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Scorpio Tankers' (NYSE:STNG)

Q2 2013 Earnings Conference Call

July 29, 2013 14:30 ET

Executives

Brian Lee - CFO

Emanuele Lauro - Chairman & CEO

Robert Bugbee – President

Cameron Mackey - COO

Analysts

Ben Nolan - Stifel Nicolaus

Jon Chappell - Evercore Partners

Gregory Lewis - Credit Suisse

Doug Mavrinac - Jefferies

Herman Hildan - RS Platou Markets

Nicolay Dyvik - DNB Markets

Fotis Giannakoulis - Morgan Stanley

Chris Snyder - Sidoti & Company

Eirik Haavaldsen - Pareto Securities

Operator

Welcome to the Scorpio Tankers' Incorporated Second Quarter 2013 Conference Call. (Operator Instructions). I would now like to turn the conference over to Mr. Brian Lee, Chief Financial Officer. Please go ahead sir.

Brian Lee

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

The information discussed on this call is based on the information as of today, July 29, 2013, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in today’s earnings press release as well as Scorpio Tankers’ SEC filings, which are available at scorpiotankers.com.

Call participants are advised that the audio of this conference call being broadcast live on the web and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days.

Now, I’d like to introduce Emanuele Lauro.

Emanuele Lauro

Thanks everybody for joining us today and most of your familiar with the format of these calls. I’m going to say a few statements and I’m going to pass it over to Robert Bugbee, our President who is going to say few things as well and then we’re going to open it up to questions and answers. So we keep on being fundamentally happy with the product in the VLGC market developments. We see those the two market is actually improving and give us the comfort and confidence that we were expecting so far. We see this on the growth of earnings and EBITDA which is largely consistent with the deliveries of new building fleet which we’re receiving. We’re pleased to report that our new building program is going according to schedule, we’re happy with the quality of the vessels that we’re receiving and also the fact that the same vessels are delivered to us on a timely manner of course hence the company is keeping on track with it's plans.

We have raised our dividend from $0.025 to $0.035 which is a significant raise and this again is a decision that state the comfort with the market and the business we’re running. I’m going to give over to Robert Bugbee now.

Robert Bugbee

I will address a couple of things on the third quarter obviously our story really is unfolding not even so much as the third or fourth quarter or over the next couple of years. In third quarter we did our G&A was a little bit higher than the lot of you expected and this is really fundamentally for two reasons one because of the inclusion of the equity incentive plan and have been fortunately we did a lot of work in that second quarter for example there were as many as 10 board meetings and when that is active it's pretty difficult to get into. So far this quarter and for example we have only had one and that was sign up this morning on earning (ph). Now what I think is very important on that second quarter is that we had very good handle on our operating cost, we continued to perform very well with these new building eco-design vessel and then I’m really show that is not just the topline but also the operating cost line that are doing well.

The other thing is the markets, we cost ourselves earnings in the second quarter. We intentionally rotated our MR fleet in the middle of May, our whole fleet which previously part of that fleet to be trading and out of the Atlantic and put the whole fleet in the Atlantic well before the beginning of 3Q and I think that was in hindsight where we were even luckier than we thought it was going to be. So we have the benefit of having straight from the start of 3Q all of our vessels in that pretty relatively high paying market in the Atlantic.

Going forward it's incredible how fast this industry is working; I just want you to take you all back into the same board room five, six weeks ago. Five, six weeks when we made the decision to enter VLGC market we were looking at our own expectations for third quarter and here we expected things to happen pretty much as we laid it out to shareholders and people on our previous calls and announcements that the third seasonal weakness would be shorter duration and will be higher than last year. But to be honest we expected that to be something around you know 13,250 for MR for the third quarter that would have been a significant improvement.

As you can see from our announcement every single day that third quarter is started our MR has been earning about $20,000 a day. The market this week it peaks, we had a fantastic thing last week for the market bouncing up and we will come for that later but that is to show you that we were bullish, we were bullish on U.S. production, we were bullish on the market and we were almost understated this market in that particular area by almost a 100% that is the vibe that’s happening from the demand side at the moment. And the second aspect comes to the VLGC is that since that announcement that we made we have had fantastic potential customer feedback. We have had tremendous positives from the MLP (ph) companies and the logistic companies that are expanding U.S. facilities to export LPG over the coming years.

