Scorpio Tankers Inc. (STNG) Q4 2012 Earnings Report, Transcript and Summary

Good morning ladies and gentlemen, and welcome to the Scorpio Tankers Incorporated Fourth Quarter and Year End 2012 conference call. Today’s call is being recorded. And at this time I will turn the conference over to Mr. Brian Lee. Please go ahead, Mr. Lee.

Thank you, Tuffy. Thanks everybody for joining us today. This is Brian Lee, Chief Financial Officer of Scorpio Tankers. On the call with me today are Emanuele Lauro, Chairman and CEO; Robert Bugbee, President; and Cameron Mackey, Chief Operating Officer. The information discussed on this call is based on the information as of today, February 26, 2013, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings release that we issued on Monday, February 25, 2013 as well as Scorpio Tankers’ SEC filings which are available at scorpiotankers.com. All participants are advised that the audio of this conference is being broadcast live on the web and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of Scorpio Tankers’ website for approximately 14 days. Now I would like to introduce Emanuele Lauro.

Thank you, Brian. First of all thank you very much to all of you for joining us today. For your guidance, a copy of the press release is available on the Investor Relations page of our website. The way we’d like to conduct the call is very similar to our previous earning call. So I will make a short statement, and then we will allow you, the audience to ask questions as we believe that the interaction between the company and the audience is actually the best use that you are going. This is the fourth quarter 2012 earnings call. And the company today is in a quite unusual situation. The reason being then since the 31 of December 2012, the company has undergone significant transformation. So, we are here talking about the past but we deny actually focusing on the future. The transformation which we have undergone has been possible, thanks to our capital providers. And I’m referring to not only the financial lenders but the equity investors as well. We are thankful to our capital providers for the opportunity which has been given to us. We are committed to make it a success and we think that we are in a unique position to become the product anchor market leader in today’s environment and this is as I said thanks to the trust that has been put on management and on Scorpio as a whole from our equity investors as well as our financial lenders. I think we can – I can actually give the floor to Robert Bugbee our President for a few additions before we open the floor for questions.

Okay. Thanks Emanuel. I’d just like to say a couple of things, as we look – as I think being most productive to focus on this call on focusing in the first quarter of this year and going forward. And what we’re seeing at the moment is a real confirmation of our product market is gaining strength and recovering. We would say that we are in the second innings. We have year-over-year much strong market this first quarter than previous year. The demand side continues to expand strongly in not just volume, but in new trade group, new types of cargos that are transported by this product tanker. We have every faith in our newbuilding strategy itself with regards to these eco-design vessels. We’re actually seeing some underlying strength now in yard pricing. I think that most of the announcements that we’ve made recently don’t truly reflect the strengthening in the yard pricing positions because these are real declarations of options that the pricing was done sometime ago. And – we think as Emanuele said that we have a pretty unique opportunity here with the capital is being provided to us to take this leadership position, extend this leadership position and we think the – I have in my career never seen at this stage of the market, the ability to get such significant returns on capital for newbuildings. The newbuildings that have put in the water, we’ve seen various announcements to the earnings and in some cases they are up to 25%, 30% returns on equity at this stage in a point where we believe that we’re only beginning to see the early stages of recovery in the market. So on that note, we’d like to open it up to questions if we can.

(Operator Instructions) We’ll take our first question from Jon Chappell with Evercore Partners. Jon Chappell – Evercore Partners: Thank you. Good morning, guys.

Good morning. Jon Chappell – Evercore Partners: Robert and Emanuele, I want to ask you about the new credit facility, you announced yesterday morning. How does that line up with the remaining capital commitments that you have from your firm order book. And then beyond your firm order book with the 14 options and then other potential opportunities to grow what type of liquidity do you see with the combination of that facility – your current facility and the equity you’ve been able to raise as far as growth beyond the firm order book?

Hey Jon, its Brian. I’ll take about the payments and everything. So we disclosed our payments in the press release $651 million but that included a $42 million payments we made to-date. So it’s about $609 million. From that our next four newbuildings which are scheduled for delivery in March 2013, April 2013 and two in January 2014, those four will be financed under the 2011 credit facility. So that gets us approximately $70 plus million for that. And then we also have the new facility that we announced for $267 million, at least two newbuildings on financed but we have – had plenty discussion with banks who are interested in doing that and they don’t give us that being a problem going forward. And then you take into account our liquidity and cash balance of $272 million approximately and then the availability under the 2010 facility of $67 million it more than covers what is required here.

