Q4 2020 Scorpio Tankers Inc Earnings Call
No no and philosophy.
Hello, and welcome to Scorpio Tankers, Inc, fourth quarter, 'twenty and 'twenty Conference call I would now like to turn the call over to Brian Lee.
And natural officer. Please go ahead Sir.
Okay. Thank you and thank everyone for joining us today welcome to the Scorpio tankers fourth quarter earnings conference call on the call are Emmanuel Laura <unk>, Our Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief operating Officer, Lars Dunkeld Decker Nelson, sorry, commercial director Dave.
And David Morant, managing director James Doyle Senior financial Analyst earlier today, we issued our fourth quarter earnings press release, which is available on our website. The information discussed on this call is based on information as of today February 18, 2021 and may contain forward looking statements that involve risk and uncertainty actual result.
And may differ materially from those set forth and such statements for a 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 the Scorpio tankers and SEC filings, which are available at Scorpio tankers Dot com.
And FCC Dot Gov call participants are advised that the audio of this conference call is being broadcast live on the Internet and is being recorded for playback and archive on the webcast will be made available on the Investor Relations page of our website for approximately 14 days there are slides available at Scorpio tankers dot com and the Investor Relations page.
And our reports and presentations if you have any specific modeling questions. You can contact me later and discuss offline now I'd like to introduce Emmanuel Laura.
Thank you, Brian and welcome everybody to our first call of 2021, Thank you for being with us today.
On our last call, we said that the rapid rollout of vaccinations would be.
Oh, and I had put that would be potentially a game changer.
And this is proving correct and as we speak injections are winning against infections.
The rebound potentially and our businesses now significant.
It is estimated that Covid has temporarily reduced 6 million barrels per day of global demand.
All of which two thirds, it's you and aviation.
As we look across the market many sectors of the economy like travel and tourism for example.
And already discounting a significant rebound in demand.
Correctly, so in our view.
Meanwhile, in large parts of Asia, we are already back to normal levels of demand.
So we do expect rates to move upwards from here.
While the short term opportunity exists for our company, we must not lose sight of the longer term impact of the virus and our industry.
The last 12 months have seen a rapid acceleration.
Global macroeconomic evolution.
Across different segments like renewable energy technology medical science and others.
In our business, we have experienced a much overlooked but the size of closure of refining capacity in the developed world.
Alongside this we have experienced the opening of major refineries.
And the middle East like G zone, or all absorbed <unk> and <unk>.
By the way.
We at Scorpio tankers have lifted the first design cargo three and a half weeks ago on one of our mines.
So long after the crisis as we see the positive structural impact on ton mile demand will be fence.
As such the pandemic has served to accelerate the structural changes in demand from which we can benefit well into the future.
The supply picture in clean product tankers, it still benign and not only it's benign, but if preexisted the pandemic.
At present, the on the water fleet of modern day Mars is starting to shrink.
The crisis has only served to deepen and prolonged the under supplied markets and.
And in the process in this process and he is now returning pricing power to incumbent owners with modern vessels like STG.
The new building ordering continues to remain very low which is another encouraging factor.
Yeah.
Before I conclude I would like to spend the words and think about our seafarers and our teams around the world I think these key workers, who in the most demanding and extraordinary circumstances have made significant personal sacrifices away from their family.
And away from their friends just to keep the world economy supply.
Scorpio is a proud.
Employer is proud of its record as a responsible company and a responsible employer our teams on land and at sea can continue to rely on our unwavering support and through these periods.
We employ about 8000 seafarers and we had more than 14000 crew movements.
Since the start of the pandemic.
Finally, I will sum up with the following thoughts.
About hydrocarbons hydrocarbons are here to stay.
But as a global community will likely produce and consume hydrocarbons in a day.
And way or better and and evolving way.
We believe that the modern clean eco tanker has a pivotal role to play in the future in these future and in this transition.
As such and why is the crisis has been painful for many and project for some it has given us a window to the future.
These future, it's a huge step up in product tanker tonne mile with modern and efficient refiners exporting major volumes over to find products to all corners of our worlds.
With this I ended my remarks, and I would like to turn the call to Robert Bugbee.
Thank you very much anyhow.
Look I think there's absolutely super exciting time for the thing shareholder and they stink potential investor.
With past the bottom in terms of rates no we're going to.
No the inventories being really drawn down the vessels you can see from our earnings are moving that means that there's very little surplus capacity. So any increase and demand is going to immediately move to the improved into a corresponding higher rates just stray.
It away and.
And we would expect that over the next couple of weeks that we will start to get significant movements upwards again, and the Asian market as Asia comes back from the lunar new year.
It's a great opportunity and the sense that.
Stock is still trading and despite the sort of partial sort of run out from the bottom is still trading at a significant discount to its net asset value.
It's trading at it even further discount to where the company was only 12 13 months ago. Despite all the cash that the company and.
Last year and the.
And the debt that is being paid through that yet.
We'd expect D N a base to start to move upwards as well and they can move up quite sharply yard pricing is going upwards across shipping high input values high interest and areas like containers LNG seemed to be dry cargo to time charter rates are.
<unk> started to firm strong inquiry and many many fixtures, especially as the modern tonnage.
And the forward curve has been strengthening too.
In addition to that and think it's safe to say the last four weeks investors have come out and.
Shown a lot of interest and as somebody who has pointed out as these these vaccinations.
Game, changing going forward and a game changer to peoples psychology, and and mood people are believing and.
Or expecting the opposite of last year last year when the rates were high.
The stock sold off rapidly because we expected everyone expected the market to full today.
And today people expect that the vaccines will lead to greater demand and create to move from OPEC. So we're starting to anticipate that improvement.
And anybody that's short term and we still have a lot of significant short interest and staying as really denying.
