Q1 2021 Scorpio Tankers Inc Earnings Call
Excuse me, ladies and gentlemen. This is the operator today's conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.
[music].
Hello, and welcome to the Scorpio tankers incorporated first quarter 2021 conference call.
I would like to turn the call over to Brian Lee Chief Financial Officer. Please go ahead Sir.
Thank you Stephanie and thank everyone for joining us today welcome to the Scorpio tankers first quarter earnings conference call on the call with me are Emmanuel Lauro, Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief operating Officer, Lars Duck Decker Nelson commercial director, David Morant, Managing director and James Doyle Senior financial Analyst earlier today, we.
Issued our first quarter earnings press release, which is available on our website and Scorpio tankers dotcom.
The information discussed in this call is based on the information as of today may seven and 2021 and may contain forward looking statements and above risks and uncertainty.
Actual results may differ materially from those set forth and such statements 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 Scorpio tankers SEC filings, which are available on our website and at SEC Gov call participants are advised that our advice and see what do you.
This conference call is being broadcast live on the Internet and is also being recorded for playback purposes and archive of the webcast and we 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 on the Investor Relations page under reports and presentations those asking questions. Please.
Limit the number of questions. So everyone has a chance if you have specific modeling questions. You can talk you can contact me later and discuss offline now introduce Emmanuel World.
Thank you, Brian and thanks, everybody for being today with us.
And we can now see a rapid recovery and many major economies, we're seeing a rapid return to normalization.
And many countries, having achieved significant milestones in their box and Asian programs.
And this has happened and a relatively short time, Inc.
And Congress the situation and India does not go unnoticed to us and our thoughts are with our Indian colleagues and their families and we continue to focus on what we can do to offer assistance and support to them both ashore and at sea.
From a balance sheet perspective, our liquidity position has continued to strengthen.
And our cash position is higher now than it was in February during our last earnings call.
And with a cash balance of $280 million and additional liquidity from committed financing and financing under discussion.
Our pro forma liquidity will be at $367 million.
We have confidence in the continued recovery inventories are rapidly normalized and refinery throughput is forecast to rise.
By close to 7 million barrels per day between now and August.
And that has always been higher correlation of product tanker rates to this rebounding GDP numbers and see.
Seaborne product exports are expected to increase as much as close to 7% high sixes in 2021.
And there are other strong and more durable trends at play at the moment. For example, we believe the secular improvement in ton miles demand will be one of the lasting impacts of the pandemic due to an acceleration and refinery closures through the period combined with the opening of May.
And modern refineries, particularly the substantial projects and the Arabian Gulf.
And we see this as a shifted demand curve.
The supply picture and gives confidence that this recovery can be multiyear.
In fact, the product tanker order book is at record low levels with six 4% of the fleet on order.
The product tanker industry fleet is aging.
And new environmental rules will further challenge the economics of operating older tonnage.
And increased scrappage in coming quarters.
Fleet replacement cost share going up and this in turn drives improvement in the mark to market value of our modern fleet.
On a full of orders in other asset classes.
And lead volume is increasing and prices for new buildings are clearly escalating.
The shortage of <unk>, we had a clear impact on tankers.
And that had been only 19 product tankers ordered year to date.
And in our view on the wall to the product tanker fleet will struggle to demonstrate much net growth at all over the coming years.
And the 156 product tankers will turn 15 years old in 2021 alone.
This is one of the most benign supply pictures on record.
So we think.
The company is well positioned to capture the opportunities from the near term rebound in demand.
And we have increasing confidence this will precede a multiyear upswing.
With that my remarks are over and I would like to turn the call to Robert.
Hi, Hello, everybody.
Look I think.
Average daily.
<unk> started and they will do you think the petroleum products.
And I think that as far as the product tanker market is concerned and rates.
It's a little bit like the quiet before the storm because it is the recovery that we're seeing as being disguised.
And April.
Simply by the very large turnaround and maintenance period that the world refineries are complex they have gone on book.
They just started too.
Come back up this week, there's been a almost instant response and upward.
<unk> story and demand.
We've seen on the index is 20, 30% increases and MLR rates, just and the last two or three days.
And the markets tightening in terms of demand.
And for next week and.
In Asia, So I think that.
It's very some people may feel that.
And our recoveries being delayed but that's not the case the recoveries there in terms of headline demand. We can see at the U S. Vaccinations opening up the U S and almost fully open now.
Europe is in a much different position than what it was just four weeks ago.
And that's going to slowly open up the Asian economies are doing fantastic. Obviously, we were all concerned about India, but on a net net basis. This market's demand side has been moving very very solidly in the last few weeks.
And those rates were only going to go up and one direction as refinery utilization comes back and then.
And then there'll be other times to talk through the cool, but that's the sort of major thing I wanted to put in People's minds right now so I'll just hand, it over now to laws.
And it.
Alright, Thanks Robert.
Going back 12 months ago.
The COVID-19 rival global commodity markets globally.
Global Lockdowns created the negative oil demand shock.
And the speed of decline and demand occurred much faster than the supply side to respond to.
And if oil prices into negative territory.
And this has now shifted decidedly into positive territory and benchmark crudes are pushing $70 with risk to upside.
Also back then and.
