Q4 2019 Earnings Call
Hello, and welcome to the Scorpio tankers Inc. fourth quarter 2019 conference call.
I'd now like to turn the call over to Brian Lee Chief Financial Officer. Please go ahead Sir.
Thank you and thank everyone for joining us today, but come to Scorpio tankers 2019 fourth quarter earnings conference call on the call with me or my door or Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief operating Officer, Lars Darko Nelson Chief.
Partial director.
James Doyle senior financial Analyst earlier today, we issued our 2019 fourth quarter earnings press release, which which is available on our website information discussed. This call is based on information as of today February 19, 2020 and may contain forward looking statements that about risk and uncertainties actual results may differ materially from those that.
Working so today.
For a discussion these risks and uncertainties you should review the forward looking statement disclosure in the earnings press release that'd be issue today as well as Scorpio tankers, FCC filings, which are available, but scorpio tankers I'll comment as you see dot Gov.
Call participants are advised said the audio this conference call is being broadcast live on the Internet.
That's also being recorded for playback purpose. This is an archive of the webcast will be made available on Investor Relations Web page of our website for approximately 14 days there our slides available Scorpio tankers dotcom I'm Investor Relations page under reports and presentation have you have any specific modeling questions. You can contact me later.
And discuss offline as a reminder, in the variance.
Nick explanation of variance section of the press release, we gave guidance on future depreciation gene I try to hiring but some interest expense now I'd like to introduce them anymore.
Thank you, Brian and welcome to the fourth quarter and full year 2019 earnings call everybody, thanks for being with us today.
2019 showed significant improvements from 2018 for both Scorpio tankers into product tanker market in general.
The traffic would have transaction was transformational and well timed.
We are pleased with the way these new additions to our fleet that but for me and I would enhance presence in DMR and then our two segments.
Aside from these deal we continue to retire debt and de lever the company.
As we have discussed in the boss this will remain a quarter objective for the rest of Twentytwenty.
Throughout the year product rates posted strong improvements from the previous year.
And 2019, and it's very much on the from foods.
With the expected strength coming into the market after Thanksgiving.
And somewhat supercharged by some of normal factors such as the U.S. sanction on the call School fleet.
And the other geopolitical unrest liking the Arabian Gulf for example.
The positive effect on the Dirty tanker segment that these geopolitical aspects in head and impacted.
By pulling more product tankers into dirty trades and leases has and will help you already tight supply picture threw out twentytwenty.
Operationally the fourth quarter was affected by this crop better retrofits we.
We will discuss more about its during these calls.
Across the industry or fire periods, where undoubtedly extended as repair yards struggled with the volume of work.
We were not immune from days.
Against that backdrop was the decision taken to delay some yard visits to benefit shortterm from the higher rate environment.
[noise] here in mid February we see it with over 50 best of already retrofitted, including a substantial amount of our and our two feet.
We can already stay at this stage did you envisage paybacks in our base case look to have been far exceeded.
We expect that spreads between low sulfur blends and traditional fewer loyal.
To remain wide so that there's more of our fleet become scrubbers equipped we would benefit from enhanced time charter equivalent.
We remain confident in the industry fundamentals, but clearly the first quarter has so far to being dominated by the corona buyers and its effects, we try to see views and real as they can be.
It is not my place to comment or speculate on how the situation will unravel we keep watching it without most attention and we are and we continue to take hold those measures that can protect our people, especially those who are close to be affected areas always following the world health organization and other relevant international and local authorities.
Buys and guidance.
So far where markets have been cushion from the demand disruption in China as surplus product flows from Asia mitigate some of the seasonal refinery maintenance in the west and the Middle East.
However, looking ahead into the second quarter, we remain cautious and prudent preparing for multiple scenarios in terms of product flows special demands and logistical constraints.
With that I will now hand, the cold to large banker.
Thank you in Manila.
Good morning, everyone.
The fourth quarter displayed significantly improved market conditions across all product market segments, showing increased rates at levels not enjoyed since 2015.
Confluence of factors, including regional arbitrage is seasonality IMO fuel changeover, scrubber, retrofits and mainly as well as most importantly, the simple supply demand fundamentals, which provided the backdrop for the substantial and widely anticipated surge in rates.
