Navios Maritime Acquisition Corporation
Q4 2017 Earnings Call Transcript
Published:
- Operator:
- Thank you for joining us for Navios Maritime Acquisition Corporation's Fourth Quarter and Full Year 2017 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; Vice Chairman, Ted Petrone; and Chief Financial Officer, Mr. Ioannis Karyotis. As a reminder, this conference call is being webcast. To access the webcast, please visit the Investors section of Navios Acquisition's website at www.navios-acquisition.com. You'll see the webcast link in the middle of the page, and a copy of the presentation referenced in today's earnings conference call can also be found there. This conference call could contain forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Acquisition. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Acquisition's management and are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. Such risks are more fully discussed in Navios Acquisition's filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Acquisition does not assume any obligation to update the information contained in this conference call. The agenda for today's conference call is as follows. We'll begin this morning’s conference call with formal remarks from the management team and after we'll open the call to take question. Now, I turn the call over to Navios Acquisition's Chairman and CEO, Ms. Angeliki Frangou. Angeliki?
- Angeliki Frangou:
- Thank you, Lora, and good morning to all of you who join us on today’s call for the fourth quarter of 2017 Navios Acquisition’s reported revenue of $50.3 million and adjusted EBITDA of $20 million. For the full year of 2017, Navios Acquisition reported revenue of $227.3 million and adjusted EBITDA of $107.7 million. We also declared a quarterly distribution of $0.02 per share for the fourth quarter of 2017. This dividend represents an annualized distribution of $0.08 per share and a yield of approximately 10% based on the current market price of NNA. This dividend is accompanied by a new $25 million stock repurchase program. We believe that this repurchase program is a particularly effective method for returning capital to our shareholders at a time when NNA’s shares are trading below analysts’ consensus of NNA’s NAV and this is a tax efficient way of returning capital. A stock repurchase program offers another opportunity to benefit our shareholders. In considering our capital resources, we are likely to adjust the dividend we have paid for 29 consecutive quarters and reallocate cash towards stock repurchases. As fellow shareholders, we are personally affected by these actions, and thus share our belief that increasing our capital commitment for stock repurchases while reducing our dividend is consistent with the best tradition of being opportunistic and progressing the best long-term interests of our shareholders. Please turn to Slide 4 we are leading tanker company in a sponsor of Navios Midstream Partners. We expect about $21.3 million of distributions from Navios Midstream in 2018 and received almost $60 million distribution from Navios Midstream since 2015. Our ownership interests in Navios Midstream add a $122.7 million or $0.81 to NNA’s per share NAV. Slide 5 have a company highlights. NNA has 36 model high-quality vessels with an average age of seven years diversified between group product and chemical tankers. We have cash visibility as our fleet is 60.2% fixed for 2018. We captured market upside with profit sharing that enters an additional $7.6 million in 2016. 40.5% of our fixed days for 2018 include a profit sharing element. On the cost side operating cost are fixed through mid-2018. Slide 6 details Navios Acquisition key developments. During 2017, NNA recorded a $107.7 million of adjusted EBITDA of which $20 million was during the fourth quarter of 2017. Our chartering strategy provides stability in a low-rate market. For the full year of 2017, NNA average charter rate for the combined fleet was about 53% higher than the market averages. Based on the full year performance, NNA generated about $74.1 million higher revenues than the market average. As I highlighted earlier, we are also announcing a $25 million stock repurchase program, which we intent to use to opportunistically buyback our shares. We believe that our shares currently trade at a discount through their increasing volume. Under this program, we can accretively return capital to our shareholders on a tax efficient basis. Under a new capital return policy, we will be paying about $13 million in dividends on an annualized base. We will also seek to repurchase about $25 million in shares under our stock repurchase program. We are also in advanced discussion to proactively finance $64 million of our credit facilities maturing in the next sixteen months through our new leasing structure. A new facility comes with a very favorable terms that includes an interest rate of LIBOR plus 3.05% 18 years age adjusted repayment profile in a six year payment. Slide 7 details our chartering strategy. As you can see for the full year of 2017, NNA’s average charter rate with a combined fleet was an estimated 53% higher than the market average. Based on 2017 performance, NNA generated $74.1 million higher revenues than the market average. Slide 8 precipitates our chartering strategy. We seek protection from market volatility for period charters. About 46.3% of our fleets available days are fixed at the base rate or at the base rates plus profit sharing and 10.9% are fixed on floating rate for 2018. For 2019, we have contracted out only 8.8% of our fleet as we monitor the market and we look to gradually charter out our fleet at a recovering rate. Any market improvement will be captured through one of the following three mechanisms