Global land based and inventories of refined products filled all the.
Customers turnkey product tankers to store, the excess supply leading to the surge and floating storage and so and global inventories.
Last may and refined product floating storage reached 109 million barrels.
This has now shifted and we have today and a 24 million barrel level.
Patience is a virtue.
And just as we all grow more each day from mortality, it's very much the same for the recovery and refined products and rates.
The good news is that we do not have to be patient for too much longer.
On our call.
Last year, and I said, the catalyst for the recovery and product tanker demand and consequently rates, we're gonna be vaccinations are.
And we can see the increase and vaccinations translate to immediate increase and personal mobility, which increased demand for gasoline and jet and diesel.
We're now seeing this increase and vaccinations globally.
There is a still a way to go with the NASA metrics pandemic recovery it is clear.
Vaccinations increase and a population with offices businesses opening the much delayed vacations book Myles.
Miles driven flown are increasing.
The consumers stepping up spending on a scale.
And not seen for decades, and led by the U S and China.
With about 45 per cent of the U S population, receiving one vaccine dose refinery utilization and refined product imports have increased while inventories remained flat.
Suggesting the much anticipated sharp increase in demand from and increasingly vaccinated population.
And real terms.
Total U S refinery utilization since the polar vortex event in February and has increased over 30% to 87% as of last week.
This is the highest level reported since March of 2020.
Incidentally the vortex also help take out a staggering 60 million barrels of additional product storage.
Several Gulf coast refineries, where offline due to the emergency shutdown and accelerating the rebalancing of Atlantic base and product inventories.
Now in addition to this increase and refinery utilization Kepler data show close to 6 million barrels and seaborne gasoline arriving into the U S. Atlantic Coast last week and estimate another 6 million Little rock. This week. This is the largest influx reported since 2017 and <unk>.
Bear in mind this didn't increase stopped which remained at five year average stock levels.
And as Robert mentioned refiners also coming from maintenance.
They're trying to engines at the end of the first quarter and early Q2 for the anticipated demand increase.
And we've calculated roughly 10 million barrels per day offline between March and May.
The refiners will acquire this maintenance work is the IEA oil micra reported indicate an increase of $6 8 million barrels a day refinery runs and increased by August and.
At least from this.
At least a third of this volume we see hitting the export markets.
We have noted also lately internally and uptick and medium to long term time charter interest from major oil and market participants, which also provides a strong leading indicators and inflection point is near.
Latin America will be an important area to follow.
And it begins to move out of it spent stomach induced lockdown.
We can see already from Apple mobility, and traffic index and cities in Mexico, and Brazil, affirming and Chile is on the cusp.
We experienced the shift and the product tanker trade already is Mexico has returned importing cargoes and songs.
And I think these indicators are key to understand what lies ahead as much as the volatility we see now and the front and telling rapid changes and supply demand and as economies start firing up on all the cylinders and emerge out of lockdown.
And the latest example of this trend is certainly the U S Gulf clean and my market.
And I can just yesterday, 30% after a prolonged low and activity due to the varying lockdown and factors that I mentioned and the impact from the refinery maintenance, reducing overall seaborne volumes.
Finally, I also like to bring and.
And the important factor and refinery closures and the positive and in fact, this will have an increased ton miles and additional tonnage demand and we see a lot of that going in particular and in the U.
Eastern Hemisphere.
Whether it's the overall a pent up demand driven by the increased mobility and key important regions, the new trading patterns from changes and the refining landscape and increases underlying ton miles.
And the benign and historically low Newbuild order book and the rising price of steel the vaccine world.
The continued stimulus.
We have remained patient continually focused on operations and optimization and now certainly look increasingly optimistic forward sustained recovery of the product tanker market.
Thanks.
And that's all from me and I am not any of my colleagues have anything to add.
Operator, we're ready to open up for questions.
Thank you.
At this time and if you'd like to ask and audio question. Please press star followed by the number one and your telephone keypad. Once again that is star one to ask a question.
And your first question is from the line of Omar.
And the Kodak of Clarksons plateau.
Thank you Hey, guys good morning.
And.
Thank you frame pretty nicely how the market is set up for a real recovery and just wanted to ask kind of hot and the state of Scorpio at the moment and.
With regards to liquidity.
Remained pretty solid I think despite the fact that rates overall hasn't really been that fantastic there have been pockets of strength, but it's very interesting that and in February and your last earnings report you had shown and cash position of $204 million and now it's risen to 280 and.
And just simply put you know.
What's your comfort level with the current liquidity situation and that Scorpio.
I think that will.
And I'm very comfortable right now I think with.
And now as we said back in February.
And you have to anticipate liquidity you cant just sort of.
Get liquidity when do you feel like it but.
But back and so what youre seeing today is really the work that was done.
Done in February and March.
But the.
In terms of comfort.
Look.
In February I did just four or five weeks ago people were worried about Europe.
Worried about whether or not countries like Germany, France, Italy would.
Get the vaccinations, Germany is is.
And as crossing the 50%.
Sure.
Vaccinated people know, they're even now considering some opening up and the same as France, and Italy, great strides.
Most of that same speed and Germany's vaccinating at a speed higher than the United States did and we can see what happens happened and the United States and two or three months.
