Euronav NV

XBRU:EURN

Earnings Call Transcript 2018-Q2

[Operator]

Good day, and welcome to the Euronav Q2 2018 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded.I would now like to turn the conference over to Mr. Paddy Rodgers, Chief Executive of Euronav. Please go ahead.

[Patrick Rodgers, CEO & Director]

Thank you. Good morning, and afternoon to everyone and thanks for joining Euronav's Q2 2018 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, Thursday, 9th August 2018, 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 you over to Euronav's CFO, Hugo De Stoop, to run through the first part of the presentation.

[Hugo De Stoop, Chief Financial Officer]

Thank you, Paddy. Good morning or afternoon to wherever you are today, and thanks for joining our earnings call. As always, I would like to start with the agenda slide on Slide 3. I will run through the Q2 highlights shortly before a full financial review, then I will hand back to Paddy for a walk through the current themes facing Euronav and an outlook on the tanker market before we open up to Q&A.Moving on to Slide 4. The key highlight was the completion of the merger with Gener8 on June 12. All factors of the transaction were concluded by the end of Q2 including the associated sale of 6 VLCCs.During the quarter, we also sold an old Suezmax and acquired a ULCC, a sister of the one we already own. Seasonally, the second quarter and the third quarter tend to be challenging for tanker companies given the availability of fewer cargoes. Indeed, Q2 [ principal ] lower freight rates than Q1, which was already a challenging quarter.But we exited the second quarter more encouraged with the freight market than we entered the quarter.Recycling of all the tonnage has again been a key feature with around 41 VLCC equivalents, that is 33 VLCCs and 16 Suezmax, being taken out of the market by the end of Q2. Numbers not seen since the mid-'80s.Q2 has seen a number of headwinds, which hopefully are now turning into tailwinds. For instance, oil supply rising in production and exports from OPEC, these things will be explored more by Paddy later on.Finally, so far in third quarter, the freight rates in both VLCCs and Suezmax are slightly better than those achieved during Q2, which was the rates are below our P&L breakeven, represents an improvement in the right direction.Let's take a look at our P&L account on Slide 5. Contribution from Gener8 in this quarter was only 18 days, given the closer so close to the quarter-end, but it includes a $36 million on bargain purchase and a result of the difference between the contribution paid and the value of the net asset acquired.Finally, the dividend of $0.06 per share in line with our minimum fixed dividend, covers the first half of 2018 and will be payable to all shareholders in the enlarge register of 220 million shares in October.Moving on to Slide 6. This is probably the most important slide of my section. The integration of the 2 companies' balance sheet is complete, and the data for the end of Q2 reflects the merger and associated transactions in full. Leverage remains amongst lowest in the sector at 44% on book values or 47.3% on a mark-to-market basis.You may have noticed a small working capital adjustment reflecting a technical issue inherited from Gener8 and which relates to the smallest of the 2 facilities that we took over and which had to be classified as short term.This will be corrected before the end of the third quarter.Finally, we have retained a very large liquidity buffer of over $750 million, which is down slightly from Q1, given where the market is, but also reflecting the full repayment at the time of the merger of an expensive note taken over from Gener8.That concludes my section on the presentation. And I will now pass back to our CEO, Paddy Rodgers, to conclude the prepared remarks. Paddy, it's over to you.

[Patrick Rodgers, CEO & Director]