So to that introduction I would like to open it up for call. I would appreciate for the sake of everybody there are many people on this call, I know there are a lot of people who would like to ask question. I would appreciate that we take any modeling questions offline after all you already eight hours to go over those with Brian. So now keep basic modeling questions for later and I would like to open it up for questions please.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question will come from Ben Nolan from Stifel Nicolaus.

Ben Nolan - Stifel Nicolaus

I’ve two questions and I’ll be quick I know there is lot of people. The first one is on the VLGC side obviously you guys made the order you have the options, I’m curious what the long term plan is for those I mean is it to continue to out sort of a two tiered business within Scorpio is it to maybe at some point down the line separate those assets into it's own entity, just curious what you’re thinking there and then the second question if could and then I will let someone else. It relates to supply, obviously there still been ordering but it seems like mostly everything is mid-2015 or later. Has there been an interest in some of the other yards other than sort of the Top 3 or so on the MR side or I guess if you include LR2s. Have you seen some of the Japanese or some of the Chinese trying to break into the market a little bit and capture some of the share that seems to be there for the product anchor space?

Emanuele Lauro

I’m going to let Cameron answer the second question first.

Cameron Mackey

I think the sort of events unfolding around the STX Group and STX yard have had a certain sort of flight to quality aspect around them where your speculative interest in marginal yard and marginal capacity for tankers has [inaudible 9:20] somewhat and we see this as temporary but we see it as a sort of a repricing of risk moment in the market. It's second tier, third tier Korean yards, the second or third tier Chinese yards and the Japanese yards frankly has just have not had a lot of interest in building tankers and have not been competitive for some time. We see them as say far away from really being a significant source of new capacity unless or until pricing of new billings went significantly higher from where they are now. There is not enough efficacy and not enough production capability to really have the significant source of supply marginal supply right now.

Emanuele Lauro

Okay and the second question relating to VLGC is, let’s first look at the VLGC market. VLGC market shared some tremendous board things to the product market shares first of all (inaudible) revolution it's going to tremendously benefit from the export growth of the United States and their pricing differences to Asia. Now the other thing in the VLGC market is they are counter seasonal to our (inaudible) and the product market meaning that what they normally the strong periods of the VLGC market are the two weakest quarters the second and third as opposed to products they have the two quarters in the fourth and first. Now when it comes what are we going to do in terms of strategic positions we are totally agnostic for this. We can right now see a roadmap that says you want to keep those rentals in your tankers with that off time getting smoother and into a volatile situation but at the same time we’re getting a lot of interesting long term forward. You have a lot of degrees of freedom and structure maybe you spend it with it's own separate entity depending on whether or not you securitized revenues. Maybe we partner with an existing players that a new building and you know we spend that off to we have a number of degrees of freedom. The decision for us is simply going to be what is the greatest value, the greatest value keeping them in-house at Scorpio or is it greatest value we could position where 1.1 equals more than two if we would split it off.

Right now we’re totally focusing on the actual opportunity, we got the understanding the real game is playing there, we have had great up keep prior, up take from customers and we in this is the important thing is right now is we retain the ability to literally go to the industry leader as far as with our firm vessels and our optional vessels and retain the option to go to the number one industry provider of these modern eco-VLGC’s.

Operator

Our next question will come from Jon Chappell from Evercore Partners.

Jon Chappell - Evercore Partners

Robert just want an update on the financing for the new builds, when you talked about almost doubling of the last kind of facility you sound you’re pretty close on finalizing pretty much the final facility for the rest MR new builds and then also it's kind of an add-on to that, when you’re having these conversations now whether it's with banks or expert credit agencies are you already factoring in the 5 VLGCs and the amount of financing that may be required for those.

Brian Lee

Jon, we have been discussing financing of some of the new builds with the Korean export credit agencies for a number of months now. I think we’re in quite good shape there and we’re very confident and highly confident that we will achieve fully finance the entire tanker fleets within the third and fourth quarters of this year.

Jon Chappell - Evercore Partners

And how did VLGC fit into that?

