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spk21: Hello, and welcome to the Scorpio Tankers Incorporated first quarter 2021 conference call. I would like to turn the call over to Brian Lee, Chief Financial Officer. Please go ahead, sir.
spk04: Thank you, Stephanie, and thank everyone for joining us today. Welcome to the Scorpio Tankers first quarter earnings conference call. On the call with me are Emmanuel Laurel, Chief Executive Officer, Robert Bugbee, President, Cameron Mackey, Chief Operating Officer, Lars Decker-Nelson, Commercial Director, David Morant, Managing Director, and James Doyle, Senior Financial Analyst. Earlier today, we issued our first quarter earnings press release, which is available on our website, ScorpioTankers.com. The information discussed in this call is based on the information as of today, May 7th, 2021, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially for those set forth in such statements. For discussion of these risks and uncertainties, you should review the forward-looking statement disclosure and the earnings press release that we issued today, as well as ScorpioTankers SEC filings, which are available on our website and at sec.gov. Call participants are advised that the audio of this conference call is being broadcast live on the internet and is also being recorded for playback purposes. An archive of the webcast will be made available on the investor relations page of our website for approximately 14 days. There are slides available at scorpiotankers.com on the investor relations page under reports and presentations. For those asking questions, Please limit the number of questions so everyone has a chance. If you have specific modeling questions, you can contact me later and discuss offline. Now I'd like to introduce Emmanuel Oro.
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spk25: Thank you, Brian. Thanks, everybody, for being today with us.
spk03: We can now see a rapid recovery in many major economies. We're seeing a rapid return to normalization, with many countries having achieved significant milestones in their vaccination programs. This has happened in a relatively short time. In contrast, the situation in India does not go unnoticed to us. Our thoughts are with our Indian colleagues and their families. We continue to focus on what we can do to offer assistance and support to them both ashore and at sea. From a balance sheet perspective, our liquidity position has continued to strengthen, and our cash position is higher now than it was in February during our last earnings call. With a cash balance of 280 million and additional liquidity from committed financing and financing under discussion, our pro forma liquidity will be at $367 million. We have confidence in the continued recovery. Inventories are rapidly normalized and refinery throughput is forecast to rise by close to 7 million barrels per day. between now and August. There has always been higher correlation of product anchor rates to this rebounding GDP numbers. Seabourn product exports are expected to increase as much as close to 7%, high sixes in 2021. And there are other strong and more durable trends at play at the moment. For example, we believe a secular improvement in ton-mile demand will be one of the lasting impacts of the pandemic due to an acceleration in refinery closures through the period. Combined with the opening of major modern refineries, particularly the substantial projects in the Arabian Gulf, we see this as a shifted demand curve. The supply picture gives confidence that this recovery can be multi-year. In fact, the product anchor order book is at record low levels with 6.4% of the fleet on order. The product anchor industry fleet is aging, and new environmental rules will further challenge the economics of operating older tonnage and increased scrappage in coming quarters. Fleet replacement costs are going up. And this, in turn, drives improvements in the mark-to-market value of our modern fleet. Yards are full of orders in other asset classes, and lead time is increasing and prices for new buildings are clearly escalating. The shortage of birds will have a clear impact on tankers. There have been only 19 product tankers ordered year-to-date. In our view, the on-the-water product tanker fleet will struggle to demonstrate much net growth at all over the coming years, as 156 product tankers will turn 15 years old in 2021 alone. This is one of the most benign supply pictures on record. So we think that the company is well-positioned to capture the opportunities from the near-term rebound in demand, and we have increasing confidence this will precede a multi-year upswing. With that, my remarks are over, and I would like to turn the call to Robert. Hi. Hello, everybody.
spk05: Look, I think the recovery has clearly started in the world use of petroleum products. And I think that as far as the product tanker market is concerned and rates, it's a little bit like the quiet before the storm because the recovery that we're seeing is being disguised in April simply by the very large turnaround and maintenance period that the world refineries complex have gone under. They just started to come back up. This week, there's been an almost instant response in upward rate trajectory and demand. We've seen on the indexes 20-30% increases in MR rates just in the last 2-3 days. And the markets are tightening in terms of demand for next week in Asia. So I think that Some people may feel that a recovery is being delayed, but that's not the case.
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spk05: headline demand we can see it the US vaccinations opening up the US is almost fully open now Europe is in a much different position than where it was just four weeks ago and you know that's going to slowly open up the Asian economies are doing you know fantastic obviously we you know we're all concerned about you know India but on a net net basis This market's demand side has been moving very, very solidly in the last few weeks, and those rates are only going to go up in one direction as refinery utilization comes back. And I know there will be other times to talk through the call, but that's the sort of major thing I wanted to put in people's minds right now. So I'll just hand that over now to Lars, the head of trading.