- Ted Petrone:
- Thank you, Angeliki. Please turn to Slide 13. Navis Acquisition continues Navis Group policy of locking secured cash flow from credit worthy counter parties. 2017 we extended the coverage of fleet for approximately 16 total use of coverage via new fixtures, continuations exercise optional periods at higher levels with profit sharing. We have continued that trend adding further two years through the beginning of February. Please turn to Slide 14. Navios Acquisition’s diversified fleet consists of 36 vessels and an average age of seven years totaling 3.9 million deadweight. The fleet consists of eight VLCCs, 18 MR2s, product tankers eight LR1 product tankers and two chemical tankers. Turning to Slide 15, our chartering strategy revolves around capturing market opportunity while also developing dependable cash flow from a diversified group of first class charters. Through our profit sharing ranges we can capture and benefit from market improvements over the current charter rates. 40.5% of our fixed days are covered by profit sharing this year. Please turn to Slide 16. Navios Acquisition enjoy vessel operating expenses estimated at 17% below our peers. This has led to an estimated operating cost savings of about $89 million from 2014 to 2016. These savings go directly to our bottom line increasing net income. We achieve these operational savings through a management agreement with Navios Holdings and those costs are fixed until mid-2018. Please note that the operating cost shown here include technical management, related services and general and administrative expenses. Navios Group of companies does not charge any fees to affiliated or intercompany entities. Please turn to Slide 18. Navios Midstream brings Navios Acquisition flexibility and liquidity of providing a new platform in the in the west sector for dividend seeking investors. Navios Acquisition owns 59% of Navios Midstream Partners, including a 2% GDP interest with the market value of approximately $124 million as of yesterday's closing price. Please turn to Slide 19. Navios Midstream Partners' fleet consist of six VLCCs is fixed with an average charter duration of 3.3 years and is expected to provide about 340 million in long-term revenue with top tier counter parties including Navios Acquisition’s back-stop arrangements. In 2017 Navios Midstream earned $57.9 dollars EBITDA. Navios Midstream declared a cash dividend of $0.4225 per unit for the fourth quarter of 2017. This distribution provides Navios Acquisition approximately $21.3 million in annualized distributions. Turning to Slide 21. According to the IEA, refinery capacity is expected to increase by 10.3 million barrels per day for 2017 to 2022, including all additional expansions and upgrades. About 74% of that capacity will be added in Asia and in the Middle East, with the IEA projecting China and other non-OECD Asia to increase refinery capacity by 3.4 million barrels and 1.8 million barrels per day respectively. New low cost capacity in Asia is forcing rationalization of old high cost capacity in the OECD. Because of the structural shift to growth in ton miles of refined oil products is expected to continue to outpace the general demand for refined oil products. Turning to Slide 22. As expected refineries have opened or expanded in Saudi Arabia and China. These refineries are now contributing significant volumes of product export. In 2016 Saudi Arabia exported an average of 1.4 million barrels per day of products in order to capture higher revenue per barrel while crude prices remained low. This was 26% higher than 2015. Chinese exports in 2016 were up 34%, but diesel, which was up 115% over 2015 exports. Through November of last year total Chinese exports were up 7% from the same period of 2016, led by record two million barrels of diesel exports in that month. These developments combined with continued strong Asian economy should support product tanker trade East of Suez this year. Turning to Slide 23. U.S. crude production has increased by 87% since the end of 2008, reaching 10 million barrels per day in November of 2017. The first time U.S. production exceeded 10 million barrels since November of 1970. U.S. has increased its total product exports by about 470% to about 5.6 million barrels per day since 2004. U.S. Gulf refineries which benefit from inexpensive domestic crude and natural gas supplies of finding a natural export market to neighboring Mexico and Latin America, as well as Africa. Please turn to Slide 24. Our oil refineries vary greatly in the quantity, variety and specification of products that they produce. As depicted in this slide, regional surpluses and deficits combined with relatively low cost transportation, drive arbitrage trades and increased product ton miles. Over