Scorpio Tankers Inc.

hello and welcome to Scorpio tankers Inc fourth quarter 2020 conference call I would now like to turn the call over to Brian Lee chief financial officer please go ahead sir okay thank you and thank everyone for joining us today welcome to the Scorpio tankers for fourth quarter earnings conference call on the call our Emanuel Laurel our chief executive officer Robert Bugbee president Cameron Mackey chief operating officer Lars Decker Nelson sorry commercial director and David Morant, Managing Director, and James Doyle, Senior Financial Analysts. Earlier today, we issued our fourth quarter earnings press release, which is available on our website. The information discussed on this call is based on information as of today, February 18, 2021, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For discussions of these risks and uncertainties, you should review the forward-looking statement disclosure and earnings press release that we issued today, as well as the Scorpio Tankers SEC filings, which are available at scorpiotankers.com and sec.gov. Call participants are advised that the audio of this conference call is being broadcast live on the Internet and is being recorded for playback. An archive on the webcast will be made available on the investor relations page of our website for approximately 14 days. There are slides available at scorpiotankers.com on the investor relations page under reports and presentations. If you have any specific modeling questions, you can contact me later and discuss offline. Now, I'd like to introduce Emmanuel Laurel.

Thank you, Brian. Welcome, everybody, to our first call of 2021. Thank you for being with us today. On our last call, we said that the rapid rollout of vaccinations would be potentially a game changer. And this is proving correct. And as we speak, injections are winning against infections. The rebound potential in our business is now significant. It is estimated that COVID has temporarily reduced 6 million barrels per day of global demand, of which two-thirds is in aviation. As we look across the market, many sectors of the economy, like travel and tourism, for example, are already discounting a significant rebound in demand, correctly so in our view. Meanwhile, in large parts of Asia, we are already back through normal levels of demand. So we do expect rates to move upwards from here. While the short-term opportunity exists for our company, we must not lose sight of the longer-term impact of the virus in our industry. The last 12 months have seen a rapid acceleration of global macroeconomic evolution across different segments like renewable energy, technology, medical science and others. In our business, we have experienced a much overlooked but decisive closure of refining capacity in the developed world. Alongside this, we have experienced the opening of major refineries in the Middle East, like Gizan or Al Zor. By the way, we at Scorpio Tankers have lifted the first Gizan cargo three and a half weeks ago on one of our MRs. So long after the crisis has receded, this positive structural impact on ton-mile demand will be felt. As such, the pandemic has served to accelerate the structural changes in demand from which we can benefit well into the future. The supply picture in clean product tankers is still benign. And not only it's benign, but it pre-existed the pandemic. At present, the on-the-water fleet of modern MRs is starting to shrink. The crisis has only served to deepen and prolong the undersupplied markets. And in this process, it is now returning pricing power to incumbent owners with modern vessels like ST&G. the new building ordering continues to remain very low, which is another encouraging factor. Before I conclude, I would like to spend the words and think about our seafarers and our teams around the world. I thank these key workers who, in the most demanding and extraordinary circumstances, have made significant personal sacrifices away from their family, away from their friends, just to keep the world economy supplied. Scorpio is a proud employer, is proud of its record as a responsible company, a responsible employer. Our teams on land and at sea can continue to rely on our unwavering support through this period. We employ about 8,000 seafarers, and we had more than 14,000 crew movements since the start of the pandemic. Finally, I will sum up with the following thoughts about hydrocarbons. Hydrocarbons are here to stay, but as a global community, we will likely produce and consume hydrocarbons in a different way or better, in an evolving way. We believe that the modern clean ecotanker has a pivotal role to play in the future, in this future and in this transition. As such, whilst the crisis has been painful for many and tragic for some, it has given us a window to the future. This future is a huge step up in product anchor tone mile with modern efficient refiners, exporting major volumes of refined products to all corners of our world. With this, I have ended my remarks, and I would like to turn the call to Robert Bugbee.

Thank you very much, Emmanuel. Look, I think this is an absolutely super exciting time for the Sting shareholder and the Sting potential investor. We're past the bottom in terms of rates. We're going to You know, the inventory has been really drawn down. The vessels you can see from our earnings are moving. That means that there's very little surplus capacity, so any increase in demand is going to immediately move into corresponding higher rates just straightaway. And we would expect that over the next couple of weeks that we will start to get significant movements upwards again in the Asian market as Asia comes back from the Lunar New Year. It's a great opportunity in the sense that our stock is still trading, despite the sort of partial sort of run-up from the bottom, is still trading at a significant discount to its net asset value. is trading it at an even further discount to where the company was only 12, 13 months ago, despite all the cash that the company earned last year and the debt that has been paid through that year. We'd expect the NAVs to start to move upwards as well, and they can move up quite sharply. Yard pricing is going upwards across shipping, higher input values, higher interest in areas like containers, LNG, soon to be dry cargo too. Time charter rates have started to firm, strong inquiry and many fixtures, especially of the modern tonnage. And the forward curve has been strengthening too. In addition to that, I can think it's safe to say the last four weeks, investors have come out and shown a lot of interest. And as Emmanuel has pointed out, these vaccinations are a game changer going forward and a game changer to people's psychology and mood. People are believing and are expecting the opposite of last year. Last year, when the rates were high, the stock sold off rapidly because everyone expected the market to fall. Today, people expect... that the vaccines will lead to greater demand and create a move to OPEC. So we're starting to anticipate that improvement. And anybody that's short, and we still have a lot of significant short interest in staying, is really denying the fact that the world is going to get better as a result of COVID. And with that, we have a lot to talk about today. I'd like to open it up to questions. Thank you very much.