Thank you, Hugo. I will now turn to Slide 7. The key event for Euronav during Q2 was completion of the merger with Gener8, which occurred in June. The combined density provides a major powerhouse in large tanker market with 27 Suezmax and 43 VLCCs as part of the 76-vessel fleet.As Chart 7 makes clear, Euronav postmerger is now the largest tanker company in the quoted space. But being the biggest isn't our aim as a company, scale is what our customers see as a key requirement as it enhances reliability of service, whether for the Eastern receivers as key buyers or at the other end, Middle Eastern producers as key sellers.The large tanker market is dynamic and this transaction also substantially reduces the average age of our VLCC fleet by 20% to just over 5 years of age and improves our Suezmax fleet, too. Integration of the 23 vessels new to the group, is largely complete with full earnings contribution expected for Q3.Turning now to our views and outlook on the tanker market, Slide 8.The key themes for Q2 has been the headwinds against the tanker market moving to tailwinds. Firstly, oil supply has clearly been artificially restricted due to OPEC production cuts being tightly enforced since the fourth quarter of 2016.The recent agreements in June to remove some of these restrictions has been -- has seen increase in cargoes returning to the market.The obvious caveat being developments in Libya, sanctions imposed on Iran and the ongoing difficulties in Venezuela, limiting the beneficial impact of both Saudi Arabia and Russia, returning to more normalized levels of output. However, the turning on of the taps in Saudi and Russia has already started. And we expect more, which will ultimately require more demand for shipping. Picking up on another theme within this is the substitution of Iranian barrels, as Slide 9 highlights. The reintroduction of sanctions by the U.S. against Iran was not a surprise in Q2. But the determination from the U.S. for full compliance has been. When sanctions were in place previously, Iran held 20 to 25 of its VLCCs as floating storage units, something we would expect to see again as soon as the sanctions bite. This is a positive for the sector and should it be repeated, even if the substitution of production comes from an adjacent nation, such as Kuwait, as the Iranian ships will not be involved in that carriage.Finally, looking at the trend of recycling, Slide 10. The trend started in Q1 has accelerated in Q2, as the chart makes clear with the scorecard at the end of June being 41 VLCC equivalents in or on their way to the scrapyard. This compares to the record year for recycling, which was 1985 when the full year number was 69 VLCC equivalents.This illustrates the scale of the rebalancing that we've seen so far, but which we continue to need to see in order to get a market more in balance.The following slide is a regular feature of our quarterly results, the bathtub, and encouragingly, at the end of Q2, the picture was better than at the end of Q1, with negative fleet growth in VLCCs for 2018, moving from minus 8 to minus 18.Whilst contracting has continued, delivery dates are now into 2021 and shipyard new building quotes have moved into the low to mid-90s compared to the high 70s of millions of dollars just a year ago.Slide 12. As usual, we finish with our traffic lights, but we make 2 positive changes from Q1. Firstly, supply of oil has become [indiscernible] increased potential for cargoes as a result of the decision of Russia and Saudi Arabia.Secondly, vessel supply has become more balanced between red and amber as the affirmative action and rebalancing the fleet begins to impact. However, further rebalancing is required before a more normalized freight rate market can emerge.Summing up, demand and ton mile expansion remains positive. U.S. crude exports hit 3 million barrels per day during Q2 for the first time. But there remains an oversupply of tonnage and a concentrated delivery schedule until 2019.If recycling prices remain elevated and older tonnage exits as it is pressurized by this oversupply, then the inflection point in the cycle will come sooner rather than later.That concludes the formal part of the presentation. And I will pass back to the operator for questions and answers.

[Operator]

[Operator Instructions] Our first question today will come from Jon Chappell of Evercore.

[Jonathan B. Chappell, Senior Managing Director]

Hugo, first question for you. Out of the $750 million of liquidity, how much of that is kind of required to be on your balance sheet? What I'm trying to figure out is, what's your firepower post-integration of Gener8, if you were to go out and try to take advantage of other opportunities, probably couldn't use the full $758 million? So what's kind of -- needs to be on the balance sheet for normal course of business or -- and/or covenants? And what's kind of active firepower?

[Hugo De Stoop, Chief Financial Officer]

Thank you, Jon. About $100 million, but in fact it's 5% of the outstanding debt. So of course, the more you draw on the line, the more cash you have to withhold on the balance sheet. At the moment, the cash is a little bit higher than that because we are gradually moving the facilities of Gener8 to Euronav. And once they are under the Gener8 3, then there's still some retention accounts that needs to be held out there. But I mean the cleanest picture is going to be at the end of Q3, when we would have done all the restructuring that we want to do on that side. And so as from the end of September, that will be about $100 million to $110 million.

