Q2 2022 Scorpio Tankers Inc Earnings Call

July 28, 2022

Good morning, and welcome to the Scorpio Tankers, Inc. Second quarter 2022 conference call.

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I would now like to turn the conference over to James Doyle head of corporate development and Investor Relations. Please go ahead.

Thank you for joining us today welcome to the Scorpio tankers second quarter 2022 earnings Conference call.

On the call with me today are Emmanuel.

<unk> Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief Operating Officer, Brian Lee Chief Financial Officer wires tanker Nielsen commercial director.

Earlier today, we issued our second quarter's earnings press release, which is available on our website Scorpio tankers dotcom.

Information discussed on this call is based on information as of today July 28, 2022 and may contain forward looking statements that involve risk and uncertainty.

Actual results may differ materially from those set forth in such statements for a discussion of these risks and uncertainties you should review the forward looking statements disclosure in the earnings press release as well as Scorpio tankers, SEC filings, which are available at Scorpio tankers dot com and SEC Dot Gov called.

Participants are advised that the audio of this conference call is being broadcast live on the Internet and is also being cared for playback purposes, an archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days.

We will be giving a short presentation today. The presentation is available at Scorpio tankers dot com on the Investor Relations.

It's page under reports and presentations.

<unk> will also be available on the webcast. After the presentation. We will go to Q&A for those asking questions. Please limit the number of questions to two.

Now I'd like to introduce Chief Executive Officer, Danny why like Wow.

Thank you James Good day, everyone.

In the second quarter Scorpio tankers generated its largest quarterly profit in the company's history.

Entity of the company as an investment continues to improve.

And we are positioned to create shareholders value and what we believe will be a multi year cycle.

We also believe consistent without auctions that the best way to do this is first through improving our balance sheet.

In the first half of this year, we reduced outstanding debt by $511 million and in addition, our pro forma cash balance has increased by $360 million to 591 million through July .

As we started the second half of the year. The company has declared repurchase options on <unk> under a sale leaseback arrangement for $95 million.

With this and scheduled amortization, we will reduce our debt by almost $700 million in the first nine months of the year.

That accounts for 22% reduction in overall indebtedness.

This debt reduction combined with rising asset values leads to a material improvement in the company's loan to value as well as net asset value.

The third quarter earnings have started strongly we have booked 44% of the days in the third quarter at a rate close to $45000 a day.

If we were to average $10000 less.

So $35000 a day for the entire third quarter the company pro forma liquidity would be close to $700 million at the end of Q3.

Our customer expect the current market conditions to be sustained as evidenced by the increase in time charter rate duration and activity.

And we agree with our customers.

Global inventories remained near historic lows, the reopening of the global economy from the COVID-19 pandemic continues to increase the demand for refined products and seaborne exports.

Demand for product tankers is expected to increase over the next few years, while supply remains constrained.

And as we've mentioned before there is a record low order book and aging fleet and upcoming environmental regulations coming into play.

To conclude our top priority remains reducing our leverage and increasing our liquidity.

Thank you for your continued support and I will now turn the call to James for a brief presentation.

Thank you Emmanuel law slide eight please.

Our thesis and outlook remain the same as they did at the start of the year, we expect quarterly increases in refined product demand as the global economy reopens from COVID-19 pandemic against historically low inventories.

Constrained supply curve.

Wireless will speak to the factors that have resulted in a strong rate environment, but first I will review a few key points as to why we expect the current strength to continue.

Slide nine please.

At a high level. It may appear that Russia's invasion of Ukraine as a driver behind the current strength of the product tanker market.

Well it certainly created significant commodity price volatility, we have not seen share progression refined product exports going to Europe year to date European imports of Russian refined products have increased slightly year over year.

And the European diesel deficit shown in the lower right hand graph is less about the conflict and more about a reduction in refining capacity and a shift to renewables. However, the EU has announced plans to reduce Russian imports of refined products by next year, if European countries, which are completely bad Russian product imports. It is expected that these.

Hydrocarbons, with Florida Africa, Asia, and Latin America.

To replace the loss Russian imports Europe would have to source barrels from the U S Middle East and Asia.

In the event. This happens there would be a substantial increase in ton miles as every replacement scenario requires replacing a barrel from further away.

What's been driving the market.

Slide 10 please.

Similar to Europe's diesel deficit and regardless of the conflict in Ukraine.

As a global mismatch of refined products. However continued improvement in demand as the global economy Reopens from COVID-19, as exacerbated this mismatch for several quarters refined product demand has continued to outpace supply.

Despite an increase in refinery utilization inventories remain at historically low levels and the increase in supply has not been enough to offset the increase in demand.

This has been most elegant global diesel market, but similar scenarios exist for gasoline and other refined products the supply and demand mismatch becomes quite clear when looking at refining margins, which reached record levels remain extremely strong.

We view elevated oil prices and refining margins not as temporary but rather reflect consistent underinvestment in the supply chain.

Brent crude oil is currently trading at $112 per barrel, while diesel was trading at 140 is because there is not a shortage of crude oil although that may come later, but a shortage of refining capacity could differently global refined product demand is at or above pre COVID-19 levels, while refining capacity is lower and more dissipated.

Then before Covid.

Led to an increase in seaborne export in ton mile demand for refined products as product tankers serve as a conduit to reallocate refined product barrels around the world Slide 11 pool.

Changes to the global refining system continued to increase ton mile demand, which is the quantity of cargo multiplied by the distance it needs to travel.

Is important because an increase in ton mile demand tightened supply and as a driver for a higher freight rate environment from 2019 to 2021 about $2 6 million barrels of refining capacity clubs and our recent why refined product prices remains of high to that.

After a refinery closes in most cases, the wassa I'll put it needs to be replaced with imports.

Lower left as Australia refining capacity declined refined product imports increase to replace the lost production.

Over the last decade, we have seen a structural shift in refining capacity, which has moved further away from the consumer and closer to the wellhead.

Excluding China export oriented refining capacity additions in places like the middle East have offset closures of older less efficient domestic refining capacity in places like Europe .

Simply these refinery changes lead to an increase in seaborne exports of refined products and the distance to those products need to travel new export oriented refining capacity addition from the Middle East U S and India will help to alleviate the global shortage and refined products over the next few years, however, it's difficult to change.

Finding capacity in the short term and thus we expect the global supply demand tightness.

Find products to continue to persist slide 12. Please.

Our view at the start of the year and now remains the same refined product demand continues to increase as COVID-19 restrictions.

Given the challenge for refiners to increase nameplate capacity in the short term, we expect existing refining capacity to continue to operate at higher utilization levels. We have seen this in the U S. Gulf refineries operated at 97, 6% utilization over the last four weeks, while diesel exports have hit record.

Hi, guys.

