Scorpio Tankers Inc

NYSE:STNG

Earnings Call Transcript 2017-Q4

[Operator]

Hello, and welcome to the Scorpio Tankers Incorporated Fourth Quarter 2017 Conference Call. The earnings presentation is available on the website under investors reports and presentation.

I would now like to turn the call over to Brian Lee, Chief Financial Officer. Please go ahead, sir.

[Brian Lee, Chief Financial Officer]

Thank you and thank everyone for joining us today. On the call with me are Emanuele Lauro, Chief Executive Officer; Robert Bugbee, President; and Cameron Mackey, Chief Operating Officer.

The information discussed on the call is based on the information as of today February 14, 2018 and may contain forward-looking statements that involve risks and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release that we issued today, as well as Scorpio Tankers’ SEC filings, which are available at scorpiotankers.com and sec.gov.

Call participants are advised that the audio of this conference is being broadcast live on the Internet and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investors Relations page of our website for approximately 14 days. On the call there will be a short presentation with slides. The slides are available on scorpiotankers.com on the investor relations page under reports and presentations. If you have any specific modelling questions, you can contact me later and discuss offline.

Now, I’d like to introduce Emanuele Lauro.

[Emanuele Lauro, Chief Executive Officer]

Thank you, Brian. Good morning or afternoon to all. Before I start my opening remarks, I would like to inform you that management has an impediment in 45 minutes. However, for which ever question that we may not succeed in covering during the call, we remain available of course to all from noon time New York today onwards.

2017 including its fourth quarter has been a much tougher period in Product Tankers than any market participants predicted. But as tough as it is, it only serves to reinforce our conviction in the magnitude and the duration of the upcycle when it comes. Particularly with an aging industry fleet and the order book as multi-year loans.

Amidst this industry downturn, at Scorpio Tankers, we have been concentrating on what we can control, whilst performing successfully the major technical challenge of integrating the fleet of Navig8 Product acquired in 2017. So, G&A expenses have been kept in check and have been reducing during this period both on a quarter-on-quarter and year-on-year basis.

Operational expenses have also been kept in check, again with a marginal reduction on the year-over-year figure, which if we consider the takeover of the 27 vessels we have acquired during the second half of 2017 is by itself a good result. Our average fleet daily OpEx number in 2017 was $6,559 per day. The disappointing figure comes from the market. Our average TCE for the fleet in 2017 was $13,150 per day, which is around $2,600 per day lower than the 2016 figure.

Q4 2017 was the quarter in which we took delivery of most of the fleet, which we have acquired from Navig8. By December 31, we had 21 out of the 27 vessels under our technical management, 27 out of 27 under our commercial management. In addition, we have incurred cleaning costs for the five LR2 vessels that were delivered to us with a crude cargo history. This has further negatively impacted our TCE.

As of the end of January 2018, I’m able to say for the first time on these calls that we have a fully delivered fleet of 109 modern Product Tankers under water. When we set out in 2010, many people doubted this was possible and I think it is a testament to the quality of more than 7,000 Scorpio employees around the world who have managed to defy the skeptics. This now leaves us watching and waiting for the inevitable improvement in rates.

From our recent industry presentations, you will see our operational gearing means that each $1,000 per day improvement in time charter equivalent equates to nearly $40 million in EBITDA and net income. This operational upside is especially evident in our larger LR fleet where the cyclical downturn has been particularly keen. That said, we believe we are now on the threshold of a sustained secular growth story in LR rates, as Middle East and new refineries finally come into line.

Even though the fourth quarter reflects continued low freight rates, a closer examination of the market reveals sequentially quarterly improvement. It’s too early to call this a trend, but we remain expectant that the recovery will become established through 2018. As new vessel deliveries subside, ton mile demand growth returns to its 20-year trend, the order book remains at multi-year lows, and shipyards increased their pricing of new vessels to reflect their own cost pressures.

As such, we are looking forward rather than in the rear-view mirror. We are excited about the future for clean Product Tankers and our fleet specifically.

With this, I’d like to turn the call to Robert.