So I would think that in our view 18 out of the 20 are definitely covered and remaining two we see no problems and are working on. As to the potential to expand from here, management believes that we would have the ability to order in the range of $300 million of further newbuildings, allowing for those to be financed towards 60% which we also believe that we have strong encouragement. We should be able to get debt finance in line with that. So in summary, we are 18 out of 20 firms. The two we think we’d be able to get and you could expect that management believes that we have $300 million of total fire power left in newbuildings. And that is on fairly conservative – or very conservative, the low present one-year charter rates of cash flow predictions going forward that’s not what we think will happen, but that’s on a conservative basis. Jon Chappell – Evercore Partners: Understood. Thanks for that color. Now Robert, you just expanded and that they sued Handymax 1A ice class which is a little bit different from the rest of the order books spray. Are there other asset classes which obviously have taken in some LR2, LR1 on time charter in, do you think you’d expand into those different areas of the product tanker fleet with potential new orders?

I think that we’ve always maintain that we see that there will be a broad product tanker market rally. They are different size ranges. The Handy’s are more regional, but this is a size range that has very, very tough betting and requirements for environmental reasons going forward in operation. At the moment there is probably any newbuildings in that size sector, its Handys size is something we have great success in our chartering in book in a previous position. So we will look to expand that. And we will also look to consolidate and continue to expand on the MRs. The MRs are increasingly surprising us to the upside in demand because this is so much arbitrage going on. There is so many unusual voyages that are well beyond any economic – economist model. For example, just in the last couple of weeks, we’ve taken on MRs cargo from Baltic, all the way to the Dominican Republic. That is the pretty unusual voyage. We’ve taken naphtha in to the United States and we’ve taken naphtha out of the United States. So the traders are just using these MRs and these new ones, especially for any arbitrage opportunity. We also believe that you really have got a circular change in the demand for products. That’s going to be long haul, long distances. And with the refineries coming up in Saudi, the refineries coming up in East India, but this theme is going to continue and that with countries like Australia who may need as much as 500,000, 600,000 barrel of increase product imports in the coming year. That’s got to be an opportunity therefore a LR2. You’ve seen sort of preview this. We’ve taken LR2 in on time charter. We own one. Again, there is a very, very small order book in LR2. They’re more expensive then MRs. They – we always said that LR2 is the high data, there is VLCCs or the cap size of the product market. But always you can see by chartering strategy we’re getting more and more confidence that the curve is improving enough that probably pretty shortly this is the time to start moving into that area. Jon Chappell – Evercore Partners: Great. Understand. I’ll just ask one more and then I’ll turn it over. In your third quarter press release you had the table that called a lot of people’s attention with the fuel efficiencies at the Amber versus the Coral. Now that you have taken four more 2012 deliveries plus your first 2013 delivery, can you just provide a little bit of update on the efficiencies of those ships and then how you’re going to see that transpiring as you take the delivery of the 14 vintage newbuilds.

Jon, Emanuele here. The reason why that we haven’t put another competitive table on this release is because we didn’t see it was necessary. In my quote on the press release you will see that I said that we are realizing the fuel savings that were previously announced. So, actually going forward I would expect in the new ships to as likely or marginally improved the performances rather than not. So we are still very confident and happy with the product we have bought. And it’s -their performances are meeting our expectations.

Typically really clear on this. I mean – any form of new technology, there is a learning curve. So what we are seeing is that as we – there is a fine-tuning. So, as many have said, we are very confident of those initial figures that we gave out. You could expect that the ‘13 deliveries are ultimately better than ‘12 deliveries. And you should definitely expect that the ‘14 deliveries are better than the ‘13 deliveries. Jon Chappell – Evercore Partners: Understood. All right. Thanks, Robert. Thanks, Emanuele and Brian.

Thank you.

