capitalize on a market recovery. While it's difficult to predict the timing for a sustained recovery, we're optimistic on the outlook for the tanker market based on a number of drivers, including a manageable order book and robust oil demand. We also believe that IMO 2020 and increasing U.S. export could be game changers in terms of tanker demand directly benefiting International Seaways. In addition to our success increasing the company's scale and reducing the fleet's age profile, we maintained significant operating leverage. Every $1,000 increases -- increase in rates corresponds to a $15 million increase in EBITDA and $0.52 in earnings per share. Thank you very much. And we will now open it up the call to questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Noah Parquette of JPMorgan. Please go ahead.

Hi. Yes. Great. Thanks. Good morning. I just want to ask about the share repurchase program. Obviously, you guys have done a lot in terms of renewing the fleet, but there's still a couple older ships. It seems like a nice straightforward NAV accretive transaction if you sell those ships and buyback stock. Is that something you're considering, or is it simply -- is the share repurchase program more not unlike opportunistic? Thanks.

Hey, Noah. How are you? Look as the K was filed earlier, you will see that we renewed our share repurchase program for another two years, so we'll have it in place. And we think that's the right thing to do. As well as me and the rest of senior management look at it right now, while we're happy with the liquidity that we have, which is actually higher than -- a little higher than the year-end. We still are very, sort of, prudent and cautious about what we view as extra liquidity. So at this point in time we think the right thing to do is just to sort of hang on to the liquidity we've got.

Yes. That's perfect. Thank you. And then I want to ask about the rates in the LR1 market were pretty good. Can you give some color on what you saw there? Was it something very specific? Or is it a little bit more sustained?

So the -- all of our LR1s and our Panamaxes trade in the Panamax international pool that focuses on South and North America, primarily on the West Coast. We did see very good earnings in Q4 and we've seen that sustained into Q1. All of those ships are trading in the dirty trades. And we have seen that market sustain thus far.

Okay. That’s all I had. Thanks.

Thanks, Noah.

Our next question comes from Magnus Fyhr of Seaport Global. Please go ahead.

Hey, good morning. Just two questions. First, you mentioned that 30% of the fleet will be over 15 years of age come 2020. You have a couple old ships on the Panamaxes and the MRs that are in that range. What is your plan to address that fleet renewal? You have successfully done the fleet renewal on the bigger ships, but should we expect the next focus will be on those vessels?

So how are you Magnus? It's good to hear from you. On our Panamax fleet many of those vessels are not up for CapEx and so well into 2020. And we are earning very well on those ships at the moment. So we routinely take a look at DCF analysis and run our numbers all the time on whether or not these ships are earning their keep. But right now we think that, particularly those older Panamaxes are earning quite well and we expect that to continue. And we are opportunistically – sorry, go ahead.

And should -- on the MRs you extended for time charter rents on four MRs. Should we expect them kind of to remain with the fleet, I mean, given the positive outlook for the MRs? Or do you think about maybe even expanding that exposure?

So we've consoled those particular MRs since their delivery in 2007, essentially. So we have optionality and we'll look at it as we go. But we have kept them in our fleet and we are opportunistically looking to think that with the market volatility we may be able to add more tonnage on the smaller side through charter in.

Okay. And just one last question on the IMO 2020. There's seems like there's a lot of confusion in the market with the implementation starting January 1. I mean you have announced scrubber investments on your Vs. What -- have your view changed at all during the last few months? And maybe you can just highlight what kind of returns you expect, especially how many days you expect to operate these using scrubbers during the full year?

So, Magnus, you have bunched in there in those questions. So we do not expect the implementation date to move at all and our Head of Technical has attended IMO meetings and that date looks to be set in stone. So that's the first part of your question. As far as the number of days that we anticipate to be operating the scrubbers from the very beginning when the team developed the model, they have not counted on us running the scrubbers import. So we are counting on running those subscribers at sea. And based on everything that we've seen, we're still anticipating to basically pay for your scrubbers with maybe like a year or a year and a half, something like this, even as we've seen fluctuations in the forward curve on the bunker pricing.