So today of course, it probably looks as if we've got too much liquidity.
We.
And if that's possible for a shipping company.
Pretty clear that we feel that the spot market has already started to accelerate upwards and to the.
And this refinery season from from losses presentation and.
And we're seeing really good confirming data and inventories real world inventories of products and.
And it states that you know.
Et cetera, et cetera, So I think the.
Very shortly we're going to reach that critical point for us.
Well, it's around $17000 a day.
We're covering everything.
Amortization as well as everything else.
And then clearly we start to build cash just through operations.
And.
We have no clue.
Clearly our positions weekend.
At that point and have a combination or building cash and paying down debt buying.
Buying back stock will be a and as we've said before is going to be a clear incentive for the company.
Especially when already all stock is trading so significantly below and a Z I think we have to look at the last two months not just the company has built its liquidity.
But it's asset bases strength and some marks assets are up 10, and 15% the companies and the lease up.
Turning on your own calculations somewhere between 35, 45%.
Very hard on that.
Any calculation to get and any of the at the moment.
Much less than you know.
$25 and the low side, if asset values go up another 10% and then that's going to take the and AAV.
And you know well up into the sectors, along with the clients and at these great. Even if these rates were having some contribution too and so we're in a very different environment right now.
Have you set with through the refinery turnarounds and through the Destocking with through the critical 0.2, vaccinations and and.
And in Europe, and yes, we were very happy with the.
Liquidity is as a company.
No has at the moment.
Yeah.
Thanks, Robert So yeah, just maybe a follow up to that.
The terms of too much liquidity.
And.
Clearly as you just outlined we're seeing a lot of activity across the shipping sale and purchase market and even and tankers, especially and theres been a lot of vessels changing hands at firm prices. So like you say there is upward pressure on NAV.
As opposed to assessments, it's actually deals being done.
And maybe just for clarity given the dislocation between the stock price and where it is.
And the plenty of liquidity that you have buying back stock and Thats something that you see as an opportunity to do here and the near term or do you want to wait for that trigger of about 17000 breakeven and then start to buy back stock and any any indication you can give on that front.
I don't think will be beneficial across the.
All shareholders in terms of getting.
Prices too.
Hum.
And I anticipate the exact time as the true when we would enter and I think we.
The one luxury the path the company has is and it doesn't have to.
Well it has to do is buy and open periods.
And it doesn't have to report.
Its activities, so I think that we've given.
We want to that as well as we can.
17, with just going to have.
17, plus we're going to be building more cash so you're almost.
And you have to start doing some things about it right.
And to 17 right now you could just take the choice because looking at COVID-19, we've not just got $280 million of cash on the balance sheet. We've got another $20 million coming Tuesday, that's 300, and and we've got the other stuff there and we do think that this market is strong.
So.
So that's the wonderful position. We're in now is we would totally flexible so we could anticipate things as opposed to waiting for things.
And if that answers the question you're asking or.
It does thanks, Robert well well said thank.
Thank you I'll turn it over and normally and and we would in that case, we would hope to the shorts continue to provide us with the liquidity.
Right.
[laughter].
Right.
Your next question is from the line of Jon Chappell of Evercore ISI.
Thank you good morning, or good afternoon.
Robert going on that previous topic that Omar brought up on liquidity I mean, we've been talking about liquidity for 12 months now obviously, the most integral part to to staying afloat. So to speak during this difficult time, you guys laid out a very optimistic view on the market starting effectively today.
But you're still planning on adding liquidity, mostly through debt and.
And the coming months and quarters, how do those kind of lineup and don't you feel that you have enough at this point.
And you should be thinking about deleveraging, which was your plan at this time last year as opposed to adding more leverage if the.
And the future so bright.
Yeah, that's exactly right John and Yeah, that's right.
And I and I've made it clear to all of them up but.
Clearly got those choices.
These rates go up and our getting debt that mixture that mixture of.
You don't expect and just the same as we saw and dry bulk.
And the first part of it probably starts do tend to trade below an EV and.
And then they gather and then they.
They start to match off against and so.
As I said I hope that said, we believe this thing you've got to have.
The other two.
The boats or or or one you are going to be able to retire debt.
And fairly quickly.
And youre going to the same time have that access to.
So perhaps just for a short time.
To take advantage of a.
Quite a big dislocation between the pricing and you can do you can do both.
But we couldn't and attacking and kit.
And if the correct thing to do.
Was to continue to build liquidity.
And tell we sold that we would 100% three things even flow even go back seven or eight weeks ago with many of these instruments will put them to create liquidity.
And that time the world was worried about Europe, if you remember.
And really worried about Europe and and.
The U S only had.
Opened up et cetera, so it's a little like government.
You've got to overshoot.
And as we right now things have gone and fantastic and.
As we said the market is recovering nicely.
Rates are really going to stop moving over these next days and weeks simply because the refinery turnarounds will finish.
We didn't think it was prudent to rely on that.
Always.
Deal with a situation like we have now where we would expect to have inc.
Clearly too much liquidity.
So and that would be to pay off debt.
And or buy back stock.
Mhm.
Okay. So as I look at this slide 12, which has a nice little step charter liquidity, you're taking on and by the end of the second quarter.