Ladies and gentlemen, if you have a question at this time, please press the star and then the number one on your touchstone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Thank you. Your first question comes from the line of Ken Hoxter from Bank of America. Your line is open.

Great. Good morning, Emmanuel, Robert, and Brian and team. Can you just talk a bit about the effect the storms are having on trading patterns? Also, just more specifically, the MR rates where, you know, you showed improving sequentially with your book dates, but yet the others kind of declined. Can you talk about that differential? Is that a trading pattern east and west given where net gas prices are, or do you expect that to decline like the other classes? Thanks.

Sure. Lars, why don't you answer that one?

Sure. Thanks, Ken. Going back to Robert's point, the capacity of the fleet is pretty good, to be honest, and it doesn't take that much to see what delays and uncertainty can do to the rebound of the market. Obviously, we have seen that these kind of dislocations lead to spikes And I guess the live example that you're referring to is what's going on in the Atlantic Basin on the MRs right now. So, you know, it's interesting to note that, you know, with the U.S. polar vortex, the issues arising around that, the TC2 market, which is the Atlantic Basin on MRs, just this week alone has moved from well-skilled 117.5 to I think we've got well-skilled 170 on subs today. this corresponds to pretty much a jump of $8,000 per day in three trading days, which, of course, is remarkable and obviously is a testament to the capacity and the balance that actually is in place. You know, and similarly, I guess, for completely other reasons and nothing to do with the polar vortex, you know, the market and the med in the handies, they moved this week as well, 120 world scale to world scale 220, which is a very substantial jump and probably is equates to around $12,000 per day increase from what it was on Monday. And I think the point here really is that if it's east or west, because we've seen it in the east as well, is that the market has the volatility that we really need and require. And the overhang of vessels in the product market, again, is limited, I would say. And this shows that, you know, at the margin, the markets have that immediate capacity to move and do so very, very rapidly. And it's not hampered by any layup or overcapacity that we saw back in the 80s, really. So I think the reality is normally followed by sentiment. And I think time and time again, it shows that in fairly balanced markets, upturn comes very quickly. Thanks.

Thanks, Lars. Amazing. I guess really well positioned. You're right, depending on how quickly we see this tightening and price plow through. I guess what does the impact – let me just get a follow-up on the reversal of the million barrels per day cut from Saudi. Is that something that – I guess, Robert, you've always talked about lengthening length of hauls. Is this the driver that you're going to finally start seeing that in absorption of capacity? And maybe within that, where does the storage now sit on water? Are we kind of done with that bleed out into the market, or will that still –

pressure i think i think we're sure i think first of all that there's almost no storage on products on the water that's drawn down and uh there's still some storage left in the water in vlccs but you know and i think that we would i think conventional wisdom would say anyway that the product market will move upwards before the vlcc market would would move up or the the crude market but it's fantastic either way. As soon as the Saudis start to reverse their positions and OPEC, you know, imagine we're going to, you know, almost all oil analysts say that over the next 10 months or so before the end of the year, we're going to pick up between five and, you know, six and a half million barrels a day where you're going to be stripped going at 500,000 to 550 a month increase. And, That's great. Lars can talk about the psychological thing of this, but for us in the product market, particularly the Saudi question, the Saudis put in product exports, too, into their totals for their exports. So here, with their new refineries coming up, that just gives more confirmation, along with the end of the lunar new year, of our belief that the East market and the LR2 market and, you know, whether it's two weeks, three weeks is, is going to start to crank itself up.

Helpful. Just one last one for me, if I can, Robert, or I guess for Brian, maybe particularly the operating costs remain elevated 1600. I presume that's because of COVID and all this stuff that you're doing. Is that something you see lasting through 21? Do you see that starting to come down at all? Maybe just one, one quick thought on the expense side.

Ken, that's right. That's because of the COVID and the crude changes and a few other things that are associated with that. So that, at least in the first quarter here, we'll still see that. And hopefully, as we mentioned with the vaccines, things are getting better and more places are going to be easier for crude trade changes going forward.

All right. Wonderful. Appreciate the time, gentlemen. Thank you.

Your next question comes from the line of Omar Nocta from Clarkson's Plateau Securities. Your line is open.

Thank you. Hey, guys. Emmanuel, Robert, obviously, in your opening remarks, kind of presented a pretty positive outlook. And, you know, over the past few months in other shipping sectors, we've seen a real strengthening as each of those came out of their kind of COVID-induced downturn. We've seen multi-year highs coming out of the gate here for containers. We've seen it for dry bolt. We've seen it for gas. As you guys think about the tanker market recovery from here, can you see something similar playing out here in the next few quarters? And then... With that in mind and how you view that, how do you feel about share buybacks in that context?

