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Edited Transcript of EURN.BR earnings conference call or presentation 26-Apr-17 1:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 Euronav NV Earnings Call

Apr 29, 2017 (Thomson StreetEvents) -- Edited Transcript of Euronav NV earnings conference call or presentation Wednesday, April 26, 2017 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Hugo De Stoop

Euronav NV - CFO

* Patrick Rodgers

Euronav NV - CEO and Director

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Conference Call Participants

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* Amit Singh Mehrotra

Deutsche Bank AG, Research Division - Director and Senior Research Analyst

* Benjamin J. Nolan

Stifel, Nicolaus & Company, Incorporated, Research Division - Director and Senior Analyst

* Fotis Giannakoulis

Morgan Stanley, Research Division - VP, Research

* Gregory Robert Lewis

Crédit Suisse AG, Research Division - Senior Research Analyst

* Herman Hildan

Clarksons Platou Securities, Inc., Research Division - Research Analyst

* Jonathan B. Chappell

Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst

* Michael Webber

Wells Fargo Securities, LLC, Research Division - Director and Senior Equity Analyst

* Noah Robert Parquette

JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst

* Spiro M. Dounis

UBS Investment Bank, Research Division - Director and Equity Research Analyst of Shipping

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Presentation

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Operator [1]

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Good morning, and welcome to the Euronav First Quarter 2017 Earnings Conference Call. (Operator Instructions) Please also note that this event is being recorded.

I would now like to turn the conference over to Mr. Paddy Rodgers. Please go ahead.

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Patrick Rodgers, Euronav NV - CEO and Director [2]

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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 facts. All forward-looking statements attributable to the company or to persons acting on its behalf are expressly qualified in their entirety by reference to the risks, uncertainties and other factors discussed in the company's filings with the SEC, which 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 over to Euronav's CFO, Hugo De Stoop, to run through the financial part of the presentation.

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Hugo De Stoop, Euronav NV - CFO [3]

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Thank you, Paddy, and good morning, or afternoon where ever 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'll then turn over to the operator for a Q&A session.

Moving on to Slide 4, we would like to underline the following highlights. Q1 freight rate performance was respectable, 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 in production had a negative impact on the tanker market. Offsetting those negative trends, was the further expansion of ton miles, most noticeably from exports out of the U.S.A. to the Far East, a point Paddy will pick up on later. Overall, Q1 was sequentially weaker than the same quarter last year in 2016 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 VLCC spot days booked so far at around $32,000 per day and around 47% of our Suezmax spots at a touch over $22,000 per day.

I would now like to move onto 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 will 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 11, should be paid on May 31. And the share should go ex dividend on May 22, with the record date on the 23rd of May.

Now moving onto 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 some refinancing activity and a sale and leaseback of 4 VLCC now lease 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 disciplined 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 these figures do not include any financing with regard to the 2 Suezmax vessels backed by 2 time 7-year time 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 the current tanker market themes and the outlook. Paddy, over to you.

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Patrick Rodgers, Euronav NV - CEO and Director [4]

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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 U.S.A. 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 cost. As the 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, an unwelcome feature has returned during Q1, which you see on Slide 8, mainly the increase in the contracting of new buildings. Slide 8. There has not been any ordering of Suezmax vessels since October, but this contrasts with the recent state of VLCC orders; 15 during Q1 that we have seen in 2017. The disappointing feature of this order profile is that most of it has been players not requiring fleet replacement. We were cautioned 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 impact 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 prolong the current market conditions, implying a lower for 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 5-year-old VLCC going back to 2001 on an inflation-adjusted basis. As can clearly be seen from this chart, asset prices 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 to those seen at that recent low. This doesn't mean asset prices are about to re-rate 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 all ship owners.

