Euronav NV
Q1 2017 Earnings Call Transcript

Published: 26 Apr 2017

[Operator:]

Good morning, and welcome to the Euronav's First Quarter 2017 Earnings conference call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note that this event is being recorded. I would now like to turn the conference call over to Paddy Rodgers. Please go ahead.

[Paddy Rodgers:]

Thank you. Good morning and afternoon to everyone and thanks for joining Euronav's Q1 2017 earnings call. Before I start, I would like to say a few words. The information discussed on this call is based on information as of today, Wednesday, the 26th of April, 2017 and may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements reflect current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events, performance, underlying assumptions and other statements which are not statements of historical fact. All forward-looking statements attributable to the Company or to persons acting on its behalf are expressly qualified in their entirety by reference to the risks, uncertainties and other factors discussed in the Company's filings with the SEC which are available free of charge on the SEC's website at www.sec.gov and on our own Company's website at www.euronav.com. You should not place undue reliance on forward-looking statements. Each forward-looking statement 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 on to Euronav's CFO, Hugo De Stoop, to run you through the financial part of the presentation.

[Hugo De Stoop:]

Thank you, Paddy and good morning or afternoon wherever you are, and thanks for joining our first quarter 2017 earnings call. Turning to the agenda slide, I would like to take you through the highlights of our first quarter followed by a full review of our key financial figures, before handing over to Paddy to take you through the latest market themes. We will then turn over to the operator for our Q&A session. Moving on to Slide 4, we would like to underline the following highlights. Q1 freight rate performance was reflectable given the high level of vessel delivery during Q1, the equivalent of 27 VLCCs, that is VLCC and Suezmax combined were delivered to the global fleet during Q1, which along with reduced number of cargo toward the end of the quarter due to the OPEC, non-OPEC agreement cut and prediction had a negative impact on the tanker market. Offsetting those negative trends was the further expansion of Frontline most noticeably from export out of the USA to the Far East, a point Paddy will pick up on later. Overall, Q1 was sequentially weaker than the same quarter last quarter in 2015 due to the reasons mentioned previously. Looking forward to Q2, 2017, the VLCC market has remained better supported than the Suezmax market with 42% of our VLCCs spot days booked so far at around $32,000 per day and around 47% of our Suezmax spots added over $22,000 per day. I would now like to move on to the income statement on Slide 5. All figures as usual have been prepared under IFRS, as adopted by the EU and have not yet been audited. There were no one-offs or exceptional items during the quarter. As announced in March, with our final results for 2016, we'll be paying a dividend of $0.22 per share covering the second half of 2016. This dividend which is subject to the approval of our shareholders at our AGM on May 11th should be paid on May 31, and the share should go ex-dividend on May 22nd, with a record date on the 23rd of May. Now moving on to the Euronav balance sheet. All figures presented are at the end of March 2017. Euronav has expanded its access to high level of liquidity and continues to retain a strong balance sheet. The work undertaken during Q4 in bolstering our liquidity with refinancing activity, and lease back on four VLCC allows Euronav with access to more than $620 million of liquidity. This compares to around $600 million at the end of last year. We retain a discipline approach to our capital structure. At the end of March, our leverage was 36% in book values and 43% when we mark that to market values. Please note that this figures do not include any financing with regards to the Suezmax vessels backed by two time seven year timer charter with Valero, we announced in September 2016. That concludes the financial section of the presentation and I will now hand over to our CEO, Paddy Rodgers, to give you an update on current tanker market themes and outlook. Paddy, over to you.

[Paddy Rodgers:]