the longer term increasing worldwide products imbalances point to increased ton mile development. Please turn to Slide 25. In 2017 the fleet grew by 3.9%, made up of, 8.1 million deadweight of deliveries and 2.1 million deadweight of demolitions, about 6% of the product tanker fleet of 20 years of age or older. As of the beginning of January there were 240 product tankers on order and 354 which were 20 years of age or older. The total order book is much less than those shipped 20 years older age, particularly given historical non-delivery rates and scrap prices remaining high. As a result projected net fleet growth for 2018 is a low 2.2%, the lowest growth in five years which should help to maintain current time charter levels. Please turn Slide 27. World crude oil consumption has generally grown for the past 30 years with declines in 2008 and 2009 due to the global financial crisis. Starting in 2010, world crude oil and refined product consumption returned to this pattern of growth, the main structural drivers going forward on modern VLCC growth and increasing demand from the Asian economies, particularly China and India. The IMF projected global GDP growth for 2018 and 2019 at 3.9% for each year with emerging and developing markets growing at 4.9% in 2018 and 5% in 2019. The global 2018 GDP forecast represents an increase of 0.02% from the IMF’s October forecast. Growth in the emerging markets is a key driver in future oil demand. However, the IMF increased forecasts for this year in 2019, to increase global growth momentum and the expected impact of recently approved U.S. tax policy changes on the U.S. and its trading partners. Increases in world GDP growth year-on-year have generally led to higher time charter rates for VLCCs. Please turn to Slide 28. In terms of ton miles the movement of crude from West Africa and South America to China uses about as many VLCCs as the movement from the Arabian Gulf, even though the Arabian Gulf shipped about two times more oil to China. Increases in Atlantic basin crude going to China in 2017 created additional demand equal to about 31 VLCCs based on 90-day round trips. The VLCC supply unfortunately grew faster than demand last year, causing lackluster rates for most of last year. As the new billing deliveries begin to flow later this year, increasing ton mile demand should bring the VLCC market back into balance. For example, increasing U.S. crude production led to a 79% increase in 2017 exports through November, adding to ton miles. From January to November of 2017 the U.S. exploited seven million barrels per month to China plus another 2.5 million barrels per month to Japan and Korea, for a total of 9.5 million barrels per month accounting for 29% of U.S. exports in that period. Near-term new crude export stream to West Africa, Brazil and other Atlantic basin suppliers to the new refineries in the Eastern hemisphere should helped to increase ton miles at support VLCC rates. Going forward, this trend should continue as Chinese domestic oil production declines and consumption increases. Please turn to Slide 29. China is the world's second largest consumer of oil importing about two thirds of its requirements. Chinese imports have more than doubled since January of 2009, representing 11% CAGR. Chinese crude imports average 8.4 million barrels per day last year, representing an increase of 11% over 2016, making China the world's largest importer of crude oil last year as you can see in the upper right chart. Additionally, refinery openings going forward should add 2.7 million barrels per day to come on stream and through 2018 and 2020. On a per capita basis, U.S. oil uses it 6.7 times that of China, European uses is 3.1 times and world usage is 1.5 as noted in the bottom table. If China goes to world per capita consumption levels, China would require an additional 261 VLCCs. Assuming that all crude is imported by sea, this represents an expansion of the existing fleet by about 35%. Please turn to Slide 30. According to BP’s latest worldwide oil demand projections of 2035 more than half of the increase in demand will come from China and India. A significant portion of additional demand will come from the Middle East, meaning that less crude will leave this area as exports. Majority of supply increases will come from non-OPEC Atlantic-basin sources, and in conjunction with less Middle East exports, this should increase ton miles of VLCCs going forward. Slide 31 shows the balance between the new building order book and the pool of scrap candidates even with the recent new building orders, the order books as of January 2018 of 95 VLCCs is less than the 121 vessels that are 17 years of age or older. Given the outlook for continued ton mile growth, the supply and demand fundamentals remained healthy going forward. Please turn to Slide 32. In 2017, the VLCC fleet grew by 5.3% or 37 vessels. We note that last year 14 VLCCs were removed from the fleet, 13 of which were removed in the second half. The forecast for net fleet growth for 2018 is approximately 25 VLCCs or approximately 3.6%. Year-to-date four VLCCs have delivered and three VLCCs have scrapped. Thank you. This concludes my review. And we’d now like to turn the call over to Ioannis Karyotis for the Q4 financial results.