In Q4, the scope you're at a lot to fleet achieve time charter equivalent of U.S. dollar 25000 per day.
57% improvement in daily time charter equivalent compared to the Q4, 2018 and 55% better.
On the preceding third quarter of 2019.
Yeah. My segment performed well in Q4, so in time charter equivalent increased 27% to 17600 U.S. dollar per day quarter on quarter.
Overall, the handy fleet and at a one segments both saw daily increases of about 35% representing a considerable improvement year on year.
The above average winter temperatures experienced in the northern hemisphere.
It's also reduced winter distillate heating oil demand, which impacted the arbitrage barrel and push the product market into further backwardation, hitting refining margins and curtailing opportunistic cargo trade.
The September 2019 attacks in Saudi Arabia is all infrastructure resulted in the reduction of Saudi product exports.
600000 to a million barrel a product per day in the Q4 of 19.
This combination of the warm winter and a reduction in Saudi exports created a challenging market for it will want to low twos at the end of the core pure for and the Q1 of 20.
However, despite these challenges freight rates traded up on simple fundamentals and 2019 ended with a robust finished across all segments.
Lastly, we followed the current viral outbreak in China, We constantly review all credible information that we can provide for context, when considering likely outcomes for the product shipping market from the cobot 19 outbreak.
In the short term demand can respond faster than supply.
It's unlikely that run cuts in Asia will be enough to cover the loss in demand from the virus.
And this surplus product is going to hit the export market.
And today Asian gasoline jet and diesel all trying to find homes into west.
We are seeing volatility in the fourth freight curve a surplus product is pricing itself into new discharge areas, creating new trade flows, which on balance will impact other regional product freight markets positively.
The market is understandably focused on the cobot 19 impact and the warm winter, but we should also highlight the coinciding refinery turnarounds in the middle East, which in aggregate provided further an immediate downward pressure to rates in February.
We anticipate some interesting supply demand demand dynamics during 2020 as these middle East refinery turnarounds complete and the risks from cobot 19, a clear or dissipate.
Despite the uncertainties in the market, we expect to see a demand benefit from Mimo 2020.
The demand pool, and Joe and just the blending components were muted by the V. lesser photo storage accumulated in preparation of I'm a 2020.
Further since the fourth quarter 1938, a lot to the left the clean market went into the dirty trades further tightening supply of a larger product vessels.
We are encouraged that the market will normalize pose covert 19, and it's not as much a matter of if part one.
In the short term, we see uncertainty as a result of Corona virus, but in the long term, we see even stronger product tanker fundamentals.
These fundamentals underpin the long term rebound in product tanker rates.
Ton mile demand continues to grow and the lowest Newbuilding order book in percentage terms not seen in 30 years.
And with that I would like to hand over to Robert Bugbee.
Hello, Thank you I stuck to add a couple of thing the most specifically to Scorpio tankers from from laws I think that was starting to see the commercial platform. The the.
The losses team and the operations and technical teams.
Please stop and modes and I think that was going to see the benefits of the contracts and direct relationships, we have with customers the cargo to further improve our utilization.
And and just as importantly, we're starting to see the differentials selling on the quality of the vessels with a new and above that whether this scrubber fitted as well and we would expect that phenomena to continue as we proceed through this year and especially as we proceed through the scrubber.
Program.
Yeah, I think that there's always you know the.
The temptation just too.
So disappointed and not having a market that you've seen should have at this stage in the in the in the economic cycle, but you know you're going to trade to market that we happen to that extent.
I think this first quarter guidance is shown that you know with certainly not in a bad market. It's a profitable market in actual factual turned its going to be the best quarter that the company has had.
A considerable amount of time and that's in the middle of a warm winter plus all these operational.
Constraints relates to scrubber turnarounds.
So that is setting up really well for the future later in India and the other thing is that every cloud has a silver lining.
The supply side is really really tightening right now in products and this this what's happening at the moment in the world and the uncertainty is leading to really no new orders and no new orders combined with an aging fleets in the more regulated fleet is really good.
Really really extend things further in the cycle prove ultimately.
With a short time hiccup now a great beneficial thing in the future and with that dislike to throw it open to.
The question please.