Thank you, Hugo. I would like to start with the dynamics of ton miles. There have been a number of positive developments in this area specifically during Q1, most notably sustained growth in U.S. crude exports. As Slide 7 shows there has been a step change in the level of U.S. crude exports during Q1 2017. We have shipped a number of cargos from USA to China during the first quarter and it looks as if this will become an established and substantial trade lane going forward. Increased production from Brazil that has been sourced from the Atlantic and shipped to the Far East has offset the impact of OPEC, non-OPEC production cuts. As a simple math on Slide 7 illustrates, this is a very positive development for a tanker company as it drives higher ton miles, roughly double the ton miles from the Atlantic to the Far East compared to the Middle East to the Far East. While this is a positive trend, which we expect to continue going forward and unwelcomed feature has returned during Q1, which you see on Slide 8, mainly the increase in the contracting of newbuildings. Slide 8. There has not been any ordering of Suezmax vessels since October, but this contrast with the recent state of VLCC orders, 15 during Q1, so we have seen in 2017. The disappointing feature of this order profile is that most of it has been from players not requiring fleet replacement. We would caution that some of the contracted orders placed during 2017 may have some conditionality around them, which we believe may make their eventual construction doubtful. That said the volume of orders cannot be ignored. The shipyards and principally the South Korean yards have used their domestic political impasse to offer discounts and other incentives to drive orders. Such speculative ordering reduces the value of the entire world fleet for everyone. The impact of this spike in order activity is likely to furlong the current market conditions implying a lower, but longer freight cycle. This leads me to Slide 9. Asset prices have been under pressure almost continually since 2009 to 2010 as the chart on Slide 9 shows. This illustrates the price for a five year old VLCC going back to 2001 on an inflation adjusted basis. As can clearly be seen from this chart, asset price for this category are at or approaching the low level last seen in 2013 and the multiple of EBITDA paid for such vessels is also approaching similar levels for those seen at that recent low. This doesn't mean asset prices are about to rerate upwards, but it highlights clearly the value that is available in the current VLCC fleet without the need to go to the shipyards and order new vessels to the detriment of ship owners. Moving on to Slide 10. I want sum up with the reminder of where Euronav is positioned currently and what we have achieved in the current cycle. Slide 10, whilst a little busy shows that despite the rate cycle which peaked in Q2 of 2016, Euronav has continued to deliver strong returns to its shareholders totaling $391 million U.S. in dividends. Yet also increased our fleet size by acquiring 10 VLCCs over the same period and simultaneously increased our available cash liquidity from $240 million two years ago to over $600 million today. We retain the lowest leverage in the sector and subject to shareholder approval on May 11 of the AGM, we'll pay a further dividend of $0.22 per share at the end of next month. Euronav is well positioned to simultaneously take advantage of consolidation opportunities within the tanker market and yet be protected from a lower for longer freight rate cycle. This we believe gives Euronav a clear advantage over our peers as we face the rest of 2017. Now in summing up on Slide 11, we have our outlook and traffic light system. Our traffic lights have had little change since the end of January. On the one hand, the increased contracting activity has made vessel supply light all amber, but this is offset by the strong dynamics we have seen in ton miles development and improving ton mile outlook. So, in summary, the overall outlook from Euronav remains the same, although the mix is altered somewhat. Medium term, the positive pieces remains intact, but short term absorption of vessel supply coupled with increased contracting activity implies a challenging market for the remainder of 2017. That concludes the formal part of the presentation. Thank you for listening. And I will now pass you back to the operator.

[Operator:]

[Operator Instructions]. The first question will come from Chris Wetherbee of Citi. Please go ahead.

[Prashant Rao:]

Hi Hugo, Hi Paddy, this is Prashant calling for Chris. Thanks for taking our questions. I guess my first questions is, you've previously talked about the number of vessels that are passed their fair special survey and that's a large cohort that kind of happens through the system. And sort of thinking this in the context of longer ton miles, what do you think that means for rate? Is there support for rates there for the relatively younger portions of the fleet, particularly your fleet and how does the timing sort of work? Are we seeing those older vessels not being put in a longer ton mile service or how are things developing so far this year in terms of that?

[Paddy Rodgers:]

Hi. I wouldn't say that there was a clear differentiation between the routes that you can trade, it's more the companies that you can trade. So generally speaking, we would say that Atlantic trading for VLCC tends to be the arena for younger ship, and that's simply because of the preference of the cargos that are being moved.

[Hugo De Stoop:]

Paddy, I think you were cut off. Are you still there? Well this is Hugo speaking, so let me address the takeover from Paddy. What was explained was, it's very difficult to make a difference according to the trade with more company specific, so it depends on your expectation, the way you maintain your ships. And if we were to make any sort of difference, it is true that the Atlantic Basin would be oriented towards more younger vessels simply because a lot of those – they belong to oil majors and the oil majors tends to be a little bit more quality oriented. But normally, the ton miles is like a big bucket and so those ships that are not qualified to trading attractive would naturally find a home into the Pacific and Indian Basin and so it's very difficult to see if an emerging trend could start for younger vessels.

[Prashant Rao:]

Okay. That's very helpful. Thank you. Just turning to where we are into the asset per cycle as we're seeing a trough here, looks like it could hold for a little while, but at least some line of sight there. How do you think about opportunities this year and I mean obviously you guys have been active in the S&P market, you have a strong capitalization that you can take advantage of. Would you expect to become less active in the S&P market maybe later this year in 2018? How should we think about the full acquisition opportunities?

[Paddy Rodgers:]

Hugo, I'll take this one if you don't mind. I think the way to see it is that we begin to see some support for pricing now and I think we've certainly seen the shipyards deal with a number of the berths that were immediately prompt and available and there of course in some trouble. So, I think that we can start to see a little bit of a support for pricing. As far as we are concerned, I think that whilst we wouldn't be in a hurry to do anything, as we've often commented, the liquidity in the market means that if you want to build a position, you should start early rather than late. And the market could always surprise us to the upside. So, at the moment we don't imagine as the asset value is bouncing back very fast or hard, but nevertheless, we do believe they found the level and the only way is up.

