Scorpio Tankers Inc.

Hello and welcome to the Scorpio Tankers, Inc. fourth quarter 2022 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the call over to James Doyle, Head of Corporate Development and Investor Relations. Please go ahead.

James Doyle Thank you for joining us today. Welcome to the ScorpioTankers Fourth Quarter 2022 Earnings Conference Call. On the call with me today are Emanuele Ouro, Chief Executive Officer, Robert Bugbee, President, Cameron Mackey, Chief Operating Officer, Brian Lee, Chief Financial Officer, Lars Denker-Nielsen, Commercial Director. Earlier today, we issued our fourth quarter earnings press release, which is available on our website, ScorpioTankers.com. The information discussed on this call is based on information as of today, February 16, 2023, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release, as well as 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 broadcasted 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. We will be giving a short presentation today. The presentation is available at scorpiotankers.com on the investor relations page under reports and presentation. The slides will also be available on the webcast. After the presentation, we will go to Q&A. For those asking questions, please limit the number of questions to two. If you have an additional question, please rejoin the queue. Now, I'd like to introduce our Chief Executive Officer, Emanuele Loura.

Thank you very much, James. Good morning or afternoon, everyone. And thanks for taking the time to join us today. So the fourth quarter was a strong finish to the best year in the company's history. In 2022, the company generated $1.1 billion in EBITDA. It would have been very, very difficult to imagine this only 12 months ago since The first quarter of 2022 was actually a loss-making quarter for the company. So considering this and considering that we are often asked whether 2023 could be better than 2022, our answer is yes, we do expect this year to be better than 2022. The market fundamentals which created a strong rate environment remain intact. Our outlook has not really changed. If anything, it has improved. with recession fears easing and the reopening of the world's second largest economy. The company enters 2023 with its strongest financial position in its history. And while our capital allocation has prioritized the balance sheet and still does, after reducing our debt by more than 1.2 billion in 2022, we have increased our ability and flexibility to allocate capital. Since July, we have repurchased 5.8 million of our common shares for $256 million. Today, we announced the renewal of our securities repurchase program for up to $250 million, and we announced also the doubling of our quarterly dividend from $0.10 to $0.20 per share. Our strategy remains the same, improve the quality of Scorpio tankers as an investment and create long-term shareholder value. Consistent with this, as of now, we feel reducing our leverage and repurchasing shares given their discount to companies and AV is the best way to create this value. In the first quarter, we have booked a fleet spot average of $39,500 a day for more than 60% of the available days and have seen a significant increase in rates over the last two weeks. As significant shareholders ourselves, we are excited about the constructive outlook for the product anchor market and do remain committed to creating long-term value. Thank you for the continued support that you have shown us, and my opening remarks are over. I will now pass the call to Robert for his remarks. Robert. Thank you, Emmanuel.

Thanks everybody for your support and your interest today. First of all, we're working really hard as a group and we're having a lot of fun. Headline demand for products is on the rise and headline supply is flat. As Emmanuel says, the fundamentals are improving. It is a fairly simple story. Ton-mile demand is also accelerating beyond the headline demand because of continued refinery changes, which is a long-term theme, and now Russian sanctions. Supply continues to be constrained due to a record low order book, regulation, aging, and now inefficiencies as a result of splitting a fleet due to the Russian sanctions. Following a simply incredible 2022, we, as Emmanuel has said, expect 2023 to be even better. And we are clearly off to a great start. Thank you very much again. James.