Moving on to Doug Mavrinac with Jefferies & Company. Doug Mavrinac – Jefferies & Company: Thank you, operator. Good morning, guys. I just had a few follow-up questions for you. First, looking at the market as we kind of really get started in 2013, we’ve obviously seen in the MR market, chartering activity continuing to strengthen. We’ve seen charter rates continue to firm. My first question is really two parts. First, is there any specific geographic region responsible for that continuously increasing fixed activity level or is it relatively broad based. And then second, Robert, the charter activity that we’ve seen, the ARM opportunities that you discussed, on the margin, are those generally longer haul voids than you would describe to being kind of the average for the typical voyage length for the MR market right now?

Okay. So, the first one, we’ve seen – normally as we alluded to press release, we have a normal seasonal slowdown in the east markets, yet these markets in the west have been really very strong. The vast majority of our vessels in the first quarter have been in the west, over 90% and the only one that we really had in the east of being palm oil contracts or vegetable oils which have been pretty lucrative anyway. The west is being driven very hard by this rapid expansion of U.S. Gulf Exports. And those exports are going everywhere, South America, West Africa, Europe, across into – even to the East, and we expect that to continue if we listen to the refiners conference calls, there is no reason why that isn’t going to continue to expand, is being rolled through this period. We’ve also been quite encouraged right now, but normally these seasonal turnaround within the East for the LR1 market, the LR2 markets, the MR in the East with – probably now happen until the early – at the end of March, early April, but in the lot seven, eight, nine days, you had more than 20%, 25% improvement in that market. And just in the last – we’ve woke up before this morning, this morning that’s printed up for further 10%. So that eastern demand is very, very encouraging going forward. The first quarter has really so far all being about the Atlantic basin, the Med, the Baltic. But as we go through this year, where it starts to get exciting is when you start getting both markets functioning again East and West and that this is all before you get Monteriva coming back online before the Saudi Refineries, before the East India Refineries come back up. So that part is very encouraging too. As it comes to the arbitrage, it is everything and everywhere where there is no – we’ve taken voyages that are shorter between Canada and the U.S. East Coast or opportunities between South America and the U.S., as well as very long voyages as well. The shipping cost is so to minimus to the actual value of the cargo traded that literally any ob that is opened up is being taken advantage of. And these new ships, I mean, we’re trying to get a handle on the Marcels, but it is – that just completed. We’ve talked about fuel efficiencies, but I mean, they’re completely different animals now in terms of trading. I mean, we did one rotation where we loaded gas, oil out of Norway. Discharge in Philadelphia. Reloaded at the same terminal ULSD for discharge in Venezuela at all places, and then reloaded in Venezuela, but discharge in Europe. First of all, about that voyage rotation was unheard over a year ago. And second, I don’t think you’d had ships in the water that were capable of those fast turnarounds to those different cargos. So, we ourselves are learning through this. What I would say, this is also very encouraging as if we look at a cartogram of fixtures, those fixtures that are outside one or two standard deviations in terms of earnings up to the upside. So every now and again, you’re getting a voyage that is well outside two, three standard deviations as a result of being in the right place at the right time. Doug Mavrinac – Jefferies & Company: Okay. Perfect. Perfect. Thank you very much for that. My second question and actually alluded the part of it in the first answer was diving a little bit deeper to LR2 and LR1 market, because as you alluded to, we’ve notice the pickup and activity levels rates. And as you mentioned, it’s happened sooner than you would expect. And even on a year-on-year basis comparing this year relative to last rates are stronger sooner than you would have expected. My question is what should we be looking for as analysts and investors in terms of to see that strength continue in 2013, is it increases in refining capacities some of those exporting coming online? Is it end user demand picking up a combination and what should we look forward to see that okay we will now at LR2 now our one market are starting to really take off?

Well, I think that it’s – because is gone to be the combination of demand especially the East and also bear in mind that right now even now LR2 being weak in East that being reasonably on seasonal basis robust in the West, which is a good sign. The other thing is that you just have to trust some as we have been out there looking to charter and vessels. And you haven’t seen us making many announcements recently on further LR2 and that’s because that market is tightening up. People not – what the trader who are in then people are wanting to relate that doing things. And the replace the unfortunate thing in that is not if you just going to have to see confirm in the right, so you just walk, you’ll see your daily broker reports and read them right now in the last week. And you have seen a – I would say lifting up in the VELscope rights on eastern fixtures for that market is just a simple as that. Doug Mavrinac – Jefferies & Company: Right. Have you guys even contemplated what this market could be like U.S and the EU ever saw oil demand began to recover?