[Operator:]

Our next question comes from Jon Chappell of Evercore. Please go ahead.

[Jon Chappell:]

Paddy, I want to ask you, if we can combine Slides 9 and 10, think about the next steps then for Euronav. Is there any defense left to be played, things like the sale and purchase that you recently completed a couple of months ago or kind of priming the liquidity pump and then you know the Part B to that question, as you think about moving forward, then on the offensive side, how much of the $620 million of liquidity do you think you would be comfortable using given kind of the uncertainty in the markets right now, especially as we and do maybe a choppier mid-2017?

[Paddy Rodgers:]

Well, I think John as you know, our approach has always been that, we – you need to look at all available sources of capital and then rate it according to the way that you feel its cost profile looks and how much it– how – what impact it is on the Company, and so we're always going to be looking for all the difference sources, potential for tapping. And that may include some sign on leaseback. I don't think that something that's absolutely top of our priorities at the moment, and we do of course have some very natural rotation ships out of our fleet is varied. So, business is usual as far as that's concerned. And I certainly think, then as far as going forward is concerned, or obviously going to want to make sure that we fund whatever acquisitions we make at the time that we make them, and was there some flexibility to use capital to acquire tonnage. We also have to be quite strict to our guiding rules to make sure that what we acquire is good value, but also we maintain an appropriate level of liquidity to deal with a larger fleet.

[Jon Chappell:]

So, if kind of take that answer and just sum it up very simply, does it seem like the defensive part of preparing for the downturn is now over, the offensive part is probably in the immediate future, but right now may just be a transitionary period and biting your time?

[Paddy Rodgers:]

I think that's very effectively summarized. Well done.

[Operator:]

Our next question comes from Michael Webber of Wells Fargo. Please go ahead.

[Michael Webber:]

Paddy, just wanted to discuss on the consolidation theme, that's something what you are referring, highlighting and you referenced in your loss, obviously a lot of headlines recently. But this is something, it comes up on every call. We even talked about and spoke of the better part of the year, and that guidance have rolled over. Could you just give us – as we stand here today versus I'm saying the back end of last year. Have you noticed any meaningful shifts between kind of the bid ask spread and call between buyers and sellers? And then particularly around whether, currency that are hovering around any of the – or you know it's less discount or become more palatable in terms of equity for equity swaps, or I guess people being a bit more flexible with how to view that kind of utility, particularly on the sellers end and their ability to – willingness to take back equity. So just kind of a quarter-on-quarter comparison on where we're at right now?

[Paddy Rodgers:]

Yeah. No, I think that certainly we've heard more conversations in which people are discussing their willingness to take shares when they sell. And, the obvious example of that is the transaction that we've seen done now with BW and THC and that looks like a deal that probably wouldn't have been doable three to four months ago, is suddenly doable because of an alignment of vision presumably both side felt that the combined company would be adequately capitalized with the market outlook that existed and people would share stations. The seller was prepared to take shares. So, I meant that really summarizes that sort of your question was almost directly towards that, because I think we are seeing that – those things agreement on value acceptance of where we are in terms of the market cycle and some feeling for whether or not the company is sufficiently strong to be a good bet for a shareholding rather than for taking cash.

[Michael Webber:]

I guess the better ways for me to frame that questions, is do you think there is dynamic that we've been reading about or applicable to other transactions or situations in some way, shape or form. Obviously they are not going to be identical, but do you think that, that willingness extends beyond some of the deals we've seen in the current market?

[Paddy Rodgers:]

Yeah, I mean is it replicatable and all I would say is that, I think – as I – it think it is. I think it is replicatable. I think people are coming and it's not just these two parties that have seen the market and the possibility of the structures that way. And But you know shipping these things often take their time and now they are often prevented by other issues. But I think it's perfectly possible to see those sort of things replicated.

[Michael Webber:]

One more from me and I will turn it over. In one of your earlier answers when the time got passed through Hugo, you mentioned kind of ton miles effectively being kind of like a basically as a global bucket as it pertains to kind of ages and vessel kind of getting squeezed out of particular lanes. But I'm curious, with regards to – do you mention the more stringent emission regulations coming into Europe, you know a higher bar to potentially exclude older tonnage. How has that had a meaningful impact on the age range with which you know – with which you are looking in terms of growing the fleet, if that was going to be a negative dynamic economic calculation, but have you kind of noticed any kind of growing distance, or maybe and you are seeing some older tonnage as more severely discounted than you are seeing, I'm just curious how that wave kind of plays itself out in terms the assets you guys are targeting?