And the fact that the world is going to get better as a result of Covid.
And with that Oh, we have a lot to talk about today I'd like to open it up to <unk>.
<unk>. Thank you very much.
Ladies and gentlemen, if you have a question at this time. Please press the star and the net number one on your Touchtone telephone. If your question has been answered argued Michigan and yourself from the queue. Please press the pound key thank you.
Your first question comes from the line of.
Ken Hollister from Bank of America.
Your line is open.
Great Good morning, Emmanuel Robert and and Brian and team can you just talk a bit about the effect of storms are having on trading patterns and also just more specifically the EMR rates.
You showed improving sequentially with your book dates would you, but yet the others kind of decline can you can you talk about that differential is that our trading pattern east and west given where nat gas prices are and or do you expect that to decline like the other classes.
Oh sure.
Last one and you answer that one.
Sure. Thanks, Ken.
I mean going back to <unk> point, you know what I mean.
And the capacity of the fleet and.
It's pretty good to be honest and it doesn't take that much to see what the delays and uncertainty can do too.
To the rebound of the market and.
Obviously, we have seen that these kind of dislocations lease despite and I guess, a live example that you're referring to is what's going on and the Atlantic basin will be and miles right now.
And so it's interesting to note that with the U S.
Polar vortex and the issues arising around that the PUC to market, which is the Atlantic basin and Mas <unk>.
Just this week alone has moved from west to 117 and a half.
And I think we've got wells and 170 and subsidize.
This corresponds to pretty much and jumbo $8000 per day and three trading days.
Which of course is remarkable and and obviously it is a testament to the capacity and the balanced up actually is in place.
And similarly, I guess.
Other reasons and nothing to do with the polar vortex.
The market and the met and the handy is they moved this week as well as 120 wells drilled two wells going into 'twenty, which you said a very substantial jump and probably is equates to around 12000 U S dollars per day increase from what it was on Monday.
And I think the point here and it really is that it was east to west as we've seen it and the east as well is that the market and has the volatility that we really need and require.
And the overhang of vessels and the product market.
Again as limits and I would say and this shows that you know at the margin day markets.
And that immediate capacity to move and do so very very rapidly.
And it's not hampered by by any lay up with capacity that we saw back and the eighties really yet. So I think the reality is normally followed by sentiment and I think our you know time and time again it shows that.
And fairly balanced market upturn comes through very quickly.
Thanks.
Thanks, a lot.
Amazing.
I guess really well positioned you're right depending on how quickly we see this this tightening and price flow through and I.
And I guess, what does the impact let me just think you'll get a follow up on the reversal of the million barrels per day cut from from Saudi do you is that something that I guess, Robert you've always talked about lengthening.
Like and length of hauls is this the driver and that Youre going to finally start seeing that in.
And in absorption of utilized capacity and and maybe within that.
And where does the storage now sit on on what are we kind of done with that bleed out into the market or will that still pressure in Boston and the rate I think.
So I think first of all that there's almost no storage and products on the water that's drawn down and are there still some storage left and the water and vlccs.
But you know and I think that we would I think conventional wisdom would say anyway that the product market will move upwards.
Before the VLCC market would would move up all the the crude market but.
It's fantastic either way as soon as the Saudis start to reverse their positions and OPEC.
And I imagine we're going to.
Almost all oil and let's say that over the next 10 months or so before the end of the year, we're going to pick up between five and six and a half a million barrels a day, where you're gonna be stripped going at 500000 to 550.
A month increase.
And.
That's great lots can talk about the psychological thing of this but for us and the product market and particularly the Saudi question. The Saudis put in product exports to into the totals for the exports. So here.
The new refineries coming up but that just gives more confirmation.
And along with the end of the lunar new.
And new year.
Belief that the east market and the yellow two market and you.
Whether it's two weeks three weeks is going to start to crank itself up.
That's helpful and just one last one from me if I can Robert or I guess for Brian maybe particularly the operating costs remain elevated and 69 and I presume that's because of Covid and all the stuff that you're doing is that something you see lasting through 'twenty. One do you see that starting to come down at all maybe just one one quick thought on the expense side.
Kevin that's right and that's because of the Covid and the crew changes and few other things that are associated with that so that at least from the first quarter here, we'll still see that and hopefully as we mentioned with the vaccines and things are getting better and more places are going to be easier for crude trade changes going forward.
Alright wonderful I appreciate the time gentlemen, thank you.
Your next question comes from the line of Omar <unk> from Clarksons Plateau Securities. Your line is open.
Thank you Hey, guys.
And then you're well Robert obviously in your opening remarks.
And it presents a pretty positive outlook.
And you know over the past few months and other shipping sectors, we've seen a real strengthening as each of those came out of their kind of COVID-19 induced downturn at least and multiyear highs coming out of the gateway and for containers and dry bulk standard for gas.
As you guys think about the tanker market recovery from here.
Can you see something similar playing out here and the next few quarters and.
And then.
With that in mind, and how you view that and how do you feel about share buybacks and that context.
I think the first question is yes, I mean the the.
And Ah Theres no if we think of where we were and Ah.
13 months ago, a $40 or whatever.
Yeah.
What's changed if we if we if we you know.
We said, Okay and January 2022.
And the demand was the same.
And what it was or probably higher.
And where rates going to be rates are going to be strong are they going to be stronger because we have a number of M ores and they're gonna be leaving the clean petroleum trade this year, because delta and 16 years old we will have.
Still a very constricted.
Supply order book very constricted in terms of its ordering position.
And we are having some real positives and refinery changes you know James can talk about that and a separate question and I'm sure, but the refinery changes have been accelerated as Emmanuel indicated you know and we've just seen.