spk24: Hey, thanks, Robert. Going back 12 months ago, COVID-19 rattled global commodity markets. Global lockdowns created the negative oil demand shock where the speed of decline in demand occurred much faster than the supply side could respond, sending oil prices into negative territory. This has now shifted decidedly into positive territory and benchmark crews are pushing $70 with risk to upside. Also back then, global land-based inventories of refined products filled up. The customers turned to product tankers to store the excess supply, leading to the surge in floating storage that we saw in global inventories. Last May, refined product floating storage reached 109 million barrels. This has now shifted, and we are today at a 24 million barrel level. Patience is a virtue, and just as we all grow more eager each day for more normalcy, it's very much the same for the recovery in refined products and rates. The good news is that we do not have to be patient for too much longer. On a call last year, I said the catalyst for the recovery in product tanker demand and consequently rates were going to be vaccinations. And we can see the increase in vaccinations translate to immediate increase in personal mobility, which increased demand for gasoline, jet, and diesel. We're now seeing this increase in vaccinations globally. There is still a way to go with an asymmetric pandemic recovery. It is clear as vaccinations increase in the population with offices, businesses opening, the much delayed vacations booked, miles driven, flown, are increasing. You know, the consumers are stepping up, spending on a scale not seen for decades, led by the U.S. and China. With about 45% of the U.S. population receiving one vaccine dose, refinery utilization and refined product imports have increased while inventories remain flat, suggesting the much anticipated sharp increase in demand from an increasingly vaccinated population. In real terms, total U.S. refinery utilization since the Polar Vortex event in February has increased over 30% to 87% as of last week. This is the highest level reported since March of 2020. Incidentally, the Vortex also helped take out a staggering 60 million barrels of additional product storage. Several Gulf Coast refineries were offline due to the emergency shutdown, accelerating the rebalancing of Atlantic Basin product inventories. Now, in addition to this increase in refinery utilization, Kepler data show close to 6 million barrels of seaborne gasoline arriving into the U.S. Atlantic coast last week. An estimated another 6 million would arrive this week. This is the largest influx reported since 2017. And bear in mind, this didn't increase stock levels, which remain at five-year average stock levels. Now, as Robert mentioned, refineries are also coming out of maintenance. They have primed their engines at the end of the first quarter and early Q2 for the anticipated demand increase, and we calculated roughly 10 million barrels per day offline between March and May. The refineries will require this maintenance work, as the IEA oil market report indicate, an increase of 6.8 million barrels a day refinery runs increased by August, and at least a third of this volume we see hitting the export markets. We have noted also lately internally an uptick in medium to long-term time charter interest from major oil market participants, which also provides a strong leading indicator that an inflection point is near. Latin America will be an important area to follow as the continent begins to move out of its pandemic-induced lockdown. We can see already from Apple Mobility and Traffic Index that cities in Mexico and Brazil are firming, and Chile is on the cusp. We experienced the shift in the product-tanker trade already as Mexico has returned importing cargoes in size. I think these indicators are key to understand what lies ahead, as much as the volatility we see now in the front end foretelling rapid changes in supply-demand as economies start firing up on all the cylinders and emerge out of lockdown. And the latest example of this trend is certainly the U.S. Gulf clean MR market, spiking just yesterday 30% after a prolonged lull in activity due to the varying lockdown factors that I mentioned and the impact from the refinery maintenance reducing overall seaborne volumes.
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spk24: Finally, I'd also like to bring in the important factor of refinery closures and the positive impact this will have on increased ton miles and additional tonnage demand. And we see a lot of that going, in particular, in the eastern hemisphere. Whether it's the overall or pent-up demand driven by the increased mobility in key import regions, the new trading patterns from changes in the refining landscape, an increase in underlying ton miles, or the benign and historically low new build order book, and the rising price of steel, the vaccine roll, the continued stimulus. We have remained patient, continually focused on operations and optimization, and now certainly look increasingly optimistic forward to the sustained recovery of the product and the market. Thanks. That's all from me. And unless any of my colleagues have anything to add, operator, we're ready to open up for questions.
spk21: Thank you. At this time, if you'd like to ask an audio question, please press star followed by the number one on your telephone keypad. Once again, that is star one to ask a question. And your first question is from the line of Omar Nakoda of Clarkson's Plateau.
spk13: Thank you. Hey, guys. Good morning. I think you framed pretty nicely how the market is set up for a real recovery. You know, just wanted to ask kind of how, you know, the state of Scorpio at the moment, you know, and, you know, with regards to liquidity, you know, it's remained pretty solid, I think, despite the fact that rates overall haven't really been that fantastic. There have been pockets of strength, but it's very interesting that in February, your last earnings report, you had shown a cash position of $204 million, and now it's risen to $280. You know, just simply put, you know, what's your comfort level with the current liquidity situation at Scorpio?