I guess is it too late to walk away from some of those or would you just gather that cash and then as you see the inflection while actual earnings then.
Pay downs and others fulfill yes, I understand you may not want to walk away from those because those are being negotiated and very good.
As you know, we don't have any and.
Banco normal finance to do for.
Two more years these ones are being are reflecting.
That strong good times and some of the ones before.
And you still got.
A lot of.
So what you would be negotiating and fun to view would be less.
Costly than what you could buy out from behind me.
Hum.
So there's like some of the button on some of the bonds yeah.
Some of the bonds and some of the and some of the lease positions too.
But I think it's you know it's a great thing.
Fantastic.
And now with both the chatting about what to do with excess liquidity.
And Doug.
That's great.
I think shifted right for a company that's tried and 60 presented and the Navy.
Yes.
Understood Alright, well, that's all I have I'll turn it over and thanks Robert.
Thank you.
Your next question is from the line of Greg Lewis with B T I D.
Yes, Thank you and good afternoon, and good morning, everybody.
You know Robert or Lars.
I'd be kind of curious on your thoughts.
It's something that more people had been flagging to us around the.
The E X X XI the energy efficiency impact is that is that kind of one of the main reasons, why you're calling out that the 15 year.
All vessels.
<unk> as you are and kind of the slides.
Is that is it.
And any kind of color around that how should we be thinking about that it seems like it's kind of early days and in that process just kind of curious on your thoughts around that.
I'll just answer first and then laws. So we really believe and is 15 year old rules.
Well operating we've made recent announcements from the pools that were not.
And not for our ships and this thing.
The other ships and.
And we are opening pools, and then developing pools.
For vessels.
Specifically.
10, and 15 years old and would not be qualifying for our own clean petroleum product goes from those schools would be trading and different rates then.
And our and particularly the vessels.
We're not the only ones, who believe it and you're seeing other owners.
Oddball Hafnia Shlomo all day.
Product owners Diamond S before they're sold aggressively sell vessels from Atlanta.
Their parts, which is old.
We're seeing finances book of that 16 year rule.
Clean petroleum products, but most importantly, the customers.
I see this.
Last we'd like to add.
And it certainly has taken.
Taking a step back if it's true.
And that.
The ESI, which is the efficiency of existing ship index.
I'll answer that you've got something called the carbon intensity indicator, which basically it's like a report card where the vessel and you have a rating between a and <unk>.
And there is a lot of kind of would there still being chopped and.
And our government perspective, and you know this whole thing is expected to be adopted on a I think it's and June 'twenty. One with entry is going to force from January 2020 three.
And of course, what it's all about is trying to calculate.
And the carbon emission per deadweight and.
As modern ships are more efficient and and older vessels, there is going to be and increasing GAAP.
Between the Super Eco vessel and the non eco vessel and that's going to play out as we go forward. So you know.
There's going to be a competitive advantage for those who have fleets with modern eco vessels versus older vessels that certainly are going to have great difficulty and not being able to comply.
So what do you didn't say what are you trying to comply with your baseline where you got to think about what to do you can put in some energy saving devices.
And you can reduce your deadweight.
And.
Reduce your main power output.
Output all three of those.
Will skew the competitive advantage towards the Super Eco modern vessels and if I'd just like to stop there and say that this is also one of the reasons why we can see for a lot of the customers that we have and the oil majors oil traders and so on and Theyre all pivoting away from the older units and all when they want to look at time charter.
Good day or want to go from modern units because this thing is going to come true cinema and near you and it's something that's going to have a big difference and how you really want to say what is a competitive vessel and what is not a competitive vessels because some of them and they're gonna have to make some drastic measures to actually reach their and their carbon.
The calculation index.
Okay, Great and then.
And.
No.
Okay. Yeah. Thanks, and then so yeah no no. Thank you for that that was super helpful.
And so then like I guess, there is some news now that that in the us.
And.
Announced that they are there.
Going to start taking the full allocations that they get from Saudi Arabia.
Are we starting to see I mean, realizing that they have to get the crude refined it before they export it or are we starting to see any activity around that and around India.
And in terms of them ramping up their curve.
Good.
Demand again.
Well I think and the short term.
And the short term you should expect that and.
And crude demand and it's gonna be flat and maybe slightly decreasing.
But what's interesting here is that you know.
India and refineries and general they always run or have been running you know for the last period somewhere between 95 and 100%.
And so even though that you can say that there's going to be a decrease naturally for import and <unk>.
And on demand thanks.
Exports for India, and China strategically put that very important piece of the puzzle and I do not foresee.
And that refineries are going to be kind of slowing down.
They will start increasing their exports margin and you know we have seen some of this you know and.
And some of the smaller book.
And then just P L and so on and they are coming out offering additional cargos and they may window.
From a distillate and gasoline and so.
And it's for the product side, we don't do that much important to India and he is very much from export orientated. It's part of the world from a product tanker perspective, and the refineries they are still growing.
Probably helped.
Okay perfect. Thank you.
Your next question is from the line of Randy given some share.
Yes.
Howdy gentlemen, how's it going.
Thank you and me.
So for the quarter to date our rate guidance. Obviously this is well above some broker averages can you maybe quantify that outperformance in terms of and eco premium versus scrubber premium and then also but looking at those quarter day rates. It seems like <unk> should be much better right than <unk>. So what.