And quick succession, and what's happening in Australia for example, so and the big effect on ton miles when it comes to values. There is inflation going on right now steel prices and moving upwards the yards through this period of consolidated two shipyards already moving the price positions up.
And there is a scarcity of new or modern.
<unk> tankers.
So there's every reason that you know.
Given the fact that you know the.
The ship share count would be the same.
That and a stronger market you'd recognize where the company is actually until paid back to and the and that and the trailing 12 months.
No reason why the stock should be higher than $40. If you look at it that way.
In 12 months time.
The.
Second question.
No we've been very consistent and the and that you can see what we're doing we're continuing to maintain our liquidity.
We announced today that we still have in excess of $200 million of cash on the balance sheet.
With the with the financing.
That we are in the works of the things that we're showing more or less $300 million of liquidity and so we're.
Able to go through this position and we're getting more and more confident as we see the vaccinations, but we've remained humble and this last two to three months.
Waiting for things to play out but suddenly.
You know, we're indicating that we believe that NAV is well above the present stock price and going higher.
So there is going to be the room, there the very moment that the rates start to really shift and move and move above.
Let's say.
$17000 a day on average, which is all of them all and cash breakeven, let's say.
But we'd like to see that first that's the prudent thing to do.
And.
Thanks, Robert that makes sense and you know me.
Maybe just kind of thinking about that from your vantage point.
It's maybe it's a little early but wanted to check with you on kind of what you're seeing in terms of potential recovery, you mentioned, the lunar new year holidays, and being and expecting to see improvement there and when.
And when we look at the oil price and oil curve. Obviously, Brent is now pushing close to 65 and there is mounting pressure for more barrels to come to market from OPEC.
Are you seeing anything and and the cargo carrying ore and the.
Finally is that you do business with and are you seeing any preparations on their part to shift.
Shift their production whether to ramp up certain types of cargos, including say jet fuel and gasoline or are you seeing anything there that that indicate a change.
And they're coming.
Laws would you like to answer that.
Hi, Omar and some.
Really difficult question to answer really because obviously you know people keep their.
Cards very close to the chest.
But what we do see is that you know through the.
The first point about the ton mile and stuff you know how are we seeing the development and what we consider to be a low point and the cycle at the moment and Inc.
And with the refineries that were shut down in Australia, which was the non ones first and one that was announced the other day with yourselves.
And Exxon and you're seeing how these things are developing and what's what's moving and we look at the numbers for January in terms of Congress move relative from what was going on last year and.
And.
And you can see that 57, a M. Ours was done in January to Australia, and 21 January and 38, Madame and gentlemen, and last year. So we can already see that everything that we've been talking about last year. What are people doing things as they are saying that they're gonna do happening well. It certainly was happening very quickly we had the same thing.
And I think and.
And matter of Al mentioned in his opening remarks about Suzanne and we moved the first Chicago outages and and we've seen.
And where I'm coming up as well.
At the moment, we haven't seen very much distillate moving west for obvious reasons.
At the moment and slight and its moving east where obviously it has been this unbelievable demand for particularly naphtha and.
And in Asia, which of course has held up a lot of the markets from the west going east and with the Big ships and what we're waiting for of course is this.
Churn when are we going to start seeing the other parts of the barrel stopped.
It's not moving the other direction.
We are still and we're seeing smaller spark so that's and we see no force jet cargo.
And it's still too early to say what that means obviously, you know check doesn't have an unlimited storage and life.
But certainly that did you start seeing that things are going to be flying around again, you have to think about what are you going to do with your jet fuel and have that and storage and the right places and a six eight weeks prior so weird.
Pretty good.
We're confident that we're starting to see the changes.
And we can see that people and in some markets and started reaching out to go the route.
And the west and they're fixing windows and stuff like that.
To say that we're seeing the cargo mix and such change I think it is.
But.
And so I think you could I think one of the better ways of gauging the customers its position as the.
Is the steady.
On and lengthening their books on modern tonnage.
And you know.
That's really where it where they are but I think that is.
As.
And.
As law says this is what do you want to call. It. This is just as the tide is changing you know the tide's been going out and the last two to three weeks or so the.
Tide stopped going out and it and win.
I'm pretty sure it's going to turn and just simply as you start to see.
Look at what's happening and in the United States and and you know one states, where we're where we're living.
You know set and things are starting to open up whether it's.
Kids being out of play team sports again, though going to the restaurant or doing driving and Europe already started to talk about it I mean the the.
The rates of Covid and the U K has been falling like Crazy. So you know I wouldn't say that we are.
We are pretty close.
And I'll just add in terms of the time charter and you talked about them and that obviously is one of the kind of real wood planks and leading indicators that always tends to see where you and sentiments and.
Typically for a lot of the traders the rationale that they do when they take time charters and stay there.
As we see the inflection point.
And the days and months before it happens to make sure that they can be on the right settlement true.
And when we look at it for what's happening.
Year to date and in 'twenty, one most of that activity has been more vessels and.
And the thing that's interesting to note and then all is that most of that.
Been happening on the and the eco vessels.
I think on the last count on our own list and we follow these things we've seen over 40 and Moss actually done on time charter.
And this year.
And on the count with 30 of them are equal and.
Large handful if not two handfuls of those are going on and also with scrubbers. So I think it's a really important kind of dynamic.
Changing here, where we can see quite clearly that day.
The end user the customers using these ships to trade for their business and it's a portfolio.
And we are pivoting towards.
Eco fleet.
Because I mean, it doesn't look at the overall numbers of vessels that we followed that every one of these traders and they have.
And every quarter they tend to be roughly the same which is not been tells you that they are swapping the older units out.
The newer more fuel and the circuit card from Christian.
Thanks.
Thanks, Lawrence and I appreciate that that color and and Robert as well.