spk05: I think that we're very comfortable right now. I think we're, as we said back in February, you have to anticipate liquidity. You can't just sort of get liquidity when you feel like it. So what you're seeing today is really the work that was done in February, as it were, in March. But in terms of comfort... look, in February, just four or five weeks ago, people were worried about Europe, worried about whether or not countries like Germany, France, Italy would get the vaccinations. Germany is crossing 30% of vaccinated people now. They're even now considering some opening up, the same as France and Italy, great strides. They're almost that same speed and Germany's vaccinating at a speed higher than the United States did. And we can see what happens happened in the United States in two or three months. So today, of course, it probably looks as if we've got too much liquidity. You know, we, you know, if that's possible for a shipping company, I think it's a, you know, pretty clear that we feel that the spot market has already, you know, started to accelerate upwards out of the, you know, this refinery season from Lars's presentation. And we're seeing really good confirming data in, you know, inventories, world inventories of products in the United States, you know, et cetera, et cetera. So I think that very shortly we're going to reach that critical point for us of you know it's around 17 000 a day where you know we're covering our everything our our amortization as as well as as everything else and then clearly we start to build cash just through operations and um you know we have, you know, clear positions. We can, um, at that point have a combination of building cash, paying down debt. We, you know, buying back stock will be a, and as we've said before, it's going to be a clear incentive for the company. Um, especially when already our stock is trading so significantly below NAZ. I think we have to, Look at the last two months, not just that the company has built its liquidity, but its asset basis strengthened so much. Assets are up 10, 15%. The company's NEV is up, you know, depending on your own calculation, somewhere between 35, 45%. Very hard under any calculation to get an NEV at the moment that's, you know, much less than, you know, $25 at the low side. If asset values go up just another 10%, then that's going to take the NAV, you know, well up into the 30s, along with the fact that at these rates, even at these rates, we're having some contribution to NAV. So we're in a very different environment right now where, as we said, we're through the refinery turnarounds, we're through the destocking, we're through the critical point of vaccinations and in in europe and yes we're very happy with the um liquidity that the company you know has at the moment thanks robert so yeah just maybe a follow-up to that uh you know the terms of you know too much liquidity um it you know clearly as you just outlined we're seeing a lot of activity across
spk13: you know, the shipping sale and purchase market. And even in tankers, especially, there's been a lot of vessels changing hands at firm prices. So like you say, there is upwards pressure on NAV and it's as opposed to assessments, it's actually deals being done. And maybe just for clarity, you know, given the dislocation between the stock price and where NAV is and the plenty of liquidity that you have, buying back stock, is that something that you see as an opportunity to do here in the near term? Or do you want to wait for that trigger of, you know, that 17,000 breakeven and then start to buy back stock? Any indication you can give on that front?
spk05: I don't think it would be beneficial for us to... Our shareholders in terms of getting cheap prices to anticipate the exact time as to when we would enter. I think the one luxury that the company has is it doesn't have to, all it has to do is buy in open periods and it doesn't have to report its activities. So I think that we've given, you know, we've answered that as well as we can, that, you know, at 17, we're just going to have, you know, 17 plus, we're going to be building more cash. So you almost, you know, you have to start doing things about it right prior to 17. Right now, you could just take the choice because, you know, looking at it, we've not just got $280 million of cash on the balance sheet. We've got another $20 million coming Tuesday. That's $300 million. And then we've got the other stuff there. And we do think that this market is strength for them. So that's the wonderful position we're in now is we're totally flexible so we could anticipate things as opposed to wait for things. If that answers the question you're asking, Omar.
spk13: It does. Thanks, Robert. Well said. Thank you. I'll turn it over.
spk05: In that case, we would hope that the shorts continue to provide us with the liquidity that we would like.
spk21: Your next question is from the line of John Chappell of Evercore ISI.
spk10: Thank you. Good morning or good afternoon. Robert, going on that previous topic that Omar brought up on liquidity, I mean, we've been talking about liquidity for 12 months now, obviously the most integral part to staying afloat, so to speak, during this difficult time. You guys just laid out a very optimistic view on the market starting effectively today, but you're still planning on adding liquidity mostly through debt in the coming months and quarters. How do those kind of line up? Don't you feel that you have enough at this point? and you should be thinking about deleveraging, which was your plan at this time last year, as opposed to adding more leverage if the future is so bright?
spk05: Yeah, I think you're exactly right, John. I may not have made it clear to Omar, but we clearly got those choices. As these rates go up now, getting that mixture of, You don't expect, just the same as we saw in Drybolt, that in the first part of the recovery, stocks do tend to trade a lot below NAV. Then they gather and then they start to match off against NAV. As I said, I hope I said the previous thing, you're going to have the ability Do both or one. You are going to be able to retire debt fairly quickly. And you're going to, at the same time, have that excess too to perhaps just for a short time to take advantage of quite a big dislocation between the pricing. You can do both. But the correct thing to do was to continue to build liquidity until we saw that we were 100% through things. Go back seven, eight weeks ago when many of these instruments were put in to create the liquidity. At that time, the world was worried about Europe, if you remember. Very worried about Europe. And the U.S. only had hadn't opened up, et cetera. So it's a little bit like government. You've got to overshoot. What we've done is right now things have gone fantastic. And as we said, the market's recovering nicely. Rates are really going to start moving over these next days and weeks simply because the refinery turnarounds will finish. But we didn't think it was prudent to rely on that. you can always deal with a situation like we have now where we would expect to have, in theory, too much liquidity. And that would be to pay off debt and or buy back stock.