Well we already – if we talk about LR2s we already saw fixtures – single fixtures last year in the plus $25,000, $30,000 of the range. You also have to remember that way back at the early start of 2003, 2004. Even then you saw out fixtures that been a 50. So the LR2 really is a feast – I mean those things are under operating cost in weak markets and they don’t have limit to the upside in strong market. Doug Mavrinac – Jefferies & Company: All right.

In the MRs I think that is pretty – it’s pretty clear that you have fixtures that are solidly in a 20s. Right, you know in this first quarter. So again, once you put that triangulation and pull either side, they are then just not limited because it just doesn’t matter to the customer. I mean if you take the rates up $20,000 a day, just take them arbitrarily $20,000 of rate tomorrow on a 20 day gasoline rates, well that barely a buck of 5 – a barrel – it’s not.... Doug Mavrinac – Jefferies & Company: Right. That’s exactly right. And final question for coming it over, you know obviously Robert...

What I like to say is, it’s just when – it’s – we’ve taken charter recoveries because we’ve been wrong in the last four months. We didn’t expected the rates would be – we didn’t expect that you would get 16 in first quarter as high as it is right now, we were trying to taking the chips at 13, 14 like crazy with expectations that a normal MRs would be trading at right about 16.5 this quarter, they’re trading higher. And eco MRs are trading obviously significantly higher than that. So, for us the risk now becomes on the upside, whenever – it’s when the combination arrive that you were talking about. If you actually have the world economy functioning, it can get very fun. Doug Mavrinac – Jefferies & Company: Yeah, yeah, I agree 100%. Final question for you, Robert, you’ve been through these cycles before, we’ve seen your past track record in places like OMI and et cetera. My question for you is, when you look at the opportunities here and where we are, what’s different this time around, if anything?

Well, that’s an interesting question. I think we have a few of us in the management a couple of us are on Board have direct worth of experience to 2002, 2003. I guess the biggest difference now is differentiation, in 2003, basically there are bunch of companies you could get hold of capital. That was ships weren’t going through this fundamental design change like they are now, and you – OMI itself was – had a lot of competition. It was just one-off. There was no way you could even think that OMI could become the market leader in crude oil or products at that time because you have much bigger breadth around it. OMIs balance sheet was way more leverage and constricted into 202, 203. Its newbuilding was less. I mean Scorpio is, I know two, three years ahead of where OMI was. I mean you’ve got no legacy issues. You’ve got a much stronger balance sheet. You’ve got stronger shareholder list already. And you have a fleet that you are buying today, but other people will have to buy tomorrow. And you’ve got a operating margins that are clearly better than anybody else that is in a sector, the matter as a tool. So your competitive position is truly unique whereas OMI was just one-off at that time. That’s how I would describe that part. And then the actual market itself is so differentiated. I mean there are people still in tremendous problem. I mean you know there is already seven, eight weeks ago that whatever OSG were filing and, so right now you’ve got this huge differentiation between the haves and have not and you’ve got the actual fleet itself that’s differentiating very fast. And also the Scorpio in a way is a blendable lesson. The Scorpio management is a little bit more experienced. The people there from OMI are little bit more experience. OMI was a company that had a huge – very strong relationships to the oil majors that we had on time charter, extra that way. The Scorpio Group had and has tremendous relationships with the traders, and at this point in the market that you really want to have those relationships with the traders. So that you get the first cargos that you can understand the market better. So every generation, I guess, should be better than the next one. And I’m really sure that this generation is much better than the last one. Doug Mavrinac – Jefferies & Company: That is perfect. Great. Thank you so much for the time Robert.

Our next question will come from Fotis Giannakoulis with Morgan Stanley. Fotis Giannakoulis – Morgan Stanley: Yes. Good morning guys and thank you. And congratulations for this amazing couple of months. You are now the largest tanker company. And I have a couple of questions regarding your size. You have grown significantly sincerely December and there are more vessels to be delivered then especially charter-in vessels. How do you view your risk vis-à-vis this charter-in tonnage and especially this question is mainly for Brian probably? How does you see is off balance should potential risk and how much capital do you think that you need to have in order expand further with charter-in tonnage?