Obviously, it's.
Probably early as you mentioned, it's a bit early to tell about the shifting.
Cargos.
Definitely sets up a pretty interesting earnings call I think and three month's time or two months whenever you guys come out with your next result, so and thanks.
Thanks for the color and I'll turn it over.
Thank you. Your next question comes from the line of Amit Mehrotra from Deutsche Bank. Your line is open.
Thanks, operator, Brian and I saw the debt amortization and moved around a bit.
<unk> is there a motor come on that later are we all done there in terms of what you guys wanted to do in terms of stretching out the payables a little bit.
We have a few more things that we're working on as we mentioned.
Some facilities to draw down on and and we're in discussions on a few other ones. So it is moving around and unfortunately, it makes you guys' life very difficult to keep on top of it but we have a few more things and then well.
Let's see where where we are at that point and things should come down there.
I bet. It I mean at least it's going down right. So that's good.
My next question, it's going to be a tough question, but I think it's a completely fair question. So I just want to warn you ahead of time.
Yeah.
Robert I guess, Brian and manually.
You guys lost $75 million and the quarter on a GAAP on a GAAP loss basis, we can exclude things like impairment losses and restricted stock Awards I don't know why you would exclude those but the bottom line is you lost that much money and the quarter. We're now 10 years into this venture called Scorpio tankers and you guys have reported 70%.
The time annually a loss.
So the question is the question is what is the change in strategy.
And that's kind of one allow you guys to actually create some value because the stock's down 87%. Since you took this public and second what are you doing to rebuild some goodwill with the shareholders and I'm really talking about it from the perspective of your related party transactions and the value transfer and SSH.
Thank you on it.
And I think we've put a direct question is as we've gone through this process we've adjusted.
And those relationships we've dropped various various things along the way we even did a major change two or three years ago in conjunction with our lead investors that we've been very the actual basic.
You know fees related to Opex et cetera.
Haven't gone up.
There's been no price adjustment for years. Despite the fact that you know.
Costs are obviously going up.
I think that the.
And this is the value is going to be created right right now by the dynamics, that's going to play out.
And to play out in terms of the real fundamentals.
Well could you give the can you give the public shareholders a holiday on commercial and technical management fees, because youre right. They haven't gone up but they haven't gone down.
We gave a holiday.
We gave a Hollywood day on commercial.
Fees.
You know when the when the rates are being consistently consistently low previously we didn't do any claw back when the rates were.
And we're really really high at the moment, we don't think that.
That's necessary at all and the company I think that you know the actual margins to that have been.
Being reduced quite a lot simply because I've said it hasn't gone up but costs have gone up salaries have gone up et cetera, et cetera, et cetera, but the quality and many ways has improved I mean, you can see we do very well against the benchmarks and very well against the competitors.
And that's it.
And on that wouldn't make it wouldnt make a material difference anyway. It so what you're talking about.
And there are two things Robert if I may.
And I think that we need to contextualize. Your question Amit because these are fair questions and we like direct questions I think that the space has been beaten up for the past decade.
I think that if you look at our performance as compared to two others were actually right on top.
If you look at the fee issue that you've mentioned apart from yes and BC.
Which was a 1% S&P fee, which we dropped as Robert has mentioned a few minutes ago.
Which many other companies charged and we decided to charge that together with our underwriters. When we went public and then decided to drop it because it was creating confusion and.
And staff for noise, however, on the technical and commercial that you've just mentioned if you look at our peers look at our Opex. Our opex are inclusive of fees or numbers on the commercial side that inclusive of fees. We issue net numbers. So post fees and there is really nothing too.
To look at with the criticism, we charged market numbers, we outperform.
And on on or are right at the top on the commercial results, we are right and that at the bottom and from a quality price standpoint, we the opex. So there is it's a known non argument on the on the general performance as I said it is very important to contextualize. This you you cited some.
Numbers, which are true and we do welcome as I said direct questions our criticism.
However.
And the tanker space and the shipping industry in general and it's been quite a difficult. One you guys on the analyst from from an analyst perspective.
<unk> and struggled to remain relevant and an industry, where a lot of investors have not paid attention because of the.
And depressed result that the industry, specifically was was bringing so.
Yes, Youre right.
I don't want to I don't want to belabor the point right because there is a public call. So I'll move on but like I don't think that Hasnt moving to deal with the question. The question. I had is you still also have over 200 million of restricted stock awards since 2010, which is basically share awards to the management team when the equity public equity prices collapsing 90 per.
So how do you how do you kind of explain that.
I think that's all of it yes.
And the other management isn't getting.
The.
Compensation is tied to the stock price and so that's the way of looking at it is look the management and the.
With shareholders, we also buy things and we saw flow when the when the stock doesn't perform.
And you know I think it's it's a it's probably a better position overall that a large amount of compensation is tied to the stock price as opposed to tied to cash.
Cash bonuses or cash salaries et cetera.
Okay. Thank you I know these are tough questions.
And that's fine we're totally fine, but I mean, the other part of it is that.
Hugh.
And inside as it being big bias you Havent seen many managements buy as much stock or derivatives through stocks and this one, especially and especially recently.
And position is is that you know.
We are really backing up the truck at the moment into what we think is going to be a great period for listing shareholders and return.
And 13 months ago, we were at the Grace period, and then the pandemic came but these question was not you Didnt ask the question 13 months ago Ahmed not because youre shy, but because you thought as well as we did that we were actually going to enjoy a very prosperous period ahead of us which tend to pandemic pruned force for many many other companies and.
And more importantly for many people so.
And that's why do we are but as you say happy due to your cost is happy to happy to discuss whenever you want.
Your next question comes from the line of Greg Lewis from <unk>. Your line is open.