That compared to the first 50 per cent of the cord and that's been booked what kind of rates do you see for maybe the back half of the quarter.
Oh, so Randy.
We don't give guidance as you know.
But.
If you were to take a.
This quarter is going to be very wide and it says.
And so right discretion, because what you have going on.
And if we start with the OPEC headline itself that they are going to be pumping.
More crew.
Crude and crude equivalents every single month.
Mounting it up all the way through this quarter itself.
Net.
The next part is of the equation is the net.
And.
Everybody agrees that we are going to see more refinery utilization and step up all the way through between now and July August and that is going to be happening again.
On a weekly and monthly basis.
The third thing that's going to happen is that we would expect headline demand to just keep going up too and.
And as Europe moves forward and as the United States news to it.
Traditional driving season as well and.
And there were also seen on top of this.
The beginnings of it and those who is very exciting which is the beginnings of the recoveries of South American demand and the Mexican Mexico is opening up.
And our Chili's opening and all these things are relentless and we are against this we have a fixed supply curve very little deliveries of vessels that are coming into the market.
We have refinery changes, we have refined older refineries and that sufficient refineries.
Continuing theyre closing down and.
And you know.
The most efficient newest refinery and the biggest refinery and the and the middle East is gradually coming up and the second quarter.
So and.
And we're all ready as laws is pointing out we have a market and you've pointed out and your introduction we've had a market despite refinery turnaround hasnt fooling around full and.
And a part.
And it's showing signs of balance that's enabling a very wide disparate fragmented market and.
There are a lot of pressure I E. The MLP market and the U S Gulf to GAAP.
30% in two or three trading days.
And you were starting off with old by not great rates, but we're starting off with a market that is actually balanced.
So you could see some.
Pretty steep rates.
But they're not going to as they come out and not going to necessarily be.
And a nice lines to predict.
So I think that it's reasonable to expect that day.
The rates at the end of the quarter.
And to be significantly higher.
And then.
Right now.
It's hard to work out exactly where that's going to be and we've never faced the situation and our careers careers, where you are just having the steady drumbeat of accelerated demand.
And they accelerate to ton mile and multiply for such a long period, and it's not going to stop and oldest either it's going to continue forward.
And also we don't know what's going to happen when the United When Europe starts coming on because think about it and the United States is imported and awful lot of barrels of gasoline.
Gasoline and the last few weeks to make up for its own shortfall and gasoline production.
Two two.
Bush and the use of gasoline and so when Europe.
Stocks to step up and use gasoline and jet fuel itself, where does the United States get that from.
It has to go get it from.
Asia.
And then pullback.
All bets are off at that point and then the last point is we're so used to having this third quarter being and very quiet quarter.
First quarter and the product market.
That isn't going to be happening this year, because you've just got this continued estimate demand increases.
All the way through the year and.
And next deal.
Okay.
Got it alright, and not necessarily asking for forecast for the next few weeks and just.
Taking share making sure there wasn't some like pulled forward rating from either and accounting or an operations stand out and that the next few weeks are going lower.
No I apologize I mean this is.
There's nothing there's no pull forward nothing we haven't done a day.
And we haven't even rounded figures upwards to the figures that bonds given your the.
Kind of what they are.
Okay.
Yeah.
And then I guess, one more question, obviously much concern and we've talked about it for a while here on the call about share liquidity position upcoming capex debt repayments.
A few minutes ago, you mentioned, yeah rates at 17, and 18 20 will fix everything and I agree with that but if rates stay at current levels for maybe an extended period of time, what other options do you have to raise capital to satisfy this debt obligations other than common equity issuance right. That's a question we've been getting when are they going to have to.
The issue common equity so how would you rank. These other options ahead of that.
Okay, I would be fairly convinced that it's the people who have asked you about it.
Equity thing certainly wouldn't be starting off with where we are what we announced today with $280 million and cash.
Really positive they had no idea and that was the starting point.
Starting from a huge amount of liquidity and start with 360 $370 million.
Yeah there is.
If you think what's happened and the balance sheet and the lost.
60 days and just taking a super pessimistic views.
So basically.
And Youre intimating no world growth, there's some real crisis, that's going on and et cetera et cetera, whether she.
You've still got runway and what we've been doing.
And.
And.
We by no means exhausted.
All of our means of getting.
And our liquidity.
Other than I mean.
The raising of equity isn't anywhere and the position so.
Go above that or no.
And selling ships.
And you've got.
Hmm.
And that's continuing what we've been doing before with the.
Baby bonds, continuing what we've been doing before with the <unk>.
Sale Leasebacks and then we've got some refinancing of some of the deals and the past that.
And instead of buying those ships back, which you would do on a.
And you use the call option to buy them back.
And you could use the call option either to sell or to refinance.
What you're indicating is a true.
Tremendously screen situations.
And wouldn't be Scorpio specific that would be the whole world market specific.
Sure.
Good deal I think covered it well thanks so much.
No problem. Thank.
And Keith.
Your next question is from the line of Ken Hollister with them.
Bank of America.
Hey, good morning, Rob.
Robert You just mentioned and kind of no seasonality, maybe looking through the pattern through the year as reopening shifts.