Seaborne exports of refined products had been above pre COVID-19 levels since March and the underlying refined products market is expected to get tighter rather than going forward.

We expect refined product demand to increase by an additional two to 4 million barrels a day through the end of this year at 25% of this increased demand is exported seaborne exports of refined products will increase by an additional 500000 to 1 million barrels per day, we started to see it.

Additional uptick in volumes in June and July .

With inventories at historically low levels, the ability to supply demand from inventory draws its limited and.

Refinery runs and exports for me to increase these.

These developments to create a very constructive environment seaborne product exports and ton mile demand are expected to increase 3% to 10%.

This year and we see several scenarios, where this could be higher next year seaborne exports in ton miles are expected to increase by an additional four and 6% respectively.

As demand increases will be met by very limited fleet growth.

Slide 13 please.

Okay.

The product tanker order book is at a record low with 5% of the existing fleet on order today shipyard capacity is fully short term orders from other shipping segments, such as containers and gas with only 19 product ordered year to date, we do expect more orders, but even if those order today it would not be <unk>.

Until 2025.

Unlike other sectors product tankers were not built in mass until the early two thousands scrapping has been minimal and basically everything thats been delivered hasn't left the fleet today.

Today, there are 249 product tankers 20 years and older by 2025, excluding scrapping there will be 664 product tankers 20 years ago.

That's more than half the fleet will be 15 years and older by 2025 without additional new building orders.

Modest scrapping assumptions product tanker net fleet growth leverage <unk>, 3% in 'twenty, two and 'twenty three.

We're going negative however.

Scrap rate that reflects the age profile of the fleet supply growth is essentially zero next year before going negative in 2025.

All of this said, it's likely that the product tanker fleet trading clean petroleum products will shrink over the next few years.

Slide 15 please.

The quality of Scorpio tankers is an investment and balance sheet continues to improve as the menu already mentioned our focus has been on improving the balance sheet through debt reduction and maintaining a strong liquidity position and the first half of this year. The company reduced overall indebtedness by $511 million net debt has also declined almost 700.

$50 million from the start of the year through July 27.

In addition, we recently gave notice to repurchase six MLR sincerely for insurance for $95 million.

Further accelerating the deleveraging of the company.

This voluntary debt repayment, along with scheduled amortization and debt repayment related to a vessel sale will reduce our indebtedness by close to $700 million.

In the first nine months of this year.

At the same time, given the strong rate environment. If the fleet average is $35000 a day in the.

Third quarter, the company could have close to $700 million in pro forma.

September .

It would result in a net debt reduction of $1 1 billion in the first nine months of the year Slide 16. Please.

Scorpio tankers is tremendous operating leverage every increase in spot rates above our all in breakeven goes directly to the bottom line. So far in the second quarter. The fetus arch TCE rate of $44800 per day, assuming product tanker rates were to average $35000 a day for the year the company would generate.

Almost $1 billion in free cash flow before debt repayment or a little bit over $20 a share close to a 50% free cash flow yield from yesterday.

If you include debt repayment the company repaid $4.

And <unk> 20 per share in debt and then.

$142 million or <unk> 60, a share.

And free cash flow, increasing the NAV of the company by $16.80 per share and now I would like to turn the call over to Lars for an update on the factors leading to the current strong rate environment slide nine please.

Thank you James.

Over the last few months, we witnessed a solid and constructive market across all product segments.

In my view this is the real and sustainable market recovery that we have highlighted since 2019 and before Covid came and delayed the expected return of a healthy product tanker market.

Rate environment for Scorpio is modern fleet and all segments and geographies are very strong.

Rates trading today at $50 $60000 per day.

At 40 to $50000 per day in the handy segment trading at $30 to $40000 per day.

Great level.

Both index and non index voyages.

We can today see a robust diversity and cargo mix in destinations, providing owners with greater flexibility and optionality.

The time charter market has taken a considerable upturn and we are seeing substantial interest from first class charterers for long term transactions.

We see elevated interest with three to five year deals in <unk>, and <unk>, where rates have increased to $23000 per day for MRO and 30000 point they want to.

It is reasonable to assume from this substantial activity that our customers are where the market is firmly transitioned into a sustainable and meaningful recovery.

Going forward for the second half of the year.

We expect cargo flows from the middle East and India to increase.

The up from this.

What region appears to favor mobile or just over the coming weeks limiting swing barrel supplies, Singapore and raising supplies to Europe again, improving the incremental ton mile demand equation.

U S Gulf exports of distillate and gasoline are now pumping 2 million barrels per day, which is an all time high in.

Even with the recent weakening in global refining margin U S margins are currently averaging 20 to borrow at the prompt.

In U S. Gulf exports continue unabated to Latin America, we anticipate that with the planned maintenance at three Brazilian refineries and Theres still firm Argentine policy demand.

To the tightness in the Atlantic Basin product markets and will support distillate margins. This autumn.

We anticipate Brazilian imports will need to rise by.

Up to 340000 barrels per day between August and October putting further supplies from the U S Gulf and incremental swing barrels from the east of Suez.

Well again very positive for product tanker demand.

The global market will remain short diesel as the deficit in refining capacity remains unresolved. This.

This is despite europe's still importing Russian barrels.

Should Europe sanction these barrels will have to compete for barrels per the oilfield.

It is important to keep in mind that the global product markets are reacting to their own refining capacity in stock constraints, regardless of the regional dislocations brought about by the Ukrainian conflict.

We have yet to feel the real benefits from the new middle East refineries.

In Saudi Arabia on zoom in Kuwait coming on stream later this year.

Your line refineries are moving into turnaround, reaching approximately 1 million barrels per day by September adding to their requirement to maintain imports.

Product stock levels are low in many areas in the market cannot flex with demand as was the case previously.

The fleet is aging.

Very low deliveries and we are on the doorstep of increased environmental regulations in January 2023, reducing again effective supply capacity.

And with that I would like to pass over to Robert Thank you very much.

Thank you Laura Thank you everybody this morning for attending.

Obviously, the present looks absolutely fantastic and we're really really focusing on the present as well.

But we can't help thinking that however, good the president is the future this looks fantastic too, especially with the constraints around refineries yet.

The actual new building order book as well with both both of those two factors the lack of investment in refineries clubs. When the order book is really very unusual for any shipping market. The tool. So no more to do let's just go straight to Q&A. Please.

We will now begin the question and answer session.

I asked a question you May press Star then one on your telephone keypad.

If you are using a speaker phone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble the roster.

And our first question will come from Omar Lakota of Jefferies. Please go ahead.

Thank you Hey, guys good morning, and good afternoon.

First off congrats on a strong quarter and clearly your guidance here for the third quarter is looking even stronger.

That market's been strong eco ships you guys have been fantastic scrubbers are paying off in a big way I did want to ask kind of a bit more.

A picture on the market and Lars you touched on this.