I think the first question is yes. If we think of where we were 13 months ago at $40 or whatever, what's changed if we said, okay, in January 2022, the demand was the same as what it was or probably higher. Where are rates going to be? Rates are going to be stronger. They're going to be stronger because we have a number of MRs that are going to be leaving the clean petroleum trade this year because they'll turn 16 years old. We will have still a very constricted supply order book very constricted in terms of its ordering position and we are having some real positives in refinery changes you know James can talk about that in a separate question I'm sure but the refinery changes have been accelerated as Emmanuel indicated you know and we've just seen in quick succession what's happening in Australia for example so and this big effect on tonne miles When it comes to values, there's inflation going on right now. Steel prices are moving upwards. The yards through this period have consolidated too. Shipyards are already moving their price positions up. There is a scarcity of new or modern product tankers. So there's every reason that given the fact that the share count would be the same, that in a stronger market, you'd recognize what the company has actually earned or paid back to in this trailing 12 months. There's no reason why the stock shouldn't be higher than $40 if you look at it that way in 12 months' time. The second question, we've been very consistent in that you can see what we're doing. We're continuing to maintain our liquidity. We've We announced today that we still have an excess of $200 million of cash on the balance sheet with the financings that were in the works or the things there. We're showing more or less $300 million of liquidity. And so we're able to go through this position. We're getting more and more confident as we see the vaccinations, but we've remained humble in this last two weeks. two, three months waiting for things to play out. But certainly, you know, we're indicating that we believe the NAV is well above the present stock price and going higher. So there is going to be the room there the very moment that the rates start to really shift and move and move above, let's say, you know, $17,000 a day on average, which is our all-in cash break-even, let's say. But we'd like to see that first. That's the prudent thing to do.

Thanks, Robert. That makes sense. And maybe just kind of thinking about that from your vantage point, Maybe it's a little early, but I wanted to check with you on kind of what you're seeing in terms of potential recovery. You mentioned the Lunar New Year holidays ending and expecting to see an improvement there. When we look at the oil price and the oil curve, obviously Brent is now pushing close to 65, and there's mounting pressure for more barrels to come to market from OPEC. Are you seeing anything in the cargoes you're carrying or in the refineries that you do business with Are you seeing any preparations on their part to shift their production, whether to ramp up certain types of cargoes, including, say, jet fuel or gasoline? Are you seeing anything there that indicates changes are coming?

Lars, would you like to answer that?

Hi, Omar. That's a really difficult question to answer, really, because obviously people keep their... cards very close to their chest. Uh, but what we do see is that, you know, to the first point about the 10 mile and stuff, you know, how are we seeing the development in what we consider to be a low point in the, in the cycle at the moment. And, uh, you know, with the refineries that were shut down in Australia, which was the, um, the Queen Anna one first and one that was announced the other day, which was alternative, uh, final exxon, And we're seeing how these things are developing and what's moving. And we look at the numbers for January in terms of Congress move relative to what was going on last year. And, you know, you can see that, you know, 57 MRs were done in January to Australia in 21 January, and 38 were done in January last year. So, you know, we can already see that, you know, everything that we've been talking about last year, are people doing things as they're saying that they're going to do happening? Well, it certainly is happening very quickly. You know, the same thing that I think Immanuel mentioned in his opening remarks about Gizan. You know, we moved the first cargo out of Gizan, and we've seen, you know, that they're ramping up as well. You know, at the moment, we haven't seen very much distillate moving west for obvious reasons. So at the moment, it's light and it's moving east where, you know, obviously there has been this unbelievable demand for particularly NAFTA in Asia and which, of course, has held up a lot of the markets from the west going east with the big ships. And, you know, what we're waiting for, of course, is this turn when we're going to start seeing the other parts of the barrel start moving the other direction. We're seeing small sparks of it. We've seen our first jet cargo. You know, it's still too early to say what that means. Obviously, you know, jet doesn't have an unlimited storage life. But certainly that if you start seeing that things are going to be flying around again, you have to think about what you're going to do with your jet fuel and have that in storage in the right places, you know, six, eight weeks prior. So, you know, we're pretty confident that we're starting to see the changes. We can see that people in some markets are starting to reach out further out, particularly in the West on their fixing windows and stuff like that. But to say that we're seeing the cargo mix as such change, I think it's still a bit early.

I think one of the better ways of gauging the customer's position is the steady taking on and lengthening their books on modern tonnage. And that's really where they are. But I think that, as Lars says, this is what you want to call it. This is just as the tide is changing. The tide's been going out in the last two years. two, three weeks or so, the tide stopped going out and we're pretty sure it's going to turn just simply as you start to see. Look at what's happening in the United States and in our own states where we're living. Certain things are starting to open up, whether it's you know, kids being able to play team sports again or going to the restaurant or doing driving and Europe's already started to talk about it. I mean, the rates of COVID in the UK has been falling like crazy. So, you know, I wouldn't say that we are pretty close.

Can I just add, Robert, in terms of the time challenge that you talked about? I mean, that obviously is one of the kind of real old-fashioned leading indicators that always tends to see where you have sentiments. And, you know, typically for a lot of the traders, the rationale that they do when they take time charges is they obviously see the inflection point often days and months before it happens to make sure that they can be on the right side of that curve. And, you know, when we look at it for what's happening, you know, year-to-date in 21, you know, most of that activity has been on the MR vessels. And the thing that's interesting to note now is that most of that has been happening on the eco vessels. I think on the last count on our own list of when we follow these things, we've seen over 40 MRs actually done on time charter this year. And on the count, over 30 of them are eco. And a large handful, if not two handfuls, of those are also with scrubbers. So I think it's a really important kind of dynamic that is changing here. where we can see quite clearly that the end user, the customers using these ships to trade for their business or as a portfolio, they're certainly pivoting towards a more eco-fleet because we then look at the overall numbers of vessels that we follow that every one of these traders they have on every quarter, they tend to be roughly the same, which then tells you that they're swapping the older units out with the newer that are more fuel and certainly carbon efficient. Thanks.