Brian Lee

The VLGC is currently unfinanced but we’re looking something in ’14.

Jon Chappell - Evercore Partners

Okay so that would be a separate facility from what you’re working on right now with a slightly different time horizon. It will certainly have a different time horizon and probably being a separate facility. I think that alluding to what Robert said earlier, we’re maintaining all our options in terms of keeping the gas ship separate in case other options is developed with them. But certainly it's a sequential activity; we’re going to finance the product tankers and then move on to financing the gas carriers.

Emanuele Lauro

I would also add that there is a clear appetite in the commercial lending for the VLGC and clear appetite from day one of the announcement.

Jon Chappell - Evercore Partners

And then just the second one and I’ll turn over as well. You talked a little bit of why you’re getting into the gas market and some of the I guess scenarios that you could pursue as you think about that but are your ambitions for the gas market that kind of replicate what you have done with Scorpio on the product side? Are you aiming to move quickly to kind of robust shipyard capacity for your benefit, move quickly on the financing side and how do we think about what that may do to number one the Scorpio balance sheet and then number two the return of cash to Scorpio shareholders if you do go throughout with the LPG.

Emanuele Lauro

Sure you know fundamentally we have always if we take the return on cash file we have said very clearly in terms of product, we think that we should be stopping, buying or you know ordering products of June 30, 2015 that’s arbitrator (ph) but that’s sort of where we think it is. We think the LPG market sort of real sweet spot is going to be there through ‘15 and ’16 position as first of all the export facility has come up in combination with use (inaudible) in the Panama Canal. Again some of those combinations you know a different positions in how you’re returning capital to shareholders. We feel that’s quite clearly from the onset of ordering the VLGC that to the extent we were going to take down often, there will be component equally to do that and that’s where it is. Now what we want to do is strategically it's a simple thing as look for markets what we have done in Scorpio tankers, we have found markets where we can be a leader in that field and we have executed as fast as we can because the pressures on the shipping market are pretty high in an upward moving recovering, not just got a cyclical recovery and products and LPG you got a cyclical change too.

Those two combinations combined with all the positions as mentally prepared to work very fast and that’s where it is at the moment. I don’t really want to go into too much details. We don’t really want to flag competitors on anything at the moment.

Operator

Our next question will come from Gregory Lewis with Credit Suisse.

Gregory Lewis - Credit Suisse

Robert could you tell us a little bit about the market in terms of the bifurcation between LR1s and clearly the LR1 market has been a little bit weaker when compared to the MR market and sort of I guess what you’re looking in the market to see maybe LR1 rates maybe pickup and if you think maybe as we move in towards the back half of the year we could see some seasonal uplift in sort of a larger anchor vessels.

Robert Bugbee

Sure I think that we have seen a pretty supportive position for us really it's we have a couple of LR1s that real investment and chartering power is in the LR2 as you know and they are covering a normal (inaudible) very normal for that second quarter to be weak, get the details off and really start hitting bottoms in June and now early July, but what we have seen is what is consistent with last year consistent with normal seasonal recoveries as you saw in the season that spreads wider into Europe to Asia. U.S. volume perceived volume generally increased and I think that’s just a question of which week will they allot in market really start moving again like it did last year in early August and August timeframe and so it's just following a normal pattern except the market is a little bit tighter than where it's been before. It's also supported I mean this thing when it moves I mean this time when it sell out to market moves it could move frighteningly fast because there is nothing in terms of capacity that can really come in.

Nearly all the vessels that possibly claim to go into the LRT market from the (inaudible) market itself is performing better. So we’re very excited about the prospects of these vessels and we just don’t know when the fire is lit sometime between mid-August, early-October.

Gregory Lewis - Credit Suisse

Okay great and then just my follow-up question, going back the VLGC sea fleet options you have five options for these vessels. You mentioned that you’re already having customer you’re having conversations with customers potentially about you know chartering some of these vessels obviously it seems like finally these things are readily available. In terms of is there a sort of window for how we should think about whether or not we’re going to see these options be exercised and I guess is it a situation where the sooner you exercise these options the better in terms of taking delivery of potentially those five options?