Past few months, we've seen very very strong refining margins across the globe record levels in Europe , Singapore.

We have seen those numbers come off quite a bit here in the past several weeks how do you see this affecting the market in the near term and as we kind of go into the rest of the second half.

Hey, Omar welcome back.

Look.

As discussed before.

It's back to the fundamentals.

We have been discussing for a while now and they're all in place.

To think about this thing kind of.

And its totality the stock draws are important that we've seen over the last 18 24 months.

The refining margins of course play a very big role, but it is only a small part.

Part of the overall picture and I think as we move into the fourth quarter, we'll start seeing a pick up again in terms of that.

Uh huh.

The issue really is that there is logistical issues all over the globe and the.

Yes.

Probably a sourcing restocking storage tanks.

Replacement product is going to go further afield and I think that's going to play a much stronger position.

Overall in the tanker market.

So I think we're going to start seeing the ton mile really playing a much bigger role.

We have seen in the past.

I would also add to that it's not like the refinery margins in the last few weeks have been low.

They may have come off in the same sense as the oil price might have come off from its recent highs.

It's still been a pretty fairly.

Healthy market.

That's true Robert Good point, yes, I guess, its recency bias, but yes, they fall at the levels, we havent seen.

Oh that fall into that the highest fill that we haven't seen in years.

Right.

And I guess.

We've seen in the release you booked nine shifts on these three to five year charters at good rates and really rates, we haven't seen probably.

I don't know at least these terms going back to maybe pre financial crisis.

Lars you also mentioned that that market.

Fairly liquid the time charter market I guess, how do you guys see yourselves.

Deploying that your fleet now you still have a good amount of spot exposure, but you have taken these nine ships and put them on charter.

What do you what do you guys think about adding more do you expect to put a significant amount of your vessels on contract to stay primarily still focused.

So that one I think that we're gonna, Craig, but primarily spot focus them in <unk>.

<unk> ships may sound a lot from nothing in mind ships would be allowed and most fleets, but that's less than 10% of our fleet, what's going on with.

Over 90% loan.

And.

I think that.

Debris smart thing to do when the when the actual time charter rate anyway on a net asset.

Asset value basis, with growing up such a great return that reached numbers, they're throwing up double digit.

Per share cash flows, but the rates are very very strong.

And so to have a handful as we're going through as we've said before where we are stabilizing the balance sheet to really create a.

Solid.

<unk> balance sheet here to provide shareholder.

10, and ultimately capital return then this is a great little step here it shows potential lenders, if we start to refinance later.

Terms of.

Lowering our financial costs, lowering our breakeven is creating even more cash flow.

So as a shareholder to show commercial lenders.

Three year charters potential five year charters.

That takes a lot of the guess work out new investors too I mean, we've got a bunch of charterers has lots of explaining high quality charters, but are willing to pay.

Three to five years for her good rates, we don't have to.

But our own base cases in front of lenders. We can say look this is what the three year time charter rate is do you have numbers on this as the base case and they get a lot of comfort and security and then the new shareholder can probably use that as a base rate rates in the low case fairly comfortably knowing that people will have way more.

Information enough, so I E. The refineries and the oil companies believe that the rates have to be going forward substantially higher than most charter rate otherwise they would not take them.

For a considerable amount of time, otherwise they wouldn't take them for three to five years.

So I think it's far more signaling.

And our comfort level around.

Then it is too.

Certainly not a market call with very bullish about the market.

Thanks Robert.

Great. Maybe just you had me thinking just now just regarding those charters I guess, we cant just simply say in passing yes, three to five year charter, there's pretty significant can you compare that I guess the last time, we saw a big surge in time charter demand was I guess the whole floating storage trade from a couple of years ago early in the pandemic.

Our loss control honestly it goes after that.

There wasn't really a big size compared to this those who is the one year rates two year rates nothing right six months right. So these are across.

Our long period, two to three months now gathering pace every week through a lot of different charters across all of the sizes in the product market.

We haven't seen this since 2000.

Four five.

Six.

Yes, so just.

Yes.

Spot on Robert.

I mean, what happened in during the Super Contango in 2020, it was kind of a window of six to eight weeks you saw time charter rates that were kind of reflecting the value of the contango and.

Charters were done for six months and there was maybe one or two done per year and that was it.

Yeah, Okay, thanks, largely to completely market today.

Thanks Robert.

Looking great well done and I'll turn it over.

Good luck and congratulations.

Thank you.

Thanks Robert.

Yeah.

The next question comes from Greg Lewis of BT IAG. Please go ahead.

Thank you and good morning, everybody.

Or reiterate.

Mark Congrats on the strong quarter and the strong forward bookings.

Robert.

One of the things, we always get from investors is around.

What.

Scorpio plans to generate.

Our return cash to shareholders.

It's funny that we're talking in a couple of quarters ago.

This was.

At the bottom of the conversation and just given what we've seen in the markets over the last couple of calls.

This year, it's really becoming front and center and you did buyback some stock.

During the quarter, just if you could kind of Vermont, if you could kind of rank order, how you think about capital allocation realizing that.

There is still a lot of debt on the balance sheet that needs to be addressed but just kind of kind of where your head's at and how may be in this market, we could think about.

Into 2023 kind of planes for Scorpios cash flows.

Bush.

Look I think the first part and started off with.

It's really key that it was only six months ago that there was.

Questions from the investment community itself is to the basic liquidity of the company itself.

And we were very clear on our first quarter conference call.

We are planning to use the cash flow during that.

Second quarter two.

Take down debt to increase liquidity, which we've done. We also said that we would be there to buy stock at close.

But we can sort of.

Dislocation in pricing severe dislocation in pricing.

Sort of a liquidity event day that sort of happened we weren't afraid to dive in.

We bought the maximum we were allowed to buy by regulation on that date.

And so we feel that we have been doing what we said we've been doing we also said that.

We were going to continue that policy.

Through the third quarter.

We were going to approach our board with regard to.

The question you pose until into September that we want.

Going to anticipate.

Spending or allocating capital that we've had with God and you can see from the presentation, it's quite right.

If we get.

We could even have lower rates for the balance of this quarter and we could end up with an enormous amount of liquidity, even if we.

We pay for with another $100 million.

Pay down at least.

And yes, as we take down the debt too we have low we will be lowering the breakeven over time would be a great counter point against any potential of rising interest rates et cetera.

But the first step.

As Emmanuel said beginning to improve the quality of the investment. So we are going to stay that course.

Through the third.

Third quarter.

And what.

What I can tell you is more.

More or less tell you what is what is not going to be on the list. When we come back in September and start discussing things, but so which is.

We won't be acquiring asset.

We won't be.

Ordering new buildings.

We are going to.

Wanted to have a lower balance sheet.

Depending on where the prices of the stock compared to the.

The net asset value et cetera will will help determine.