Thanks, Lars. I appreciate that color, and Robert as well. Obviously, it's probably early, as you mentioned, it's a bit early to tell about the shifting cargos, but definitely sets up a pretty interesting earnings call, I think, in three months' time, or two months, whenever you guys come out with your next results. So thanks for the color, and I'll turn it over.

Thank you. Your next question comes from the line of Amit Merwathara from Deutsche Bank. Your line is open.

Thanks, operator. Brian, I saw the debt amortization moved around a bit prospectively. Is there a mode of come on that side, or are we all done there in terms of what you guys want to do in terms of stretching out the payables a little bit?

We have a few more things that we're working on. As we mentioned, we have some facilities to draw down on, and then we're in discussions on a few other ones. It is moving around, unfortunately. It makes your guys' life very difficult to keep on top of it. But we have a few more things, and then we'll see where we are at that point. Things should calm down after that.

I bet it's – I mean, at least it's going down, right? So that's good. You know, my next question – it's going to be a tough question, but I think it's a completely fair question. So I just want to warn you ahead of time. You know, Robert – I guess Brian Emanuele – You guys lost $75 million in the quarter on a gap loss basis. We can exclude things like impairment losses, restricted stock awards. I don't know why you would exclude those, but the bottom line is you lost that much money in the quarter. We're now 10 years into this venture called Scorpio Tankers, and you guys have reported 70% of the time annually a loss. So the question is, what is the change in strategy – that's going to, one, allow you guys to actually create some value, because the stock's down 87% since you took this public. And second, what are you doing to rebuild some goodwill with the shareholders? And I'm really talking about it from the perspective of your related party transactions and the value transfer to SSH.

Thank you, Amit. I think we've had a direct question as we've gone through this process. We've adjusted... Those relationships, we've dropped various things along the way. We even did a major change two or three years ago in conjunction with our lead investors that we've been very, you know, the actual basic, you know, fees related to OPEX, et cetera. You know, they haven't gone up for, there's been no price adjustments. for years despite the fact that costs have obviously gone up. I think that the value is going to be created right now by the dynamic that's going to play out in terms of the real fundamentals.

Can you give the public shareholders a holiday on commercial and technical management fees? Because you're right, they haven't gone up, but they haven't gone down.

We gave a holiday on commercial fees when the rates had been consistently low previously. We didn't do any clawback when the rates were really, really high. At the moment, we don't think that That's necessary at all in the company. I think that the actual margins have been reduced quite a lot simply because it hasn't gone up, the costs have gone up, salaries have gone up, etc., etc., etc. But the quality in many ways has improved. I mean, you can see we do very well against the benchmarks and very well against the competitors. And I think also that it wouldn't make a material difference anyway, Amit, to what you're talking about.

And there are two things, Robert, if I may. I think that we need to contextualize your question, Amit, because it is a fair question and we like direct questions. I think that the space has been beaten up for the past decade. I think that if you look at our performances compared to others, we are actually right on top. If you look at the fee issue that you mentioned, apart from the S&P fee, which was a 1% S&P fee, which we dropped, as Robert has mentioned a few minutes ago, which many other companies charged, and we decided to charge that together with our underwriters when we went public and then decided to drop it because it was creating confusion and stuff or noise. However, on the technical and commercial that you've just mentioned, if you look at our peers, look at our OPEX. Our OPEX are inclusive of fees. Our numbers on the commercial side are inclusive of fees. We issue net numbers, so post fees. And, you know, there is really nothing to – to look at with the criticism. We charge market numbers. We outperform or are right at the top on the commercial results. We are right at the bottom from a quality price standpoint with OPEX. So there is, you know, it's a known argument. On the general performance, as I said, it is very important to contextualize this. You cited some numbers which are true. we do welcome, as I said, direct questions or criticism. However, the tanker space and the shipping industry in general has been quite a difficult one. You guys on the analyst, from an analyst perspective, have changed and struggled to remain relevant in an industry where a lot of investors have not paid attention because of the depressed result that the industry specifically was bringing. So, you know, yes, you're right.

I don't want to belabor the point because it's a public call, so I'll move on. But, like, I don't think that has anything to do with the question. The question I had is you still also have over 200 million of restricted stock awards since 2010, which is basically, you know, share awards to the management team when the equity, public equity price is collapsing 90%. So how do you kind of explain that?

I think that, first of all, yes, the management isn't getting, you know, the compensation is tied a lot to the stock price. The other way of looking at it is, look, the management, you know, we're shareholders, we also buy things, and we suffer when the stock doesn't perform. And, you know, I think it's a... it's probably a better position overall that a large amount of compensation is tied to the stock price as opposed to tied to cash bonuses or cash salaries, et cetera.

Okay. Thank you. I know these are tough questions.

No, no, it's fine. We're totally fine. But, I mean, the other part of it is that, you know, insiders have been big buyers. You haven't seen many managements buy as much stock or derivatives through stocks than this one, especially recently. The recent position is that we are really backing up the truck at the moment into what we think is going to be a great period for investing shareholders in return.

And 13 months ago, we were at a great period, and then the pandemic came, but this question was not... You didn't ask the question 13 months ago, Ahmed, not because you're shy, but because... you thought as well as we did that we were, you know, actually going to enjoy a very prosperous period ahead of us, which then the pandemic ruined for many, many other companies and more importantly for many people. So that's where we are. But as you say, you know, happy to discuss this, happy to discuss whenever you want.