Emanuele Lauro

I think you’re must never going to draw us on our exact timing related to options but I think you’re right, an option if you reverse the conversation to sitting across the shipyard if you put somebody in a certain position when they have issued an option to you they are likely to give you more goodies than while you’re hanging out you know they are giving them still being an option and you would generally want to what we have done in the past in building the product side is the various no time like the present when you’re taking that move with the in the constraint capacity. I know that’s being unclear but that’s the way it is.

Gregory Lewis - Credit Suisse

Is there a time when the options actually expire?

Emanuele Lauro

And that’s the last thing we would tell anybody. They normally don’t give you a week or two on special orders, you normally get a little bit longer period. We’re not going to go into that exactly. What I would go back to the rate structure is unbelievable I mean I cannot stress how strong these rates are in the Atlantic compared to where they are on historical points. I mean these are rates that are the last thing was some of the 2006 and ’07 the speed that this market ripped out was strong too. So I think we got to look ourselves in the mirror and we were wrong, we did not we were bullish, really bullish to shifting on charter to deliver of ships, order the bunch of ships, along we expected the U.S. exports would be ahead of what we thought and we have just got smacked in the face in the last five weeks. The ability for U.S. to export has really come up much earlier than we expected and the market reaction to this bearing in mind it's the summer, it's the weak period for vegetable, it's weak period for palm oils and we’ve a market that’s coming out of a four or five year decline. So this market rip into these levels right now and right now they are trying to get earnings in the Atlantic are more like the mid-20s as opposed to the low 20s and this is telling that this market is balanced and we may just find in two or three months we have this was inflection point in this last three four weeks and none of us really took it that way.

So what I would say is this such an important fundamental confirmation that the U.S. can and is exporting that for me Scorpio on a risk reward basis is just a better buy right now and still the very early innings. Today than it was four weeks ago even at a lower price.

Operator

And we will now go to Doug Mavrinac with Jefferies.

Doug Mavrinac – Jefferies

Robert I wanted to touch on that very last point that you made because to me out of everything in your earnings release, the thing that I was most founded by was how strong the MR market was during the seasonally week 2Q and kind of taking it for how strong it was versus how strong we know it is today. How impactful do you think it will be to U.S. exports as we see more and more of these pipelines bringing more crude down to the US Gulf Coast refining complex I mean express is open, Walmart is opening up in late September is there going to be a meaningfully incremental thing from here or just how do you gauge that?

Robert Bugbee

We have anything fundamentally that creates the ability for those US Gulf Refine to be competitive, get crude oil cheaply, refine and export is good but there are just so many things we have to have in (inaudible). I mean bear in mind this has happened, I can’t stress enough it's happen in week two season before the (inaudible) start to really come from there in new refine the export products and before the next Indian project comes up in the autumn.

Doug Mavrinac – Jefferies

I was going to saying that was the exact point I was trying to make. You’ve got the U.S. store, the Jubail Refinery starting in the second half and then you had longer than normal turnaround seasonal with the Asian (ph) refinery so you’ve steeper than normal recovery. So I mean that seems like it's going to be a big deal.

Robert Bugbee

It is it's a big, big deal. We are very honest with you guys and in the earlier example it was only five weeks that we ourselves be at both we’re sitting in both capital requested on big numbers saying, Hey we’re optimistic but this is how we expect things to unfold and five weeks later we’re on. Normally people are on conference calls saying well you know the market isn't that strong because of these factors. It is really strong right now in the Atlantic basin and you have a discounting a lot of the things that you’ve been mentioning plus the return of the vegetable oils and the palm operate (ph) which I will not get into that.

Doug Mavrinac – Jefferies

And then as it relates asset values reflecting the increasing the earnings power of these assets. It looks like the brokers are finally playing a little bit of catch up here but in your view using 36 million as a resale value for a new build, are those guys still behind the ball a little bit, are they playing catching or is the market continued to move higher and they are still a little bit late. So how asset value is playing up there?

Brian Lee

The only answer that I can give is we have offered $36.5 million cash for a relatively prompt eco-vessel new building delivery charter free and…

Doug Mavrinac – Jefferies

Right.

Brian Lee

Declined, not bough declined.