How are you how are your allocation or the free cash.

Once you've reached your various debt debt targets.

We will be whether that's going to be stock buybacks or whether it would be dividends later.

But it's way too premature for us to really be.

Give any exact view on 2023 right now.

Okay Super helpful and then just.

As we think about.

Products and just given the.

Demand for products globally.

I believe what earlier this month China.

Provided its quotas for its refined product export Lars any kind of comments around.

What is coming out of China in terms of the market, where we are today and.

Is that do you view that kind of is the headwind that because it would become a tailwind as we kind of move forward here or.

It seems it seems like we're hearing.

Slipping information around China's exports or lack thereof.

Alex.

Okay.

Look Greg.

The refining utilization in China for the main refineries are much lower than their other places. So I would argue that anything that comes from China is going to be in the positive increase.

They came out with some new allocations. This week and we are starting to see in the prompt as well more products coming out in particular with diesel.

From from China. So.

Throughout the last three or four months, there has been a steady supply of cargos.

Going pretty much everywhere U S West coast on the gasoline distillates mixed products into Australia.

And also long haul going into Europe with distillate.

And the thing that's really interesting is that it's not only on <unk>, but we also see a lot of Kellogg business being concluded out of China and most of it.

For that matter also out of Korea, and Japan as well so.

The cargo mix is interesting the volume I haven't seen very much.

Impact on rates.

Think it's fair to say that.

As we're moving into the third and fourth quarter. If there was an incremental increase in exports it will benefit quite positively on the overall market in Asia.

Okay Super helpful. Thank you very much everybody.

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

Thank you.

Stay on the macro for a second.

The redistribution of global refinery capacity in margins and the inventories are pretty clear how.

How much thought our concern is there about the potential volatility of overall crude demand as we look in through the end of the year in 2023, I know the expectations are for a bit of increase in consumption, but does that ever worked through your.

Your thought process on the macro.

James I, just want to take that.

We.

Good question absolutely.

It will be interesting to see what happens with crude oil.

Yes.

Global SPR visuals, we think.

Our view is that both crude oil and refined products.

Markets are going to be extremely tight going forward.

And we should see continued elevated pricing as a result of <unk>.

Lack of investment in the supply chain over the last several years.

Okay.

Your dividend has been very consistent through the cycle in good times or bad is there any thought as to with the straw.

Stronger end market to give it.

To take another look at it and understanding that you want to be fairly consistent in your payout.

Yes, I think that the.

As we've said previously that comes due.

How are we going to allocate these cash flows in the first thing is to.

The first thing.

Let's say I have sort of absorbed over time here is that whenever in the esports cycles.

Even back on something whether it's buybacks or whether it's dividend policies et cetera et cetera.

That would be doing that at the point that you are ready to really make it consistent.

And keep it keep it going throughout.

And my last company we.

We actually wait it out the first.

Year, and a strong market before we embark on a share buyback, but all currently bought back 37, 5% of the company.

And other companies, who embarked on dividend payment policies were very successful in their evaluation when they did so from lower leverage positions.

We're able to constantly do it.

And.

So I think that the important part to us of what you said.

Remaining consistent in doing that.

<unk>.

Italy that will become one of the topics that tool.

Is that we could use in time, but right now we don't want to get ahead of ourselves we don't want to.

I think we'll discuss in detail money that we haven't yet earned.

This has happened extremely quickly this turnaround this move from <unk>.

Company, where we.

Keeping a minimum mindful on liquidity, making sure we didn't have to do any dilutive offerings or anything like that took a company that's generating enormous cash flow and capital and you can see yourself that if you once you start modeling guidance we've given.

What we are doing the company really is transforming very fast and creating that really solid balance sheet.

But you can really look at providing not something that looks good and our headline ora or a news flash with regard to returns on capital that something but things that are more permanent and more continue to.

So we're just going to wait on that if that's what they think Liam.

Okay. Thank you Robert Thank you James.

The next question comes from Turner Holm of Clarkson. Please go ahead.

Hey, good morning, gentlemen.

So I was struck by the management commentary in the earnings release and also in the prepared remarks, I mean, you all are talking about.

Structural changes in the market.

Rather than a sort of brief cyclical change.

And of course, you booked the nine long term charters I guess historically strong.

Strong levels.

But on asset values and you're still seeing.

At least what's being quoted below newbuild parity. So I'm just wondering what you all are seeing on asset prices. Since we think about changes in the off going forward.

They are going up as the prices are going up as a result.

Primarily as a result of the charters coming into the market and the security of the income provides the ability to finance that combined with stronger cash flows has created more cash and capital into the market and a tremendous guest newbuild.

<unk> building deliveries and the requirement to many companies to renew.

New that fleet.

There's a clock.

On a product tanker.

And there's such a difference in earnings profile between a modern eco vessels compared to the older non eco design.

Yep, that's leading to the prices there and you're correct. They haven't yet reached new building parity, but.

The negotiations are going on right now that we're hearing about.

Would indicate that prices are about to take yet another step up.

And that's perfectly consistent with the increases in the duration on the.

And the dollar price so time charter.

Okay.

Thanks, Thanks, Robert and then just jumping back to the market.

I mean, I think a lot of the talk in the product tanker market has just been about the disruptions to trade through the roof.

Russia, Ukraine situation.

But I think as James referenced it's worth noting that you embargo for example isn't.

I think going into effect yet.

And a larger change so I'm just wondering if you could.

No guidance through your thinking for the rest of the year I mean, obviously in a very strong booking levels for the third quarter any thoughts so far.

You know how the market could develop especially is that are you embargo comes into place towards the end of the year.

Yeah.

I think that the moment.

You embargo.

Becomes reality.

Tonne milestone goes out the window because of the distance is simply going to supercharge. The base case scenario in terms of how far.

Product in particular has to move to satisfy that demand.

And you've got demand expecting to increase on a two to 4 million barrels per day throughout the end of the year that product needs to be sourced program a field.

You can look at it just today's market when you look at the volatility that we're seeing and experiencing in what normally should seasonally be very kind of a slow market during the end of the summer.

When you look at the U S. Gulf just this week.

And this is on the back of of all the diesel exports heading down to Latin America as I was mentioning earlier.

There's so much product that needs to be moved.

The first for the for the product is pretty much insatiable.

And so suddenly people say oh, there's been a bit of a lull in the U S. Gulf monitoring them for Monday to Thursday today, you've seen the market rally by four cross tabs run by $700000.

The increase you've seen the ta.

We'll go to 42 wells for $3 35 to.

Chile runs moved from two eight to $3 8 million, but this happens with such velocity.

Just tells you that this capacity utilization that's in the market is across the board.

No.

If you.

That Russia is going to turn up it's tough as far as supplying Europe that product is going to go to Latin America go to Asia, but then at the same time, you've got all these other product that needs to go back into Europe . So back to my point ton miles is going to go through the roof. So irrespective.