So do you have -- so what number goes into that return calculation as far as the number of days you expect to use the scrubber? I know -- I mean if you turn to VLCC four, five times a year, I mean, would you expect to at least use the scrubber maybe 80% of the time? A – Lois Zabrocky: We did those numbers. I'd like to come back to you with exactly what that is. And when we worked it out, we ended up coming up with a number of if you have used your scrubber 365 days a year, you would be assuming 40 tonnes of consumption a day. I'm thinking that it's somewhere around two-thirds, one-third time at sea versus time in port, but I'll get back to you Magnus with exact number on that. A – Jeff Pribor: So maybe a little less than 80%, but we'll try to distribute that to everybody. But as Lois said, the returns still look attractive for this capital expenditure decision. Q – Magnus Fyhr: Very good, thanks for taking my questions. A – Jeff Pribor: Sure.

Our next question comes from Randy Giveans of Jefferies. Please go ahead. Q – Randy Giveans: How are you, Lois and Jeff, how are you all? A – Lois Zabrocky: Good, thanks, Randy. How are you? Q – Randy Giveans: A little tired, but doing well. A few quick questions. So if you look at the time charter market, how has that responded to kind of the recent surge in spot rates? And will International Seaways look to secure some one to three year time charters to lock-in some of that cash flow? A – Lois Zabrocky: So you have seen the time charter market respond, but it's been pretty opportunistic thus far because again you've had a strong Q4. You're going to have a strong Q1. But we've seen a lot of shorter-term time charters. And I think that as we head into the second half of 2019, you're going to see the charters there for a longer period like a three-year deal at healthier rates. And then indeed we'll look hard at those numbers. Q – Randy Giveans: Okay. And then just to clarify, how many vessels currently are on time charter I think some of your Aframaxes LR1s may be? A – Lois Zabrocky: Yes, we have six of our Panamaxes that are on short-term time charters on rolling on six months in Panamax International. Q – Randy Giveans: Panamax got it. All right. And then one more question, looking at the lightering business, so 4Q 2018 EBITDA increased to almost I guess $4 million. Now with increasing U.S. crude exports, can you give some guidance for the lightering EBITDA in 1Q 2019 and even 2019 as a whole? A – Lois Zabrocky: So yes, we've -- we closed the year with EBITDA in lightering at $6.6 million. And if you were going to project for us for 2019, we expect to be able to replicate that and potentially increase it, but the year is not always even in lightering. It has a high amount of variability. So we wouldn't want you to take the Q4 and model that going forward on good quarter. A – Jeff Pribor: Yes, but wouldn't annualize that. But that as Lois said, take the full year and figure. Hopefully we move upward there, but it's certainly been a strong performer as you say in large part because of increase in U.S. exports. Q – Randy Giveans: Got it, makes sense. All right. Well that’s it from me. I’ll get back to it. So have a good one. A – Jeff Pribor: Thanks, Randy

[Operator Instructions] Our next question comes from Ben Nolan of Stifel. Please go ahead. Q – Ben Nolan: Hi guys. I did want to say I -- first -- I really appreciate all of the detail and the transparency that you guys given. I think it's very helpful and certainly it makes my job easier. But I wanted to -- and I usually don't like to ask kind of macro-type questions. But Lois, you're really sharp on these kind of things. So as you think through the 2020 implications and the crude slates and who's going to be needing what and those kind of things, how do you envision -- where let's say U.S. crude which is obviously growing quickly. Where do you think that will end up? Will it be different than what we're currently seeing with respect to the mix of Asia versus Europe and so forth? And then extrapolating them in another step, how would that impact sort of the relative demand for the various types of ships VLCCs versus Aframaxes and so forth, any thoughts there? A – Lois Zabrocky: Thanks Ben. Yes, you’ve given us a tough one. It's really interesting. I think what we're seeing right now in the market and the U.S. crude you're seeing go very long haul on the VLCCs and they are benefiting while especially with Venezuela being very impacted and reduced in their exports you're seeing Aframaxes in particular hurting. So as you look at it with OPEC reduced and with Venezuela reduced, the price between Dubai and Brent is basically there at parity. And that's making U.S. crude exports very attractive. So you're really seeing that being pulled east for long haul. So I think it's interesting because on top of the turnarounds that we're going to see for 2020, we're compounded by these geopolitical events, which includes Venezuela. And I think the thing that we're starting to watch now is that the U.S. Gulf producers are starting to pull heavy crude in. Some is coming over land from Canada which doesn't help us. But we're also seeing them pull fuel oil from the continent. So we may start to see those Aframaxes pickup a bit as the U.S. Gulf sources crude. So I think we're seeing -- we're in for some volatility as you see trade patterns changing more refinery turnaround. And then on top of that, all this OPEC reductions and geopolitical pressure on Venezuela.