- Ioannis Karyotis:
- Thank you, Ted. I will discuss the financial results for the fourth quarter and the year ended December 31, 2017. Please turn to Slide 34, revenue for Q4 2017 decreased by 25.2% to $50.3 million from $67.3 million in Q4 2016, reflecting the softening of the tanker market. In Q4 2017, we had 98.7% fleet utilization. We achieved a time charter equivalent of $15,299 per day reduced from the $19,683 per day achieved in the fourth quarter of 2016. Time charter expenses include the $5.1 million of commitment to Navios Midstream Partners accrued in the fourth quarter. Operating expenses were $23.9 million and G&A expenses were $4.7 million reflecting our low cost structure. Equity in net earnings from affiliated companies was $4.6 million mainly reflecting our equity portion in Navios Midstream Partners earnings. Adjusted EBITDA for Q4 2017 decreased by 50.2% to $20 million from $40.1 million in Q4 2016. Other expenses included depreciation and amortization of $14.2 million and interest expense and finance cost of $18.9 million. Net loss for the quarter was $12 million or minus $0.08 per share. Turning to the financial results for the year ended December 31, 2017, revenue decreased by 21.7% to $227.3 million from $290.2 million last year reflecting a time charter equivalent of $17,186 per day and a 99.5% fleet utilization. Operating expenses were $95 million. G&A expenses were $14 million reduced by $3.1 million compared to 2016. Equity in net earnings from affiliated companies for 2017 was affected by the $59.1 million impairment in our investment in Navios Midstream Partners in the second quarter of 2017. Adjusted for one-offs items, EBITDA for 2017 decreased by 41.2% to $107.7 million from $183.3 million in 2016. Depreciation and amortization was $56.9 million and net interest expense and finance costs were $76.4 million. As a result, we reported an adjusted net loss of $19.4 million. Slide 35 provides Navios balance sheet data as of December 31, 2017. Cash and cash equivalents including restricted cash was $86.5 million. Vessels net book value was $1.3 million. Investment in affiliates of $125.1 million mainly reflects Navios Acquisition interest in Navios Midstream Partners. Following the repayment of the loan facility, NNA extended the Navios Holdings in the respective accrued interest of $55.1 million in Q4 2017 receivables from related parties decreased to $68.5 million. Receivables from the related parties reflect the management fees and payments of dry dockings under the terms of our management agreement as well as working capital contributions to Navios deployment two [ph] and their respective accrued interest. Total assets amounted to $1.6 billion. Total debt as of December 31, 2017 was $1.0654 billion resulting to new capitalization ratio of 64.1%. As of December 31, 2017, Navios Acquisition was in compliance with all of the covenants of fixed rated facilities and see more of those notes that company initiated a stock repurchase program of $25 million over a two year period. We also announced a dividend of $0.02 per share for the fourth quarter equivalent to $0.08 per share on an annualized basis. The dividend will be paid on March 27, 2018 to shareholders of record as of March 22, 2018. I would also like to highlight that given 59% interest in Navios Midstream Partners, we expect to receive approximately $21.3 million annually in dividends from NAP at the current distribution of $1.69 per unit. And now, I will pass the call back to Angeliki. Angeliki?
