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StealthGas (NASDAQ:GASS)

Q2 2011 Results

August 25, 2011 11:00 a.m. ET

Executives

Harry Vafias – President and CEO

Konstantinos Sistovaris – CFO

Analysts

Natasha Boyden – Cantor Fitzgerald

Jeff Geygan – Milwaukee Private Wealth Management

George Berman - JP Turner

Jay Weinstein - Highline

Operator

Welcome to the StealthGas Inc. second quarter 2011 results conference call. [Operator instructions.] I would now like to hand the conference over to your speaker today, Harry Vafias. Please go ahead sir.

Harry Vafias

Thank you and good morning everyone. Welcome to our conference call and webcast to discuss the results for our second quarter ended June 2011. I’m Harry Vafias, the CEO of StealthGas, and I’d like to remind you that we will be discussing forward-looking statements in today’s conference call.

Regarding the Safe Harbor language, I would like you to refer to slide number one of this presentation as well as to our press release and our second quarter results. With me today is Konstantinos Sistovaris, our CFO, and if you need any further information on the conference call or the presentation, please contact Konstantinos or myself.

Let’s start with slide number two to review how we are implementing our business strategy. As previously announced, our medium-term goal is to renew our fleet for the delivery of five newbuilding gas carriers.

In February and April, we took delivery of the first two vessels, the 5,000 CBM Gas Elixir and Gas Cerberus, which we then fixed on long term time charters. Then, in the second quarter, we also proceeded with the sale of four older vessels. The average age of the four older vessels sold was 16 years, and three of them were operating in the spot market. We successfully delivered three of these vessels to their new buyers during the same quarter and the fourth was delivered in July.

We wish to maintain a strong focus on our operation side, and that is the reason behind the sale of these four older vessels. We believe that by removing them from the fleet and replacing them with brand new larger and higher specification ships, we will improve the overall performance of the company going forward.

As far as our newbuilding program is concerned, we have three more vessels to take delivery of. One is scheduled to be delivered next month. A second is scheduled for January 2012, and the last one is scheduled to be delivered in May.

After taking into consideration the total fleet of 37 ships, at the end of the second quarter 2011 our net debt to capitalization stood at only 44.8%, similar to the previous quarter. And taking into consideration the scheduled vessel deliveries, we estimate that we will continue to have a moderate ratio of below 50%. Our gross debt, which stood at approximately $350 million at the end of the quarter, will peak at about $370 million in the second quarter of 2012.

With the sale of the older vessels, we received, after repaying the debt outstanding on three of the four vessels, about $17 million that has further strengthened our balance sheet and liquidity. We look at the sale, from an operation side, as a good opportunity to enhance our liquidity and remove from the fleet these vessels that, due to their age and condition, it was difficult to trade them profitably. We replaced them with new vessels we can charter out at much higher rates with significantly less cost.

On the flip side, we had to [write up the close] on these sales as we have already said, approximately $5.6 million for the second quarter of 2011. We continue to strive to obtain a secure and visible revenue stream with stable and predictable cash flows.

At the moment, fixed employment for the fleet for the remainder of the year is 75%. We have almost 50% fixed for 2012, while the equivalent fall coverage numbers are the same as last year, 75% and 35% respectively. Our [unintelligible] goal has been to own and operate a modern fleet of LPGs, and in this respect the average age as of today is 11 years, not including the four tankers, which is rather young compared to the industry average.

Last quarter, the average age of our LPG fleet was 12 years. Including the product tankers, the Aframax tankers, and the newbuilding vessels, we estimate that at the end of 2011, our fleet will have an average age of 10.5 years. We continue to believe that, within our core segment, this gives us a competitive advantage, as younger vessels have less operating expenses, consume less [unintelligible] and are more appealing to blue chip charters and that this fact will be important as we move forward into 2012 and beyond.

Our next objective has been to maintain close customer relations. The quality of our customer relationship is exemplified by the quality of our charters, which also lowers our counterparty risk. Out a fleet of 37 vessels that we previously announced, we had one incident whereby we agreed to a rate reduction of only 10%. Because of the strength of the LPG market and the participation of more established names in it, we don’t expect to have any issues with our counterparties.

Our sixth goal has been to maintain cost efficient operations. I’m pleased to report yet another good performance in the second quarter. Our net income breakeven level per vessel per day, excluding losses on derivatives, was $6,161 per vessel per day, compared to $6,426 in the first quarter and $6,183 per day per vessel in the fourth quarter last year.