[Jonathan B. Chappell, Senior Managing Director]

Okay, that's great. And then for my follow-up, Paddy along those same lines, you sound a bit more optimistic than you have in some time for all the reasons you explained and make a ton of sense. You're 2 months into the integration of Gener8 right now. How do you kind of look at positioning Euronav for 2020? Your fleet today, your balance sheet today, would you want to be a bit more aggressive? A bit more levered going into an upturn? Or do you think it may be a little early still, and you want to be a bit more defensive?

[Patrick Rodgers, CEO & Director]

Well, this will -- I think the -- obviously, we're really very pleased. The highlight thing for is, we're very pleased to eventually got the transaction behind us and it's done a lot in terms of repositioning us, not only in terms of our ability to service the clients, but also in terms of the fact that I think we've managed to ensure that the average unit fuel usage of our ships has going down through the transaction, which is one of the gains in addition, of course, to the pickup in value as a result of it being a share in that deal. I think looking at other transactions, we're not closed for business, we -- I think, we'll -- all have been -- had a holiday at some stage by September and we'll certainly be back with our pencils sharpened and then looking to see where there is value. I think that as you know that we've always tried not to be people who said we knew what was going to happen next in the market. We've watched carefully and we've tried to be opportunistic, but we always want to make sure that whatever it is you combine together, whatever it is that you acquire, you acquire it for value and you acquire it with enough liquidity and balance sheet strength to be a long-term player because the last thing you need is to be really playing the market directionally and then finding it doesn't deliver with the speed or on the timetable that you had hoped for. So I think you can -- I mean, I hate to be so neither one thing nor the other, but you know us, we are constantly looking and constantly questioning whether or not we think we're getting value and longevity.

[Operator]

Our next question will come from Chris Wetherbee of Citigroup.

[Christian F. Wetherbee, Vice President]

I wanted to sort of pick up on the fleet now that you're combined for a couple of months and you've sort of taken a look at what you have. Where does the currently fleet stand in terms of what you want to keep? Are there potential divestitures that may become before we get the sort of the growth and opportunistic aspect? I'm just kind of curious if you're done with sort of the fleet review?

[Patrick Rodgers, CEO & Director]

Well, I don't think -- there is no -- this wasn't an issue about we're going to buy this and then we're going to do that. I think that, obviously, we did in the process going through an acquisition of ships which we sold on. But that was more about trying to ensure that everybody could see that we took an aggressive but prudent approach. And of course, postmerger, having a stronger balance sheet and view of the fact that the markets are hardly rocketing is a good position to be in. Even though we feel more positive about the future, it's always uncertain. So I think there's no -- there are no huge disposals. Of course, we trim the fleet around age and performance at the same time as acquiring. But I wouldn't really consider that big moves. I mean you could expect to see us buying ships from time to time and selling ships from time to time is a natural part of managing the asset -- the portfolio of assets. But it doesn't hold us back in any way from looking, as Jonathan was asking for the next step.

[Christian F. Wetherbee, Vice President]

In terms of that next step, as a follow-up. Are there in the market today deals that seem compelling? So I'm just trying to get a sense if it's a target-rich environment? Or is this one where we've seen some of these trends beginning to get a little bit more favorable or at least indicating that they will become more favorable in the future? Has that changed sellers' attitude? Just to trying to get a sense of sort of where that bid ask spread is right now?

[Patrick Rodgers, CEO & Director]

Well, I think -- if we -- look, why don't we do -- the transaction that we've just effected was -- we were able to balance seeing a target that was very interesting to us, in terms of quality and size. At the same time, it's being unfortunately in a situation where they were significantly cash constrained. And essentially, we were able to provide balance sheet strength and liquidity into an existing base of public shareholders. So that combined the critical elements for concluding a deal. I think that the trouble as you know in shipping is that if you try to negotiate on a private basis, you're often looking at asset value versus asset value. And it's still difficult to see any real lift. And I think that once we start running hard as the market turns, then we'll be in a position to have a look and see if there's anybody else who's been left behind, or if it's the right time somewhere in between to find somebody who's a vulnerable and a willing seller. The hardest thing here is not really to find so much the assets, to somebody who's genuinely willing to face up to value in return for liquidity.