Doug Mavrinac – Jefferies

Right so 36 million is still too light it's not reflective of the market perception.

Brian Lee

Of a stock position think what those vessels are earning, as Emanuele at the beginning we don’t need great rates to get great EBITDAR and increase in earnings. We just need the vessels in the order. So and MR at 36 million and 36.5 million as a P&L breakeven is not much more than (inaudible). So you know if we had six months excluding the first six months in the 20s excluding what’s happening now so that’s why the front part of the curve is pretty steep. It's obviously now supported because it's what Cameron earlier that the lack of new build in position. And it's very, very difficult in a market it's the opposite okay now, two, three years ago basically all the brokers were giving you too high valuations because there was no buyers at 10 million, there were plenty of sellers at 15 so they gave you the middle ground of 12.5. Now you have the opposite there are no sellers at 36.5 million.

Doug Mavrinac – Jefferies

That’s right; you have very telling about where we are and where we are going.

Brian Lee

And we’re not able to comment in NAV in detail and I haven't really had the time today to go through any of your reports but I was reading, I was hearing a few things last week related how we were trading in NAV by considerable portion and I can promise you that the consensus NAVs that you are all were working with last week are too low that’s as far as detail we will tell.

Doug Mavrinac – Jefferies

And then final question, everyone’s been asking about LPG entry and that’s going to be one of my questions as well but little bit different in that, you know is the LPG market I mean we see that as a direct directive play on you guys remaining directive play on the U.S. energy production rise not just crude oil but also natural gas and then also shipping out LPGs. Do you anticipate like with on the refine side how you guys started with MRs and then kind of diversified into other asset classes within refined products shipping? You know on the LPG side do you guys ever see yourself maybe diversifying into other asset classes there, I mean you’re starting with the biggest but do the Hendy’s or other asset classes do you think those is been complimentary to your VLGCs or is the VLGC something you’re going to stick with?

Robert Bugbee

Well now look at the (inaudible) anything but the VLGC is what was attractive to the VLGC is you always got, already got a market that’s soft market that isn't coming back but there is driving itself up prudently in 50 or 1000 a day and year-to-date about 30, one year charter’s up about 30 so it's that beautiful same dynamic emerge where you don’t need any market of your entry right now to make a lot of money, but also it's kind of simple stupid, we know the U.S. is going to have the exports, we know that Asia, North-West, Europe is going to have the demand, those are long routes and not every one of those and if you’ve got the chance to go in and take risk and be an industry leader in the size range that costs the highest capital when other competitors are not yet ready to move that’s the one you always want to concentrate.

If I could buy an Armani cloth store I would do that before I buy a funky cloth store.

Operator

We will now go to Herman Hildan with RS Platou Markets.

Herman Hildan - RS Platou Markets

Are you deciding on operating them in the spot market or charging the up to, that’s the first question and the second question on your dividend policies? You had EPS of about $0.11 in the first half you’re going to pay $0.06. How should we think about it going forward will be on a quarterly basis or have to ramp it as you accumulate dividends?

Robert Bugbee

I think we missed the first question, what was the first question exactly?

Herman Hildan - RS Platou Markets

Will you operate them in the spot market or charter them out in the structure that we had in ’09?

Robert Bugbee

In terms of what then, are you referring to the product or the VLGC?

Herman Hildan - RS Platou Markets

VLGCs, yeah VLGCs.

Robert Bugbee

Okay well that one as we said we’re it's the thing we’re agnostic okay if you’re under one situation if you’re getting good returns of charter rates securitization you’re going to do that and you still the degree of freedom to spin that out into for example an MLP or keep it on your balance sheet smoothing earnings, you also have the opportunity to partner with other players and do the spot market. I think if you play with the balance sheet strength like we have done with things so far and products you would pain those options. The moment you sit down with the customer and say we need your charter to fund our acquisition you (inaudible) to low returns. We’re going to keep that flexible and we’re going to keep up with ourselves. Other than (inaudible) we’re totally agnostic to type or structure.

Herman Hildan - RS Platou Markets

Thank you for that and on your dividend policy how do you think about it?

