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Aegean Marine Petroleum Network, Inc. (NYSE:ANW)

Q4 2012 Earnings Call

February 28, 2013 8:30 AM ET

Executives

Spyros Gianniotis – CFO

Nick Tavlarios – President

Peter Georgiopoulos – Chairman

Analysts

Dough Mavrinac – Jefferies & Company

Kevin Sterling – BB&T Capital Markets

Peter Mann – Dougherty Asset Management

Chris Snyder – Sidoti & Co.

Operator

Good morning and welcome to the Aegean Marine Petroleum Network, Inc. Fourth Quarter 2012 Conference Call and Presentation. I would like to advise everyone that there will a slide presentation accompanying today’s conference call. That presentation can be obtained from Aegean’s website at www.ampni.com.

I also want to inform everyone that today’s conference is being recorded and is now being webcast at the Company’s website www.ampni.com. We will conduct a question-and-answer session after opening remarks. Instructions will follow at that time. A replay of the conference will be accessible through the next two weeks by dialing 888-203-1112 for US callers and 719-457-0820 for those outside the US. To access the replay, please enter the pass code 64828029. Again that’s 64828029.

At this time, I would like to turn the conference over to the Company. Please go ahead.

Spyros Gianniotis

Thank you and welcome to Aegean Marine’s fourth quarter and full-year 2012 conference call. With me today is Peter Georgiopoulos, Chairman of Aegean, as well as Nick Tavlarios, President of Aegean.

Before we begin our presentation, I would like to note that this conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates, or similar expressions are intended to identify these forward-looking statements. These statements are based on Aegean Marine Petroleum Network, Inc’s current plans and expectations and involve risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward-looking statements.

Important factors that could cause actual results to differ include our future operating or financial results, our ability to manage growth adverse conditions in the marine field supply industries, and increased levels of competition. For further information, please refer to Aegean Marine Petroleum Network, Inc’s reports and filings with the Securities and Exchange Commission.

I would now like to turn the call over to Nick Tavlarios, President of Aegean to discuss highlights for the fourth quarter and full year.

Nick Tavlarios

Thank you Spyros and thanks to all of you for joining us today. I’d like to begin by briefly discussing some of the highlights for the fourth quarter and full-year 2012 and discuss the key drivers of the results. Then I’ll turn the call over to Spyros who will discuss our financial results for the quarter and year.

Finally, I’ll leave with our thoughts on a macro environment drivers for 2013 and upcoming milestones.

I’ll begin my discussion on slide 3 of the presentation. During the fourth quarter Aegean achieved its eighth consecutive quarter profitability. Despite a challenging market, our fourth quarter ended with good momentum and year-over-year sales volume growth.

For the full year, our results included substantial gross profit and EBITDA growth demonstrating the value we are creating as we execute our strategies to diversify our revenue streams building a streamline operating structure and opportunistically entering new markets.

Turning to slide 4 for the fourth quarter of 2012, sales volumes increased 6.2% year-over-year to nearly 2.7 million metric tons. EBITDA for the fourth quarter was $19.5 million or $21.3 million adjusted for the sale of the Aegean Star [ph]. We achieved adjusted net income of $5.1 million or $0.11 basic and diluted earnings per share in the quarter.

On a sequential basis during the fourth quarter our volumes and gross spread were relatively consistent compared with the third quarter. On our volumes, we saw an impact from our decision to strategically reduce our presence in the West African market that no longer fit on our core business model.

While this decision had a short-term effect on our results, we are committed to our operating strategy that is focused not only on volume growth, but on building profitable volume growth over the long term.

We anticipate that this strategic location which allowed us to sell one vessel, from our purpose to new location and eliminate its hard floating storage vessel will contribute $7 million in annualized cost savings.

For the month of January we generate sales volumes approximately 812,000 metric tons. Gross spread in Q4 continued to reflect a highly competitive market. To combat this, we’re actively identifying opportunities to increase profitability as capacity continues to come out in the market.

While we are working to increase profitability is to capitalize our significant built-in-fleet capacity, Aegean is well positioned to continue increasing economies of scale and reducing the Company’s cost structure.