Moving on to Slide 10. I want to sum up with a 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 Q2 of 2016, Euronav has continued to deliver strong returns to its shareholders, totaling USD 391 million in dividends. Yet also increased our fleet size by acquiring 10 VLCCs over the same period and simultaneously increased our available cash liquidity from USD 240 million 2 years ago to over USD 600 million today. We retained the lowest leverage in the sector and subject to shareholder approval on May 11 at 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 vessels supply light all amber, but this is offset by the strong dynamics we have seen in ton mile 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 thesis 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.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Chris Wetherbee of Citi.

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Unidentified Analyst, [2]

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This is [Prashanth] on for Chris. I guess my first question, you've previously talked about the number of vessels that are past their third special survey and that's a large cohort that kind of passes through the system. And sort of thinking of this in the context of longer ton miles, what do you think that means for rate? Is there a support for rates then 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 the longer ton mile service, or how are things developing so far this year in terms of that?

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Patrick Rodgers, Euronav NV - CEO and Director [3]

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Well, 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 a younger ship, and that's simply because of the preference of the cargos that have been moved up...

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Hugo De Stoop, Euronav NV - CFO [4]

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[Prashanth], I think we -- you were cut off. Are you still there? Well, this is Hugo speaking. So let me just take over from Paddy. So what he was explaining that it's very difficult to make a difference according to the trade and it's more company-specific, so it depends on your reputation, 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 (inaudible) belongs to our majors and our majors tends to be a little bit more quality oriented. But globally, the ton miles is like a big bucket. And so those ships that are not qualified to trade in the Atlantic 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.

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Unidentified Analyst, [5]

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Okay, that's very helpful. And just turning to where we are in sort of the asset price cycles, we're seeing a trough here. It looks like that could hold for a little while, but at least from the line of sight there. How do you think about opportunities this year? And 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?

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Patrick Rodgers, Euronav NV - CEO and Director [6]

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Hugo, I'll take this one, if you don't mind. I think that the way to see it is that we're beginning to see some support for pricing now. And I think we've certainly seen the shipyards deal with a number of berths that were immediately prompt and available and may have caused them some trouble. So I think that we can start to see a little bit of support to 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 the asset values bouncing back very fast or hard. But nevertheless, we do believe they found a level and that the only way is up.

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Operator [7]

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Our next question comes from Jon Chappell of Evercore.

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Jonathan B. Chappell, Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst [8]

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Paddy, wanted to ask you if we kind of combine Slides 9 and 10 and 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 months ago or kind of priming the liquidity pump? And then as a 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'd be comfortable using given kind of the uncertainty in the markets right now, especially as we go into maybe choppier mid-'17?

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Patrick Rodgers, Euronav NV - CEO and Director [9]

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Well, I think Jon, 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 the impact of it is on the company. And so we're always going to be looking for all the different sources, potentials for tapping, and that may include some sale and leaseback. I don't think that's something that's absolutely top of our priorities at the moment. And we do of course have some very natural rotation of ships out of our fleet as they age. So business as usual as far as that's concerned. And I certainly think then as far as going forward is concerned, we are obviously going to want to make sure that we fund whatever acquisitions we make at the time we make them. And whilst there's 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 that we maintain an appropriate level of liquidity to deal with a larger fleet.

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Jonathan B. Chappell, Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst [10]

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So if I kind of take that answer and just sum it up very simply. Does it seem like that 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 biding your time?

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Patrick Rodgers, Euronav NV - CEO and Director [11]

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I think that's very effectively summarized, well done.

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Operator [12]

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Our next question comes from Mike Webber of Wells Fargo.

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Michael Webber, Wells Fargo Securities, LLC, Research Division - Director and Senior Equity Analyst [13]

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Paddy, just wanted to touch on the consolidation theme that I think one of the earlier questions highlighted and then you referenced in your remarks. Obviously, a lot of headlines recently. But this is something -- it comes up on every call. We've been talking about in earnest probably for the part of a year, as (inaudible) kind of rolled over. So I'm just curious as we're sitting here today versus say the back end of last year, have you noticed any meaningful shifts between kind of bid-ask spread and kind of the gulf between buyers and sellers? And then particularly around whether currencies that are hovering around any of the -- or at a slight discount or become more palatable in terms of kind of equity for equity swaps? Or I guess people being a bit more flexible with that, that would use 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 of where we're at right now would be helpful.