The question, you'll need to press star one your telephone to withdraw your question press the pound <unk>. Please stand by what we can probably Q and a roster.
[laughter]. Our first question comes from amid <unk> with Deutsche Bank. Your line is now.
Oh, Thank you operator, hi, everybody. Thanks for taking my questions.
So when you're talking about where you.
Leading edge rates are today, it's obviously, a fast moving volatile market and now now multitest market and so I think you'd just be helpful to understand.
Where the rates are today that you're achieving on your ego scrubber fitted vessels.
Relative to the first quarter bookings, which I would imagine would be.
Some while ago and so just help us think about or people on the call think about kind of the earnings power of the company today here now in the context of all the volatility in changer or developments in the world.
Sure lost to take that one.
I think.
Asking for right now at this moment what are you fixing in the fourth well at rates you fixing the four categories.
Okay. So let's.
Keep it easy first with the a lot twos, the a lot to market dropped considerably as of the Corona virus unfolded, we start seeing some supply demand.
The fundamental change the market move from a Worldscale 82 wells could quantify from last Friday to Monday today. This week. That's a 9000 dollar increase in earnings over those two trading days. So today, if you're a modern scrubber fitted vessel trading at the 105 level fixing at the moment, you're doing 26000 dollar.
As a day or.
The other ones for the same type of a move you're going to do around 19, $20000 a day and the amount of course is a much more fungible asset play whites depends a little bit on New York.
On your ballast legs, and so one but you know you're doing probably somewhere between 15 and 17 or $18000 today.
As a snapshot.
So right now we're seeing a bit we're seeing a big amount of volumes moving out of Asia. Both on a the the three different copper grades that I mentioned, it's not only on the other ones oil or twos, we're seeing that also trans Pacific on the M&A, we're seeing an increase in rates as we speak in the the Tc to Trans Atlantic Ron's, there's been a bit of a law.
The the U.S. call, but that's also now picking up as well. So this is moving very fast. So what is good about it didn't know what I would say is the takeaway is that the volatility has remained which means that the underlying strength of the market and the fundamentals there still speak volumes of what is the ability of the market to move.
Right right and so I mean, I think that's a high level.
The underlying market is still relatively stronger in the context of all the changes going on maybe this is a question for can now.
Yeah, I just wanted to understand talk about your experience.
Using BLS, that's all blends and I'm not thinking or are either review using gas oil given the prices narrowed quite a bit between between those two there's obviously some operational risks that get your conducive blood and if you can just speak to your experience given you know a significant percentage or fleet, it's still mom scrubber finished.
Just how you're thinking about that.
Oh, thank you on that so.
In our planning for this year as a greater percentage of our fleet becomes scrubber fit.
And our dependence on compliant fuels are BLS AFFO reduces.
We made it very conscious decision to have contract with physical supplier.
Other words go straight to the horse's mouth to ensure not only availability, but also and critically.
Quality compliance fuel as we've said over the last number quarters.
Violette, that's always going to commodity except bespoke Glenn that vary considerably across producers regions.
Intermediary.
And there are a very significant risk stability in compatibility that we're now seeing in the market.
We haven't experienced it ourselves probably because our again of these direct supplier relationships.
But we.
Second is to be an ongoing and very very serious issue for the industry until such point that Pls AFFO is commoditized and to your last part of your question.
We think that will only come when distillate forms the basis for BLS AFFO.
So we've used them you know and we have to use it and we'll continue to use it from time to time, but the owners that are depending on pls AFFO in the long term solution I think it's going to be.
A real process of discovery and iteration and negotiation until the industry consolidates around a single specification.
Right and just one quick follow up to that Cam if I could.
The spread between nine low sulfur fuel come in quite a bit obviously, a as you've seen it would just be helpful to understand like.
Cumulatively, how much fuel or bunker does does this scorpio tankers, you don't consume every year or across the entire fleet. Just so we can get a sense of like maybe what the incremental you know cashless could be based on different you know a spread scenarios is that is that a number you have off and are you willing to share with us.
Yes, it's well over a million tons a year.
Across across Scorpio.
But.
Like I said, there's so much variability depending on where the vessels are trading or how much time import.
Again, though the process of introducing a greater percentage scrubbers in our fleet.
Again, when it comes to the spread.