- Angeliki Frangou:
- Thank you, Ioannis. This completes our formal presentation. And we open the call for questions.
- Operator:
- [Operator Instructions] Your first question comes from the line of Chris Wetherbee of Citigroup.
- Chris Wetherbee:
- Hey, thanks for taking the question. I appreciate it. Maybe your first question just sort of how you think about capital return to shareholders. So you reduced the dividend payment and are increasing the buyback. You are increasing the buyback or generating a buyback that’s higher than the reduction that you cut the dividend, which is a good thing. I wanted to understand sort of maybe the timing around the buyback and if it doesn’t makes sense or why wouldn’t it makes sense to accelerate this as much as you possibly can considering the asset capital and given where the stock is trading today. I just want to get a sense of maybe how you think about the cadence of the buyback and some of the puts and takes between reducing the dividend and sort of instating a buyback.
- Angeliki Frangou:
- I’d say what you have – the way you put it is correct meaning that we saw the increasing value of our company, we saw the – and the consensus NAV of the company and it does makes sense to reallocate cash and it will be very accretive for our shareholders immediately to buy shares in today’s market. So, this is some of the consideration. The program is – the repurchasing program has done in formal way. But is taking the consideration that where the current price and where our increasing value is.
- Chris Wetherbee:
- Okay, that’s helpful. But I guess when you think about this two year window that you have opened here. Is it fair to say that the stock price is reasonably close to where we are today that you would consider at least doing the majority if not all of it than the factor based on the two years?
- Angeliki Frangou:
- There is – there is – I cannot comment with exact program, but program is designed to see the creativeness of the current price versus our increased volume.
- Chris Wetherbee:
- Okay, okay. That’s fair. I appreciate it. And then I had a comment – a follow up question just upon the product market. I wanted to get a sense of sort of maybe some thoughts around seasonality and maybe typical seasonality and the lack thereof. What do you see as sort of a catalyst that you have moved through 2018 that’s sort of get product rates moving in the right direction. It would seem like there has been a relative underperformance versus typical seasonality. I just want to get a sense of maybe how you see that and maybe what are the things that we should be looking at benchmark wise for an improvement in rates as we move through this year?
- Angeliki Frangou:
- I will let Ted talk to you about this. One thing I will say on big picture, you are seeing about a set around $2,000 on previous charters that are higher this year than last year. That is in an anticipation of a higher rate. And what we see from open books and things that we have set an arrangement with oil traders and we see at our open books profit sharing. We see that this year is actually accelerating versus last. I am talking about on the – on the actual earnings that we see coming. But I will Ted to take you through the product.
- Ted Petrone:
- Yeah, thanks. I just think that last year – just large draw down on stocks, right. So whatever demand there was, demand growth was taken from the land. Now, with the stocks that at least products getting close to the five year averages, bouncing around a bit, I think all that extra demand is going to come from – from clean products traded over the water. And I think you have got a refinery maintenance season on top of it. So it’s not going to be tomorrow, but I think once you get through that you’re back through the pre-2017 where you get arbitrage trading, which is a big – which is a big push that would helps – it’s almost a geometric leap in terms of the trading. So I do think you have got a couple of more weeks here, four to six weeks, we are going to have some difficult rates. But as Angeliki pointed out our performance in terms of time charter numbers, there is a reason time charters 13, 14, almost double what you’re getting on some of the routes because everybody anticipates this to turnaround. And as traders we all know, when it does to turnaround it happens quickly.