Hey, Thank you and good morning, and good afternoon everybody.
Yeah.
As I look at the forward guidance. Thank you for that and go through the presentation, which.
I kind of thought you'd highlight some of those slides.
I guess my question is as I look at the performance for the quarter is there any way to parse all of al <unk>.
How much of that.
Scrubber related.
And and really.
And how we should be thinking about the impact of why do you need and fuel spreads on the performance.
Over the next couple of months and and.
And a around the scrubbers are you start.
Realized about a year ago, when scrubber spreads works per dollars, you actually had a lot of traders and and other entities looking to charter in vessels.
Just to take advantage of the scrubber spread.
Is that starting to rear its head again.
Yeah.
I will do yes, I mean and.
The first question how much of a benefit that we had so far and our results are our guidance is not really very much its only been recently as you know the the.
Price and fuels is has moved upwards and the spreads has started to re widen and above $100, but you know we.
And we do see that spread.
And continuing to open up a bit we don't necessarily see it going back to $300, but we don't see it going.
Back to much under $100. So it will become more meaningful as we as we continue through this year.
And I don't James would you like to add to that.
No.
Completely agree with that Robert.
We have a slide in our presentation, which gives you the breakdown.
And at $200 spread so you would divide.
And that by 100 to get the savings but.
We think the spread will continue to widen and just because we're in a more normalized commodity cycle and and there's a limited uses for high sulfur fuel oil outside of power generation and the middle East and scrubber fitted vessels.
And then what about and.
There've been and increased interest for free for.
Charter is looking for.
Scrubber.
Type.
Charters.
They've really capture the spread.
Well I think that the charters.
Charterers are looking for.
No.
Yeah.
Anything that can.
And Ah performed better in terms of either total field.
Sumption because of environmental reasons and.
And then add on top of that they'd like to have scrubbers to especially as that spread is opening up.
Okay, and then and then Brian.
Shifting gears a little bit.
Clearly there seems to be and expectation of.
Rising asset prices as we come out of this.
As we move into recovery of oil demand mode.
It did.
Do you have any sense of realizing.
It's going to be different across banks and leasing houses do we have any sense in terms of asset quality.
For additional lease providing of capital from whether it's traditional European banks.
And leasing houses, where really what I'm trying to understand is the obviously, there's been a lot of right sizing and the shipping box over the last 1234 years and and I'm just kind of curious are we now more than a stable environment or are we still seeing some.
Parties involved and commercial ship lending continuing to pull back.
What you are seeing much more and the sale leaseback and the.
And the Asian financial houses coming into play and.
And there is actually on slide 13, James put together a summary, there and you can see our credit facilities are about $1 billion and our lease financing and are about just under $2 billion and I think if you looked at that at any other time it would be nowhere near I think if we went back just about last year. It would be roughly equal. So as you saw over time that has changed and where.
Not the only ones doing it and you're seeing other people doing that so I think we're seeing and different market open up for us to borrow from very competitive too.
And do you get the sense that the appetite from the leasing houses as continuing to grow or is it kind of normalized.
No.
Some of them are opening up and there is some more out there as well.
And so we're getting inquiries from other people per.
Perfect. Okay. Thank you very much for the time everybody.
We have your next question coming from the line of thought.
And given from Jefferies. Your line is open.
And gentlemen, how's it going.
Randy Thank you Randy.
Good day.
And I've missed this earlier on struggling with some power outages, obviously Houston, but.
Just wanted to ask about asset values and how that has been impacted by current market weakness as well as maybe and the other side the optimistic outlook for the back half of this year and then how liquid is that market in a relatively tough still operating environment and then lastly, you mentioned staying as trading and a.
And discount to any day, so just trying to get a better sense for that updated NAV.
Estimate.
Last question and I can give you pretty clearly there's the.
We're not going to give any guidance on what we think our NAV is.
The first part is especially.
Especially linked to the free first question related to you know.
Would we have a book and I would.
And we start to buy our stock back at a certain point so.
We will keep we think alright, and a V is it to us self doing you know.
If we adopt that strategy.
And then.
I think that would be the benefit to the benefit of our shareholders.
And then in the first question.
There hasnt been very many transactions primarily because.
And last year was that no one really had to sell and times of distress, because even though the rates have been weak for the last few months of course last year was a fantastic cash flow yeah. So there've been very few.
And most of the owners of modern tonnage of being the stronger owners. So there've been very few willing sellers as it were.
<unk>.
You know values with therefore determined by whatever discounting new building prices and the building or the market was very weak last year and opex in many ways you had.
And ltvs or values that were kind of.
Artificially low with very very few transactions now you have an almost day.
A situation, where we know that there are lots of people, who who potential buyers of product tankers.
Again, those owners of modern tonnage suddenly don't want to let go of that tonnage is the.
Today's prices because they're seeing the market rise time charter activity rise.
And that they know that.
Modern tonnage in the water will be a premium because this market is likely to move and move fast and.
And so you know.
It's much better to for all these people to buy tonnage and the water then it would be today and your buildings, so theyre little being.
Little's being.
Transacted at the moment, so there's very very little data points.
And.
But you know that the actual trend upward trend is upwards, because you've got the charter activity and you have new building and increasing and you've got the expectations of a market that's going to improve.
Sure Okay.
And then in terms of plans for all the additional liquidity you have raised our rates and the refinancing to 7% notes due in 2025.
What are kind of your sources and uses of cash this year and then also on that how big of a priority is maintaining the dividend.
And while the borders.
As of today.
And it's keeping its dividend.
We are indicating that we expect the markets to improve and cash flow to come into the market.
So I think the board at the moment, we would expect to maintain the dividend.
The.
And the sources and uses right now at two and a half being to ensure.