[Paddy Rodgers:]

Sorry. Well, there is no question as Hugo summarized. The customers in the Atlantic and certainly the receivers in the Atlantic are concerned about age. I don't see many people wanting to bring and old ship into the Atlantic and then finding that the routes out, or the natural follow-on value in that trade is going to China which has a ban in the number of its terminals and receivers 14 years of age. So, you can't triangulate through into the Atlantic and back out to the Far East with an older ship, with any degree of uncertainty. So that means that there is a one trade at least that's beginning to definitely beginning to be a young ship trade. I would always want to make sure that if we were buying a ship, that we were buying one that was within that five to six year range, zero to five to six years. We may go a little bit older, but I mean it's really, you'd want to make sure you could be maximizing a trade in which, through the TI pool we're very heavily involved in. So, that would be the way that we would see it. I think the default trade for the older ships is going to be AG east and increasingly those short haul trades around the AG into the Red Sea or into India.

[Operator:]

[Technical Difficulty]

[Greg Lewis:]

Hugo?

[Hugo De Stoop:]

Yes.

[Greg Lewis:]

Hey thanks. I didn't realize I was on. I don't think I got introduced. So, I mean it seems like everybody is kind of focused on you know what's going on in the Caribbean, and I guess I'll ask this a different way. And this is Greg Lewis by the way if you didn't know.

[Hugo De Stoop:]

Thank you, Greg. We recognized your voice.

[Greg Lewis:]

Hey guys, yeah, that was a little bit odd. Anyway, so I mean it looked like we were surprised by the strength of your Q2 bookings in that, it looked – I mean you've reported VLCC rates of $32,000 a day. I get that the current market is $32,000 a day. But as we looked at late March and early April, it was well below that. So, I guess what I'm wondering is, is the strength that Euronav was able to book versus sort of what someone might look at the average index and expect, is that partially what's going on at the Caribbean and it sounds like you guys are pretty bulled up or believe that the sustainability of strength in the Caribbean could last a little bit longer than maybe the overall market might indicate, but traditionally is the same?

[Paddy Rodgers:]

I think you are absolutely right, Greg. I think that the patents that we've been trading have been longer voyages and as a result of that, of course we carried over some of the value earlier in Q1 into Q2. And that market can stay separate and stronger, but of course it's always a little bit vulnerable to whether or not people are prepared to bring a ship and out cargo into the Atlantic in order to look for the backhaul cargo. But I think that – at the moment that doesn't seem to be going on too often. So, the market remains a little bit separated from the main market out of the AG, and that's really what's been able to keep the rates. And I think if we see the volumes we're talking today, it could be a sustainable feature.

[Greg Lewis:]

And then, just I know you guys, I know just obviously sticking on the one question, so I will just kind of stay on this theme. At least as you look at the Euronav fleet, I mean you have the slide with the increase in U.S. exports. Is there any way to kind of parcel out how much of that is, how much of what Euronav's fleet is trading, or a market would be better, but how much of that's actually going to Asia versus say other parts of the world?

[Paddy Rodgers:]

I'm sure that that is available data. I would have thought the things that was noticeable to us on those figures was – there was effectively a doubling of the amounts of export trade from the U.S. and we would say that at the point at which it changed, it increased sharply. It was the VLCC trade that was the new trade. So, if we said that that change in value that growth was the VLCCs and they were all going – they were all effectively going Gulf of Mexico to China.

[Operator:]

Our next question comes from Spiro Dounis of UBS Securities. Please go ahead.

[Spiro Dounis:]

Thanks for taking the question. Just wanted to ask first around OPEC, I'm not going to ask you try and guess what it would do I guess a month or so from now, but maybe just to think about how you react to either an extension of a cut or then to spring production back online to the extent that production does come back. Paddy, is that – do you view that as a triggering point to maybe get more aggressive in deploying capital, or it's just not really maker factor as you see it?

[Paddy Rodgers:]

It really depends, doesn't it? Because I think that if the reasons that they don't extend is because there has been surprise additional demand growth then that's very clearly a sign that we're going to have a very much earlier start to the recovery than we thought, and that would be a very bullish sign. If it's simply desperation and that there is no real demand change, but they can't hold the agreement together amongst partners, then we'll just have a market that's oversupplied and the oil price would fall, and that may or may not be beneficial, we couldn't be too sure.

[Spiro Dounis:]

Got it. I appreciate the color there. Second one, just around the mindset, the extent you know, you cold sort of figure out, why these new orders are being placed, you may have a pretty compelling case for buying second hand vessels just given the ratio and EBITDA and the low values. You know is there kind of tag on to Mike's question earlier, but is there some sort of hidden cost they get in buying a second hand vessel now, it's different the regulatory landscape going forward. I mean we're not seeing as clearly and maybe that's what driving those orders, if you think the company up?