A lot of people have talked about what they expect to happen in terms of Pls AFFO pricing.
But not a lot of people are talking about where all the HFO is meant to go. So obviously the spread is highly correlated to the price per barrel and so it's come down as the price per barrel now, but over the longer term we expect.
You know at healthy wire for longer spread well north of 200 Bucks.
Right. Okay. That's it for me guys. Thank you for taking my questions appreciate it.
Thank you.
Our next question comes from Ken Hoexter with Bank of America. Your line is now open.
Hey, good morning, I can.
Robert or maybe you can can you just talk a bit about though the warm weather and coven 19, and maybe your thoughts on demand impact and can you quantify maybe just to understand the longer lasting impact or medium term impact of the that's the kind of extremes here.
Well, maybe I'll take that the latter part of your question first you know we're not here to take a view on.
What sort of recovery, we can expect when the corona virus, ultimately controlled or curtail whether that looks like a V or you are in L.. We we just don't don't know going to what largely speaking up you know.
Our first stage impact of a demand disruption or demand decline.
His counterintuitive for you know container shipping for example, or or airline, it's an immediate a stair step function down for us quite different because.
Oh, the refineries can't slow down so quickly.
Cargo flows get disrupted ships get re position.
And so it's somewhere between a neutral at a positive impact for us just because of this dislocation of our of our vessels and those are better.
You know over the medium to longer term of course.
Demand destruction is is problematic.
But I'm not sure anybody has a very clear view on how this is.
Oh this is going to go a there's a lot of skepticism of the news coming out of China of course, and the success of their efforts to to controller quarantine.
No.
Significant numbers of people so again.
We we can speculate but we really don't have a clear view that we're just trying to manage.
As best we can.
In this period of uncertainty.
And when it comes to warm weather in the winter I mean, generally a hey.
Generally is boot product demand.
Wet weather is that your clean products.
If you have a northern hemisphere winter that.
Though is called this has been unusually warm.
So in that sense, that's why.
This is not a complaints and it's not excuse because we think that overall the to first quarter guidance is you know is pretty good especially in historical.
The either this is this is what so good about what's happening at the moment. This despite a warm winter. Despite the dislocations that is there the product and market right, particularly these m. AWS analog to remain fairly solid and fairly robust so.
Telling you this is very very strong underlying.
Fundamental balance between supply and demand and with a order, but it's getting lower and lower going forward than the fleet is getting more aging.
That's really good.
Uh huh.
Uh huh.
The increase because of the topic.
Awesome.
They cost almost sounds awesome.
Maybe you can run so why such a large increase.
Right offs, maybe expand on that a little bit.
Sure I could I can try that what you'll see on a blended opex figure is really our result.
Acceleration of the dry docking program, so and that's going to dry dock.
As an accounting determination on what expenses can be capitalized.
Oh purchases can be capitalized and watch which are expense.
And so you will naturally as so many of our vessels get either ready for dried off or get through Drydocking you would naturally.
Expect to see a short term increase in their opex.
Okay.
And then you noted that delaying the scrubbers brought it home.
How many did you delaying and the how did you get the slots back in can you push and will you pushed more into the scrubber overhauls in a in a faster pace than you've got listed in the release given the near term decline in rates or decline relative to kind of outlook.
Trust me if it were so simple we would be we wouldn't be doing that really it to.
Hey, it's a decision the has a number of different variables involved at among them are the ones you mentioned that when we get a slot back or what the localized rate environment is.
But again up to now it's been a.
A question of measuring what the shipyard capacity is.
Versus.
The number of vessels hours and others that happened to be there.
It might be some supply chain constraints, but I get the best way to think about it is number one the number of best we delayed really are a handful not a huge real reordering of our scrubber program.
Number two is the progress on the scrubber retrofit continues we feel the argument is still quite compelling economics are compelling to continue.
Rick.
In the shipyard in China are still low.
As far as.
The effective the Corona virus on the coastline.
That being said a consequence of that risk being low is the governments friction on so many workers returning from the Chinese new year. So what one would have expected back in January it's a slow down in the yard during the new year.
Yeah.
And then a rebound back to full productivity.
That slowdown is actually continued or persisted for several weeks and that had been knock on effects of the natural timing of any particular scrubber installation to the tune in several extra week.