Okay. No, that's helpful. And yeah, I guess, that's the whole business of prognostication one just have to see. But the -- switching gears a little bit, obviously even since December when you guys did your Analyst Day, there's been certainly some movement on the LNG side, specifically around Qatar with MNX on having gone made a final investment decision at Goldman pact. I was curious if you've had any conversations or maybe just how you're thinking about the possibility of doing potential add-on Q-Max deals or have you with Nakilat or the Qataris more generally? Is that on the radar something that you would consider, or obviously, they're even gone so far as talk to remember the shipyards are ready? So, is that something that is gaining traction in your view?

We're in constant communication, obviously with Nakilat our joint venture partner and our customer Qatar Gas. Our existing vessels are operating fully utilized. And if we see an opportunity in the future, we're definitely open to that. Right now, we still feel like we have some work to do on strengthening our conventional tanker fleet base, but LNG is something which obviously will be growing a lot in the future and we watch it very closely.

Okay. Well, that’s it for me I think. Again, no hit on the other one, lower rates I mean, you guys are just crushing it. So nice work there.

Thanks, Ben.

Thanks, Ben.

Our next question comes from Liam Burke of B. Riley FBR. Please go ahead.

Thank you. Lois, good morning. On the scrubber investment, you highlighted the 10 larger vessels that you are -- you made the decision and the economics are pretty clear. Is there any thought of moving down the feet into smaller vessels or does it make sense, or you're pretty much firm on the written analysis you've done on the -- on just the VLCCs?

That's really a great question. And when the team developed the model, they really sort of handicapped by size bunker availability. And we're pretty happy having targeted the VLCCs. You see like BP just you can Google it, came out yesterday with a map of where they're going to have various fuel availability and they'll have heavy sulphur fuel availability in Fujairah, Rotterdam, Singapore off the Cape. And these are important positions for the VLCCs. We're not so certain that it would be everywhere where our MRs would be calling. So, we're lucky in that we have a diversified fleet. And we think that having just done the VLCCs is going to be the best balance approach that we can take for now.

Okay. And on your fleet your breakeven rates continue to decline. You had a nice step down. How much more is there to go? Or is there anything you see you can do to keep that trend going?

Well, Liam, it's Jeff.

Hi, Jeff.

In fact some of the -- it reflects financing in part. So, you see the Vs and Suezs are a little higher, because they're newer and have -- financing on the Vs was higher loan to advance ratio from the six Vs that we acquired last year. But overall, we think it's from pushing hard on all areas that we can and our philosophy on OpEx is to push hard, but not cut corners, right? So, we don't want to be the lowest, but we want to keep a close eye on it and we do and to push hard on G&A. So, I think we just have to be vigilant. It's a kind of business where a little bit of cost matters. So, we will -- thanks for the complement, we'll stay on it.

Okay. Thanks, Lois. Thanks, Jeff.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Lois Zabrocky for any closing remarks.

I just want to thank everyone for joining us today and participating in our call and we look forward to another good quarter in the first quarter of 2019. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.