[Operator]

Our next question will come from Mike Webber of Wells Fargo.

[Michael Webber, Director & Senior Equity Analyst]

Paddy, I wanted to start off with I guess your current debt -- deck, then I wanted to jump back to some stuff we talked about in June. But within this deck, I believe it's Slide 9 which is helpful when you kind of run through the NICC fleet and the fact that, that could return to storage. The truck kind of cuts off, but I'm just curious if it's still early, but do you have a sense yet of how quickly that we could exit the market into storage? And then the state of that fleet, I know that fleet was on the older side back in 2015. There was some efforts from the Iranians to renew that over the past year or 2. But I'd imagine it's still pretty old. I'm just curious, one, how does that -- how do you see that ramping back up? And do you think there'll be third-party storage opportunities as a result from the age of the fleet?

[Patrick Rodgers, CEO & Director]

I think -- certainly, I think that it's just a bit too early to tell. I think there's an opportunity still for people to get last deals done on trying to buy Iranian oil. But I think we're seeing it gradually being squeezed as the Americans are being much more aggressive with the support of the Saudis on what's going to happen. And I think they're putting a lot more pressure on the Far Eastern customers. But unfortunately, it's very, very difficult to assess at the moment, just because the reality isn't quite there yet. And there's so much background noise in the rhetoric around international relations at the moment, that it's difficult to see how it's going to play out. We have the Europeans saying that they're not going to pay much attention to the sanctions or that the -- international [indiscernible] shouldn't pay much attention to the sanctions, which is easy to say when you're a politician. Little bit more difficult to say if you're in business. And we also have the tension that's been brought up recently between China and the USA. So it's difficult to see how it's quite going to play out, but I think that certainly in the next quarter we should start to see this trend of ships going into storage.

[Michael Webber, Director & Senior Equity Analyst]

Got you. That's helpful. And then maybe pivoting to my follow-up. You guys gave a really good presentation back in June around the impact of IMO. You went through a lot of detail on scrubber economics and the market in general. But one of the key points in the beginning of the deck and your message was that there are a lot of mix messages still coming out when talking to different counterparties, be them traders or majors or whatnot. And I'm just curious between today and back at Marine Money in June. Do you think a more consistent narrative has emerged and as kind of related to that, I know then you were talking about doing sea trials and had a bit of a pilot program going with one of the majors. I'm just curious how that's evolved, I guess given the context of my first question.

[Patrick Rodgers, CEO & Director]

Yes, well, there's no question, Mike. But if you wanted to -- if you wanted to characterize the mood of the last month and a half -- the month and a half on the subject of scrubbers, it's definitely been -- there's gold in them their hills. That's been the mood. So I just think -- I think our view is that we don't want to be the first guy down the mine with a pickaxe. We -- maybe we'd rather be in the transportation business behind him or running the saloon. So I think that just taking your time, picking your way through it. I don't think there's going to be a shortage of scrubbers. I think we've already seen a huge ballooning up in the number of engineering firms who are saying, look, this is very unsophisticated machinery, we can make that. So I don't think there are going to be real pressure points and still we -- until, we're really ready to know how are you best going to address what we perceive to be the fuel oil spread that's coming with the advent of the 2020 legislation.

[Operator]

Our next question will come from Magnus Fyhr of Seaport Global.

[Magnus Sven Fyhr, MD & Senior Shipping Analyst]

Just a follow-up question on the IMO. When you talk to your clients, do you get the sense that industry is going to be ready by January 2020? Or is it something going to be a little bit more of a transition through 2020, '21?

[Patrick Rodgers, CEO & Director]

I'm afraid, Magnus, if this is really a sort of million -- the $64,000-question as they say. And because the trouble is that individual refiners will tell you, we're ready. And certainly, a number of the -- what we used to call the oil majors or certainly the independent oil companies have said, we're fully ready for 2020, we can make a compliant fuel. But it's not answering the base question that the IMO have asked, which is, they put us against the wall and said, you're going to switch and what we need to know is, is they're going to be a fully supplied market? And no single refiner can give that viewpoint. And so we're all left scratching our heads and trying to add up the little bits and pieces we get from the different refiners to work out whether there is a global industry response. And there is no global oil industry body willing to step forward and say, we've all been talking to each other and we'll supply x million barrels per day.