What the market says about the dislocations.

Russia today.

It's immaterial in terms of the pump market right now because every market out there irrespective of Russia is requesting it needs the oil and it's being supply further appeal. So its a very bullish scenario that I would point paint if you suddenly come up let's say, Russia has to shut off its attached for Europe .

Okay. Thank you very much gentlemen, appreciate it.

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

Thank you operator, I don't have any closing remarks, just would like to thank everybody for their time today and look forward to speaking to you soon.

Concludes here thank you.

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

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Good morning, and welcome to the Scorpio Tankers, Inc. Second quarter 2022 conference call.

Participants will be in listen only mode.

Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.

To withdraw your question. Please press Star then two.

Please note this event is being recorded.

I would now like to turn the conference over to James Doyle head of corporate development and Investor Relations. Please go ahead.

Thank you for joining us today welcome to the Scorpio tankers second quarter 2022 earnings Conference call.

On the call with me today are <unk>, Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief Operating Officer, Brian Lee Chief Financial Officer wires tanker Nielsen commercial director.

Earlier today, we issued our second quarter's earnings press release, which is available on our web site Scorpio tankers stock comp the.

The information discussed on this call is based on information as of today July 28, 2022 and may contain forward looking statements that involve risk and uncertainty.

Actual results may differ materially from those set forth in such statements for a discussion of these risks and uncertainties you should review the forward looking statement disclosure in the earnings press release as well as the Scorpio tankers SEC filings, which are available at Scorpio tankers dot com and SEC Dot Gov.

All participants are advised that the audio of this conference call is being broadcast live on the Internet and is also being good for playback purposes, an archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days, we will be giving a short presentation today. The presentation is available at Skorpion.

<unk> dot com on the Investor Relations page under reports and presentations. The sites will also be available on the webcast. After the presentation, we will go to Q&A.

Just asking questions. Please limit the number of questions to two.

Now I'd like to introduce Chief Executive Officer Emmanuel Laura.

Thank you James Good day, everyone.

In the second quarter Scorpio tankers generated its largest quarterly profit in the company's history.

The quality of the company as an investment continues to improve and we are positioned to create shareholders value.

What we believe will be a multi year cycle.

We also believe consistent without auctions that the best way to do this is first through improving our balance sheet.

In the first half of this year, we reduced outstanding debt by $511 million and in addition, our pro forma cash balance has increased by $360 million to $591 million through July .

As we started the second half of the year. The company has declared repurchase options on <unk> under a sale leaseback arrangement for $95 million.

With this and scheduled amortization, we will reduce our debt by almost $700 million in the first nine months of the year.

That counts for a 22% reduction in overall indebtedness.

This debt reduction combined with rising asset values leads to a material improvement in the company's loan to value as well as net asset value.

The third quarter earnings have started strongly we have booked 44% of the days in the third quarter at a rate close to $45000 a day.

If we were to average $10000 less.

So $35000 a day for the entire third quarter the company pro forma liquidity would be close to $700 million at the end of Q3.

Our customer expect the current market conditions to be sustained as evidenced by the increase in time charter rate duration and activity.

And we agree with our customers.

Global inventories remained near historic lows, the reopening of the global economy from the COVID-19 pandemic continues to increase the demand for refined products and seaborne exports.

Demand for product tankers is expected to increase over the next few years, while supply remains constrained.

And as we've mentioned before there is a record low order book and aging fleet and upcoming environmental regulations coming into play.

To conclude our top priority remains reducing our leverage and increasing our liquidity.

Thank you for your continued support and I will now turn the call to James for a brief presentation.

Thank you Emmanuel a slide eight please.

Constrained supply curve.

Wireless will speak to the factors that have resulted in a strong rate environment, but first I will review a few key points as to why we expect the current strength to continue.

Slide nine please.

At a high level. It may appear that Russia's invasion of Ukraine as a driver behind the current strength in the product tanker market.

It certainly created significant commodity price volatility, we have not seen a shift in the Russian refined product exports going to Europe year to date European imports of Russian refined products have increased slightly year over year.

And the European diesel deficit shown in the lower right hand graph, it's less about the conflict and more about a reduction in refining capacity and a shift to renewables.

However, the EU has announced plans to reduce Russian imports of refined products by next year, if European countries, which are completely bad Russian product inputs. It's expected that these hydrocarbons would flow to Africa Asia and Latin America.

To replace the loss ration and towards Europe would have to source barrels from the U S Middle East, India and Asia.

In the event. This happens there would be a substantial increase in ton miles as every replacement scenario aquarius, replacing a barrel from further away.

So what's been driving the market.

Slide 10 please.

Similar to Europe's diesel deficit and regardless of the conflict in Ukraine.

Despite an increase in refinery utilization inventories remain at historically low levels and the increase in supply has not been enough to offset the increase in demand.

This has been most evident global diesel market, but similar scenarios exist for gasoline and other refined product supply and demand mismatch becomes quite clear when looking at refining margins, which reached record levels remain extremely strong.

We view elevated oil prices and refining margins not as temporary but rather reflect consistent underinvestment in the supply chain.

Recent Brent crude oil is currently trading at $112 per barrel, while diesel was trading at 146, because there is not a shortage of crude oil although that may come later, but a shortage of refining capacity put differently global refined product demand is at or above pre COVID-19 levels, while refining capacity is lower and more dissipated.

Even before Covid.

This led to an increase in seaborne export and ton mile demand for refined products as product tanker serve as a conduit to reallocate refined product barrels around the world tried 11 pool.

Changes to the global refining system continued to increased ton mile demand, which is the quantity of cargo multiplied by the distinctive needs to travel.

It is important because an increase in ton mile demand tightened supply and as a driver for a higher freight rate environment from 2019 to 2021 about $2 6 million barrels of refining capacity clubs and our recent why refined product prices remains of high Tibet.

After a refinery closes in most cases the loss output needs to be replaced with the imports.

Lower left as Australia refining.

<unk> declined refined product imports have increased to replace the lost production.

Over the last decade, we have seen a structural shift in refining capacity, which has moved further away from the consumer and closer to the wellhead.

Excluding China export oriented refining capacity additions in places like the middle East have offset closures of older less efficient domestic refining capacity in places like Europe simply these refinery changes lead to an increase in seaborne exports of refined product and the distance those products.

To travel.

New export oriented refining capacity additions in the middle East and India will help to alleviate the global shortage and refined products over the next few years. However, it's difficult to change refining capacity in the short term and thus we expect the global supply demand tightness.

Refined products to continue to persist slide 12. Please.

Our view at the start of the year and now remains the same refined product demand continues to increase as COVID-19 restrictions ease given the challenge for refiners to increase nameplate capacity in the short term, we expect existing refining capacity to continue to operate at higher utilization levels. We have seen this in the U S Gulf.