What. Okay. So let’s just take it from the straight from the top. So what do we’re doing with time charter-in tonnage is most of the deals that we’ve got up start off is one year with auctions, etcetera. So you’re not really having a long-term risk in this. You could – if the world goes bad, you can declare your option to redeliver early. So you can have a very, very easy leading to a VAR. How we calculate VAR is that we simply say for example, that we’ve never have less than $12,000 a day on a particular ship even in the worst type of the market if we chartered that of 14 for one year. Then we say that’s $2,000 risk times 365 days till the determination of the market and that’s your risk. So – and then you allow for that in your balance sheet. You assume that you are going to lose that money. So if you’ve chartered in 20 ships, they’re going to – they have an average time duration of nine months left than you probably going to get to 16, $17 million of VAR on day one and you just in your mind take that off your balance sheet and if you can effort it you do it, if you can’t you don’t. It’s a simple as that. And then your reward is dramatically skewed, because once you accept it that you’ve limited your down side and done your analysis in worst ever markets. You’re upside is skewed tremendously, because in shipping people don’t really do a black shows model for the optionality. When an owner is giving you an option, and sometimes because their lenders are forcing them to do the one-year charter and what they need to do to get that one-year auction done. So your upside, while you are taking ships in at 10%, 20% above the three, four-year lows is a multiple of your potential downside. Fotis Giannakoulis – Morgan Stanley: And...

And like I said at the end of the day, chartering in is as you do it now while the risk and reward is that way. You don’t start chattering. You don’t chase the market up. I mean when the market gets the 25,000, 30,000, you’re not going to be taking shifts in. You’re not going to re-up to your charters at 20,000, 22,000. You’re going to be running your charter probably down as your new buildings are coming in and creating the EBITDA. Fotis Giannakoulis – Morgan Stanley: And based on what you just told as Robert I see that your current chartering vessels are charted at a very close to your minimum earnings, historical earnings there, if I am not mistaken around less than $13,500. What do you see that the current market is for – the current period market is? At what rate are you able at this point that the market has moved up to chartering in new tonnage and given this rate, are you willing to expand and up to what extent?

Well. We’re constantly looking four vessels to charter in and we’ve managed to do a couple recently. We’ll be doing it step by step and looking for weakness. The market has moved up, not just in rate, but now the chances of getting optionality out of people are left, so that kind of market is firming. So for example, LR2s we’re now been quoted the numbers in the 16 without any options. Your MRs for good quality specifications are moving up into the ‘14 and again it’s – you maybe get an option, you may not be able to but there is – so from us at the moment it’s about just keep going and very ships specific and deal specific. We don’t feel any urge just to take in charters – just to take them in. We have a lot of operating leverage over this next 24 months anyway. But we will – we will where we can find deals can take ships in. I think we’d be comfortable doing that even if rates were up to 10% higher from this points and then you got to start thinking because your newbuildings are just so much more efficient that whenever you’re chartering in. Fotis Giannakoulis – Morgan Stanley: Robert you started about three years ago with three ships – these three ships they are still in your fleet list. Are there any thoughts given the slide that you’re expanding so dramatically with a newbuilding tonnage. Are there any thoughts of disposing these vessels with and replacing them with a fuel efficient newbuilds. And the second question related to that you’re going to be operating approximately 46 when everything is going to be delivered. What is the capacity to operate so many vessels? Is there any cap to your ability to expand even further in that?

I’ll let Cameron answer that second question detail but if you remember from our MR had a very similar rapid expansion and that’s fine. I think that the first question with regard to our older design vessels. Right now those vessels are cash flow positive. We expect them to be P&L positive. We are not getting the lot of these new buildings until really next year. So right now there is really no rational is to why we would sale one unless we have given great pricing position. But, yeah, you always going to – ultimately, we are going to be a full company, but you are going to do that slowly on the numbers, and that’s the second part.

This is Cameron. I think you have to look at two different types of capabilities; one is commercial capability, and second is a technical capability. Now commercially as you know our ships are in pool where actually we want to or there is ample room to grow to capture benefits in scale and service our customers more effectively. So provided you have the right systems which we believe we do and provided you have some skill traders which we believe we do. There is ample room to place more ships in to their hands to capture additional value from the market. Now technically it’s a bit of a different story where you have to be very cognizant of the availability of skilled crew, engineers other professional personnel to look after the ships. Here again we are somewhat fortunate because as you can understand with the conditions in the marketplace, there are lot of skilled people who are looking to save at least one home to come into a growing company with a bright future. So we’re matting it up very carefully, but we’re cautiously optimistic. We never want to get Federica ahead of ourselves, but we are very confident we can manage the growth effectively.