[Magnus Sven Fyhr, MD & Senior Shipping Analyst]

All right. And just on the bookings for third quarter, I mean, are you surprised to see a little bit of a counter seasonal improvement here? Is that mostly related to the OPEC increases? I mean, typically we see rates start to move a little bit later in the year.

[Patrick Rodgers, CEO & Director]

It's very -- I mean, it's -- you couldn't necessarily call it the seasonal move yet. Because whilst it's up, it's not going to make anybody's year. But it is a nice trend. It's better than the alternative.

[Magnus Sven Fyhr, MD & Senior Shipping Analyst]

And any -- I mean, do you think there's just lot of rhetoric now going on with Unipec potentially banning U.S. exports, I guess that's...

[Patrick Rodgers, CEO & Director]

Nobody's very clear. I think that this is, diplomacy by tweeting and tariffs isn't really going to help anybody getting a clear picture of what's going on. And it seems that one moment Unipec were out saying they wouldn't be buying U.S. oil, now the Chinese government seems to have said that there won't be tariffs on U.S. oil, although there will be on other energy-related products. And at the moment, we've got -- I think we've just got to wait and see. I don't really think it's going to have as much difference. And I think this may be the key, the critical point. I don't think it's going to have much difference in terms of what happens in the world of shipping because if those barrels in the U.S. Gulf are abandoned by China and they don't buy them, then they'll find their way to India or to Korea or Taiwan. And you can be sure that the Chinese will buy more then in West Africa and the Caribbean and Brazil. So it may not be -- this is more rhetoric and more noise than it will the real impact on trade lanes and ton miles.

[Operator]

Our next question will come from Fotis Giannakoulis of Morgan Stanley.

[Fotis Giannakoulis, Vice President, Research]

I would like to ask a follow-up on Jonathan's question about the liquidity and the availability. Do you have a facility for -- from Gener8 which matures in 2019? Which seems to be higher than the rest of your facilities? How do you think about refinancing this facility? And what are your capital requirements for ballast water and any other capital requirements that you have in the next couple of years?

[Hugo De Stoop, Chief Financial Officer]

So the facility as you're talking about is one for the refi, which was financing the older part of the fleet of Gener8 as far as the 375 basis points. And we are in the process of completing the refinancing of this facility. So I expect that to be done before the end of the quarter at a much lower rate similar to what we've done in the past, so between 200 and 225 basis points. As far as the CapEx is concerned, and Paddy may correct me if I'm wrong, but the first vessels that where we will put ballast water there, tanking system on board will be done within 18 months and that will be the first one. As you know, you have to do that when the vessels goes to its first dry dock after September '19. So the CapEx per vessel is about $1.5 million. And we will publish relatively soon on our website the vessels that are equipped already. You may be aware that when we look at the Gener8 fleet, all the VLCCs were equipped. And as far as our fleet are concerned and before the Gener8 fleet was joined to ours, I think we had 8 vessels equipped with ballast water tank systems.

[Fotis Giannakoulis, Vice President, Research]

One follow-up. I want to ask about your acquisition of the ULCC, and how shall we think about the earnings of these 2 units? And what is that range in the earning capacity among other vessels of your fleet, younger and -- versus older and Chinese versus Korean vessels?

[Patrick Rodgers, CEO & Director]

Well, Fotis, I don't think there's no earning capacity by nationality. And what you're really talking about in terms of the variance between the ships I suppose is, what would you say with a variance between what modern post-2013 ships with long-stroke engines compared to the ones prior to that. And I think it's about 10 to 15 tons a day in terms of the different earning capacities. Although, of course, there was quite big ranges within our older fleet anyway in terms of the ones that were naturally more fuel-efficient rather than others. I think that as far as the ULCCs are concerned, we've had very good earning from them for a number of years, whilst there was logistical requirement for storage. And our view is, that there's no question, that whatever else is going to happen as a result of 2020, there is not going to be a significant increase in storage capacity or the proportionate increase in storage capacity, that will be required or that is implied by the need to segregate as a result of all the different field specs that will come out. So we believe there is a real future for storage. And that storage on big ships like this can be extremely rewarding.