I appreciate that.
And then just real quick wrap up Robert you said once you've guided you did meaning in terms of what you've given in in rates. There there was no actual.
Targets or anything other than just providing.
Now, let's say right right.
Right I just want.
All right appreciate the time thanks.
Our next question comes from Omar, Yes that with Clarkson like Joe Your line is now open.
Okay. Thank you hi, guys I just wanted to ask a couple of questions just related to maybe more and more commercial items, especially on the performance of the the L.R. twos recently and the Handys and it allows you made some comments and you gave a bit of a perspective, when we think about the l. or to guidance. You have you guys have a twin.
The 5000, that's obviously very strong and in well above what we would say the index averages are which maybe closer to 11 or 12000 at least year to date.
And you know as long as mentioned the markets really improved here over the past two or three trading days. So some of that recent weakness we had been seeing post corona virus or I guess may not be seen in your results.
So that's you know put that aside for a second and then when we look at the Handys in the third quarter. When you reported earnings you had guided 15000 for the fourth quarter you ended up getting 19.
It is everything else has basically being stable and when we look so far into the first quarter, you're now at 24, which is well above the m. ours in L.R. ones.
So I guess when I think about it the handys have now for the two straight quarters outperformed in a big way so.
My questions basically you know if you can give us some perspective on what's happening in the handy market over the past say six months and too could you give us maybe a perspective on the L.R. twos how.
What are the dynamics that are driving such a big outperformance on your part relative to what we're seeing an index.
[noise] loved ones like that.
Sure.
Well, let's start with the the handy.
I mean first of all the Handys, a war course or in the short haul market, but the thing I think that to keep in mind is not the handy market is seasonal overtime. So we'd always tends to have a strong relative fourth quarter and a very strong Q1.
We anticipate that of course, but what we're seeing here, which is also back to Rob's point about you know even would the seasonally warm weather handys I've actually outperformed and I believe its outperform a because you have a consolidated or they want to profile perhaps.
Which provides some resilience to to rates going up.
Continuing to stay up but I think also the aging fleet profile here is something that we should take into consideration if I remember correctly I think the average age on a handy today is about 14 years old so overtime I think you're going to see I'm really interesting balancing all supply and demand on the outlook and I think.
It has a lot of potential to move up further.
And the other question nothing was on the I love to market.
We anticipated that the market would have a dip in February and March.
That's up from the expectation on the refinery turnarounds that are published.
I would take place out all the various refineries in Saudi Arabia, and the United Arab Emirates. So we had obviously moved some of our ships long hole or to other areas to make sure that we had a balanced profile in terms of trading February and March.
Well, we saw of course was the corner bars and things a little bit Harry in terms of where we think this market now we'll move I think there's a few things that we need to take into consideration, which also mentioned before.
The overall number over a lot twos has diminished substantially since the fourth quarter. All of 2019, I know I've lost count I think is 38 units or something like that which is quite a few so basically what we have is a negative fleet growth since 2015 or 16 in actual modern l. choose trading in the spot.
Okay, which is a lot considering the ton miles have increased and you know a lot of new businesses, increasing where are you load and discharge and lot twos.
A few a lot of few newbuildings are being built or don't have been delivered in the first half over 2020.
Then finally, it is really interesting to see that the volumes a business that suddenly a increased out of Asia.
Going to the usual homes in Australia, but also now something that back to the continent in a market that otherwise had been somewhat quiet on distillate.
Those are the BLS AFFO, a trade that we talked about earlier on so you're seeing a lot of these quotes coming in which means that the the supply a lot twos in the normal trading market.
Has diminished substantially so when suddenly you have small changes in the market because they position list has changed dramatically.
In terms of number of vessels available you see spikes quicker and this is what we've seen from the market dropping down to towards the Wesco 80 level that I mentioned opt to trading Monday and I think the market is that today is one of around 105, which is a substantial drop oh, sorry increase in earnings of about 9000, Boes, a day and trading day.
Right at that speaks to the volatility you were talking about earlier.
Yeah, I think I think at a couple of things here that you know zyprexa, how weve outperforming you've won got that say whatever you cool market judgment than you literally got a at fleet that is the largest fleet out there with the you know with a great access to customer profiling.