<unk> operated at 97, 6% utilization over the last four weeks, while diesel exports have hit record highs seaborne exports of refined products had been above pre COVID-19 levels since March and the underlying refined products market is expected to get tighter rather than going forward.

Additional uptick in volumes in June and July .

With inventories at historically low levels, the ability to supply demand from inventory draws its limited and less refinery runs and exports will need to increase each.

These developments to create a very constructive environment seaborne product exports and ton mile demand are expected to increase 3% and 10%.

This year and we see several scenarios for this could be higher next year seaborne exports in ton miles are expected to increase by an additional four 6% respectively.

At least demand increases will be met by very limited fleet growth slide.

Slide 13 please.

Okay.

Until 2025.

Unlike other sectors product tankers were not built in mass until the early two thousands so scrapping has been minimal and basically everything thats been delivered hasn't left the fleet today.

Today, there are 249 product tankers 20 years and older by 2025, excluding scrapping it will be 664 product tankers 20 years.

That's more than half the fleet will be 15 years and older by 2025 without additional new building orders.

Modest scrapping assumptions product tanker net fleet growth <unk>, 3% from 2223.

We're going negative however.

Scrap rate that reflects the age profile of the fleet supply growth is essentially zero next year before going negative in 2025.

All of this said, it's likely that the product tanker fleet trading clean petroleum products will shrink over the next few years.

Slide 15 please.

$50 million from the start of the year through July 27.

In addition, we recently gave notice to repurchase six mris in salaries for insurance for $95 million.

Further accelerating the deleveraging of the company.

This voluntary debt repayment, along with scheduled amortization and debt repayment related to a vessel sale will reduce our indebtedness by close to $700 million.

In the first nine months of this year at.

At the same time, given the strong rate environment. If the fleet average is $35000 a day in the third.

Third quarter, the company paid up close to $700 million in pro forma by September .

It would result in a net debt reduction of $1 1 billion in the first nine months of the year Slide 16 place.

Scorpio tankers is tremendous operating leverage every increase in spot rates above our all in breakeven goes directly to the bottom line. So far in the second quarter. The fleet average TCE rate of $44800 per day, assuming product tanker rates were to average $35000 a day for the year the company would generate.

$1 billion in free cash flow before debt repayment or a little bit over $20 a share close to a 50% free cash flow yield from yesterday.

If you include debt repayment the company would repay $4 20 per share in debt, and then $742 million or $12 60 a share.

And free cash flow, increasing the NAV of the company by $16.80 per share and now I would like to turn the call over to <unk> for an update on the factors leading to the current strong rate environment slide nine please.

Thank you James.

Over the last few months, we witnessed a solid and constructive market across all the green product segments.

In my view this is the real and sustainable market recovery that we have highlighted since 2019 and before Covid came and delayed the expected return of a healthy product tanker market.

The rate environment for Sculpsure is modern fleet and all segments and geographies are very strong with spot rates to trading today at $50 to $60000 per day.

Was it 40 to $50000 per day in the handy segment trading at 30% to $40000 per day.

The rate levels.

<unk> Index <unk> index voyages.

And today see a robust diversity and cargo mix in destinations provide.

Owners with greater flexibility and Optionality.

The time charter market has taken a considerable upturn and we are seeing substantial interest from first class charterers for long term transactions today.

Today, we see elevated interest, but three to five year deals in <unk>, and <unk>, where rates have increased to $23000 per day for Emma and 30004th element to.

It is reasonable to assume from this substantial activity that our customers are where the market is firmly transitioned into a sustainable and meaningful recovery.

Going forward for the second half of the year.

We expect cargo flows from the middle East and India to increase the <unk>.

From this key export region appears to favor mobile or just over the coming weeks limiting swing barrel supplies, Singapore and raising supplies to Europe .

Again, improving the incremental ton mile demand equation.

U S Gulf exports of distillate and gasoline are now topping 2 million barrels per day, which is an all time high.

And even with the recent weakening in global refining margin U S margins are currently averaging 22 Boe at the prompt.

In U S. Gulf exports continue unabated to Latin America, we anticipate that with the planned maintenance at three Brazilian refineries and there's still firm Argentine policy the demand.

To the tightness in the Atlantic Basin product markets and will support distillate margins. This autumn.

We anticipate Brazilian imports will need to rise by <unk>.

Up to 340000 barrels per day between August and October putting further supplies from the U S Gulf and incremental swing barrels from the east of Suez.

Again very positive for product tanker demand.

The global market remained short diesel as the deficit in refining capacity remains unresolved.

This is despite Europe still importing Russian barrels.

And should Europe sanction these barrels will have to compete for barrels further afield.

It is important to keep in mind.

Global product markets are reacting to their own refining capacity in stock constraints, regardless of the regional dislocations brought about by the Ukrainian conflict.

We have yet to feel the real benefits from the new middle East refineries.

Woody Arabian absorbing Kuwait coming on stream later this year.

Your line refineries are moving into turnaround, reaching approximately 1 million barrels per day by September adding to their requirement to maintain imports.

Stock levels are low in many areas in the market cannot flex with demand.

Case previously.

Aging.

They are very low deliveries and we are on the doorstep of increased environmental regulations in January 2023, reducing again effective supply capacity.

And with that I would like to pass on over to Robert Thank you very much.

Thank you Laura thank everybody this morning for attending.

Obviously, the present looks absolutely fantastic and we are really really focusing on the present as well.

We can't help thinking that have a good presence is the future of this looks fantastic too, especially with the constraints around refineries.

The actual new building order book as well with both both of those two factors the lack of investment in refinery plus the new order book is really very unusual for any shipping marketed tool so that with no more to do let's just go straight to Q&A. Please.

We will now begin the question and answer session.

Asked a question you May press Star then one on your telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble the roster.

And our first question will come from Omar Lakota of Jefferies. Please go ahead.

Thank you Hey, guys good morning, and good afternoon.

First off congrats on a strong quarter and clearly your guidance here for the third quarter is looking even stronger.

That market's been strong eco ships you guys have been fantastic scrubbers are paying off in a big way I did want to ask kind of a bit more.

A picture on the market and Lars you touched on this.

Past few months, we've seen very very strong refining margins across the globe record levels in Europe , Singapore.

We have seen those numbers come off quite a bit here the past several weeks how do you see this affecting the market in the near term and as we kind of go into the rest of the second half.

Hey, Omar welcome back.

Look as we've discussed before.

It's back to the fundamentals.

We have been discussing for a while now and they are all in play.

To think about this thing kind of.

So <unk> the stock draws are important that we've seen over the last 18 24 months.

The refining margins of course play a very big role, but it is only a small part.

Part of the overall picture and I think as we move into the fourth quarter, we will start seeing a pick up again in terms of that.