[Operator]

Our next question will come from Noah Parquette of JPMorgan Securities.

[Noah Robert Parquette, Senior US Equity Research Analyst]

I just wanted to follow-up on the storage point. There's a lot of older ships being sent to the scrapyard. When you look at kind of the potential for storage ahead of 2020. Do you think some of those ships could be retained to be used for storage? Is there any specific strategy that you guys would want to approach there? Or is it just sort of see what happens with it...

[Patrick Rodgers, CEO & Director]

I think we would take the last approach, seeing what happens with the exception of course that with the -- our view on the ULCCs is quite specific. We see them as a unique opportunity and ultimately, potentially a diamond in the rough, if we get an opportunity to work in the offshore with them, so that's the very different story. I think as far as storage is concerned, it's always a bit tricky. And the reason I say it's always a bit tricky is that on the face of it, it will be very sensible to use an old tanker because consumptions hardly matter to storage. And you're not really asking a lot of the ship. But on the other hand, a lot of the storage is done by traders, very opportunistic, and what they're wanting to do at the end of their storage period is to sell the oil into any port they want in the world. And that don't really want to have the cost of all the trouble of additional transshipment. So it may well be that you just don't get preferred even though you're perfectly good for the service. You don't get preferred for the service because it will end with the voyage and it better be a ship that's capable of going to any point in the world where the [indiscernible] has opened up for the soil of the oil.

[Noah Robert Parquette, Senior US Equity Research Analyst]

Okay. And I just had one minor question. At last earnings, I think you guys said that you had 42% of your day is fixed at $13,200 on the VLCCs. Obviously, you did a lot better than that. Can you talk about what happened in the back half of the quarter that allowed you to get such an improved rate?

[Patrick Rodgers, CEO & Director]

I think I simply had said -- I think we've seen, generally speaking, although the market is hardly doing -- it's hardly going gangbusters. It's significantly improved. And as you know, the economies in shipping are quite dramatic for small movements, simply because you know the vast bulk of your freight there is a fuel bill.

[Hugo De Stoop, Chief Financial Officer]

It was a blip. The last 2 weeks of the quarter, there was a blip and when we were in Marine Money in New York, everybody was talking about it and everybody was very encouraging, unfortunately, it didn't last that long, but it certainly helped to improve the TCE of this quarter.

[Operator]

Our next question will come from Cedric Duinslaeger of KBC Securities.

[Cedric Duinslaeger, Equity Analyst]

I actually had a question on the ULCC. If you had any specific plans for it but that has been answered. Maybe just to get a better view, both Euronav's and International Seaways have their VLCCs in the international pool. There is -- I think about a $2,000, $3,000 day rate difference between the 2 in Q2. What's the main reason there? Is this purely for the age of the vessels? Or is it something else that explains this difference?

[Patrick Rodgers, CEO & Director]

Yes. That's pool point differential. So it's a difference in the quality and performances of the ships, and probably, it's primarily around fuel consumption.

[Cedric Duinslaeger, Equity Analyst]

Okay. So that's just [ brilliant ]. And a second question, a follow-up was on the ULCC, but you answered it. This is for storage opportunities with IMO 2020. Do you see the ULCC going?

[Patrick Rodgers, CEO & Director]

Yes, that's correct.

[Operator]

[Operator Instructions] Our next question will come from Quirijn Mulder of ING.

[Quirijn Mulder, Research Analyst]

This is Quirijn Mulder from ING. And one question on the current structure of the oil market. We've seen a lot of degradation in the last year. And you also mentioned that this helping the supply of fuels [indiscernible] to the market. So what's the current status, given the fact that the degradation is somewhat over? [indiscernible] through the market. So do you think the market is going to absorb storage for VLCCs except them, say, for the discussion about the IMO 2020?