[Robert Bugbee, President]

Thank you, Emanuele. Good morning everybody. Obviously, it has been a very rough couple of weeks for the stock, and there have been various different things going around, obviously concerns related to balance sheet, valuation, liquidity, etcetera, etcetera and hopefully the results put a lot of that to rest.

And I would just like to remind everybody of a couple of things here as that we raised equity back in the end of November with the explicit reason to have that as some form of insurance or flu jab against a continued medium market, so that we would allow ourselves perfect time, ample liquidity and the basis then was that we would have enough liquidity and resources to get through the whole of 2018.

Should the market of 2017 be repeated you can see from our guidance today that so far 2018 is starting off strong within 2017 that the cash burn is probably less than many people have rumored or thought. In fact, a cash on the balance sheet today is higher than it was at the end of the year.

The next thing, we’re going to do quite an unusual step here, but I think it warrants it because of the pretty sort of dire place where the stock is, and it's not reflecting things, but as Emanuele pointed out and other speakers have pointed out, we concur with Ardmore's conference call related to values and many of the other dry cargo owners that values have gone up.

It is pretty obvious therefore that if values have gone up since our offering at the end of November and we have made positive cash flow above interest and operating cost, the asset value have gone up, and we are going to make an unusual step and we are not - this is going to be one-off, we’re not going to give a specific position, but what I’m prepared to do is say that, if any of you have a net asset value presently of the company, anywhere outside of the range of $3.70 to $4.30, we would advise you and hope that you would contact the company and we would be happy to look at your model and see if we can help correct whatever you put.

Now having that, I just like to go through a couple of slides and by the way that actual, you know what we are using here is the Clarkson ship brokers valuations, not necessarily research, but ship broking because they are more up to date and at the same time I would say that Clarkson Shipping broking is on the conservative side of the ship brokers valuation to this particular point in time.

Okay. Now, I would just like to go through the slides. So, Slide number 3, Scorpio is really well positioned for what’s going to come down here and in terms of regulation whether it is low Sulphur, whether it’s the 2020 time period too. We have the largest and the youngest product tanker fleet, and age really does matter. So, I would like you to take a look at this sort of column and average fleet down at 2.5. Yes, we have some competitors, but with TORM sitting there at 11.7, I would like to help you, investors analyze the fleet.

It is not even the average age of four fleet that matters. What matters is more. How many vessels you have that are approaching 15 years old in the product market. So, you can order a couple of ships for example to lower your corporate average, but if you have got 40% of your fleet that’s 12, 13, 14 years old approaching 15, you are in a lot of trouble. You’re in trouble because you're not going to achieve the same type of revenue or premium cargo and probably you are going to have to spend a considerable amount of money in terms of CapEx whether it’s maintenance or replacement.

Scorpio Tankers, right now people buying the stock and invest it in Scorpio Tankers have benefited from all the investments that have gone before you. In the sense the Scorpio Tankers as Emanuele points out is fully delivered. We’re done on the CapEx, it is a pretty simple company to analyze right now. It has pretty low operating total CapEx going forward.

There’s very little dry-docking CapEx in terms of real maintenance cost on a fleet this young. We have no new buildings. We do not intend to go and order new buildings either. So, in that sense, every side of the improvement in cash flow goes straight to the bottom line to all in terms of shareholders.

Slide number 4, we just look at MR for a moment and this is pretty interesting. Is that you're coming to a point where you are having more MR's turning 15 years old, then you actually have newbuildings delivered. So, this is an indication that the actual supply that you’re reading at the moment to future supply may not be as much as you may first deceive without fully understanding what 15 years matters. And it matters because certain customers will only employ product tankers that are 15 years or younger in the product trade.

This obviously limits your trading opportunities for older tonnage and creates or tiered market. And it’s not therefore that hits you on the revenue line. It just doesn't hit you just on the cost of fuel or the cost of maintenance. It hits you because simply you cannot turn up and load the very cargo that you could load if the vessel is less than 15 years.