- Chris Wetherbee:
- Sure, okay. All right, you know that’s helpful. Ted, I appreciate that color. And then one final question. Just wanted to – as you guys run through your breakeven analysis, I am assuming you’re capturing the backstops of the NAP VLCCs in there as well. I just wanted to get and make sure that that was the case. I know you’re recouping some of that capital through the inflows of dividends from NAP. But I just want to make sure that the backstops on the VLCCs at that level are being included when you guys think about your breakeven analysis.
- Angeliki Frangou:
- The breakeven, we have not calculated inside backstop, which have already taken into consideration, so the 2017 has finished, but for 2018 that will be taken out from the cash position we already have.
- Chris Wetherbee:
- Okay, okay, that’s helpful. I appreciate it. Thanks for the timing this morning.
- Angeliki Frangou:
- The reason as you couldn’t do the calculations in the floating rate, in debenture actual rate for the quarter.
- Chris Wetherbee:
- That makes sense. Thank you.
- Angeliki Frangou:
- You’re welcome.
- Operator:
- Your next question comes from the line of Herman Hildan of Clarksons.
- Herman Hildan:
- Yes good morning or afternoon so you know where you are. I kind of agree with the conclusion that it makes more sense to buyback shares at the current valuation than paying a 25% dividend yield. And I'm just kind of curious, given that you put 29 quarters just paid [indiscernible] dividends and obviously the market has been very strong and very weak in those 29 quarters. Should we expect that once you're done with the share repurchase program that you will reinstate the $0.05 dividend. Or it’s kind of $0.02 to the new floor, or should we also possibly think that maybe in the future you're going to be more call it dynamic with your dividend and depending on where the market is? Kind of what's the takeaway from this investment?
- Angeliki Frangou:
- You know that we are very consistently returning to our shareholders, I mean for 29 quarters we have done that. Of course we will always see the conditions. What we see today where our increasing value and where consideration to NAV is it makes a lot of sense being in very accretive share holders to and immediately accretive for our share holders to buyback shares. Buying records is accretive, but we are over a longer-term. So in today’s current share prices current condition is – it makes a lot of sense. As we already have said, this is not a liner situation, it can be accelerated. And it is really something that we see on current conditions that makes sense. And the dividend today that we have is approximately at 10% yield. So we will monitor the conditions and be very – alert on what this bank balance between dividend payment and buyback.
- Herman Hildan:
- So let’s call it, the way I will grant, so you haven't completed yet whether when you're done with the buyback program call it two year’s time whether you are going to be in $0.05 dividend over the $0.02 just the new call it.
- Angeliki Frangou:
- Herman whether you want to say we already indicated which is not – it can be an accelerated problem, it is a two deal program, but different parameters, that can be a accelerated. And I think that what we need to see is equations of how this implemented.
- Herman Hildan:
- Yes, okay, I understand. Also on Navios year one and two, could you kind of give some color on the changes from the third quarter? And how much is receivables and outstanding as of the end of the fourth quarter?
- Angeliki Frangou:
- I think we have an increase investment there. And one of the things that Ioannis will answer the question on the particular, the one thing I want to say is that there’s an additional value to be analyzed when this Navios Europe one and two is streamlined to the different package, it will [indiscernible] significant value for NNA.
- Ted Petrone:
- Added vessels we’ll give from related part is we have approximately 15 million with these two entities, plus we have a 10 million investment, approximately 11 million.
- Herman Hildan:
- So, let’s…
- Ted Petrone:
- Yes.
- Herman Hildan:
- Yes, and of course, I think you did that deal it come up mistaking back in 2012 and I think it was seven-year call it period before you were able to accelerate the – exceeding of that that structure. Could you give any comment on the kind how you would like to trade that we could and accelerate the call it process in terms of cleaning up the structure and what's going on with that structure today? Because obviously there's a quite lot of what you say value in there.
- Angeliki Frangou:
- Yes I mean you are right, there’s value there. And first it was done in end of 2013 and in the beginning of 2015 show there's going to be coming at the end of 2019 and 2021 is to date, but it may also accelerate before that. I mean don’t forger we have assert income bounces we can on all our investments in the first half of 2018 plus a compound in the second one, including working compensation and investment and everything. And I think that's it’s very, very nice good returns that are covered with still values.