That we.
Nothing untoward happens if things have been changing it was.
In November December, perhaps vaccinations would disappoint and thing now vaccination and starting to accelerate we would we're getting more optimistic we'd expect that pipeline to accelerate further.
But as we've said earlier until we cross into.
$17000 per day range, maybe we can go a little bit earlier, we would keep pool.
We would keep liquidity on the balance sheet.
Until we do that I can say that we have no interest and buying other people's assets right now like zero, we have a fantastic fleet fantastic operating leverage.
And.
The first priority to free cash would be buying back.
And after that we'd be buying back the stock and when.
We have and we're not even in discussion with shipyards are told I mean, the idea of ordering a ship is.
And it is completely at the bottom and the list.
Got it.
Good deal yeah that answers my questions.
Thank you.
Okay.
Okay.
Your next question is from the line of Ben Nolan from Stifel. Your line is open.
Yeah. Thanks.
Hey, guys.
One other question that I wanted to sort of circle back on I think you talked in your prepared remarks.
Sort of.
And crew issues and one of the things we've heard from a few honors and they were sort of going out of their way to stop by and minella or other places too.
To pick up new crews I don't know that I don't know if that universal.
But was curious if you guys are doing things of that sort and yes, and maybe the numbers that we're seeing now there is some sort of it and the impact from maybe artificially depressed.
Utilization or something like that is a function and.
Got it.
And optimum efficient yet.
Cameron.
Okay.
Yes. Thank you for the question.
The the rerouting of vessels was really an event that debt.
We faced over the last two quarters.
And you could see that there is a corresponding impact in terms of declined.
Nation or TCE as you might see it.
But also to.
Decreasing from the short term some decreasing travel expense.
And then as things start to normalize youre going to see the opposite so again it was something that we've been through for the last six six to eight months, but things are slowly returning back to to normal it's still quite a logistical feat to to manage travel not just for our crew but for.
Technicians are superintendents or anybody else that needs to visit or.
Maintain the vessel.
And so again as Emmanuel said in his opening remarks, the next three or four months, we should see things start to start to normalize.
Cameron is there any way to or have you.
Any done any math on sort of what maybe that net TCE impact is roughly.
We we don't have it at hand, but we can certainly take this conversation offline to talk about some of the examples threat thankfully.
The law of large numbers helps us a fair bit so.
<unk> these out and taking them one at a time really I am not sure the impacts would it would have been.
Terribly material.
And when you're talking about 100, you know few hundred dollars a day and maybe across the fleet.
Okay and that's helped.
And then secondly for Brian.
We're closing in on.
And just a little bit more than a year before.
And the convert comes due.
And the number of smaller now that you guys have bought some of it back.
But.
How are you thinking ultimately about.
And what you want to do there.
And I appreciate and maybe it's a little early but.
Is that something that you would envision and simply looking to refinance or.
And maybe do you anticipate that that type of capital being in the capital structure and long term.
And it's very possible we are looking at a few different options and I think as time goes on we'll tell you what we're going to do with that but we're looking at everything at this point so.
Okay, and it's made and we still have.
Say, it's 15 months, it's not it's.
It's coming up it's on our radar.
Alright that does it from me Thanks Ed.
We have the line of Jon Chappell from Evercore. Your line is open.
Thank you good morning, and good afternoon.
Just one maybe a little bit long winded question from my side, So and annual talked a couple of times about the five to 6 million barrels a day of demand growth this year.
Which are our house view is very similar to that so understanding rate of change is going to be positive. We're bouncing off the bottom of oil demand and therefore, the market has to move higher from where it is today, but what I'm trying to understand is the kind of extreme optimism about the pace of the magnitude of the recovery we look.
And at oil demand estimates for 'twenty, one and 'twenty two are super bullish oil analysts came out today with $7 6 million barrels over that two year period, but that's up against and $8 7 million barrel decline in 2020. So we're looking at a 2022 demand number that's lower than 2019, yet the LR to fleet has grown by <unk>.
Six or 7% over that period. The M ours will be a couple of percent. So I'm just trying to understand just pure simple supply demand what else is happening with ton miles with not scrapping that gets you to that kind of a very optimistic view that not only will we have a recovery, but it's been incredibly meaningful and sustainable one yeah.
Great question.
So firstly, the we have to remember that the bill.
And what is effective product tankers supply, so we expect and clean petroleum products to be.
A significant decline.
Of.
And what's in the.
At present and fleet.
Ah well over 400 day malls over the next two three years that will leave the premium fleet.
Trading clean petroleum products, which needs to be offset against a very small.
Order book gain James and our second can give those details once I go through the parameters. So the supply side effectively as either staying flat going forward or potentially even declining in terms of and effective basis.
And then we're seeing a big changes huge changes and you know just and this last three months just take whats happened in Australia in terms of ton mile changes.
As refineries import refineries from crude go and are replaced by.
Clean petroleum product import terminals.
If we look at the mix itself going forward out of that 6 million barrels or seven or 8 million barrels. This year by the end of this year Amelia and of those barrels.
It's going to be product exports.
So that's a huge change just that is a huge change on the actual product position. So you're you're looking and your oil analyst is looking at total crude oil barrel demand, we're looking at product.
Ton mile demand so for US. It's it's you know how.
And how much product is going to be used and the world and then it's going to be where is it being shifted to we have a theme going on underneath.
That growth that the ratio of products carried by sea.
He is going to increase at a fall.
Higher rate.
Then that to crude oil and this recovery.
And James would you like to provide some details on this please.
Hey, John.
So yes, just to build on Robert's point, when we think about the capacity closures we've tracked.
And one 6 million barrels today and estimates have ranged from two to three but basically pre COVID-19 and refining industry with oversupply and so we're gonna see further consolidation of the <unk>.