During the quarter we achieved our third consecutive quarter reduced operating expenses as we continue to successfully streamline our cost structure. Our strategy is to continue to successfully leverage our fixed cost to drive the bottom line.

We also strengthen our integrated marine fuel logistics chain through targeted expansion and disposition of older [ph] non-core asset. As we look ahead, we remain focused of brutally [ph] managing our expense structure to drive additional positive results.

For the full year of 2012, our business grew across all key areas. We increased gross profit and net income on adjusted basis at 9.5% and 37.7% respectively. EBITDA for the full year was $93.6 million on an adjusted basis with extreme loss on sale at vessels. We achieved adjusted net income of $26 million or $0.56 base of diluted earnings per share for the full year.

Throughout 2012, we successfully captured market share and continued to build volumes in our lubricant’s business as we executed on our slide to diversify revenue stream. During the fourth quarter, the volume of marine lubricants was approximately 6,900 metric tons compared to 7,600 metric tons in the third quarter.

Turning to slide 7, we see that the full year of 2012, we grew lubricant volumes a full 78%. I recorded a total of 28,394 metric tons of marine lubricant salt. Although this is smaller lower volume business for Aegean it yields higher operating margins and is a highly profitable revenue stream for the company.

With that, I’ll turn the call back over to Spyros to provide more detail on our financial results.

Spyros Gianniotis

Thank you, Nick. As you may know since market conditions fluctuate at ports around the world, we track our business quarter over quarter. As such we will use sequential comparisons in our discussion of our quarterly financial results comparing the results for the fourth quarter of 2012 to the third quarter of the 2012.

On slide 8 of the presentation, we illustrate our sales volumes and gross spread including our sales volumes during the fourth quarter Aegean has achieved a cumulative annual growth rate of approximately 20.7% since going public.

During the fourth quarter, the gross spread per metric ton of marine fuel was essentially flat at $23.4 per metric ton compared to $23.2 per metric ton in Q3 2012.

One slide 9 of the presentation, we break out our company-wide gross utilization for the quarter which is measured as volumes delivered per vessel per day. And it was 472.3 metric tons per day compared to 533 metric tons per vessel per day in the third quarter.

Gross utilization declined in the fourth quarter due to sales to some of our vessels coming out of time charters. Adjusted utilization which excludes both scheduled and unscheduled non-operating or off-hire days was 499.9 days in Q4 compared to 543.8 metric tons in the previous quarter. As a reminder, our utilization does not include Aegean North-West in Europe which operates a spot based business model focused on providing same day sales and delivery services.

During the fourth quarter, we recorded a total of 199 non-bunkering days, which we defined as scheduled and unscheduled off-hire days for our bunkering fleet plus days associated with strategically positioning of vessels. This number compares to 69 non-bunkering days in the prior quarter.

For the full year of 2012 we recorded a total of 450 non-bunkering days. For the coming first quarter, we anticipate approximately 100 scheduled non-bunkering days. We also generated voyage revenues of $4.1 million in the fourth quarter versus $6.4 million in the previous quarter. Looking ahead, we expect volume revenues to increase as long as our vessel is being chartered out.

During the quarter, we have allowed some of our older vessels the charters of those two laps which is reflective in the reduction of mortgage revenues. And our plan is to sell three of these vessels that will reduce overall expenses by $7 million over a year period.

Our product revenues grew up approximately $1.4 million lower than the prior quarter. After joint venture interests and expenses this translated to $400,000 of net income. The decision has been taken to unwind the terminal activity in Panama which will result a $9.5 million in new cash to the company and that it will be reflected in the first quarter.

Furthermore, we have expanded our bunkering presence to three vessels. Gross profits which will calculate these total revenues, less cost of sales have posted a cumulative annual growth rate of approximately 20.9% since the fourth quarter of 2006.

On slide 10 we present our historical gross profit in EBITDA margin’s trend. Our EBITDA margin which is calculated as adjusted EBITDA divided by gross profit was 28.2% in Q4 which was lower compared to our adjusted EBITDA margin in the previous quarter due to lower volume and other revenues.

For the full year 2012, our adjusted EBITDA margin was 29.3% which was higher compared to last year’s results of 27.8%. This has to do with the expense reduction and the approved gross spread per metric ton.