I think that – commented to growth, I mean I wouldn’t take our present fleet lifted, the one we’re going to end up with here. I mean we’ve already indicated that we think that’s further capacity for growth of the balance sheet of present and with – where I believe that yard pricing is firming and the market going forward is strengthening. You would expect us to add more assets. Fotis Giannakoulis – Morgan Stanley: I guess in New York there aren’t many companies left, so in relation to that, are there any thoughts over potentially acquiring vessels or fleets from any of the troubled companies that they recently filed for chapter 11?

No. I think that it is contrast with what Robert was saying. He said that at the end of the day we’re going to be a pure eco-fleet owner. So we wouldn’t be interested today in taking up existing second hand tonnage available under water. It is too much in contrast with our strategy.

And I think it’s probably a bit early for John Fredriksen to sell Frontline 12 to us.

I just fall off the chair. Fotis Giannakoulis – Morgan Stanley: Emanuele, one more last question, since you are not buying frontline 2012 and as your fleet is rapidly expanding, we have seen in the past, other companies, publicly listed companies, developing their own pools or acquiring affiliated pools, are there any thoughts of potentially integrating your pool operation with Scorpio Tankers?

Look, I think that the best use of capital for Scorpio Tankers is actually in acquiring assets at this point in the cycle. So, this is where we are focusing on. We are not thinking at this point about buying or investing in any commercial manager structure. So the simple question is no, the simple answer is no, sorry. Fotis Giannakoulis – Morgan Stanley: Thank you for that. Would that include a future market that might not be as what it looks right now?

Sorry, that’s way-way too hypothetical. Fotis Giannakoulis – Morgan Stanley: Okay. Thank you very much. What’s the time?

And you’re thinking we’re following that policy where you wait for everything to go down. I think we’ll wait on that, but it’s way too hypothetical. Fotis Giannakoulis – Morgan Stanley: Thank you very much, Robert. Thank you everybody.

Thank you, Fotis.

Our next question will come from Herman Hildan with RS Platou Markets. Herman Hildan – RS Platou Markets: Good morning and afternoon guys. Just a quick question on the Pacific market, you mentioned it’s has been surprisingly strong. In some circles in the charter market you’ve seen some brokers talking about in the past that crude deliveries have taken product cargoes from the product tanker market in the way it creates an artificial supply side and with crude deliveries coming down, is that maybe some of that for nation for why you’ve seen the strengthening of the Pacific markets or is it more on the demand side you think?

I think it’s – what I’m referring to is the point where very simply earlier that we wouldn’t have been expecting at the end of February, you would start seeing the upticks and the bids under the pricing and the demand to the East, because normally that comes later – slightly later in the year. And that’s really demand led and nothing to do with the actual – nothing belief to do with the ship deliveries. Herman Hildan – RS Platou Markets: Okay.

If anything that’s even more positive, because many – because the crude oil markets in such a mess, many of the vessels would have been delayed for delivery if they could, if they were coming in December they would have been delayed into January. So right now, the tick on crude delivery is slightly high in the last two months. So this is a true demand led position. But I would accept the fact is to the benefit of the LR2 market that as we go forward there are less deliveries of Aframaxes and Suezmaxes. Herman Hildan – RS Platou Markets: Thank you for pointing that out. And also on the fleet growth side, I mean you have been building a very larger mark for the tanker fleet and now you started buying some equal to the same SR tankers as well. And you’ve talked a bit about LR market today and kind a just to get to more in the signing about whether you would prefer LR1s or LR2s, I mean, if you order vessels today, you probably going to get delivery say ‘15 at which point the ton mechanical is widening and, I guess, and I mean if that something that you think the LR2 market is structurally more interesting the long-term with the also private oil companies going along storage and short refining capacity and the next step of the company.

Well, I think that it’s better for us and our shareholder that we keep up close hand until we have something in front announced on the exact details and write between with the LR1s and LR2s. And the same is regard to deliveries.