[Paddy Rodgers:]

I would suspect it. There is no question that people would say and particularly those owners that have an integrated management company and that have some new building designed specially within their group will always take the view that a ship that they design that the shipyard will give marginal gains compared on just on operating expenses or on sister ship values, on sister ship caught on the supplies and maintenance, which they think will drive long-term value, but it is marginal, we did some – so we would be of the view that you can get a lot more value from a second hand ship, not at least because you don't expand the size of the world fleet, and it's interesting to see who is in the list. I mean some of the people that are – that have booked newbuildings are very much yard supporters, have a long-standing relationship with a particular yard. And I'm just discounting for the moment the obvious home run stuff by the Koreans, where the Korean company will go and place and order and then we'll be in the market to try and charter the ship out. And it all becomes a bit contingent on whether or not somebody will take a timer charter at the right rate. I mean that's one way to the yards getting support. But another way is going to old friends who have built a lot over the generations of the shipyard and who they may well have you know four or five ship deal, two of them will free the VLCCs, it might be a gas carrier in there and they are telling them, this is a once in a lifetime opportunity. The yards are definitely going to go through and cut their capacity, therefore this is the bottom of the cycle and get in and that's the sales routine last opportunity to buy this berth, and that's the opportunity that's being sold to them.

[Spiro Dounis:]

I really appreciate the color Paddy. I'm sorry.

[Paddy Rodgers:]

And of course it's only you that gets this offer, because you are a great friend of the yard.

[Operator:]

Our next question comes from Amit Mehrotra of Deutsche Bank. Please go ahead.

[Amit Mehrotra:]

Okay. Thank you very much. Good morning, afternoon guys. Thanks for taking my questions. Paddy, I wanted to ask about the order creep that you had obviously mentioned and everyone's kind of seen over the first quarter. It's interesting because, you know most of the rhetoric from you the Company, even of the rest of the industry has over the last 12 to 18 months has been the lack of financing debt or equity capital markets not available to fund newbuildings, and so in that context is kind of interesting to see, order creep despite you know second hand values still being relatively weak. So, in that context, Paddy, if you just hope – has anything changed in terms of your outlook for the industry's ability to finance new orders and you know what type of impact does this have, I guess on the structural earnings power of crude tanker assets over a cycle? If you can just help us out there in terms of the order outlook and the ability of new orders to be placed.

[Paddy Rodgers:]

So, first of all, I don't think there has been any significant change on the financial side, because if you look at those 15 additional vessels, its' a bit of this and a bit of that. I mean there is some, but there are some we've seen added that have come from leasing companies, there are some that I mentioned earlier on who will be dependent on getting charter support in order to finally confirm the order. There are some that come from traditional ship owners of – who have significant personal wealth, and then there are one or two of the usual villains who you are never quite sure what terms they manage to negotiate and how much of a risk on the value appreciation the yard is taking for accepting a very low deposit or small deposit. So, I think that – as a whole, I don't think there been any change to the finance landscape which has enabled this newbuilding development, but I do think this is the last act of a desperate man, we hope, if the shipyard's really, really trying to sell the emergency berth that are absolutely prompt on their doorstep and that they have to fill and they are finding emptying every last drawer and bucket to find a way of getting a deal done. So, that's why I hope and, I say, there is some expectation, but there is certainly a strong amount of hope that this is not something that we will see replicated through Q2 and Q3, and significantly change the order book profile.

[Amit Mehrotra:]

Okay. Thanks for that clarification. Can I just ask one specific one the numbers for Hugo. You know, the loan to value ratio, seems to keep on going down and well it does keep on going down. And then the – you have called over $100 million or so I guess, Hugo current bank loan payments over the next year. So, prospectively over the next 12 years, 12 months it's going to even go down further. And so I just want to like – first of all, how do you think about that, because I guess upgrade in this market to have low debt, but it kinds of leaves you a little bit look old to what's happening in the industry from sort of a hostile M&A stance, right? And then second, like how do you think about that when you – in terms of value creation, because you could argue, I mean you guys have been extremely bold to touch [indiscernible]. I wouldn't imagine that you would be cautious in terms of making big acquisitions, and so, when you look at your capital structure that continues to get derisked when you look at the asset values and you look at your past experience making the acquisitions, like why wouldn't you guys move relatively boldly given all the stuff that's going on in the industry. Are there just not that many opportunities to do that? Thank you.