Turning to our working capital on slide 11, during Q4 our days payable outstanding increased slightly quarter over quarter while base inventory decreased slightly quarter over quarter. For the fourth quarter days receivable outstanding increased. The net effect grows a small overall increase in our cash conversion cycle to 22.7 days from 22.4 days.

Aegean reported net cash provided by operating activities of $42.5 million for the fourth quarter. Additionally we generated fee cash flow of $14.7 million for the quarter ended December 31st, 2012 compared to $11.6 million in the prior quarter. For the full year we have received free cash flow of approximately $65.4 million.

Our strong balance sheet continues to be a key differentiator for our company. As of December 31st, 2012, our cash position was $77.2 million. And our working capital position totaled $53 million.

Importantly we have a commitment for $73.5 million third facility to finance the Fujairah land storage. As the company has already paid over $95 million from its own funds to finance this project, we expect the first drill down to be $65 million and it will be applied to the reduction of our short-term debt.

This will significantly increase the company’s working capital. The new term loan agreement using documentation should be ready for signing we feel in the next two weeks.

As we have discussed on previous calls, we are also working on a global trade finance facility that would replace the various bilateral facilities we currently have. We are making strong progress in finalizing this facility while in the interim, we have strong financial liquidity to support the ongoing execution of our gross strategy due to this [inaudible] provided by our existing banks that are also the ones that are involved in the global facilities.

Let me provide you with the key next steps in this process. Since this is the first time Aegean will have a facility of this structure and magnitude in place, we are taking the necessary steps to ensure that we have negotiated the most favorable terms.

To date we have appointed the EBITDA ranges who have committed their participation and have agreed to terms that will govern the loan facility. Next, we will approach all our current bankers as we allow select group of further banks to engage in discussions about additional commitments for Aegean.

We expect to have all of the bank commitments necessary to fund the facility in place by the end of March. We expect to close this transaction within the month of April. Again I want to emphasize that the support from the company’s existing banking group provides more than enough liquidity for Aegean to successfully continue to operate its straight finance business without disruption.

We appreciate their continued support from our banking group by extending our current facility when they expire, why we are in the process of completing the global facility. Many companies in our industry are currently facing liquidity problems and we believe our strong financial position is a huge competitive advantage for us.

Following the draw down and utilization of these two facilities discussed above, our working capital will exceed $200 million and our current ratio will be approximately 1.38 times. The two facilities will further strengthen the company’s balance sheet and will provide the foundation to further expand our profitable operations.

In reviewing our balance sheet trend on slide 12, it is important to note that why trade finance debt at the end of Q4 totaled $440 million due to the intensive working capital requirements inherent in the global marine fuel supply industry. This debt figure has a rapid turnover of between 30 to 45 days.

In addition, our trade finance debt could be paid in full along with our entire trade payables, corporate debt, as well as a majority of our vessel debt based solely on the liquidation of our current assets. The remaining debts in our books will be approximately $118 million, which is secured by 36 young vessels or $3.6 million of debt per vessel.

As a result, we end up with unencumbered debt free assets that include 26 owned bunkering vessels, three floating storage facilities, and three existing on-shore storage facilities. As of September 31st, 2012, our fixed asset debt to adjusted EBITDA multiples was only approximately 2.3 times.

Our substantial financial liquidity, including over $968 million working capital credit facilities or $1.4 billion including supplier credit provides Aegean with distinct competitive advantage as we seek to further expand our global market share and strengthen our industry leadership for the benefit of the company at its shareholders.

I will now turn the call over to Nick.

Nick Tavlarios

Thanks Spyros. I’d like to use the rest of our time today to provide you with some thoughts on the microenvironment drivers for 2013 and how recent and upcoming milestones underscore the progress we are making toward our long-term goals.

We know what needs to be done to create long-term value. We need to continue entering new markets, further diversify revenue and enhance flexibility, and we are doing just that. In short, we are controlling what we can control.

First, we are taking decisive actions to diversify revenue base and increase advance global market share. We have strategically expanded our global footprint to 20 markets covering approximately 60 ports to increase our global market share and drive business revenues and streamline trade efficiency.