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Patrick Rodgers, Euronav NV - CEO and Director [14]

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Yes, 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 what we've seen done now with BW and DHT. And that looks like a deal that probably wouldn't have been doable 3, 4 months ago is suddenly doable because of an alignment of vision. Presumably both sides felt that the combined company would be adequately capitalized with the mark outlook that existed and people were prepared to take -- the seller was prepared to take shares. So I mean that really summarizes -- that sort of your question was sort of almost directly directed towards that, because I think we are seeing exactly 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.

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Michael Webber, Wells Fargo Securities, LLC, Research Division - Director and Senior Equity Analyst [15]

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Right. Well, and I guess the better way for me to phrase that question, do you think those dynamics that we've been reading about are applicable to other transactions, other situations, in some way, shape or form, obviously they're not going to be identical? But you think that willingness extends beyond just kind of the deals we've seen in the current market?

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Patrick Rodgers, Euronav NV - CEO and Director [16]

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Yes, I mean, is it replicatable? And all I would say is that I think it is. I think it is replicatable. I think people are coming, I think it's not just these 2 parties that have seen the market and the possibility of the structures that way. And -- but shipping these things often have to take their time and they're often prevented by other issues. But I think it's perfectly possible to see those sort of things replicated.

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Michael Webber, Wells Fargo Securities, LLC, Research Division - Director and Senior Equity Analyst [17]

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That's helpful. One more from me and I'll turn it over. And one of the -- in one of your earlier answers when the time got passed to Hugo, Hugo you mentioned kind of ton miles effectively being kind of like a -- basically a global bucket, as it pertains to kind of ages and vessels kind of getting squeezed out of particular lanes. But I'm curious with regards to the emissions, the more stringent emission regulations coming into Europe, a higher bar to potentially exclude older tonnage. Like how – has that had a meaningful impact on the age range with which you're looking in terms of growing the fleet? That's always going to be a dynamic economic calculation, but have you kind of noticed any kind of growing disconnects or maybe you're seeing some older tonnage that's more severely discounted than you would think? I'm just curious how that wave kind of plays itself to -- plays itself out in terms of the assets you guys are targeting?

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Patrick Rodgers, Euronav NV - CEO and Director [18]

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Yes. Sorry. Well, there's no question, as Hugo summarized, the customers in the Atlantic and there's certainly receivers in the Atlantic, are concerned about age. I don't see many people wanting to bring an old ship into the Atlantic and then finding that the route 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 of 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 1 trade at least that's beginning -- that's 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 5- to 6-year range, 0 to 5 to 6 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. So that would be the way we would see it. I think that 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.

(technical difficulty)

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Gregory Robert Lewis, Crédit Suisse AG, Research Division - Senior Research Analyst [19]

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So I mean, it seems like everybody is kind of focused on 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. 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 bold up or believe that the sustainability of strength in the Caribbean can last a little bit longer than maybe the overall market might [indicate], what we're traditionally used to seeing?

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Patrick Rodgers, Euronav NV - CEO and Director [20]

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I think you're absolutely right, Greg. I think that the patterns 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 without 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 buoyant. And I think that if we see the volumes that we're talking today, it could be a sustainable future.

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Gregory Robert Lewis, Crédit Suisse AG, Research Division - Senior Research Analyst [21]

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And then just ,I know you guys, I know just sticking on the one question, so I'll 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 is actually going to Asia versus say, other parts of the world?

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Patrick Rodgers, Euronav NV - CEO and Director [22]

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I'm sure that that is available data. I mean, I would have thought that the thing that was noticeable to us on those figures was there was effectively a doubling of the amount 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.