As we had expected, we managed to decrease our daily operating expense compared to the last quarter where there was an unexpected increase. We continue to concentrate heavily on managing our cost base and we expect, with an additional four vessels going on bare boat charter during the year, and the addition of brand new vessels in the fleet, we will be able to contain upward pressures on operating costs.

I’d also like to remind you once more that, in terms of our general and administrative expenses, we have amongst the lowest in the public shipping sector, and we are very keen to contain costs, not only on the operational side, but also on the managerial side.

Finally, I’m pleased to announce that we have started buying back shares once more. We have in place since last year’s share buyback program, allowance to buy shares up to $15 million. We recently bought approximately 350,000 shares. Since the program’s inception, we have bought back approximately 1.6 shares, or about 7% of our total shares outstanding.

Slide number three. This slide demonstrates the development of our fleet. During the first quarter of last year, we sold three older ships that we replaced with one Aframax crude oil tanker. During the first quarter of this year, we added to our fleet one newbuilding LPG carrier. During the second quarter, we sold four older vessels, one delivered during the present quarter, and we added another LPG newbuilding ship.

With the additional three more newbuildings, we will maintain a strong presence in the LPG segment. StealthGas continues to hold the number one ranking in owned vessels in the 3,000-8,000 CBM segment and while there is no other company that owns more than 15 such ships, we continue to believe this segment of the LPG space has strong fundamentals, capital availability, and stable charter rates, as we are demonstrating.

As of today, we have taken delivery of three newbuilding vessels, funded partly through bank finance and partly through internally generated cash flows. The same will apply for the remaining three years. We have committed finance in place. As of June 30, $23 million has already been paid as advances for the remaining newbuildings, and we expect another $60 million of capital expenditures.

Slide four. This slide demonstrates our fleet employment profile and provides you with the earnings visibility for the 36 vessels currently in our fleet. On the bottom of the employment profile chart, we have included the percentage of [fleet] employment days. This enables you to assess the stability and predictability of our earnings. As you can see, 75% of [unintelligible] days are already fixed for 2011 and almost 50% for 2012, with a number of charters going up to 2014.

During the second quarter, we announced new time charters for five of our ships, securing revenues of about $13.5 million over the next year. Total contracted revenues are approximately $150 million, and we estimate the time charter equivalent for the LPG vessels on long charters is $8,700 a day.

In terms of charter types, out of a fleet of 36 ships, 13 of the vessels are on long [unintelligible] charters, 15 of the ships are on time charters, and 8 are on spot charters. The company policy is to arrange for long term charters. However, with the staggered employment profile there will always be opportunities to take advantage of a firming market.

We now turn to the financial highlights, so I’ll pass you on to our CFO, Mr. Sistovaris.

Konstantinos Sistovaris

Thank you Harry. Good morning everybody. So let me continue the presentation with slide number five, the financial highlights for the second quarter of 2011.

With an average of 39 vessels owned and operated in the second quarter, we realized a net loss of $3.6 million on voyage revenues of $31.4 million. Included in the net income figure is a $1.5 million expense due to the change in the fair value of derivatives. This consists of a cash loss of $1.2 million relating to payments under the interest rate swaps as well as a noncash loss of $0.3 million on interest rate swaps and currency hedging arrangements due to the movements in the fair value of these instruments.

Also included in the net income figure is a noncash loss of $1 million on the valuation of foreign currency deposits in yen that we has and used for the payments of the delivery of newbuilding vessels. In relation to the sale of the four vessels, there is a noncash impairment loss of $2.6 million and a noncash loss from the sale of $3.1 million.

Excluding the noncash items I just mentioned, our adjusted net income was $3.4 million or $0.16 per share, calculated on an average of 21.1 million shares outstanding. We believe this is a more meaningful number for investors to see what level of profits or losses we incur from the chartering of our vessels.

The free cash balance at the end of the quarter was approximately $42.5 million versus $34 million at the end of last quarter. Our net debt to capitalization stood at 44.8% at the end of the quarter, similar to last quarter’s levels. We continue to believe that maintaining our leverage at moderate levels is important and believe that when all vessels have been delivered, we will maintain a debt to cap ratio below 50%.

We now turn to slide number six. These slides provide you with an overview of the development of our income statement for the same quarter last year and the previous quarter. In comparing our results for the second quarter of 2010, when we had an average of 38 vessels in our fleet, to the second quarter of 2011, when we had an average of 39 vessels in the fleet, revenues increased by 17% and amounted to $31.4 million, which I may add is the highest revenue figure since the company became public, and even surpassed last quarter’s revenue figure that was our previous record.