We turn to Page 5. We can see that in our pool it’s partly a benefit of the quality and the newness of our fleet, and the homogeneity, they're giving to the customers and the fact that we can get contracts where others can't. We’ve continuously outperformed the market and all the classes of our vessels. We’re actually not satisfied with our own performance. We believe we’ve got something in the product market that no one else has had and we have the market that hasn't occurred in history.

We have a fleet that is a very large fleet. We have the right critical mass in any single category to win contracts et cetera. Also, with our pools we add to that other vessels as well. Now, what we haven't done yet is we haven't shown you what we can do with this fleet because primarily it’s just delivered in the last year and a half, combined with a market that’s now much more articulated, diverse, and creates much more opportunity to outperform in terms of triangulation and backhauls.

One of the things that we have done recently is really strengthen our ability to do that, not just in terms of delivering assets, but in people. We have strengthened our bench, we have hired a very, very senior person to head up our commercial, strengthened our chartering division and our operations division and we’re only just now, just starting to see this in MRs, this was only put together right to the end of last year, but you are already seeing in the MR some of the benefit of that part of the equation.

So, we’re not just sitting here satisfied that the fleet will do the job. Other highlights here, Slide 6, we’re seeing that inventories across the globe of generally declining. This is a good thing, we pointed to every conference call that the headline demand for products around the world is extremely healthy, but we hindered the spot market cannot lift until we stop this inventory draw, but we’ve got to be fairly close now.

Asset values, we’ve indicated as we concur with Ardmore, Ardmore another company with a modern fleet to a good fleet we concur that asset values have increased year-over-year. Also, the spot rates right now are higher. They are higher year-over-year. This is a very good indication. If we remember the dry cargo market, it wasn't so long ago where analysts were starting talking about runways.

Runways to survival, liquidity, that’s a telltale sign that you should be buying in the market. Normally when the analysts turn to that like they did in dry cargo, we are really reaching a bottom. The telltale sign for the - in hindsight for the dry-bulk market recovery as it was the same as the container market recovery last year, was the first sequential quarters of gain in revenue. Either year-over-year and/or quarter quarter-to-quarter.

Going forward, we expect the refinery capacity additions in 2018 to double over 2017 and to increase from there into 2019 and 2020. And as Emanuele said, Scorpio has significant operating level rage to market recovery. Another thing, Slide 7. I read after the Ardmore call a couple of people writing notes that oh well, you know how can the product market recover when the crude oil market is in a mess?

Well, yes historically, you know few years ago there was almost 0.9 correlation between products and crude. That was for good reason, but that correlation is slowly, slowly disappearing as the world's proportion or ratio of refined products is getting greater over crude and we're developing more refineries and the crude market as its own related issues.

So, this is a very brutal growth. This is a very brutal slide. We are seeing here that product rates have moved up from 13 February to the 13 February 2018, they are higher on the product. They are significantly higher in the Atlantic, which is the major market.

On a blended position here, they are probably 30%, 35% higher than where they were a year ago. And if we look at the right-hand side, we see the two crew groups. Suezmax’s and VLCCs. So, in the same sense that not all product tanker fleets are the same, age matters. Not all tankers are the same. It matters which one you are in at the moment.

Then the next simple slide illustrating the refinery growth, and then finally we will try and keep this short, number 9 is just this little table here showing the operating leverage to the market recovery that the company has. And on the basis of time to allow as much as we can do for questions, we would love to open up the - one more thing. Just quickly, I just like Cameroon to describe to you, how we view what’s coming down in 2019 and 2018, 2019, 2020 with regard to the low Sulphur and scrubbers, et cetera, et cetera.

[Cameron Mackey, Chief Operating Officer]

Thanks, Robert. I think lost in the conversation about scrubbers in 2020 people overlook that by almost every estimate there’s going to be very little uptake of scrubber technology in the fleet on the water. So, what this creates at the time of the regulations, new regulations come into effect, is a tremendous shock in positive catalyst to demand for product tankers because at that time you will have 2.5 million to 3 million incremental barrels per day of diesel required by ships, which will either remain bunkers on the water finding ships or ships diverting to find compliant fuel.