Thanks, Robert. Slide eight, please. Since March of 2022, the refined product anchor market has been resilient. Rates have oscillated between $20,000 and $80,000 per day. While we will always have rate volatility, The earnings over the last 12 months and recent improvement in rates confirms the strong fundamentals in today's market. Lars is on the call and will speak to the current market dynamics in Q&A. But one question I think we should all be asking ourselves is why do inventories globally remain so low? Slide nine, please. The simple answer is demand. Global product demand has been robust. For several quarters, demand has outpaced supply, leading to large inventory draws and only an occasional small inventory build. And this year, refined product demand is expected to average 1.6 million barrels per day more in 2022. Given low global inventories, increased consumption has been met through imports and the reason why seaborne exports have remained above 2019 levels since March of 22. In December, exports reached record levels at 19.5 million barrels per day, and today remain very high at 19.1 million barrels, a period of the year where inventories are supposed to be building. In addition to demand, refining capacity changes have also been a large driver behind higher volumes and lower inventories. Slide 10, please. Pre-COVID refining capacity is different than post-COVID. While demand is above pre-COVID levels, capacity in certain regions is lower due to refinery closures. And changes in the global refining system have had large impacts on ton-mile demand, namely in two ways. First, new export-oriented refining capacity, which is built closer to the wellhead and further away from the consumer. And second, when refining capacity closes and thus moves further away from the consumer. Both scenarios have led to significant increases in ton mile demand and have structurally changed global trade flows. If you look at refinery capacity changes over the last several years and exclude China, you see an increase in Middle Eastern export capacity and closures in places like Europe, Southeast Asia, and the US. What you don't see is an increase in capacity in places like Africa, Latin America, and Southeast Asia where demand continues to grow. To put this into perspective, Since 2017, China has added 5.8 million barrels of refining capacity, and exports have remained relatively unchanged. However, in places like Australia, which closed two of its four refineries, they have increased imports to make up for all the lost production. As Tenmao demand increases, vessel capacity is reduced and supply tightens. Slide 11, please. Are European sanctions already priced into the market? Well, it's still early and unclear what quantity of exports Russia will be able to maintain over the long term. But what we do know is that after sanctions took place on February 5th, Russian refined product volumes declined around half a million barrels a day. Today, they appear to be at normalized levels, and we have seen a large increase in Russian exports to Turkey. We also know Europe has stopped importing Russian refined product, and there is demand outside of Europe for these molecules. is that it's just starting. Slide 12, please. If the embargo were priced in, we would expect fewer colors on the Russian export graph and the volumes to be relatively consistent. Over the last two months, we haven't seen either, especially in February. More colors, higher volume. We know Europe increased imports from Russia to build inventory before sanctions and has eased imports as a result of slightly higher stocks. but this inventory is not sustained production. We know going forward, Europe needs to replace around 1 million barrels a day of imports that will not be coming from Russia. In short, the benefit of rerouting of Russian barrels is just starting and the replacement barrels to Europe should start to happen over the next few weeks. Almost every single replacement route is longer than the previous route and the new flows will drive a significant increase in ton mile. Lastly, If you recall, the biggest concern to maintaining Russian export volumes would be constraints on vessel capacity. This is still very much a concern. Slide 13, please. Vessels which move into sanctioned trades produces the supply of vessels in non-sanctioned trades. But regardless of the gray fleet, the dark fleet, et cetera, two things are clear. New building orders remain low, and the fleet is aging. Today, there are 353 product tankers 20 years and older. By 2026, there will be 815 vessels 20 years and older. As you can see from the graph, scrapping has been minimal for the product tanker fleet, essentially nonexistent, given that most of the fleet was not built until 2000 and later. To put this in perspective, there were more MR and LR product tankers ordered in 2006 than the total number of MR and LR vessels scrapped since the year 2000. Supply constraints, will remain an issue going forward. So putting this all together, slide 14, please. The biggest thing that's different is that typically when rates improve, the order book builds and oversupply more than often than demand leads to a decline in rates. In December, clean tanker earnings reached their highest level on record at the same time the order book remained at an all-time low. The order book is near a record low of 5.4% of the fleet, And using minimal scrapping assumptions, the fleet will grow less than 1% per year over the next three years. And using higher scrapping assumptions, we can see a scenario where the fleet will shrink over the next three years. At the same time, seaborne exports and tongue mile demand are expected to increase 4.2% and 11.2% this year, and 3.7%, 8.3% next year. vastly outpacing supply. The confluence of factors in today's market are constructed individually, historically low inventories, increasing demand exports in ton miles, structural dislocations in the refinery system, rerouting, global product flows due to the Russian-Ukraine conflict, limited fleet growth, and upcoming environmental regulations. Collectively, they are unprecedented. Slide 16, please. Q4 was a strong finish to a great year. During the fourth quarter, though, operating expenses increased to almost $8,300 per day. This is something we take seriously. The higher operating expenses were the result of an increase in certain crewing expenses, repairs and maintenance, and spares in stores. The primary increase in crewing expenses was due to a $2 million contribution to our newly established Provident Fund. initiated to provide aid and incentivize retirement savings for our seafarers. The Provident Fund, along with our other programs such as family health care benefits, will help us remain a preferred employer in our industry at a time when expectations for reliability and safety of our vessels, our cargos, and our people couldn't be higher. Other increases in operating expenses were due to the easing of supply chain congestion, deferred repairs and maintenance, as well as general inflationary pressures. While these increases are material, they are confined to Q4, and we expect operating costs per day to return to previously guided levels in the current quarter and for the rest of 2023. Slide 17, please. 2022 was a transformative year for the company. We generated over a billion dollars in EBITDA, reduced our debt by $1.2 billion, and repurchased $161 million of our own shares. And from July through today, we have repurchased $256 million of our own shares at an average price of $44.21 per share. Slide 18, please. Today, we reported a cash balance close to $600 million, which is higher than our December 31st number after reducing our debt by $521 million in the fourth quarter. We announced three new loan facilities for up to $391.5 million in aggregate, and as of today, we have drawn on one of these facilities. The proceeds from these facilities will be used to repurchase more expensive lease financing. In other words, the debt repayment schedule on the top right of the page will increase as we draw down on the new credit facilities and repurchase vessels with more expensive lease financing. As Emanuele mentioned, we will continue to focus on improving the balance sheet by both reducing our leverage and borrowing costs throughout this year. Slide 19, please. In Q1 so far, including time charters, the fleet is averaging $38,000 per day. On an annual basis, this would translate to almost 20 per share or a free cash flow yield of over 30%. However, the current spot market is higher than our Q1 guidance, and we are optimistic for this year and the future years. These are certainly exciting times. With that, I would like to pass it over to Q&A.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble the roster. And our first question will come from Omar Nocta of Jefferies. Please go ahead.