Revenues were up $4.5 million year-on-year. The increase in revenue is year over year is due to three factors: First, the addition to the fleet of our Aframax tankers, the Spike and the two newbuilding LPG vessels, second, the increased exposure in the spot market, and third, the significantly better charter environment compared to last year.

The increasing spot market activity also means activity also means that we had higher voyage expenses so in effect our voyage revenue, minus our voyage expenses, were up by $2.7 million year-on-year.

The net loss for the second quarter was $3.6 million, EBITDA was $5.3 million, and loss per share was $0.17. As previously mentioned, if we are to exclude the noncash items, our earnings per share were a solid $0.16 compared to $0.09 per share in the second quarter last year and $0.13 in the previous quarter.

Slide number seven. Looking at our balance sheet, in terms of cash we continue to maintain a healthy cash balance, strengthened by the addition of the net profits from the sale of the vessels of about $30 million for the second quarter, which are reflected here, and another $4 million which will be reflected in the third quarter.

Our vessels book value net of depreciation stood at $601.4 million, at similar levels last year. With scheduled deliveries of new vessels, we would expect to see this figure reach $650 million in a year’s time.

In terms of liabilities, the current portion of our long term remains constant at $34 million. Other current liabilities relate to products and services provided to us by our manager and other third parties. These were reduced slightly to $22 million. Our long term debt increased slightly due to the new facility for the Gas Elixir and the Gas Cerberus to $380 million and we we would expect to see this figure top at around $335 million after we take delivery of the scheduled vessels.

I would also like to point out that we have no debt maturing over the next couple of years, so there is no need for refinance. The first balloon payments on our loans are due in 2014 and then in 2016. Other liabilities of $10.7 million relate to the interest rates swaps we have with our banks to protect us from increases in LIBOR rates. As of today, we have around 45% of the interest rate exposure in our loans hedged.

Equity for the three months ended June 30, 2011 was $304 million. I would also like to point out that with our share trading at $4, we are greatly undervalued and the net book value of our fleet on a per share basis is around $14.

We are now pleased to turn to slide number 8. These are our operating highlights for the first and second quarters of 2011 and the second quarter of 2010. In terms of fleet data, in the second quarter of 2011, we owned and operated an average number of 38.7 vessels compared to 37.6 vessels in the same period last year.

As a result, total voyage days for the fleet for the second quarter increased by 4% to 3,496 days. While the increase in voyage days was not as significant, there was a big increase in the number of spot charter days, which is partly why we reported the higher revenue figures and also higher voyage expenses.

While activity in the spot market was fairly solid for this time of year, we would expect spot days to be reduced as a result of the sale of three vessels that were operating in the spot market and the delivery of four more vessels on bare boat charges in the latter part of the quarter.

We still have eight vessels operating in the spot market. In terms of average daily results per vessel in the second quarter, we achieved a time charter equivalent of $8,601 per day per vessel on an adjusted basis, compared to $7,835 per day per vessel in the same quarter last year and $8,967 in the first quarter of 2011.

We can see a significant increase from last year’s numbers, approximately 10%, when comparing to last quarter’s. We expect to see a small drop as spot trading coming into the summer usually leads to lower utilizations.

In terms of vessel operating expenses on an adjusted basis, we had $4,070 per day for the quarter and as we had discussed during our last conference call, we expected to see this number be reduced compared to the previous quarter when it stood at $4,209 per day, and of course we are constantly focusing on reducing it further. We still operate above breakeven levels in terms of income and cash flow.

We now turn to slide number nine, where we are going to provide you with some estimates for the reminder of the year, that is, the third and fourth quarters. We have contracted revenues under time and bare boat charters of approximately $42 million. We expect that with the sale of the four vessels and the bare boat charters for another four vessels, our operating expenses will be reduced to around $80 million per quarter for the next two quarters.

As far as dry dock expenses, this is a heavy dry dock year. We have already dry docked four vessels and we are scheduling to dry dock another four at the cost of around $2 million spread evenly over the next two quarters.

Interest payments on our loan and cash payments on our swaps we estimate to be $6.8 million, and depreciation expenses of $13.8 million.

Finally, as far as the payments for the newbuilding vessels are concerned, as we said, we have committed finance for the remaining three vessels covering the full amount of the future cash outflows, and we will be paying, like before, in pre-delivery installments and get the financing at the time of each one’s delivery.

Thank you very much, and now I will hand you back over to Harry for some further comments on the market.