spk10: Okay. So as I look at this slide 12, which has a nice little step chart of liquidity you're taking on by the end of the second quarter, I guess is it too late to walk away from some of those Or would you just, you know, gather that cash and then as you see the inflection in the actual earnings, then you start to pay down other facilities?
spk05: Yes, I understand. You may not want to walk away from those because those are being negotiated at very good figures. You know, we don't have any, you know, any bank or normal finance to do for, you know, two more years. These ones are reflecting, you know, perhaps stronger terms than some of the ones before. So you've still got a lot of, um, you know, so what you would be negotiating in front of you would be less costly than what you could buy out from behind you. Hmm. So there's like some of the, some of the bonds. Yeah. Uh, some of the bonds, some of the, and some of the lease positions too. Hmm. But I think it's a great thing. It's fantastic that we're both here chatting about what to do with excess liquidity. And that's great. Yeah, big shift. Great for a company that's trading at 60% of NAV.
spk10: Understood. All right, well, that's all I have. I'll turn it over. Thanks, Robert. Thank you.
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spk21: Your next question is from the line of Greg Lewis with VTIG.
spk09: Yes, thank you, and good afternoon and good morning, everybody. Robert or Lars, I'd be kind of curious on your thoughts. It's something that more people have been flagging to us around the EXXI, the energy efficiency impact. Is that kind of one of the main reasons why you're calling out the 15-year old vessels as aggressively as you are in kind of these slides? Is that any kind of color around that? How should we be thinking about that? It seems like it's kind of early days in that process. Just kind of curious on your thoughts around that.
spk05: I'll just answer the first and then the last. So we really believe in this 15-year-old rule. We're developing, we've made recent announcements from the pools that we're not for our ships in sting but for you know other ships and you know we're opening pools and they're developing pools for vessels that specifically turn 15 years old and would not be qualifying for our own clean petroleum product pools and those pools would be trading in different trades than than our own particular the vessels um And, you know, we're not the only ones who believe it. You're seeing other owners. You've seen Ardmore, Hafnir, Form, all the product owners, Diamond S before they were sold, aggressively sell vessels, product vessels as they approach 15 years old. We're seeing finances look at that 15-year rule for clean petroleum products. But most importantly, it's the customers that see this. Lars, would you like to add to this?
spk24: It certainly is. I mean, you know, taking a step back, you know, it's to understand that, you know, the EXI, which is the efficiency existing ship index, you know, follow on to that, you get something called a carbon intensity indicator, which basically is like a report card where the vessel that you have has a rating between A and E. And there's a lot of kind of wood that's still being chopped in a government perspective. And, you know, this whole thing is expected to be adopted on, I think it's in June 21, with entries going into force in January 2023. And, of course, what it's all about is trying to calculate the carbon emission per dead weight. And, you know, as modern ships are more efficient than older vessels, there is going to be an increasing gap between the super-aircraft vessels and the non-aircraft vessels, that's going to play out as we go forward. So, you know, there's going to be a competitive advantage for those who have fleets with modern echo vessels versus older vessels that certainly are going to have great difficulty in not being able to comply. So, you know, what do you then say? Well, if you can't comply with your baseline, well, you've got to think about what to do. You know, you could put in some energy-saving devices. You can reduce your dead weight. you can reduce your main power output. All three of those will skew the competitive advantage towards the super echo modern vessels. And if I just take a stop here and say that this is also one of the reasons why that we can see for a lot of the customers that we have in the oil majors, oil traders and so on, they're all pivoting away from the older units and all when they want to look at time charters today, or want to go for modern units because this thing is going to come to a cinema near you. And it's something that's going to have a big difference in how you really want to say what is a competitive vessel and what is not a competitive vessels because some of them are going to have to make some drastic measures to actually reach their carbon calculation index.
spk09: Okay, great. And then Okay, yeah, thanks. And then so Yeah, no, no, thank you for that. That was super helpful. Um, and so then like, I guess there's some news now that, that India is, um, you know, as announced that they're, they're, um, gonna start taking the full allocations that they get from Saudi Arabia. Um, are we starting to see, I mean, realizing that they have to get the crude or find it before they export it. Are we starting to see any activity around that and around India? in terms of them ramping up their crude demand again?
spk24: I think in the short term, you should expect that Indian crude demand is going to be flat and maybe slightly decreasing. But what's interesting here is that Indian refineries in general, they always run or have been running for the last period somewhere between 95% and 100%.