Thank you. Hey, guys, good morning, good afternoon. You know, thanks for the update and really congratulations on uncapping a transformative 22. And it looks like, as Emanuele said, 23 may be even better. I wanted to just ask about the balance sheet first. Cash position now is $600 million. Your debt level is now below $2 billion. I know in the past you haven't really wanted to give targets necessarily on where you want debt to be, but just wanted to check, you know, on uses of cash. Clearly, It seems just based off of the announcement today, the buyback is front and center. But in general, you took that down from $3 billion or over $3 billion at the beginning of last year. You're below $2 billion now. How much further do you want to get that level down? And then once you get to that target, if you're willing to share one, what becomes the use of cash from that point?

Okay. You are asking to the heart of what we call Project 82. which is to determine those very questions. I don't think we're ready to give any update. We're very clear that we're willing to have some debt in the company, so we're not going to take it down to zero. We've been very clear that for the time being, we will continue as we've been doing for a little while now, continuing to have paying down debt as a priority and you can see from the announcements we're swapping when we've done so we've swapped expensive debt for cheaper debt but I don't think that's inhibited at all at this point what is the best allocation of cash at all I mean we have bought back you know stock quite aggressively we couldn't buy any more stock than I think we we did in December and January with the, with the, um, you know, limitations related to blackout periods, uh, earnings, et cetera. Um, and you can see that the, you know, the, the cash account on the balance sheet did the president 600 million is more than adequate to, to fulfill that part of the strategy. And, you know, so if you were to use a hundred percent, of cash flow now that's derived from the the vessels in this market you've you know got a very very healthy situation obviously things start to change pretty rapidly at this rate level the rate level we booked at not alone the rate level where you know we think things are going to and where they are at the moment and we've tried to signal quite early in the doubling of the dividend that we are going to continue with the policy of trying to create value to shareholders and returning capital to shareholders. Right now, though, you have such a major dislocation between the NAV and you've got such a lot of cash generated that you're able to basically put the company into a fantastic position very quickly here if we just continue what we're doing.

Certainly. Yeah. Thanks, Robert, for that color. And then maybe just wanted to follow up maybe a bit on the market before I turn it over. Robert, I wanted to ask, or maybe for Lars, there's some talk that we're going to be seeing a heavy refinery turnaround season, at least here in the U.S. And I guess, one, just based off of what you're seeing in your conversations with charters, one, do you agree that we are going to see that? And then, two, how do you think that impacts the product market?