Harry Vafias

Let’s move on with slide 10, where I will talk about the freight markets, and this slide will show you the one-year time charter rates for our market. The figures are based on independent estimates by [unintelligible]. We have updated this slide with last year’s rates, current rates, and future estimates.

What you can deduce from the slide is what we’ve been experiencing in our chartering operations. In the segment, we operate 3,000-8,000 CBM. We have seen a strengthening in the market compared to last year, in the region of between 10% and 20% depending on the size.

It was encouraging to see that rates in the larger categories, that are usually much more volatile, have been in an upward trajectory, approximately $800,000 per month rates for VLGCs, which are solely [numbers]. Although we do not own this type of vessel, we provide complementary services as VLGCs mostly trade on long haul routes, for example Middle East to Far East, and we perform the local distribution in the Far East.

We believe that the strengthening in our market has allowed us to conclude charters at elevated levels as previously announced. Our fleet has a staggered employment profile, and as more vessels are coming of charters, we hope to renew them at higher levels. We have already seen an improvement in our operational figures and we expect to see more of it in the future.

In this slide, we also show forecasts for the current quarter, where you can see that time charter rates are holding nicely. Otherwise, I have previously mentioned we normally expect rates mainly in the spot market to slightly ease during the summer months, but at elevated levels that keep our operations comfortably in profitable territory.

Slide number 11. The first point I would like to make relates to the volatility in our segment. As you can see on the slide, since 2005 time charter rates have fluctuated for more than 3,500 CBM vessels, between 7,000 and 10,000 a day. This kind of volatility in the world of shipping is very limited if you consider, for example, that VLGCs fluctuate from 30,000 a day to 3,000 a day, or a dry Capesize fluctuates from 150,000 a day to 10,000 a day with potentially huge losses.

The lower volatility protects our cash flow and revenue stream and makes us a safe investment. As we saw on the previous slide, charter rates have been on an upward path recently. The most important question is whether this recovery will prove to be sustainable in the longer term.

We believe that the fundamentals in our core segments that relate to supply and demand are favorable. On the demand side, we expect the completion of several large LNG projects that are due to come onstream after unfortunate delays due to the financial crisis and will prove to be a catalyst for this trade.

We have already seen increases in volumes of LNG being transported and the connecting link is that LPG is partly derived from LNG production. There were 54 million tons of LPG shipped in 2010 and estimates are for 58 million tons for 2011, and steady increases after that. There are solid indications that the supply of LPG product will increase during 2011 and beyond, supported by strong growth in Asia.

On the supply side, the order book for [unintelligible] size LPG ships is very small at the moment. On the other hand, we expect the order book for the next year to remain steady, and what is encouraging is that despite all this we have not seen any increases in the order book and newbuilding processes have not come down as much.

On the other hand, the existing fleet is relatively old, and that means more vessels will need to be scrapped. Overall, net fleet growth is minimal, and depending on the level of scrapping, it could become negative in 2012 and beyond. If this projection materializes, we believe that with a fleet of modern ships, we will command premium rates and we are positioning our company to take advantage of the strong fundamentals in this sector.

Last, slide 12. We have included this slide to emphasize the point about the order book. As for that, the figures shown here in the graph are for all LPG size categories and as we have just discussed, in our core [unintelligible] size sector, the order book is much lower. As you can see for the two mainstream shipping sectors, tankers and bulkheads, the order book continues to be at very high historical levels that could point to difficult years ahead. For containers, the situation has somewhat improved, but we have seen lately a renewed interest in newbuildings.

There are two sectors where the order book continues to be low: LPGs and LNGs, and in LNGs, just like in the containers, we have recently seen increased interest in newbuildings. As opposed to most of the sectors listed here, it does not suggest the order book that is low for the [unintelligible] LPGs. It’s also the fact that the fleet is aging, and currently around 20% of the fleet is over 25 years of age, making these older ships unfit to compete in the international markets.

I would like to close the presentation by saying that although reporting a loss is never desirable, I believe that we made the right decision in selling the older vessels in an effort to improve our liquidity and improve our operational efficiency.

In order to have a deeper understanding of our business and our potential, one has to look through and beyond the one-off items and the accounting treatments of derivatives and foreign exchange hedges and focus on what I call the operational side, and in that respect, I am pleased with the results we announced today as we reported record revenue figures. We managed to take advantage of improving markets and posted solid operational profits.

