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CNBC Transcript: Andreas Sohmen-Pao, Chairman, BW Group, and Chairman, Singapore Maritime Foundation

Following is the transcript of a CNBC interview with Andreas Sohmen-Pao, Chairman of BW Group, and Chairman of Singapore Maritime Foundation. The interview was broadcast on CNBC on 26 April 2017 at 07:30AM SG/HK Time, during CNBC's "Hong Kong versus Singapore" theme week.

All references must be sourced to a "CNBC Interview".

Interviewed by Dan Murphy, Correspondent, CNBC, and Bernie Lo, Anchor, CNBC.

Dan Murphy: Andreas, great to get you on Squawk Box. Welcome to the programme. How would you describe sentiment in your space today?

Andreas Sohmen-Pao: I think sentiment is starting to pick up, but there's still a lot of pressures from an excessive shipyard capacity and an excessive capital, that led to oversupply, and we're still suffering the effects of that after several years. On the other hand, there's positive sentiment, continuing growth in demand, not least in China for energy. So we saw double digit percentage increases in oil, natural gas, LPG and so on, last year.

Dan: And of course the offshore segment is still being significantly pressured, that's one of the weak areas I guess you could say, in the market right now, of course is a consequence of the fairly benign oil price. At the same time, we've also had the rise of independent operators in the spaces. Well, how has that changed the dynamic for you?

Andreas: Well, I think oil prices are clearly a large factor in terms of oil and gas production, and particularly for deep water, which has a higher cost space and some of the onshore resources. The outlook at the moment, I think the conventional view, which is hard to disagree with, is that it will be range bound, because shale gas is such a flexible resource. And when oil prices drop too much, then production stops or slows down, and when it goes up, it comes back on. And so barring a geopolitical event, I think oil can be expected to be within this range. And it's a range that will be challenging for deep water production, although certain projects are still viable.

Dan: And the big focus view over at BW has been on the cost out and on the consolidation as well, in line with a number of other major players in the space. Can you say today with confidence that your business is operating at maximum efficiency and maximum productivity? Or is there more work to be done there?

Andreas: I think there's always more work to be done, for instance on the cost side, in terms of keeping pace with environmental regulation, and new trends like technology and digitalisation, I think there's always more to be done. We actually have an approach, which is to keep fairly low leverage and a healthy balance sheet because of the cyclicality of the business. And you could say in some ways that's inefficient, because one's not maximising leverage, but actually we feel it's the best way to stay safe through the cycles.

Dan: And Andreas, Bernie has a question for you.

Bernie Lo: Thanks Dan. Andreas, one of the difficulties of your industry is finding the perfect mix, really finding the optimum mix between what vessels are deployed, what vessels are plying the oceans, what capacity is idle right now. Can you give us an idea of what is active versus what is idle at the BW group right now?

Andreas: Sure Bernie. Actually, most of the fleet in our own group, in fact all of the ships are quite active at the moment. The first buffer within shipping typically when markets turn down is ships start slow steaming, so they start going slower before they stop and become idle. I think the sector which is facing the highest number of idle ships is offshore supply vessels because of that dynamic around deep water production, offshore production that I mentioned earlier.

Bernie: Right, along that same vein there, I guess another aspect of that conversation is a lot of port authorities around the world, especially in this day and age of slowed steaming, are quite particular about what kind of fuel burn you use when in their premises. I mean, this is all for of course pollution abatement and CO2 abatement, and that sort of thing. Has that become a cost centre for the company? Has that become just another challenge on top of the many, many challenges that you constantly have to juggle in this industry?

Andreas: Yes, it's a good question because of course there are two ways to view regulation. One is to see it as an additional cost burden and pressure for the business. But we like to think of it more positively that if there are ways to improve for instance environmental standards we should as an industry be embracing them. And in fact, the new regulations coming in 2020 to reduce the sulphur content of fuel, while it will create challenges for ship owners, in terms of having to burn more expensive fuels or put scrubbers on board, we think that that's also an opportunity for more modern and efficient tonnage and for the industry to get ready for the future. And of course there's a positive impact on the air that we breathe.

Dan: Speaking of getting ready for the future you also saw a recent opportunity in the dry bulk space perhaps an opportunistic play here picking up some distressed assets and positioning the business for a cyclical recovery in that space. When do you think that cyclical recovery will come particularly when it comes to dry bulks?

Andreas: So we've seen actually a significant pick up in asset values and some improvement in freight rates just at the beginning of this year. And so after a long period of sort of sinking rates and prices, we've seen a marked improvement recently. I think that it's yet to be seen whether demand is strong enough to absorb the large number of ships that have been coming into the market. But for now sentiment is positive.

Dan: So this is a long term play?

Andreas: Well we always said entering that it would be opportunistic but sometimes opportunistic things become strategic things so we'll have to see.

Dan: Opportunistic is always good. Andreas, great to get you on Squawk Box. Thank you so much for joining us today. That's Andreas Sohmen-Pao from BW Group.