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Operator [23]

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Our next question comes from Spiro Dounis of UBS Securities.

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Spiro M. Dounis, UBS Investment Bank, Research Division - Director and Equity Research Analyst of Shipping [24]

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Just wanted to ask first around OPEC, and I'm not going to ask you to try and guess what they 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 them just bringing 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 is it just not really a major factor as you see it?

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Patrick Rodgers, Euronav NV - CEO and Director [25]

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Well, it really depends, doesn't it? Because I think that is the reason that they're going to expand is because there's 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's 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.

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Spiro M. Dounis, UBS Investment Bank, Research Division - Director and Equity Research Analyst of Shipping [26]

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Got it. Appreciate the color there. Second one just around the mindset, to the extent, you can sort of figure out, I guess why these new orders are being placed. You made a pretty compelling case for buying secondhand vessels, just given the ratio to EBITDA and the low values. Is there – and this is kind of a tag onto Mike's question earlier, but is there some sort of hidden costs that you guys have been buying (inaudible) vessels now just given the regulatory landscape going forward, that maybe we're not seeing as clearly and maybe that's what's driving to build orders, or do you think it's something else?

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Patrick Rodgers, Euronav NV - CEO and Director [27]

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Well, I would suspect it's something -- there's no question that people would say -- and particularly those owners that have an integrated management company and that have some new building design specialists within their group would always take the view that a ship that they design at the shipyard will give marginal gains compared on -- just on operating expenses or on sister ship values, on sister ship common supplies and maintenance. The – which they think will drive long-term value, but it is marginal. It's -- so we would be of the view that you can get a lot more value from a secondhand ship, not least because you don't expand the size of the world fleet. And it's interesting to see who's in the list. I mean, some of the people that have booked new buildings are very much yard supporters, have a longstanding relationship with a particular yard. I'm just discounting for the moment the obvious home run stuff done by the Koreans where a Korean company will go and place an order and then will 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 time charter at the right rate. I mean, that's one sort of way that the yards are getting support. But another way is going to old friends who have built a lot of over the generations of the shipyard and who they may well have a 4 or 5 ship deal where 2 of them or 3 of them might be VLCCs, it might be a gas carrier in there and they're telling them this is a once in a lifetime opportunity. The yards are definitely going to go through and cut their productive capacity, therefore this is the bottom of the cycle and get in and that's the sales routine, the last opportunity to buy this berth and that's the opportunity that's being sold to them. And of course, it's only you that gets this offer because you're a great friend of the yard, I mean, it's (inaudible).

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Operator [28]

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Our next question comes from Amit Mehrotra of Deutsche Bank.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [29]

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Paddy, I wanted to ask about the order creep that you had obviously mentioned and everyone kind of seen it over the first quarter. It's interesting because most of the rhetoric from you, the company, even all the rest of the industry over the last 12 to 18 months has been the lack of financing, whether debt or equity capital markets not available to fund new buildings. And so in that context, it's kind of interesting to see order creep despite secondhand values still being relatively weak. So in that context, Paddy, if you can just help us, has anything changed in terms of your outlook for the industry's ability to finance new orders? And 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 new order outlook and the ability of new orders to be placed.

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Patrick Rodgers, Euronav NV - CEO and Director [30]

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Yes, so first of all, I don't think there has been any significant change on the financing side. Because if you look at those 15 additional vessels, it's a bit of this and a bit of that. I mean, 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 1 or 2 of the usual villains who you're never quite sure what terms they've managed to negotiate and how much of the risk on value appreciation the yard is taking by accepting a very low deposit or small deposit. So I think that, as a whole, I don't think there's been any change to the finance landscape, which has enabled this new building development. But I do think this is the last act of a desperate man, we hope. And it is the shipyards really, really trying to emergency berths that are absolutely prompt on their doorstep. And that they have to fill on they're 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 it, there's some expectation, but there's 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.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [31]

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Okay. Can I just ask one specific one on the numbers for Hugo? The loan-to-value ratio seems to keep on going down – well, it does keep on going down. And then the -- you have, call it over a $100 million or so if I guess current bank loan payments over the next year or so, prospectively over the next 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 it's great in this market to have low debt, but it kind of leaves you a little bit vulnerable to what's happening in the industry from sort of a hostile M&A standpoint. 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 and successfully so, so 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 big 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 many opportunities to do that?