We’re expanding service centers around the world, including our recent expansion in Barcelona, which on track to commence physical supply operations by the end of the first quarter of 2013. Barcelona also improves our geographic mix and provides new volume. We see significant opportunity in the Barcelona market, which is presently being served by only one player.

Our competitive advantage in this market will be offering on true capabilities, and either of which are currently offered in this region. We are confident that new substantial volume at a profitable level of Barcelona will contribute to a larger revenue base.

Additionally, recent loss of physical supply operations and augment onshore storage, operations are tangibly met. This move strengthened our integrated marine fuel logistic chain to drive profitability and further diversify our scope of operations. Second, we are driving down our operating expense structure.

To date, we have sold 10 older vessels yielding approximately $20 million in annual operating savings. The sale of this non-core assets allow us to increase our utilization of the remaining fleet, our reduced maintenance CapEx and both of these actions directly impacted Aegean’s bottom line.

As we continue to execute in 2013, we remain laser focused on rationalizing expenses by selling non-core and older vessels. Over the years, we have grown our land storage significantly and we are working towards further reducing our floating storage capacity worldwide.

In Fujairah, our strategy is to sell our current floating storage facility and move all storage to shore as our newly built facility comes online towards the end of 2013. The elimination of floating storage facility has become a growing trend around the world. For example, the United Arab Emirates [inaudible] has stated that he will be eliminating offloading storage.

This policy once enacted and enhances the value of Aegean shore side storage capacity and both source the company’s competitive position in the key market. Equally important, the sale will eliminate future CapEx commitments to maintain this floating fuel storage ship. We are streamlining our expense structure and leveraging our model to drive growth on our bottom line.

Before I’m going to take your question, I would like to walk you through what we are seeing for 2013 including industry trends and upcoming milestones. The market remains highly competitive and 2013 will continue to be a difficult year for the shipping industry in more significantly some of our shipping clients.

As we move ahead, we will continue to look for opportunities to increase both our profit margins and our volumes. We will also continue to approach markets opportunistically entering and exiting market as appropriate to maintain competitive positioning and adhere to our operating philosophy.

Additionally, we anticipate headwinds in the microenvironment, impact of volumes and spread of the next two quarters. This is nothing new for our company. We have been dealing with this environment for the last two years and have been successfully navigating these headwinds.

We made strategic reduction in various markets while entering new more attractive ones. We believe that we are at the bottom of the current shipping cycle and have seen many of our customers face the serious liquidity issues that have negatively impacted their purchasing patterns.

Looking ahead, as older tonnage continues to exit the market and global demand improves, the supply and demand balance and the overall shipping sector should improve. It will continue to compete for higher quality customers and expected registry recovery as our clients begin to buy larger amounts of fuel which will boost our profitability.

Although microenvironment headwinds are expected, we see some anecdotal evidence that indicates improving trends. For example, we have seen recent demand across certain segments of the dry bulk, tanker and container markets. They continue to expand in world seaborne trade and global fleet is driving demand for all grades of marine fuel.

Furthermore, we are seeing a stronger marine fuel sales and vessel calls in major ports. With this strong financial platform and growth strategy, we are confident that we are well-positioned to benefit from these trends and improvements of the macro as it occurs.

We have solid growth and momentum as we enter a new year and we’ll continue to carefully control what’s in our region successfully execute our strategy. We will continue to be cautious and diligent with our competitive positioning by taking conservative steps and strategically modeling our business to achieve our goals.

In the midst of a challenging environment, we reported eight consecutive quarters of profitability. We also create a global foundation that paves a way for Aegean to benefit from future macroeconomic environment improvements.

Before we open the call for questions, I want us to keep an eye for our company. As I mentioned earlier, our Barcelona center is expected to open by the end of the first quarter of 2013. We also expect to open at least an additional port in 2013.

Additionally, we are excited about our Fujairah store facility which is on track to be commissioned in the fourth quarter this year. With this solid platform, together with the positive trends I discussed in the call today, we have significantly opportunity ahead of fiscal 2013 and beyond.

With that, I would like to open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) We’ll take our first question Doug Mavrinac.