Even though we faced some difficult markets in the past, we have never reported a loss from the operational side. I believe that we have significantly improved our balance sheet and liquidity recently and are focusing on the operational side of our business so that when we see sustainable turnaround in the markets, we will be able to take advantage of it.

Although we have faced some difficult markets over the past two years, we have managed to grow the company through our internally generated cash flow and did not have to resort to the use of equity offerings.

We continue to present a very attractive prospect to investors in shipping, with our share trading at around $4, and we feel that we are valued inappropriately by the market. With an NAV close to $13, we are a safe investment and in my view, based on the fundamentals we have discussed here today, the outlook for our sector is the best amongst all other shipping sectors.

Of course, markets have been very volatile recently, and the economic news coming out of the U.S. and Europe is not encouraging. The recent drop in stock markets have also led to further drops in our stock price, and so we decided to step in and repurchase some of our stock. As we announced today, we have recently bought back about 350,000 shares. In total, we have bought back, since the program began back in 2010, over 1.6 million shares.

We have reached the end of the presentation, so we could open the floor for questions. Thank you.

Question-and-Answer Session

Operator

[Operator instructions.] Your final question comes from Natasha Boyden from Cantor Fitzgerald. Please go ahead.

Natasha Boyden – Cantor Fitzgerald

Thank you for the presentation, but what is your general strategy going forward? Do you find asset values attractive where they are now and continue to expand the fleet, or do you think you’re going to focus more on cash flow generation and deleveraging?

Harry Vafias

It all depends on the markets, the general economic conditions, and the lending environment. At the moment, we are staying put. We’re not doing any new investments. We think the best opportunity to use our money is buying back stock since it’s so cheap. Obviously, if we see opportunities with bankrupt companies, fleets that are up for sale, or individual ships that are up for sale at very attractive prices, of course we will look at them. At the moment, we haven’t seen anything like this on the gas side. As you know very well, we have seen bankruptcies and auctions, mostly in the tanker and dry dock space.

Natasha Boyden – Cantor Fitzgerald

Okay. And then you’ve obviously been busy selling some of your smaller, older ships. When you look at your fleet now, in total, are there other ships you’ll continue selling? Or do you think you’ve sold everything you’d like to sell for the time being?

Harry Vafias

If you see our fleet list, we still have some early mid-90s ships and obviously if we get reasonable prices for them, we would like this year or the next to sell them and keep only the mid to late 90s and younger ships.

Operator

Your next question comes from Jeff Geygan from Milwaukee Private Wealth Management. Please go ahead.

Nick – Milwaukee Private Wealth Management

Hi, this is Nick. Jeff had to step away. I was wondering if you could give us a little bit more color on the reason why you gave a 10% discount on one of your product tanker charters.

Harry Vafias

Nobody has said it’s product tankers. I would like to rephrase your question and ask it on your behalf, and say why did you give a 10% discount?

Nick – Milwaukee Private Wealth Management

Okay, sounds fair.

Harry Vafias

Okay. Because, as you can understand, and you read it in the shipping papers and in the maritime reviews, a lot of charters are having financial problems or are just bullying owners into accepting big discounts or other things that will make their situation easier. We always think of our shareholders interest first, and we thought that if we did not agree, we would have a long, drawn out court case, a very expensive court case, with not 100% sure results. And in the meantime, we would get zero. So we decided, together with the BOD, to better accept the 10% discount and get paid on time than having to fight a battle with no guaranteed success.

Operator

Your next question comes from George Berman from JP Turner. Please go ahead.

George Berman - JP Turner

Got a quick question on your financial estimates on your slide show for the third and fourth quarter of 2011. Are all the revenues and expenses, etc., for the two quarters combined or in each individual quarter?

Konstantinos Sistovaris

They are combined. The revenues are combined. The non-contracted voyage days are combined. The operating expenses as we’ve said, are $8 million per quarter. Dry dock expenses are combined, and interest rate swaps and depreciation also combined.

George Berman - JP Turner

Okay, great. Also, maybe just a comment. I think as you alluded to in your presentation, the best use for your cash is probably buying back your stock. If you can buy an asset worth $14 for $4, I think that makes a lot of sense to take in as much as possible. I look forward to a further profitable future into 2012.

Operator

Your next question comes from Jay Weinstein from Highline. Please go ahead.

Jay Weinstein -Highline

I have a quick question. I apologize if you mentioned it. For the latest stock repurchase this month, do you have a rough average price? It doesn’t have to be exact. And how much do you have left on the original authorization before you would have to do another one?