Is there anything that we're going to talk about and the quarter that that didn't meet that expectation is it just maybe the COVID-19 shutdowns linger or you don't see the demand returned maybe is it the storage unwind.
And that 24 million barrels continues to pressure rates I just wanted to see what the counter story could could be that we could come back and talk about in the second quarter.
I think it might be.
I think we've had some of that I mean it.
Thank these refinery turnarounds were deeper than what people could have expected and I think that part of that is the share of preparation.
And that.
And that people are taking.
Or what they anticipate is going to come and fund them.
It's.
These demand outlooks for products.
Huge.
<unk>.
You start opening up these countries and stop the U S driving season and things and.
Get a little bit wacky.
We've had.
The drawing down and so the inventories.
Yes, there's a possibility that people could continue to draw down those inventories.
And.
No delay.
Spiky second quarter, but then they'd be setting themselves up.
Super volatility and once they get to July so you're at that point well.
Yeah.
Yeah.
It's pretty important to realize that the U S has already been.
And it's been let's say borrowing.
And from.
The importance that have come in from from other areas and.
And you'll be able to get away with.
Not building.
And in front of gasoline season, so far because they've had access to this product from Europe.
But that goes away as they grow and the U S continues to grow its use.
And just to.
Clarify that then Robert on your seasonality comment you are still seeing.
Sequential acceleration ignore.
Ignoring seasonality and the second quarter.
Order book.
Yeah, what we're seeing this all the way through if we work it backwards, we would expect the first quarter from next year.
Even and lead to be to be stronger on good seasonality then and then.
And then the.
The fourth quarter and they and they.
<unk>.
But prior to the fourth quarter.
It's not about the seasons the seasons get drum trumped by the opening up of the.
Travel.
And petroleum product use.
Okay.
Okay.
Because theres being delayed I mean, if you are sitting in and net.
Yeah, we do anticipate the Europe, who would just be used and more.
Gasoline and jet fuel in the third quarter.
And it would be using and the second quarter and we see that U S.
Travel again, we'll we'll just continue to.
Accelerate and.
And you get into the fourth quarter after that where you have the normal strong seasonality.
So it's linked.
And to the house.
Yeah.
Yes, definitely want to get out and about.
So from my follow up any impact yet on the market or how youre going about or you see business progressing on things like the Diamond S. C was consolidation and then is there a fear that.
As you get healthier carrier stronger balance sheets, and Emmanuel mentioned kind of very light order book do you see the orders and then start to pick up and and.
And the parade as it gets started and just you know, we got past that and the container side yet.
And that two great questions and I'll take the last one first is that the booking.
Order.
And the bookings for.
Containers dry bulk LNG I mean, there's going to be there's some huge LNG orders going into this market at the moment.
And all of those bookings are.
Driving any ability to or the.
Product tankers and a significant size.
Well well away and that in combination with the aging of the fleet coming to 15 years is what's creating.
A really critical situation, you know and Ah.
Great opportunity for the product tankers shareholders.
And I think that it's pretty much already at the level.
Well.
And that'll be self deprecating to ship owners, where we can't it's true it up and not even the ship owners can screw this up.
And those.
And I don't know, where you would would look to get a a.
<unk>.
And but.
And can build and order book.
Products.
Now until we get into.
2024, where you can get back to.
To the levels just to keep pace with the vessels that are turning 15 years old.
So that part is easy.
Please.
It is.
And it was very good and the sense that yes, even if we do have rates that are going like nuts.
And we'll be hard because of what's happening and containers and dry.
And gas, but even asked owners to screw the supply side up for awhile.
Now in the front side.
One is doing is very very good anyway. So these consolidations, we're seeing pointed out diamond.
And that's W extremely extremely good for pricing.
Actual assets extremely good for order and the market and.
Consolidation and the market.
And we're also seeing a lot of individual ones and two vessels being bought by stronger owners, so by weaker owners and that's good and.
And you have seen the top.
Commercial operators to have me as the tombs.
The masks.
And the Northern's and.
<unk> peer group.
Adding vessels constantly to their pools.
And that's a form of consolidation.
And also seeing charterers traders.
Time charter vessels, and which pool, so and so the consolidation.
So the product market has is much more consolidated already than it was this time last year and.
And Tim needs to be so which is also going to be an important factor.
In terms of accelerating rates outputs and maintaining strength and grades.
Going through.
That would indicate already that dealing with the last three four weeks during the peak of the refinery turnaround wide product rates haven't really fallen apart like crude rates did because.
No you really got some good consolidation and that product market now.
Wonderful. Thank you very much for the time and thoughts and say.
Yeah.
Yeah.
Your next question is from the line of Amit Mehrotra of Deutsche Bank.
Thanks, Operator, hi, everybody.
I wanted to go back to the liquidity question because.
I guess something is being lost in translation to me because it sounds like you guys are super bullish about your liquidity market and the message Youre, sending is everything's fine your win based on mine.
And this just seems like that's totally false I think you guys don't have enough liquidity and.
And you could give you the opportunity to correct me if I'm wrong. So so first first and foremost, Brian and the 360 or $370 million of cash from the balance sheet that is pro forma for the additional levers is that net of minimum liquidity covenants or not net of minimum liquidity covenants.