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Hugo De Stoop, Euronav NV - CFO [32]

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I mean it's a long question. Thank you for asking. First of all, don't forget that a lot of the liquidity is [stuck] in revolvers. And revolver what does that mean? That means it's a piece of debt the minute you draw on it. So if we were to need to use those liquidity, obviously, the overall leverage of the company would go up. As we said in press release, there are 2 ways that we can liquidity is either to find attractive opportunities, and I will come back to it in a minute; or obviously, if the market was to deteriorate further and certainly be low breakeven rates, then we would have to use that available liquidity and naturally, the leverage would go up. So if you see how we did in previous cycles, that's the way (inaudible) happens. If you are alive at the end of a good cycle and you enter into a bad cycle and you indeed you need to draw on your lines to support your business, that's where position you want to be in. The ratio that we use to see how much liquidity we need for a poor 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 and in bad markets, if they are fixed today. So it's relatively simple, but at the same time, relatively complex because what we do is we project the next 2 or 3 years. As anyone else, we cannot predict the market down to the (inaudible) dollar very accurately, so we need to have reserves at all times. And then following up on Jonathan's question earlier is how much of that liquidity can be used for opportunities, it very much depends 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 under levered. I do believe that yes we're going to continue 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 that at the same time, we will continue to amortize our ships as far as 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'll find a floor for those values, so that could potentially help us. But again, because it's not a cash reduction, I don't expect that to go down too fast (inaudible) if we were -- just one more item, if we were to draw on 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 to support operation or whether it was to buy assets and that would be in combination of additional debt and potentially additional source of capital, depending on what ratio you want to end up with.

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Operator [33]

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Our next question comes from Ben Nolan of Stifel.

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Benjamin J. Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - Director and Senior Analyst [34]

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So Paddy, I think -- I appreciate you did pretty extensive walk-through what exactly is going on in terms of the yards and they're 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 VLCCs or crude tankers in general are a little bit more optimistic, for some reason don't want to get rid of their older ships and are placing orders for some expectation of upside that isn't currently reflected in the market? And if so, how would you sort of frame that in? I mean, what are -- what might people be looking at?

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Patrick Rodgers, Euronav NV - CEO and Director [35]

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Well, I think the scrapping issue is quite well document. Whilst there are older 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 meant that relatively speaking, the tanker fleet is quite young. And so we're missing out on the ships that were built in the early '90s 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 and the mid-to-late '90s. So we've really come into a significant area of fleet growth that could get scrapped in the late '90s, and that's the sort of '98, '99, 2000. And so that's the point at which you'll see that the decision of whether to scrap or not is really important. Now I don't -- I think that the scrap price obviously is important, but they're always going to be looking at optionality. And if they think -- if a ship owner thinks that his ship is perfectly good for another 2.5 years, and if 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're $100,000 a day, then of course he has a quick calculation that he can potentially make about $36 million a year from a tanker in the right market, it means, it's probably worth subbing it for a couple of years when you're not hopeful that 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 a historic graph. The best year could happen again because it could happen from unforeseen circumstances, whether it's a sudden increase in storage, whether it's some political development which causes a disruption in trade, so there are a lots of good reasons for why you might want to hold that optionality value.

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Benjamin J. Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - Director and Senior Analyst [36]

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And I assume that also translates into why people would place orders or be even more incentivized at low order price, I suppose?