So, the first thing I would say is, the short-term catalysts and longer-term step change in demand is going to be extremely positive for product tankers generally in our fleet specifically. Second point I’d make is, again bearing in mind that there’s going to be very little uptake of scrubber technology and investment in ships that the higher the price of fuel we get back to what we’ve said for years, which is the more efficient ship will win and that price differential or higher price of fuel will benefit the most efficient and best designed vessels.

Again, playing to our existing fleet. And the final point I’d make is, not all ships benefit the same from the determination or evaluation of scrubbers. In our models, in our option models we look at the benefits to long haul very, very large inefficient vessels such as VLOC's, VLCC’s, or capesize vessels, with very long motion pastures is perhaps much greater beneficiaries to scrubbers in smaller ships like product tankers or chemical tankers or small container ships.

So, in our estimate this is much more about the demand transformation or a demand benefit that really is about the pros and cons of incremental CapEx.

With that, I think we're going to open it up to questions operator.

[Operator]

[Operator Instructions] And our first question comes from Jon Chappell of Evercore. Your line is now open.

[Jon Chappell, Evercore]

Thank you, good morning. I will just keep it to two quick ones given the time restrictions. First of all, I think in retrospect it is probably foolish of me and other people to assume that you can integrate a fleet like 27 vessels on September 1, and have everything run smoothly in the fourth quarter. So, I understand the cost and the off-hire days associated with that, but as we think about going forward, has everything been integrated into the pools, thanks cleaned, et cetera, et cetera as of January 1, so we start this year off with the full integrated 109 vessel fleet?

[Emanuele Lauro, Chief Executive Officer]

Thanks Jon and then Cameroon can intervene. As I stated in my opening remarks, 21 out of the 27 vessels are now under our technical management. So, we still have 6 to go, and we actually have less now, but in the first quarter you will see that 6 vessels will enter into technical management. Having said that on the cleaning costs, et cetera there were only 5 LR2s, which had a crude or a dirty background cargo history, and those have been cleaned up at this stage, all five are trading clean.

[Jon Chappell, Evercore]

As of January 1?

[Emanuele Lauro, Chief Executive Officer]

As of January 1, one was still in the middle of our cleaning process for work trading clean. So, you will see some cleaning in January for one ship.

[Jon Chappell, Evercore]

Great. Second question is, I agree with a lot of Roberts comments, obviously it is public, what we have been writing, but the setup today for product tankers looks a lot like exactly when we were in the deficit of the doldrums and dry bulk two years ago. And I’d say the asset value is moving in the order book et cetera, et cetera or kind of point to positive momentum. The one kind of mode of confidence that we got at that time in Scorpio bunkers was pretty persistent buying by the private management company or the family. Can we expect to see the same things, especially given the discount of the stock price to that range of any of you that Robert just mentioned from the family instinct?

[Robert Bugbee, President]

I think you would say - I think there is couple of things. First of all, we have been buying. We invested a further $20 million in December. Obviously, we have been unable to, we have to frustratingly sit on the side lines not just in terms of being able to say what was going on, but being able to act on anything quite rightly because we have been locked out, because we had materially, material information.

We, made so, secret that we believe in the future of the product market and we absolutely think that this is a fantastic opportunity to right now in terms of sting et cetera and yes it is setting up nicely in terms of like the dry-cargo market, with the following exceptions is that, unlike in the dry cargo market it took about a year before companies in dry cargo including Salt could get out of their own way and start to make operating breakeven.

What I think is amazing for STNG is that despite the fact that obviously the market is weaker and we think it is starting the edge of recovery. Every day the company has earned enough money above operating an interest contribute towards all those shareholders. And sting, unlike salt and dry cargo is virtually unique up there in terms of its liquidity size et cetera, et cetera. And it is only instead of one other public company in Ardmore, which is pretty complementary in terms of age profile et cetera, et cetera.

So, yes, we think it is setting up nicely and same sort of panic now and rumors and everything like that. The difference is that - and I think I would be pretty open with you is that there are different reporting positions for the private side instinct at this point then there was for salt. So, whereas in salt, the market saw every day when we bought because we were filing, we were d-filer. So that has a very different hurdle. STNG, the SSH and STNG, fortunately for us as buyers of the stock instinct we don't have the sort of announce everyday whenever we will be buying and sort of work against ourselves in that way.