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spk24: So even though that you could say that there's going to be a decrease naturally for internal demand, exports for India is kind of strategically put a very important piece of the puzzle. And I do not foresee that refineries are going to be kind of slowing down as they will start increasing the exports margin. And, you know, we have seen some of this, you know, some of the smaller, I think it's MRPL and so on, they are coming out offering additional cargoes in the May window from distillate and gasoline. So, you know, it's For the product side, we don't do that much import into India. India is very much an export-orientated part of the world from a product tanker perspective. The refineries there are still going at full hilt.
spk09: Perfect. Thank you.
spk21: Your next question is in the line of Randy Givens.
spk06: Howdy, gentlemen. How's it going? Hi, Randy.
spk13: Thank you, Andy.
spk06: So for the quarter to date rate guidance, obviously this is well above some broker averages. Can you maybe quantify that outperformance in terms of an eco premium versus scrubber premium? And then also by looking at those quarter date rates, it seems like two Q should be much better, right? Than one Q. So with that compared to the first 50% of the quarter that's been booked, what kind of rates do you see for maybe the back half of the quarter?
spk05: Oh, so Randy, we don't give rate guidance, as you know. But, you know, if you were to take a, this quarter is going to be very wide in its actual rate dispersion, because what you have going on, if we start with the OPEC headline itself, that they're going to be pumping more crude and crude equivalents every single month, mounting it up all the way through this quarter itself. The next part of the equation is that everybody agrees that we are going to see more refinery utilization step up all the way through between now and July, August. And that is going to be happening again on a weekly, monthly basis. The third thing that's going to happen is that we would expect headline demand to just keep going up too as Europe moves forward and as the United States moves to its traditional driving season as well. And we're also seeing on top of this a which is very exciting, which is the beginnings of the recoveries of South American demand. Mexico is opening up. Chile is opening up. These things are relentless. And we are against this. We have a fixed supply curve. Very little deliveries of vessels are coming into the market. We have refinery changes. We have refined older refineries, less efficient refineries continuing their closing down. And, you know, the most efficient newest refinery in the biggest refinery in the, in the middle East is gradually coming up in this second quarter. So, and we're already, as Lars is pointing out, we have a market and you've pointed out in your introduction, we've had a market that despite the refinery turnaround, hasn't fallen around, fallen apart, and is showing signs of balance that's enabling a very wide, disparate, fragmented market under a lot of pressure, i.e. the MR market in the US Gulf to gap 30% in two or three trading days. That tells you we're starting off with all by not great rates, but we're starting off with a market that is actually balanced. So you could see some, you know, pretty steep rates, but they're not going to as they come out, they're not going to necessarily be in, you know, nice lines to predict. So I think that the it's reasonable to expect that the You know, the rates at the end of the quarter are going to be significantly higher than right now. It's hard to work out exactly where that's going to be. We've never faced the situation in our careers, in our careers where you are just having this steady drumbeat is accelerated demand. an accelerated ton mile multiplier for such a long period. And it's not going to stop in August either. It's going to continue forward. And also we don't know what's going to happen when the United, when Europe starts coming on, because think about it. The United States has imported an awful lot of barrels of gasoline in the last few weeks to make up for its own shortfall in gasoline production. related to its versioning use of gasoline. So when Europe starts to step up and use gasoline and jet fuel itself, where does the United States get that from? If it has to go get it from Asia, then all bets are off at that point. And then the last point is we're so used to having the third quarter Being a very quiet quarter, the worst quarter in the product market.
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spk05: That isn't going to be happening this year because you've just got this continued estimate of demand increases all the way through the year into next year.
spk06: Got it. All right, and not necessarily asking for forecasts for the next few weeks, but just making sure there wasn't some, like, pulled-forward rating from either an accounting or an operations standpoint that the next few weeks are going lower.
spk05: No, I apologize, no. I mean, there's nothing. There's no pulled-forward, nothing. We haven't even rounded figures upwards, the figures that Brian's given you, kind of what they are.
spk06: Okay. And then I guess one more question, obviously much concern and we've talked about it for a while here on the call about your liquidity position, upcoming capex, debt repayments. You know, a few minutes ago you mentioned, yeah, rates at 17, 18, 20 will fix everything. And I agree with that. But if rates stay at current levels for maybe an extended period of time, what other options do you have to raise capital to satisfy these debt obligations other than common equity issuance, right? That's the question we've been getting. when are they going to have to issue common equity? So how would you rank these other options ahead of that? Okay.
spk05: I would be fairly convinced that if the people who had asked you about the equity thing certainly wouldn't be starting off with where we are, what we announced today with $280 million of cash. I would be really positive that they had no idea that that was the starting point. So you're starting from a, huge amount of liquidity to start with, $360, $370 million. There is, if you think what's happened in the balance sheet in the last 60 days, you're taking a super pessimistic view. So basically, you're intimating no world growth, there's some real crisis that's going on, etc., etc. But if you have you've still got runway in what we've been doing. And, you know, we by no means have exhausted all of our means of getting, you know, liquidity. Other than, I mean, the raising of equity isn't anywhere in the position. So, above that are selling ships, you've got continuing what we've been doing before with the baby bonds, continuing what we've been doing before with the sale leasebacks, and then we've got some refinancing of some of the deals in the past that instead of buying those ships back, which you would do you'd use the call option to buy them back. You could use the call option either to sell or to refinance. But what you're indicating is a tremendously extreme situation that wouldn't be Scorpio specific. It would be the whole world market specific.
spk06: Sure. Good deal. I think you covered it well. Thanks so much. No problem.
spk21: Your next question is from the line of Ken Hoekster with Make of America.