[Hugo De Stoop:]

Amit, it's a long action. Thanks for asking. First of all, don't forget that lot of the liquidity is spot in the revolver and revolve what does that mean, that means it's a piece of debt, the minute you draw on it. So, if we went to need to use those liquidity of the fee, the overall leverage of the company would go up. As we sent a press release two ways that we can use the liquidity is by attractive opportunity and I will come back to that in a minute, or obviously it's a market that will deteriorate further and certainly below breakeven rates and we will have to use that available liquidity and naturally the leverage would go up. So, as you see how we did in previous cycles, that definitely will be pertain to happen if you are right at the end of good cycle and you enter into that cycle and indeed you need to draw your lines to support your business, that's a position you want to be. The ratio that we used to see how much liquidity we move for a full market is also defined by the number of fixed contracts, fixed time charter contract that we have, because those will be there in good markets or in bad markets if they are fixed. So, it's relatively simple, but at the same time relatively complex, because what we do is we project the next two or three years. As anyone else we cannot predict the market down to the $1,000 very accurately, so we need to have returns at all times and then following up on Jonathan's question earlier is how much of that liquidity can be used for opportunities, is very much dependent on the opportunities. It will depend on the age of the ships, it will depend on the number of ships obviously. It will depend on whether those ships have a contract attached to them, et cetera, et cetera. So, in a nutshell, I don't think that we are on the level. I do believe that yes, we are continuing to repay debt, but a lot of debt will not be a cash repayment. It would just be reduction of our current liquidity. Let's not forget at the same time we will continue to amortize our ships as far as the leverage to book value. I don't think that it will move dramatically to further reduction, and as far as the market is concerned, yes, we do believe that we find a floor for the value, so that could potentially help us, but again because it's our cash reduction, I don't expect that to go down to far. Where to draw – just one more, I think, if we were to draw all the lines today, we would approach something like 60% leverage. And then you need to find what to do with that – with the cash whether it was for the operation or whether it was to buy assets and that would be a combination of additional debt and potentially additional source of capital dependent on what ratio you want to end up with.

[Operator:]

Our next question comes from Ben Nolan of Stifel. Please go ahead.

[Ben Nolan:]

Thanks. So, Paddy, I think, I appreciate you did pretty extensive walkthrough, what exactly is going on in terms of the yards, and they are trying to motivate people to place orders. But at the same time, we haven't seen much scrapping, and that's in the face of steel prices that have gone up. Is there another element to what's happening here? I mean is it possible that perhaps owners of the VLCC crude tankers in general are little bit more optimistic for some reasons don't want to get rid of their older ships and are placing orders for some expectation of upside that D&A isn't currently reflected in the market. And if so, how would you sort of frame that in? I mean what might people be looking at?

[Paddy Rodgers:]

I think the scrapping issue is quite well documented, whilst there are lot of ships that you might think about scrapping. The fact is that we don't have a large number of ships that are well into 20 years of age and the reason we don't is because we changed over from single to double hull, which mean that relatively speaking the tanker fleet is quite young, and so we're missing out on the ships that were built in the early 1990s, that would have been very much scrapping candidates, almost without question, and then those ships which – the decision would be very tight on the ones in you know the mid to late 1990s. So, we've really come into significant area of fleet growth that could get scrapped in the late 1990s and that's 1998 and 1999, 2000 and so that's the point at which you see that the decision whether to scrap or not is really important. Now, I don't – I think that the scrap price obviously is important, business they are always going to be looking at optionality and if a ship owner thinks that his ship is perfectly good for another 2.5 years and he thinks that it's the tanker market, so something could always happen and you could be into a market of the type we've seen in the past where you are $100,000 a day, and of course his quick calculation that he can potentially make about $36 million a year from a tanker in the right market means that it's probably worth summing it for a couple of years when you are not hopeful if that kind of return is available. So, it's the optionality of the position that is holding people back and of course what could happen is just look at the historic graph, the best year could happen again, because it could happen from unforeseen circumstances whether it's a sudden increase in storage, whether there is some political development which causes a disruption in trade. So there are lot of good reasons for why you might want to hold that optionality value.

[Ben Nolan:]

And I assume that also translates into why people would place orders or – even more incentivize the lower the price of the vessel?

[Paddy Rodgers:]

Yeah. I think that's more the – maybe if you are very close to a shipyard and the shipyard tell you that they are going to shut a third of their capacity and they will not open it, and that is going to be the new landscape. You might think this is the last chance to get a couple of millions dollar off of the VLCC price and most of the people that have bought, the answer within the Korean system, the ones outside the Korean system are sort of people settle at a store buy maintaining – looking forward for a very long life of their ship on low operating cost through having designed it themselves and having added certain features themselves. So, I mean I think that's kind of balanced argument that's going through people's minds. But I didn't rule out the fact that we could have a roaring market in a year or twos time, it's just that on the face of it, what we're really looking at is probably actually quite good numbers on the demand side, and with supply looking a little bit long.