Yeah, hi, Omar. Well, I mean, typically, you know, you're building stocks at this point of the year. But, you know, as you probably know that, you know, it's only minimal bills that are taking place in particular in the U.S. And, you know, with the demand that's increasing by, I think, about 1.6 million barrels per day, higher this year than last year. What we've seen when it comes to turnarounds in the U.S. Gulf, they put forward their maintenance and their turnarounds. And today, as in middle of February, we're seeing peak maintenance, which otherwise normally we would see historically typically occurring around April or May. So, you know, that obviously bodes well for what we're looking at a very strong April, May, June, and going forward on that. At the same time, there's also a maintenance season in the Middle East that's taking place. And that tends to be around now up to March and in Asia a little bit later for April and May. So, you know, it obviously will lead to the argument to a very constructive market as these barrels rebalance globally and pretty much a similar to what we saw last year. I think what is really interesting is, you know, when we saw how these rates, they softened back in January on the back of the freeze-off in the U.S., we saw obviously the stock filling up in Europe, as what James was mentioning, in preparation for the 5th of February cutoff. But also at the same time, we had the confluence of the very early Chinese New Year. So you almost had like all these things happening at the same time. And the market obviously drove down with it. You know, I think we had about 2.7 million barrels of refining capacity that was kind of taken out with the fees off. Follow on with the refining turnaround that started really in January and, as I mentioned, now at its peak. But it's really interesting, of course, is that what we've seen is this market suddenly coming so strong at the same time as this turnaround is taking place, which is not normally what you see. So people talk about pockets of strength and stuff like that, but what we're seeing today is a fundamental game that's been taking place globally. There's a tighter supply of available tonnage across the globe. So post-Chinese New Year, as we were anticipating, Asia started ramping up, then the Middle East ramped up, followed by the Mediterranean and the continent, and then now finally also in the U.S. Gulf skyrocketing. So today we're at you know, $40,000 to $60,000 per day on MRs depending on where you are in the region, probably even stronger now in the U.S. Gulf. And it's pretty much the same print as we saw, you know, before the freeze-off in early December. The same thing goes also for the LR2s, you know, identical market dynamics. We've moved up to a very healthy $60,000 a day if you fix it today. And that's, by the way, purely on round voyages. And as you obviously know, we don't just do round voyages. And we do a lot of back calls and triangulations, which is a key change in the trading dynamics of LR2s. So I think the vital point really, and what Robert and Manuel were saying, is that there's simply no change in the headline fundamentals, but the rates today are substantially higher today than the Q1 guidance that was given.

Yeah, indeed. Very interesting and definitely based off of your guidance, it looks like that January softness we saw is effectively a non-event or maybe just it's no longer relevant. Anyway, well, thanks, guys. Appreciate the caller and congrats again.

Yeah, can I just add to the next caller that I think what was relevant about that January event was just how strong the market actually remained. Despite all that weakness, the basic underlying utilization remained very, very strong. I think that's kind of a little bit of a canary in the coal mine. You've got very high utilization out there right now. It's not about trying to determine exactly what demand is going to be created. Any upward-pushing demand whether it's just simply flying planes around the world, is going to push right there. Next question, please.

The next question comes from John Chappell of Evercore. Please go ahead.

Thank you. Good morning, good afternoon. Um, Lars, I wanted to stick with you and, and just dig a bit deeper on, on one major issue. So, uh, as I'm sure you're aware, you know, there was anticipation that February 5th may come and go for the product anchor market in a similar fashion in December 5th for the crude market, where there wasn't really a meaningful impact. And in fact, rates started to fall off after that. It seems in these early 11 days to be the complete opposite in the product market. So maybe you can just explain the differences in this dynamic with Russia and Europe. crude versus product. And some of the crude routes seem to be quite obvious, China, India. Talk about the complexities and maybe the inefficiencies of the product market and where Russian diesel needs to end up.