spk11: Hey, good morning. Robert, you just mentioned kind of no seasonality, maybe looking through the pattern through the year as reopening shifts. Is there anything that we're going to talk about in the quarter that didn't meet that expectation? Is it just maybe the COVID shutdowns linger or you don't see the demand return? Maybe is it the storage unwinds? you know, of that 24 million barrels continues to, to pressure rates. Just want to see what the counter story could, could be that we could come back and talk about in the second quarter.
spk05: I think maybe we, we, we, I think we've had some of that. I mean, it's, I think these refinery turnarounds were deeper than what people could have expected. And I think that part of that is the sheer preparation that, that, that people are taking and, for what they anticipate is going to come in front of them. These demand outlooks for products are huge. You start opening up these countries and you start the U.S. driving season and things can get a little bit wacky. We've had the drawing down of the inventories yes there's a possibility that people could continue to draw down those inventories and you know delay a spiky second quarter but then they'd be setting themselves up for super volatility and you know once they get to July so you're at that point where it it's pretty important to realize that, you know, the U.S. has already been, you know, has been, let's say, borrowing from, you know, the imports that have come in from other areas and being able to get away with not building in front of gasoline seasons so far because they've had access to this product from Europe. But as that goes away, as they grow and the U.S. continues to grow its use.
spk11: And just to clarify that then, Robert, on your seasonality comment, you're still seeing sequential acceleration, ignoring seasonality, right? So second quarter.
spk05: Yeah, we're seeing this all the way through. If we work it backwards, we would expect the first quarter of next year to evenly to be to be stronger on its seasonality than the, you know, then the fourth quarter and they, and they, but prior to the fourth quarter, it's not about the seasons, the seasons get drunk trumped by the opening up of the travel and petroleum product use. Okay. Because it's being delayed. I mean, if you're sitting in... We do anticipate that Europe will just be using more gasoline and jet fuel in the third quarter than it will be using in the second quarter. And we see that U.S., you know, travel again, we'll, we'll just continue to, you know, accelerate. And then you get into the fourth quarter after that, where you have the, the normal strong seasonality.
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spk11: So it's great. Yeah, I definitely want to get out and about. Um, So for my follow-up, any impact yet on the market or how you're going about or you see business progressing on things like the Diamond S, see with consolidation? And then is there a fear that, you know, as you get healthier carriers, stronger balance sheets, Emmanuel mentioned, you know, kind of very light order book. Do you see the orders then start to pick up and, you know, end the parade, you know, as it gets started? Because, you know, we sometimes see that in the container side.
spk05: Yeah. That's a great question and I'll take the last one first is that the booking order the bookings for Containers, you know dry bulk LNG. I mean they're going to be there's some huge LNG orders going into this market at the moment and all of those bookings are Driving any ability to order product tankers in a significant size well, well away. And that in combination with the aging of the fleet coming to 15 years is what's creating a really critical situation and a great opportunity for the product tanker shareholders. And I think that it's pretty much already at the level where I'll be self-deprecating to our ship owners where we can't screw it up. Not even the ship owners can screw this up. I don't know where you would look to build an order book for products until we get into 2024 where you can get back to to the levels just to keep pace of the vessels that are turning 15 years old. So that part is sound. It's very good in the sense that, yes, even if we do have rates that are going like nuts, it will be hard because of what's happening in containers and dry and gas. for even us owners to screw the supply side up for a while. Now, in the front side, what owners are doing is very, very good anyway. So, you know, these consolidations we're seeing, pointed out Diamond S, INSW, extremely good, extremely good for pricing, for actual assets, extremely good for order in the market and consolidation in the market. And we're also seeing a lot of individual ones and two vessels being bought by stronger owners, sold by weaker owners. That's good. And you're seeing the top commercial operators, the Hafnirs, the Torms, the Mesks, the Nordens, and the Scorpio Group, adding vessels constantly to their pools. And that's a form of great consolidation. You're also seeing charters, traders, time charter vessels in, which also adds to the consolidation. So the product market is much more consolidated already than it was this time last year and continues to be so, which is also going to be an important factor in terms of accelerating rates outwards and maintaining strength of rates outwards. going through. That would indicate already that during this last three, four weeks, during the peak of the refinery turnaround, why product rates haven't really fallen apart like crude rates did, because you've really got some good consolidation in that product market now.
spk11: Wonderful. Thank you very much for the time and thoughts you can take. Thank you.
spk21: Your next question is from the line of Amit Matra of Deutsche Bank.
spk08: Thanks, operator. Hi, everybody. I wanted to go back to the liquidity question because I guess something's being lost in translation to me because it sounds like you guys are super bullish about your liquidity market and the message you're sending is everything's fine here when, based on my analysis, it just seems like that's totally false. I think you guys don't have enough liquidity here. And I want to give you the opportunity to correct me if I'm wrong. So first and foremost, Brian, the $360 or $370 million of cash on the balance sheet that is pro forma for the additional leverage, is that net of minimum liquidity covenants or not net of minimum liquidity covenants?
spk04: It's not net. Minimum liquidity covenants are $60 million, and we don't subtract that out of there. It's total cash.