Choices, where without going into it the you know the ability to triangulate and pick voyages that will outperform one indexes quite clear I mean, they've they've done it now for a.
Quite a few periods, but I think the more fundamentally here too the uneven Scorpio tankers that of performance I think if we just look at products in general.
That you've got two companies reporting you've got ourselves and you've got all of them or both companies have done pretty well on the M. all guidance and you know it's partly because.
You know if there's a market there's less affected by the Corona bars in China, it's actually the product market the moment.
Because the product I know if you have an extreme market like capes, where virtually the whole the iron ore trade is China, well, that's going to get hit.
Even products relative to crude oil crude oil trades much more of its demand. It goes to China then products.
Tony being a recent phenomenon that China itself has been involved in the product market.
So in some sense is even though obviously you could have headline demand destruction here. If this continues for a long time.
The the actual product market itself is one of the shipping markets that is leased directly affected.
By what's going on in China.
Thanks, Robert I could just maybe then just one follow up maybe on that or because there has been a lot of questions that I know you've gotten this before and we get it as analysts yeah. The switching over from from LR to into potential crude trading how do you guys think about that right now obviously you saw.
They clean.
Is there any would you guys see yourselves shifting at all obviously post Corona virus once you get a bit clarity. There does does transitioning some of the l. or two than to crude, especially given the strength in that market recently does that in the cards at all uplisting.
No.
No. This point, maybe some of the allow won but not the losses.
Okay.
Well thanks, guys.
Okay.
Our next question comes from John Chappelle with Evercore. Your line is now open.
Hi, guys. This is Sean Morgan on for John This morning.
So Robert on on past calls you talked about the potential cash flow generation of the fleet falling or rate inflection and with regard to the capital return potential you. If you think in the past used the term delayed gratification.
So previously we talked about maybe six nine months before there was some from communication regarding the capital return policy.
As it has any of the turbulence in demand and are related to kind of what's going on China right now impacted the timeframe for any announcement and I mean, the call you seem to be kind of a little bit maybe more optimistic in terms of the ability for for the price market to sort of whether this this issue in China does that push things.
Back at all or it's still kind of thinking with the same timeframe for for any communication on that.
Okay. Thanks to the question. So firstly could we please extensive John I'm older best wishes from everybody here at school feel and all the best his family at the moment.
Oh yeah.
Then.
Okay. So I think at the moment you know what are you referring to here is look we've come with a we maintain the dividend where it isn't there is no intention to increase at the moment nor is there any intention to discuss an increase of the of the dividend.
Yeah at the upcoming boards I think that you've got.
You know you we put the clear intention at the moment and have been in focusing things to focusing paying.
Paying down debt using cash to pay down debt.
I think that.
Right now if you would if you want to sit.
You know if you were sitting right now and making the choice would you would you give a dividend or would you.
Even do something else so them pay down debt. If you were forced to do something else can pay down debt. He wouldn't a dividend would not be a first choice. You know you would buy back stock who where the.
Well the stock is trading in the mom and then you know you've got.
He oversaw tool or not but you have you know a couple of executives of the company's with big dividend policies, no, perhaps regretting having to give all that money back right now with the stock's trading up 50, 60% doing maybe.
Okay. All right. So you you prefer the the flexibility I guess on opportunity Yeah, I mean I use it.
Yes.
Now it's about making sure you are focusing on operating the company, which is which is what we're doing we're focusing on two things.
Primarily right now which is it was is getting the most out of the ships, but in terms of law. This area.
In terms of Cameron's area, you know trying to efficiently with it was most efficient safe way possible get the company through these Ah drydockings and and scrubber fits in.
And right now there's not a great urgency to increase the dividend.
Okay. Yeah, I think that makes sense and then this is a bit of a follow on to Omars question, but I thought. It is interesting you guys talked about the sort of effective reduction in supply bell or to do do switching to the crude and then you know and then second.
Following that you mentioned that the crude was going to be more exposed to any any long longer term damage to Chinese demand or how long would it take for and what do you into likelihood is that at some of the is the vessels and they all are two category live switched over to crude trading could come back to the clean market and.
Sort of timeframe and and I guess your thoughts on that.
Laws.