Dough Mavrinac – Jefferies & Company

Thank you, Operator. Good afternoon guys.

I just have a handful of questions this morning, but first kind of looking at the fourth quarter, I just want to make sure I have a good handle on that before looking at 2013. So for 4Q, based on your results, you guys, your bunkering business, your sales volume exceeded 3Q, the growth spread exceeded 3Q.

But the revenues are down a bit from 3Q. Is that primarily because of those two items that Spyros has discussed, essentially, the re-chartering of vessels and the Panama storage situation?

Nick Tavlarios

That’s right. I mean if you take the bunkering business, which is really our main business, we have better margins and better volumes. Just to reiterate what Spyros said, if you look at the Panama storage, that contributed net income by 400,000 and we’ve decided for various reasons to exit that market.

And Spyros said, "I don’t know that there’s going to be" –

Spyros Gianniotis

Exit of storage piece.

Nick Tavlarios

Exit of storage, not the bunker. The bunker has increased in $9.5 million cash injection to the company from that. So to us, that sounds, like, positive for the company.

Additionally, we have some older vessels that were on charter as opposed to re-chartering them would be in the quarter because you can’t sell a ship with a charter. It’s very hard to. We decided to investigate getting rid of some of those older ships, which should contribute about $2.3 million or should reduce expenses by about $2.3 million per ship of about $7 million in total.

So if you look at it, we made a couple of strategic decisions. You see a little bit of revenue going away, but a lot of cash come in the company by those two strategic decisions.

Dough Mavrinac – Jefferies & Company

Right. And it sounds like, Peter, if I did the math right, just the savings of 7 million in OpEx, that almost makes up for the entire net revenue decline that you saw during 4Q.

Peter Georgiopoulos

Right, and that’s every year.

Dough Mavrinac – Jefferies & Company

Right, right. Okay. I just wanted to make sure because that’s the way it seemed and that’s why you explain it. But just like I said, I want to make sure we had a good handle on it. So for 2013, obviously heading in to the year from the bunkering tanker side of things, a lot of momentum in terms of sales volume.

And I didn’t quite catch the sales volume update that you guys typically provide. So how did January look in terms of sales volumes on a monthly basis?

Nick Tavlarios

Yes. The January number varies so much in January 2011 year-on-year.

Dough Mavrinac – Jefferies & Company

Okay.

Nick Tavlarios

812,000 tons.

Dough Mavrinac – Jefferies & Company

Okay. Perfect, perfect, perfect. All right. Great. And then –

Peter Georgiopoulos

I know they’re using that because of weather-related issues in a lot of parts in the world.

Dough Mavrinac – Jefferies & Company

Right, right. Just inclement weather makes it difficult to refuel and stuff, correct?

Peter Georgiopoulos

Yes.

Dough Mavrinac – Jefferies & Company

All right. Got you. Okay. And as it relates to the credit environment, I mean there’s been a lot of discussion in the market about some of your competitors taking a more prudent approach towards credit extension like you guys have. Are you seeing that credit is becoming a little bit more restrictive in the industry or kind of what are your thoughts on that topic?

Nick Tavlarios

No, I should speak for other people. We’ve always had a conservative outlook on that and that’s reflected in our allowance for bad debt, which is negligible. So we used to criticize for this.

Peter Georgiopoulos

Exactly. We used to be criticized for being so conservative and it’s a way to go. So this is to our competitors, but we’ll continue to service the best clients as we do and we’ll make sure to get our money in.

Dough Mavrinac – Jefferies & Company

Right. And I guess it’s safe to say that you guys are still getting significant more inquiries than you’re actually accepting.

Peter Georgiopoulos

Correct.

Dough Mavrinac – Jefferies & Company

Okay. Perfect. And my final question, it kind of pertains to just kind of I guess the longer-term strategy and how you’re going to be allocating cash and capital going forward. I mean, new facility is going in place. We’re going to have more available liquidity, your cash commitments are going to be as great since the new building program is now done.

I guess can you share with us any updated thoughts with that?

Nick Tavlarios

Well, Aegean is going to be done. We have a big cash log coming in from that too.