<unk>.

The issue really is that there is logistical issues all over the globe and the.

Yes.

Probably a sourcing restocking storage tanks.

Replacement product is going to go further afield and I think that's going to play a much stronger position.

Overall in the tanker market.

So I think we're going to start seeing the ton mile really playing a much bigger than.

And we have seen in the past.

I would also add to that it's not like the refinery margins in the last few weeks have been low.

They may have come off in the same sense as the oil price might have come off from its recent highs.

But it's still been a fairly fairly.

In a healthy market.

That's two rather good point, yes, I guess, its recency bias, but yes, they fall at the levels, we havent seen.

The follow on to that the highest <unk> that we haven't seen in years.

Right.

And I guess.

We've seen in the release you book nine shifts on these three to five year charters at good rates and really rates, we haven't seen probably.

I don't know at least these terms going back maybe a pre financial crisis.

Lars you also mentioned that that market looks fairly liquid the time charter market I guess, how do you guys see yourselves.

Deploying your fleet now you still have a good amount of spot exposure, but you have taken these nine ships and put them on charter.

What do you what do you guys think about adding more do you expect to put a significant amount of your vessels on contract or state primarily still focused.

So I'd say that one thing that we're gonna cry, but.

Primarily spot focus them in <unk>.

Nine ships May sound a lot from nothing in mind ships will be a lot of in most fleets, but that's less than 10% of our fleet with 90 over.

Over 90% loan.

And.

I think that.

It's a very smart thing to do when the when the actual time charter rates anyway on a net asset.

Asset value basis, with growing up such a great return that reached numbers they are throwing up double digit.

No.

Per share cash flows, but sell through rates are very very strong.

And so to have a handful as we're going through as we said before where we are stabilizing the balance sheet to really create a.

Solid rock of a balance sheet here to provide shareholder.

And ultimately capital return then this is a great little step here it shows a potential lenders if we start to refinance later.

Terms of.

Lowering our financial costs, lowering our breakeven is creating even more cash flow for.

A shareholder to show commercial lenders these three year charters potential five year charters.

That takes a lot of the guess work out new investors too I mean, we would have bunch of charterers has lots of explaining high quality charterers, but are willing to pay.

Three to five years.

Good rates, we don't have to.

<unk> got our own base cases in front of lenders. We can say look this is what the three year time charter rate is do you have numbers on this as the base case and they get.

A lot of comfort and security and any new shareholders can probably use that as a base rate rates in the low case fairly comfortably knowing.

People will have way more information than us so I E. The refineries and the oil companies believe that the rates have to be going forward substantially higher than most charter rate otherwise they would not take them.

And for a considerable amount of time, otherwise they would take them for three years to five years.

So I think it's far more signaling.

And our comfort level around.

Then it is too.

Certainly not a market call, we're very bullish about the market.

Thanks Robert.

That's great. Maybe just you had me thinking just now just regarding those charters I guess, we cant just simply say in passing yes, three to five year charter. It is pretty significant can you compare that I guess the last time, we saw a big surge in time charter demand was I guess the whole floating storage.

From a couple of years ago early in the pandemic.

Our loss control it goes after that.

Good luck, there wasn't really a big size compared to this those who is the one year rates two year rates nothing right six months right. So these are across a long period two to three months now gathering pace every week for a lot of different <unk>.

Across all of the sizes in the product market.

Haven't seen this since 2000.

Four five.

Six.

Yeah. So just.

Yes spot on Robert.

I mean, what happened in during the Super Contango in 2020.

Kind of a window of six to eight weeks you saw time.

Time charter rates that were kind of reflecting the value of the contango.

The charters were done for six months and there was maybe one or two done per year and that was it.

Yeah, Okay, thanks, largely to market today.

Thanks Robert.

Looking great well done and I'll turn it over.

Good luck and congratulations.

Thank you.

Thanks Robert.

Yeah.

The next question comes from Greg Lewis of BT IAG. Please go ahead.

Thank you and good morning, everybody.

Or reiterate.

<unk>.

Grant's on the strong quarter and the strong forward bookings.

Hey, guys.

Robert.

One of the things, we always get from investors is around.

What.

Scorpio plans to generate.

Our return cash to shareholders.

Funny that we're talking in a couple of quarters ago.

Was.

At the bottom of the conversation and just given what we've seen in the markets over the last couple of calls.

This year, it's really becoming front and center and you did buyback some stock during the quarter. Just if you could kind of Vermont. If you could kind of rank order, how you think about the capital allocation realizing that.

There is still a lot of debt on the balance sheet that needs to be addressed but just kind of kind of where your head's at and how may be in this market, we could think about.

Into 2023 kind of plans for Scorpios cash flows.

Bush.

Look I think the first part and started off with.

It's really key that it was only six months ago that there was.

Questions from the investment community itself is to the basic liquidity.

The company itself.

And we were very clear on our first quarter conference call.

We are planning to use the cash flow during that.

Second quarter two.

Take down debt to increase liquidity, which we've done. We also said that we would be there to buy stock at close any.

But we can sort of.

Dislocation in pricing.

The dislocation in pricing.

Sort of a liquidity event day that sort of happened we weren't afraid to dive in.

We bought the maximum we were allowed to buy by regulation.

That date.

So we feel that we have been doing what we said we've been doing we also said that we were going to continue that policy.

Through the third quarter.

We were going to approach our board with regard to.

The question you pose until into September .

We're going to anticipate spending or allocating capital that we've had with God and you can see from the presentation is quite right.

If we get.

We could even have lower rates for the balance of this quarter and we could end up with an enormous amount of liquidity, even if we pay for with another $100 million.

Takedown in leases.

And yes, as we take down the debt too low we will be lowering the breakeven over time would be a great counter point against.

The potential of rising interest rates et cetera.

And the first step.

As Emmanuel said, the beginning to improve the quality of the.

The investment so we are going to stay that course.

Through the.

Third quarter.

And.

What I can tell you is more.

More or less tell you what is what is not going to be on the list. When we come back in September and start discussing things, but so switches.

We won't be acquiring asset.

We won't be.

Ordering new buildings.

We are going to.

Wanted to have a lower balance sheet.

Depending on where the prices of the stock compared to the.

The net asset value et cetera.

Will help determine.

How are you.

How are your allocation.

The free cash.

<unk> reached your various debt debt targets.

We will be whether that's going to be stock buybacks or whether it would be dividends later.

But it's way too premature for us to really be giving.

Give any exact view on 2023 right now.

Okay Super helpful and then just.

As we think about.

Products and just given.

Demand for products globally.

I believe what earlier this month China.

Provided its quotas for its refined product export Lars any kind of comments around.

What is coming out of China in terms of the market, where we are today.

And is that do you view that kind of is the headwind that because it would become a tailwind as we kind of move forward here or it just seems it seems like we're hearing.