[Operator:]

Our next question comes from Noah Parquette of JPMorgan. Please go ahead.

[Noah Parquette:]

I wanted to focus on the U.S. export theme. Just one comment first on all on Page 7, the next quarter shows number net of maybe in exports, but in terms of what you've seen for sea borne going to Asia, has that been on, has that been lighted on to a VLCC or is that going on smaller ships through the Panama Canal?

[Paddy Rodgers:]

Sorry, the oil exports in the U.S. are not going through the Panama Canal. They are being taken on VLCCs and going on the long voyage.

[Noah Parquette:]

The latest GI [ph] that I have through January is 2 million barrels going to China, so one VLCC. Are you seeing a material increase in that in terms of what you've traded?

[Paddy Rodgers:]

Well, yeah, we've traded. I would say that since the start of the year, we must have done 10 cargos VLCC.

[Noah Parquette:]

China?

[Paddy Rodgers:]

Yeah. And out of the Gulf of Mexico and are positional is that we think there's more been number of those.

[Noah Parquette:]

Is it that big of a factor? Is it changing how you trade your vessels in terms of triangulation? Do you see, any difference going forward and how owners trade their fleet?

[Paddy Rodgers:]

Not really. I mean I think it hasn't made a big difference to us, because this has been a trade that we focused on for probably best part of 20 year, best part of 20 years, certainly since we set up the Tankers International pool and the – the volumes make a difference in terms of the amount of trade. There is a very sharp noise coming through the phone. There is a growth in that trade, that's good for the market as a whole. For us, if we haven't done a lifting out of the U.S. Gulf, have probably done a lifting off Colombia or [indiscernible] or out of Brazil. The targeted area was that region anyway, but I think the volumes are growing, that's the important thing, so it's going to have an impact.

[Operator:]

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

[Fotis Giannakoulis:]

Yes. Thank you for taking my questions. Paddy, I heard you that trying to project cautiousness and suggest constraint among ship owners in terms of newbuilding, but at the same time we have seen the rate since the beginning of the year being much stronger than expected. I wondered if you can dissect the reasons of this strength, whether the market should not be that cautious about either newbuildings or the 2017 outlook which seems to be very weak among both ship owners and investors and whether we have some expansion in ton miles that it's permanent, you mentioned about U.S. exports probably more volume from west Africa to Asia. Can you explain what are the reasons that we have seen the strength, it ton mile expansion or its more volume that is coming and lack of compliance from the OPEC countries.

[Paddy Rodgers:]

Well, first of all the ton mile growth is a direct consequence of the OPEC, non-OPEC agreement which shut out shorter haul oil into the Far East and that was done to support the shift of the oil barrel price which of course did react very positively, very quickly kicked in additional shale production and then the price came off as that shale got produced and then exported. So, it's the ton mile permanent? I think that it's a permanent feature whether it's permanently growing or whether it's going to be at this level, I don't know. That will probably depend on what happens next on OPEC, non-OPEC. I think as far as demand goes, it still looks good and people have a lot of different – lot of people have a different take on when we are on the world economic growth, but the way we feel about it and it's reflected in the IA predictions on oil demand growth, is that the consumption is good and that there is a demand for oil. So, the issue – the only reason that 2017 is potentially going to turn out to be a weak year and why 2018 should be the turnaround year is a view on the supply side. So, it's just a question of going through the list and counting the vessels and saying, well we add another 6% of vessels and it's probably going to have an impact and of course we have the hard lesson that we took last year of once people's confidence is gone, the rate is gone, but now any correlation in the extent to which this new arriving ships, once there is too many, there is too many in the right force way dramatic here and we saw that in Q3 last year, that's why we're cautious.

[Fotis Giannakoulis:]

Can you give me your magic number on – the magic multiplier on this 1.5 million barrels per day increase in demand and consequently the trade? What is the multiplier? How may VLCCs this translate incremental VLCC demand translate every year is 1.5 million barrels that you can give us a range to understand at what level the new building orders are becoming a factor for next year?

[Paddy Rodgers:]

Well I think and we have the slide in the deck I think. I mean I would guess that you could say that depending on what the point of supply is and point of demand then you are looking at a million barrels being approximately 30 VLCCs, and so 1.5 million barrels would be certainly 40 to 45 if you are going long haul.

[Operator:]

Our next question comes from Herman Hildans of Clarksons Platou Securities. Please go ahead.

[Herman Hildans:]

So, just one thing that I'm sure that you would argue very hard from and that would be, there is no better fleet out there than the Euronav fleet, there is not better balance sheet and no better management, correct?

[Paddy Rodgers:]

Well, it's nice of you to propose it.