Dough Mavrinac – Jefferies & Company

Right, right, right.

Nick Tavlarios

All these little things we’re adding up to a big cash balance.

Dough Mavrinac – Jefferies & Company

Right, right, right. And so I guess, can you just give us an update, Peter, as far as how you’re thinking about maybe – I mean, you have a lot of optionality, just maybe any updated thoughts on how you expect to kind of things that you expect to pursue or just kind of how you’re thinking about managing that.

Peter Georgiopoulos

Well, I think, look, opening up new bunkering stations around the world doesn’t cost a lot of money because you get the license. We have the ships already. That’s the thing. We’ve built this infrastructure for a much bigger business and we’ve been sort of hammered for it actually if you think about it over the last couple of years.

We’ve suffered while doing what we thought was the right thing for the future. You’re preparing all these ships, all the storage in the right places. And now, in this quarter of 2013, you’re going to see the fruits of all that labor because our expenses are coming way down, new cash is coming into the company through various things. We’ve opened up a bunch of administrations and we’re going to open some more.

So we’ll start building up a lot of cash. I mean, I think at some point in the future, when a company builds up a huge amount of cash, well then, that’s up for the board to have discussions what to do with that cash.

Dough Mavrinac – Jefferies & Company

Okay. All right. Perfect. That’s all I had. Thanks for the time.

Peter Georgiopoulos

Thanks.

Operator

And we’ll take our next question from Kevin Sterling.

Kevin Sterling – BB&T Capital Markets

Thank you, Operator. Good afternoon gentlemen.

Peter Georgiopoulos

Hi, good morning. Good morning, or good afternoon, good morning. Yes.

Kevin Sterling – BB&T Capital Markets

Good morning to me. Good afternoon to you.

Peter Georgiopoulos

Yes. Good morning to you.

Kevin Sterling – BB&T Capital Markets

Yes. So I think if you guys talk about selling some of this older non-core vessels somewhere in 2013. And will most of that take place in the first quarter?

Peter Georgiopoulos

No, we’ll take over the course of the year.

Kevin Sterling – BB&T Capital Markets

Okay.

Nick Tavlarios

We did complete the –

Peter Georgiopoulos

We did one movie sold now in this first quarter.

Nick Tavlarios

Storage ship, yes you have one of those.

Kevin Sterling – BB&T Capital Markets

Okay, okay. And so with that in mind, you touched on your operating expenses coming down. So shall we see the run rate of expenses in Q1 and there lower than what we saw in Q4. Is that the right way to think about it?

Nick Tavlarios

Yes, yes, Kevin, Q1 will be lower than Q4 and Q4 was lower than Q3. And the run rate on the year will be certainly – well, at this point, based on what we know lower than 2012.

Kevin Sterling – BB&T Capital Markets

Okay. And I know Doug actually questioned about January volumes. Any way you could touch on what you’re seeing in February?

Peter Georgiopoulos

February, it looks like it’s a little better than what the January figure was, modestly better. Yes.

Kevin Sterling – BB&T Capital Markets

Okay. And Peter, I know Doug is with this in question about your cash generation, you’re doing all these things and for three quarters in a row now, you’ve generated positive free cash flow. For the year, you generated 65 million of fresh cash flow.

It says you build this watch test. You can go back to the board so deal with that cash or some possibilities. Possibilities include maybe an increase in dividend, you’re paying down debt, stock buybacks. How should we think about priorities with that cash?

Peter Georgiopoulos

I think all of the above. I think what we’d like to do is get this global facility done next month. We get that in place, get this cash in for Fujairah and then they can look at it and make a decision.

I mean, again, if you look back in my history from John Magenco [ph], we love returning cash shareholders at the appropriate time.

Kevin Sterling – BB&T Capital Markets

Right, right. Okay. And just based on its credit facilities, I think you guys touch on it, but everything is in place and go for those kind of within the next month, you’ve just got to dial that across. Is that right?

Peter Georgiopoulos

That’s right.

Kevin Sterling – BB&T Capital Markets

Okay. And Nick, in Q4, it sounds like you guys have an unusually level of non-bunkering days. I think you said 199. What drove this high number? What is it the issue with the charting of the vessels? And so we see it moderate in in Q1.