Robert Bugbee

Well dividends well it all have to be paid out to real earnings which is where we you know I think you pointed out correctly that from our positions and what we have seen in recently the confirmations we have seen internally the change is expected tad slow. We were happy to move dividend from 2.5 straight to 3.5 and I think the policy is there, you have to pay dividends out of real earnings and that’s about I mean I think it's results to a lot worth, the facts speak for themselves.

Operator

Our next question will come from Nicolay Dyvik from DNB Markets.

Nicolay Dyvik - DNB Markets

How should the LR2 replacement in early July, has it got anything to do with the relatively weaker spot market for the larger segments compared to the MRs, or can you give us some more flavor?

Robert Bugbee

It has nothing to do with the relatively weak spot market on LR2 because we don’t consider them relatively weak we consider them relatively strong. Now that’s an example, last week we were really happy in a way that the LR2 market is being developing on a structural basis in the second quarter. We have already explained that we expect that the LR2s to be during made in earnings form in terms of April, May and June we expected that. That zero to do that, it has much more to do with the upward pressure in the key yards, major shipyards in the world capable of building quality ships such as Samsung, Daewoo and Hyundai Heavy.

Cameron Mackey

Meaning we would just not for many of our orders that we have being able to execute, we simply would not be able to replicate those orders. As I was saying before you know the yard the major shipyards of the world that have been trying to navigate through their own cyclical trough are running out of patience or capability of new orders that are priced low than their marginal cost. So you simply cannot replicate the fleet and the cost basis that we have booked and we have ran into that limit with those last four orders that we were just by, skin of our teeth unable to capture.

Nicolay Dyvik - DNB Markets

So those were not finally signed orders is that how we should read it?

Cameron Mackey

Correct.

Robert Bugbee

So that is like I think if you read between the lines probably what Cameron is telling you to go back to one of the, to read this questions on the fact that we’re highly confident that your NAVs are pretty well percent is too low that’s internally ARPU, MR to it's LR2 to whatever.

Nicolay Dyvik - DNB Markets

You addressed something about the LR2 rates but can you give some flavor on how they performed relatively to the second quarter?

Robert Bugbee

No we’re not giving any guidance on the LR2 other than what we have; well I guess we will give you a market right as opposed to outlook. I wouldn’t think that you know a reasonably well fixed LR2 should have earned any less so far in the third quarter than they earned in the second quarter. Now but the key thing is not so much on what they have earned so far the key thing on LR2 is when they kick in and start to recover.

Operator

We will now take our next question from Fotis Giannakoulis from Morgan Stanley.

Fotis Giannakoulis - Morgan Stanley

Robert I want to ask you again about the LPG market and you mentioned growth is expected to come into 2015 and ’16 from U.S. exports? How can we quantify this demand growth in terms of ships from the U.S. exports and also from the middle-eastern exports and the reason is why I’m asking is I’m trying to understand we have a fleet of 151 ships that are about 25 ships on order. How many ships do we need, do you expect that we need in order to meet these expected demand growth.

Robert Bugbee

We’re not going to tell you, we no longer going to start giving you have seen in our slide presentation we want to do it as little as we can at the time round to encourage competitors or for us to give our data. I think the easiest way to say that is we expect the same thing to happen in VLGC there has been product that the demand side will be underestimated that the United States, I was warned, we were warned all the time by the U.S. refineries that the ability to exports products will come much quicker and we expected because they said as soon as you put American ingenuity together with dollars things can happen fast and I think you’re already seeing the evidence and certainly obviously projects I mean the (inaudible) projects for example already in the last week that their ability to export is coming earlier and future exploitation of total exports is growing and I think I would leave it like that.

Fotis Giannakoulis - Morgan Stanley

My second question has to do with the MR market versus Handymax market and help us to price the rates between these two markets and the reason I’m asking is that in the previous quarter we saw a discount of around $2000 between this two segment in this quarter we saw a discount of $4000, what was the reason why the second quarter Handymax earned $4000 less?

Robert Bugbee

First of all the MRs have a significantly more weighted eco-vessel, new vessel but secondly a lot of the handy market is due to the winter and the ice-trading in south so it's fundamentally offset that way and that’s pretty much the differences and the actual Handy’s that are right now pulled (ph) or frankly the older ones are been direct trading more on the dirty product area as opposed to the clean and we don’t have that much exposure really to add in Scorpio tanker going forward while we’re ordering as a clean, high class, top of the range vessel. It's the combination between the particular market and the fact that in those pool earnings there are almost no eco-ships, there are none in there.