[Herman Hildans:]

The theme that I've kind of focused about slightly is obviously, you know where you are with your fleet and with your balance sheet and your liquidity and kind of why – and certainly where you seem to feel like you are in the cycle why you have been more aggressive on focusing on call it, buying back your own shares, given its trading below and maybe and that the focus is much more on the fleet expansions for the largest transactions. Can you kind of explain to me how I make that rational focus?

[Paddy Rodgers:]

Well, I think as we've said many times, we are not going to – we have a policy on dividends, we have a policy on the way that we're going to use the profits that we generate from the business. And that will be a blend of whether we are going to pay dividends, whether we are going to buy back shares, whether we are going to invest in assets or the Company. Now, we have not been doing nothing on the assets side, and obviously took two delivery of two VLCCs in January. We have two newbuilding orders which we've notified the market over the end of last year, which was on our Suezmaxes. We have interest in plenty of other things. So, I think that the by development side looks like the strongest at the moment. It looks like the side where we are going to put most of our emphasis. I think the share has been a little bit stable recently, although a bit disappointed at the reaction on our press releases. Our numbers were so good that we came off a little bit today and I hope we'll catch that back up. But turning to the share, would be something that I think that we can do, we have said that we will do, but ultimately it's going to be weighing it up against whether or not there is a perfect case for gaining value for the shareholders and adding to fleet at this time.

[Herman Hildans:]

And also kind of just following up on that as well, I mean obviously you have, as you talked about quite a lot of optionality in the balance sheet and expansions and buy back and everything, but would you be – do you feel a sense of urgency that over the next 12 months, you would like to have spent you know some of that optionality and tied it down to real call it bets in the tanker market or do you feel like it's more call it reasonable to assume you are in a position now where you can take whatever comes against in the market and that's kind of the position you want to be in? I'm kind of trying to make connect to some ambitious targets?

[Paddy Rodgers:]

Well, I think, I think everybody is, everybody would like this in a way, because it would clarify the tortuous business of difficult decision making around acquisition value and the cost of capital raising that must go with in a responsible company. You know being big has no value if you can't sustain the fleet that you have put together. So, there is no point fighting yourself, doubling up the size of your fleet, finding yourself short of liquidity and then being dependent on a market outcome, which is more in hope and expectation, and that's something of course that we will always try to avoid and something that we just weren't doing. So, I think that of course if we see an opportunity, we'll be only too happy to expand, and I think that you know from our track record that we have the ability to act quickly and nearly always and I would even say always certainly since 2013, we've ensured that we effectively raised capital at the time that we did it, or we deployed capital that we had pre-raised in a way that was relatively good or raised relatively sensible use in terms of the leverage it left us with and the liquidity as our disposal. So, I think that the outlook for us is that we're going to maintain going about business in a way which will deliver long-term value to shareholders and that they can trust us to do that. Whether or not we have to rush at a particular time because we might miss the market would seem crazy to me when a company such as ours is added 25 VLCCs in 36 months. This is not a company that's not been doing anything and we're not sure of operating days. We're also one of the most operationally levered companies. So, it's nice to talk about our financial balance sheet strength, business in terms of our operational leverage, if the market goes up, we're not missing out on anything. So, it's a question of you know having the growth at reasonable price and with a proper management of risk.

[Operator:]

Our next question George Berman of IFS Securities, Raymond James. Please go ahead.

[George Berman:]

Good afternoon. Thank you for taking my call. Congratulations, I think you are moving along quite nicely here in this low market environment. I missed one mentioning of the upcoming ballast water treatment situation and I think they are going to start in September. Would that lead in your opinion to additional scrapping or could use some scrapping and how is your fleet positioned in this area?

[Paddy Rodgers:]

I think that the ballast water treatment was going to have another further meeting of the NEPC in May to review the timing and whether or not there was going to be an easier effective implementation. So that's a date that's out there as well as September date. I think most of the owners will be looking to seek some source of deferral on having to make a decision, and the reason for that is not wishing to avoid the implementation of environmental regulations specifically, because for big ships, it's not quite clear at the moment how effective some of the systems will be for treating the large volumes of ballast that we carry and the long period of time that we have our ships in ballast. So, there are couple of issues around that. I think that it can be a motivator for scrapping. It can be a motivator for scrapping. But only, I think if somebody is already in the zone saying, do I want to scrap my ship or do I not want to scrap my ship, and then it might be the thing that helps to tip the balance. But people who have got a ship with good stub value, a couple of left around without much investment to be made are not going to be bothered by this and this will not force their scrapping hand. One of that reasons for that is the relatively simply regulatory changes to the ship. You can get yourself another year or two of breathing space.

[George Berman:]

So, it's nothing that would imminently cause a huge amount of investment necessary to get you up to par?

[Paddy Rodgers:]

That's right.

[Operator:]

This concludes our question-and-answer session. The conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.