Yeah, sure. James mentioned that product exports off the bat declined about 500,000 barrels a day from February 6th and pretty much normalized. And I think it's fair to make the point that it is a little bit early still to precisely assume where the product volumes that are going to be transported, where they're going to go to, and how much this capacity of vessels, how much that's going to be of a constraint. And I think also what is really interesting to understand is that any vessels that are moving from the normal non-sanctioned business to the sanctioned trade, be it price cap or be it the dock fleet, how much that will overall kind of reduce supply. The thing that we all can see today is that the product tank tightness already in play is going to cause further volatility across the board, be it on the Russian stuff or the normal stuff. And I think also because there is this tightness, we should expect some periods where Russia or Russian barrels will struggle to find ships due to availability and difficulty loading the products. On the price cap business, people talk about that. In that chain, there's also difficulty around who finances those vessels, who insures those vessels, are they going to accept or not accept it, and it's going to be interesting where this reluctance is going to kind of play out. So I think really what we are seeing is the Russian barrel is going to try and find Homes that are the shortest distance and the shortest distance in terms of their markets, back to the point that James was making in terms of Turkey. We have also seen barrels move to the Middle East. We have seen barrels moving to South America, to West Africa. Clearly, all of this is longer haul. I think that as we move forward in these time periods, they will ostensibly have to focus on the East of Suez market more properly. uh and uh you know we'll start then to really see this strong impact on ton miles for russian products finding these homes um and you know we are seeing it already uh you know it's quite clear that this is the case but i think also just as important is you know europe needs to import that replacement barrel as we move forward and you know they obviously find out that those stocks that they built up over November, December are starting to deplete, keeping in mind that, you know, 35% of import of distillates used to come from Russia for Europe, and those stocks are, you know, pretty much at decades low. So, you know, again, we think and believe that this is going to be a huge 10-mile ticket item. That's great. The problem, of course, is, yeah, so, and I think I've mentioned this before, you know, this supply clearly is going to have to come from the Middle East, Asia, or the U.S. Gulf, And you look at the distances before and after, and you're looking at a factor increase of four. Great. By the way, the last point I think I just wanted to mention about how does this compare to crude? And I think it's different. Compared to crude where the so-called dark fleet has evolved to support Russian exports, they obviously had a big Afro-Mex fleet already. There's been a lot of stories in the press about all these ships that are being bought to kind of support this particular business. We do not see this happening in the same way and fashion for the product markets, simply because these ships do not exist to serve as this sizable requirement, at least effectively, because as the ton mile starts increasing, more ships obviously you will require.

Yeah, completely understand. Thank you, Lars. For my follow-up, Brian, The debt pay down, I mean, you've identified several times in the last few quarters, you know, the desire to pay off the more expensive leases, um, and you're refining some refinancing them at much lower cost of capital. We can go through and add up all the leases, but I don't, I'm sure they're not all the same, um, as it relates to your ability to prepay them. So when we think about the potential of paying down the more expensive debt this year, um, what's a rough number. of incremental debt repayment to your current schedule that could come from that 4%, 5%, 6% money?

Don, that could give you an answer, but we're doing it systematically, making sure that we do them in order. uh working with all of our lenders to do this and making sure we know we're going to have some debt as robert said we're having cheaper debt we're not going to have every vessel probably uh financed but if we do they're going to be at much lower and much cheaper rates so i don't have a number for you right now but i think you'll see as time goes by as we've done in the last 12 months we've paid down and we'll continue to do that and we're going to chip away at at that over a period of time but we're going to do it we're doing it systematically we're just not doing it all at one time. And we'll get back to you as the year goes by. All right.

Thanks, Brian. Thanks, Lars. I'd like to add to that that, you know, obviously we're super confident about things and we say that we expect this year to be better than next year. But, you know, we've got to be aware that we're still in very volatile times. I mean, we saw our The stock collapsed to 47 for what we felt was like not long-term reason. And you've got to be able to maintain liquidity and strength through this with the strategy that we're having. So as Brian says, if we do it in a systematic way, we're always going to have a lot of cash on the balance sheet. more than enough cash to make sure we can take advantage of dislocations in a very strong way. We bought over $100 million in one month in January, and we couldn't even use the full month because we had to stop around the 19th. And at the same time, even after all that, we're sitting here with a strong cash position to continue to execute that strategy. So it's, as Brian says, it's just going through a systematic process that may lead to a slight bit of perfect financial efficiency, but I think it's the best I will. Got it.

Thanks, Robert.

The next question comes from Ken Hoekster of Bank of America. Please go ahead.

Hey, great. Good morning. So maybe just to expand on some of the prior answers on the market, James, you talked about 11% ton mile growth, demand growth. Maybe talk about assumptions built in there and expectation just in light of maybe a decelerating ISM domestically and what that can mean for demand levels. And then I'll just throw out the second one, which is kind of what we always kind of talk about, which is your thoughts now on where the market is, any thought on increasing your charter out contracts versus your remaining on spot? Thanks.