Your next question comes from the line of Greg Lewis from BTIG. Your line is open.

Hey, thank you, and good morning and good afternoon, everybody. As I look at the formal guidance, thank you for that, and go through the presentation, which I kind of thought you'd highlight some of those slides. I guess my question is, as I look at the performance for the quarter, is there any way to parcel out? how much of that is scrubber-related and really how we should be thinking about, you know, the impact of widening fuel spreads on the performance over the next couple months and kind of around the scrubbers. You know, I realized about a year ago when scrubber spreads were a couple hundred dollars, you actually had a lot of traders and other entities looking to charter in vessels just to take advantage of the scrubber spread. Is that starting to rear its head again?

It will do, yes. In the first question, how much of our benefit we had so far in our results or our guidance. It's not really very much. It's only been recently, as you know, that the price of fuels has moved upwards and the spread has started to rewiden above $100. But we do see that spread continuing to open up a bit. We don't necessarily see it going back to $300, but we don't see it going back to much under a hundred dollars. So it'll become more meaningful as we, as we continue through this year. Um, I don't, James, would you like to add to that?

No, I would, I would completely agree with that, Robert. Um, we have a slide in our presentation, which gives you the breakdown, um, at a, at a $200 spread. So you would divide, you know, that by a hundred to, to get the savings. But, um, We think the spread will continue to widen just because we're in a more normalized commodity cycle, and there's limited uses for high sulfur fuel oil outside of power generation in the Middle East and scrubber-fitted vessels.

And then what about, has there been an increased interest for charters looking for scrubber-type charters? to really capture the spread?

Well, I think that the charters are looking for anything that can perform better in terms of either total fuel consumption because of environmental reasons, and then add on top of that, they'd like to have scrubbers too, especially as the spread is opening up.

Okay. And then, Brian, shifting gears a little bit, clearly there seems to be an expectation of rising asset prices as we come out of this, as we move into a recovery of oil demand mode. Do you have any sense realizing it's going to be different across banks and leasing houses Do we have any sense in terms of appetite for additional lease providing of capital from whether it's traditional European banks, Asian leasing houses? Really what I'm trying to understand is obviously there's been a lot of right-sizing of shipping books over the last one, two, three, four years. And I'm just kind of curious, are we now more of in a stable environment or are we still seeing some parties involved in commercial shift lending continuing to pull back?

Well, you're seeing much more in the sale-leaseback and the Asian financial houses coming into play. And there's actually, on slide 13, James put together a summary there, and you can see our credit facilities are about $1 billion and our lease financings are about just under $2 billion. And I think if you looked at that at any other time, it would be nowhere near. I think if we went back just about last year, it would be roughly equal. So as you saw over time, that has changed, and we're not the only ones doing it. You're seeing other people doing that. So I think we're seeing a different market open up for us to borrow from. Very competitive, too.

And do you get the sense that the appetite from the leasing houses is continuing to grow as it kind of normalized or stopped?

No, I think some of them are opening up. There's some more out there as well. At least we're getting inquiry from other people.

Perfect. Okay. Thank you very much for your time, everybody.

We have your next question coming from the line-up of Randy Givens from Jeffries. Your line is open.

Howdy, gentlemen. How's it going? Hey, Randy. How are you? Good. Thank you, Randy. Good, good. I may have missed this earlier. I'm struggling with some power outages, obviously, here in Houston. But I just wanted to ask about asset values and how that has been impacted by current market weakness as well as maybe on the other side, the optimistic outlook for the back half of this year. And then how liquid is that market in a relatively tough still operating environment? And then lastly, you mentioned Sting is trading at a significant discount to NADD. So just trying to get a better sense for that updated NAV estimate.

The last question I can give pretty clearly is that we're not going to give any guidance on what we think our NAV is. The first part is especially linked to the very first question related to would we start to buy our stock back at a certain point. we will keep what we think our NAV is to ourself if we adopt that strategy. And I think that would be to the benefit of our shareholders. Then in the first question, there hasn't been very many transactions, primarily because The last year was that no one really had to sell in terms of distress because even though the rates have been weak for the last few months, of course, last year was a fantastic cash flow year. So there have been very few, and most of the owners of modern tonnage have been the stronger owners. So there have been very few willing sellers, as it were. Prices were bad. Values were therefore determined by whatever, discounting new building prices, new building order market was very weak last year in OPEX. In many ways, you had NAVs or values that were kind of artificially low but with very few transactions. Now you have almost a situation where we know that there are lots of people who are potential buyers of product anchors. Again, those owners of modern tonnage certainly don't want to let go of their tonnage at today's prices because they're seeing the market rise, time charter activity rise, and that they know that they're modern tonnage in the water will be a premium because this market is likely to move and move fast. And so it's much better for all these people to buy tonnage in the water than it would be to do new buildings. So little is being transacted at the moment. So there's very little data points but you know that the actual trend is upwards because you've got the charter activity and you have new building increasing and you've got the expectations of a market that's going to improve.

Sure. Okay. And then in terms of plans for all the additional liquidity you have raised and are raising via the refinancing to 7% notes due in 2025, what are your sources and uses of cash this year? And then also on that, how big of a priority is maintaining the dividend?