spk08: Okay. but you got to keep it on the balance sheet. So that 360, 370 is basically now 300 to 310. Okay. And against that 300 to 310 pro forma, you've got 600 of debt repayments over the next 12 months. The question I have is where I could be wrong here. Is there a way to restructure that 600 of which the big chunk is in the second quarter of next year? Like what do you think the deep debt repayments over the next 12 months need to be or can be relative to what they are today, which is $600 million? Okay.
spk04: It's on a normalized amortization. It's $70 to $80 million a quarter. We'll call it 75. It's just under $300 million on a year. When facilities are coming due, we show it in that schedule. Facilities are coming due. It's part of that number that we say is coming due over the period of time. So that's why you see an elevated number in there. And as we have seen from day one of this company, we've been able to refinance our debt when it comes due.
spk08: So we have that ability. So 75 to 80 is basically the number we should use. So the implication is that the net liquidity you have today, pro forma, $300 million, is basically equivalent to the pro forma smoothed out debt matures over the next 12 months. So how do you have a lot of liquidity then? How do you have more liquidity than you need?
spk04: We're going to assume that our vessels are going to earn some money along the way. So we know that $1,000... does a lot of damage, right? Does $48 million of revenue. So times that by 10, by 15, it comes up to be a pretty good number.
spk08: I know, but you've been assuming that for three years, and that hasn't really occurred on a sustainable basis. So the question I have is you plan out over the next 12 months. Don't you have to plan that you don't earn $17,000 a day or $15,000 a day? Hopefully you do, and I really hope everybody does in the market. But just given history, like, From a planning perspective, don't you have to plan that you don't earn that much?
spk02: What's the plan B and plan C? A lot has happened in the last three months since we last spoke or you looked at the company.
spk05: You know, the primary thing, as you've seen, we continue to increase liquidity with rates being fairly low. We have other sources to doing it. We just simply believe, for the reasons that we've set out, that the market is not going to be $9,000, $10,000 a day all the way through until, you know, next May. We, we, we simply don't believe that is going to actually happen. Okay. Now, should we start to think that, so we're changing. So the beginning of the year and last year, we continue to raise liquidity. We've gone through that. We raised liquidity in October. There were no vaccinations even invented there. November vaccinations came along. So we, But we carried on raising liquidity. February, US was nicely underway, but we didn't feel that we were out of the woods completely. Europe was a big question mark, so we carried on raising liquidity. Now we're sitting in a point where we have more liquidity than any of those points, and we believe that The United States is in a much better place than it was in January. Europe is in a much better place than it was in February and March that we are seeing this. It's not just us making this up. OPEC is saying this. The IEA is saying this. The oil companies are saying this. Investors in other ways are saying this. The oil price is saying this. We have reasonable cause to think that the market will be better going forward than at its worst point in somewhere between the third and the fourth quarter last year. The market has been steadily improving already for five, six months. There's a point where it's irresponsible as I believe, you know, John Chappelle earlier who, you know, he's, he's a, very cautious analyst who's taken a cautious position on rates and the improvement of the tanker market. But, you know, we could easily agree that, you know, that there was, it wasn't a question of if there would be a recovery, it would be when there would be a recovery and what the actual use of proceeds would be. It'd be irresponsible right now for us to, go and sell ships right at the breakout just to put even more cash on the balance sheet we fundamentally believe in a very open honest way you know you opened with quite a derogatory statement you know you are being false we don't believe we're being false we think we're being very genuine to what we believe and we believe that based not on some finger in the air but a lot of empirical third-party data that is out there at the moment to support the fact that the market is improving and accelerating. It's a really key thing that the MR market is already for a modern MR around $12,000, $13,000 a day and Europe is not yet really coming out and we haven't We're only just beginning the fight back from, you know, the refinery turnaround.
spk08: Yeah. I think the only difference, Robert, is that you have to be right for the capital structure of the company to be protected or the equity of the company to be protected. You have to be right.
spk05: Oh, of course. I mean, I'm a...
spk08: Omar is a lot smarter than I am.
spk05: Omar just happens to show more interest than you do, so I guess I remember his name more. Of course you have to be right. If the world goes to hell, I'll say it openly. If the world goes to hell, you know, Sting is not necessarily a company that I would want to at that point to have a whole bunch of equity in. But my God, if it just carries on on the improvement that is right now, if you take the midpoint or even the lowest point of the IEA forecasters or the major banks forecasting to product tanker demand by the end of the day, Scorpio tankers, especially with the product tanker leading, is going to tear apart most of the other investments that you could make. It is absolutely the company you would want to be in precisely because of its multiple points of leverage. First, the operating leverage that the company has having new ships. Second, the operating leverage that the company has of having those vessels all spot-ready. No, you know, straight feed through. And thirdly, the financial operating leverage that the company has that you have pointed out with regard to the gearing. It would be absolutely to be the investment. If you don't believe in that, then there's no point in that world economy. There's no point in anyone being in Scorpio Tankers.
spk02: Yeah, no, you're right.
spk05: You're right. You should not put a hold. You shouldn't even put a hold. on this, which you have. You should put an outright sell. Outright sell.
spk08: Yeah, I think that's whatever. Like, I think you're absolutely right. Like, I think if everything goes really, really well, the stock's going to go higher.
spk05: I agree with that. Yeah, but the fact is most people, you know, and the market's supporting that. The product market is strongly doing that with the refined return. That's why, you know, the product market has done better, let's say, than accrued. Accrued will come. I actually... very constructive about the crude. I think we've seen a wonderful game being played. I support Euronav and DHT. I have no problem in those two companies. They've been playing a good game. They have strong balance sheets. They've been conservative about the outlook whilst buying ships and buying back stock. The crude market will turn to at some point.