Thanks, Ken. So I'll take the first part. It's based on the estimates come from Clarkson's, and we've looked and done some comparisons, but it's basically an increase of around 4.2%. and overall volume of exports, which I think you can see from what we've seen so far this year, seems realistic. Remember at this time last year, things were starting slow. We were just getting through Omicron. And the other component of that to get to the 11% is 7% in terms of ton miles. And that's roughly where estimates have been around the impact of Russia. I know we've seen them higher. But I think, you know, 5% to 7% is realistic. I think once you get above that, there's not enough capacity in the fleet to actually service that. So this will be a little bit more realistic. And the markets are pretty efficient, so I think they will, as Lars mentioned, find a home for these molecules outside of Europe. And then Robert or Lars or Emmanuel, if you want to take the time charter question.

With the time charters, we'll continue to add. But I think it's worth Lars describing what the actual time charter market is doing out there at the moment.

Sure. I mean, after the slow period over the holidays, time charter inquiry certainly has returned. And it's interesting to see now, again, a number of first-class charters looking to secure long-term charters, long-term being anything from three to five years. We have seen those coming through our projects team, and this is both on LRs and also on MRs. As always, certainly provides with a decent leading indicator of what our clients think that the market is doing. But at the same time, as we're moving through this next period, sitting a little bit on the fence, I guess, watching the rate complex rise across the board, in all regions and across all segments. And at some point, there's a discussion to be had, I guess.

Great. And then I guess just a follow-up. Why are we not seeing orders kick in, right? The container market always gets irrational when you get such an exuberant market. And even though it's a short market, they over-order. We saw it with LNG earlier. what gets your peers or others to start jumping in with orders and putting an overhang on this market? I get that it's two and a half years before you could get a vessel and order books are full now, but thinking longer term, especially if the growth that James sets up over the next few years, you're going to continue in a tightness. So what's holding the market back given the cash flow we're starting to see?

James?

Paul? Maybe I'll take this. Sorry. Go ahead, James. Yeah, I was just saying one of the aspects is the propulsion, Ken, that plays a role. You mentioned two asset classes like containers and LNG where it is much easier to go dual fuel, for example, on the propulsion systems. LNG is intrinsically easier and from a infrastructure standpoint, also for containers being liners, it's so much easier to go that way. The technological change that conventional shipping, meaning tankers and bulk carriers, are seeing now raises questions on which type of propulsion owners should put on their new buildings. This may be one of the aspects why people are not rushing to order. Having said that, should this market continue, we do not expect people to stay in the fence for a lot longer. So you will see orders placed. The good news, as you've mentioned yourself, is that in order to have a ship built or a slot at a reputable yard, you need to wait two to two and a half years. So that plays in our advantage. James, anything to add? No, that's great.

Great. Emmanuel, Robert, James, and Lars, and team, thank you very much for the thoughts. Sure.

The next question comes from Gregory Lewis of BTIG. Please go ahead.

Hey, thank you, and good afternoon, and good morning, everybody, and thanks for taking my questions. Brian, I did want to follow up a little bit on Jonathan's question, realizing, not getting into specifics, but we do have some of these Chinese or Asian-based asset leasing funding in the company. We've seen, obviously, yields or interest rates are higher. Realizing that any refinancing is going to be delivering, so it's going to be a less amount of debt. But any way to think about the actual interest expense savings on that spread as you do some of these refinancings?

Yes, Greg. So the margins are going down from 3.5%, 4%, and the leases down to 2%. So you do some quick math there, that's a pretty good savings. So you do $200 million, that's $4 million a year savings. So you see it right there.

Okay, great. Yeah, great. I think that was good just to crystallize that. And then just thinking – thinking a little bit, you know, bigger picture on the overall macro, you know, as we look ahead to this year and what's going on with, you know, and I think we've touched, I think you guys touched, danced around a little bit, whether you call it the dark fleet or the gray fleet or as vessels move into that trade, any sense for maybe how many vessels are in that trade, and then just realizing that history changes. But as vessels that go into that trade, once they go down that route, is it possible for them to return into the more conventional, I don't know, regularly trading fleet?

What do you think, Les?