Right.

But as soon as we’ve made the decision we will go into the detail. At this stage we don’t even want to say that is – we believe in a broad based recovery in the product tanker market. And the exact specifications will come to you later. You should not to wait too long. Herman Hildan – RS Platou Markets: That’s good. Also the last question, I mean, obviously you secured bank financing was yesterday and we’ve seen that covered for almost getting new financing has been more unfavorable terms in the range of like say 400, 500 basis points and maybe 50% leverage with the or even 48% leverage on call – station profile. What kind – I mean – what kind of assumptions do they make, do you expect to get a lot favorable terms for the eco-designed financing? I mean obviously we know about the leverage but what about amortization profile.

Herman, its Brian. As we said it’s the same – almost the same times of our previous facilities, so which was 15 year profile. Herman Hildan – RS Platou Markets: So you’re still getting 15 years profile.

Yeah.

But I would say – I’d be very clear in that. Our previous facilities were basically hunting licenses across the broad product market and that included secondhand vessels as well as newbuildings. The lenders are making these loans based on the fact that eco-design newbuildings. Herman Hildan – RS Platou Markets: Yeah. Okay. Well, thank you guys. That’s all.

Thanks.

We’ll hear next from Nicolay Dyvik with DNB Markets. Nicolay Dyvik – DNB Markets: Good morning. Could you elaborate on what speed you run your MRs and if you expect the speed to increase with the improved market, at least what make – make positive with regards to the fall of market is that there is very little soft demand compared to containers, double crude tankers which means there is a lot more occupied to the products regards to that led to shuttle capacity that we released, when the market improves with higher speed and most appliance in the market, I don’t know your thoughts on this?

Sure. Great question, thanks. It’s Cameron here. Generally what we’re seeing now is charter 40 speeds of 13 and 13.5 knots which as you rightly point out is quite close to the historic charter party speeds during seven years of 2004 to 2008 of 14 knots and 14.5 knots, where did you get charter party speeds in 15 knots. So as you point out there is very little upside and similarly particularly on the MRs and the Handys there is so much backhaul activity in articulation of trade that the balance will exit typically either full speed or 13 knots, 13.5 knots again. So you’re correct, we would expect when you get through a certain point of say confirmed strengthening in the market that charter party speeds would pick up, but they don’t have far to go, there isn’t a lot of room there. Nicolay Dyvik – DNB Markets: Okay. Thank you.

And again, you’re correct, it’s a cap on effective supply in the market.

Your next question will come from Urs Dur with Clarkson Capital Markets. Urs Dur – Clarkson Capital Markets: Good morning, actually good afternoon as it’s almost afternoon. Thanks for the presentation. I guess the question for you the eco ships you have the new facility. Is there technology on the horizon as that are not currently in your designs, but considerably could be going forward. What’s the next – what’s the next design advancement that we should be looking for maybe from you or from others out there who might be ordering? And if you mentioned that, you have a fleet now or will have a fleet now that everyone else will have to order, but designs have changed swiftly. So what’s the next thing we should look for?

Teleporting. Urs Dur – Clarkson Capital Markets: Teleportation.

Urs, one thing that’s been on a lot of peoples mind lately is the potential role of LNG as a fuel for shipping. Urs Dur – Clarkson Capital Markets: Right.

And where you see this most thoroughly examined and first mover start to experiment what it is in containerships, simply because those are liner trades. You have a certain amount of certainty with regards to rotation of the ship. And even then you see a lot of obstacles. I mean it’s very, very analogous to what you see in auto transportation in the country which is you need that network of gas stations in order to justify the investment in building the car and then you need the capability of construction of the car for people to go and buy them. So there is some chicken and egg or network problem is being grappled with on the liner side, most notably by new and few others. Now our expectation is a couple of things. One is it will be years and years before this becomes readily available to tramp trades like drydock and tankers because we don’t share that certainty over where our ships are going. And so the network problem is going to take a lot longer and a lot more other capital and interest to build out. So this is potentially decades away. The other thing which is quite exciting is even when it does become available, there has been a lot of work by engine manufacturers to make modern engines retrofittable, if that’s such a word, so that ships on the water, modern ships on the water could avail themselves to that fuel. But there is a lot – there is a long, long way to go. But it is something interesting particularly in the containership market. Urs Dur – Clarkson Capital Markets: So you don’t see anything in the interim between what your design is and LNG, you don’t see any major design that’s being discussed that hasn’t yet been implemented that we should look for?