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spk08: Can I just ask a quick housekeeping one and then I'll just hop off. Brian, I guess Robert had made the comment that asset values have ticked off. That's obviously... very positive, both from an NAV perspective, but also from just a debt management perspective. So I was wondering, I mean, your net debt has been flat kind of roughly over the period, the last period versus today, and the asset value is going up. Does that give you more room for additional leverage on the vessels if you need it, and if you could help us where that LTV is today in terms of how the banks look at it or the appraisers look at it?
spk04: Absolutely right. Values are going up. It's a very good point. It's something to keep in mind if you're looking at Our debt balance being, as you say, flat, net debt being flat there. It's a very good point. Values have gone up, so on a relative basis, it's been along that way. So we're not going to give asset values on all ships right now, but we are obviously in compliance with all of our loan-to-value and every other covenant out there. We have headroom in every single one of those. But we do have room, and if we need to, we will look to do it. But also, when vessels come up for refinancing – It's very important. Now that asset value is coming up, we could refinance at an attractive rate whenever we want to.
spk05: I would say the inconsistency that someone could have would be to have buys on crude tankers without having a buy on steam. That, to me, is inconsistent and false.
spk08: Okay, well, I'll take that into consideration. Thank you.
spk05: Great. Thank you.
spk21: Our next question is from the line of Magnus Fryer with HC Wainwright.
spk07: Yeah, good morning. Just to have, you know, one question left there. Robert, you laid out a pretty bullish scenario on the recovery here forward. And, you know, it's just curious. I mean, we've seen the charters in the market, I guess, earlier today. in the quarter, but why aren't they being more aggressive, or can you kind of elaborate a little bit what you're seeing them doing at these levels, talking about Vito and Trafigura and the other guys? Lars?
spk24: Well, I consider Vito, Trafigura, and the other guys to be extremely aggressive, but what do you mean by that? Aggressive with what?
spk07: Well, just chartering in more vessels, or do you think they have requirements already, or why don't you see an oil company stepping up here if it's short of vessels here?
spk24: Well, I mean, I can tell you that every one of those that you have mentioned, they look at ships every single day, and they certainly on the quiet have been taking ships on, and I think it's fair to say at the general level, statement is that they are interested in modern ships for long-term charter. Okay.
spk03: And the shift has been from, Lars, correct me if I'm wrong, but the shift has been from six to 12 months period to actually three to five years charter interest.
spk24: It's certainly moving to long-term modern units.
spk07: Right. I mean, if you have, if you look, and you mentioned earlier about the carbon calculation index, I mean, you guys are definitely at the forefront of that with a very modern fleet. But if, you know, are you guys combined with 2030 IMO targets?
spk22: Yes, Magnus, it's James. We're 23% ahead of those targets if you look at the sustainability report on our website that we put out.
spk07: Okay, good. I guess that lays out a pretty strong scenario going forward with some of the other companies need to move on that line. So anyway, I'd just like to see that scenario play out here where companies are trying to secure more of the modern tonnage so we see that two-tier market developing. But I guess at these levels, we need to see the rates a little bit higher before then. So that's all I had. Thanks for taking my call.
spk21: Thank you. And your next question is from the line of Liam Burke with B. Reilly.
spk23: Yes, thank you. Good morning. Robert, you talked about the shift in refinery capacity globally. You have a big redistribution coming up second quarter. Are you seeing any benefit now, or is this something that you can look forward to later in the year and another further boost in rates or help boost rates again?
spk05: You're going to see it now all the way through. I mean, we've seen it. This is just a steady thing that's adding, whether it's Australia and now the news from South Africa. And there is some people out there already, you know, we're still analyzing it. And this would be a huge boon to the product tanker market. Some are talking that some of the European refineries that are down at the moment they just might not come back. They might just close earlier. Now that happens, that's going to have a tremendous effect in the Atlantic and you know, that will, that will guarantee that you have to bring in products from, from Asia long haul into the Atlantic basin, both, uh, you know, and even maybe from China to the United States across the Pacific as well.
spk23: Okay, and okay, Margaret, thank you very much.
spk21: And that does conclude our Q&A session for today. I'll turn the call back over to Brian Lee for any closing remarks.
spk04: Thank you, Stephanie, and thank you, everyone, for joining us today. We hope to speak to you soon. Have a good day. Bye.
spk21: Thank you. This does conclude today's conference call. You may now disconnect.
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