Finding space now we are obviously, highlighting the closure of the Australia and refineries because it's very simple ton mile demand math, Australia is a country that already imports more than half of its refined product demand right. However, if we start thinking about the closures in Europe a place that's already out of diesel deficit. If you were to ask me a year ago.
That's not something I had expected if we start to look at closures throughout the United States and certain parts of Southeast Asia. These are areas that in most cases will need to replace the lost production and obviously, the new Mexico, Our Wyoming refinery, that's quite small and closing is not going to have a material impact, but you close a refinery and <unk>.
<unk>, where they only have one remaining and youre going to need to replace those barrels on the other side of it.
People really didn't start building MRI product tankers.
The early two thousands if you go back to 1998, and 999 and you're talking about 20 ships delivered a year.
And the EMR space.
One nothing is ever left the space really if you consider that 15, each year and then to all of the ships that we're really starting to deliver and the Florida O. Eight period are now getting to that 15 to 18 year range. So if we take 108 Mr's and wanted a day and we compare it to 460 that are turning.
15 over the next four years, its considerable and I'm going to actually pass the Lars on this because he can tell you a little bit more about customer preference and the time charter market and perhaps some of these emission regulations that are coming forward.
Yes.
Thanks, James I mean, we talked a little bit about before about the <unk>.
<unk> fixed on time charter and where the pivot has was was towards the eco fleet and that I think it's certainly across the board and we're seeing this.
The thing.
It's really going to be a game changer over the next couple of years is how we are looking to.
Really grasp around the carbon emission issue and with the iron and putting their goals and reducing carbon emissions by 40% by 2030 day a couple of things that are taking place right now and why don't you got the the operational standard that is supremely important that as we looked at our product tankers under age they call.
Today, the energy efficiency existing shipping day.
<unk> XR and.
And basically if you want to try and kind of reduce your carbon footprint, you've got to look at the efficiency of the vessel bonds and utilizing and we are seeing today.
And one of our customers from the first of January of this year measuring carbon footprint on every spot voyage that theyre doing and anticipation of what this will mean for the cost of moving cargo from a to b.
So when you when you think about well what does that mean, if you want to load out and your carbon emission.
And.
And all transporter well first of all you look at a more modern ship because they have made a lot less carbon and then the gas Guzzlers all day.
And eco and vintage so that in itself I think you will start seeing a acute hearing of a market to a much larger extent and we have been seeing over the last couple of years.
There was an age.
And threshold set at 15 years, which was what a lot of the oil majors have put in.
As a quantity threshold.
But now with the introduction of and competition.
Moving on to see a lot of changes here and where people are going to be really focused on choosing the vessel more on their carbon footprint than anything else and here of course, Scorpio <unk> will be well placed on that point.
The only way to reduce the carbon footprint really effectively.
And on <unk>.
<unk> vessel equaled about and what that amount as well as reducing the speed and.
People start introducing speed reduction as the most efficient way of reducing the carbon footprint, which it would be at least as we look at things today. Well then you have the competitive advantage and I'll be super Eco vessel.
And coming to the floor again so.
This backdrop here is to premium and I believe over the mix next.
Next period.
Alright, James Lars and Robert Thank you very thoughtful and thorough answer.
Thank you.
Your next question comes from the line of Liam Burke from B Riley Your line is open.
Yes. Thank you.
We've talked a lot about the refinery disintermediation and the closing and then reopening in China and the mid east.
How long does this process take to roll out we've had closures and to end 2020, we expect more in 2021 before the ton miles begin to normalize.
Between the normalized.
And while it would be a new normal there won't be back it won't be and correct, that's right Rob that a new normal.
It's already happening as Lars is saying you know what he's saying from Australia and the change of Australia January to now and they've been added another refinery closure very recently, the XO and wanted and I believe that.
We've already fixed day.
And are already fixed the vessel and clean too to that area or as a substitution for some of them closing that down so it sort of pretty well come instantaneously as the refinery.
Our refinery that was refining importing crude.
To refined products.
Stops.
Refining the crude than then they have to make up for that.
Especially now that inventories are pretty well normalized around the world they have to make up for that product loss.
Kind of immediately the actual refineries coming online and they take are they sort of step up.
Over a period of months.
From zero when they before they stopped and then they just move up in incremental levels as they open up that open up the refinery.
Okay.
And on the debt front.
Touched on on your lease.
Financing the convert and.
Everything else as you look at cash flow is accelerating and rising rates lower capex.
Is there any part of the stack that makes more sense to you or do you go back and and.
And look it just straight cost of debt.
Alright, and Liam it's Brian.
And we just wanted to look at some of our highest cost of debt, which some of these facilities that we inherited and the navigate deal where refinancing those at better rates better margins. So I'm looking at that number one and reducing our interest costs, along the way and at Mt.
Give us the ability to keep on paying down more principle.
And as long as our stock price remains.
Reasonable.
It's not right now, but and the longer term.
Our number one priority as Robert said is to pay back debt.
Great. Thank you very much.
Your next question is from the line of causing such from tankers Ddos. Your line is open.
Hey, guys first of all congratulations on retaining liquidity and a challenging environment. Thank you for having me on the conference call for the first time.
I have a question from one of our subscribers who has.
And <unk> and banker and he just wants to understand a little bit better the flexibility and limitations and hasnt financing facilities. He thinks that the net debt costs are quite high.
And once and now apart from reflecting leverage and the business. These higher rates represent flexibility and the uses of the financing for example, if the company and start seeing a.
Clear pathway to much higher global steel consumption and you have some of the bonds to Opportunistically buy back shares are there any cash.
And all fees associated with that.
Debt repurchases or any other interesting features that financing facilities.