No, as Rob was saying, you’ll get very minor incremental improvements, but in our mines the stepped function happened; the stepped function happened right at that low point in the market where yards needed additional business and they started to compete on design for the first time in 20, 25 years. And that created this big step function in design. And now that it’s happened, the incremental improvement from Europe will be sort of in the region of basis point as opposed to fives or 10% of efficiency. Urs Dur – Clarkson Capital Markets: Very clear. Thank you. Thank you guys for your time. Everything else should have been asked for me.

We’ll now hear from Chris Snyder with Sidoti & Company. Chris Snyder – Sidoti & Company: Hey, good morning, guys. My question was on the, did you guys provide any sort of drydock schedule or anything that we could look to going into 2013?

Hey, Chris, it’s Brian. Budget for our project make two drydocks vessels both positive, so about 22 days for each vessel. Chris Snyder – Sidoti & Company: Okay. All right. Thank you. And my next question was about the increased arbitrage that’s going on in the market, is that just a result of eco vessels providing cheaper transportation which allows traders to take more of an advantage of these opportunities or is it a kind of on the demand side where you’re seeing more areas of both production and consumption, which is kind of creating more arbitrage opportunities?

Chris, it’s Cam. It’s definitely the latter. What we like to see not that we can control it, but what we like to see is such things is volatility in pricing of the underlying commodity across markets. We like to see four curves in Contango, which drives floating storage. We like to see regulations sort of balkanize across regions. So we traders can capture different chemical composition cargo that they can change on route. So these are the types of things that drive tremendous amount of demand this guys want to close our trades. Chris Snyder – Sidoti & Company: Okay. Thank you.

I just said is that total misunderstanding out there if anybody thinks that, yes because we get fuel savings that we discount the rates. You don’t do that. It’s open outcry. It’s just the same as you get into your taxi, you don’t ask the taxi driver what is operating cost. You just pay the same as what you pay the next taxi you take. Chris Snyder – Sidoti & Company: Yes. Obviously the LR2...

That’s definite, yes. Chris Snyder – Sidoti & Company: The LR2, the TC for the quarter was obviously low, is that just the result of you’re only operating one of them and it was undergoing...?

No. That’s a result that previously saying that the vessel had to do drydocking and then it had to do some repairs. So it just didn’t do very well in that quarter. But there would be a very, very big step change to this quarter. Chris Snyder – Sidoti & Company: Okay. Thank you. That’s just from me. Appreciate for taking my questions.

Thanks.

We’ll hear again from Fotis Giannakoulis. Fotis Giannakoulis – Morgan Stanley: Yes. Hi. One more follow-up question. We read today an article on Bloomberg about many companies that they are building up mini refineries in order to be able to qualify crude – U.S. crude as a refined product for export. How do we think that this might impact the trade both for crude and product tankers?

Fotis, this is Cameron. I will take a shot at that. We’ve already seen very unusual moves particularly out of the U.S. Gulf both on our vessels and those of competitors in fuel condensates different types of crude. For instance, we have one Canadian end user who is taking crude basically out of the area North Dakota as to send it down to Corpus Christi is send it by sea back to Quebec, okay. Now this really as we said on previous calls we are seeing moves don’t make a lot of sense, but show how people are using work around or other infrastructure in place, limited infrastructure to avail themselves a valuable this crude at the country all over there. So we do carry condensates, we do carry fuels, we are seeing increased volumes how this actually plays out and practice we just have to watch and see over the next few months. But there is no question that the amounts of the exports out of the U.S. Gulf are growing at a tremendous rate. In our view mostly in refined products, but you would expect to see other products as well and gas when it can come. Fotis Giannakoulis – Morgan Stanley: Okay. Thank you very much.

We have no further questions at this time. I’ll turn the conference back to Mr. Lee for closing or additional remarks.

We have no additional remarks. We’d just like to thank the audience for having been with us today on our fourth quarter 2012 earnings call, and look forward to speak to everybody soon. Thank you very much.

Thank you. And again ladies and gentlemen, that does conclude our conference for today. We thank you all for your participation.