- Herman Hildan:
- Yes that’s something that we economists should expect to last until 2019 or 2021 and then kind of no action there before that timeframe, is that correct?
- Angeliki Frangou:
- It may, it may, it may. It may come even earlier.
- Herman Hildan:
- Okay.
- Angeliki Frangou:
- I mean it’s not something that is contrasting, but it may happen even earlier.
- Herman Hildan:
- And just a final question to tell I guess, some I mean on the product market you kind of talked a bit about the near-term momentum. The crude market we have quite, I would say, disappointing to at least or my expectations, what's your kind of take on the momentum and the lead for the rest of the year?
- Angeliki Frangou:
- One thing before Ted answers the questions, I will say you one thing. The latency this weak market on crude is a blessing for these guys, because we have seen an accelerated scrapping. Inevitably, I mean, even if you take it away from all exits [ph], I think we have seen more vessels scrapped in January than any time, I mean you have about 18 vessels. So this is something that we should not forget that scrapping is very healthy and will bring market to better situation.
- Herman Hildan:
- Yes following from last question Angeliki before you answer Ted, back in 2013 you should pretty good time acquiring VLCC’s just before the market churn. And obviously it’s ignoring the called it M&A at the moment and kind of what you are doing all the repurchase and capital allocation there. Timing-wise what do you seen on call it asset prices and new build prices and kind of what do you think is a good plan on the time constraint.
- Angeliki Frangou:
- We are watching the market, I think, in an interesting time. And I think the good thing is that next to growth is really at low. And I think this is what we see. I mean let’s watch the next couple of quarters, is going to be very interesting.
- Herman Hildan:
- Yes, thank you.
- Ted Petrone:
- Yes I guess the good news is all the bad news is out. I would say that last year you had the stocks so there wasn't the OpEx, cut. There's a lot of bad news, you want some content out of container backwardation, so you had kind of like a reverse floating storage. I think all those things line up to actually reverse in the second half of this year. To go along with Angeliki’s point about scrapping with the regulations coming on, I think, even high steel pricing. I think you'll see the scrapping continue go forward. I think you still have some headwinds to go here, but I do think you'll see that turn the tailwinds by the end of the year. It’s interesting. And if you had noticed this morning that the U.S. is they are looking at the U.S. now pumping 11 million barrels a day out of the ground. By the end of this year instead of two years from now. So this let’s go with the FBI I didn't think this would change any trading patterns, but it just might. And I it does bring work ton miles. And again all the new wells coming out of the west and the demand from the East, China can't pull any more oil out of the ground. So couple of months but I think things will be significantly better in the second half of the year.
- Herman Hildan:
- As a follow-up to that, the final question from me. I apologize for taking hard time here. But is there kind of a timeline between production and export in the U.S. compared to obviously what we have in the Middle East? And do you think that there is kind of – you’re still to see the kind of what time do you think the U.S. production growth is going to start to get back to market by…
- Ted Petrone:
- Well I…
- Herman Hildan:
- Back of your own production growth comments.
- Ted Petrone:
- Yes it appears that our consumption in States is going down. I think you have to get these VLCCs ports approved because right now it's kind of really more on Supramaxs, but you’re talking VLCC equivalent. So that also may happen by the second half of the year. I do think it could be very different world going forward. Crude stocks, even though they are high, they are now finally below three billion barrels. So it's the lowest it's been for 2.5 years. And there's always an underestimate in terms of barrel growth. And I think for every million barrels that come out of the ground well I think it's something like fifty VLCCs that can get absorbed going forward. So I think I'm optimistic but it's really not yet.
- Herman Hildan:
- Okay, that’s all I had. Thank you very much.
- Operator:
- Thank you. I’ll now turn the call to Mrs. Angeliki Frangou for any closing remarks.
- Angeliki Frangou:
- Thank you. This completes our Q4 results.
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