It's a really, really good question, Greg. My personal view is that if you look at, at least from the crude side, the type of vessels that have kind of been contracted into the gray or dark fleet or whatever you want to call it, tends to be of a substantially older vintage. We do not know a lot of who these owners are and stuff like that. We do not know what kind of quality they standards that they will be adopting to maintain the quality of the vessels. We do know that there are oil majors out there who have put into place that they do not want to see a ship that has been traded in the dark fleet or even in the price cap fleet. So in my view, if we kind of analog take over what happened on the crude onto the products, I think it is quite a good argument to say that most of those ships we will not see again. because of the age, because of who's been trading them, et cetera. And if anything, it's going to be extremely difficult to get them back into the kind of top tier kind of tradable fleet, in my view.

Okay, great. Thank you very much for the time, guys, everybody. Thank you.

The next question comes from Frodo Morkadal of Clarkson Securities. Please go ahead.

Hi, everyone. I have a question on the ship values. So when I compare the one-year or three-year chart rates to a modern vessel, let's say a five-year-old vessel, it seems to translate to really strong cash and cash returns. So like you have 25% for a one-year, 16% return for a three-year charter, which is way higher than the usual 10, 12% returns, right? So this in my book would, you know, probably support like 30% increase to shift values. So my question is, why haven't we seen that happen yet? Any thoughts?

Well, I think it hasn't happened. I think values were really rocketing up before Christmas generally and then you know everything got into this hiatus and you know January and early February and as Lars described he said look you know we've had the holidays but now the charters are getting back to to really getting going and the underlying rate structure is going up so the calculations and dynamics you're showing They're there, so the expectation would be that you would start to, on that old correlation, you would start to see ship values move upwards again. So I see that you've had a little bit of a gap there and a little bit of a shake-up with a combination of the holidays where generally not many people deals happen and the rate structure and the uncertainty surrounding the markets in the first part of the year. There's one explanation. Anybody else have any thoughts?

I think, Frodo, I agree with Robert. It's a yet rather than it hasn't happened true. But if you are the yet there, I think it's catching up fairly fast. The liquidity in the market has been absorbed as well from a transaction basis, let's say, on the fact that the Russian element played definitely a role. But with the expectations linking to what we were discussing before on the time charter front that we see period rates increasing further and consolidating first and increasing further, we do expect asset appreciation to follow pretty shortly.

It would be the same as stock appreciation, too. I mean, the market's only now just getting back to the reality that the Half of the first quarter is in a disaster, and there's no way the analyst figures or investor assumptions have caught up to the reality of what Lars is describing of the actual spot market today. So we've got both sides of the asset valuation. It's got some catching up to do, the ship and the equity values.

Yeah, I agree. Thank you for the caller. Sure.

The next question comes from Ben Nolan of Stiefel. Please go ahead.

Thanks. Well, for my first question, I think one of the interesting dynamics that I haven't really heard a lot about, and I'm curious maybe, Lars, if you have some color on this, especially this time of the year, ice class tonnage is pretty important for, well, you know, anything in the Arctic, but especially those Russian volumes. You guys have a bunch of ice class, handy-sized vessels, few MRs. How are you seeing that play out? Is it, you know, do you think that's an element perhaps behind potentially some constraint in Russian volumes, just not being able to get through the ice if they can't get their hands on equipment or any color that maybe you could add on that.

Yeah, hi, Ben. Interestingly enough, it has had such a little impact this year compared to the years prior. Clearly, not doing Russian business anymore for kind of the normal ship owner has meant that a lot of the the ice ports are rendered useless in that sense. We know that a lot of the ships that were bought for the crude side had ice glass attached to it. I've also heard anecdotally, and I'm not 100% sure if this is true or not, but that the Russians have also kind of eased some of their ice restrictions that they've had in the past, where ice class vessels with a lesser degree of ice class have been allowed to call Russian ports. Another point to where I'm a bit nervous when it comes to what is the standards going to be safety wise as these ships move into the dark fleet.

Interesting. And just maybe associate with that, what kind of premiums are our vessels with ice class notations earning relative to similarly sized vessels at the moment? If you could maybe flesh that out so for a normal tanker post 5th of February pretty much zero okay and then for my second question a little bit more of a strategic question as it relates to capital you know you guys have in the past used your shares when they were more similar or when they were closer to NAV as a currency to consolidate the fleet. It's been a while since you've done any of that. Actually, if anything, I've sold assets in recent years. But, you know, once again, the shares, I think, probably are still a little bit below NAV. And as you say, the asset prices are rising. But that gap is not nearly as wide as it was. I'm curious whether or not just strategically how you're thinking about things. It doesn't really – I guess if you would say right now we don't really care what our share price is. We're just not looking to consolidate the market or maybe not. If the math works, then that's something we'll look at. I get the question.