[Patrick Rodgers, CEO & Director]

Well, I think it's always a possibility. And we used to be very focused on it. I think 18 months ago, we were giving almost quarterly updates on the number of dollars per month that were required in order to establish sufficient contango to make the carry worthwhile. And look, I think we're moving back to the territory we saw in 2017, at least, we have done briefly. But it's all over the place at the moment quite frankly, and there's so much noise around oil that the short-term pricing and these generally have been short-term moves on contango. I think further out, most -- the consensus further out is generally going to be that there's been so much cutting on investment. And there is so much natural wear down on reserves, that it should result in the oil price staying steady or going up. And as a result of that, we could expect to see a return sort of contango sufficient to induce storage. I think that's part of our lives from time to time. But I do think the disruption of 2020 will make storage a very significant story.

[Operator]

Our next question will come from Herman Hildan of Clarksons.

[Herman Hildan, Research Analyst]

Can you hear me?

[Patrick Rodgers, CEO & Director]

Yes.

[Herman Hildan, Research Analyst]

My first question is on the liquidity you -- on your slide, you showed 0 liquidity from the FSO and obviously, they're on contract through 2022, and there's no debt [ covenants ]. So I guess the first natural question is, what's your thoughts around the FSO, obviously, they're just debt-free, they're throwing up cash now? But have you made any other alternatives or thought anything around what you're going to do with that, call it, capital?

[Patrick Rodgers, CEO & Director]

No, I think that -- first of all, Hugo, you want to run through on the financing of the FSOs?

[Hugo De Stoop, Chief Financial Officer]

Yes, well, I mean the FSOs, we put $220 million on them. They're going to be amortized -- reamortized over the duration of the contract. And the way we have structured is a little bit similar to what we've structured the other piece of debt in the company, which is in the form of a revolver. So we have taken the money on that front between the joint venture and we have repaid a revolver that is available to Euronav, so it's quite neutral. It's a little bit cheaper because obviously, the FSO having a contract. The margin was a little bit cheaper then on some of the revolvers that we have in the company. But we tend to look at those things from a corporate perspective. And we looked at the overall leverage of the company. So it's not really specific to those FSOs.

[Herman Hildan, Research Analyst]

Okay. So they are kind of a collateral in that financing arrangement?

[Hugo De Stoop, Chief Financial Officer]

In helping to reduce modestly the overall margin that we pay on our debt.

[Herman Hildan, Research Analyst]

Okay. And then the final question I have is obviously, I mean, it's a question that I ask you from time to time, obviously, you have strong balance sheet, you have the #1 position in the fleet size. Kind of the best I guess acquisition you can do today is obviously, your own stock being trading below and maybe just curious to ask the question again, what you're thinking about how the market is pricing your position that you've kind of strengthened now with the Gener8 transaction?

[Patrick Rodgers, CEO & Director]

Well, I mean, I might just be a little bit on the wrong foot here because I'm just thinking there's -- there are a number of elements there, but I don't see that with the current market outlook where we're waiting for the sort of the real turnaround follow through and start delivering results and strong cash flows. I think we're not looking to buy stock back in anticipation of that. I think that we've already added a lot of value about 15% growth on a number of fleet days per share as a result of this transaction, added to which we've added a better-performing unit cost of fuel consumption. So we've done quite a lot this year in terms of enhancing shareholder value. I think that one of the things that we had done very consciously, obviously was to have this subsale to INSW of 6 ships in order to make sure that our shareholders could sleep with both eyes and ears closed knowing that there wasn't going to be a need for any short-term cash liquidity requirements. So unless our stock was tanking to the point where we thought it was supremely, opportunistically, good value, I don't think we'd be looking firmly at buyback today, but of course, we have the capacity to do that and of course, we have the authority to do it. So we have a sort of discrepancy in value, we'd be after it. I assure you. But no, I don't think that we'll directionally play the market against the share, using cash liquidity at the moment.

[Operator]

Ladies and gentlemen, having no further questions, this will conclude our question-and-answer session. And we'll also conclude Euronav's Q2 2018 Earnings Conference Call. We thank you for attending today's presentation. You may now disconnect your lines.