Well, the board is, as of today, saying it's keeping its dividend. we are indicating that we expect the markets to improve and cash flow to come into the market. So I think the board at the moment would expect to maintain the dividend. The sources and uses right now are to, and have been, to ensure that we... Nothing untoward happens. Things have been changing. It was, you know, in November, December, perhaps vaccinations were disappointing. Now vaccinations starting to accelerate. We're getting more optimistic. We'd expect that pipeline to accelerate further. But as we said earlier, until we cross into... $17,000 a day range. Maybe we can go a little bit earlier. We would keep liquidity on the balance sheet until we do that. I can say that we have no interest in buying other people's assets right now, like Xero. We have a fantastic fleet, fantastic operating leverage, and the first priority to free cash would be buying back after debt, would be buying back the stock. And we're not even in discussion with shipyards at all. I mean, the idea of ordering a ship is completely at the bottom of the list. Got it. Good deal. Yeah, that answers my questions. Thank you.

Your next question is from the line of Ben Nolan from CISO. Your line is open.

Yeah, thanks. Hey, guys. One of the questions that I wanted to sort of circle back on, I think, that you talked in your prepared remarks is about sort of crew issues. And one of the things we've heard from a few owners is that they were sort of going out of their way to stop by Manila or other places to to pick up new crews. I don't know if that's universal, but I was curious if you guys are doing things of that sort and if maybe the numbers that we're seeing now, there's some sort of an impact from maybe artificially depressed utilization or something like that as a function of just not being at optimum efficiency. Cameron?

Cameron? Yes, thank you for the question. The rerouting of vessels was really an event that we faced over the last two quarters. And you could see that there's a corresponding impact in terms of declined utilization or TCE as you might see it. but also sort of decreasing for the short term, some decreasing travel expense. And then as things start to normalize, you're going to see the opposite. So, again, it was something that we've been through for the last six, eight months, but things are slowly returning back to normal. It's still quite a logistical feat to manage travel, not just for our crew, but for technicians or superintendents or anybody else that needs to visit or maintain a vessel. And so, again, as Emmanuel said in his opening remarks, the next three, four months we should see things start to normalize.

Karen, is there any way to, or have you done any math on sort of what maybe that TCE impact is, roughly?

We don't have it at hand, but we can certainly take this conversation offline to talk about some of the examples. You know, thankfully, The law of large numbers helps us a fair bit. So, you know, spacing these out and taking them one at a time, really I'm not sure the impact would have been terribly material. You're talking about, you know, a few hundred dollars a day, maybe across the fleet.

Okay. No, that's helpful. And then, secondly, for Brian, we're closing in on just a little bit more than a year before The convert comes due. The number is smaller now that you guys have bought some of it back. But how are you thinking ultimately about what you want to do there? And I appreciate maybe it's a little early, but is that something that you would envision simply looking to refinance or maybe do you anticipate that type of capital being in the capital structure long term?

It's very possible. We are looking at a few different options, and I think as time goes on, we'll tell you what we're going to do with that, but we're looking at everything at this point. And it's May, so we still have, as you say, it's 15 months. It's coming up. It's on our radar. Got you.

All right. That does it for me. Thanks, guys.

We have the line of Jan Chappell from Evercore. Your line is open.

Thank you. Good morning or good afternoon. Just one maybe a little bit long-winded question from my side. So Emmanuel has talked a couple times about the 5 to 6 million barrels a day of demand growth this year, which our house view is very similar to that. So understanding rate of change is going to be positive. We're bouncing off the bottom of oil demand, and therefore the market has to move higher from where it is today. What I'm trying to understand is the kind of extreme optimism about the pace or magnitude of the recovery. You know, if we look at oil demand estimates for 21 and 22, our super bullish oil analysts came out today with 7.6 million barrels over that two-year period, but that's up against an 8.7 million barrel decline in 2020. So we're looking at a 2022 demand number that's lower than 2019, but yet the LR2 fleet has grown by 6% or 7% over that period. The MRs will be, you know, a couple percent. So I'm just trying to understand, you know, just pure, simple supply-demand. What else is happening with ton miles, with, you know, not scrapping that gets you to that kind of very optimistic view that not only will we have a recovery but an incredibly meaningful and sustainable one?

Yeah, great question. So... Firstly, we have to remember what is effective product tanker supply. So we expect in clean petroleum products there to be a significant decline of what's in the present fleet of well over 400 MRs over the next two, three years that will leave the premium fleet trading clean petroleum products, which needs to be offset against a very small order book. And James, in a second, can give those details once I go through the parameters. So the supply side effectively is either staying flat going forwards or potentially even declining in terms of effective basis. Then we're seeing a Big changes, huge changes just in this last three months. Just take what's happened in Australia in terms of ton-mile changes as import refineries from crude go and are replaced by clean petroleum product import terminals. If we look at the mix itself going forward out of that 6 million barrels or 7 or 8 million barrels, This year, by the end of this year, a million of those barrels is going to be product exports. So that's a huge change. Just that is a huge change on the actual product position. So you're looking and your oil analyst is looking at total crude oil barrel demand. We're looking at product ton mile demand. So for us, it's how much product is going to be used in the world, and then it's going to be where is it being shifted to. We have a theme going on underneath that growth that the ratio of products carried by sea is going to increase at a far higher rate than that of crude oil in this recovery. James, would you like to provide some detail to this, please?