Nick Tavlarios

Yes, Kevin, that is part of it. When we took those ships out of Time Charter, their charter business that they were doing and they came in to the bunkering service. Sometimes they weren’t actually operating.

So, that adds to your non-bunkering days. That’s what made it higher and we intend to address that.

Kevin Sterling – BB&T Capital Markets

Okay. And then am I thinking right, does that add to your expenses but you don’t get any revenue associated with that? Is that right?

Nick Tavlarios

That’s right. That is right. Yes.

Kevin Sterling – BB&T Capital Markets

Okay.

Peter Georgiopoulos

And with that addition, Kevin, you’ll notice that the quarter was lower on expenses.

Kevin Sterling – BB&T Capital Markets

Yes, yes. Okay.

And last question for me, I think you – just to clarify what you’re doing in Panama, do you continue with the bunker and operations? You’re just selling your storage operations, is that right?

Nick Tavlarios

Well, we didn’t –

Peter Georgiopoulos

We’re unwinding our joint venture there.

Kevin Sterling – BB&T Capital Markets

You’re unwinding your joint venture. Okay. But you’re going to get a cash infusion from that?

Nick Tavlarios

Yes, there’ll cash coming from the company.

Kevin Sterling – BB&T Capital Markets

Okay. Well, that’s all I have today. Thanks for your time.

Nick Tavlarios

Thank you.

Operator

We’ll take our next question from Peter Mann.

Peter Mann – Dougherty Asset Management

Good morning guys. I guess it’s good afternoon to you. Just a couple of things I want to dive deeper into really walk me through the Panama issue. What change in a very short amount of time that led you to completely dissolve this joint venture?

Nick Tavlarios

Peter, first of all, our core business is bunkering and our focus is there to really just focus on the bunkering business and to grow that. And it’s been good and now we’re introducing a third vessel. We’ve introduced the third vessel there, and hopefully that will make it even better.

So we’ve had terminal activities in Panama and we’ve seen them reduce. And with the reduced activity, we feel that it’s been to move along and not have that exposure. So, that was really what drove this. So we’ve decided to unwind it.

Peter Mann – Dougherty Asset Management

Okay. And why was terminal activity declining?

Nick Tavlarios

Host of reasons, but that has a lot to do with supply demand economics there. But most importantly, the backward-dated market in fuel matters. I mean, it gets into a lot of different issues. But it did decline and we thought that would be a burden to the company. And for that reason, we unwind it.

Peter Mann – Dougherty Asset Management

Okay, sounds good. And then when you think about some of the decisions that you’ve made over the past several years. Is the market so dynamic that things can change this quickly? For example, this Panama issue is one, unwinding operations in West Africa after just a couple of years in operation and then obviously taking on this large project in Fujairah. Our market conditions in that dynamic were some of these–

Peter Georgiopoulos

When we first started we were in six ports around the world. We’re in over 60 with 20 stations. You know what, in going to 60 ports is you’re going to have one or two that don’t work out. In Ghana, a big part of the problem was the piracy and the cost associated with that and also getting the right kind of product.

The piracy originally had always been on the east coast of Africa. Piracy then went to the west coast of Africa. And if you remember we had a ship taken by pirates last year. And it’s very important to us the safety of our crew and the safety of our people.

This company has been around a long time. The crew members have been at this company for a long time. So we started to see increased cost, reduced revenues and a dangerous environment. And we just decided, you know what, saving $7 million minimum a year, I think that’s a smart business move.

So are we getting into it wrong? No, but the market did change and now we’ll save $7 million a year.

With the Panama situation, again the market changed. The company didn’t get $9.5 million in the company in the first quarter. Who doesn’t want that? So like I said, we started with six when the company went public. We’re in 60 ports today. You know what if you had couple that haven’t worked out, that’s life.

And guess what in Panama, we’re expanding our bunkering operation. So it has worked.

Nick Tavlarios

In addition, we’re going to Barcelona.

Peter Georgiopoulos

Yes, so

Peter Mann – Dougherty Asset Management

Yes. No, I agree with what you’re saying.