Harry Vafias

It’s about, off the top of my head, because I don’t have the data in front of me, $4.15.

Jay Weinstein -Highline

And how much would that leave left on the original authorization?

Harry Vafias

About $7.5 million approximately.

Operator

Your next question comes from [Carl Thornoy]. He’s a private investor. Please go ahead.

[Carl Thornoy]

Is there an opportunity in the gas trade versus the product LPG versus LNG? Is it so much a different market?

Harry Vafias

It’s a different market.

[Carl Thornoy]

And you’re not geared up to enter that market?

Harry Vafias

I don’t understand the question.

[Carl Thornoy]

Well, the liquid gas, the frozen gas, to trade versus the petroleum product. Your ships are all petroleum.

Harry Vafias

No, you have confused yourself. There are three different trades. There is a liquefied petroleum gas trade, which actually we are the leaders in it. There is the petroleum trade, petroleum products trade, which is a trade that the product tankers do, and we have a few ships of that. And there is also the liquid natural gas trade, which we don’t do. So for which trade of the three are you referring to?

[Carl Thornoy]

I was referring to the liquid gas. The liquid gas.

Harry Vafias

LPG, or LNG?

[Carl Thornoy]

Liquid natural gas.

Harry Vafias

Right. We are not operating in this trade.

[Carl Thornoy]

Is that because it’s a wholly different technology trade to do?

Harry Vafias

No, actually the technology is exactly the same. It’s a matter of capital expenditure. A typical LPG ship costs approximately $25 million, and a typical LNG ship costs $200 million.

Operator

You have a followup question from the line of Jay Weinstein. Please go ahead.

Jay Weinstein - Highline

I had a couple of questions about the noncash items, just to help me understand. When you take delivery next year of the last new LPG ship, essentially is that the end of the foreign currency part of the noncash items? Is that fair to say?

Konstantinos Sistovaris

Yeah, that’s for sure. Yeah.

Jay Weinstein - Highline

Okay, so I guess as you take delivery the fluctuations of that number will sort of decline over time until they’re gone next year, correct?

Konstantinos Sistovaris

Correct.

Jay Weinstein - Highline

That will make things slightly less complex. Would you remind repeating the statistics on the notional amount of your interest rate swaps versus your total debt? I know you mentioned it, but if you could repeat that.

Konstantinos Sistovaris

Could you repeat that? I didn’t understand which number you meant.

Jay Weinstein - Highline

I’m curious as to how much of your total debt you actually have fixed interest rate swaps on.

Konstantinos Sistovaris

We have around 45% swapped out at around 3-3.5%.

Jay Weinstein - Highline

What are the general maturity rates of those swaps? The realized cash loss for this quarter, was that as swaps kind of rolled off?

Konstantinos Sistovaris

These swaps, we did them to cover our loan, so they are usually for many years we do these transactions. We have quite a few expiring in 2013, where, as I mentioned before, the 45% coverage will go down to around 30%.

Jay Weinstein - Highline

Okay, so it’s a big slug. It’s not like they roll off a little bit every couple of quarters.

Konstantinos Sistovaris

No, they do amortize, yeah.

Jay Weinstein - Highline

Okay, so those fluctuations we’re likely to still see, some quarters up, some quarters down, right?

Konstantinos Sistovaris

Yeah, we’re going to have these fluctuations unfortunately.

Operator

You have a followup question from George Berman. Please go ahead.

George Berman - JP Turner

Quick question. Could you give us the geographic locations of where your 37 tankers are operating right now?

Harry Vafias

The majority are in the Far East, then approximately one-third is in Europe, and we have a couple of ships in South America.

George Berman - JP Turner

Any of those regions project stronger growth versus the other?

Harry Vafias

Of course. The Far East.

Operator

You have a followup question from Jeff Geygan. Please go ahead.

Jeff Geygan – Milwaukee Private Wealth Management

Going back again to the interest rate swaps, I know you’re fixed at about 45%. Is there a target you want to be at? Say you go back down to 35%, will you look to fix some of that interest rate back to get close to 50%?

Harry Vafias

It depends on our view of what will happen with the interest rates and the global economy, but obviously we don’t like to be exposed, meaning not having any hedges. We feel that at about 40% we are comfortable with a level such as that if the economy remains as it is now. Of course, this is evaluated every quarter.

Operator

There are no further questions at this time. Please continue.

Harry Vafias

We would like to thank you for joining us on our conference call today, and for your interest and trust in our company. We look forward to having you with us again at our next conference call for our third quarter results in November. Thank you.

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