I mean, it's obviously a question of the timeline here I mean, if the the differentials are large for a long period of time, we will start seeing some wanting switched back again, but I think you know everybody's you keep in mind that the you encourage substantial cost we're cleaning up from drug into clean and is not only one quarter you need to.
I have three cargoes.
On the truck to be fully.
Clean suitable and you know a lot to markets are pretty long hole and you know you would have to discount.
The vessels through those rewards is quite massively before you can do that so it's just not something just do but you know obviously if the spreads are winding up some both stop switching back it's been done before.
Okay. So for the three cargos then if we assume a long haul like 40 days, we're talking a minimum of EUR 120 days or so yeah.
To trade back to clean.
Yeah, I think normally you would say you know.
Between three and six months.
Okay. All right. Thanks, that's all I have.
Our next question comes from Randy.
Jefferies. Your line is open.
Oh, the gentleman how's it going.
Good all right. So on slide eight you show that the L.R., one scrubber premiums slightly outperformed DLR two scrubber being premiums I'd just like you know burning less fuel a day. Obviously so was this due to regional price differentials for the Hs AFFO and also on slide eight you showed.
25 vessels scheduled to get scrubbers installed in the first quarter any of these currently stuck in the yard or Chinese yards, declaring force majeure on these retrofits.
Hey, ready it's James.
In terms of the fuel savings, how you're correct or slight price differentials between the L.R. once an hour twos, but also this is just for the month of January So obviously voyage length can change.
And that will impact or scrapper savings for example, the longer Boy did you go on the greater the savings so keep in mind, it's just in one month.
For force Majeure on the scrubbers I will point the camera mess, but.
Yeah, Hi, Randy I'm like force Majeure is more in issue for a new building construction or.
Commercial contracts.
Hasn't been an issue for repairs or a scrubber installations as far as getting vessels dot no actually we had a vessel sale out yesterday, one of our vessels and another one coming up in a couple of days of course, there vessels going in behind those so again, we havent seen any problems of.
I don't know a risk of things stopping it more up in the pace of work has slowed as I said before since the start of the Chinese new year, and it's only starting to pick back up now as.
Workers return, having sat through a extended quarantined period.
Got it.
Okay, and then I in your earnings release, you have a table showing 12, LR twos and 711 ones going in for dry docking 2021, but no scrubbers. So there's anything you're installing the scrubber and obviously in late 2019 or sometime in 2020 and.
Going back to the yard next year for the Drydocking of these vessels, where you're not able to kind of pull for the dry docking to do all at once.
That's correct Randy as you know if you want to pull forward a statutory dry docking, it's a little bit like shortening your own life.
So I don't know how old you are if you wanted to celebrate your you know birthday in advance and take the time off the end of your life. That's how it works with the ship going into a dry dock.
Got it okay. Okay.
And then I guess lastly, we still expect pretty substantial free cash flow for Scorpio. This year, you know, maybe a little less now than six weeks ago, but with that what do you expect it uses of free cash and specifically in terms of expected total debt repayment this year.
That's an extra cash pay down debt.
Be collected.
Sure.
Hey, Michael Okay, what's the minimum a debt repayments this year.
Well, we laid out in the press release, what it is like winter for that going forward for that period for the next two years next.
Eight quarters.
Okay, and everything incremental straight for that.
Exactly.
Sounds good.
Sorry.
<unk>.
Our next question, Greg Lewis with BTG. Your line is now.
Yeah, Hey, Thank you and good morning, everybody I'm, sorry, I guess, mostly a lot has been covered already.
So I I guess I would like to kind of go back and instant and look at Q4 and kind of you know you touched on it in the prepared remarks, but just kind of curious if you kinda highlights some of the things that that kind of drove the enemy <unk>. The lower rates. Maybe then then I I think many of us were expecting.
[noise].
I think a lot of it why be count can go into <unk> or logs for them in a lot of it is related to.
Actually getting shipped into position in and out to the scrubber thing.
There were three things right there.
Wages to get to the yards, which you have to take the wages to get out of the yards.
The the trading in the east is a little bit weaker and Atlantic Basin. So you have to discount where ships are trading in one market is gonna be stronger than the other enough with the way. It wasn't now the east was weaker than the world.