<unk> information around China's exports or lack thereof.

Alex.

Okay.

Look Greg.

The refinery utilization in China for the main refineries are much lower than their other places. So I would argue that anything that comes from China is going to be in the positive increase.

They came out with some new allocations. This week and we are starting to see in the prompt as well more products coming out in particular with diesel.

From from China. So.

Throughout the last three or four months, there has been a steady supply of cargos.

Going pretty much everywhere U S West coast on the gasoline distillates mixed products into Australia.

And also long haul going into Europe with distillate.

And the thing that's really interesting is that it's not only on <unk>, but we also see a lot of pillow business being concluded out of China and most of.

For that matter also out of Korea, and Japan as well so the cargo mix is interesting the volume I haven't seen very much.

Impact on rates.

Think it's fair to say that.

Moving into the third and fourth quarter. If there was an incremental increase in exports it will benefit quite positively on the overall market in Asia.

Okay Super helpful. Thank you very much everybody.

The next question.

Question comes from Liam Burke of B Riley. Please go ahead.

Thank you if we could stay on the macro for a second.

The redistribution of global refinery capacity in margins and the inventories are pretty clear.

How much thought our concern is there about the potential volatility of overall crude demand as we look into the end of the year.

2023, I know the expectations are for a bit of increase in consumption, but does that ever worked through your.

Your thought process on the macro.

James to us when he talked about.

We.

Good question absolutely.

It will be interesting to see what happens with crude oil when the U S and global SPR diesel, we think and our view is that both crude oil and refined products.

Markets are going to be extremely tight going forward.

And we should see continued elevated pricing.

As a result of lack of investment in the supply chain over the last several years.

Okay.

Your dividend has been very consistent through the cycle times are bad is there any thought as to with the.

Stronger end market to give it.

To take another look at it and understanding that you want to be fairly consistent in your payout.

Yes, I think that the.

As we said previously that comes to how we're going to allocate these cash flows in the first thing is to the first thing.

Let's say I have sort of absorbed over time here is that whenever in these pools cycles.

Even embark on something whether it's buybacks or whether it's dividend policies et cetera et cetera.

That would be doing that at the point that you are ready to really make it consistent.

And keep it keep it going throughout I mean, maybe my last company we.

We actually waited out the first year and the strong market before we embarked on a share buyback, but all currently bought back 37, 5% of the company.

And other companies, who embarked on dividend payment policies were very successful in their evaluation when they did so from lower leverage positions.

Able to constantly do it.

And.

So I think that the important part to us of what you said.

Remaining consistent in doing that.

<unk>.

Italy that will become one of the topics that door.

Tenants is that we could use in time, but right now we don't want to get ahead of ourselves we don't want to.

I think we'll discuss in detail money that we haven't yet earned.

This is.

Happened extremely quickly this turnaround this move from.

Our company, where we were.

Keeping our men mindful on liquidity, making sure we didn't have to do any deal.

Dilutive offerings or anything like that took a company that's generating enormous cash flow and capital and you can see yourself that if you once you start modeling guidance we've given.

And what we are doing the company really is transforming very fast and creating really solid balance sheet.

But you can really look at providing not something that looks good in a headline or or a newsflash with regard to returns on capital.

Things that are more permanent and more continue.

Just going to wait till that if that's what they think Liam.

Okay. Thank you Robert Thank you James.

The next question comes from Turner Holm of Clarksons. Please go ahead.

Hey, good morning, gentlemen.

So I was struck by the management commentary in the earnings release and also in the prepared remarks, I mean, you all are talking about.

Structural changes in the market.

Rather than a sort of brief cyclical change.

And of course, you booked the nine long term charters I guess historically.

Strong levels.

But on asset values and you're still seeing.

At least what's been quoted below newbuild parity. So I'm just wondering what you all are seeing on asset prices as we think about changes in the off going forward.

They're going up as the prices are going up as a result.

Primarily as a result of the charters coming into the market and secure to the income provides the ability to finance that combined with stronger spot cash flows has created more cash and capital into the market and a tremendous guest newbuild.

New building deliveries and the requirement too many companies too.

New that fleet.

There's a clock.

On a product tanker.

And there's such a difference in earnings profile between a modern eco vessels compared to the older non eco design.

Yeah, that's leading to the prices in Europe .

Correct, they haven't yet reached new building parity, but.

The negotiations are going on right now that we're hearing about.

Would indicate that prices are about to take.

Yet another step up.

And thats perfectly consistent with the increases in the duration on the.

And the dollar price so time charter.

Okay.

Thanks, Robert and then just jumping back to the market.

I mean, I think a lot of the talk in the product tanker market has just been about the disruptions to trade through the <unk>.

Asia, Ukraine situation.

But I think as James referenced it's worth noting the EU embargo for example isn't.

I think going into effect yet.

And.

The larger change so I'm just wondering if you could.

<unk> guide us through your thinking for the rest of the year I mean, obviously in a very strong booking levels for the third quarter.

These thoughts so far.

You know how the market could develop especially is that that EU embargo comes into place towards the end of the year.

Yeah.

I think that the moment.

That you embargo.

Becomes reality.

Tonne milestone goes out the window because of the distance is simply going to supercharge. The base case scenario in terms of how far.

Product in particular has to move to satisfy that demand.

And you've got demand expecting to increase I don't know two to 4 million barrels per day throughout the end of the year that product needs to be sourced program with field.

When you look at the U S. Gulf just this week.

And this is on the back of all the diesel exports heading down to Latin America as I was mentioning earlier.

There's so much product that needs to be moved.

The first for the for the product is pretty much insatiable.

So suddenly people say oh, there's been a bit of a lull in the U S Gulf monitoring with them from Monday to Thursday today, you've seen the market rally by cross tabs, one by $700000.

The increase you've seen the Ta with wells go to 42 wells for a 335.

Chile runs moved from two eight to $3 8 million, but this happens with such velocity.

Just tells you that this capacity utilization thats in the market is across the board.

No.

If you.

But Russia is going to turn up it's tough as far as supplying Europe that product is going to go to Latin America go to Asia, but then at the same time, you've got all these other product that needs to go back into Europe . So back to my point in ton miles is going to go through the roof. So irrespective.

What the market says about the dislocations.

Russia today.

It's immaterial in terms of the pump market right now because every market out there irrespective of Russia is requesting it needs the oil and it's being supply further appeal. So its a very bullish scenario that I would point pink if you suddenly come up we'll say, Russia has to shut off as taps for Europe .

Okay. Thank you very much gentlemen, appreciate it turn it back.

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

Thank you operator, we don't have any closing remarks, just would like to thank everybody for their time today and look forward to speaking to you soon.

Concludes here thank you.

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

Q2 2022 Scorpio Tankers Inc Earnings Call

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