[Jon Chappell, Evercore]

Okay. I understand, that makes sense. All right, thank you Robert. Thanks Emanuele.

[Robert Bugbee, President]

Thanks.

[Operator]

Thank you. And our next question comes from Fotis Giannakoulis with Morgan Stanley. Your line is now open.

[Fotis Giannakoulis, Morgan Stanley]

Hi gentlemen, and thank you. Robert, you talked about the several concerns about your liquidity and the balance sheet, and as the main reason why your stock has underperformed lately, can you give us some comfort about this liquidity and what the people talk about runway, you have a lot of cash in the balance sheet, if the market stays as it is, how long this liquidity is sufficient and what are the options and alternatives the company has to generate liquidity, talk about, if you can about your debt amortization or your vessels that they are unsecured or are they have a very low leverage?

[Robert Bugbee, President]

Sure. So, I would take the first part, it has been very pre-known [ph] to us been advised to us, we even have unsolicited offers that a bunch of people and rumors and we even had banks offering unsolicited debt, obviously they thought that maybe we were earning 10 a day or 11 a day or looking at indexes and the cash plea was higher et cetera. And I think partly there was a better rate on behalf of a couple of potential converts to basically we will be forced right now to go do a capital raise to deal with converts, and the reality now you can see is that our cash burn is much less than people could have anticipated of market indexes that that we’re using.

That the company has already said that with the reason that we did that raise was to give ourselves time to look and watch. Emanuele said that we’re focusing on that. We’re not naive to the overall situation, but at the same time we do have time. By definition with the asset values going up and this comes to your second part of the question that itself creates more a stronger balance sheet. You have a greater spread here between, for example - not just the NAV goes up, the net debt to equity based up loan to values goes up.

So that gives you more of an optionality. You have more optionality in terms of the values in the ships themselves to create liquidity. The company is of good behavior company. It is not on remission or in remand somewhere from the lenders. This is the same management. The guided and husbanded a dry cargo company with exactly the same lending group through a 50 [ph] years low and dry cargo where it was nowhere.

So, one of the resources, which we are not there at that position we are there that one of the resources obviously you talk within your own positions, you talk whether there is any flexibility in your own loan structure of the shifting company, you look as to all the different angles as to sell ships. So, to do things, but right now we’re making our lenders very aware of the situations we always do.

We are very communicative to them. But I think everybody is very nicely confident on the physical side of the company with this expansion in our net asset value, and the fact that we’ve being earning enough money to pay down debt in the meantime. So, apart from that, I don't think we have any more comments to that particular subject at this time.

[Fotis Giannakoulis, Morgan Stanley]

Thank you, Robert. That’s very helpful. And is it possible to comment, give us your thoughts about the refinancing of the convert. What is the timing that you will start looking at something like that and what kind of alternatives do you think that you can have to give more comfort to investors?

[Emanuele Lauro, Chief Executive Officer]

We’re certainly not looking at it right now. I mean it’s not even, you know we had a board meeting on earnings earlier in the week, and it wasn't on that agenda and we have the board meeting next week and it’s not on that agenda. They had a lot of interest. I mean we have as I said, unsolicited offers from various people. We’ve had people in the convert market saying, trying to say well, reverse enquiry, but for the company this is not the time to look to refinance the convert. You may never refinance the convert. It’s a, you may end up paying the convert down in cash.

I mean this is the whole thing or the whole idea of why we took equity back in December. And everything is quite logical from what we said. I mean we were criticized in December for doing an equity transaction below the net asset value in December $3, but we did it in order to create time and stability in the company. And as I said, since that point the values have gone up and we’ve made positive cash flow. So, right now as I say, is it not on the agenda. So, without it being on the agenda that’s it, there’s no time in the month.