And you also got to look at the ships when they loaded the fuel when they look at a higher cost fuel and I tried to take place in December so that they it into the earnings into Q4, because everything was being priced upon the high sulfur fuel, but you weren't going to take that chance that youre going to have I hope for fuel on your ships on January 1st.
Below the higher cost fuel during the month of December, thereby driving or turn up here in for script for ships that did not know scrubbers.
Okay. So once we think about it because we're gonna be in this period throughout the year, where we're going to be repositioning ships for scrubbers. So it's not something where we can I mean, it looks like your forward guidance showed that so we should not be thinking about the this potentially revisiting some sort of in.
Pat like this in it.
And over the next few quarters as we reposition a lot more ships to get scrubbers.
I think you can.
No.
I'm not going to sort of tell you how to model that business, but but I think you would expect overtime for that impact come down.
Because you've already taken the upfront costs.
Right.
Taking BLS Oh on the vessels they need it for some time.
That value gets released as more and more vessels can disrupt first fit it.
And then the rest is really up.
Something about of an estimate on what you think the relative eastern markets are compared to the west.
Okay, and so I mean in Instagram is as since we're having all these ships going to get scrubbers. It is that I mean, I know, it's never just one thing, but does that sort of why because because it seems like something that we've noticed over the last few over pretty much since I'm pointing to summer, we're really seen the Atlantic basin be a lot stronger.
And then the Pacific Basin. It is that it would you sort of attribute that to some of the relative weakness in the Pacific versus the Atlantic.
Yeah, I think that's a fair point I think that's exactly right. There are number of vessels trying to crowded the doors and they all are looking for the the cargos available to get there and get out.
Oh of course traditionally.
We think the Atlantic should pay some premium to the specific in any event, but it certainly exacerbate that different yes.
Okay, and then just one more for me as we think about the scrubber guidance. There are the scrubber premium guidance should we is that it is that an annually adjusted number or is that something where we need to adjust for the fact that the ships not always gonna be using a scrubber.
So those are for the month of January but in our and our company presentations, we've outlined how much fuel our ships burn on an annual basis on average, which accounts for waiting days and valid flags and things like that based on actual consumption and you can find the time.
Per year per vessel.
And that's what you want to use and apply whatever spread you think is out there that market or an average of those spreads.
Okay guys. Thank you very much.
And our last question comes from Liam Burke.
Yes.
Yes. Thank you good morning.
Robert I believe you mentioned or was he was it mentioned in the prepared comments about surplus product hitting the export market due to the disruption in the first quarter.
Oh. It was also mentioned that you're cautious on the second quarter due to a lot of uncertainty.
It do you anticipate any sort of derive benefit from the surplus product in the second quarter.
[laughter].
We don't know.
We we don't really know how this one plays out in terms of is pricing you've got.
Whether or not the they continue to supply that is one benefit you've got that as you get into the second quarter anyway, you go up the.
You know you're going to work through all the stuff to do with EMA 2020, so you're going to be stepping up the all the be let's suppose shipments which is rolled positive.
And but what what will matter more than anything is you know things like what is the pricing curve as the pricing to have into contango away in a situation where people are confident that the.
The world economy will be getting back to growth those are the things, they're going to going to impact rates more as we approach the second quarter.
So it wont be particularly in terms of the routes it'll be the overall macro demand is laid out.
Increased energy consumption in the second quarter.
Yeah, and how traded fields I point to the trade as feel that the it's time for them to get ahead of.
A situation if they feel that they can that the the Chinese situation in the world economy, it's going to be constructed by he whatever somewhere in the back half was a year or even June July it's going to going to get constructive then they can just come in and start going long the products and buying which way.
On a on a balanced fleet that we have at the moment immediately take the rate structures upwards.
But on the other had the trade is good sit there and say well you know we have enough product.
We'll wait and see I.
I think thats the comment the company doesn't want to.
Yeah, It doesn't want to make any prediction as to how this plays out it simply just wants to focus on.
You know doing the best it can in the market is given.
And you know getting through the customer the company Drydocking and scrubber program.
Great. Thank you Robert.
<unk>.
Uh huh.
At this time Im showing no further questions ladies and gentlemen. This concludes today's conference call. Thank you for participating in you may now disconnect.
[laughter].
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