Hey, John. So, yeah, just to build on Robert's points, when we think about the capacity closures, we tracked, you know, 1.6 million barrels today, and estimates have ranged from two to three. But basically, pre-COVID, the refining industry was oversupplied. So we're going to see further consolidation of the refining space. Now, we are obviously highlighting the closure of the Australian refineries because it's very simple ton-mile demand math. Australia is a country that already imports more than half of its refined product demand, right? However, if we start thinking about the closures in Europe, a place that's already at a diesel deficit, if you were to ask me a year ago, that's not something I had expected. If we start to look at closures throughout the United States and certain parts of Southeast Asia, these are areas that in most cases, will need to replace the lost production. Obviously, the New Mexico or Wyoming refinery that's quite small or closing is not going to have a material impact, but you close a refinery in the Philippines where they only have one remaining, and you're going to need to replace those barrels. On the other side of it, people really didn't start building MR product tankers until the early 2000s. If you go back to 1998, 1999, you're talking about 20 ships delivered a year in the MR space. So, one, nothing has ever left the space, really, if you consider that 15-age year. And then, two, all the ships that were really started to deliver in the 2004 to 2008 period are now getting to that 15- to 18-year range. So, if we take 108 MRs on order today and we compare it to 460 that are turning over the next four years, it's considerable. And I'm going to actually pass to Lars on this because he can tell you a little bit more about customer preference in the time charter market and perhaps some of these emission regulations that are coming forward.

Thanks, James. I mean, we talked a little bit about before about the MRs fixed on time charter and where the pivot was towards the eco fleet. And that, I think, is certainly across the board that we're seeing this. The thing I think is really going to be a game changer over the next couple of years is how we are looking to really grasp around the carbon emission issue. And, you know, with the IMO putting their goals in reducing carbon emissions by 40% by 2030, there's a couple of things that are taking place right now, right? You've got the operational standard that is supremely important as we look at product changes and the age, you know, what they call today the Energy Efficiency Existing Shipping Deck, or the EEXI. And basically, you know, if you want to try and kind of reduce your carbon footprint, you've got to look at the efficiency of the vessel that you're utilizing. And we're seeing today, you know, a lot of our customers from the 1st of January this year measuring carbon footprint on every spot voyage that they're doing in anticipation of what this will mean for the cost of moving cargo from A to B. So when you then think about, well, what does that mean if you want to lower down your carbon emission footprint as an oil transporter? Well, first of all, you look at a more modern ship because they emit a lot less carbon than the gas guzzlers of the non-eco vintage. So that in itself, I think you will start seeing a two-tiering of a market to a much larger extent than we have been seeing over the last couple of years where You know, there was an age threshold set at 15 years, which was what a lot of the oil majors had put in as a quality threshold where they used the age. But now, you know, with the introduction of carbon emissions, we're going to see a lot of changes here and where people are going to be really focused on choosing the vessel more on their carbon footprint than anything else. And here, of course, Scorpio will be well placed. On that point, The only way to reduce a carbon footprint really effectively for a non-ecovessel or ecovessel, for that matter as well, is reducing the speed. If people start introducing speed reduction as the most efficient way of reducing the carbon footprint, which it would be, at least as we look at things today, well, then you have the competitive advantages of the super ecovessel coming to the fore again. So, you know, this backdrop here is supremely important, I believe, over the next, you know, next period.

All right. James, Lars, and Robert, thank you. Very thoughtful and thorough answer. Thank you.

Your next question comes from the line of Liam Burke from B Riley. Your line is open.

Yes, thank you. We've talked a lot about the refinery disintermediation with the closing and then the reopenings in China and the Mideast. How long does this process take to roll out? We've had closures in 2020. We expect more in 2021 before the ton miles begin to normalize.

Between the normalize, well, it will be a new normal. There won't be back It won't be a normal. Correct. That's right, Robert, a new normal. It's already happening. As Lars is saying, what he's saying from Australia, the change of Australia January to now, they've then added another refinery closure very recently, the Exxon one, and I believe that we've already fixed a vessel in clean to that area as a substitution for for them closing that down. So it sort of pretty well comes instantaneously as the refinery that was refining, importing crude to refine products just stops refining the crude. Then they have to make up for that, especially now that inventories are pretty well normalized around the world. They have to make up for that product loss kind of immediately. The actual refineries coming online, they sort of step up over a period of months from zero before they start, and then they just move up in incremental levels as they open up the refinery.

Okay. And on the debt front, we've touched on your lease financing, the convert, and everything else. As you look at cash flows accelerating and rising rates, lower CapEx, is there any part of the stack that makes more sense to you, or do you go back and look at just your straight cost of debt?

Hi, Liam. It's Brian. Hey, Brian. We just want to look at some of our highest cost of debt, which, you know, some of these facilities that we inherited on the navigate deal, we're refinancing those at better rates, better margins. So looking at that number one and reducing interest costs along the way, and that will give us the ability to keep on paying down more principal. Cause that's as long as our stock price remains reasonable, which it's not right now, but in the longer term, our number one priority, as Robert has said, is to pay back debt.

Great. Thank you very much.

Your next question is from the line of Colvin Sodge from Tanker Data. Your line is open.

Hey, guys. First of all, congratulations on retaining liquidity in a challenging environment. Thank you for having me on the conference call for the first time I have a question from one of our subscribers who is an ex-Lev Finn banker, and he just wants to understand a little bit better the flexibility and limitations Sting has in financing facilities. He thinks that the debt costs are quite high and wants to know, apart from reflecting leverage in the business, do these higher rates represent flexibility in the uses of the financing? For example, if the company starts seeing a clear pathway to much higher global fuel consumption? Can you tap some of the bonds to opportunistically buy back shares? Are there any penalties associated with debt repurchases or any other interesting features of the financing facilities? Thanks.