Peter Georgiopoulos

I think we’re proving to the market that we’re flexible and we respond to regional dynamics.

Peter Mann – Dougherty Asset Management

Fair enough. And then are you still very confident in your Fujairah project that you’ll be able to utilize the facility effectively to meet the economic parameters that you set out from the beginning of the project?

Peter Georgiopoulos

Yes, absolutely.

Peter Mann – Dougherty Asset Management

Okay. And then you mentioned as well that you’re selling–

Peter Georgiopoulos

Now let me tell you, in a short period of time though, I’m not sure when, the floating storage will be band in Fujairah. And when that happens, if we didn’t have this facility, we would be out of business there. And the guys who don’t have access to facilities like that will be out of business there.

Peter Mann – Dougherty Asset Management

Okay.

Peter Georgiopoulos

So again, it’s thinking for the future.

Peter Mann – Dougherty Asset Management

Sure, okay. And then the next question I have is you mentioned that you were going to sell the three older vessels that were previously on charter if I heard it correctly. And are those three vessels all stationed in Singapore or where are those vessels?

Nick Tavlarios

They’re in Greece. They’re on a transport contract in Greece.

Peter Mann – Dougherty Asset Management

Okay, great. Well thanks a lot, guys.

Nick Tavlarios

Okay, thank you.

Operator

(Operator Instructions) We’ll take our next question from Chris Snyder.

Chris Snyder – Sidoti & Co.

Good morning, guys.

Nick Tavlarios

Hi, Chris.

Chris Snyder – Sidoti & Co.

So I jumped on a little late, so sorry if any of this has been touched on. So I mean the gross spread I know that you guys, some higher percent of sales were allocated to lower spread regions, but was this still affected by Fujairah for the similar reasons as for Q12 [ph]?

Nick Tavlarios

Yes. If you could recall back in the third quarter, we talked about some of the unusual activity within the Fujairah market and how that impacted what we felt was a lower spread than we typically attained.

We saw that trend translate into Q4 and yes, that’s definitely in those figures.

Chris Snyder – Sidoti & Co.

What are kind of your expectations for that going into 2013 and Q1? Are our spreads increasing in that region or is it kind of maintaining at the same level?

Nick Tavlarios

So we saw a couple of recent tightness in the Fujairah market and it’s better than what it was in Q4 and certainly better than what it was in Q3, so.

Peter Georgiopoulos

And it’s a growing market. I mean it continues to grow. East Africa has continued to grow. The shipping in East Africa has continued to grow. And shipping at the Middle East has continued to grow. So we think that’s the right place to be. And we think once the floating storage situation goes away we think it will really benefit us.

Nick Tavlarios

And also what’s interesting about our business, Chris is we’re looking for opportunities like places like Barcelona and other places, as you just mentioned East Africa that there are other spots in the world that we have the flexibility of going to these markets.

So it’s important to have a geographic mix that you’re not relying on one spot. And that’s what is nice about our business. We can get the benefits from a lot of different other places too and once market might be down.

It never stayed that way forever if they go to their own little swings per say.

Chris Snyder – Sidoti & Co.

Yes definitely. The next question is about the storage revenue if that was all just kind of the decrease quarter over quarter that was all just from Panama?

Nick Tavlarios

Yes. We touched on that earlier on the call. It seemed a reduced activity in the Panama market, yes.

Chris Snyder – Sidoti & Co.

And I know some people were saying that a lot of fuel from the Gulf was diverted up to the northeast, in New York for Sandy so it makes it seemed like fuel supply will be harder to come by in the Gulf Coast. Do you think that has played a negative effect on storage revenues in the area?

Nick Tavlarios

Extrapolated. Excuse me for the word. I don’t know, Chris. That will be a scratch [ph] I think.

Chris Snyder – Sidoti & Co.

Okay, yes, all right.

Nick Tavlarios

Yes.

Chris Snyder – Sidoti & Co.

All right, guys, that’s it for me. I appreciate you taking my call.

Nick Tavlarios

All right.

Peter Georgiopoulos

Thank you.

Operator

At this time there are no more questions. This concludes the Aegean Marine Petroleum Network, Inc. conference call. Thank you and have a nice day.

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