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Patrick Rodgers, Euronav NV - CEO and Director [37]

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Yes, I think that's more the -- maybe if you're very close to a shipyard and the shipyard tells you that they are going to shut 1/3 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 million dollars off of VLCC price. And most of the people that have bought that aren't within the Korean system, the ones from outside the Korean system are the sort of people who settle on a store by maintaining looking forward for a very long life for their ship on low operating costs through having designed it themselves, or having added certain features themselves. So I mean I think that's the kind of balanced argument that's going through people's minds. But I don't rule out the fact that we could have a roaring market in a year or two's time. It's just 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.

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Operator [38]

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Our next question comes from Noah Parquette of JPMorgan.

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Noah Robert Parquette, JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst [39]

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I wanted to focus on the U.S. exports theme. Just one comment first of all on Page 7, maybe next quarter shows numbers net of Canadian exports. But in terms of what you're seeing for seaborne going to Asia, has that been on -- has that been lighted on to VLCC, or is that going on smaller ships through the Panama Canals?

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Patrick Rodgers, Euronav NV - CEO and Director [40]

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

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Noah Robert Parquette, JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst [41]

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Okay. All right. The latest DI data I have through January is 2 million barrels went to China. So 1 VLCC. Have you seen a material increase in that in terms of what you've traded?

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Patrick Rodgers, Euronav NV - CEO and Director [42]

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

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Noah Robert Parquette, JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst [43]

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China.

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Patrick Rodgers, Euronav NV - CEO and Director [44]

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Yes, and out of Gulf of Mexico, and our position on it is that we think there's more been done by others.

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Noah Robert Parquette, JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst [45]

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Okay, I mean if it's that big of a factor, is it changing how you trade your vessels in terms triangulation? Do you see any difference going forward on how owners trade their fleet?

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Patrick Rodgers, Euronav NV - CEO and Director [46]

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Not really. I mean, I think that it hasn't made a big difference to us because this has been a trade that we've focused on for probably the better part of 20 years. I say the better part of 20 years, certainly since we set up the Tankers International Pool and the -- whether the volumes make a difference in terms of the amount of trade. There's a growth in that trade that's good for the market as a whole. For us, if we hadn't done a lifting out of the U.S. Gulf, we would probably have done a lifting out of Colombia or out of [East Asia] 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.

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Operator [47]

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Our next question comes from Fotis Giannakoulis of Morgan Stanley.

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Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [48]

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Paddy, I heard you that trying to project cautiousness and suggest constraint amongst shipowners in terms of new buildings. But at the same time, we have seen the rates 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 new buildings 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 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 this strength? Is it ton mile expansion or it's more volume that is coming and lack of compliance from the other countries?

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Patrick Rodgers, Euronav NV - CEO and Director [49]

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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 Far East. And that was done to support the share -- the oil barrel price, which of course did react very positively, but it quickly kicked in additional shale production and then price came off as that shale got produced and then exported. So is 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 -- a lot of people have a different take on where 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 '17 is potentially going to turn out to be a weak year and why '18 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, if we had another 6% of vessels then 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 without any correlation. And the extent to which there's new arriving ships, once there's too many, there's too many and the rate falls away dramatically and we saw that in Q3 last year. That's why we're cautious.

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Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [50]

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

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Patrick Rodgers, Euronav NV - CEO and Director [51]

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Well, I think -- and Brian probably has this, we have this slide in the deck, I think. But I mean I would guess that you could say that depending on what the point of supply is and the point of demand, then you're looking 1 million barrels being approximately 30 VLCCs. And so 1.5 million would be certainly 40, 45 if you're going long haul.

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Operator [52]

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Our next question comes from Herman Hildan of Clarksons Platou Securities.

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Herman Hildan, Clarksons Platou Securities, Inc., Research Division - Research Analyst [53]

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There's one thing that I'm sure that you and -- argue very hard for and that would be there's no better fleet out there than the Euronav fleet, there's no better balance sheet and no better management, it's correct?