First of all, we do think that the stock is. still heavily discounted. We've talked about the rates. We've talked about the potential movement in prices too. Both of those things are going to indicate already it's still trading below NAV now. I'd mentioned in the last quarter that we'd expected getting to April or whatever the NAV would be at least $82. I don't have any reason at the moment to think that That won't happen. We've just gone through a dialogue of Lars saying that spot rates are higher, charter rates are going up. And Frodo has pointed out the absolute historical correlation that normally happens between time charter rates and values. So we expect that to pursue. But as it comes to... I mean, we just don't have a desire to buy anything. I mean... There's no public fleet that can compare to our fleet. The only sort of nick you could put against the company on a comparative basis is we've in the past had more leverage. The way we're going, we're going to have not only the newest fleet, but we'll probably have the least leverage on a fleet. And that will give us lots of different avenues. The age of that fleet means we don't have renewal issues. None of our ships are grinding in the short term towards 16 years old. And there's really no benefit we would get from paying someone else a premium to do anything. The best fleet in the world is we're buying the best fleet in the world, have been buying the best fleet in the world. And You might stop acquiring so much equity if you start to trade at or near NAV, but the desire is to, as Emmanuel pointed out at the beginning, we're significant owners of the company and we're alongside all of you as shareholders and we want to focus on the returns first. So there aren't any targets. There's nothing. There's zero work being done on looking at targets or other companies or individual ships. All right. That is very clear. So the use of proceeds would be quite difficult in an equity offering. Sure. Very clear. I appreciate it. Thanks, Robert. No problem.

The next question comes from Liam Burke of V. Riley FBR. Please go ahead.

Thank you. You announced in your release this morning a $250 million securities buyback, which would include the senior secured debt. How do you balance the buyback versus the debt reduction in that program?

Well, the certainly up to now, it's been a pretty easy calculation, but the buying back, the dealing with the actual strategic part of unwinding the leases has been the first priority. And, you know, buying back stock, I mean, we've shown the, you know, the average prices we were buying stock in January were still around 50, so the return was return on what do you use your capital was was it simply better to buy the stock at what we perceive the discount to the future to the future nav forget the you know present it's also the future short-term nav would be and the bonds um however attractive individually because of the interest rate might be might have been to acquire them um Buying back one or two million in the market wouldn't really matter much, and tendering for the bonds themselves wouldn't have been worth it when you weighed it up against the actual price that you were able to buy stocks.

Great. Thank you, Robert. And I mean, presuming that you have as good or a better year this year, your operating cash was about a billion dollars. So presuming this year you do a billion or better in cash, you've laid out your buyback programs, your debt reduction. Is there any thought on the dividend policy at these levels? I know you just doubled it, but how are you thinking about that?

I think they, you know, you've, You've done a good calculation and you've pointed out what the luxury problem is going to soon happen. The first thing is to make sure we have the money booked in the bank. Let's get there first. We believe that we're going to have these numbers that you're talking about, maybe even better. Who knows? um but let's get there first because once we're there we're in a massively strong position at that time and that doesn't mean it's very long because we've pointed out already that we do intend to hold some debt we intend to have some commercial bank debt we intend to have vessels as brian pointed out unencumbered um and we intend to have a certain amount of cash. I think the importance with the doubling of the dividend isn't, I mean, the dividend is still only even a one and a half percent or whatever. That may be close to the S&P average, but that's not really the relevant point. The relevant point is that management and the board are conscious already of the rapidly improving position of the balance sheet, that we are confident with what we see you know a situation where we're going to get to the desired point that we want to be at and we are in a way shining a little spotlight down that pathway with the increase of the dividend now and I think it's probably the the most I can say at the moment and Does that make you understand the implied message in that or not?

I do.

Thank you, Robert. Great. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Emanuela Laro for any closing remarks.

No closing remarks. The call finishes here, but thanks very much for your time and look forward to speaking to you all soon. Thank you.

The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.