[Fotis Giannakoulis, Morgan Stanley]

Thank you, Robert, that’s very helpful. One last question about the market. We’ve seen that certain parts of the market are doing okay like the Atlantic market, actually they are better than most people expected, certain parts of the world are quite weak. There are a lot of discrepancies, can you give us some color, why this discrepancy and also if you can explain a little bit more in detail, what is going on with LR vessels. The LR2s earning, you saw in the first quarter $15,000. The LR1s, which they usually trade at very close margin with LR2s they are doing a much lower, why is this kind of discrepancies around the world?

[Robert Bugbee, President]

I think part of the LR, for us particularly in the LR1s, we haven't yet integrated the LR2, the LR1s properly into our commercial system and our contracts, but something we have to work on. You are right. There are a lot of discrepancies. I mean to markets, the East Mediterranean and AG to East Africa are actually 20,000 plus in terms of MRs. So, those are strong markets, but this is typical of a market that’s trying to find its feet. And I think that a supportive thing to why the market is actually getting better on its turn it’s already made that turn from the bottom, is this volatility. And this volatility and discrepancy between markets.

So, a market that is bombed out is a market where there is really nothing. It’s just everything is in a mess. This is too much supply for every single region in the world, there’s no arbitrage going on in demand. It’s a mess. A market that is a recovering and is recovering and is starting to - cylinders starting to spike and is creating some sort of excitement to the earnings side and to the charters.

Charters is starting to take in more tonnage and go longer the market. The customers are seeing this well before we are seeing this, and because time charter activity, the rate going forward is even higher than where it is today, and the frequency by the charter of these and higher is because we’re seeing this volatility in different areas.

It is simply because we’re seeing one area up, and another area down. One moment there is an opening that which is creating trade and immediately that rate goes upwards. But the fact that all the markets even the worst markets are trading above operating cost and interest. And some are actually starting to become okay is a positive sign. It’s a positive sign that that volatility is there and the market is starting to bubble.

[Fotis Giannakoulis, Morgan Stanley]

Thank you very much about.

[Robert Bugbee, President]

Thank you.

[Operator]

Thank you. And our next question comes from Spiro Dounis with UBS Securities. Your line is now open.

[Spiro Dounis, UBS Securities]

Hi, good morning. Thanks for taking the question. I wanted to come back to asset values Robert. I think we’ve seen a lot of the pressure points, I would like to unwind a bit here, we’ve seen steel values, we’ve seen foreign exchange pressure ease a bit. So, just curious what you think is going to take to move asset values up another leg here and do you think that that happens ahead of product rates or is it the other way around?

[Robert Bugbee, President]

Well, I think we’ve already seen asset values pick up, right ahead of rates, but more importantly your rates are disguised a little bit to you guys because we’ve also seen time charter rates go up. So, we have seen the one-year time charter rates go upwards from the bottom and the activity from customers go, and we have seen asset prices move up. Asset prices have moved that more because they have some special elements, so you’ve got obviously the weaker dollar, you’ve got input costs into Shipyards, and you’ve got this discounting mechanism going on.

In the sense that Wall Street is not discounting at the moment. It's acting out of the past fear, but the actual shipping market is starting to discount. It’s unarguable to the shipping community that a new ship is going to be better than an older ship in the product market, in the container market, the dry market, the crew market. That’s unarguable amongst us all sitting around the bar. We don't fool each other.

The second aspect of it is, is that it is unarguable that your input cost, your potentials are going up. There are certain sectors such as dry cargo, are already getting orders, containers are getting orders, Gas [ph] are getting orders. So, Shipyard supply is starting to tighten up and we can see, all of us can see the demand side getting tighter and we are being pulled along by the forward curve, which is getting tighter. So that’s what’s taking prices up ahead of spot rates.

[Spiro Dounis, UBS Securities]

Got it. Got it. Second one just on the election at charter and some vessels here, can you talk about the motivation there, you are obviously still constructive on the market, so that makes sense, but why not just wait it out at this point you have got significant leverage to upside here if rates recover, why charter and more?

[Robert Bugbee, President]

Because we could money on that.

[Emanuele Lauro, Chief Executive Officer]

Most of the charters, you would have seen Spiro were extension of current charters, and the view is that the rates, the delivery positions and the rates were actually advantageous to the company and we just decided to stay with the ships.