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Patrick Rodgers, Euronav NV - CEO and Director [54]

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

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Herman Hildan, Clarksons Platou Securities, Inc., Research Division - Research Analyst [55]

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Well, the thing that I'm kind of puzzled about slightly is obviously 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 that you are in cycle, why you haven't been more aggressive on focusing on, call it buying back your own shares, given that it's trading below NAV. And that the focus seems to be much more on the fleet expansions for the large transactions. Can you kind of explain to me how I make that rational focus?

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Patrick Rodgers, Euronav NV - CEO and Director [56]

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Well, I think we've -- as we've said many times, we're not going to -- we have a policy on the 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're going to pay dividends, whether we're going to buy back shares, whether we're going to invest in assets of the company. Now we have not been doing nothing on the asset side and obviously, we took delivery of 2 VLCCs in January, we have 2 new building orders which we've notified the market of at the end of last year, which was on our Suezmaxes. We have interest in plenty of other things. So I think that the business development side looks like the strongest at the moment. It looks like the side where we're going to put most of our emphasis. I think the share's been a little bit stable recently, although a bit disappointed at the reaction on our press release, as 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's a better case for gaining value for the shareholders in adding to the fleet to this time.

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Herman Hildan, Clarksons Platou Securities, Inc., Research Division - Research Analyst [57]

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And also kind of just following up on that as well. I mean obviously, you have talked about quite a lot of optionality in your balance sheet and kind of expansions and buybacks 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 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 that you're 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 you commit to some ambitious targets.

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Patrick Rodgers, Euronav NV - CEO and Director [58]

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Yes. No -- but no, I think everybody is -- everybody would like us to in a way because it would clarify the torturous businesses of difficult decision making around acquisition value and the cost of capital raising that must go with it a responsible company. Being big has no value if you can't sustain the fleet that you have put together. So there's no point finding yourself doubling up the size of your fleet, finding yourself short of liquidity and then being dependent on the market outcome, which is more in hope than expectation. And that's something of course that we would always try to avoid and it's something that we just won't do. 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 maybe always and I would even say always, certainly since 2013, we've ensured that we effectively raised capital at a time that we did it or we deployed capital that we have pre-raised in a way that was relatively good or very -- relatively sensible use in terms of the leverage it left us with and the liquidity at 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 has added 25 VLCCs in 36 months. This is not a company that's not been doing anything and we're not short of operating days. We're also one of the most operationally levered company. So it's nice to talk about our financial and balance sheet strength, but in terms of our operational leverage, if the market goes up, we're not missing out on anything. So it's a question of having the growth at reasonable price and with the proper management of risk.

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Operator [59]

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Our next question comes from [George Bermin] of IFS Securities Raymond James.

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Unidentified Analyst, [60]

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I think you're 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're going to start in September. Would that lead, in your opinion, to any additional scrapping or could use some scrapping and how is your fleet positioned in this area?

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Patrick Rodgers, Euronav NV - CEO and Director [61]

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I think that the ballast water treatment was going to have another further meeting of the MEPC in May to review the timing and whether or not there was going to be an easier effective implementation. So that's the date that's out there as well as the September date. I think most of the owners will be looking to seek some sort of deferral on having to make a decision. And the reason for that is not wishing to avoid the implementation of environmental regulations, but simply because for big ships, it's not quite clear at the moment how effective some of the systems would be for treating the large volumes of ballast that we carry and the long periods of time that we have our ships in ballast. So there are a 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 for 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 or a couple of years left to run without much investment to be made are not going to be bothered by this, and this will not force their scrapping hand. One of the reasons for that is with relatively simple regulatory changes to the ship, you can get yourself another year or 2 of breathing space.

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Unidentified Analyst, [62]

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

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Patrick Rodgers, Euronav NV - CEO and Director [63]

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That's right.

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Operator [64]

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