It's not net minimum liquidity covenants or $60 million, and we don't subtract that out and average.
Total cash okay.
And to keep it on the balance sheet. So that 363 70 is basically now 300 to 310, okay and against that 300 to 310 and <unk>.
You've got 600 of debt repayments over the next 12 months. The question I have is where I could be wrong here is there a way to restructure that 600 and with some big chunk is and the second quarter next year like what do you think that these debt repayments over the next 12 months need to be or can be relative to what they are today with just 600 is moving.
Yeah.
It's on a normalized amortization $70 million to $80 million per quarter, we call. It 75 to just under $300 million on a year when facilities are coming due we show and that schedule facilities or come and do it as part of that number that we say it's coming due over the period of time. So that's why you see an elevated number and there and as your cash.
We have seen from day, one and this company, we've been able to refinance our debt when it comes due.
We have better behavior from them.
And so 75 to 80 is basically the number we should use.
And the implication is that the net liquidity you have today pro forma $300 million is basically equivalent to the pro forma smoothed out debt maturities over the next 12 months or how do you have a lot of liquidity then.
And do you have more liquidity than you need we're going to assume that our vessels are going to earn some money along the way right. So we know that.
And then.
There's a lot of damage write those $48 million of revenue. So your time's up by 10 by 15 and it comes out and be pretty good enough and I know you've been assuming that for three years and that hasn't really occurred on a sustainable basis. So the question I have is you're playing out over the next 12 months don't you have to plan that you don't earn 17.
Thousands a day 15000, a day hopefully you do and I really hope everybody does and the market, but just given history like from a planning perspective don't you have to plan that you don't earn that much.
Once the implants.
So I'm not I mean, Amit.
Yeah, It's Luke.
I appreciate a lot has happened and the last three months since we last spoke we looked at the company and.
The the primary thing as you've seen we've continued to increase liquidity.
And with rates being fairly low and we have other sources to do and doing it. We just simply believe for the reasons that we've set out that market.
It's not going to be nine and $10000 a day.
All the way through and Tao.
Next may we we we simply don't believe that is going to actually happen.
Right.
Now should we start to sink.
And so we're changing so at the beginning of the year and <unk>.
Last year, we continue to raise liquidity.
<unk> gone through and that we raise liquidity in October and there were no vaccinations and invented that.
And then vaccinations came along.
But we carried on.
Raising liquidity February U S was nicely underway.
We didn't feel that we went out to the woods completely Europe was a big question Mark So we carried on raising liquidity.
And now we're sitting and a point, where we have more liquidity than any of those points.
And we believe that day.
And the United States is and a much better place than it was in January and Europe isn't a much better place than it was in February and March that we are seeing this is not just us making this up.
This is OPEC is saying it's the same.
Oil companies are saying that investors and other ways of saying this.
Oil prices, saying this we have reasonable blue cause to think that the market will be better.
Forward.
And at its worst point.
And somewhere between a third and the fourth quarter last year. The market has been steadily improving already from five six months, there's a point where it's irresponsible.
And I believe.
Okay.
Jon Chapell earlier, who knows he's he's a very cautious and lets just taking a cautious position on rates and the improvement.
And the tanker market.
You know we could easily agrees that you know.
There was call. It wasn't a question of if there would be it would probably be when there would be a recovery and what the actual use of proceeds would be it would be irresponsible right now for us to.
Go and sell shifts right to the breakout just to put even more cash on the balance sheet, we fundamentally believe and and they're very open and honest way you opened with quite a derogatory statement you are being holes and we don't belief would be and full so we think we're being very genuine to what.
We believe and we believe that based not on some single and yeah, but a lot of empirical third party.
Uh huh.
It's out there at the moment to support the fact that the market is improving and accelerating its a really key thing.
And that the MRO market is already for a modern M. All around.
Around 12, $13000 a day.
And Europe is.
Not yet really coming out.
And we haven't we're only just beginning.
And fight back from the refinery turnarounds.
Yeah, I think I think the only difference Robert is that <unk>.
You you have to be right for the capital structure of the company to be protected or the equity of the company can be protected you have to be flow of course.
Of course I mean.
Amit.
Okay.
Omar Omar a lot smarter than I am.
And I might just happens to show more interested in it and so I guess I remember his name, but it's a it is a.
And.
And.
And of course, you have to be right. If the world goes to Hell I'll say openly.
If the world goes to Hell.
You know staying is not necessarily a company that I would want to at that point to have a whole bunch of equity and but my God. It's.
And it just carries on on the improvement that is right now if you take the mid point.
Or even and the lowest point to the the IEA forecast and so the major banks forecast and Inc.
Two to product tanker demand by the and get the day.
And Scorpio tankers, especially with the product tankers, leading is don't want you to cash apart.
The other investments that you could make is absolutely company, you would want to be and precisely because of at multiple points of leverage, but the operating leverage and the company has and having new ships.
And secondly, operating leverage of the company has of having those vessels on spot node.
Stripe feed true and sadly the financial and operating leverage of the company has and you have pointed out with regard to the gearing you'd be absolutely to be the investment if you don't believe in that day.
And.
And there's no point in that World economy, There's no point in any one being in Scorpio tankers and here right.