[Spiro Dounis, UBS Securities]

Okay. Understood. That's it from me. Thanks guys.

[Emanuele Lauro, Chief Executive Officer]

Thanks.

[Operator]

Thank you. And our next question comes from Randy Giveans with Jefferies. Your line is now open.

[Randy Giveans, Jefferies]

Hi, thanks guys and good morning. So, a long-time listener, first-time caller here, just a few quick questions. I know there has been some concern about the cash burn, we talked about earlier on the call. Looks like you had basically positive operating cash in 4Q 2017, so what are your cash breakeven rates for LR2s and MRs?

[Robert Bugbee, President]

Hi Randy. So, obviously the operating expenses we need to cover right, and then interest for the LR2s, you are looking probably around - you are looking around $4,000 a day and principle around $5,500 to $6,000 a day.

[Randy Giveans, Jefferies]

Okay. So about 16,000. What about the MRs?

[Robert Bugbee, President]

MRs are just going to be a few thousand dollars less than that. So about $2,500 less than that.

[Randy Giveans, Jefferies]

All right, and then one more dividend sustainability or growth plans seems like share repurchases or convert buybacks would be more accretive at this point, so should we expect a kind of $0.01 dividend maintained?

[Emanuele Lauro, Chief Executive Officer]

That’s up to the board, but at the moment yes, there is now plans to cut the dividend. We just announced the dividends, right?

[Randy Giveans, Jefferies]

Sure. Meaning if it’s going to be growing or if you could use that cash for other more accretive purposes.

[Emanuele Lauro, Chief Executive Officer]

There are lot more accretive purposes right now than using surplus cash to increasing the dividend.

[Randy Giveans, Jefferies]

I would agree. Just concurring with you. All right that's it from me. Thanks again.

[Emanuele Lauro, Chief Executive Officer]

All right. Thank you.

[Operator]

Thank you. And our next question comes from Greg Lewis with Credit Suisse. Your line is now open.

[Greg Lewis, Credit Suisse]

Yes, thank you and good morning. Clearly, there's been a lot of conversation about asset values on today's call. Could you talk a little bit about the S&P market and sort of asset prices are going higher and sort of, is there a lot of volume in the S&P market, what types of vessels are being transacted in that market? Any kind of color around the - what’s going on in the S&P would be pretty helpful?

[Emanuele Lauro, Chief Executive Officer]

There is not a high amount of volume because there’s not a - there is more volume in the older vessel. We have always seen international seaways, let go of some of their vessels. They approach 15 years old and after they have been obviously acquired new of VLCCs. In that mid-209 [ph] to older, yes, those sort of transacted. But there is not much volume in the new vessels because there is no willing sellers, and none of the sellers need to sell. I mean if the majority of the new vessels now are held and reasonably strong hands.

I didn’t hear any stress from Anthony Gurnee on the Ardmore call, I don't see any stress, I don't see that Valero need to sell their new ships, or Vito need to sell theirs or Shell. And that I think is rather a unique think in the product market as most of these new ships are really held between a few owners and oil companies and traders.

[Greg Lewis, Credit Suisse]

Okay great and then Emanuele, in sort of your prepared remarks you mentioned your expectations that ton miles were going to expand later this year, could you sort of provide any color around, your thoughts around why we should be thinking ton miles will go higher later this year?

[Emanuele Lauro, Chief Executive Officer]

Sure. You see also on the slides Greg that, you know on Slide 8, we have the refining capacity additions and clearly there is nearly double of the additions that there are in 2017. They were in 2017, and looking at the geographical location of this edition it just points into the direction of increasing ton-mile demands. So, that’s what we expect at least.

[Greg Lewis, Credit Suisse]

Okay everybody, thank you for the time.

[Brian Lee, Chief Financial Officer]

Thanks. Okay, like Emanuele had previously said we're really sorry. I know there's five or six questions. As Emanuele said, we're really happy to take those off-line directly to the management, but we have to finish this conference call now. Thank you so much for your time, attention, and support. Thank you very much everybody.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone, have a wonderful day.