Okay.
Alright.
And Brian and simple.
Ill start Brian and pharma in simple terms this day.
<unk> have.
Repurchase options.
And that they have those at different points, but that's quite efficient and not really you know, it's not really penalties that may be a.
A transaction fee related to doing that and.
And and.
Otherwise the fairly standard so there's nothing that is preventing as we talked about earlier.
Nothing and really us prevent and preventing us and refinancing.
The more expensive parts of the capital stack or nothing and no.
Nothing that is preventing us from moving to buy back stock either.
Okay and separately as far as the ESG stuff does.
And increasing moves towards reducing emissions and outside of having scrubbers fitted ships and.
Having newer eco ships are there any other steps that you guys can take or that you anticipate needing to take in order to meet newer emission standards.
I think that's a really great question, but before cash.
And goes into to that and maybe other areas of not just the EBIT. The <unk> two and the ESG is the.
First of all we really appreciate it.
Your your questions and your interest and I. So hopefully you will.
Create four helped create for the market, helping one of the things for investors. The wind noticing is that there's very poor information related to.
Our actual <unk>.
Market, what it's doing and what for example, and that allowed to market is really doing day to day I mean, we've seen some really a pooling instead of daily estimates of what and that ought to market is doing.
And we've said for many times at Clarksons is has really been the.
The.
The most accurate.
Potentially most accurate and determining what a triangulated and law to can actually do.
There are other services out there and the private ship brokers non publishing Mcquillan for example, do a very good job and.
And we think that you know.
Your tank.
And Ah tanker data is also making the effort to go through and and do the hard work to go through the fixtures and.
So the answer to a question itself I'll pass it over to Cameron.
Thank you Robert.
It's a broad question.
And as the first response I'd refer you to our sustainability report, which lays out some of these answers and gray.
Detail, but.
You know additional.
Progress on our carbon footprint and our emissions profile large referred to it a little bit earlier comes from a variety of sources and that includes not just the ships that we thoughtfully designed and constructed.
345 years ago.
But how they're operated the type of sensors and analytics and analytical tools that are available to us on board and to shore. The training of our crews on the operation of the vessel and the interpretation of these advanced analytics.
And obviously, a great deal into the interaction of the vessel and its environment. So when you think about.
And how you drive your car or how we're airplane goes from may be that technology has led the shipping industry a bit but it's advancing quite rapidly and this has to do with.
Things to reduce the friction and frictional coefficient between the vessel and the water and.
And increasing it.
Efficiency that way through coatings and different methods and cleaning the vessel.
And it has to do with routing and the technology around routing vessels optimally to get from one point to another speed adjustments course adjustments all of these things.
And finally, and most importantly, it has to do with the management of the fuel because as you know most people think that bunkers are a commodity when in fact, they vary a great deal, depending on where and when and from whom you purchased them and Manning managing that fuel.
Effectively.
A huge impact on the efficiency of the vessels and of course, the admissions footprint. So all of this is a big.
Big topic, and there's a lot more to discuss but these are the basic points that I would.
I would put you and again as far as we've come every year Youll see improvement as our technology improves and other resources and materials also improve.
Okay. Thanks.
It's typically as far as carbon trading goes meeting eating and purchase credits being able to sell credits.
Have there been any developments that you think are actually going to have a material effect on you guys and the next few years.
Oh, Thanks for the question and actually it's a great point and it's something we're working on currently are just starting to see the monetization of credits come into our industry.
And largely in dry bulk and LNG, but it's slowly coming into tankers and we're currently working.
With one of our customers on an initial trial on selling.
Selling them carbon credits.
And so we expect that this to become a more normal activity and the and the next several years.
Obviously, there is a great fit and.
Around different jurisdictions, and how you take credits from and offshore industry and put them onshore, but we're right in the middle of developing this and we're very excited about it.
Okay.
I think I just heard you said that Scorpio tankers is selling carbon credits and I did I catch that correctly.
We would be transferring them to a customer and so far as we are ahead of our emissions targets that the I M. Moe and the other regulators have said, yes, we have credits that we can transfer it to some of our customers.
Okay, that's really interesting.
Thanks, a lot for having me on the call guys and.
Looking forward to future calls now thank you and I and as I said at the beginning of your question.
It's a good question and.
And a developing question and perhaps.
Hidden treasures will evolve.
Evolve, but generally in terms of communication disliked the sort of say this opportunity that we're going to try and communicate.
Better we know that we have a widening group of investors and interested and we also know that we have let's say two kinds of sets of <unk>.
Let's say analysts at the moment is one group of analysts that are following this market every single day and really.
Providing and sort of more.
Daily or weekly information to investors and then we've got what I would call. The quarterly analyst that just literally just show up once the once a quarter and don't really sort of communicate with the companies of the market and between.
And then of course, we've got a growing interest from from retail et cetera, et cetera, and we know that they're shut out a lot from some of the key webinars and some of the key let's say conference calls that we make that and not.
Allowed and then just not allowed on.
You know by the actual bank so whatever them gave them. So we're going to try and look into providing an opportunity.
To let's say have and invest a conference school that is much more open to.
To really anybody.
Who who's interested asking a cool through may be some intermediaries or.
Through through email or zoom or whatever like that and we haven't finalized how to do that but you know hopefully we can we can work out how to do that so as to we can try and.
Educate the community community better.
So appreciate your question great.
And we appreciate that as well thank you very much.
And cute.
Okay.
I am showing no further questions at this time I would like to turn it back to the speakers for any further comments.
Thank you for joining us today, and we look forward to speaking to everybody. Soon thank you very much have a great day.
Ladies and gentlemen, this concludes it.
This concludes today's conference call. Thank you all for joining you may now disconnect.
Okay.
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