And you should not put.
Oh, you shouldn't even put a hold on this which you have you should put an outright sale.
All right. So, yes, I think thats stuck and like.
I think I think I think you're absolutely right I think if everything goes really really well the stock's going to go higher and I agree with that.
Portland and Scott.
But the fact is most people know and evolve.
And supporting that the product market is strongly day refinery turned and that's why.
And the product market is.
And it's done better, let's say from accrued and the cable come I'm actually quite constructive about the crude I think we've seen a wonderful game being played you know I I support.
And as and.
And and DHT I have no problem.
And those two companies they've been playing a game and have strong balance sheets.
Being conservative about the outlook was buying ships and buying back stock.
The crude market will tell.
10.
And at some point.
Okay.
And can I just ask a quick housekeeping, one and then I'll just hop off or Brian I guess, Robert had made the comment that asset values have ticked up that's obviously.
Very positive both from them and.
Perspective, but also from just.
And that management perspective, so I was wondering I mean, your net debt has been flat kind of roughly over the period last year versus today, and that's and I was going up and does that give you more room for additional leverage on the vessels. If you need it and if you could help us where that LTV is today in terms of how about that.
And the banks look at or the appraisers and look at it.
Absolutely right value is going up and so very good point.
It's something to keep in mind, if you're looking at our debt balance being did you say flat net debt being flat there it's very good point.
And I use has gone up so on a relative basis, it's been along that way. So we're not going to give asset values and all ships right now, but we're obviously in compliance with all of our loan to value and every other covenant out there we have headroom and every every single one of those but we do have room and we will if we need to we will look to do it but also.
And when vessels come up for refinancing, it's very important now and asset values coming up we could refinance.
At attractive rate.
Whenever we want them.
It is it is.
And I would say the inconsistent and see that someone could have would.
It would be too.
And <unk>.
I have a.
And I have a buys on crude tankers.
With out.
And having a buy one thing that to me is inconsistent and closed.
Okay, well I'll take that into consideration and thank you.
Right.
Thank you.
Your next question is from the line of Magnus fire with H C. Wainwright.
Yeah. Good morning, I just have one question left here Robert you laid out a pretty bullish scenario on the recovery here forward and.
You know I was just curious I mean, we've seen the charters and the market I guess earlier.
And the quarter, but why aren't they being more aggressive or can you kind of elaborate a little bit, but what you're seeing them do it and at these levels talking about vitol and Trafigura and the other guys.
Loss.
Well I consider it a veto Trevor grew and the other guy should be extremely aggressive, but what do you mean by that.
Graham just one well.
And I'd, just chartering and more vessels or do you think they have requirements already or why don't you see oil companies stepping up here if.
But short of that.
And that thoughts here.
Yes.
Yeah.
Well I mean I can tell you.
That every one of those that you have mentioned they look at chips and every single day and they certainly on the quiet and I've been taking ships on and no.
And I think it's fair to say as a general statement is that they are interested and modern ships for long term charter.
Okay and then.
And.
And this shift has been from from large correct me, if I'm wrong, but the shift is being from.
Six to 12 months periods to actually.
Three to five year charter interest.
It's certainly moving to long term modern units.
Right I mean, if you have if you look and you mentioned earlier about the carbon calculation index. I mean, you guys are definitely at the forefront of that with a very modern fleet, but if.
Uh huh.
Alright, thanks, guys.
And please.
And you can find with 2030 aimco targets.
Yeah.
Yes, Magnus it's James we're 23% ahead of us.
Those targets if you look at the sustainability report on our website that we that we put out.
Okay. Good.
So I mean, I guess that lays out a pretty pretty strong scenario going forward with some of the other companies need to move on that line and.
So anyway, I, just like to see that scenario play out here, where we're.
And where companies trying to secure more of the modern tonnage. So we see that mark a two tier market developing but I guess at these levels.
And we need to see the rates a little bit higher before that and so that's all I had thanks for taking my call.
Yeah.
Thank you.
And your next question is from the line of Liam Burke with B Riley.
Yes. Thank you good morning, Robert you talked about the shift and refinery capacity globally do you have a big redistribution coming up second quarter.
Are you seeing any benefit now or is this something that you can look forward to later in the year and another further boost and rates are helped boost rates again.
Yeah.
You have got you and youre going to see it now.
And all the way through.
Okay.
I mean, the day, we've seen it and this is just a steady thing and its adding with it whether it's Australia right now the news from South Africa.
And there is some schools and some people out there already you know we're still analyzing it and.
And this would be a huge boon to the product tanker market somewhat talking the some of the European refineries that are.
Down at the moment.
And just Martin and I'll come back.
They might disclose earlier now.
That happens that's going to have a tremendous effect and the Atlantic and.
You know that will guarantee that you have to bring and products from from Asia long hole into the Atlantic Basin both.
And even maybe from China to the United States across the Pacific as well.
Okay.
And.
Okay and Robert Thank you very much.
Yeah.
And that does conclude our Q&A session for today and I'll turn the call back over to Brian Lee for any closing remarks.
Thank you Stephanie and thank you everyone for joining us today, we hope to speak to you soon and have a good day bye.
Thank you. This does conclude today's conference call you may now disconnect.
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