Go on, Brian. I'll start, Brian. In simple terms, the leases have repurchase options. They have those at different points, but that's quite efficient. It's not really penalties. There may be a transaction fee related to doing that. and otherwise they're fairly standard. So there's nothing that is preventing, as we talked about earlier, nothing really preventing us in refinancing the more expensive part of the capital stack or nothing there that's preventing us moving to buy back stock either.

Okay, and separately, as far as the ESG stuff goes and increasing moves towards reducing emissions, outside of having scrubbers fitted to your ships and having newer eco-designed ships, are there any other steps that you guys can take or that you anticipate needing to take in order to meet newer emission standards?

I think that's a really great question. But before, you know, Cam goes into that and maybe other areas of not just the E but the S2 and the ESG is that, you know, first of all, we really appreciate, you know, your questions and your interest. And so hopefully you will help create for the market, helping one of the things for investors that we're noticing is that there's very poor information related to our actual market, what it's doing, and what, for example, an LR2 market is really doing day to day. I mean, we've seen some really appalling sort of daily estimates of what an LR2 market is doing. We've said for many times that Clarkson's has really been the most accurate, potentially most accurate in determining what a triangulated LR2 can actually do. There are other services out there in the private chip brokers, non-publishing. McQuilling, for example, do a very good job. And we think that your tanker Tanker data is also making the effort to go through and do the hard work to go through the fixtures. To answer the actual question itself, I'll pass it over to Cameron.

Thank you, Robert. It's a broad question. As a first response, I'd refer you to our sustainability report, which lays out some of these answers in great detail. Again, Additional progress on our carbon footprint and our emissions profile, Lars referred to it a little bit earlier, comes from a variety of sources. That includes not just the ships that we thoughtfully designed and constructed five, three, four, five years ago, but how they're operated, the type of sensors and analytics and analytical tools that are available to us on board and ashore, the training of our crews on the operation of the vessel and the interpretation of these advanced analytics, and obviously a great deal into the interaction of the vessel and its environment. So when you think about how you drive your car or how an airplane goes from A to B, that technology has led the shipping industry a bit, but it's advancing quite rapidly. And this has to do with things to reduce the friction and frictional coefficient between the vessel and the water, increasing its efficiency that way through coatings and different methods of cleaning the vessel. It has to do with routing and the technology around routing vessels optimally to get from one point to another, speed adjustments, course adjustments, all of these things. And finally, and most importantly, it has to do with the management of the fuel because as you know, most people think that bunkers are a commodity when in fact they vary a great deal depending on where and when and from whom you purchase them. And managing that fuel effectively has a huge impact on the efficiency of the vessels and, of course, the emissions footprint. So all of this is a big topic, and there's a lot more to discuss, but these are the basic points that I would put to you. And, again, as far as we've come, every year you'll see improvements as our technology improves and other resources and materials also improve.

Okay, thanks. Specifically, as far as carbon trading goes, needing to purchase credits, being able to sell credits, have there been any developments that you think are actually going to have a material effect on you guys in the next few years?

Oh, thanks for the question. Actually, it's a great point, and it's something we're working on currently. You're just starting to see the monetization of credits come into our industry, largely in dry bulk and LNG, but it's slowly coming into tankers. We're currently working with one of our customers on an initial trial on selling them carbon credits. And so we expect that this to become a more normal activity in the next several years. Obviously, there's a great bit around different jurisdictions and how you take credits from an offshore industry and put them onshore. But we're right in the middle of developing this, and we're very excited about it.

Okay. I think I just heard you said that Scorpio Tankers is selling carbon credits. Did I catch that correctly?

Well, we would be transferring them to a customer insofar as we are ahead of our emissions targets. that the IMO and the other regulators have said, yes, we have credits that we can transfer to some of our customers.

Okay, that's really interesting. Thanks a lot for having me on the call, guys, and looking forward to future calls.

No, thank you. And as I said at the beginning of your question, it's a good question and a developing question, and perhaps some hidden treasures will evolve. But generally, in terms of communication, I'd just like to sort of say it's an opportunity that we're going to try and communicate better. We know that we have a widening group of investors and interested, and we also know that we have, let's say, two kinds of sets of, you know, let's say analysts at the moment. There's one group of analysts that are following this market every single day and are really, you know, providing sort of more, daily or weekly information to investors. And then we've got what I would call the quarterly analysts that just literally just show up once a quarter and don't really sort of communicate with the companies or the market in between. And then, of course, we've got a growing interest from retail, et cetera, et cetera. And we know that they're shut out a lot from some of the key webinars and some of the key, let's say, conference calls that we make that are not allowed, then just not allowed on by the actual banks or whatever, so we're going to try and look into providing an opportunity to, let's say, have an investor conference call that's much more open to really anybody who's interested asking a call. through maybe some intermediaries or through email or Zoom or whatever like that. We haven't finalized how to do that, but hopefully we can work out how to do that so as to we can try and educate the community better. So appreciate your question.

Great.

We appreciate that as well. Thank you very much. Thank you.

I am showing no further questions at this time. I would like to turn it back to the speakers for any further comments.

Thank you for joining us today. We'll look forward to speaking to everybody soon. Thank you very much. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.