Fotis Giannakoulis - Morgan Stanley

Again what you’re saying is that you had more eco-ships in the second quarter compared to the first quarter?

Robert Bugbee

Correct, so it's included to the standing top-line benefit to the eco-system.

Fotis Giannakoulis - Morgan Stanley

And because you didn’t present the detail the charter rates for MR.

Robert Bugbee

Correct and we will no longer continue to do that and for us the eco-story (ph) the debate is over and out and we would continue to show in the results in this respect whether it's by operating cost or use of cleverly picked up now between two different type.

Fotis Giannakoulis - Morgan Stanley

Does it mean that the previous guidance of $3000 to $4000 remains intact?

Robert Bugbee

It means I will state it this way, we’re happy with the guidance that we gave.

Operator

And now we will go to Chris Snyder with Sidoti & Company.

Chris Snyder - Sidoti & Company

Hi guys I’ve two other questions the first is it's been a pretty nice decline in the vessel OpEx per day, is that just a result of the new builds or is there something else going on there as well?

Robert Bugbee

I think that there are two things going on actually the predominantly the new builds and again the efficiency that we haven't spoken much about the and the absolute operating cots line of our eco-ships as they deliver and also you’re getting few benefits now and the economies business scale have a largest fleet a fleet that’s being worked well on the margins and the fleet where you got a management and a staff who are focusing on the let’s say sustained efficiency of that fleet because of course we’re taking delivery of a lot of ships, of course we’re doing it but the actual fleet inside isn't let’s say jumping around so much. So you’re starting to have a benefit here over the system as all are assigned to be put in, in dealing with this problem.

Chris Snyder - Sidoti & Company

And the second question I know you guys are kind of waiting for the LR2 market kind of kick in, I know the refining progress coming on in the India, Saudi Arabia, is there any sort of other catalyst that you look for to finally get that market going?

Robert Bugbee

Yeah I think it is when I look at the Bloomberg screen, you know it's about looking at it's greater than trading it's the earlier when everyone (ph) is set, when Asia has sort of comeback up, it's sort of summer recess. Right now what we’re watching for is the weekly volumes, this is very simple thing. We have weekly volume pictures, on 30 day trialing, 20 day trialing, 10 day trialing, five day trialing exactly the same set and prices. The same thing as you would look in a stock.

Operator

Our next question will come from Eirik Haavaldsen with Pareto Securities.

Eirik Haavaldsen - Pareto Securities

I think all my questions have been asked by just one if I may in individual states there is the cost for the VLGCs because in the original statement is that 74 million and today you have 75 million, just a detail on that. I assume it's 75, right?

Brian Lee

That’s correct.

Eirik Haavaldsen - Pareto Securities

That’s sort of the periodic articles that’s nothing including any space (ph) or anything right?

Brian Lee

No the 75 is the all-inclusive but the difference just to go into a little detail. The difference between the initial announcement and this one is say the subject of final negotiations for extra cost and other detailed technical features or capabilities of the ship, so 75 is the all-in final number for this all.

Eirik Haavaldsen - Pareto Securities

And just more on the options just to be clear on that as well, you had two options with Daewoo and Hyundai Samho (ph).

Brian Lee

No comment.

Operator

And that does conclude our question and answer session today. I’ll turn it back over to our presenters for any additional or closing remarks.

Brian Lee

Okay thank you very much. I will just quit repeat Emanuele’s comments at the beginning that we think that the market continues to firm, outlook is positive and the growth to EBITDAR is largely can finish on vessels being delivered on time which they have been and continue to do so rather than any assumptions increasing day rates. And till that rates that shows up comfortably with the market and the business and we’re very positive on the VLGC market giving the fundamentals and the feedback we’ve had on the U.S. and Middle-East exports and (inaudible) time to reduce it. Thanks so much ladies and gentlemen. Thank you.

Operator

That does conclude our conference for today. Thank you for your participation. You may now disconnect.

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